SPEAKERS CONTENTS INSERTS
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REVIEW OF FEDERAL FARM POLICY
WEDNESDAY, APRIL 12, 2000
House of Representatives,
Committee on Agriculture,
Washington, DC.
The committee met, pursuant to call, at 10:00 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives Barrett, Ewing, Pombo, Smith, Chambliss, Moran, Thune, Cooksey, Gutknecht, Hayes, Fletcher, Stenholm, Condit, Peterson, Dooley, Clayton, Minge, Pomeroy, Holden, Baldacci, Berry, Stabenow, Etheridge, Boswell, Phelps, Lucas of Kentucky, Thompson of California, and Hill.
Staff present: William E. O'Conner, Jr., staff director; Tom Sell, deputy staff director; Alan Mackey, senior professional staff; R. Bryan Daniel, professional staff; Michael Neruda, subcommittee staff director; Wanda Worsham, chief clerk; Callista Bisek, scheduler/clerk; Howard Conley, minority economist; and Anne Simmons, minority consultant.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
The CHAIRMAN. Good morning. I welcome witnesses and colleagues to the hearing on farm policy. We are holding this hearing to complement the field hearings the Agriculture Committee is holding in regions of the country. We have completed six of our field hearings and have four more on the schedule for next month. I think the time we have spent on this endeavor has been profitable to members of the committee and to people who have attended the hearings.
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Today we are going to hear from six witnesses who represent some of agriculture's output sector, the folks who further process and market the crops produced by farmers and ranchers. In our field hearings, we have heard their opinions on what is and isn't working with Federal farm policy and we will ask that same question here today.
Also I would like to say that I think the members of this committee know problems that we have in agriculture. What is more, we fundamentally believe that it is in the best interest of this Nation to maintain and foster a strong agricultural sector. The question is how we best accomplish that goal.
I look forward to the testimony of witnesses and I would like to thank them for being here. I recognize Mr. Stenholm.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman. Thank you for holding another in this series of hearings. During the past few weeks of hearings, one thing has become very clear and that is Congress needs to consider a policy that provides more permanent protection rather than continued year by year income assistance. In the 4 years since Congress passed the Federal Agriculture Improvement and Reform Act, it has been made painfully clear that complete dependence on markets has failed to provide U.S. producers with the incomes promised by the authors of Freedom to Farm.
For 2 years running Congress has provided emergency income assistance. The House passed budget provides $6 billion for the 2000 crop year. The 1996 farm bill does not provide an adequate safety net and Congress needs to develop a long term policy that provides comprehensive protection.
Under Freedom to Farm, planning flexibility in the absence of acreage controls have allowed producers to meet market demand and be a competitive presence in world markets. These positive steps should continue. Producers need assistance from year to year to meet the challenges posed by weather and changes in price, and Freedom to Farm fails to provide this.
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In addition to using domestic policies to provide an adequate safety net for our farmers and ranchers, we must fund and support exports. Congress should approve normal trade relations for China as expeditiously as possible. Comprehensive sanctions reform, including Cuba, should also be enacted during this session.
I am looking forward to hearing from today's witnesses to what they perceive to be the solutions to the problems facing rural America. Thank you, Mr. Chairman.
The CHAIRMAN. As is customary, all members will have the opportunity, without objection, to enter statements into the record.
[The prepared statements of Messrs. Barrett, Smith, and Bishop follow:]
PREPARED STATEMENT OF HON. BILL BARRETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA
Thank you, Mr. Chairman for your leadership, vision, and foresight in organizing this series of nationwide field and Washington, DC hearings to review Federal farm policy. These hearings are providing members of the Agriculture Committee with a number of possible solutions and ideas to return production agriculture back to profitable times.
The last 2 years we have been experiencing harsh economic conditions throughout production agriculture. These harsh conditions can be attributed to numerous factors including weather, low prices, and abundant production. In addition to these factors, an inadequate administration trade policy has exacerbated the situation. As a result, the demographics of the industry have begun to change rather drastically, forcing many farmers out of production or their operations consolidated. Despite efforts to answer these new challenges, many producers remain in economic distress. This, only affects the producers directly but also all the industries that are dependent upon the business of the American farmer.
In my home State of Nebraska, these economic conditions have combined to put an enormous strain on all sectors of the agricultural economy and the rural communities that rely on them.
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It is no secret that farmers are facing depressed prices as the result of a lower demand for farm products. Last year when faced with similar circumstances, Congress passed a large multi-billion dollar assistance package for producers. The farm economy needed this large boost in income for survival, but additional measures are needed. Crop insurance reform is just one step the Federal Government can take in ensuring an adequate safety net for producers. This, in turn, will stabilize the entire industry that is dependent on producers' prosperity.
The House-passed crop insurance bill would provide a new approach to risk protection by providing for additional coverage to producers and establishing a pilot program for livestock protection. Increased premium assistance and improved coverage will allow producers to better protect themselves in an endangered farm economy.
Where do we go from here? What are the best policy options for farmers, processors, marketers and distributors? To help us in Congress find the answers to these questions, we must go to those most affected, the producers along with other sectors of the industry that affect the producers' markets and prices.
Again, I would like to thank the chairman for his strong leadership in this time of weak prices by taking the full committee around the country to hear directly from farmers in rural America. In addition to these hearings, a series of hearings is being held here in Washington, of which this is the second, to listen to the appeals from other sectors of the agricultural economy whose performance can greatly effect the producer's markets. The insight and analysis from higher levels in the supply chain can provide Congress with another perspective on the ramifications to the producers' markets and the industry as a whole as a result of possible modifications to current Federal farm policy.
Our producers are the most important commodity we have in America. But we also must be cognizant of the interests of the industries throughout the agricultural supply chain. I look forward to working with my colleagues to provide the best program for farmers in a market-oriented farm economy, which in turn will ensure the health of the entire industry. I thank the witnesses for joining us here today, and I look forward to their testimony.
