SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOCREVIEW OF FEDERAL FARM POLICY
WEDNESDAY, JULY 26, 2000
House of Representatives,
Committee on Agriculture,
The committee met, pursuant to notice, at 10:00 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives Boehner, Smith, Everett, Lucas of Oklahoma, Thune, Cooksey, Gutknecht, Simpson, Hayes, Fletcher, Stenholm, Peterson, Clayton, Minge, Pomeroy, Berry, Etheridge, Boswell, Phelps, Lucas of Kentucky, Thompson of California, and Baca.
Staff present: Alan Mackey, R. Bryan Daniel, Brent Gattis, Christy Cromley, Wanda Worsham, clerk; Callista Bisek, Andy Johnson, and Andy Baker.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
The CHAIRMAN. The hearing of the House Agriculture Committee to review Federal farm policy will come to order.
Good morning and welcome to this hearing on the future of our Federal farm policy. As you know, our committee has spent a great deal of time on this subject, and I suspect in the coming months we will spend a good deal more. This spring we convened 10 separate field hearings across the country where we heard from 181 producers of all different types of commodities. Today's hearing marks five hearings that we have held here in Washington with many producer groups and farm organizations to discuss the future of farm policy.
Page 2 PREV PAGE TOP OF DOC Our panel of witnesses this morning represents the specialty crop and livestock sectors, and I look forward to hearing their different perspectives on Federal farm policy.
Agricultural producers of all types face unique and severe operating risks. Finding ways to help producers manage those risks is one of the chief goals of this committee. I am very pleased with the bipartisan spirit in which we passed the Agricultural Risk Protection Act of 2000, legislation that presents many new opportunities for livestock and specialty crop producers to manage these risks.
That, however, does not mark the end of our work. We now have the opportunity to focus on the economic side of the safety net. This will ultimately lead us to a farm policy that provides comprehensive risk protection for our Nation's producers as they bring quality food and fiber to people worldwide.
I believe the testimony that we will hear today will be helpful in reaching that goal. This panel of witnesses represents several sectors of agriculture with a somewhat different perspective. Farm policy follows a different course for many of these groups as compared to other witnesses that we have heard from. Although all agricultural producers contend with the weather, the groups represented here today face different economic conditions than other producers. I hope that today's panel will be specific about the unique problems that you face and the potential solutions that we can embrace.
While I have said this at most of the hearings, I think it is important to say again: America's farmers and ranchers face many challenges both today and in the future. During this series of farm policy hearings, I think we have learned that finding a solution to these challenges won't be a simple task. However, I believe that no matter how difficult, the committee has a responsibility to ensure that this Nation has a strong, diverse agricultural sector. Today's hearing is just one step toward that goal.
Page 3 PREV PAGE TOP OF DOC I thank all of you for being here, for the time that you have invested. I hope that you will be very candid and specific with us as we seek to lay the groundwork for the future.
I would recognize Mr. Stenholm.
Mr. STENHOLM. No statement, Mr. Chairman.
The CHAIRMAN. Mr. Stenholm has no statement.
Any Member who does have a prepared statement may include it at this point in the record.
[The prepared statements of Mr. Bishop and Ms. Stabenow follow:]
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.
Mr. Chairman since we passed the last farm bill in 1996, we realized that simply moving toward a farm policy that is market driven is not enough. In today's global economy we must also address issues that occur outside of our borders, but still a major impact on our domestic industries. It is imperative that we work to eliminate unfair practices such as foreign export subsidies that other countries use to artificially effect the market. For example, the European Union alone outspent the United States by 20 to 1 in export subsidies and market promotion expenditures. Additionally, it is important that we protect the consumers. As you know, we impose regulations that promote the health and safety of the consumers, but many countries do not. This is a potential danger to the health and safety of American consumers. It is important that we enact country of origin labeling legislation so that the consumers can decide for themselves if they trust the products they consume.
Page 4 PREV PAGE TOP OF DOC Furthermore, it is important that we not only work with our trading partners to eliminate unfair trade practices, but to increase research domestically on new technologies. For example, the planned phased out of methyl bromide without a quality replacement could cost U.S. producers $450 million. New technologies will lead to increased productivity, efficiency, and safety. Finally, it is essential that in the next farm bill we include a program that addresses the need for a program of risk management and disaster relief American farmers have invested in equipment that is critical to produce the high quality products that we demand, it is important we help them do so without them worrying about losing everything because of natural disasters.
Mr. Chairman, I again would like to thank the 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.
PREPARED STATEMENT OF HON. DEBBIE STABENOW, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Chairman Combest and Congressman Stenholm, thank you for convening today's hearing to continue the committee's review of Federal farm policy. The work of our chairman and ranking member and their genuine commitment to improving the agricultural economy should be commended. I believe this committee has learned a great deal over the course of the year from these hearings and I am eager to enact legislation that will make a difference.
I continue to hear from farmers in my district that low commodity prices and a lack of a safety net are their strongest concerns. Farmers also have contacted me about bio-engineered products, which offer such economic promise, and are concerned about how their products will be accepted on both the domestic and the international markets. I also know that farmers continue to be concerned about the implementation of the Food Quality Protection Act. As we enter into the harvest season, I hope this committee can address the concerns that we have been hearing from farmers across the Nation.
Page 5 PREV PAGE TOP OF DOC I would like to welcome today's witnesses: Mr. Thomas E. Stenzel, president and chief executive officer, United Fresh Fruit and Vegetable Association, Mr. Jack Roney, director of economics and policy analysis, American Sugar Alliance, Dr. Blake Brown, associate professor, Department of Agricultural and Resource Economics, North Carolina State University, Mr. Jim Pellett, vice chairman, Agriculture Policy Committee, National Cattlemen's Beef Association, Ms. Cindy Siddoway, president, American Sheep Industry Association, and Mr. Troy H. Fore, Jr., executive director, the American Beekeeping Federation. I look forward to their expert testimony.
The CHAIRMAN. I would call our panel of witnesses to the table today. Mr. Thomas Stenzel is president and chief executive officer for the United Fresh Fruit and Vegetable Association. Mr. Jack Roney is director of economics and policy analysis for the American Sugar Alliance. Dr. Blake Brown is associate professor of the Department of Agricultural and Resource Economics of North Carolina State University. Mr. Jim Pellett is vice chairman of the Agriculture Policy Committee for the National Cattlemen's Beef Association. Ms. Cindy Siddoway is president of the American Sheep Industry Association. Mr. Troy Fore, Jr., is executive director for the American Beekeeping Federation.
We will again welcome all of you. We will take the testimony in the order of the introductions. Mr. Stenzel, please begin.
STATEMENT OF THOMAS E. STENZEL, PRESIDENT AND CHIEF EXECUTIVE OFFICER, UNITED FRESH FRUIT AND VEGETABLE ASSOCIATION
Mr. STENZEL. Good morning, Mr. Chairman and members of the committee. My name is Tom Stenzel. I am president and CEO of United Fresh Fruit and Vegetable Association, and I appreciate the opportunity to be with you this morning.
Page 6 PREV PAGE TOP OF DOC As the national trade organization representing the produce industry, our members include growers, shippers, and marketers in almost every State in the Nation, as well as most of the State and regional commodity associations who represent produce growers in your districts.
Over the years, the produce industry has gone through tremendous changes in an effort to remain profitable, satisfy consumer demand, adapt to new technology, and compete in an increasingly global marketplace. While the perishable nature of our products presents unique challenges in highly volatile markets, the industry has not relied on traditional farm programs to sustain our business. We are proud of our commitment to free markets, and we don't want that to change.
But as the Congress begins to consider farm policy in this new century, we ask respectfully that one important thing does change. Today the fruit and vegetable industry represents almost one-quarter of the Nation's total crop value and a much higher percentage of our positive balance of trade and exports. We believe our sector of agriculture must receive significantly greater attention in future farm policy and that the next farm bill must have a fruit and vegetable title addressing the numerous issues we face.
Let me briefly review some of the issues here and ask the committee to consider a more in-depth look at these many issues in the future. I will speak to three areas: the role of fruits and vegetables within U.S. agriculture, the importance of fruits and vegetables to the general U.S. farm economy, and the critical intersection of fruit and vegetable agriculture policy with the health of Americans.
First, fruits and vegetables must receive fair and equitable treatment in U.S. farm policy. A critical demand must be to continue the FAIR Act's prohibition of planting fruits and vegetables on contract acres still being subsidized by taxpayers. You know the issue. It is very simple, and it is about fairness. It would be just wrong to subsidize some farmers to compete against fruit and vegetable growers who have never take advantage of Federal subsidies.
Page 7 PREV PAGE TOP OF DOC Our sector of the industry is also known as a minor crop sector because of our comparatively lower acreage. But it is about time that label didn't refer to Government support for pest exclusion and eradication. Do we really want to see the Florida citrus industry go away because of canker or the California grape industry disappear because of the glassy winged sharpshooter? Of course not. But it is critical to invest the resources to prevent these plant pests from taking hold and overtaking our crops.
Also, as minor crops, we face much greater threat from EPA's unscientific implementation of the Food Quality Protection Act. The loss of one important crop protection tool to bad science and faulty assumptions can mean devastating loss to our farmers. Sound agriculture policy requires sound crop protection strategies for our crops.
Fruit and vegetable producers are also under increasing pressure from FDA forays into farming practices for food safety. Yet agriculture research has not kept up with the demands being placed on our farmers for microbiological testing and controls that are both useful and cost-effective. Our industry needs a much stronger role in future agriculture research.
Labor issues affect us disproportionately as the most labor-intensive sector of agriculture. Today Silicon Valley companies just a stone's throw from our Nation's most productive farms continue to get congressional approval for high-dollar immigrants to write software, while we can't find a way to support a guest worker program for $10-an-hour immigrants to pick lettuce. In my mind, it is simple discrimination.
In a broader sense, our sector also is critical to the overall U.S. farm economy and is increasingly the bellwether of success or failure. I have already mentioned the important role we play in the high positive trade balance with high-value fruit and vegetable exports. We commend the Congress and the administration for your support in opening new markets for certain commodities, but for every high-profile success story like citrus permitted into China, there are literally hundreds of cases of U.S. commodities shut out by protectionist measures in countries around the world. We simply must have a much more aggressive and proactive effort to strike down these barriers, or I fear our own farmers will seize the mantle of protectionism for themselves.
Page 8 PREV PAGE TOP OF DOC Let me conclude with this: Fruits and vegetables are more than simply an agricultural crop. Our products are key to health for millions of Americans. Today between 300,000 and 600,000 Americans die each year due to unhealthy eating and physical inactivity. Probably the greatest chance to exert some budgetary control of soaring health care costs is to invest in prevention of disease through healthy eating. The new dietary guidelines for the first time include an individual guideline urging all of us to eat 5 to 10 servings of fruits and vegetables a day. Now, let's not stop with that pamphlet on the shelf. Let's make sure that those guidelines are put into effect in every single program under the committee's jurisdiction.
I know this isn't solely an Agriculture Committee issue, but I urge you to take careful consideration of the unique opportunity presented by fruits and vegetables to transform our Nation's health.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Stenzel appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you.
STATEMENT OF JACK RONEY, DIRECTOR OF ECONOMICS AND POLICY ANALYSIS, AMERICAN SUGAR ALLIANCE
Mr. RONEY. Thank you, Mr. Chairman. I am Jack Roney, director of economics for the American Sugar Alliance, the national coalition of growers, processors, and refiners of sugar beets, sugarcane, and corn for sweetener.
The American sugar farmers are among the most efficient in the world. Fully two-thirds of the world's sugar is produced at a higher cost per pound than in the United States. Because of our competitiveness, we support the goal of genuine global free trade in sugar. We have been on record since 1986 as supporting global free trade for sugar. American sugar farmers cannot compete with foreign governments, but we are perfectly willing to compete with foreign farmers in a truly free-trade environment.
Page 9 PREV PAGE TOP OF DOC We are concerned, however, that developments over the past couple of years may signal a dramatic reversal of direction for U.S. and world agricultural policies. The North American Free Trade Agreement of 1994, the multilateral Uruguay Round Agreement on Agriculture of 1995, and the more profound reforms of the 1996 farm bill in the United States seemed to presage a sea change: governments removing themselves from the agricultural marketplace.
Developments since that time overwhelmingly suggest the opposite is occurring. Governments already heavily involved in their agricultural markets remain entrenched, and many governments that had begun to remove themselves have reversed direction.
U.S. and world commodity prices plunged to historic lows in real terms the past 2 years. Governments have rushed back into the marketplace to protect farm income or prices or both, buttress their rural economies, and ensure domestic food supply stability. Compliance with the NAFTA and with the Uruguay Round has been spotty, at best, and efforts to initiate another multilateral round of trade reforms through the WTO collapsed. Bilateral or regional trade agreements have tended to exclude key agricultural products.
In the United States, the 1996 Freedom to Farm bill eliminated production constraints and traditional price supports, and sought to phase out U.S. commodity program spending over the next 7 years, from then current levels around $6 billion per year. Subsequently, production growth has far exceeded domestic and export demand for most major commodities, prices have collapsed, and the U.S. Government has rushed back in, appropriately, to prevent rural economies from collapsing. Government program spending, rather than phasing out, has exploded and will exceed $32 billion in fiscal year 2000.
So indicators in 1996 that that would be the last U.S. farm bill are showing signs of reversing direction. The 2003 farm bill could mark a return to more traditional agricultural policies.
The European Union, an agricultural powerhouse built on generous subsidies and a commitment to food security and preservation of the rural way of life, is showing little interest in further internal reform or in fostering another multilateral trade round. Its regional so-called free trade agreements, such as with Mexico, exclude sugar and most other sensitive agricultural commodities.
Page 10 PREV PAGE TOP OF DOC Many self-proclaimed free trade countries are having second thoughts in the face of low commodity prices and economic pain in rural areas. Examples among key sugar-producing countries that are coming to the aid of producers facing low prices and debt crises include, Mexico, Thailand, and even the supposed free trade paragon of Australia.
Turning specifically to the U.S. sugar situation, the low U.S. commodity prices caused a spillover of acreage from grains, oilseeds, and cotton to sugar beets and sugarcane that has increased sugar production, contributed to 20-year lows in U.S. sugar prices, and prompted the Government to make unprecedented purchases of sugar to reduce supplies. Though the cost of the purchases is minute relative to the overall agricultural spending, U.S. sugar policy is likely to register a net cost to the Government for the first time in nearly two decades.
U.S. sugar policy's problems are complex and far from isolated. Developments with other U.S. commodity prices, U.S. environmental policy decisions, import quota disputes, and the international and regional trade agreements are all variables that profoundly affect even the near-term outlook for American sugar farmers. Circumvention of our import quota by a product concocted in Canada called ''stuffed molasses'' must be addressed. The threat of massive quantities of subsidized sugar from Mexico flooding our market must be addressed. And the problem of oversupply of sugar and corn sweeteners must be address in both the United States and Mexico.
The domestic and trade policy challenges to the U.S. sugar industry are daunting but manageable. American sugar farmers are efficient by world standards. The industry is modern, dynamic, and highly competitive. American sugar farmers deserve to stay in business, and we will.
Efficient though we are, American sugar farmers cannot stay in business in the absence of at least a minimal U.S. sugar policy that prevents their displacement by subsidized foreign sugar. A U.S. sugar policy that adapts to changing international developments can and will be adopted. The continuing high level of foreign subsidies mandates that some form of U.S. sugar policy be maintained until multilateral trade negotiations yield the free trade paradigm which is the ultimate goal of efficient American sugar farmers.
Page 11 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
[The prepared statement of Mr. Roney appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you.
STATEMENT OF BLAKE BROWN, ASSOCIATE PROFESSOR, DEPARTMENT OF AGRICULTURAL AND RESOURCE ECONOMICS, NORTH CAROLINA STATE UNIVERSITY,
Mr. BROWN. Good morning. I appreciate the opportunity to address this distinguished committee. While the Tobacco Program is not part of the farm bill, I hope this information will be useful as you contemplate the future of U.S. agricultural policy.
Tobacco is the Nation's sixth largest crop in terms of cash receipts and is produced in 20 States. Tobacco is an integral crop in parts of the South. About 90 percent of the Nation's tobacco is grown in seven States in the Southern region, led by North Carolina and Kentucky, followed by South Carolina, Tennessee, Virginia, Georgia, and Florida. Within the seven major tobacco-producing States in the Southern region, tobacco ranked first in terms of total crop cash receipts and second in terms of overall agricultural cash receipts during the 199296 period. The relative importance of tobacco in the Southern region is even more pronounced when net returns from tobacco are examined as a share of net farm income. Furthermore, tobacco has trailed only cotton as the Southern region's most important export commodity.
According to the 1997 census of agriculture, tobacco is grown on almost 90,000 farms, with an average tobacco acreage of 9.3 acres per farm. While consolidation of tobacco production is occurring, production in many parts of the South, particularly in the burley tobacco areas, remains concentrated on relatively small family farms. Average tobacco acreage per farm varies tremendously by tobacco type. Today, most Flue-cured tobacco farms average 35 to 40 acres of tobacco, compared to burley tobacco farmers which generally produce less than 10 acres of tobacco per farm.
Page 12 PREV PAGE TOP OF DOC Given the uncertainty facing the tobacco industry, most tobacco farmers are attempting to diversify their income base. However, few alternative agricultural enterprises can consistently rival the net return per acre of tobacco. In many cases, net returns from tobacco are utilized to finance diversification into other agricultural enterprises. Despite these diversification strategies, a large percentage of farms growing tobacco are still heavily dependent on returns from tobacco. Census data reveal that 73 percent of tobacco farmers derive at least 50 percent of their total farm sales from tobacco.
Under the U.S. Tobacco Program, tobacco farmers agreed to restrict supply via quotas in exchange for minimum price guarantees. Since U.S. tobacco has historically garnered significant market power in the global market for tobacco, the supply restrictions have been effective in substantially raising the price of U.S. tobacco above the price of other tobaccos on the world market. Price supports act not only as a safety net but, more importantly, as price targets that determine the levels at which national quotas must be set in order to achieve these prices. The price support system is financed solely by growers and tobacco buyers through a system of collection of no-net-cost assessments.
The effectiveness of the supply restrictions in raising U.S. tobacco prices depends critically on U.S. and foreign tobacco buyers being willing and able to continue to pay more for U.S. tobacco than they pay for competing tobacco such as those produced in Brazil, Argentina, Malawi, and Zimbabwe. Health concerns, the tobacco settlement, increased State and Federal cigarette excise taxes, and continued litigation against U.S. cigarette manufacturers have resulted in declines in U.S. cigarette consumption and consequent declines in the quantity of tobacco used by U.S. cigarette manufacturers. Declining U.S. cigarette exports have also contributed to the decline in domestic use of U.S. tobacco.
Equally significant is the intense competition from foreign tobacco producers, particularly Brazil. Brazil, which produced hardly any tobacco in the 1970's, now produces and exports more Flue-cured tobacco than the United States. Increasing competition has led to increased imports of foreign tobacco to the United States and declining exports of U.S. tobacco.
Page 13 PREV PAGE TOP OF DOC As a result of the decline in domestic demand and increasing global competition, the national Flue-cured tobacco quota has declined from an average of at 875 million pounds in the mid1990's to 543 million pounds in the year 2000. The national burley tobacco quota has declined from an average of about 600 million pounds during the mid1990's to 247 million pounds this year. Cash receipts from U.S. tobacco sales averaged about $2.7 billion for the period 1994 to 1997, but will likely be around $1.5 billion for the year 2000.
Solutions to this dilemma are not easy to find. Future use levels of U.S. tobacco by U.S. cigarette manufacturers are uncertain and depend greatly on the outcome of pending litigation as well as foreign tobacco production and prices. The decline in U.S. tobacco exports may be slowed or stopped temporarily by declines in Zimbabwean tobacco production or weather-related tobacco declines in other parts of the world. China's removal of their ban on imports of U.S. tobacco may also help curb or even temporarily reverse the decline in U.S. tobacco exports. Restoration of export promotion funds to tobacco, as are available for many other farm commodities, could help U.S. tobacco compete more favorably against foreign tobaccoes. Phase II funds from cigarette manufacturers and the funds made available by Congress in 1999 and again this year are helping tobacco farmers maintain their operations in the face of very low national quotas. Other remedies have long been discussed.
Elimination of the Tobacco Program would result in substantial structural change in tobacco farming. Tobacco prices would fall toward the world price. The end result would be fewer but larger tobacco farmers producing more tobacco at lower and more volatile prices.
The problem of declining market power and demand for U.S. tobacco is not likely to disappear despite the possibility of temporary reprieves. As such, policymakers and farm leaders working to maintain and improve the incomes in tobacco-dependent communities will continue to face significant challenges.