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PREPARED STATEMENT OF HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Mr. Chairman, thank you for holding this hearing. American agriculture is in crisis. The current problem is threefold: (1) the collapse of the Asian economies has substantially reduced demand for our products; (2) as other countries subsidize their agriculture up to five times what the American farmer is subsidized, they dump their surplus onto our markets; and (3) concentration of firms that sell to and buy from farmers disadvantage those farmers with near monopolistic pricing. Michigan farmers tell me that they don't want Government subsidies; they want a fair price for the commodities they produce. One thing that means is that we have got to do a much better job writing our trade agreements than we did in the NAFTA and the last GATT round. We must expand sales to existing customers and find new customers.
As a result of these problems, farmers have faced two consecutive years of seriously depressed prices and world stocks of agriculture products continue to grow. And it doesn't look promising for this year's crop. Income levels are down dramatically from 1996. Commodity prices in some cases have dropped to 40 year lows and exports are 9 percent lower than last year. Just as was the case in the 198Os, basic farm programs cannot cope with a problem of this magnitude. While the Department of Agriculture is purchasing some surplus commodities for domestic and international donation, these steps aren't enough to turn the situation around.
Over the first part of this year, the House has been examining the current crisis by holding field hearings across the country. It is important that we take the input from agriculture producers seriously and make changes in farm policy to adequately address current problems. It is also important that we hear from all other parts of the agriculture industry as well. Many of our farmers and ranchers face a real risk of survival. If the American consumer comes to depend on foreign imports, prices will eventually go up and quality and safety will be at risk. I am looking forward to hearing the testimony today by our distinguished list of witnesses. Thank you.
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PREPARED STATEMENT OF HON. SANFORD D. BISHOP, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA
I commend Chairman Combest and Ranking Member Stenholm for holding this set of hearings to review Federal farm policy. Last month this committee heard from input sectors in agriculture, including representatives in banking, farm management, and crop protection, This committee is also listening to working farmers in a series of field hearings being conducted across the country. And now, I look forward to this panel's testimony from the processing sector of American agriculture.
These hearings have raised important questions about farm policy as it relates to prices paid to farmers, farm income assistance, and attempts to open foreign markets to American farm products. These issues are fundamental to good farm policy and a prosperous agricultural sector.
But there are other issues that this committee will need to address. I look to this panel to guide us on what can Congress do to promote value-added farm products for domestic and export markets.
I am also interested in how we can best utilize Government purchases from domestic farmers to help clear oversupplies.
In addition, the drastic decline in non-government farm income has left the infrastructure of rural America in disrepair. What steps can this committee take to encourage rural development and the rebuilding of our small towns and main streets?
How can the processing industries help lead this challenge?
Finally, farmers are getting old and fewer young people are entering production agriculture. Who will grow our food and fiber as we enter the 21st century? What measures can Congress enact to assure that we have a new generation of beginning farmers ready and able to meet the production demands of the future?
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Again, I thank Mr. Combest and Mr. Stenholm for holding this hearing. I look forward to working with all of you to bring prosperity to all sectors of American agriculture.
The CHAIRMAN. The first panel of witnesses today are the Honorable John Block, president of the Food Distributors International, Falls Church, Virginia on behalf of the coalition for Competitive Food and Agricultural System; Mr. Allen Johnson, president, National Oilseed Processors Association in Washington, DC; Mr. Robert Greene, president and CEO of Servico, Inc., Courtland, Alabama, on behalf of the National Cotton Ginners Association and Southeast Cotton Ginners Association and the Alabama Agribusiness Council.
Duane Fischer, president, Scoular Company, Omaha, Nebraska, and Chairman, International Trade and Agricultural Policy Committee, National Grain and Feed Association; David Graves, president, National Council of Farmer Cooperatives and David Bossman, president, American Feed Industry Association, Arlington, Virginia.
Secretary Block, please begin.
STATEMENT OF HON. JOHN R. BLOCK, PRESIDENT, FOOD DISTRIBUTORS INTERNATIONAL, FALLS CHURCH, VA, ON BEHALF OF COALITION FOR A COMPETITIVE FOOD AND AGRICULTURAL SYSTEM
Mr. BLOCK. Thank you, Mr. Chairman. I am John Block, president of Food Distributors International and member of the Steering Committee of the Coalition for a Competitive Food and Agricultural System. I appear before you on behalf of the Coalition, which represents a broad range of interests working for market based policies designed to benefit all 21 million people working in the U.S. food and agriculture industries. The Coalition consists of over 120 trade associations and agribusiness companies.
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In addition to this, I have a farm in Illinois. We raise corn and pigs and soybeans. Over the past few years, the Coalition has actively participated in discussions regarding the 1996 farm bill. We have noted the attempts of some to blame the farm bill for today's current economic climate in agriculture. We do believe that the market-based farm policies adopted by Congress in 1996 have on balance benefited U.S. agriculture. We live in an interconnected world where demand is growing, but competition is fierce. To succeed in today's environment, farm policy must, one, allow producers to compete in world markets; No. 2, support incomes without interfering with those markets; No. 3, give farmers flexibility to make their own production decisions based on market conditions.
We are all quite aware that we are seeing favorable growing conditions and relatively high prices in 1995 and 1996 and the natural result has been more production. On top of that, the demand in Asia collapsed and of course we have our low prices in agriculture that none of us appreciate or like today. But that is the market system at work.
The 1996 farm bill's combination of substantial direct payments along with marketing loan and loan deficiency payments have stabilized farm income and minimized market distortions at the same time, and we include the emergency payments which farmers very much appreciate passed by Congress. But when you put it together, 1999 was actually the highest cash income year in U.S. history. That doesn't mean that the mood was good in the country, but that is a fact of life.
One of the important things to keep in mind is land values have held firm. We have not seen the collapse in values that we saw in the mid–1980's, where they dropped 50 to 60 percent, and Dan Glickman has said it is more fun to be Secretary when prices are stronger. Well, I certainly would agree with that. But it also helps with land values holding up.
I hear a call for countercyclical income support policy. I would just note that I think the combination of market loan and loan deficiency payments, payments to producers during periods of low prices actually accomplish a lot of that. I still give credit to the Congress for providing additional support, emergency support.
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I don't think we should go back to the policies of the past. We don't want to lose the plan and flexibility that we have today. We don't want to go back to production controls. All of the advantage then goes to our competitors when we take our land out of production, and we don't want to artificially inflate prices because that just encourages our competitors to come into the market and produce more.
Freedom to Farm has discouraged overseas acreage expansion, encouraged importing companies to rely on trade rather than domestic production and encouraged increased overseas demand for U.S. agricultural products. And the numbers tell the story. Since the 1996 farm bill was passed, harvested areas for grains and oilseeds outside the United States has fallen by 35 million acres. A lot of foreign producers are adjusting and taking their land out of production because of prices. We believe that the vehement opposition to Freedom to Farm from Brazil and the European Union should be telling us something because I don't think that they have necessarily our production interest at heart.
On the demand side we believe that the 1996 farm bill has encouraged importing countries to rely more on trade. The diversity of rural America highlights the need for a range of policies that go beyond commodity programs. We need estate tax relief. We have to care about our fruit and vegetable farmers and our livestock and poultry producers. In some circles Freedom to Farm has become a convenient scapegoat for other policy failures. Remember the Freedom to Farm law was one commitment made to farmers. Congress provided farmers with more flexibility to meet market conditions, but in the promised trade and regulatory relief, Congress and the administration have been slow to act, trade in particular. Much more could be done and should be done to grow our markets abroad.
The fast track authority, so essential to capturing added market share, has on more than one occasion been rejected by the Congress. Trade sanctions on food products continues to deprive American farmers of billions of dollars of exports. I know that Congressman Stenholm just spoke to that. Passage of PNTR for China is one of the highest priorities for the American farmer. Will the Congress pass it? Attention to these impediments to trade cry out for immediate action in the face of today's farm crisis.
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Agriculture needs further trade liberalization through a comprehensive WTO agreement that insists on meaningful reform in agricultural trade. I urge Congress to put your politics aside and clear the trade channels for American farm products. I urge President Clinton to bring the power and force of his office to open trade channels.
In closing, commodity programs alone cannot address all of the problems of the farm sector. The Coalition would make the following recommendations to help promote prosperity: Preserve the 1996 farm bill more or less as it is; two, continue to press for new customers for U.S. farm products; three, promote tenets of science based environmental policies; encourage farmers to manage their risks; reduce the tax burden of farming by repealing the estate tax and enacting farm and ranch risk management accounts; increase public investment in research and infrastructure, especially our Nation's transportation system.
Thank you, Mr. Chairman, for the opportunity to speak today.
[The prepared statement of Mr. Block appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. Mr. Johnson.
STATEMENT OF ALLEN JOHNSON, PRESIDENT, NATIONAL OILSEED PROCESSORS ASSOCIATION, WASHINGTON, DC
Mr. JOHNSON. Mr. Chairman, members of the committee, I appreciate this opportunity to testify today. NOPA member companies process more than 1.6 billion bushels of soybeans annually in 23 States, which is equal to roughly 60 percent of the soybeans produced in this country. That is about 4.4 million bushels a day, 115,000 acres a day or 5,000 acres an hour. The total value of the industry seed, meal and oil production is about $30 billion, roughly $10 billion being for exports.
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Let me say that I agree with the Secretary's comments and I will attempt not to be too redundant and focus in more depth on a couple of issues. Similar to the Secretary's comments as the committee reviews the FAIR Act and considers future agricultural policy, we hope that you consider, seriously consider four guiding principles: One, markets, not government, should control producers planting decisions; two, supply management programs in whatever form are counterproductive; three, the United States needs to be aggressive in our international trade policy; four, reforms in U.S. economic sanctions can help reestablish the United States as a reliable supplier.
The planting flexibility enables producers to optimize crop selection and reduce operating costs, thereby maximizing their profitability. Farm programs are designed to help farmers through tough times and provide a safety net during unusually low prices. The FAIR Act recognizes that the Government can help farmers through tough times without trying to micromanage their production decisions. We need long term views during the down times so we don't have short term fixes that turn out to be more harmful over the long term.
Idling acreage has consistently failed to raise commodity prices for producers over any appreciable length of time. Supply management tools hinder the ability of the United States to react and benefit when the agricultural economy improves. More importantly, further retirement of U.S. cropland impedes our competitive position by giving our competitors the opportunity to increase their market share and in turn increase their production and improve their infrastructure.
Future farm programs must not distort commodity markets, overturn U.S. trade obligations or impair negotiating positions in future negotiations. The simple fact is that the future of U.S. agriculture is outside our borders. 5.8 billion customers are outside the United States compared to 274 million people in the United States In addition, the population outside our borders will grow faster than in the United States and each of those people as their economic environment improves will eat more.
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Also, U.S. agriculture continues to increase its productivity every year. The reality is that even the best farm policy can never undo a bad trade environment. Today 1 out of every 3 acres planted in the United States is exported. When exports are down, as they were last year, by $11 billion, or 20 percent, from 3 years earlier, agriculture feels the pain.
A more aggressive international trade policy is essential. Today U.S. oilseed producers rely on foreign markets for 45 percent of the U.S. soybean production. As the leaders of the free world, the United States must lead. While the current political environment does not bode well for any fast track authority to launch a comprehensive WTO round, those steps must be taken as soon as possible.