Page 14 PREV PAGE TOP OF DOC Thank you.
[The prepared statement of Mr. Brown appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much.
STATEMENT OF JIM PELLETT, VICE CHAIRMAN, AGRICULTURE POLICY COMMITTEE, NATIONAL CATTLEMEN'S BEEF ASSOCIATION
Mr. PELLETT. Mr. Chairman, I thank you for the opportunity to present this testimony to you and the members of the House Committee on Agriculture. I am Jim Pellett. I am president-elect of the Iowa Cattlemen's Association and currently serve as vice chairman of the Agriculture Policy Committee for the National Cattlemen's Beef Association.
Mr. Chairman, neither this committee nor NCBA takes the prospect of a new farm bill very lightly. We respectfully submit our testimony and our comments and are willing to look forward to working with you and this committee during the discussion, formulation, and debate on the farm policy.
The National Cattlemen's Beef Association and its predecessor organizations have long believed that market forces should determine the value and the price of beef cattle. Federal farm programs that subsidize agriculture often send confusing signals that can negatively impact the price and demand of all the commodities.
Congress fundamentally changed our Nation's agriculture system when it passed the Freedom to Farm. It thereby affirmed that producers should decide what to grow or plant. We believe that the role of the Government should be to ensure that private enterprise determines a producer's sustainability and survival.
Page 15 PREV PAGE TOP OF DOC Nonetheless, many believe that Freedom to Farm is a failure, and they cite the infusion of Government dollars into the agriculture sector over the past several years as evidence of this failure. The meltdown of the Asian economies, though, and the droughts that impacted cattle country have caused economic concerns that were not related to Freedom to Farm. The beef industry has recovered from much of this economic distress, while the rest of agriculture continues to experience some problems.
NCBA believes that the beef industry's recovery is due to the functioning of a market at work. Instead of believing that Government actions should drive the decisions that we beef producers make, we prefer to rely on the market signals of supply and demand to make the decisions that are in the best interest of our own businesses.
NCBA is also aware of past situations where assistance for one commodity sector has adversely impacted another. We understand that these adverse impacts were unintentional, but it does highlight the reasons why our members require us, the NCBA, to remain actively engaged in farm program debate and development. When the proposals are considered, we will examine them closely and oppose any programs that will conflict with the economic viability of beef cattle producers.
Some of the suggestions that have already been raised for the new farm policy have raised red flags with our membership. We are certainly concerned because some of the programs may achieve their result by negatively affecting the fundamental economics of the beef industry or that they might cause reversion to Government controls that have never proven successful.
The NCBA supports assistance also to assist producers when Mother Nature deals a blow to our industry. A defined program would provide disaster relief to producers when they need it, and it would also create the proper incentives for land stewardship and animal well-being.
Page 16 PREV PAGE TOP OF DOC The next farm bill could likely contain the most comprehensive conservation initiatives that have been proposed to date. NCBA will be a strong voice in this debate because our farmers and ranchers are truly a partner in conservation.
The goal of the conservation and environmental programs and specifically the EQIP Program, is to achieve the greatest environmental benefit with the resources available. Everyone benefits from the improvement of environmental quality that is brought about by the implementation of best management practices by our farmers and ranchers. Accordingly, we believe that all producers should be afforded equal access to cost-share dollars under programs such as EQIP so that these practices can and will be carried out.
Congress, the administration, and the taxpayer must understand that these programs will come at a cost. However, they must also realize that the benefits do not accrue solely to the farmer and rancher, but to all involved.
Additionally, many producers from the Everglades to the Pacific Northeast, and even in Iowa, would like to enroll in many of the conservation programs that are put out by the USDA to reach the environmental goals. However, some of these programs do limit producer interest. NCBA believes that economic activity and conservation can go hand in hand. NCBA will be supporting provisions in the next farm bill that will allow managed grazing on land enrolled in the continuous sign-up CRP and CREP. This will have tangible benefits to environmental quality in such areas as wildlife habitat, water quality, and the control of invasive plant species. Flexibility should be built into these programs so that the producers are not prohibited from realizing the maximum economic benefit from the lands not enrolled.
Again, thank you for the opportunity to appear before this committee and present my views on behalf of the National Cattlemen's Beef Association.
[The prepared statement of Mr. Pellett appears at the conclusion of the hearing.]
Page 17 PREV PAGE TOP OF DOC The CHAIRMAN. Thank you very much.
STATEMENT OF CINDY SIDDOWAY, PRESIDENT, AMERICAN SHEEP INDUSTRY ASSOCIATION
Ms. SIDDOWAY. Yes, thank you, Mr. Chairman and members of the committee. It is a great honor to be here today representing the 67,000 sheep producers across the United States, and I really appreciate this opportunity to comment on the Nation's agricultural policy with the agricultural leadership of the U.S. House of Representatives.
From your discussions with sheep producers across the country during the committee field hearings, you are already probably aware of the dire situation facing the sheep industry in America. Today I will provide the committee with some suggestions and some ideas on how to alleviate this situation. But, first of all, I would like to briefly comment on the Vermont sheep situation that I am sure you have all been reading about in the newspaper. We would like to let you know that ASI is fully supportive of the Secretary and the depopulation of those suspect sheep.
Now on to the markets. On the wool side, worldwide the wool market is severely depressed. The majority of wool prices available, they don't even begin to cover the cost of shearing the sheep let alone the transportation cost and the testing cost involved. In fact, there are thousands of producers who have 1 to 3 years' worth of wool clip in storage due to these depressed prices.
Wool has historically represented anywhere from 5 to 20 percent of a sheep operation's revenue depending, of course, on the quality and the volume. But when wool becomes an expense rather than income, it certainly affects the bottom line. Loss of just 5 percent of income often means the difference between a profit or a loss.
Page 18 PREV PAGE TOP OF DOC The wool market depression is readily apparent in all wool-producing countries, and two key factors are the increased competition from chemical fibers in the textile production and also an excess production in countries such as Australia who still has an enormous stockpile. These things American growers have no control over.
But there are some opportunities. The American Sheep Industry Association and the American Wool Council just met to put together a draft budget for fiscal year 2001, and hopefully we are going to fund wool product development, wool marketing and production improvements and quality improvement programs for the implementation this fall. We view this as critical to assist the wool growing industry to increase the value of our production and hopefully to increase our market opportunities both domestically and, even more importantly, internationally. We have asked the Secretary of Agriculture for his support on the USDA portion of this program.
While we are proceeding with critical efforts to help ourselves, we strongly support the inclusion of the sheep industry in the general agricultural safety net that will be debated and ultimately implemented in the next farm legislation. We also believe that workable opportunities exist particularly on wool production in the form of a marketing loan tied to world wool price to add a measure of stability and income during world market depressions. Our agricultural lenders will be easier to work with if there is a modest safety net for these crisis periods.
Another opportunity also exists with the pilot projects included in the Agricultural Risk Management Act of 2000 that extends insurance provisions to livestock and livestock forage production. I urge the committee's support that these pilot projects are soon begun by the USDA and that sheep operations be included.
I would like to thank the committee for your opposition to the amendment to the fiscal year 2001 agricultural appropriations bill that would have singled out the wool producers in striking a very much needed economic loss assistance payment for wool. Additionally, the committee's efforts were paramount in maintaining the USDA Wildlife Services program. We applaud your support of farmers, ranchers, and property owners with this important program.
Page 19 PREV PAGE TOP OF DOC Now, turning to the lamb side of our business, we again thank the committee for its strong support of firm and fair implementation of United States trade laws and support of ASI's successful section 201 case for temporary trade relief. As we adjust through the 3 years of relief, we will increase the U.S. sheep producers' competitiveness, Mr. Chairman, and we will win the mid-term review of the U.S. International Trade Commission. We believe the administration will successfully defend the President's decision under the 201 case during the WTO challenge led by Australia and New Zealand this fall.
Mr. Chairman and members of the committee, we ask for your continued and active support of USDA with the national initiatives of ASI to be implemented over the next 2 years. One of those initiatives is the American lamb promotion, research, and marketing program funded by the lamb industry which is to be published for public comment in the near future. The U.S. international Trade Commission and the U.S. Trade Representative marked a national promotion program as the number one benchmark to measure industry competitiveness during this relief period.
We are committed to investing in our industry, and we are utilizing and investigating every tool that we can find, including cooperatives, processing ventures, quality improvement programs, and marketing and promotion support. We are committed to change. However, our efforts depend on sufficient revenue from lamb and wool sales to make these investments.
Again, Mr. Chairman, I would like to thank you and the committee for the field hearings that you held around the country. It provided an opportunity for producers not only to tell you of the severe economic conditions that exist in agriculture but, more importantly, what they believe should be done as you begin to shape agriculture policy for the next century.
Thank you very much.
[The prepared statement of Ms. Siddoway appears at the conclusion of the hearing.]
Page 20 PREV PAGE TOP OF DOC The CHAIRMAN. Thank you.
Mr. Fore, rather than rushing through your testimony, I believe the committee will stand in brief recess while we attend to these two votes and reconvene shortly
The CHAIRMAN. The committee will resume sitting, and thank you for your patience. Mr. Fore, whenever you are ready.
STATEMENT OF TROY H. FORE, JR., EXECUTIVE DIRECTOR, THE AMERICAN BEEKEEPING FEDERATION, INC.
Mr. FORE. Thank you, Mr. Chairman and members of the committee. My name is Troy Fore. I am executive director of the American Beekeeping Federation, which is the largest and the oldest U.S. beekeeping organization.
These farm policy hearings come at an opportune time, and we appreciate the opportunity to testify. Beekeepers are suffering from low prices and high costs, and many are in danger of going under. Just last month, the largest beekeeper on the east coast decided to call it quits and began selling off his 40,000-colony operation. Many more beekeepers will follow him unless help is forthcoming soon. This could be a tragedy for our farm and national economy since so many of our Nation's crops are dependent on beekeepers' pollination services. And, of course, it would be a personal tragedy for those family beekeeping operations which have survived two or three generations.
Today honey prices in real dollars are as low as they have been in maybe 25 years. Our costs, however, are steadily climbing, especially in recent years as we have had to combat a stream of exotic pests which require expensive treatments.
Honey prices are substantially under the cost of production for many beekeepers. A study just concluded by a Michigan State University professor indicates that the cost of production is $1.15 per pound, assuming a yield of 93 pounds per colony, which is about average. Most sales today, though, are in the 50- to 60-cents-per-pound range, about half the break-even price. Many beekeepers are living off their dwindling equity.
Page 21 PREV PAGE TOP OF DOC We attribute the low prices to a surge of cheap imports. Where imports have traditionally supplied about one-third of our honey needs, they now threaten to exceed domestic production. For the first 6 months of this year, the imports have supplied 52 percent of our honey use.
We are open to any workable solutions, but one solution to this distressed situation would be a marketing loan program for honey producers. This option has general support in the industry from producers and processors alike. With the loan rate set at, say, 70 percent of break-even cost and a repayment rate at market, our Nation's beekeepers could compete successfully with imported honey.
I find it fitting this morning that honey is last on the panel because generally we are either identified with an asterisk or in the ''other'' column in any kind of agricultural tables. However, the importance of a successful beekeeping industry transcends those directly dependent on beekeeping. A large segment of U.S. agriculture depends on the pollination services which are available as a result of a healthy beekeeping industry.
Cornell University has determined that honey bee pollination contributes $14.6 billion in value to the U.S. crops. Untold value more is provided to backyard gardens, ornamental plantings, and environmental flora.
This committee's coverage of honey production by crop insurance will be a help to beekeepers crippled by drought and other natural disasters, and we thank you for including us in the crop insurance reform bill. The recourse loans you provided in the same bill will also help beekeepers market their crops orderly, but more substantial assistance is necessary to save America's beekeeping industry. We believe our recommendations are in the interest of all U.S. agriculture, and we thank you for the opportunity to present our views.
[The prepared statement of Mr. Fore appears at the conclusion of the hearing.]
Page 22 PREV PAGE TOP OF DOC The CHAIRMAN. Mr. Fore, some places you go, you may have an asterisk by your name, and I don't know what the annual consumption is per capita. But I guarantee you, I do more than my share.
Mr. FORE. We need more people like you, Mr. Chairman. Pass the word on.
The CHAIRMAN. OK.
Mr. FORE. And, Mr. Chairman, I have three charts I didn't get in in time to go with my testimony, if I could add it to my testimony.
The CHAIRMAN. Absolutely. All testimony in its entirety and additional information will be made a part of the record.
Mr. FORE. Thank you.
The CHAIRMAN. Let me say, so that there is not any misunderstanding that might have arisen from my opening statement in regard to the industries that you represent, every one of the industries that you are a part of did have people in our field hearings. I know many of you were involved in that, but I want to make sure the records show that, again, every one of your industries did have people that spoke to those issues in our field hearings, which further shows us, I think, that they were all-inclusive.
A couple of things that I want to just mention, and then questions I have got that I would like to ask. Mr. Stenzel, you talked about the guest worker program. That was discussed quite at length in California at our Sacramento hearing when we had individuals there testifying that were in the vegetable business and how critical that was, the fact that if they did not have a program, they would be out of business period, just that simple, because of the timeliness of harvest and the fact that certain commodities, cropsI believe one gentleman who was testifying, a grower of asparagus, was talking about how that crop is harvested, and it is just a daily function for several weeks on end and you have got to have help. So I think we recognize that that is critical, and we have been working with the appropriate committees on a guest worker program.
Page 23 PREV PAGE TOP OF DOC You also mentioned research and the need to continue research, which I agree that probably some of the best money that is spent is on research. But we also have become aware more and moreand I was chairman of the subcommittee in the last Congress that reauthorized the research title for the first time in several years. One of the things that I have felt strongly about and we are seeing some tremendous success in some areas is the public-private partnership in research, in which some industries even do matching dollars that are put in by the private sector, thereby doubling the amount of money for research.
How active is the industry in fruits and vegetables in terms of the industry providing to work cooperatively with USDA public funding for research?
Mr. STENZEL. Mr. Chairman, I think you raise a very important point. Two aspects of research I would mention: first, kind of traditional varietal development that has been done extensively by the Department and some of the land-grant universities. In those areas, I believe the industry is doing a tremendous amount of cooperative funding of those programs, trying to develop new varieties that have consumer attributes, heartier shelf life and things like that.
I think also, however, there are some aspects, particularly in the food safety arena, where really we are not able to keep up with the demand that really I do feel is more of a Government responsibility. There is a tremendous move right now into farming of fresh fruits and vegetables looking at food safety aspects because our products really are consumer products. They are harvested and then go to the consumer as whole fresh products.
There is an awful lot of theory abounding in terms of microbiological issues and should you test the water and just what standards are being required. And we really do need the Government to step in and help us with the research so that we are not dealing so much in the theoretical, what-if's, but really driving it based on sound science.
The CHAIRMAN. Mr. Roney, you mentioned that one of the reasons for the sugar situation today is this increase in acres which people have transferred. Do you have any idea what that number is that have come out of other traditional crops that were farmed for the program under which the Freedom to Farm Act freed those acres up in order to be able to plant other crops that have gone to sugar production, either beet or cane or corn for sweetener purposes?
Page 24 PREV PAGE TOP OF DOC Mr. RONEY. Mr. Chairman, we don't have a hard number on that. We do know that there has been some shift of acreage in the northern Great Plains, for example, in Minnesota and North Dakota, from wheat, corn, and soybeans into sugar beets, and in Louisiana a shift of soybeans, cotton, and rice to sugarcane. And that has coincided with the fruits of the investment by our growers from many years in trying to reduce costs by raising their yields, raising their ability to remove sugar from the cane and from the beets in the processing facilities, and all that came together really at the worst possible time with some wonderful weather, toowe were blessed by great weather throughout our growing regions in the last 2 or 3 years, which all came together to contribute to our production increase.
The CHAIRMAN. So production is up even on existing acres or acres which existed in
Mr. RONEY. Yes, during the decade of the 1990's, our beet producers managed to increase their yields by 20 percent of the amount of sugar per acre and our cane producers by 15 percent on the basis of investment in new technology, new varieties.
The CHAIRMAN. Unfortunately, in my area of the State of Texas, we are no longer growing any beets, which I wish we were able to, but we are not.
Let me just end with this. I didn't want to put this in a question form because this would have taken up a long time, probably. Several of you referred to inclusiveness in the next farm program, either marketing loanMr. Stenzel, you mentioned a fresh fruit and vegetable title. Obviously, the lamb industry has got some interest, as was mentioned; marketing loan was talked about for honey.
Let me just ask of you, as we move forward in this process, we would be very willing to look at all of this. That is why we are doing this. I would just ask of you, as you begin to formulate those proposals, to try to do so in as specific terms as possible, and tell us exactly what it is that you have to in mind, again, as we move forward. And we will be certainly open to looking at those.
Page 25 PREV PAGE TOP OF DOC Mr. Stenholm.
Mr. STENHOLM. Following up on the chairman's statement of specificity, several of you have asked for market loans. One of the things that we have got to look at now is why those commodities who do have market loans are not doing better in maintaining or increasing market share. And there are a lot more questions out there right now than there are answers when you look at bulk commodities. We are seeing an increase in market share from value-added, seeing increased exports of beef, pork, poultry, in which we are having value-added, which in turn is exporting some of our, quote-unquote, surplus grain. But with bulk commodities, it seems, at leastand no one has yet come before this committee and offered any explanation as to why. So as we look at the market loan proposal, I think that is one of the things that you are going to have to do. Why is it going to be good for you?
Ms. Siddoway, I was somewhat disappointed in the leadership of the lamb and wool industry for not being more supportive this year of a market loan instead of asking for the dollars of trying to come up with some way to remove that 1- and 2- and 3-year clip of wool. But now you are asking, and I think rightfully so, and my question to you is, specifically, what do you think we ought to be doing to help get rid of this 1- and 2- and 3-year clip other than lowering the price?
Ms. SIDDOWAY. Well, in answer to your first question, we certainly wanted something that would be long term rather than just 1 year, and that is why we are approaching you at this time. And earlier, when you talkedthe first question that you presented, I would like you to look at the graphs, and I don't know if you have them with you or ifthey should be attached to your testimony, when you talked about the other crops and why their value hasn't increased. When you compare wool, that hasn't had anything, and you see the difference with wool compared to some of the others, you can see it could always be worse.
So maybe it has just kept them from becoming worse off. But we certainly think that a market loan would help us as we are dealing more internationally, and everything is based on the world market when it comes to wool. And with the huge stockpile, as I said, in other countries, if we can start moving this throughand we certainly know that we need to market our wool internationally now as we have lost our buyers here in the United States. Wool is changing, and we need to be ready to change with it. But we certainly need something to help us through the crisis years.
Page 26 PREV PAGE TOP OF DOC Mr. STENHOLM. Mr. Pellett, I was glad to see a change in NCBA policy regarding grazing on CRP and CREP. I think that is certainly an area in which I happen to agree under controlled conditions that it does make sense. And I am glad to see that as part of your testimony in acknowledging that support for grazing of land enrolled in continuous sign-up.
I am curious as to why you are asking for that now. What has happened? What has changed your thinking regarding the NCBA now to support it rather than be opposed as you have been?
Mr. PELLETT. Thank you for your comments on the support of the programs. The reason we are asking for this is because it would maximize the profits that the individuals might make, especially in my area of the country. It would also maximize the environmental benefits that can be attained by enrolling in the CREP and the continuous CRP sign-up. We certainly have problems in trying to maximize the returns when you have a filter strip or a waterway or a field boundary that are enrolled in the continuous program. If we are not allowed to graze that area or those areas, then we lose the availability of existing forages for gleanings after the crops are removed unless we fence, which is prohibitive.
Mr. STENHOLM. That is good, sound logic. Sometimes fencing can be a rather prohibitive cost of some of these areas, and it does lend itself to be anti-conservation. And I think that is a step in the right direction. As Mr. Stenzel, I very much like to see all commodities now asking to be part of the farm bill. There are so many times over the past for various reasons different entities have felt like that they really didn't need Government. That is usually the simple way of it. But I think everyone nowand it was fascinating. The first time I have seen the amount of European subsidization that you have to compete with, $15 billion that fruit and vegetable growers in the United States have to compete with in the international marketplace. That is why the chairman and I and several other members of the committee yesterday met with the Cairnes Group right here at the same table that you are sitting at today, talking about the need of making some changes and the absolute necessity of the Europeans' changing their farm policy as it pertains to exports. What they do domestically is their business. But what they do domestically that gets into the international marketplace affects fruits and vegetables, sugar. You go right down the line. Every industry at the table is affected negatively by the export subsidies of the European Union. And they have to change, and I hope that none of their politicians doubt for a moment the resolve of the United States Congress, both sides of the aisle, that that has to change, or we will be looking for the specificity the chairman was asking as to how we, the Congress, might work with you to stand us better with our producers in all commodities in that area. That is the challenge we have. My time has expired.