We should be laying the groundwork in both the United States and with our trading partners, and this includes education. The United States and others around the world must recognize the benefits of trade and must be given the opportunity to benefit from the fruits of more open markets.
The biggest farm bill you will have this year will be the vote of PNTR. With the United States-China trade agreement for Chinese accession in the WTO, the United States has made significant strides in opening the Chinese markets to U.S. agricultural products while bringing them under the international disciplines that exist in the WTO. China is the largest growth market for U.S. oilseed products, and we expect it to exceed over $1 billion annually in a short time. Our industry is the number one agricultural exports to China and the importance of this agreement cannot be overstated.
For example, a recent price difference between China's domestic oilseed price and the world market price is about $170 a metric ton, which is equivalent to about 85 cents a bushel of soybeans. When China's markets open, we want to take advantage of it and not forfeit it to our competitors. We must reform U.S. economic sanctions and reestablish the United States as a reliable supplier. Food and medicine should not be used as weapons. Opening markets for food provides a beachhead for democracy and freedom to follow where it does not exist and supports it where it does exists.
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Again, as the world looks to our country for leadership in moving forward in international trade, the United States has a tremendous opportunity to influence the agenda for the next round of the WTO negotiations. We must be creative in approaching the challenges and opportunities that face us today and in the future in the international trade environment.
Let me close by doing something similar to what the Secretary did, just listing what we describe as the recommendation for a prosperous future in agriculture. That is improve PNTR for China, continue to press for aggressive trade policies, support a comprehensive WTO agreement, eliminate unilateral economic sanctions, preserve the FAIR Act and its market orientation and planning flexibility, promote environmental policies that reward sound stewardship, develop risk management tools, increase funding for agricultural research and transportation infrastructure, reduce the tax burden on farming and reform regulatory burdens on agriculture. These tools are available to us if we have the political will to use them.
Thank you very much.
[The prepared statement of Mr. Johnson appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you.
Mr. Greene.
STATEMENT OF ROBERT W. GREENE, PRESIDENT AND CEO, SERVICO, INC., COURTLAND, AL, ON BEHALF OF NATIONAL COTTON GINNERS ASSOCIATION; SOUTHEASTERN COTTON GINNERS ASSOCIATION; AND ALABAMA AGRIBUSINESS COUNCIL
Mr. GREENE. I am Bobby Greene. I am a cotton ginner from Alabama, and I serve as chairman of the National Cotton Ginners Association. I want to thank you for this opportunity to participate here today. There are approximately 1,100 cotton gins operating in the United States most grow our own, we employ approximately 36,000 people and generate almost a billion dollars of revenue each year. Each gin represents a $2 to $5 million capital investment in purchases of gin equipment and supplies and farm-related equipment, which contribute to rural economies.
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There has been significant consolidation of gins over the last 20 years. Gins are now handling higher volumes and operating in larger trade territories. Economics dictate that we offer more services and achieve additional operational efficiencies for our grower customers. Labor availability, the need for technological advances in quality, improvement and increased efficiency are key issues for ginners.
Your support for reasonable regulations and continuation of important research conducted by our three agricultural research service ginning laboratories are important to our ability to serve our farmer customers. The financial viability of gins is directly tied to the producers who bring us their cotton to process. The emergency financial assistance provided to farmers in both 1998 and 1999 was essential. The cotton seed assistance Congress has authorized, although not yet delivered, is also crucial to gins and their customers. When cotton seed prices collapsed last year, many gins absorbed the loss rather than bill their customers.
Mr. Chairman, we know the 1996 farm bill did not cause current low prices, but it has proven inadequate to effectively protect agriculture during a sustained low price cycle. The cotton industry, including the Ginning Association, has not yet formalized recommendations for the next farm bill, but I appreciate the opportunity to offer some general points that I hope will interest the committee.
Ginners, like growers, support planning flexibility and consider this to be one of the strong points of the 1996 act even though it adds uncertainty to our processing volume. On the other hand, we are strongly opposed to a return to supply management. We have significant investment in plant and equipment, and supply management programs generally serve only to reduce U.S. production while shifting production to our foreign competitors and doing little to increase producer prices.
The Marketing Loan Program, coupled with cotton's three-step competitiveness plan, has helped U.S. cotton maintain market share in times of intense international competition. The marketing loan is the most critical component of future farm policy.
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The direct AMTA payment created by the 1996 act has provided a degree of financial certainty. However, the current level of fixed payments has been inadequate when prices are very low. We are reviewing proposals that include a slightly different approach to supplemental income payments that could be more effective during periods of low price.
Mr. Chairman, ginners, like cotton growers, are strongly opposed to targeting of benefits based upon an operation size or any other arbitrary criteria. Payment limits ignore the need for efficiency in operations and are at their worse when applied to the loan program, which is already pegged well below production costs. The problems of payment limits experienced by most commodities over the past 2 years have been the result of marketing loan gains and loan deficiency payments, items that have grown in importance as world prices have fallen well below U.S. loan rates. This contradictory policy of limiting benefits should be reexamined to ensure that farmers are not forced to forfeit their commodities and the USDA required to auction those products, further depressing prices and farm income.
In summary, ginners depend on volume and the ability to add value for their customers. An effective farm policy combined with reasonable regulation, effective research and market development will ensure we can continue to serve our customers and contribute to the rural economy. We are confident if Congress remains focused on developing effective policy, the next farm bill can reduce the need for annual fixes and restore the opportunity for profitability.
Thank you, sir.
[The prepared statement of Mr. Greene appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you.
Mr. Fischer.
STATEMENT OF DUANE FISCHER, PRESIDENT, SCOULAR COMPANY, OMAHA, NE, AND CHAIRMAN, INTERNATIONAL TRADE AND AGRICULTURE POLICY COMMITTEE, NATIONAL GRAIN AND FEED ASSOCIATION
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Mr. FISCHER. I am Duane Fischer, president of the Scoular Company in Omaha, Nebraska. In my testimony today, I represent the more than 1,000 member companies and cooperatives of the National Grain and Feed Association.
Prices for grains and oilseeds have been low for some time. Even though generally higher than normal yields in the last 2 years have softened the revenue impact of low prices, our industry knows how challenging it can be for farmers to make a living on $2 corn and $2.50 wheat. But history has taught that efforts by government to directly influence market prices have always backfired. Supply control programs have not raised prices for any appreciable period, and ultimately only encourage foreign competitors to become more brazen in their expansion plans. Inventory management plans like grain reserves only keep prices low for longer periods. Income assistance from government, which has minimal impact on market prices and production decisions, is the best approach because it helps farmers today in a way that won't harm them in future years.
In our view, the FAIR Act is performing well for what it was designed to do. It was not intended to raise prices but to give farmers a known safety net. That known safety net for 2000 assures minimum gross revenue of $5.26 per bushel of soybeans, $2.11 per bushel of corn, and $2.99 per bushel of wheat, and those prices do not include the emergency payments that have been made the last 2 years.
These are not attractive as average returns, but as minimum guarantees they are respectable support levels. The FAIR Act is also performing well in the way that it is permitting domestic U.S. supplies to adjust. Wheat production is down 12 million acres since 1996, and acreage for seven major crops is down 10 million. High yields have counteracted much of this market driven supply adjustment, keeping supplies temporarily large, but our excess supplies would have been worse without the flexibility of the FAIR Act.
The FAIR Act is also forcing our competitors to adjust production. Foreign acreage is down over 25 million acres per year in the last 3 years. It has been a long time since we have seen that much of a pullback from our competitors. This would not be occurring without this law.
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The FAIR Act has also put dollars into farmers' pockets. There has been a huge shift out of wheat into soybeans since 1996. Based upon average returns, most farmers have doubled their net revenue by having the flexibility to make this crop shift.
While Government programs to manage supplies or manipulate price has never worked in the farmers' favor for very long, there are some positive things that Government can do to help. First, support free trade. Whether it is reducing the trade barriers through the WTO or approving permanent normal trading relations for China, expanded trade is so important to a healthy agriculture economy, members of this committee should be Congress' strongest supporters for such initiatives.
There is a chart in my testimony that tracks the trends in farm income and trade in the 1970's, when we had strong trade growth. Trade nearly tripled and farm income doubled. In short, real growth in farm income can't happen absent strong gains on the trade front. We look to our leaders on the Agriculture Committee to make sure this happens.
Second, our transportation infrastructure needs to be enhanced and soon. Lots of dams on the upper Mississippi River and Illinois River that keep this business efficient are literally falling apart while our competitors in Brazil and elsewhere invest heavily in infrastructure and are about to eat our lunch in export markets. Infrastructure improvements need to be made a farm policy issue because that is what it is. There is probably no better way to put real dollars into farmers' pockets than to invest in the infrastructure.
Third, we would encourage Congress to thing beyond crop insurance solutions for farmers' risk management needs. There is promise in a tool called agricultural trade options, but the Commodity Futures Trading Commission must develop rules that are more user friendly to get this concept launched. We would encourage the members of this committee to give the CFTC encouragement to reduce regulatory burdens.
In a related area, Congress needs to take action to permanently resolve the beneficial interest problem. Farmers who have tried to market their crops have been burned by some technical arguments that cost them LDP eligibility. We don't think Congress intended for farmers to sacrifice marketing flexibility just to be able to earn their LDP. This problem needs to be fixed before this Congress adjourns.
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Also, we would caution Congress on expanding the Conservation Reserve Program. Tenant farmers who are trying to put together an economic sized package of land and equipment are finding it very difficult to lease land at rates that can be farmed profitably. As more productive acres are being bid into the CRP, oftentimes at rental rates that cannot be justified by the current cash rent market, tenant farmers are simply being outbid by their friend, Uncle Sam. The bottom line is that an expansion of the CRP will do no more to raise U.S. farm prices than the old-style acreage idling programs. Expanding the CRP will only benefit landowners, many of which no longer live in the same state, let alone on the land, further subsidize game bird hunting, encourage Canadian farmers to grow more wheat and ship it south into the States, and put more tenant farmers in the United States out of business. Expanding the CRP ensures that we have a lot fewer farmers that can successfully enter the business and to depopulate rural areas, creating additional funding needs to subsidize rural infrastructure.
In summary, Congress should support income, not prices, support trade, infrastructure maintenance and improvements, support market based risk management tools that work, and have payment limits that must be thoughtful and realistic so that economic sized farm operations can still thrive. The CRP must be used as a conservation tool, not for supply management.
We appreciate the opportunity to testify today and look forward to any questions.
[The prepared statement of Mr. Fischer appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you.
Mr. Graves.
STATEMENT OF DAVID GRAVES, PRESIDENT, NATIONAL COUNCIL OF FARMER COOPERATIVES, WASHINGTON, DC
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Mr. GRAVES. Thank you. The National Council membership includes farmer cooperatives of all sizes throughout the United States and they are engaged in all of the commercial activities included in the food and natural fiber industry in the United States. The council appreciates this opportunity to share its views with regard to agriculture policy and programs. In particular, we want to express our continued concern over the current state of the farm economy and to urge additional actions by the administration and Congress to help meet both the near term as well as the long term challenges facing U.S. agriculture, especially those confronting the farmers, ranchers and growers and their cooperatively owned businesses.
Over the past 2 years Congress has responded to the near term challenges facing U.S. agriculture by providing farmers with needed emergency economic and disaster assistance. For many farmers, such emergency assistance has been the difference between survival and going out of business. It appears that given the current economic outlook, similar assistance will again be needed this year.