Page 27 PREV PAGE TOP OF DOC The CHAIRMAN. Mr. Smith.
Mr. SMITH. Thank you, Mr. Chairman.
Let me ask each one of you that might care to comment on the new biotech, the genetically modified products. We are moving ahead quite rapidly with additional research. I chaired the Basic Research Subcommittee over in the Committee on Science, and in the authorization bill, we are earmarking $129 million for biotech research. It is controversial in terms of some of the scare tactics.
Would each of you comment on how you see it affecting your industry and the future and if you are going towhere you stand on this whole labeling issue?
Mr. STENZEL. Mr. Smith, we are very supportive of biotechnology as a new tool that is going to help us in production agriculture improve the quality, nutritional benefits, and abundance of fresh fruits and vegetables.
I do share a concern, however, at this point that not only is the food industry but Government behind the curve here a bit in dealing with the issue of consumer acceptance. I think our research and our technology is far ahead of our public education efforts, and that is something that is simply going to have to happen.
We sell the products that consumers will pick up in the grocery store, they will taste them, they will touch them. We believe fresh fruits and vegetables will drive acceptance by consumers of new biotech varieties, much more so than ingredients that are in processed foods.
But I tell you that we, as fresh fruit and vegetable growers, are going to have to have a lot more confidence in consumer acceptability before we are going to bet our farms on planting new varieties. We need stronger support from the retail industry. We need stronger support from branded food companies who seem afraid to link biotech ingredients to their products. And we need stronger support from the restaurant chains who are going to help educate consumers instead of leave that entirely back to the farmers to try to do that on our own.
Page 28 PREV PAGE TOP OF DOC Mr. SMITH. Mr. Roney.
Mr. RONEY. Mr. Smith, we applaud your efforts in that area. Sugar beet and cane growers would like to use GMO beet and cane seed, but are reluctant to. They have refrained from doing so, and I know there is GMO beet seed available now that your growers in Michigan and others would like to use. But they are not using it because of their fears. Though we are not an export crop, some of our beet pulp is exported to Japan for animal feed, and because of our concern about Japanese consumers' lack of acceptance, our beet growers are not using the GMO seeds. And it is a shame because it could really improve their yields and reduce their costs at the same time.
Mr. SMITH. Mr. Brown.
Mr. BROWN. Tobacco is quite a bit different from other commodities in this respect. There has been a lot of work done with tobacco in the biotech perspective, most of it to develop pharmaceuticals from tobacco. There is still a lot of hope on the part of farmers that these pharmaceuticals and the gleaning of pharmaceuticals from the tobacco plant would provide some alternative. That is proceeding. It looks like it has a lot of promise. There is work being done at Virginia Tech and work being done at North Carolina State University. There is a lot of private interest in it.
How many acres that would ultimately result in, it would be substantially different from what we have now, but it would certainly be one avenue.
As regards to traditional tobacco for the purpose of smoking as traditionally produced, there is some interest in using biotech techniques to try to reduce the harmful effects of tobacco. I think those will have to proceed with great caution because Europeans are perhaps more concerned about the effects of GMOs than they are the effects of smoking. So it is not an uncontroversial area.
Mr. SMITH. I might say just for everybody's information, in the bill we did give some priority to the development of improving the food product and to developing alternative uses of agricultural crops, which are a few, I think, potential areas.
Page 29 PREV PAGE TOP OF DOC Mr. Pellett.
Mr. PELLETT. Again, we appreciate your efforts in the field of public education, and we feel this is critical to utilizing the GMOs for our purposes.
We have found thatwe fear that the European Union and other countries will use this as a trade barrier much as they have the technical advancements that we have done, such as the hormone issues and so on. We certainly do not want to see this become a trade barrier issue. We hope that public education will prevail and that we will be able to continue the export of the GMO products.
Mr. SMITH. Ms. Siddoway.
Ms. SIDDOWAY. Yes, we are currently developing our policy on that, and I will gladly supply it to the committee, but understanding it is a very controversial issue.
Mr. SMITH. Mr. Fore.
Mr. FORE. Thank you. Unfortunately, with the GMOs, beekeeping hasn't been able to recede into the background and to the other column like we have in many things. I think in England, apparently, it has become sort of a lightning rod, and I would only echo the statements about the public acceptance and research.
Beekeeping, we are not talking about bees that are genetically modified, but our bees go out and make honey and gather nectar from plants that are GMO plants, and this creates a problem. And, apparently, in England the honey issue itself has become a very high level issue. Even Prince Charles had some statement about it.
Of course, the other side is then you have the pollen that the bees collect also that winds up in the honey. And so we have two issues onthere is actually a third because some farmers, perhaps, if they are growing GMO crops or non-GMO crops, they don't want bees there because they may take the pollen and whatever across the border. They don't care about fences and whatever. So it is reallywe are sort of on the side, but it is really a vital issue to us, and we appreciate any educational efforts that your committee promotes.
Page 30 PREV PAGE TOP OF DOC Mr. SMITH. Mr. Chairman, thanks.
The CHAIRMAN. Thank you, Mr. Smith.
Mr. ETHERIDGE. Thank you, Mr. Chairman. Let me thank you for holding this hearing and series of hearings you held because they are so important as we head toward next year. And I also want to thank you for including tobacco in this panel. It is an important commodity certainly in the Southeast and in my state, and it has played a crucial role not only in that development there, but really in the growth of our Nation in a lot of ways that folks sometimes don't realize. In my State, it has built a lot of roads and paid for a lot of educations and built some of the most outstanding world-class universities that we have anywhere in the world and laid the foundation for one of the fastest and most prosperous growing regions in the world when we think about this whole issue of biotechnology and economic growth with technology.
There are some people who would sort of it like for it to just sort of disappear and go away. I don't happen to be one of those. It is too important to my region of the country. Those people forget that tobacco is a legal product and, as Professor Brown's testimony points out, there is somewhere in the neighborhood of about 90,000 farms that produce it and make a living. And in the Freedom to Farm, as we call it, hopefully we will remember that tobacco is also one of those products next time, as we start rewriting, and the tattered farm safety net certainly needs mending, as we have heard throughout our hearings, not only just here this morning. And I look forward to that debate as it moves forward.
When Congress starts the rewriting of that bill, I will have some more comments on that, but let me move very quickly to my question before my time runs out.
Professor Brown, I have a question regarding an increasingly common practices that are now really starting to show up in the Flue-cured tobacco area. It has been a part of burley, also, and for those of you who don't know, contracting is the practice of the companies contracting directly with the farmer historically in production of tobacco and some other commodities. They use the auction system where a farmer would grow independently, have a price support, bring it to the market, it would be graded by Government graders, and then the buyers would auction as they come down the line. And many of the tobacco farmers have raised some concerns about this practice and its ultimate impact on small family farms, and you discussed that a little bit in your testimony.
Page 31 PREV PAGE TOP OF DOC Have you or has anyone at N.C. State University looked into the economic impact of what contracting may do? Or is it an issue that maybe we ought to consider as we go toward next year to be addressed in the next farm bill of having either a negative or a positive impact on what we call small family farm?
Mr. BROWN. Sure, we have thought about that and have done some research in that area. First, you can kind of think about it in three different areas. First of all, how would contracting affect the operation of the Tobacco Program? The Peanut Program has operated for a number of years with a system of marketing contracts and direct sales, so it is clearly possible to have a program and a system of contracts and direct sales as we have in cotton and other commodities. However, there would have to be a number of logistical changes in the way fees and assessments and those kinds of things are collected for the program in order to make that transition.
The second area would be the effect on the structure of farming. There are a lot of factors, labor being the most prominent one, that have caused consolidation of tobacco farms. We have seen tremendous consolidation of Flue-cured tobacco farms, and we are seeing now a consolidation in burley tobacco farms, which have traditionally been much smaller.
Contracting is one more factor that will also lead to additional consolidation. As I mentioned, labor and labor regulation and the cost of labor have been the biggest factor that have led to consolidation, but certainly contracting I think in the long run will tend to favor larger farms which can deliver truckload lots, as we have seen in other agricultural commodities.
The last factor you have to look at in terms of contracting would be: Does it add value to the product or reduce the cost of marketing? I think there is substantial evidence to show that it would reduce the cost of marketing and in that sense add some value to the product. Would it improve the quality of the product? That is obviously the big point of debate between companies and farmers, and there are some questions there. But if it adds value to the product, then you could see some marginal increases in demand there, too.
Page 32 PREV PAGE TOP OF DOC So it clearly has mixed effects, and the net effect is difficult to gauge at this point, I think.
Mr. ETHERIDGE. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Gutknecht.
Mr. GUTKNECHT. Mr. Chairman, just following up on that, in terms of contractingand I know it is largely done in the vegetable business and other businesses, but I think the real issue is transparency. The great thing, as an auctioneer, the great thing about an auction is everything is on the table. People can see what is actually being sold for how much, and in some cases, even to whom. And the problem you have with contracting is it is not always that transparent, and it seems to me we have an obligation to make sure we get that.
Let me just start, though, by saying to those of you who are here today, you would have been very proud to have been in this room yesterday at this time. Both the chairman and the ranking member made it very clear to the group of trade ministers gathered representing the Cairnes Group, I think they made it abundantly clear, and when those folks left the room, it was a bipartisan statement that, unless or until other countries begin to respond and open their markets, we may have to adjust our policies here in the United States. And I strongly believe that, because if we are going to ask our farm producers to depend on markets, and particularly world markets, then we have to defend those markets. And if we don't defend those markets or if we cannot defend those markets, then we have got to readjust our policy.
I think since the mid1930's we have had something like 15 different farm bills, and all of them have worked to some degree or the other. But markets have a way of beating our best judgment. Markets are much smarter than we are in terms of figuring out how to sort of game the system, if you will.
And so I certainly don't discourage you from talking about expanding the marketing loan programs and participating in those, but I really hope that we can begin to look at an even perhaps better alternative, that is, some kind of revenue insurance program.
Page 33 PREV PAGE TOP OF DOC When you look at all the money that we spend today, this year, this Federal Government on various farm programs, it just strikes me that there must be a simpler way that works with markets and that, you know, provides a level of what I would call a shock absorber to the markets, and yet still encourages people to work with markets and not try to game the system.
And I don't know if that is possible or not, but I hope that I speak on behalf of many of the members on both sides of this committee that we need to look for another way. And we welcome your input on that particular area.
I do have one short set of questions, and, surprisingly, I didn't think I would ever be talking all that much about the vegetable growers. But this year and the last year and a half, we have seenso I do have a question for Mr. Stenzel, and I will read it so I make sure I get it right here. But to what extent would your organization consider relief for vegetable growers who inadvertentlyand I underscore inadvertentlyplant on contract acreage? It seems to me that current law imposes unnecessarily harsh punishment for first-time violations, especially for honest mistakes. And we have had several growers in my area who have done this, and all of a sudden, it is almost as if USDA imposes the death penalty.
Is there something you can help us with to come up with language to sort of soften that blow?
Mr. STENZEL. We would certainly be willing to work with you and the Department on that question of an honest mistake. I hope it is not truly characterized as the death penalty in terms of the enforcement. Sometimes the Department, as we all know, can be a bit heavy-handed. But, clearly, in the case of an honest mistake, we would certainly be willing to sit down and work with you on that type of thing.
Mr. GUTKNECHT. The other thing, Mr. Stenzel, we would like some help from you on is related towe have recently had enormous rains, particularly over a particular area of my district where we grow an awful lot of vegetables. And I must confess I did not know how expensive it is to replant an acre of carrots, for example, or an acre of onions. And currently they really get almost no help from the Federal Government, and the truth of the matter is they really have never asked for much help. But now they are in a very difficult circumstance because some of them are replanting for the third time this year. And I think they told me to replant an acre of carrots is like $3,000.
Page 34 PREV PAGE TOP OF DOC I don't know if you can help us, but we need to do something to help provide a little bit of a shock absorber for those folks, because the fear is, with their enormous cost that they have invested so far this year, we are going to lose some awfully good vegetable growers in our area, and that would be a terrible shame.
Mr. STENZEL. You raise an extremely important point in the disaster relief area. The fruit and vegetable commodities have traditionally not been placed very highly in that area. I would thank the committee for increasing your attention to that issue.
Crop insurance is another way. With the reform of crop insurance that was recently passed, that is something that may offer some of that shock absorber type of mentality.
I would say from an industry-wide standpoint that we also believe the small farmers need the tools to cooperate, need the tools to come together in cooperatives, tax policy, tax incentives. There is a tremendous burden being placed on the small family farm today just through business economics, and it may not be Federal policy or even our ability at the Federal level to sustain ever family farm the way they have always done business. They may need to team up in order to be successful. But I think there are tools that are available if we work together on that.
Mr. GUTKNECHT. Well, Mr. Stenzel, just in closing, I really would appreciate any help that you could give us for whatever we could do, assuming that there might be some kind of disaster relief yet this year, if we could help those folks out, because they are salt-of-the-earth people.
Mr. STENZEL. Absolutely.
Mr. GUTKNECHT. Thank you very much.
The CHAIRMAN. Mr. Berry.
Mr. BERRY. Thank you, Mr. Chairman. I appreciate your efforts and the ranking member's efforts to further bring light to the fact that we desperately need new farm policy in this country.
Page 35 PREV PAGE TOP OF DOC My question to the panel would be that I presume that you all share the idea that EPA has a great oversight capacity to improve the lot of each and every one of you.
You won't need to answer that. [Laughter.]
Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Cooksey.
Mr. COOKSEY. Could I ask my colleague from Arkansas to answer his own question, since you are here, since we are neighbors?
Mr. BERRY. I am a little short on confidence that that would be the case.
Mr. COOKSEY. Well, I can assure you that EPA, which was appointed by your side, has created a lot of turmoil with my people in agriculture. And I am amazed at how they throw these terms ''sound science'' around, and you and I both haveyou as a pharmacist and me as a physician should know what sound science is, and this is a bunch of lawyers that wouldn't know sound science if they saw it.
If I am not mistaken
Mr. BERRY. If the gentleman would yield, I couldn't agree with you more. [Laughter.]
Mr. COOKSEY. And I would also point outand I have met and I like the Administrator of the EPA personally. She is a nice person. But her husband works for Ralph Nader, who, I have been toldnow, this is hearsay, and we have a lot of hearsay in Louisianagoes around and creates a lot of litigation. But, anyway, my friend Mr. Berry and I ride back and forth on the airplanes together, so we have a lot of fun.
Is the message that you are giving us today that you did not participate in the 1996 farm bill, but some of you want to participate in a greater degree in the next farm bill than the past one. Is that correct, or is it not correct?
Page 36 PREV PAGE TOP OF DOC Mr. STENZEL. If I may, from the fruit and vegetable industry, the 1990 farm bill had a fruit and vegetable title, but there was not a separate title in subsequent bills. We are not looking for any type of program for fruits and vegetables, but we do feel that they are important elements of research, of the Department's nutrition programs, feeding programs, other areas where fruit and vegetable issues need to be included in the farm bill. Also, in terms of exports, as we have discussed very much this morning, one of the most important ways we can send a strong signal to our trading partners is to take full use of all of our legal remedies, and that is something that we think also needs to be very strongly in the next farm bill.
Mr. COOKSEY. Good. Anyone else, or all of you, really?
Mr. RONEY. Mr. Cooksey, if I may, as your sugarcane growers in Louisiana are well aware, sugar was part of the 1996 farm bill. I guess we are somewhat of an exception in this panel in that regard, and we certainly hope to be part of future farm bills.
Mr. COOKSEY. Good. With the current problem in sugar, I would see how you would be.
Mr. COOKSEY. Any other comments?
Mr. PELLETT. The beef industry has always participated in farm programs, but very seldom do we ask for any specific programs that work with the beef industry itself and with the Government programs. We certainly wish to be involved in the considerations of all of these programs and will continue to be involved.
Ms. SIDDOWAY. Yes, we worked very diligently to be included with the market loan in the 1996 farm bill, but we were excluded and we were very disappointed because of that.
Mr. COOKSEY. Why were you excluded? Or should I ask my senior colleagues? Why were the sheep people excluded from the 1996 farm bill?
Page 37 PREV PAGE TOP OF DOC Mr. STENHOLM. Because we had a very strong vendetta in the Congress against the Wool and Mohair Program but had been successful in eliminating it, and we still had a member offer an amendment just a couple weeks ago to deny the sheep and goat industry the little help that we put in for them to assist them to get through it. But it is a political, philosophical thing led by some folks.
Mr. COOKSEY. I see. OK. That answers my question. I am old in years but not in experience here, and so I have to depend on my gray-haired seniors to tell me things.
A comment from the beekeepers?
Mr. FORE. Yes, sir. Mr. Stenholm could have added honey onto the list of crops that were killed out in that appropriations fight. Honey, I think, was the poster child for the reform in the agriculture bills, and then Congress went home for the Christmas holidays and came back and had a new agenda in January, which I am sure is not the first time that has happened.
But, at any rate, that happened in 1993 and we were phased out on the end of that farm bill and were not included in the new farm bill.
Mr. COOKSEY. Well, if I could make a closing comment and reflect some of the conversation that we had yesterday, we had yesterday the Cairnes Group and they were primarily Australia and several countries from South America. And these were not ministers of agriculture. These were ambassadors. But there was a consensus there that everyone wants to move toward deregulation and less subsidy.
My question that I asked, I said, you knowand I am guilty of voting for every farm bill out there, and I don't consider it guilt, but I have a lot of farmers and I know their concerns and their issues. But at some point I feel like there has got to be some change, and I really like what Congressman Stenholm says, that we have got to make sure they can do what they want to domestically, but internationally have all got to agree on some rules. And I feel that that is our role as Members of Congress, to front for our farmers, a small farmer or a larger farmer who is in this country that is having to deal with a country that is still doing a lot of domestic subsidies and doing some things that distort markets to their advantage and to our farmers' disadvantage.
Page 38 PREV PAGE TOP OF DOC Anyway, we are glad to have you all here today.
The CHAIRMAN. Mr. Pomeroy.
Mr. POMEROY. Thank you, Mr. Chairman.
The questions I would have go to Mr. Roney regarding the Sugar Program, which, as you note in your testimony, is in a state of crisis. I gather from your testimony the domestic Sugar Program has been based upon preservation of real price of sugar relative to the U.S. market. In other words, we with sugar actually consume more than we produce, almost unique among the commodities generated in my neck of the woods. In order to access this rich potential market, we know that countries across the world will heavily subsidize and come in low. The consequences of placing our sugar market subject to the world dump price will end the domestic sugar industry and produce great volatility in the pricing because sugar is a component in so many processed foods. That is not just whether you put a little more sugar on your Cheerios or not. It actually has quite a consequence for the pricing of groceries.
Therefore, policy reflecting keeping food prices stable and affordable have basically preserved the pricing environment to allow a strong domestic industry with controls against dumped sugar coming in.
So far am I right?
Mr. RONEY. Absolutely right, yes.
Mr. POMEROY. Well, the wheels have about fallen off on this program, and your testimony indicates the elimination of the Secretary's ability to coordinate basically the domestic marketing of sugar from the various refiners is part of the problem, so we have got no control no domestic capacity and significantly diminished control on international capacity, especially relative to our two neighbors, the participants in NAFTA. We have got Canada cheating with stuffed molasses and Mexico enjoying what is afforded them under NAFTA, greater and greater access to the market.
Page 39 PREV PAGE TOP OF DOC We didn't anticipate Mexico doing this. They have increased their production one-third, as your testimony indicates, in the last 10 years, going from a new importer to a net exporter, and we don't think they are done yet. It represents a high-value crop which can keep very small farms fairly economically viable, but keeping folks from moving into Mexico City, and so the government there has an obvious strong incentive to do that.
Now, under that scenario, which is bleak, as bleak as can be, what are you proposing we do to try and save the domestic sugar industry relative to near-term and maybe mid-term actions?
Mr. RONEY. Mr. Pomeroy, thank you for that very articulate and accurate and depressing evaluation of our situation. We are terribly constrained in looking at domestic sugar policy by international trade commitments that we are bound to import at least a million and a quarter tons of sugar per year from 40 countries, whether we need it or not. We are bound to import up to a quarter million tons of sugar from Mexico each year, whether we need it or not. And when we have a period, as we have had recently, of production increase, that production increase could have been absorbed by our market without our price collapsing, but we were not able to reduce our imports below these internationally mandated levels. On top of that, we have had leakage around the quota, as you pointed out, with the stuffed molasses from Canada and more sugar coming in from Mexico than we would have anticipated.