Accordingly, we are pleased that the House and Senate budget resolutions include additional funding for this purpose, and we strongly support such action as may be necessary. At the same time we believe that it is critical that additional action be taken that will lead to improved farm income, better risk management tools, increased market opportunities and sustained economic growth for U.S. agriculture on a long term basis. It is within this framework that current farm policies and related programs should be reviewed and evaluated as well as strengthened.
In this regard, Mr. Chairman, we want to commend you and your committee for beginning this process through hearings across the country and here in Washington.
In looking at the challenges facing U.S. agriculture, we believe it is important to recognize that the food and agriculture industry is undergoing a fundamental change. It is not the same industry it was 5 or 10 years ago. Furthermore, it is not likely to be the same industry in another 5 or 10 years that it is today. Major drivers of this change are globalization of both food and financial markets and technological advancements. In this environment there are two objectives that must be accomplished if the marketplace is to be a more dependable source of a sufficient farm income.
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First, U.S. farmers must have access to all food, natural fiber and agricultural markets. Second, U.S. farmers must be able to effectively compete for the profits that accrue in all sectors of all food, natural fiber and agricultural markets.
There are significant steps toward accomplishing each of these objectives. Three steps forward that will work toward accomplishing the first objective is establishing permanent normal trade relations with China. In this regard, we are pleased that a vote has been scheduled for the week of May 22, and we urge all members of this committee to support such action. Second, eliminating the use of unilateral trade sanctions and embargoes relating to U.S. agriculture. Third, reauthorizing fast track trade negotiating authority.
Six steps that are significant steps that can be taken toward accomplishing the second objective: First, increase funding for USDA export programs, including the Market Access Program and the Foreign Market Development Program as contained in H.R. 3593.
Second, utilizing the full range of authorities allowed under existing trade agreements.
Third, maintaining adequate funding for waterways infrastructure and ensuring access to rail and highway systems.
Four, streamlining and improving programs that help meet the labor needs of U.S. agriculture.
Five, reducing the overall regulatory burden.
Six, and by far the most significant step in our opinion, is strengthening the ability of farmers to join together in cooperative self-help efforts. They are farmer owned and controlled. They exist for the mutual benefit of their membership. Earnings derived are returned to the farmer owners of these cooperative businesses on a patronage basis and helps strengthen farm income as well as the rural economy.
In particular, regarding strengthening the ability of farmers to organize, there are four suggestions. One, funding should be specifically authorized at such levels as necessary to revitalize Federal programs relating to research, education, technical assistance and support of the growth and development of the breadth and scope of the use of farmer cooperatives.
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Second, support should be given to programs which ensure competitive access to capital and credit.
Third, current loan program guarantees should be expanded to provide financing for both new as well as existing farmer cooperatives.
Fourth, support should be given to programs that ensure competitive access to improved risk management tools. We commend the committee for its action in passing H.R. 2559. We believe it moves effectively in that direction.
Thank you, Mr. Chairman, for this opportunity for the council to share its views on current agricultural policy and programs.
[The prepared statement of Mr. Graves appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you.
Mr. Bossman.
STATEMENT OF DAVID A. BOSSMAN, PRESIDENT, AMERICAN FEED INDUSTRY ASSOCIATION, ARLINGTON, VA
Mr. BOSSMAN. Thank you. I am David Bossman, president of the American Feed Industry Association. I appreciate the opportunity to appear today to give AFIA's insight into what we believe to be the success of the Freedom to Farm as we have come to know the 1996 farm bill.
The feed and pet foods industry annually purchases more than $18 billion worth of feed ingredients. Livestock and pet feed and poultry feed use over 90 percent of the soybean meal processed and more than 60 percent of the corn produced in the United States, making animal feeding the single largest purchaser of domestically produced grains, oilseeds and by-products.
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We join the other organizations today in telling the committee that we believe the 1996 farm bill is working. We commend Chairman Combest and Representative Stenholm and other members of the committee for taking their show on the road and going out into the country and talking with the farmers and ranchers and suppliers who know about Freedom to Farm.
For us the equation is simple. The more successful livestock and poultry producers, the better it is for the feed and feed ingredient industry and the better it is for the communities in which we operate.
My colleagues on the panel today, particularly Secretary Block on behalf of the Coalition for the Competitive Food and Agriculture System have done an outstanding job in laying out for the committee both the statistical and anecdotal evidence that the farm bill is working. We support the Coalition's testimony and its call for proactive measures to supplement the positive effects of Freedom to Farm. We join others on this panel urging you to carefully weigh the evidence gathered so far before making any changes in the Freedom to Farm.
It has been pointed out today that Freedom to Farm, thanks to the direct payments, marketing loans and deficiency payments strikes an appropriate balance in farm income with minimum market distortion. Ensuring farmers have professional risk management tools is critical to improving this system. Incentives such as cost shared premiums as well as the development reimbursement for the private sector to create much needed new products, such as the livestock risk insurance pilot authority included in the House version of H.R. 2559, must be recognized as important new components in the Federal farm income safety net.
Revenue insurance complements production insurance products, and will be in greater demand as markets and forecasting income become more complex. Our customers today are very different. Forget Russia as the big customer. Look to Canada and Mexico. And if Congress demonstrates its wisdom, we can look to an explosion of demand from China through their gaining permanent normalized trading status to this Asia giant. There can be no greater priority for American agriculture today.
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In the feed industry we recognized in the 1980's that business growth was not necessarily tied to the export of our finished feed products, but to the success of our customers, the livestock and poultry producers, in their overseas markets. We watched significant demand shifts worldwide. We understand that lower wheat and feed grain sales have gained ground through a 25 percent run up in world sales of U.S. red meat and nearly a 200 percent increase in the global sales of U.S. poultry. This translates to a stronger domestic feed sales. Long term growth in the U.S. exports must not take a back seat to temporary market fluctuations given that every dollar of farm export generates at least a $1.32 in additional economic activity, and that is money in all of our pockets.
The feed industry urges this committee to identify export incentives and streamline infrastructure improvements as part of any attempt to make the farm income situation brighter. The changing global marketplace has taught us that new buyers will not wait for U.S. products to satisfy their demand. They will find other worldwide competitors to fill that need. And any limiting of our ability to supply will only restrict future sales.
AFIA respectfully urges the committee to give Freedom to Farm its full run. The last 4 years have not been particular but neither have they been so unusual that they don't provide a good test of the farmer-directed systems within the 1996 farm bill.
In a year or so we will return to this room and resume this debate but until then we urge you to preserve Freedom to Farm intact. Through creative trade incentives, forward thinking export policies such as the enactment of PNTR for China, you dramatically improve Freedom to Farm's chances of success. By enacting progressive legislation such as crop insurance, you add to the support structure necessary to successful farm policy, and by examining the core of our food production and delivery system we can address problems before they become fatal obstructions to success.
Freedom to Farm is just one component, albeit a critical one, in the dynamic and global agriculture market. We ask that you let it work. Thank you.
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[The prepared statement of Mr. Bossman appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, and I thank all of our witnesses. While we have completed only six of our 10 scheduled field hearings, and we are looking for a consensus, I can tell you that there is not a consensus out there among people producing to scrap the current farm program. There are concerns that are raised, and our challenge is to try to do what we can to keep the parts of the current farm program that people like and still make the changes that are necessary, recognizing that things in agriculture are as they are I think by an infusion of $15 billion additional dollars over the past 2 years and an additional $6 billion this year above what was anticipated. And when you put $22 billion over a 3-year period of time into any economy, it is going to have some positive impacts. We have to come up with how we can manage that in a system that provides some dependency on the program rather than providing the dependency that Congress is going to do that every year. I don't think that we always can.
I want to ask all of you just your thoughts on our export policy. Obviously exports are critical. We all recognize that. Trying to come up with a program that does all of the things that it has to do realistically to get passed, that is competitive, it doesn't artificially process out of the market internationally or domestically, it doesn't transfer the pain to some other segment of the economy, it does not officially have a price setting feature and it also allows the flexibility, sometimes this is a little challenging.
One of the things that I have been thinking about a great deal, primarily it came to focus when we were in Seattle with the WTO discussions, and 21 members of this committee went, which I think was very good in showing an interest in agricultural trade. The discussions there, before there was an ending of the meeting with no resolution, was to at least begin—or the hope was to begin discussing in the agricultural sector the beginning of discussions of elimination of export subsidies, and I think we would all benefit in this country from that. That was not accomplished and hopefully it will be in the future. But I don't intend to sit around and wait for something to occur. I think we have to take actions when we can.
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A comment that I made when I left there, if we can begin to at least discuss the elimination of export subsidies, those countries that are so highly subsidized versus the United States, then I think we need to look at our entire export enhancement policy and decide what tools do we have today and what tools may we create.
I think a bidding war in foreign trade would not be wise, but I don't intend to sit back and let the American producer enter into a bidding war without having something to bid. I want to be aggressive on this committee to come up with programs that make us competitive, if in fact that is the only alternative.
I would like your comments on what you think we are doing or should be doing in regards to our export subsidization policy given that we have not increased or begun discussions in the elimination of export subsidies worldwide.
Mr. Fischer.
Mr. FISCHER. I have a couple of points that I would make. In the past when we have had significant price subsidies through the CRP program, we got markets so distorted that foreign countries like Turkey and Italy could buy our wheat and mill it into pasta and ship the pasta back here and disadvantage U.S. pasta producers and cost us U.S. jobs.
I think any subsidy that is in the form of impacting price puts our domestic consumers at a disadvantage and needs to be avoided. For my business probably the two most important things that can be done to help exports are to find a solution to the foreign sales corporation problem. As you know, the European Union challenged the FISC program in the WTO and the United States lost on that. I guess I would urge you to find a solution or a substitute for that because it has been a very valuable tool for any number of agribusiness companies that are involved in exporting products.
The second is Government credit guarantees and credit programs. Those are invaluable in terms of moving products around the world. I would urge you to see that those programs are maintained or enhanced and funded.
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The CHAIRMAN. Any other comments?
Mr. GRAVES. Mr. Chairman, U.S. agriculture has been in the export business for a long time and this committee has reviewed policies and programs almost annually. I think our review would point out that we have in fact developed and used some tools that have proven to be quite effective. As is envisioned in H.R. 3593 and consistent with your statement, a lot of these programs simply need adequate funding to meet the competition that is in the marketplace today.
The European Union is now spending more money promoting its agriculture products in the U.S. market—spending more money promoting their agricultural products in the U.S. market alone than we spend promoting our products in the whole entire world. Recently USDA indicated that U.S. has now become a deficit trader on agricultural products with the European Union. So the first point is that we have some very fine programs which have been used over the years and they need to be adequately funded to take advantage of the world markets.
Second, we think that there is the need to focus not only on the volume or the movement of units, of commodities, but there needs to be, as we pointed out in our testimony, an orientation toward the farmers' ability to make an income. The farmers' ability to make an income does not reside totally on the profits that can be made off of the raw products leaving the farm gate. While that is a very important aspect of farm economics and the farmers' economics, it is not the sum total of the story.
We believe programs that would continue to expand the farmers' ability to organize and foreign business that that accrues in all sectors of agriculture commerce would be an excellent addition to our export policies.
Mr. BLOCK. First of all, I would like to note that it is a great pleasure to be offering advice. I remember on many occasions when Congress gave me a lot of advice.