When we look at the long term, what we see is oversupply of sugar and corn sweetener in the United States and Mexico, and we look at the prospect under NAFTA that in 2008 we will have a common market with Mexico for sugar and corn sweeteners. And so what we have to look at and what our administration is currently working on with Mexico is some kind of a comprehensive agreement that will help to rationalize both markets over time. How that falls back then into domestic policy is a problem that we will be facing in the 2003 farm bill, but I think that we have got to be extremely aware of the limitations that our international trade commitments put on us as we look to structuring some kind of program in the next farm bill, because as you point out, foreign subsidies continue.
Page 40 PREV PAGE TOP OF DOC And as long as foreign subsidies continue to depress the world dump market for sugar, we have got to have some kind of buffer from that subsidized farm production replacing efficient producers such as yours. In Minnesota and North Dakota, we have the most efficient sugar beet producers in the world. They deserve to stay in business, but they can't compete against foreign subsidies.
Mr. POMEROY. It looks to meand I know my time is up, Mr. Chairman. I will just conclude. It looks to me as though the question before us is as basic as do we want a domestic sugar production capacity in this country, and you cite some economic statistics that show there is very significant economic activity generated by the growing and the milling and the refining of sugar, which would lead you to think you do want something, but we then had better look at, I think, some very bold action, maybe even taking on some of these trade agreements that unilaterally have exposed us in this fashion in order to do it.
Is the industry coming up with a consensus position?
Mr. RONEY. We are, Congressman. Our problemswe have our immediate short-term problem of the surplus of sugar and our depressed prices. We are working with the administration on purchases, on a possible PIC program that we have unanimously asked the Department to take a serious look at. But those are just short-term problems.
As we get over the short-term hump, we are going to be working vigorously within our industry, with the administration, with Congress, to try to work out the best possible solution. But these are terribly difficult problems.
Mr. POMEROY. It seems to me like the PIC approach as opposed to just the purchase approach at least gives you a 2-year answer instead of a one-brief-period answer
Mr. RONEY. Yes, sir. We see it that way, too.
Mr. POMEROY. Thank you, Mr. Chairman.
Page 41 PREV PAGE TOP OF DOC The CHAIRMAN. Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman and panel. I appreciate all the testimony. It is, I think, very helpful to all of us as we try and review and examine where we are and where we need to go and what we might be able to do to improve the outlook for the agriculture economy across a wide range of commodities. We have heard from a lot of different groups.
I don't have a lot of questions today. I would like to just perhaps maybe, with Mr. Pellett, ask a question aboutwe have seen some improvement in livestock markets and cattle of late, and I guess there have been some victories, too, on the legislative front, price reporting last year, also the USDA quality grade announcement last week, among other things. And I guess I would just be curious on your thoughts as to what more we might do, and I notice you mention a lot of things in your testimony, and I am very much in support of allowing for interstate shipment of State-inspected meats. I think that is a very practical solution. But what types of other things might we do to continue or to sustain an up cattle market? We would like to obviously keep this thing going as long as we can, and there have been a lot of suggestions about how to do that. I am just curious. You have mentioned, at least highlighted some things here, if you had to prioritize those or if you think those things that make the most difference in terms of prices and sustainability of at least reasonable fair prices.
Mr. PELLETT. Thank you. There are several issues that fall outside of this committee's jurisdiction on the farm bill itself that are very beneficial and would be very beneficial to the livestock industry. Of course, you have already addressed the TMDL issues and set that off for several years, at least, and we appreciate that very greatly. It is clear that we need to have scientific evaluation of that so that we can proceed forward with some sound science and make our plans accordingly.
Other things that are really pressing us include taxes, the ability to enter the European market without restrictions. We have competition growing all the time, especially if we could get interstate shipment. In Iowa we have put forth plans for a new harvest facility which has definitely increased competition in Iowa, and it has increased our prices that we are receiving. Public acceptance through the food safety issues that were mentioned here a few minutes ago, acceptance of GMOs will certainly help drive the demand factor forward.
Page 42 PREV PAGE TOP OF DOC Property rights are out there, country of origin labeling which has been addressed, and we certainly appreciate that, and to help protect our dealers, our farmers and ranchers and livestock operators, the dealer trust that has been proposed for the dealers that may or may not go bankrupt, so that it doesn't filter on down through the system and destroy everyone along the way.
Mr. THUNE. I was glad to hear you didn't say low grain prices. [Laughter.]
Mr. PELLETT. Low grain prices have certainly been a help to the cattle industry itself, but we feel for the grain producers out there. They are certainly suffering under an excess of production, and they certainly need some help in the export business.
Mr. THUNE. For a number of years. What is your feeling on the whole issue of concentration and whether or notthere are several proposals out there, a ban on packer-owned livestock. Do we need tougher antitrust statutes or are the current laws sufficient if they are adequately enforced? The reason I ask that, I have an interest in it. I have a bill. But I am just curious as to what your thoughts are on that. Anybody else feel free to comment, too, but, Mr. Pellett?
Mr. STENZEL. While he is considering, from the fruit and vegetable industry standpoint, our major concern has to do with concentration at the other end of the spectrum: fewer and fewer customers out there for us, tremendous concentration among retail supermarkets, also among food processors.
We don't feel necessarily that some of the proposals that might limit concentration within agriculture are the right solution. We believe our producers are going to have to concentrate, on the other hand, in order to compete effectively. So I would urge some caution in making sure that growers and producers can come together in effective cooperatives and in other ways to work together to create some marketplace equity with those customers that we are dealing with.
Page 43 PREV PAGE TOP OF DOC Mr. THUNE. Ms. Siddoway.
Ms. SIDDOWAY. I would just like to interject just a bit before Mr. Pellett comes along. We also are looking at cooperative efforts because in the lamb industry it is extremely limited on our buyers, and it is becoming more so. There have been acquisitions so that we even have less and less buyers. So many producers and few buyers. But we have looked at alliances, some forward contracts, but we personally have joined in an agreement, my husband and I, with a packing plant to help remove some of the risk along the way.
So we are looking at it, but it is of great concern, and the captive supply, of course.
Mr. PELLETT. In response to your question, the Iowa initiative would certainly beit would be detrimental to the Iowa issue if packer ownership were completely banned. We do support the antitrust provisions that would be involved in packer ownership, but I think it is probably imperative that we have some ability for the packers to be able to contract and to own some cattle.
We are certainly not sure that the industry would want to own all of the cattle that they could because of sheer volume and numbers and cost to them. So we do not feel that it is a tremendous problem, but we do wish to keep tabs on the situation and to make sure that there are no trade barriers to it.
Mr. THUNE. I see my time is up, Mr. Chairman. I thank the panel and yield back.
The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. To go back to the biotech issue for a moment and your responses regarding the consumerand the concern from the producer standpoint as to what is acceptable to the consumer has got to be looked at, but I would commend for all of your reading this week's Time magazine, an excellent story on rice. Sooner or later, the folks that have had the bit in their mouth and have been running with the anti-biotech message are going to have to start answering to the press and to the general public, in this case golden rice: Why you are in favor of a million children dying every year when biotech can save them? Why are you in favor of 350,000 children going blind every year when biotech can save them?
Page 44 PREV PAGE TOP OF DOC So farand this has been an omission both from the Congress and the industrywe have not done a very good job of educating the people. Fortunately, in America, we have still got the support of the people. But the Europeans bailed out on this one. The lack of political courage is eminent all over this town, particularly in years divisible by 2. But the Europeans, they seem like every year regarding this.
You know, I think it was President Carter that said once that biotechnology is not the problem, starvation is the problem. And when you look at what biotech can do for humankind, it is going to be interesting how long those handful of people that have succeeded in objecting to sound science being applied to better food, safer food, and, again, why? My question simply to those more ardent among us: Why are you in favor of killing a million children every year by denying them the technology? And then you apply this all the way through. Sooner or later, we have got to be just that blunt with them.
You know, the questions that have been asked, none of usand I don't believe any of you would argue with this. If we are not the most efficient producers of sugar or fruits and vegetables or beef or lamb or honey, then we ought not to have an industry in the domestic market. If we cannot produce efficiently in the world market, and efficiently being defined by the books that we talk about, we shouldn't be in the market. No one should be asking us to preserve an industry that cannot compete. We say we don't believe thator we do believe that, but, you know, the thing that we have got to somehow get over again to this same pressand it goes back to John's question regarding the sheep industry. When 54 percent of the income of producers in Europe comes from government, how does anybody expect an industry to compete with that kind of subsidization?
The same can be said for beef, the same can be said straight across the board. And that is the challenge that this committee has got, is, OK, where do we go? A lot of it is going to depend on the WTO round and what kind of agreements we can make that address these problems in world trade. We can't get a level playing field? So be it. Then we will figure out how do we address that non-level playing field in the best way possible. But you go right down the board.
Page 45 PREV PAGE TOP OF DOC On the concentration question, bigness is not bad, necessarily. But by the same token, Mr. Stenzel, you pointed out the problems that agriculture has on the other side. You can have cooperative effort among producers, and they can be denied a market so easily by the same philosophical folks that say the market ought to determine it. But if it costs you $200,000 to get your product into the market and you are a small cooperative or a small entrepreneur trying to get into that market, you are denied an opportunity to get into that market.
And so as we discuss the various ramifications of the market and we discuss the areas of which we are going to have to look at ways of getting a little more of the consumer dollar into the producer's pocket, we have got to address this with our friends, our customers, our corporate America folks that either we are going to do it cooperatively or we are going to do it in the traditional sense or we are going to do it in a non-traditional sense, in which corporate America reaches out and works with producers in the United States for mutual gain. And that is so difficult to do sometimes because we tend to get our blinders on when we start defining philosophy of market.
Finally, I think we are making some progress now. USDA plans to propose a rule that would restrict USDA grading of imported meat. There is nothing wrong with that. Here, again, we have some excellent competition from Australians, New Zealanders. They have excellent product. They are perfectly willing to brand theirs. Why should we lead consumers to believe that the USDA stamp is anything other than USDA? I think we will find that Canadians will be glad to brand their meat. The same will be trueso I think we are making a little progress now in which we get away from some of the sensationalism of country of origin labeling and some of the things that could bite us, because this can become a trade barrier in a hurry that can work against us just as easily as some have perceived it can work from us.
But a little common sense now involved in this and a little recognition by this country and producers in this country that we are in the international marketplace, and some of the things that we can do cooperatively with producers in other countries will benefit both of us instead of us against them and them against us. And so we are making some progress, and for that I commend each of you and your associations. Your testimony today has been very helpful as far as setting the stage for this round. But as the chairman started by saying, we would appreciate a little more specificity early next year as to exactly which way we want to go in some of these areas, and I know you will be there with us at that time.
Page 46 PREV PAGE TOP OF DOC Thank you for being here.
The CHAIRMAN. Again, I want to as well thank all of you for your thoughtfulness and for your assistance in helping us through this process. We look forward to working with you in the future.
Without objection, the record of today's hearing will remain open for 10 days to receive additional material and supplementary written responses from witnesses to any questions posed by a member of the panel.
The hearing is adjourned.
[Whereupon, at 12:02 p.m., the committee was adjourned, subject tothe call of the Chair.]
[Material submitted for inclusion in the record follows:]
Testimony of Tom Stenzel
Good Morning Mr. Chairman and members of the committee. My name is Tom Stenzel and I currently serve as president and CEO of United Fresh Fruit & Vegetable Association (United). I greatly appreciate the opportunity to testify this morning on several of the challenges and key public policy issues facing the fresh fruit and vegetable industry.
As the national trade organization representing the views of producers, wholesalers, distributors, brokers and processors of fresh fruits and vegetables, United has provided a forum for the produce industry to advance common interests since 1904. Over the years, the produce industry has gone through tremendous changes in an effort to remain profitable, satisfy consumer demands, conform to new technology, and compete in an increasingly global market place. While the perishable nature of our products present unique challenges and highly volatile markets, the industry has not relied on traditional farm programs to sustain the industry. Rather, we have relied on the economics of supply and demand. However, many of the economic stresses inherent to other commodity sectors are impacting the fruit and vegetable sector as well as other issues unique to our industry. With the combined fruit, vegetable industry in the United States representing over 22 percent of the Nation's total crop value, it is extremely important that all issues affecting our industry be laid on the table for consideration and appropriately acted on.
Page 47 PREV PAGE TOP OF DOC While the rest of the U.S. economy enjoys unprecedented growth and success, much of agriculture, particularly the fruit and vegetable sector is mired in a deepening crisis. Commodity prices for many produce crops are below the cost of production and increased Federal regulations, such as the scheduled phase out of methyl bromide as a fumigant, is expected to result in losses of $500 million while impediments to trade are stagnating the industry. Such challenges, coupled with threats from exotic pests, loss of important pesticides under the Food Quality Protection Act (FQPA), increased buyer leverage caused by retail consolidation, and shortages of labor, are putting increasing economic pressures on industry operations both large and small.
While it is apparent that many of the issues facing the produce industry today have only worsened over the years, I call to the committee's attention language contained in the 1990 farm billthe only farm bill to contain a fruit and vegetable title. A key section of this legislation found that fruit and vegetable crops were ''a vital and important source of nutrition for the general health and welfare of the people of the United States'' and integral part of the Nation's farm policy. The act directed the U.S. Department of Agriculture Secretary to conduct a study how the industry could benefit from existing market assistance programs and to look at additional programs that could be developed to assist producers in expanding domestic and foreign markets for their products. Today, some 10 years later, that study has yet to be released.
As Congress begins to examine how our present farm policy should be reviewed and modified in this new era of global markets, it is critical that long and shortterm solutions be considered that will help the U.S. agriculture industry to remain world leaders in food production and competitiveness. For the produce industry, issues surrounding pest exclusion, disaster assistance, food safety, nutrition policy, retail trade practices, technology and research, international trade barriers and promotion, risk management tools, produce inspection activities and the current prohibition on flex acres are critical to the future viability of the fruit and vegetable industry.
Page 48 PREV PAGE TOP OF DOCPROHIBITION ON CONTRACT ACRES
In the 1996 Federal Agriculture Improvement and Reform Act (FAIR), Congress sought to provide planting flexibility for producers who historically participated in farm programs. While this was a worthwhile policy objective, fruit and vegetable growers were extremely concerned that, if it were applied to fruit and vegetables crops, they would be forced to compete in the marketplace with subsidized producers. Fruit and vegetable organizations across the country argued successfully for language included in Sec 118 of the FAIR Act that prohibited the planting of fruit and vegetables on contract acreage.
The market conditions and potential for disruption that led to the industry's concern in 1996 over planting flexibility have not changed. If anything, they have worsened. Traditional fruit and vegetable producers in recent years have switched acreage between different crops, particularly vegetables, in order to find profitable niches. Federal incentives for program crop participants to plant fruit and vegetable crops would likely exacerbate an existing oversupply situation for those commodities, and cause significant injury to growers. Nonsubsidized fruit and vegetable producers should not have to compete in the marketplace with producers who are receiving direct government payments.
U.S. farm policies that provide for planting flexibility on subsidized or contract acres now and in the future should specifically prohibit the planting of fruits and vegetables. Significant penalties must remain in place to ensure that there is an effective deterrent to violations of the planting prohibition. If, in the future, Congress elects to provide payments to farm program participants, and allows them to grow fruits and vegetables on those acres, then traditional fruit and vegetable producers should have equal access to those payments.
PEST EXCLUSION AND DETECTION
Increased importation of agricultural products into the United States has also increased the risk of the introduction of plant pests and diseases that threaten domestic production. Fruit imports increased from 1.35 million metric tons in 1990 to 2.82 million metric tons in 1999. Imports of fresh citrus products alone increased from 101,000 metric tons in 1990 to 348,000 metric tons in 1999. Vegetable imports increased from 1.90 million metric tons in 1990 to 3.73 million metric tons in 1999. Fresh tomato imports have doubled during that period as well.
Page 49 PREV PAGE TOP OF DOC In addition, states such as California and Florida are seeing record numbers of tourists and other visitors arrive each year. Some 330 million visitors entered California and Florida through airports, seaports and highways in 1998, a combined increase of over 4.5 percent over the previous year. These growth statistics only exacerbate the problems surrounding efforts to control and eradicate invasive pests and disease.
Increases in tourism and legitimate trade aren't the only culprits. Smuggling of prohibited host materials is also a significant problem, and is no doubt a major pathway for medfly, citrus canker, and other pests and diseases. During blitzes conducted by Federal/State interdiction teams, officials intercepted numerous illegal shipments of fruits and vegetables that were later found to be infested with pests not known to occur within Florida.
Recognizing the need to address this serious situation, United and the produce industry have been strongly committed to working with Congress and the Administration to find the tools they need to more effectively protect American agriculture from destructive pests and disease. With the passage of H.R. 2559, the Plant Protect Act of 1999, USDA will now have the improved means to protect our Nation's agricultural crops from invasive pests being transported into this country. Additionally, USDA's Animal and Plant Health Inspection Service (APHIS) report, Safeguarding American Plant Resources A Stakeholder Review of the APHISPPQ Safeguarding System which was compiled in coordination with the National Plant Board contains over 300 recommendations for preventing the further spread and future outbreaks of exotic disease and pests in the future. Expeditious implementation of the Plant Protection Act, in coordination with the recommendations included in the Safeguarding Report, are imperative to preventing future losses and maintaining stability within the produce industry.
Finally, in September 1999, a diverse group of agricultural industry representatives met to assess the interest in organizing a coalition to advance plant safeguarding issues. Based on that meeting and subsequent discussions, the group decided to pursue a coalition named the Plant Safeguarding Alliance. The Plant Safeguarding Alliance is an industry coalition organized to support implementation and cooperative action for the advocacy of protecting plants from invasive pests, diseases and weeds. This new coalition will facilitate and respond to broad issues, priorities, and policies designed to improve the safeguarding system of plant-based industries while ensuring that USDA's commitment to implementing the Safeguarding American Plant Resources review does not waiver.
Page 50 PREV PAGE TOP OF DOCINCREASED FUNDING NEEDED FOR USDA'S PEST AND DISEASE EXCLUSION AND DETECTION CAPABILITIES
While trade in agricultural products has increased significantly in the past 10 years, USDA/APHIS' total budget has risen only slightly. The portion of the APHIS budget funded from appropriations has actually declined during the past seven years, from $440 million in 1993 to $347 million in the 2000 budget. User fees during that period increased from $25 million in 1993 to $141 million in 2000. The bottom line is that the financial resources allocated to APHIS have not kept pace with the increased pest and disease pressure brought on by the rapid growth of imports and tourism.
In 1997, the General Accounting Office confirmed this in a report, Agricultural Inspection Improvements Needed to Minimize Threat of Foreign Pests and Diseases. The report pointed out that despite changes to USDA/APHIS' funding and programs, inspectors at the ports are struggling to keep pace with the increased workload. Heavy workloads have led to inspection shortcuts, which raise questions about the efficiency and overall effectiveness of these inspections.
Ultimately, more resources and personnel will be needed to fight this battle. We recognize the difficulty in increasing government spending in a period of fiscal restraint; however, in this case, increased spending makes good sense. Strengthening and improving our pest exclusion and detection systems would result in fewer and less expensive eradication programs. This will require additional resources to hire more inspection personnel and fund increased research to improve exclusion, detection and eradication methods.
In reviewing USDA/APHIS funding, Congress should also ensure that the agency has full access to fees it collects at air and seaports. Section 917 of the FAIR Act authorized USDA to collect user fees for agricultural quarantine and inspection activities (AQI). These fees have been utilized by the Department to bolster its inspection programs at key points of entry for exotic pests. However, Congress required the appropriation of the first $100 million. Since the provision has been in place, the full $100 million has not been appropriated for AQI activities. United strongly urges Congress to ensure the full amount of funds generated from AQI user fees be dedicated for the purposes for which they were intended and allow the appropriation requirement to sunset when the FAIR Act expires in 2002.
Page 51 PREV PAGE TOP OF DOCINCREASED FUNDING NEEDED FOR FOREIGN MARKET DEVELOPMENT
Fruit and vegetable growers in the United States face significant obstacles in the development of export markets for their commodities. Chief among them are nontariff trade barriers, such as phytosanitary barriers and subsidized competition. The European Union and other foreign competitors outspend the United States by some 20-to1 in export subsidies and market promotion expenditures. According to USDA, the EU provided more than $15 billion in subsidies to their fruit and vegetable producers in 1997. For example, European tomato growers received nearly $5 billion of that total while citrus producers received well over $1 billion. Domestic produce growers on the other hand, received no comparable support; yet, the produce industry is forced to compete against European and other subsidized producers in world and domestic markets.
The United States must significantly increase its commitment to export market development if the fruit and vegetable industry is to compete in global markets. Funding for USDA's Market Access Program (MAP) should be increased substantially. A direct relationship between MAP funding and the ability to effectively market our products overseas has been demonstrated. Not only has the program helped to capture longterm markets, it has also been critical in moving surplus product and stabilizing commodity prices. However, more and more agricultural commodities including processed products, are benefiting from the program whose funding authorization has been reduced from $200 million in 1990 to its present level of $90 million. As the industry that helped establish the program in the 1985 farm bill to meet the specific needs of the fruit and vegetable industry, we strongly support increased funding for this vital trade promotion program.
Legislation has been introduced that would authorize up to $200 million for MAP, which currently is funded at $90 million. It also would provide a minimum of $35 million for the Foreign Market Development Cooperator Program, and allow up to 50 percent of the available funds under the Export Enhancement Program (EEP) to be used for related market development and promotion activities.
Page 52 PREV PAGE TOP OF DOC The new farm bill should further strengthen programs to enhance the fruit and vegetable industry's competitiveness in world markets. Absent aggressive action, U.S. agricultural exports will continue to stagnate, and farm income will continue to fall.
WORLD TRADE ORGANIZATION NEGOTIATIONS
Without improved international trade policies that advance open and fair trade practices in the global market the U.S. surplus in agriculture trade will continue to decline. United strongly supports the elimination of the trade inequities created by the combination of world subsidies, tariffs, and domestic supports as measured against the current U.S. tariff structure and trade policy. The ongoing multilateral trade negotiations mark a unique opportunity to reexamine present barriers to entry confronting U.S. produce companies in the export of fresh fruits and vegetables around the world. In doing so, we need to ensure more liberalized and predictable access to foreign markets for fresh produce and assurance that tradedistorting subsidies are significantly reduced or eliminated.
RETAIL TRADE PRACTICES
United strongly supports appropriate Federal oversight of retail mergers and consideration of the impact of that consolidation on the fruit and vegetable industry.
Fruit and vegetable growers are deeply concerned about the consolidation of retail food marketers in the United States. For example the five largest food retailers in the country accounted for 40 percent of industrywide sales of $270.7 billion in 1998 compared to 5 years earlier, when it took the top 20 companies to reach the same percentage.
As buying power concentrates within the retail industry, fruit and vegetable producers have fewer customers to whom they can sell their highly perishable and price sensitive commodities. The net result is continued pressure to reduce prices paid to growers. Unfortunately, consumers rarely see the benefit of these lower producer prices. Recent government surveys confirm a wide disparity and general lack of relationship between farm and retail prices.
Page 53 PREV PAGE TOP OF DOC In addition to heightened pricing pressures, fruit and vegetable growers and shippers are increasingly being asked to provide trade promotion payments to retailers, ostensibly to support the marketing costs of the grower's crops. In practice, however, growers report that these pay to play payments rarely result in visible benefits, and may only serve to boost profit margins for retailers. Ultimately, the cost of these fees comes from the growers' profit margins, which, in today's environment are very slim, and in many cases nonexistent.
United believes that implications of the rapid consolidation of food retailers should be thoroughly reviewed by Congress and the impact on fruit and vegetable growers and shippers should be a major component of that review. Ultimately, these types of public forums are useful in better understanding the impact of consolidation and changing food marketing practices. Produce marketing and retail trade practices must be measured against the criteria of whether they add value to the consumer and if produce suppliers and retailers consistently look toward maximizing value and satisfaction to the consumer, all parties can succeed.
IMPROVED FRUIT AND VEGETABLE INSPECTION SERVICES
The recent bribery and racketeering scandal at the Hunts Point Terminal Produce Market in New York has severely damaged the fruit and vegetable industry's confidence in USDA's inspection system. Fruit and vegetable growers, and indeed the entire produce industry, depend heavily on the inspection system to provide a credible and consistent third-party analysis of product condition at both shipping point and upon arrival. Without a sound inspection system in place, growers are at the mercy of unscrupulous buyers who would use bogus condition problems to leverage a reduction in the price of the load. That is precisely what happened at Hunts Point. Unscrupulous buyers teamed with corrupt Federal inspectors to defraud growers by estimated amounts of over $100 million.
It is critical that the entire USDA inspection system be overhauled to ensure that this kind of corruption of the system is eliminated. Congress recently approved $71 million to modernize the inspection system across the country, while keeping both inspection costs and PACA license fees to all industry members at current levels for at least the next 5 years. Reforms as recommended by United's Task Force on Produce Industry Inspection Services should be implemented as a part of this modernization. These recommendations include the establishment of an inspection training center, technological improvements, inspector training modules, implementation of digital imaging, and needed renovations and equipment upgrades. Expeditious implementation of these recommendations is urgently needed so that confidence in the system can be restored. Congress should provide oversight as this process moves forward to ensure appropriate steps are taken to ensure a seamless, transparent, and efficient system is in place as soon as possible.
Page 54 PREV PAGE TOP OF DOCRESTITUTION FUNDING FOR INJURED PARTIES
As a part of legislation approved by Congress to make that improvements to the produce inspection system, USDA was mandated to report to Congress by July 19, 2000, on how restitution might be provided to injured parties as a result of the bribery and racketeering scandal at the Hunts Point Terminal Market. Continued oversight by Congress regarding the consideration of this report and how appropriate restitution can be provided to parties that can prove they were unduly harmed by this incident is paramount to restoring full confidence in USDA produce inspection services.
FARM POLICY AND NUTRITION INTERVENTION AND PROMOTION
Research shows that increased fruit and vegetable intake reduces the risk of cancer and numerous other serious illnesses including heart disease, stroke, and diabetes. According to USDA, better nutrition could reduce the health care costs associated with these dietrelated illnesses by $71 billion each year, enough savings to nearly fully fund USDA's entire activities. By increasing fruit and vegetable consumption, it is estimated that up to half of these savings could be achieved. However, accomplishing this will require a coordinated policy effort among USDA and other appropriate Federal agencies and an increased leadership and funding commitment by the government and the produce industry.
In this area, the Federal Government is providing only $1 million per year to educate the general public through the National Cancer Institute's 5 A Day program about the benefits of a diet rich in fruits and vegetables. This is woefully inadequate. For example, according to health experts and government officials, up to $150 million is needed to effectively implement a national intervention program in every state to address illness and disease directly linked to poor nutrition and physical inactivity. While the 5 A Day Program has demonstrated its effectiveness, it is severely under funded.
The industry also challenges the Federal Government to fully implement the dietary recommendations included the new Dietary Guidelines 2000 and Healthy People 2000 in relation to increasing fruit and vegetable consumption among all USDA feeding programs. Increased availability of fresh produce within these programs now reaching one-out-of-six Americans each day is vital to America's health. USDA's Food and Nutrition Service should create and test dietary intervention strategies to improve the American diet, with an emphasis on increasing consumption of fruits and vegetables among targeted population groups, particularly children. With the percentage of obese children doubling over the past two decades, current USDA programs such as food stamps, school feeding programs and WIC should be the initial focus of this effort.
Page 55 PREV PAGE TOP OF DOC Appropriate research should also accompany such efforts. Presently research specific to promoting overall produce consumption is virtually nonexistent. USDA's Agriculture Research Service conducts human nutrition research with a tradition emphasis on specific nutrients. Future efforts on behavioral research as well as product development that focuses on convenience, storage, transportation, and taste are warranted and much needed.
FOOD SAFETY INITIATIVES
United believes the Federal Food, Drug, and Cosmetic Act (FFDCA) provides ample authority to FDA to assure the safety of fresh fruit and vegetables. Under the FFDCA, FDA is granted wide latitude to refuse food into interstate commerce if it appears from an examination, or otherwise, that a food is adulterated, misbranded, or has been manufactured, processed or packed under unsanitary conditions.
Despite the recent attention that produce safety issues have received, United is convinced that alarming reports by the media and the fears of some public health officials far exceed the actual risks associated with the consumption of fresh fruits and vegetables. The evidence indicates that in the majority of cases, when the consumption of fresh fruits and vegetables has resulted in an outbreak of illness, the cause is often related to improper handling or crosscontamination with other potentially hazardous foods during food handling and meal preparation.
The produce marketplace is highly intolerant of unsafe food and will react swiftly to outbreaks of foodborne illness. Today, grocery retailers and restaurant operators routinely ask their produce suppliers what measures have been implemented to assure safety. Likewise, insurance carriers ask their grower, packer and shipper clients to take appropriate steps to minimize food safety related risks. The produce industry has made great strides here and abroad to identify potential sources of microbial hazards in fresh fruits and vegetables, and the industry has and is willing to implement prudent measures to prevent the outbreak of problems in the future. United and the produce industry are committed to reducing the risk of foodborne illness, and strongly opposes additional industry wide regulatory and legislative requirements that could be duplicative, unworkable and do not provide for scientific analysis or weigh the risks and benefits of produce consumption to consumers.
Page 56 PREV PAGE TOP OF DOCRESEARCH AND TECHNOLOGY INNOVATION
Continued and increased research targeting specific needs of the produce industry in the areas of pesticide alternatives, new varieties as well as new technology is needed to improve production and processing efficiencies. While the fruit and vegetable industry represents over 22 percent of our Nation's total farm receipts, appropriate investments in Federal research should be reexamined and targeted to meet the unique research and development needs of the produce industry.
In the area of crop protection tools, such research is imperative. With the full implementation of the FQPA, the produce industry is expected to be disproportionately impacted with a number of crop protection tools being lost with no effective or viable alternatives, for a large portion of the 300 plus produce commodities commercially grown. Additionally, other international treaties such as the Montreal Protocol are further eliminating much needed crop protection tools such as methyl bromide. This elimination, according to growers is a wreck waiting to happen with no effective replacement. United along with Member's of Congress, have voiced their strong concern about the economic consequences due to the unavailability of transitional products needed for the production, shipment and processing of over 100 agricultural crops including major produce crops such as tomatoes, strawberries, beans, potatoes, and watermelons among other important produce commodities. Until effective and viable replacements are available, United strongly supports legislation to extend the phase out period of methyl bromide and other similar crop protection tools that do not have effective transitional products on the market. Moreover, additional research and expedited review of crop protection tools by USDA and Environmental Protection Agency (EPA) is essential to the industry's survival. Additional research targeting domestic and exotic diseases and pests should be funded and expedited as well.
RISK MANAGEMENT TOOLS
Page 57 PREV PAGE TOP OF DOC Over the years, little has been done at the Federal level to ensure fruit and vegetable growers have access to crop insurance products and risk management tools that are cost effective and reliable. The lack of available risk management products in addition to affordability issues have been the primary deterrents to participation by fruit and vegetable producers in the Federal crop insurance program. Although vast improvements have been made with the recent passage of the Agricultural Risk Protection Act of 1999, many specialty crops are not covered under the Federal crop insurance program. In addition, for many of those crops that are covered, coverage is limited and not costeffective. In California, where more than half of our Nation's fruits and vegetables are grown, less than 30 out of 307 commercially grown crops have access to Federal crop insurance products. In other states the picture is just as grim. This is unfair and the full implementation of specialty crop provisions included in the Agricultural Risk Protection Act will go a long way to rectify this situation with the development of crop insurance products and related risk management tools in an efficient and costeffective manner. Given the many economic related challenges facing farmers today, United strongly supports providing risk management tools that will allow all fruit and vegetable producers enhanced protection against the risks associated with price volatility and unpredictable inclement weather conditions.
Fruit and vegetable growers produce crops that are vital to the health of Americans and represent a significant segment of American agriculture. However, because they are not considered program crops, fruits and vegetables are often ignored when it comes to the development and implementation of U.S. farm policy. Yet, like producers of program crops, the fruit and vegetable industry faces significant challenges in the production and marketing of their commodities that must be addressed if they are to be competitive in an increasingly global marketplace.
We urge the committee to take these issues, and the many other challenges facing the fruit and vegetable industry, fully into consideration as you move forward in the development of the successor to the FAIR Act.
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Statement of Jim Pellett
Mr. Chairman, thank you for the opportunity to present this testimony to you and the House Committee on Agriculture. I am Jim Pellett and I am a rancher and cattlemen from Atlantic, Iowa. I currently serve as the vice chairman of the National Cattlemen's Beef Association Agriculture Policy Committee.
I would like to personally thank you for the series of hearings the House Agriculture Committee held this year. This afforded you and countless members of the agriculture community to present you with their views on agriculture policy as you begin your work on preparing a new farm bill. Neither this committee nor NCBA takes the prospect of a new farm bill lightly. We respectfully submit our comments and look forward to working with you and this committee during the discussion, formulation, and debate on farm policy.
Today I would like to focus on several key issues. First, on farm policy itself and then on the conservation portion of the farm bill. I will close by touching on several issues that are not technically part of the farm bill process, but drive producer profitability and the long-term financial health of beef producers.
Agriculture Policy. The National Cattlemen's Beef Association and its predecessor organizations have long believed that market forces should determine the price and value of beef cattle. Federal farm programs that subsidize agriculture through direct payments, acreage controls, set asides or direct subsidization can distort supply and demand signals to producers. These confusing signals can negatively impact the demand and price of all commodities.
Congress fundamentally changed our Nation's agriculture system when it passed the Federal Agriculture Improvement and Reform Act of 1996, more widely known as Freedom to Farm. NCBA members believe the 1996 farm bill is working to make farm programs more market-oriented by cutting the link between government payments and the command and control actions of USDA. Consequently, the role of government in commodity pricing is diminishing and producers have more choice in marketing decisions.
Page 59 PREV PAGE TOP OF DOC Nonetheless, many believe that Freedom to Farm is a failure and cite the infusion of government dollars into the agricultural sector over the past several years as evidence of this failure. However, Freedom to Farm did not cause the meltdown in the Asian economies that impacted not only grain exports, but beef exports as well. Freedom to Farm did not cause the droughts that impacted many parts of cattle countryforcing producers to liquidate livestock long before the end of their productive life. The beef industry has recovered from the difficulties of the mid-to-late 90's but problems with the rest of agriculture continue.
NCBA believes the beef industry's recovery is due to the functioning of a market at work. Instead of government actions driving the decisions beef producers make, we prefer to rely on the supply and demand of the products we produce to make decisions that are in the best interest of our own business.
The NCBA is aware of past situations where assistance for one commodity sector has adversely impacted another. We understand these adverse impacts were unintentional. But it highlights the reasons why our members require NCBA to remain actively engaged in farm program debate and development. When proposals are considered that can potentially conflict with the economic viability of beef cattle producers, NCBA will work to protect the interests of cattlemen and women.
We will examine closely, and if necessary, oppose programs that may adversely impact the beef industry. For your information, the following new farm policy suggestions have already raised red flags with our membership: Flex-Fallow, return to set-aside programs, farmer owned reserve, and an increase in CRP. Why? Because these programs would achieve their result by raising feed prices on the backs of cattlemen and women across the country.
The NCBA is supportive of efforts to assist producers when Mother Nature, either by drought, flood, blizzard, hurricane or other natural disaster, deals a blow. This is why the NCBA supported language in the recently passed Crop Insurance bill to direct resources to programs for pasture, range and forage losses. A regular program would provide disaster relief to producers when they need it, not just when Congress decides to fund it. Even within this program, NCBA will seek to prevent unintended consequences and will work to ensure that there are proper incentives for land stewardship and animal well-being.
Page 60 PREV PAGE TOP OF DOC Conservation. The next farm bill could likely contain the most comprehensive conservation initiatives that have been proposed to date. NCBA will be a strong voice in this debate because ranchers truly are a partner in conservation. Though we will undoubtedly be called to discuss a whole host of issues, we would like to share two issues we intend to make a part of the next farm bill.
The goal of conservation and environmental programs, and specifically the Environmental Quality Incentive Program (EQIP) is to achieve the greatest environmental benefit with the resources available. Arbitrarily setting numerical caps that render some producers eligible and others ineligible, limits the success of the program. Addressing environmental solutions is not a large versus small issue. All producers have the responsibility, and should have the ability, to participate in reaching achievable environmental goals. Accordingly, all producers should be afforded equal access to cost share dollars under programs such as EQIP.
Second, many producers would like to enroll in various USDA conservation programs such as CRP and CREP to reach environmental goals, particularly in the Everglades area, the Pacific Northwest and even in my home state of Iowa. However, to enroll in these programs requires the producer to stop productive economic activity on the land enrolled. NCBA believes economic activity and conservation can go hand in hand. NCBA will be supporting provisions in the next farm bill that will allow managed grazing on land enrolled in continuous sign-up CRP and CREP. This will have tangible benefits on improvements of environmental quality in such areas as invasive plant species.
At this time, I would like to address issues that have the potential to impact the long-term health of the beef industry.
International Trade. NCBA has been and continues to be a strong believer in international trade. We support aggressive negotiating positions to open markets and to remove unfair trade barriers to our product. We support government programs such as the Market Access Program that helps expand opportunities for US beef and urge increased MAP funding to augment long-term market development efforts for US agricultural products.
Page 61 PREV PAGE TOP OF DOC We also support Congressional and regulatory action to address unfair international trade barriers that hinder the exportation of US beef. We encourage the committee's continued strong and vigilant oversight of the enforcement of any trade pact to which American agriculture is a party. Accordingly, we appreciate and commend Chairman Combest and Ranking Member Stenholm for their efforts in the passage of Carousel Retaliation. This legislation, which is being implemented, will give the United States Trade Representative additional tools to deal with current European non-compliance and will be useful in the enforcement of other trade disputes.
Related to the European beef ban and the Carousel Retaliation issue, the NCBA supports the Trade Injury Compensation Act that would allow any funds collected from the implementation of retaliatory duties to be used by the beef industry for consumer education and market development in the international marketplace.
Competition. NCBA also supports the critical role of government in ensuring a competitive market through strong oversight. This includes the role of taking the necessary enforcement actions when situations involve illegal activities such as collusion, anti-trust, and price-fixing. However, government intervention must not inhibit the producers' ability to take advantage of new marketing opportunities and strategies geared toward capturing a larger share of consumers' spending for food. In short, the government's role should be to ensure that private enterprise in marketing and risk management determines a producer's sustainability and survival.
Country-Of-Origin Labeling. The NCBA supports legislative and regulatory action that would rescind the use of USDA quality grades on imported beef carcasses and on cattle imported for immediate slaughter. On Friday of last week, the USDA announced it will issue a rule to restrict the USDA Quality Grade to cattle processed in the US. We appreciate the efforts of many Members of this committee for keeping pressure on USDA to bring this issue to a resolution. The NCBA has policy that supports mandatory country of origin labeling for all imported beef and is currently working on a voluntary labeling program with our industry partners.
Page 62 PREV PAGE TOP OF DOC Interstate Shipment of State-Inspected Meat. NCBA supports legislation that would allow meat inspected by state departments of agriculture to be shipped across state lines. This would create additional competition in the packing sector and create marketing opportunities for family-owned packing companies who are currently limited to simply marketing in-state.
Dealer Trust. The NCBA supports the creation of a Dealer Trust to protect the financial stability of cattle producers when the buyers who purchase livestock file bankruptcy. This legislation would create a trust to provide payment to the sellers of cattle if the buyer becomes unable to pay due to bankruptcy or other impediment to payment.
The House Agriculture Committee has exercised leadership on issues affecting agriculture that are under the jurisdiction of other House committees. We encourage the committee to continue these efforts so that impacts on agriculture are not overlooked by other committees or regulatory agencies. The recent issues that the Agriculture Committee has reviewed include:
Property Rights. The NCBA will continue to work with Congress to pass legislation that requires Federal agencies to prepare taking impact assessments on private property prior to taking action, provide litigation relief for landowners, and provide compensation for property that has been taken for a public purpose.
Taxes. NCBA supports a repeal of the Death Tax, reduction in Capital Gains Tax, Improvement of Income Management Tools such as Farm and Ranch Risk Management Accounts, repeal of the Alternative Minimum Tax, and the full 100 percent deductibility of health insurance premiums for the self-employed.
Environment. NCBA appreciates the role this committee has taken regarding oversight of both the USDA and EPA concerning the agencies' rulemaking on Total Maximum Daily Loads and the AFO/CAFO strategy. It is clear that EPA has proceeded down this track without legal authority and without clear evidence that the proposed actions would improve the environment. NCBA supports strict oversight and congressional action when needed to prevent scarce industry resources from being squandered on bureaucratic projects that may not achieve environmental goals.
Page 63 PREV PAGE TOP OF DOC Thank you for the opportunity to appear before this committee today and present my views on behalf of the National Cattlemen's Beef Association.
Statement of Cindy Siddoway
On behalf of the nearly 67,000 sheep producers in the United States, I appreciate this opportunity to discuss our Nation's agricultural policy with the agriculture leadership of the U.S. House of Representatives.
As you are well aware, due to the committee's active support of recent measures to assist our industry, and your discussions with sheep producers across the country during the committee's field hearings this spring, these are very trying times in our industry.
While I am presenting for the record the economic situation facing
America's sheep industry, I am also providing the committee with suggested solutions and ideas toward issues that ASI believes if implemented, can begin to address the serious problems facing our industry.
As much of agriculture today is in a very serious economic situation, so is the Nation's sheep industry. The wool market world-wide is severely depressed, as demonstrated in the attached graph and chart. Wool prices for the 2000 season again remain at record low levels. The majority of wool prices available do not even cover the cost of shearing the sheep, much less the transportation and testing expenses. In fact, thousands of producers have 1 to 3 years worth of wool in storage due to depressed prices. Wool has historically represented 5 to 20 percent of sheep operation revenue depending on quality and volume of the clip, but when wool becomes an expense versus income, it affects the entire operation. Loss of five percent of income often means the difference between profit and loss for farms and ranches.
The wool market depression is readily apparent in all wool producing countries. Excess production in countries such as Australia with an enormous stockpile of wool and increased competition from chemical fibers in textile production are two key factors. American growers do not have control over these factors.
Page 64 PREV PAGE TOP OF DOC Opportunities: The American Sheep Industry Association and the American Wool Council are currently drafting an FY 2001 budget to fund wool product development, wool marketing and production improvement and quality improvement programs for implementation this fall. We view this as critical to assist the wool growing industry to increase value of our production and hopefully increase our marketing opportunities both domestically and internationally.
The proposed budget also includes aggressive use of international marketing-funds via MAP/FMD and QSP programs under USDA's Foreign Agricultural Service. We have requested Agriculture Secretary Glickman's support for the USDA portion of the American Wool Council programs.
With this said about producers' critical efforts to help themselves, I also relay the need to include the sheep industry in the general agriculture safety net that will be debated and ultimately implemented in the next farm legislation. We believe that workable opportunities exist particularly for wool production in the form of a marketing loan tied to world wool prices to add a measure of stability and income during world market depressions. Our agriculture lenders will be easier to work with if there is a modest safety net for these crisis periods. Another opportunity exists with the pilot projects included in the Agricultural Risk Management Act of 2000 extending insurance provisions to livestock and livestock forage production. I urge the committee's support that as these pilot projects are soon begun by USDA and that sheep operations, whether lamb or wool based, be included among the livestock industries selected for the pilot programs.
Again, as demonstrated in attached graphs, wool producers lag far behind other commodities the past 5 years due primarily to the disparity of-those commodities with Federal safety net provisions or supports and those without.
I would be remiss not to mention again to the committee, on behalf of ASI-and all of our producer members across the country, our appreciation for-your opposition to amendment to the fiscal year 2000 Agriculture Appropriations bill this month that would have singled out wool producers in striking the very much needed economic loss assistance payments for wool. Again we thank you for providing us this very much needed support and we thank you for your support on the floor to defeat the amendment to take it away.
Page 65 PREV PAGE TOP OF DOC Additionally, the committee's efforts were paramount in maintaining the-USDA Wildlife Services program in the appropriations bill. The Federal partnership with state and county government and private industry in responsible control of damage to agriculture, and health and safety, caused by the public's wildlife is a crucial responsibility of USDA Wildlife Services. We applaud your support of farmers, ranchers and property owners with this important program. Loss of the program and funds would mean millions of dollars of responsibility thrown back to local government and producers and farmers. The billion-dollar loss each year to wildlife damage would dramatically escalate without the professional staff of USDA assisting local and private interests in responsible management of the public's wildlife.
Turning to the lamb side of our business, we again applaud the committee for its strong support for firm and fair implementation of United States trade law. ASI's successful section 201 case for temporary trade relief from the deluge of lamb imported to the U.S. in recent years has been broadly publicized and in fact some industries are following the same path as they are faced with serious import injury. Your support of the Administration's announcement of 3-year relief has proved beneficial to lamb prices in the U.S. Lamb prices are stronger during the past 12 months, since the President's announcement. While still showing too much volatility, producers strongly support the action. I remind the committee that this is a 3-year program and the assistance package from USDA can be of real help if provided in a timely fashion. As of today, Mr. Chairman, only a handful of announced assistance have actually been processed to lamb producers, despite the fact that it was authorized by the President more than 12 months ago. While frustrated with the pace of assistance implementation to augment industry efforts, I remain confident that we will be able to roll out several key programs with USDA in support of the U.S. lamb industry's adjustment plan. We will increase U.S. sheep producer competitiveness, Mr. Chairman, and we will win the mid-term review of the U.S. International Trade Commission and believe the Administration will successfully defend the President's decision under the 201 case during the WTO challenge led by Australia and New Zealand this fall.
Page 66 PREV PAGE TOP OF DOC Mr. Chairman and members of the committee, we ask for your continued and active support of USDA with the national initiatives of ASI to be implemented over the next 2 years. One of those initiatives is an American lamb promotion, research and marketing program funded by the lamb industry which, is to be published for public comment in the near future. The industry has successfully worked since May of 1999 to develop a proposal with industry-wide support for a national lamb-marketing program funded by the industry. The U.S. International Trade Commission and U.S. Trade Representative marked a national promotion program as the number one benchmark to measure industry competitiveness during the relief period.
In addition to continued enforcement of U.S. trade law, the U.S. must continue efforts to address disparity in production and government support around the world. Sheep producers individually, nor even collectively, have any control over international currency exchange rates, foreign trade policies and agriculture support programs of foreign nations. These issues absolutely impact the sheep industry in the U.S. The U.S. is the market of choice for lamb and wool exporters from around the world.
The European Union continues to provide more than $2 billion annually in government price support and subsidies to their sheep producers. The European Union maintains permanent quotas on lamb imports to their member countries. When Australia and New Zealand cannot get additional lamb shipments into Europe where do you think they goto the USA. Sheep inventories in Europe have not experienced the severe decline in numbers that we have in the U.S. If we cannot change the sheep support programs of Europe and level the playing field then we absolutely must consider providing equitable programs for U.S. sheep producers.
My message to you is that a safety net is needed for agriculture and that the sheep industry must be included in that policy. The sheep industry is proof of what happens to an entire business when a national safety net is totally eliminated. With the elimination of the National Wool Act, there has been no price support whatsoever for the sheep industry since the 1995 wool clip. I have operated my business without any price support for 4 years and survived, but I can tell you the situation is tough. Over 25 percent of the U.S. sheep farms and ranches have gone out of business in this decade. We have lost industry infrastructure from trucking companies, to shearing crews, to lamb processing companies, wool warehouses and wool textile companies. We depend on these segments of our industry to produce and market our sheep production and as they also leave the business, it brings further hardship to continue our family farms and ranches.
Page 67 PREV PAGE TOP OF DOC Only the best and toughest sheep farmers and ranchers are left now. We are committed to investing in our industry, and are utilizing or investigating every tool we can find including cooperatives, processing ventures, quality improvement programs, and marketing and promotion support. We are committed to change as demonstrated by the industry adjustment plan approved by the sheep industry this past year. However, our efforts depend on sufficient revenue from lamb and wool sales to make these investments. I fear that continued losses in the wool market will impede our ability to make those investments.
The mandatory price reporting provisions for livestock and meat under USDA/AMS should be available to the industry shortly. This program will bring for the first time, price reports from lamb importers who have fought any voluntary requests for years. We urge sufficient appropriations to implement this program.
Foreign carcass grading by USDA continues to be a serious issue for ASI.-We have formally requested USDA to disallow the practice of applying USDA lamb quality grades to foreign carcasses and supported that position in comments to proposed rulemaking this winter.
Again, Mr. Chairman I would like to thank the committee for the field hearings held around the country that provided an opportunity for producers not only to tell you of the severe economic conditions that exist in agriculture, but more importantly what they believe should be done as you begin to shape agriculture policy for the next century. We are grateful for our opportunity to participate in this process and thank the members of the committee for their continued interest and support of America's lamb and wool producers. I am happy to answer any questions that you or the committee may have.
Statement of Blake Brown
Good morning. I appreciate the opportunity to address this distinguished committee. While the tobacco program is not part of the farm bill, I hope this information will be useful as you contemplate the future of U.S. agricultural policy.
Page 68 PREV PAGE TOP OF DOC Tobacco is the Nation's sixth largest crop in terms of cash receipts and is produced in 20 states. Tobacco is an integral crop in parts of the South. About 90 percent of the Nation's tobacco is grown in seven States in the Southern region, led by North Carolina and Kentucky, followed by South Carolina, Tennessee, Virginia, Georgia, and Florida. Within the seven major tobacco producing States in the Southern region, tobacco ranked first in terms of total crop cash receipts and second in terms of overall agricultural cash receipts during the 199296 period. The relative importance of tobacco in the Southern region is even more pronounced when net returns from tobacco are examined as a share of net farm income. Furthermore, tobacco has trailed only cotton as the Southern region's most important export commodity.
According to the 1997 Census of Agriculture, tobacco is grown on 89,706 farms, with average tobacco acreage of 9.3 acres per farm. While consolidation of tobacco production is occurring, production in many parts of the South, particularly in the burley tobacco areas, remains concentrated on relatively small family farms. Average tobacco acreage per farm varies tremendously by tobacco type. Today, most Flue-cured tobacco farms (located primarily in the Carolinas, Virginia, Georgia, and Florida) average 35 to 40 acres of tobacco, compared to burley tobacco farms (located primarily in Kentucky, Tennessee, and North Carolina) which generally produce 10 acres of tobacco or less.
Given the uncertainty facing the tobacco industry, most tobacco farmers are attempting to diversify their income base. However, few alternative agricultural enterprises can consistently rival the net return per acre of tobacco. In many cases, net returns from tobacco are utilized to finance diversification into other agricultural enterprises. Despite these diversification strategies, a large percentage of farms growing tobacco are still heavily dependent on returns from tobacco. Census data reveal that 73 percent of tobacco farms derive at least 50 percent of their total farm sales from tobacco.
Under the U.S. tobacco program, tobacco farmers agreed to restrict supply via marketing/acreage allotments (or quotas) in exchange for minimum price guarantees. Since U.S. tobacco has historically garnered significant market power in the global market for tobacco, the supply restrictions have been effective in substantially raising the price of U.S. tobacco above the price of other tobaccos on the world market. Price supports act, not only as a safety net, but more importantly as price targets that determine the levels at which national quotas must be set in order to achieve these prices. The price support system is financed solely by growers and tobacco buyers through the collection of no-net-cost assessments.
Page 69 PREV PAGE TOP OF DOC The effectiveness of the supply restrictions in raising U.S. tobacco prices depends critically on U.S. and foreign tobacco buyers being willing and able to continue to pay more for U.S. tobacco than they pay for competing tobacco such as those produced in Brazil, Argentina, Malawi, and Zimbabwe. Health concerns, the tobacco settlement, increased state and Federal cigarette excise taxes, and continued litigation against U.S. cigarette manufacturers have resulted in declines in U.S. cigarette consumption and consequent declines in the quantity of tobacco used by U.S. cigarette manufacturers. Declining U.S. cigarette exports have also contributed to the decline in use of U.S. tobacco by U.S. cigarette manufacturers.
Equally significant is the intense competition from foreign tobacco producers, particularly Brazil. Increasing competition has led to increased imports of foreign tobacco to the U.S. and declining exports of U.S. tobacco.
As a result of the decline in domestic demand and increasing global competition the national flue-cured tobacco quota has declined from an average of about 875 million pounds in the mid1990's to 543 million pounds in 2000. The national burley tobacco quota has declined from an average of about 600 million pounds during the mid90's to 247 million pounds in 2000. Cash receipts from U.S. tobacco sales averaged about $2.7 billion for the period 19941997, but likely will be around $1.5 billion for 2000.
Solutions to this dilemma are not easy to find. Future use levels of U.S. tobacco by U.S. cigarette manufacturers are uncertain and depend greatly on the outcome of litigation pending against U.S. cigarette manufacturers, as well as foreign tobacco production and prices. The decline in U.S. tobacco exports may be slowed or stopped temporarily by declines in Zimbabwean tobacco production or weather related tobacco declines in other parts of the world. China's removal of their ban on imports of U.S. tobacco also may help curb or even temporarily reverse the decline in U.S. tobacco exports. Restoration of export promotion funds to tobacco (as are available for other farm commodities) could help U.S. tobacco compete more favorably with foreign tobaccos. Phase II funds from cigarette manufacturers and the funds made available by congress in 1999 and again this year are helping tobacco farmers maintain their operations in the face of very low national quotas. Other remedies have long been discussed.
Page 70 PREV PAGE TOP OF DOC Elimination of the tobacco program would result in substantial structural change in tobacco farming. Tobacco prices would fall toward the world price. While tobacco production would increase, many smaller tobacco farmers, particularly those in geographical regions with the highest production costs, would leave tobacco farming. The end result would be fewer but larger tobacco farms producing more tobacco at lower and more volatile prices.
The problem of declining market power and demand for U.S. tobacco is not likely to disappear despite the possibility of temporary reprieves. As such policy makers and farm leaders working to maintain and improve incomes in tobacco dependent communities will continue to face significant challenges.
Testimony of Jack Roney
Thank you. Mr. Chairman, for the opportunity to participate in this important and timely hearing. I am Jack Roney, Director of Economics and Policy Analysis for the American Sugar Alliance (ASA). The ASA is the national coalition of growers, processors, and refiners of sugar beets, sugarcane, and corn for sweetener.
Developments during the final years of the 20th century and the first year of the new one have highlighted contradictions, dilemmas, and a potentially dramatic change of direction for U.S. and world agricultural policies.
The multilateral Uruguay Round Agreement on Agriculture of 1995 and the more profound reforms of the 1996 farm bill in the United States seemed to presage a sea change: Governments removing themselves from the agricultural marketplace.
Developments since that time overwhelmingly suggest the opposite is occurring. Governments already heavily involved in their agricultural markets remain entrenched; many governments that had begun to remove themselves have reversed direction.
U.S. and world commodity prices plunged to historic lows in real terms the past 2 years. Governments have rushed back into the marketplace to protect farm prices, or income, or both, buttress their rural economies, and ensure domestic food supply stability. Efforts to initiate another multilateral round of reforms through the World Trade Organization have collapsed. Bilateral or regional trade agreements have tended to exclude key agricultural products.
Page 71 PREV PAGE TOP OF DOC Some examples: 1.In the United States, the 1996 Freedom to Farm bill eliminated production constraints and traditional price supports, and sought to phase out U.S. commodity program spending over the next 7 years from then-current levels around $6 billion per year. Subsequently, production growth has far exceeded domestic and export demand for most major commodities, prices have collapsed, and the U.S. Government has rushed back in to prevent rural economies from collapsing. Commodity program spending, rather than ''phasing out, '' has exploded, and will exceed $30 billion in fiscal year 2000.
Indicators in 1996 that that would be the last U.S. farm bill are showing signs of reversing direction. The 2003 farm bill could mark a return to more traditional agricultural policies.
The spillover of acreage from grains, oilseeds, and cotton to sugar beets and sugarcane have increased sugar production, contributed to 20-year lows in U.S. sugar prices, and prompted the government to make unprecedented purchases of sugar to reduce the surplus. Though the cost of the purchases is minute relative to overall agricultural spending, U.S. sugar policy will register a net cost to the government for the first time in nearly two decades.
2.The European Union, an agricultural powerhouse built on generous subsidies and a commitment to food security and preservation of the rural way of life, is showing little interest in further internal reform or in fostering another multilateral trade round. Its regional ''free trade'' agreements, such as with Mexico, exclude sugar and most other ''sensitive'' agricultural commodities.
3.Many self-proclaimed ''free trade'' countries are having second thoughts in the face of low commodity prices and economic panic in rural areas. Examples among key sugar-producing countries that are coming to the aid of producers facing low prices and debt crises include Mexico, Thailand, and even the supposed free-trade paragon, Australia.
A country that decides to lead the way in agricultural reform may appeal to the self-righteous and the ideological among its constituents. But the lead-by-example approach is proving in practical terms to be harmful rather than beneficial, dangerous rather than inspiring. Unilateral disarmament has tended to put domestic industries at a disadvantage and point them down a path of destruction, rather than attracting foreign countries down a parallel path of reform.
Page 72 PREV PAGE TOP OF DOC Internationally, governments appear to be recognizing the unique value and sensitivities of their agricultural economies, and the economic and political dangers of deregulation. Agriculture is uniquely sensitive to weather, disease, and other natural disasters. Agricultural trade is uniquely distorted by the breadth and depth of entrenched government policies. Agriculture tends to be the primary, if not sole, employer in rural areas. And, agriculture provides a product unique in the public's view of essential productsits basic food supply.
This testimony will focus on a critical juncture for U.S. policy in the context of this pivotal time for global sugar and other agricultural policies. I will provide background on the size and stature of the U.S. sugar industry and policy; the uniqueness of the world sugar market; the need for, and benefits of, U.S. sugar policy; and, some thoughts on the future of the U.S. sugar industry in the face of daunting domestic and foreign policy challenges.
BACKGROUND ON U.S. SUGAR INDUSTRY POLICY
Size and Competitiveness. Sugar is grown and processed in 16 States and 420,000 American jobs, in 42 States, are dependent, directly or indirectly, on the production of sugar and corn sweeteners. The industry generates an estimated $26.2 billion in economic activity annually. A little more than half of domestic sugar production is from sugar beets, the remainder from sugarcane. More than half our caloric sweetener consumption is in the form of corn sweeteners.
The United States is the world's fourth largest sugar producer, trailing only Brazil, India, and China. The European Union, taken collectively, rivals Brazil as the world's largest producing region. EU producers benefit from massive production and export subsidy programs.
Sugar is an essential food ingredient and the U.S. sugar producing industry is highly efficient, highly capitalized, and technologically advanced. It provides 260 million Americans most of sugar they demand, in 45 different product specifications and with ''just-in-time'' delivery that saves grocers and food manufacturers storage costs.
Page 73 PREV PAGE TOP OF DOC Roughly 15 to 20 percent of U.S. sugar demand is fulfilled by duty-free imports from foreign countries, making the U.S. one of the world's largest sugar importers. Many of the 41 countries supplying sugar to the United States are developing economies with fragile democracies. These countries depend heavily on sales to the United States, at prevailing U.S. prices, to cover their costs of production and generate foreign exchange revenues.
Despite some of the world's highest government-imposed costs for labor and environmental protections, U.S. sugar producers are among the world's most efficient. According to a study released in 1997 by LMC International, of England, and covering the 6-year period ending in 199495, American sugar producers rank 19th lowest in cost among 96 producing countries, most of which are developing countries. According to LMC, fully two-thirds of the world's sugar is produced at a higher cost per pound than in the United States.
During the last 3 years studied, 1992939495, the United States became the lowest cost beet sugar producer in the world. American corn sweetener producers are also the lowest cost of all caloric sweeteners in the world, and always have been the lowest cost producer of corn sweetener.
Because of their efficiency, American sugar farmers would welcome the opportunity to compete against foreign farmers on a level playing field, free of government subsidies and market intervention. Unfortunately, the extreme distortion of the world sugar market makes any such free trade competition impossible today.
World Dump Market. More than 100 countries produce sugar and the governments of all these countries intervene in their sugar markets and industries in some way. The most egregious, and most trade distorting, example is the EU. The Europeans are higher cost sugar producers than the United States, but they enjoy price supports that are 40 percent higher than U.S. levelshigh enough to generate huge surpluses that are dumped on the world sugar market, for whatever price they will bring, through an elaborate system of export subsidies.
Page 74 PREV PAGE TOP OF DOC World trade in sugar has always been riddled with unfair trading practices. These practices have led to the distortion in the so-called ''world market'' for sugar. These distortions have led to a disconnect between the cost of production and prices on the world sugar market, more aptly called a ''dump market.'' Indeed, for the period of 198485 through 199495, the most recent period for which cost of production data are available, the world average cost of producing sugar is over 18 cents, while the world dump market price averaged barely half thatjust a little more than 9 cents per pound raw value.
Furthermore, its dump nature makes sugar the world's most volatile commodity market. In the past two decades, world sugar prices have soared above 60 cents per pound and plummeted below 3 cents per pound. Because it is a relatively thinly traded market, small shifts in supply or demand can cause huge changes in price.
As long as foreign subsidies drive prices on the world market well below the global cost of production, the United States must retain some border control. This is a necessary and effective response to the foreign predatory pricing practices that threaten the more efficient American sugar farmers.
Uniqueness of Sugar Market. Aside from the highly residual and volatile nature of the world sugar price, there are a number of factors that set sugar apart from other program commodities. These unique characteristics should be taken into account before sugar is lumped in with other commodities for across-the-board policy reforms.
1. Grower/Processor Interdependence. Grain, oilseed, and most other field-crop farmers harvest a product that can be sold for commercial use or stored. Sugarbeet and sugarcane farmers harvest a product that is highly perishable and of no commercial value until the sugar has been extracted. Farmers cannot, therefore, grow beets or cane unless they either own, or have contracted with, a processing plant. Likewise, processors cannot function economically unless they have an optimal supply of beets or cane. This interdependence leaves the sugar industry far less flexible in responding to changes in the price of sugar or of competing crops.
Page 75 PREV PAGE TOP OF DOC 2. Multi-Year Investment. The multimillion-dollar cost of constructing a beet or cane processing plant (approximately $300 million), the need for planting, cultivating, and harvesting machinery that is unique to sugar, and the practice of extracting several harvests from one planting of sugarcane, make beet or cane planting an expensive, multiyear investment. These huge, long-term investments further reduce the sugar industry's ability to make short-term adjustments to sudden economic changes.
3. High-Value Product. While the gross returns per acre of beets or cane tend to be significantly higher than for other crops, critics often ignore the high cost associated with growing these crops. Compared with growing wheat, for example, USDA statistics reveal the total economic cost of growing cane is nearly seven times higher, and beet is more than five times higher. With the additional cost for processing the beets and cane, sugar is really more of a high-value product than a field crop.
4. Inability to Hedge. The 1996 Freedom to farm bill made American farmers more vulnerable to market swings and far more dependent on the marketplace. Growers of grains, oilseeds, cotton, and rice can reduce their vulnerability to market swings by hedging or forward contracting on a variety of futures markets for their commodities. There is no futures market for beets or cane. Farmers do not market their crop and cannot take delivery of beet or cane sugar. The hedging or forward contracting opportunities exist only for the processorsthe sellers of the sugar derived from the beets and cane. These marketing limitations make beet and cane farmers more vulnerable than other farmers to price swings.
U.S. Sugar Policy Reforms. U.S. sugar policy was unilaterally and substantially reformed in the 1996 farm bill, far in excess of Uruguay Round commitments. The key reforms: (1) Production controls (''marketing allotments'') were eliminated. (2) Government-provided non-recourse loans, or a government-guaranteed minimum price, are conditional and no longer guaranteedunlike all other U.S. program commodities. This measure was intended to help reinforce long-standing Congressional intent that U.S. sugar policy be run at no cost to the U.S. Treasury. (3) The minimum import level, already about four times the minimum required by the URA, was effectively raised another 20 percent. (4) Sugar producers burdensome and discriminatory marketing assessment tax was raised 25 percent, increasing expected annual revenues to the U.S. Treasury from U.S. sugar policy to about $40 million. [The assessment was suspended for fiscal 2000 and 2001.] (5) A 1-cent per pound penalty was established to discourage government loan forfeitures. (6) The U.S. committed to further support price reductions when other countries surpass their URA requirements, as the U.S. has done, and achieve levels equal to ours.
Page 76 PREV PAGE TOP OF DOC The reformed sugar policy of the 1996 farm bill does retain the Secretary of Agriculture's ability to limit imports, and also provides a price support mechanism, though only when the tariff-rate quota (TRQ) exceeds 1.5 million short tons.
U.S. SUGAR INDUSTRY'S FREE TRADE GOAL
Because of its competitiveness, with costs of production well below the world average, the U.S. sugar industry supports the goal of genuine, global free trade in sugar. American sugar farmers cannot compete with foreign governments, but we are perfectly willing to compete with foreign farmers in a truly free trade environment.
Sugar was the first U.S. commodity group to endorse the goal of completely eliminating government barriers to trade at the outset of the Uruguay Round, in 1986, and the first group to endorse this same goal in 1999, in anticipation of the next multilateral trade round.
The U.S. sugar industry does not endorse the notion of free trade at any cost. The movement toward free trade must be made deliberately and rationally, to ensure fairness and to ensure that those of us who have a global comparative advantage in sugar production are not disadvantaged by allowing distortions, exemptions, or delays for our foreign competitors, as we are experiencing under the current agreement.
SUGAR AND THE URUGUAY ROUND AGREEMENT
Little Effect on World Sugar Policies. More than 100 countries produce sugar and all have some form of government intervention. Unfortunately, these policies were not significantly changed in the Uruguay Round Agreement (URA) of the WTO.
The URA inadequately addressed, or ignored:
1. Compliance. Many countries have evaded or not yet even complied with their URA agricultural commitments. In sugar, for example, the EU has managed to isolate most of its sugar export subsidy program from URA disciplines. The Philippines has yet to meet its requirements for increasing minimum access levels to its sugar market.
Page 77 PREV PAGE TOP OF DOC It was revealed at a WTO Analysis and Information Exchange Group meeting Geneva in September 1998, nearly 4 years after the inception of the URA, that a mere 17 of the 132 member nations had fulfilled all their notification requirements on domestic support, export subsidies, and market access. One must wonder how members can monitor compliance with WTO-mandated reductions in agricultural policies when the vast majority of countries will not even acknowledge which policies they have in place.
2. Export Subsidies. The most distorting practice in world agricultural trade is the export subsidy. Export subsidies provide countries the mechanism to dispose of surpluses generated by high internal production subsidies. In the absence of export subsidies as a surplus-removal vehicle, countries would have to reduce their production supports. With export subsidies in place, countries can move surpluses into markets where they do not belong and depress market prices. Other countries are forced to respond with import barriers. In the world sugar market, subsidized exports by the EU alone amount to about a fifth of all the sugar traded each year.
The URA did not significantly reduce the amount of sugar sold globally with export subsidies. The agreement failed to reduce the European Union's generous price support level and required only a tiny potential drop in its substantial export subsidies.
3. State Trading Enterprises (STE's). STE's are quasi-governmental, or government-tolerated organizations that support domestic producers through a variety of monopolistic buyer or seller arrangements, marketing quotas, dual-pricing arrangements, and other strategies. These practices were ignored in the Uruguay Round, but are, unfortunately, common in the world sugar industry. Major producers such as Australia, Brazil, China, Cuba, and India have sugar STE's, but were not required to make any changes in the URA.
4. Developing-Country Producers. Developing countries, which represent about 60 percent of world sugar production and trade, have little or no labor and environmental standards for sugar farmers, have no minimum import access requirements, and often have high import tariffs. Nonetheless, developing countries were put on a much slower track for reductions, or, in the case of the least developed countries, were exempted altogether from URA disciplines.
Page 78 PREV PAGE TOP OF DOC 5. WTO Non-Members. Important sugar-producing and importing countries such as China and the former Soviet republics are not WTO members, and needed to do nothing under the URA. Yet, these countries represent some 40 percent of global sugar imports and 20 percent of production.
6. Labor and Environmental Standards. The gap in government standardsand resulting producer costsbetween developed and developing countries is well documented and immense, but was ignored in the URA. In sugar, the gap is particularly pronounced because, while the EU and the U.S. are major players, production and exports are highly dominated by developing countries, especially in the cane sector. In Brazil, for example, tens of thousands of children still labor in cane fields, despite laws prohibiting this type of abuse.
SUGAR AND THE NAFTA
The U.S. sugar inudstry is concerned that before the United States embarks on another multilateral trade round we must be cognizant of serious problems that remain with our primary regional trade agreement, the North American Free Trade Agreement. Evasion of NAFTA rules and violation of international trade rules by our North American trading partners have left many American sugar farmers with a distrust of trade agreements and a serious reticence about entering into new ones.
Canada. Sugar trade between the United States and Canada, which imports about 90 percent of its sugar needs, was essentially excluded from the NAFTA. U.S.-Canadian sugar trade is governed mainly by the U.S.-Canada Free Trade Agreement and by the WTO.
Currently, Canada is threatening the integrity of U.S. sugar policy by circumventing the tariff-rate quota with a new product referred to in the trade as ''stuffed molasses''a high-sugar product not currently included in U.S. sugar TRQ classifications. USDA has estimated imports of this product could add about 125,000 tons of non-quota sugar to the U.S. market per year. That amount could grow if this loophole is not closed, further harming U.S. sellers of refined sugar and possibly threatening the no-cost operation of U.S. policy.
Page 79 PREV PAGE TOP OF DOC Mexico. Mexico had been a net importer of sugar for a number of years prior to the inception of the NAFTA. Nonetheless, the NAFTA provided Mexico with more than three times its traditional access to the U.S. sugar market during the first 6 years (up to 25,000 metric tons), up to 35 times its traditional access in years 7 to 14 (250,000 metric tons), and virtually unlimited access thereafter. Beginning in 2008, there will be a U.S.-Mexican common market for sugar, with common prices and common external tariffs.
In addition, the above-quota, or second-tier, tariff on U.S. sugar imports from Mexico is phased from 16 cents in 1994 to zero in 2008. As a result of low world sugar prices, some 67,000 tons of second-tier Mexican sugar entered the U.S. market in 199900. More can be expectedthere is no limit on how much can enteras the tariff level declines.
The sugar provisions were negotiated as a side letter to the original NAFTA by the U.S. and Mexican governments and contained in President Clinton's NAFTA submission to the U.S. Congress, which Congress approved in November 1993. The sugar provisions, as altered from the original NAFTA text, were critical to the narrow Congressional passage of the NAFTA.
Nonetheless, Mexico is now undermining the integrity of the NAFTA by claiming the sugar provisions are somehow invalid. This questioning by Mexico has bred deep feelings of distrust in trade agreements among many American sugar producers.
In addition, Mexico has not complied with a NAFTA requirement to phase out its tariffs on U.S. high-fructose corn syrup (HFCS). Instead, Mexico raised its tariffs on HFCS imports to levels approaching 100 percent. A WTO dispute panel ruling has forced Mexico to recalculate, though not necessarily remove, the antidumping duties. The U.S. HFCS industry, the largest and most efficient in the world, had expanded capacity considerably in anticipation of unlimited access to the burgeoning Mexican beverage market, but is now stymied.
Mexico's desire to gain additional access to the U.S. sugar market has been reinforced by a boom in Mexican sugar production and mounting domestic sugar surpluses. Comparing pre- and post-NAFTA 6-year averages, Mexican sugar production jumped by 33 percentfrom 3.715 million metric tons in 1988899394, to 4.954 million in 1994959900. As a result, Mexico transformed itself during the same two periods from an average deficit sugar producer of 455,000 tons per year to an average surplus of 719,000 tons.
Page 80 PREV PAGE TOP OF DOC The production boom is closely related to a boost in Mexican government subsidization of the Mexican sugar-milling sector. Debt forgiveness programs alone have totaled about $2 billion since the NAFTA was signed. To remedy a surplus sugar problem of its own creation, Mexico has indicated some desire to dump its surplus on the preferentially priced U.S. market.
A solution must be found to prevent subsidized Mexican sugar from depressing the U.S. market in the next few years, and from swamping the U.S. market in 2008, when the NAFTA calls for a U.S.-Mexican common market in sugar. Loss of U.S. sugar policy would leave both countries vulnerable to world dump market sugar. The sugar industry is working closely with the U.S. Administration on negotiations with Mexico that will provide a solution beneficial to both countries.
U.S. SUGAR POLICY IN CRISIS
Domestic sugar policy is in crisis. Distressed prices for most major U.S. commodities the past several years pushed acreage from other crops into beet and cane. Improved yields, both field and factory, and excellent weather significantly boosted U.S. sugar production in 199900 and 200001.
The U.S. market could have absorbed this additional production by reducing the import quota, but international trade commitments eliminated that option. Leakage around the quotastuffed molasses and second-tier Mexican sugarhas exacerbated the problem.
Producer prices have plummeted, with wholesale refined sugar prices around 19 centsa 22-year low in nominal terms, most probably an historic low in real terms.
Purchases of sugar by the government in an effort to boost prices and reduce the likelihood of massive forfeitures of sugar loans, for the first time since 1984, have cost U.S. sugar policy its mantle as a no-cost, revenue-raising program, though the program cost is miniscule compared with overall commodity spending.
Page 81 PREV PAGE TOP OF DOC The government's tools to prevent future oversupply are limited, both in terms of domestic production and imports.
1. The Secretary of Agriculture's authority to invoke domestic marketing controls was eliminated in the 1996 farm bill.
2. WTO and NAFTA commitments prevent the Secretary from reducing imports much below 1.5 million short tons.
Leakage around the quota must be brought under control: stuffed molasses circumvention by way of a judicial or legislative fix; second-tier Mexican sugar through negotiation with Mexico.
The Government's unprecedented purchase of surplus sugar had the industry's full support, and the industry is working with the government on options for disposal of the purchased sugar. Foreign food aid and ethanol use have been considered, as has been a payment-in-kind program, for farmers to retire some planted acreage in return for payment of government-owned sugar. Marketing loss assistance and loan deficiency payment programs, which have been used extensively for other crops, but not for sugar, are also being considered.
But these are relatively short-term solutionsto sustain sugar policy until the next omnibus farm legislation in 2002. The U.S. sugar industry recognizes that significant change must occur within the industry, or with the policy, or both, to sustain U.S. sugar policy in the long run2003 and beyond. Given the extreme unlikelihood there will be significant progress in global sugar trade liberalization in the next few years, U.S. sugar policy must be sustained as a buffer to subsidized foreign sugar.
The industry recognizes there are two longer-term paths to remedy the sugar oversupply situation.
One is further market rationalization. As marginal U.S. producers continue to drop out, probably at an increasing rate because of the extremely low prices, production will fall. Unfortunately, however, the loss of the economically more vulnerable producing areassuch as Hawaii and Texas cane and California and Washington beetsimplies the loss of key geopolitical support for sustaining U.S. sugar policy.
Page 82 PREV PAGE TOP OF DOC The other longer-term path is a basic restructuring of U.S. sugar policy. The high-government-payment, low market-price approach of a marketing loan program may not be politically or fiscally sustainable until the timeif everthat there is significant sugar trade liberalization abroad.
A return to the marketing control approach of the 1990 farm bill is unappealing because of the problems it creates for sugar producers' future cost reductions, which usually are based on improved efficiencies of scale. Moreover, efficient U.S. sugar producers are loath to cut their own production to make room in the U.S. market for subsidized Mexican sugar.
Any marketing control approach would have to be comprehensiveencompassing both sugar and corn sweeteners in both the United States and Mexico. This is the only path that could restore order to the oversupplied U.S.-Mexican sweetener market, and needs to be accomplished before the NAFTA-ordained common market of 2008. The governments of both countries are working on this difficult, but necessary, approach.
The most likely longer-term solution may involve sucrose ethanol programs in both countries. This approach would have numerous advantages. Sucrose ethanol programs would:
1. Absorb surplus sucrose and sucrose byproductsbagasse (cane fiber), beet pulp, molasses.
2. Address environmental concerns:
Reduce both countries' reliance on non-renewable fossil fuels.
Replace methyl tertiary butyl ether (MTBE), which has been found to pollute groundwater, as the desired oxygenate in gasoline in the United States and Mexico. MTBE is being phased out in California and other U.S. regions, but is still widely used in Mexico. Replacement of MTBE in California alone would double U.S. demand for ethanol; would allow sugar to compliment corn as an ethanol feedstock, rather than displacing it; and, at least in the short run, could create import demand for ethanolpotentially even from Mexico.
Page 83 PREV PAGE TOP OF DOC Address Mexico City's severe pollution problem. Mexico City is widely acknowledged to be the most polluted major city in the world. A large percentage of its children have been diagnosed as having lung development problems. The huge public health threat this poses suggests Mexico, though an oil exporter, may regard support of cleaner-burning ethanol as an economically viable, socially necessary program.
3. Address employment concerns. In parts of the United States, and throughout Mexico, sugar is a major, and in some regions the only, major employer. In Mexico, in particular, the conversion of cane mills to ethanol distilleries could facilitate the rationalization of the Mexican cane industry without the politically destabilizing effect of major job loss.
U.S. policy's problems are complex, and far from isolated. Developments with other U.S. commodities prices, U.S. environmental policy decisions, import-quota disputes, and international and regional trade agreements are all variables that profoundly affect even the near-term outlook for American sugar farmers.
The domestic and trade policy challenges to the U.S. sugar industry are daunting, but manageable. American sugar farmers are efficient by world standards. The industry is modern, dynamic, and highly competitive. American sugar farmers deserve to stay in business and they will.
Efficient though they are, American sugar farmers cannot stay in business in the absence of at least a minimal U.S. sugar policy that prevents their displacement by subsidized foreign sugar. A U.S. sugar policy that adapts to the changing domestic and international developments can, and will, be adopted. The continuing high level of foreign subsidies mandates that some form of U.S. sugar policy be maintaineduntil multilateral trade negotiations yield the free trade paradigm, which is the ultimate goal of efficient American sugar farmers.
Page 84 PREV PAGE TOP OF DOC
Statement of David Moore
Thank you for holding this hearing to discuss Federal agricultural policy issues and for the opportunity for Western Growers Association to submit a statement for the record. WGA was established in 1926, and represents over 3,300 members who grow, pack and ship more than half of the Nation's fresh fruits, vegetables and nuts. The Association represents over 90 percent of the fresh vegetables and about 60 percent of the fresh fruits and nuts grown in Arizona and California.
FEDERAL AGRICULTURAL POLICY
The U.S. horticultural sector has always been on the periphery of farm policy because fruit and vegetable growers have never participated in the historical ''farm programs'' designed for other agricultural sectors. Our growers, moreover, believe that Federal farm policy also includes import and export policies, and it is these policies that will be addressed first. In addition, there are a number of other issues of great importance to the fresh produce sector, including the Perishable Agricultural Commodities Act, the U.S. Department of Agriculture's Animal and Plant Health Inspection Service, planting flexibility on subsidized acreage under the 1996 farm bill, guest worker legislation, crop insurance, supermarket consolidation, and agricultural research. As you can see, fruit and vegetable growers have many issues on our plate.
AGRICULTURAL TRADE POLICY
With U.S. tariffs on imports being among the lowest in the world, our market is open to fresh fruits and vegetables from around the world. When trade negotiators raise the issue of reducing domestic and export subsidies, there is nothing to debate with regard to the U.S. fruit and vegetable industry, since our industry receives no trade-distorting subsidies or aggregate measurements of support. There are no protectionist safeguards or sophisticated price or volume mechanisms designed to keep imports out when our produce is being harvested and marketed.
Page 85 PREV PAGE TOP OF DOCLet's compare this situation with the fruit and vegetable industry in Europe. Taking a look at the
most recent data (marketing year 1996/97) which the European Union has provided to the World Trade Organization, we find that the EU's aggregate measurement of support (the WTO's measure of domestic support) was approximately $15.3 billion for HTS Chapters 7 and 8. Let me reiteratethe European industry received roughly $15.3 billion in benefits from government policy for one marketing year, compared to zero for the United States!
Additionally, the EU was allowed in the Uruguay Round to basically retain its Reference Price System for certain fruits and vegetables. It is now called the Entry Price System. This system imposes a duty on imports that enter the EU below a specified price. For the EU's most sensitive fruits and vegetables (15), there is a special volume-based safeguard (additional duty) that protects the domestic industry by effectively keeping out U.S. exports when the EU is harvesting and marketing its own crop(s).
In addition to these measures, the EU uses Producer Organizations (POs) to provide subsidies more directly to fruit and vegetable growers. Growers pay levies to the PO which are reimbursed 100 percent by the EU, up to 4.5 percent of the value of the product marketed. The U.S. Department of Agriculture's Foreign Agricultural Service estimates that in 1999, the total estimated EU direct support to the POs was approximately $328 million for fruits and vegetables. While the EU member states do report the activities of the POs to the European Commission in Brussels, there is no strict oversight by the EC. Thus, there is ample opportunity to report the activities of POs as non-trade distorting, a classification which does not require reductions in support levels. With ongoing efforts to reduce all subsidies, it is expected that more and more effort will be made to disguise the PO subsidies as non-trade distorting, and thus not subject to reduction efforts.
WGA is a member of the Agricultural Coalition on Trade (ACT) which is comprised of fruit and vegetable associations. ACT has reviewed the U.S./EU fruit and vegetable trade picture since the implementation of the Uruguay Round. Attached to my testimony are two charts for your review. Please note the significant increase in imports from the EUover 141 percent in quantity (95 percent in value), while there has been a 12 percent decrease in the quantity (16 percent in value) of U.S. exports to the EU.
Page 86 PREV PAGE TOP OF DOC WGA believes that this disturbing imbalance of trade is due primarily to inadequate attention in the Uruguay Round to the U.S. fruit and vegetable sector. When the U.S. negotiating strategy is to reduce subsidies, and the U.S. sector has nothing to reduce, our industry stands to gain very little, especially when the subsidies are as high as those of the EU. The situation is even more severe when the subsidy reductions are made on an aggregate basis.
While WGA believes this situation can only be rectified by complete elimination of all domestic and export subsidies, we are realists and do not expect this to happen in the next trade round. However, WGA believes the U.S. fruit and vegetable sector can benefit from a new trade round only if the following approaches are taken:
(1) Substantial percentage reductions in subsidies based on the value of the aggregate measure of support (AMS) for each product (i.e., the higher the AMS, the larger the percentage reduction);
(2) Elimination of export subsidies;
(3) Elimination of the Peace Clause;
(4) Clarification and harmonization (to the greatest extent possible) of domestic support terms (i.e., price support, direct aid, premium, etc.) used in WTO notifications;
(5) More transparency in WTO required notifications to clearly determine whether the support is appropriately placed in the green, amber, or blue box; and,
(6) Symmetry in safeguard measures.
WGA recognizes that members of the House Committee on Agriculture will not be the negotiators for the next WTO trade round. However, decisions made in the next trade round will directly affect the future economic health of the U.S. fruit and vegetable sector. Thus, when developing U.S. farm policy, members must carefully scrutinize the impact of our trade actions on all sectors of U.S. agriculture. This includes specialty crops as well as the bulk commodities.
Page 87 PREV PAGE TOP OF DOC With respect to the Free Trade Area of the Americas (FTAA), these negotiations are proceeding faster than the WTO negotiations. WGA is concerned that our government's WTO objectives are influencing the FTAA negotiations. The domestic subsidy objective appears to be the same as the WTO objectivea substantial reduction in domestic trade distorting subsidies. Why? The Western Hemisphere countries do not appear to be subsidizing their horticultural crops. Congress needs to consider separating the trade negotiations for horticultural crops from other agricultural crops and prohibit domestic subsidies.
Europe has over 375 million consumers, but this potential market is essentially closed to our growers and shippers, whereas the European fruit and vegetable industry has an open market in the United States. WGA hopes that, as members of the committee focus on U.S. trade policy and the future health of American agriculture, you will be able to support a trade policy that is fair and equitable to the U.S. fruit and vegetable industry.
MARKET ACCESS PROGRAM LEGISLATION
WGA strongly supports legislation currently pending before this committee to expand the successful Market Access Program (MAP). This legislation, H.R. 3593, would authorize $200 million annually for the MAP, $35 million annually for FMD, and allow 50 percent of unused Export Enhancement Program funds to be used for market development and promotion activities. As members of this committee are well aware, the non-trade distorting MAP program has proven to be extremely successful in promoting the expansion of U.S. agricultural exports in international markets, especially those in which we face unfair trade barriers. Passage of the legislation, which would restore MAP funding to levels of the early 1990's, would expand agricultural exports and also would strengthen the U.S. negotiating position in new WTO trade discussions. We hope the committee will expeditiously approve this legislation.
PERISHABLE AGRICULTURAL COMMODITIES ACT
The Perishable Agricultural Commodities Act (PACA), which is administered by the USDA to regulate fair trading standards in fresh produce but which is fully funded by the industry, is critically important to our industry. PACA has enabled growers, shippers, and receivers to move perishable fruit and vegetable crops great distances with assurances that all parties are fairly compensated. In playing a critical role in ensuring an abundant and affordable supply of healthy fruits and vegetables, the PACA provides many benefits to all sectors of the industry, including the consumer.
Page 88 PREV PAGE TOP OF DOC Hunts Point Terminal Market Criminal Activity. Unfortunately, it was learned last year that USDA inspectors and wholesalers at the Hunts Point Terminal Market in New York City entered into a massive kick-back scheme to defraud growers and shippers by falsifying inspections of fresh produce over nearly a two decade period. All of the indicted inspectors involved in the scheme and many of the wholesalers' employees have agreed to plead guilty in criminal proceedings. WGA is pleased to see that this criminal activity has been uncovered and prosecuted.
However, WGA is concerned that growers and shippers will have great difficulty in fully pinpointing the financial losses suffered due to the Hunts Point criminal activity. While the PACA process permits defrauded shippers to file grievances against wholesalers to recoup losses suffered as a result of criminal activity, the burden of proof rests solely with the shippers. Some accommodation must be made to relieve the shippers' overwhelming burden of proof requirement in this situation, or it will be virtually impossible to recover any of the losses caused by this criminal activity. It is the contention of WGA that all of the inspections performed by the guilty inspectors at the implicated wholesalers are suspected of being part of the same kick-back scheme. Therefore, immediate action should be taken on all of the inspections performed by the guilty inspectors at the wholesalers where employees were indicted by having the USDA certificates voided. This would shift the burden of proof off the growers/shippers and on to the wholesale companies alleged to have participated in the scheme.
The statute of limitations will expire on July 27, 2000, yet the evidence needed to go forward in the PACA proceedings is still in the process of being forwarded to shippers by USDA Fresh Products Branch. It is therefore appropriate for Congress to extend the statute of limitations in order that shippers have an appropriate time frame to submit PACA claims.
Another problem in the Hunts Point matter is the shipments involved in the government's sting operation. The shippers were unknowingly involved in, and paid a heavy price for, Federal efforts to document criminal activity. WGA believes that shippers who unknowingly were victims of this surveillance should be compensated for the fair market value of the produce involved in the government sting operation. It is well within the power of Congress to reimburse shippers for such losses caused by Federal law enforcement efforts.
Page 89 PREV PAGE TOP OF DOC Further, a need for a direct restitution package should be required compensation to the industry. USDA was mandated by Congress to prepare a report on the extent of the losses and recommend a process to compensate those who suffered financially because of this scheme. WGA asks for expedited consideration by Congress of such a restitution package.
Planting Flexibility on Subsidized Acreage. WGA is strongly opposed to allowing fruits, vegetables and nut trees to be grown on acreage which is enrolled in USDA subsidy programs for the bulk commodities. This is necessary to ensure that producers of fruits and vegetables who do not receive USDA subsidies are not put at a competitive disadvantage against growers who do participate in the Federal farm programs. This policy also prevents against the disruption of produce markets due to artificially imposed signals arising from changes in government policy.
Along with other produce organizations, WGA worked hard to ensure that Congress abided by this policy in writing both the 1990 and 1996 farm bills. Section 118 of the Federal Agricultural Improvement Act of 1996 (1996 farm bill) prohibits the planting of fruits and vegetables on all USDA contract acres, with certain narrow exceptions specified in the law. In testimony before the House Agriculture Committee in 1999, Secretary of Agriculture Glickman recommended that Congress expand ''planting flexibility so that producers can elect to plant fruits and vegetables [on subsidized acres] if they choose to do so.'' This proposed amendment would overturn the policy, included in the 1996 farm bill, of preventing subsidized growers from planting fruits and vegetables on contract acreage. WGA is strongly opposed to Secretary Glickman's proposal, and will strongly oppose any new legislation which would allow subsidized producers to compete against non-subsidized growers in the production of fruits and vegetables.
WGA also is concerned about USDA's enforcement of section 118 of the 1996 farm bill. On May 5, 1999, USDA issued an Advance Notice of Proposed Rulemaking indicating that some growers believe the penalties for violating section 118 are unduly harsh, and that the agency is considering reducing these penalties. While WGA does not believe that such penalties should be unnecessarily punitive, we do believe it is incumbent upon USDA to ensure that any reduction in the current penalty regime does not lessen the deterrent effect of the penalties in enforcing the Flex Acreage policy, as clearly intended by Congress. WGA will oppose any substantial change in the penalties which would significantly weaken current law.
Page 90 PREV PAGE TOP OF DOC WGA remains committed to ensuring that the fundamentally fair policy of prohibiting subsidized growers from competing against growers who do not receive government assistance in fruit and vegetable production remains the law of the land, and that the law is effectively enforced.
Guest Worker Legislation. Western Growers Association also strongly supports bipartisan legislation to reform the H2A agricultural guest worker program (S.1814, H.R. 4056, H.R. 4548). An effective guest worker program is needed to ensure that legal workers are available to harvest perishable crops when there are not enough domestic workers for this purpose. The inability to secure a sufficient number of workers in a timely fashion to harvest perishable crops results in adverse consequences for growers, workers, and consumers of fresh fruit and vegetables.
In recent years, the H2A program has proven to be cumbersome and inefficient when faced with the task of supplying significant numbers of guest workers on short notice. As our industry continues to experience localized labor shortages throughout California and Arizona, the need for a reformed program to avert labor shortages continues to grow. Thus, legislation to reform the H2A guest worker program is very important to the California fresh produce industries.
S. 1814 and H.R. 4056 also include provisions that will provide undocumented workers with the opportunity to earn permanent status through employment in agriculture. This ''adjustment of status'' provision is a ''win-win'' situation for growers and farmworkers. Growers benefit through the stability of a legal workforce and the certainty that highly perishable crops will be harvested in a timely manner. Farmworkers benefit by earning the right to legal status, avoiding the substantial risks inherent in undocumented status, and get the protection of U.S. labor laws.
Again, WGA strongly supports the bipartisan agricultural guest worker legislation with adjustment of status for farmworkers, and urges Congress to enact this legislation in 2000.
Page 91 PREV PAGE TOP OF DOC Supermarket Consolidation. Supermarket consolidation is a concern from the grower to the consumer. The ability of the supermarket to drive farm-gate prices down and drive retail prices up when a supermarket chain dominates the market is economically unacceptable. Unlike non-perishable consumer products, a family farmer with a perishable crop ready for harvest does not have the alternative of waiting for prices to rise. The immediate requirement to market the product is further complicated when the market is dominated by a few large chain supermarkets. The trend of retail supermarkets demanding slotting fees from grower/shippers of fresh produce is evidence of market power which puts family farmers at a great disadvantage.
Animal and Plant Health Inspection Service. WGA encourages the committee to provide strong oversight and provision of adequate authorization of funding for one of the most important agencies of the U.S. Department of Agriculture, the Animal and Plant Health Inspection Service (APHIS). This agency provides invaluable assistance to exporters of U.S. agricultural products by working with foreign plant health officials to resolve phytosanitary barriers which stop or delay our exports. Unfortunately, APHIS's efforts to improve our export picture have been diminished by the growing list of import petitions received from foreign governments eager to export to the U.S.
Another concern is that the responsibilities of APHIS were increased dramatically with the adoption of the Uruguay Round WTO Agreement (which includes the Sanitary and Phytosanitary (SPS) Agreement), yet the agency's personnel and other resources were not increased at anything close to the level needed. The release last year of the National Plant Board's study, Safeguarding American Plant Resources, makes clear how extensive the needs are at the agencyand how important this agency is to the future of U.S. agriculture.
Given the critical importance of opening new international markets for our fresh produce exports, WGA believes that APHIS should have a specific mandate from Congress to assist U.S. agriculture in these efforts.
Page 92 PREV PAGE TOP OF DOC WGA is also concerned that APHIS is being made subject to political pressures, and is not taking the necessary care required to protect domestic agricultural crops from the risk of pest infestation before approving new import petitions. Exotic pest infestations are much more prevalent than they were even 10 years ago, due to the increased level of international trade. With increased trade comes increase risk of exotic pest infestation, and APHIS must have the resources to confront the task of keeping exotic pest infestations to a relatively low level. Obviously this is necessary if we are to continue to have a successful agriculture industryfor both specialty crops and commodity crops.
Federal Crop Insurance. WGA recognizes the need to expand effective risk management tools to growers of fresh fruits and vegetables. However, due to recent experience, we are concerned about potential adverse impacts on growers from any expansion of the Federal crop insurance program.
WGA believes that RMA's watermelon crop insurance pilot program was a major factor contributing to the increased supply of watermelons in the U.S. market in 1999. The pilot program implemented in select counties in a few states appears to have provided incentives for growers to expand production, or for new growers to enter the market. This created an imbalance in an industry that previously was characterized by a reasonably balanced supply and demand history. Large increases in acreage planted to watermelons in areas served by the pilot program indicate that the program may have been a major factor in causing this shift into watermelon acreage. WGA strongly opposes the continuation of the watermelon pilot program until RMA can assure growers that it will not disrupt traditional marketing patterns.
Ensuring that new programs are available on an equal basis among all growers, and will not disrupt existing markets, should be a standard requirement for RMA in developing any new crop insurance programs. WGA also believes that associations and cooperatives have a vital role to provide in crafting crop insurance policies and providing premium discounts to growers. WGA urges USDA/RMA to keep the concerns of fruit and vegetable growers foremost in mind as it implements the recently enacted crop insurance reform law, and urges vigilante oversight by the House Agriculture Committee.
Page 93 PREV PAGE TOP OF DOC Food Quality Protection Act Reform. WGA strongly supports efforts to provide for a better implementation process of the Food Quality Protection Act, such as the ''Regulatory Fairness and Openness Act of 1999'' (H.R. 1592) by Rep. Pombo. This legislation does not change the fundamental requirements of FQPA, but rather reinforces the original FQPA language to ensure that the EPA uses actual data and realistic models in their risk calculations. The bill also would require EPA to use the data call-in provision of the law where there are data gaps. Effective and fair implementation of FQPA based on actual data and sound science is critical to ensuring that growers have access to the crop protection tools needed to grow nutritious and affordable fruits and vegetables.
WGA is pleased to see that this FQPA reform bill has 218 cosponsors, thus attaining the support of a majority of the 435 members of the House, and urges Congress to move forward with this legislation as soon as possible.
WGA appreciates the small increase in funding for Federal agricultural research that Congress has provided in the last year or two. However, our industry has two concerns regarding research. First, the Agricultural Extension Service has been decimated over the last 15 years. Their advice and applied research is critical to assisting growers in the development of more efficient ways of growing crops. In California, many of the long time extension advisors are reaching retirement age and it is not clear that there is the will to replace them. Secondly, we believe that more funding should be directed towards applied research. As we struggle with changes in pest control, new environmental legislation, and other challenges, applied research has the potential to assist in the development of new solutions to these issues.
Thank you for this opportunity to present the WGA's views on Federal agricultural policy. I will be glad to respond to any questions.
Page 94 PREV PAGE TOP OF DOCStatement of American Beekeeping Federation
We would like to thank the committee for making the effort, through this series of hearings, to determine the views of America's farmers on current and future agricultural policy. We especially thank you for this opportunity to present the views of the American Beekeeping Federation.
The American Beekeeping Federation is a nationwide trade association composed of beekeepers, honey processors, bee supply manufacturers and dealers, and other interested parties. We have about 1,500 members spread across the country. Our beekeeper members range from hobbyists' with one or two colonies to multi-State commercial beekeepers operating tens of thousands of colonies; they are involved in honey production, pollination, bee breeding, and all other aspects of beekeeping.
The beekeeping industry is in desperate and deplorable condition. Honey prices paid to beekeepers have fallen precipitously in the last 3 years. A beekeeper needing to sell a load of honey today may be offered as little as 60 percent of what he was selling honey for in 1996. This is in real dollars, without regard to the erosion of inflation.
Our costs, on the other hand, continue to climb. Seemingly at every turn we are faced with a new, added cost of doing business. Modern commercial beekeeping is a highly mobile operation, as beekeepers move their colonies from honey crop to pollination contract to winter nursery grounds in an attempt to maximize their revenues. Mobile means fuel-consuming which these days translates into more dollars for every tank full.
Beekeepers have their own special cost factors. We are currently dealing with three exotic pests. Through the good efforts of USDA and university scientists, we have been provided tools to deal with these pests, but these treatments art expensive costly to purchase and labor-intensive to apply.
As a result, profit margins for many beekeepers are expressed in negative numbers; as the cost of producing honey climbs inexorably, prices continue their downward slide.
Page 95 PREV PAGE TOP OF DOC Honey price declines are likely attributable to many factors but the principal cause is an increasing tide of imported honey at prices well below the cost of domestic U.S. production. beekeeping and honey production are a labor-intensive business. Despite enormous productivity and efficiency advantages, U.S. producers simply cannot survive at current world market prices because of the drastically Lower costs incurred by foreign producers.
The U.S. honey tariff was bound in the 1947 GATT agreement at only 1-cent per poundcurrently about 2 percent ad valoremand recent trade agreements have further reduced this minimal tariff, or eliminated it altogether for many of our honey supplying trading partners.
The traditional price support program for honey was abolished after the 1993 honey crop. The only support available for our beekeepers since then has been a simple recourse commodity loan, and even this modest measure was not available for several of those years. Since 1993, beekeepers have had no subsidy, no LDP, no other safety net.
The end of the price support program did not bring immediate disaster for beekeepers. It came at a time when U.S. honey prices were buoyed by an antidumping action against honey from China and somewhat short supplies of honey worldwide. However, as the supply situation eased and the importers adjusted to the antidumping restrictions, imports began to rise and honey prices began to fall.
With some fluctuations due to supplies, imported honey has traditionally accounted for about one-third of U.S. honey consumption, but since 1996, foreign beekeepers have supplied almost one-half of the honey we eatand during the first 6 months of this year, they have commanded almost 53 percent of the market.
As a result of this pressure of cheap imported honey, prices paid to domestic producers have tumbled. The average honey price received by domestic producers as reported by USDA-NASS fell from 88.8 cents per pound in 1996 to 59.9 cents per pound in 1999. This is a drop of 32.5 percent, and current market conditions indicate that the 2000 average price will be still lower.
Page 96 PREV PAGE TOP OF DOC Lower prices have taken a toll on the beekeepers themselves. The National Honey Board reports only 2,953 domestic producers paid NHB assessments in 1999down 10 percent from the previous year, and down 23 percent from 1993. Many other beekeepers are holding on by their fingernails, living off their equity, and praying for better times. The number of bee colonies, as reported by USDA-NASS, was down more than 6 percent in 1999 as compared to 1993.
A cynic might venture that we may as well import what honey we need and not worry about domestic beekeepers. That cynic might be right, except for one factor: pollination. Our beekeepers are unique in that they provide a service to the rest of agriculturea service which enables those growers to be more productive and efficient. A Cornell University study has determined that pollination by honey bees adds $14.6 billion in value to major crops. And this total does not take into consideration the pollination of backyard gardens, ornamental plantings, and environmental flora.
The same cynic may wonder why beekeepers don't simply charge enough for pollination services that they are not dependent on honey prices. It's just not that simple. The crops which are dependent on pollination do pay for that service, but beekeeping is a year-round activity. A honey bee colony cannot be kept on a shelf for 11 months of the year and taken down for use during a 4-week pollination season for a particular crop. It must be maintained for the rest of the year, and the best way to keep the colony active and healthy is to place it on honey crops. Without honey production, bees might not be available to pollinate some crops at any price.
Already, at certain times and in certain locales, the supply of bees for pollination can become critical. If a harsh winter reduces bee supplies or if pollinated acreages increase suddenly, growers may have to scramble to line up sufficient bees. If honey prices continue to decline and beekeepers continue to turn to other occupations for their livelihoods, the hunt for bees to pollinate crops will become a regular activity.
Page 97 PREV PAGE TOP OF DOC As the committee begins to formulate major farm policy changes, America's beekeepers want to be a part of that debate and to be given the same consideration as other growers. The idea of a marketing loan program for honey has a lot of appeal, both to the beekeeper producers and to the processors who purchase our honey. If pegged to the right indicators, a marketing loan could provide our beekeepers help when we need it most: when the world market price falls below the cost of domestic productiona safety net when beekeepers can not make a profit. If world market prices rise above the cost of production then U.S. beekeepers would prefer that any safety net effectively dissolve to minimize market disruption and government cost.
Despite recent notoriety due to erroneous reports in the Washington Post and elsewhere, beekeepers do not want or expect to live off Government largesse. In fact, beekeepers have been assessing themselves 1-cent per pound since 1986 to promote domestic honey consumption and export expansion through the National Honey Board. This represents a far greater percentage of crop value than may other commodity promotion programs.
Despite the increased domestic demand that the National Honey Board has achieved, the rising tide of imports has quashed the price increase that beekeepers and the Honey Board have worked so hard to obtain.
The presence of a safety net to enable beekeepers to survive when world market prices are below the minimal cost of domestic production is essential. And it is only equitable to provide beekeepers with a safety net comparable to the countercyclical protection afforded other agricultural producers.
We stand ready to assist the committee in designing the appropriate mechanism to provide this safety net.
Thank you for this opportunity to provide testimony on farm policy.
"The Official Committee record contains additional material here."
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