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I recall back in 1983 or 1984 when I came to the Hill surrounded by Members of Congress, both Democrats and Republicans, and announced our export sale subsidy program that we just initiated. We didn't have one. I got a call that afternoon from the ambassador, and he couldn't believe that we had done this, and we said that we were going to fight fire with fire. We had been using this effectively over the years to put pressure on those who are using export subsidies, in particular the European community. I can't tell exactly how we have got to use it but I think we have to probably continue to use it, which is one of the ways we will have in eliminating subsidies. We are not going to get it done without continuing to use not just a carrot, we have to use a stick also.
I would agree on the suggestion about our credit programs that helps expand exports. I think I can ensure that the Congress and the committee continues to support the Foreign Agricultural Service and the efforts they make on behalf of moving farm products to countries around the world.
Finally, as I mentioned in my testimony, let's not forget about getting rid of some of these trade sanctions in food. I think some of them are just crazy. I negotiated a long term grain agreement with the Evil Empire, as President Reagan called it, when I was Secretary of Agriculture. We did business then, and today we are unwilling to do business with some countries that I can't imagine we are not selling them food. The Congress can help push this along.
Thank you, Mr. Chairman.
Mr. GREENE. The three-step competitive program has worked well for us. We would hope that would continue.
The CHAIRMAN. Thank you.
Mr. JOHNSON. I had one observation. An export program cannot replace an aggressive export policy. The bottom line is I haven't given up, and maybe I am the only one in the room, I have not given up on the prospects of being able to make some progress within the WTO. One way of taking a step in that direction is gaining China's accession to the WTO. China has agreed not to have export programs and that helps us to continue to isolate the Europeans and their obstinacy on this particular subject, and I think we would gain friends around the world by being aggressive in this policy area and not backing off.
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In terms of the export credit issue particularly, we have negotiations ongoing at this point, probably slow to get started in some people's view, and the LACD, but if we can make some progress in that area we can continue to focus on the abuses that are taking place in Europe and some other places.
The CHAIRMAN. I am holding out hopes that we can eventually get to that point. We are maybe helping to encourage that discussion to get to that point.
Mr. Phelps.
Mr. PHELPS. Thank you, Mr. Chairman. It is a pleasure to have such a prestigious group. Mr. Block, as a member from Illinois, we appreciate your service and value your advice.
Just to you, Mr. Block, as one from Illinois recognizing and as one who has supported ethanols interests as an asset in this whole agriculture consideration of diversifying our products, I guess I missed any comments from any of you about the role that possibly ethanol could play in helping our markets and diversifying.
Mr. BLOCK. I am a strong supporter of ethanol. If there is ever a time when we ought to be prepared and willing to step out and give it more opportunity, it is right now when we see the prices of fuel as high as they are, imports of foreign oil go up every year and we become more dependent on oil from other countries and energy. So if there is ever a good time to start taking advantage of our own agricultural products to a greater degree, this is it. And I think certainly the committee has been supportive of this and if we can keep pushing it along, maybe we can make a little more progress.
We have had a ruling now on MTBE that is useful for agriculture recently.
Mr. PHELPS. Do you know of anything specifically in the Freedom to Farm that would enhance our usage of ethanol?
Mr. BLOCK. Somebody else would have to help me with that. I don't have anything particular.
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Mr. PHELPS. I might.
Mr. BLOCK. Why don't you write it in.
Mr. PHELPS. I am concerned about priorities within a program that has so many highlights that are positive.
The CHAIRMAN. Mr. Smith.
Mr. SMITH. Thank you, Mr. Chairman. I want to comment on the new biotechnology gene sequencing, R-DNA, genomes. It is seriously impacting our trade now, and as we look at the effects of a growing popular opinion that somehow it is dangerous, it is not only going to reduce—impact our exports of traditional crops, it is going to reduce our research and scientific effort in terms of expanding the development of renewable agricultural products that can be used for fuel, that can be used for oil, that can be used for plastics, and so I would ask each one of you and your organizations to do a much better job than you have been doing of getting the scientific information out.
In that regard I would request that each one of you personally or a representative of your organization be at the press conference where the Speaker of the House is going to join me as chairman of the Basic Research Subcommittee tomorrow afternoon in the Science Committee room for a press conference on a report that we have been working on for the last 14 months. That report probably is the most inclusive effort of what has happened in research in the biotech and with our findings and specific recommendations of anything that has been published, so it is going to be tomorrow afternoon at 2:30 in room 231.
I think it behooves the agricultural industry to move aggressively to make sure that correct scientific information is given to consumers in not only this country but throughout the world.
So now that I hope you are all nodding your heads that you will do that, it is the challenge of your organizations, of industry, to get the correct information out and of course now we are threatened with a lot of political type incorrect information.
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Let me ask you a question on exports. Do you think it is good public policy to export our products below the cost of production which in effect we do with an LDP? The good part is that it clears the goods off the market but I am concerned about with exporting below the cost of production. Any comment?
Mr. GRAVES. Congressman, I don't know that it would be appropriate to characterize that our export policy is directed solely at exporting commodities below the price and the cost of production. In our view it is defending the interest of the American farmer in the face of a less than perfect free trading or fair trading system in the world. And so you have two options. You either compete in the world as it is or withdraw.
Mr. BLOCK. I might just comment quickly. None of us like to sell product below the cost of production, but we exported pigs to the packer below the cost of production for about 2 years. But we didn't quit raising pigs on our farm. We wanted to stay in business, and that is what Dave is saying. You have to stay in business and keep moving it and things are turning around.
Mr. SMITH. Sort of like our corn farmers in Michigan, we took a load of corn down, the story goes, and after they took the deductions and the price of transportation, they said that the farmer owed them two chickens and so the next trip he brought four chickens back and they said why four, you only owed us two. He said I thought as long as I was coming down here I would bring you another load of corn. But as a long term policy it is not good. When we are talking about steel or widgets or gadgets, we can't afford to export below the cost of production.
Mr. Graves, with your good political answer, let me ask you the specific question, do you think our cooperatives could be capable of competing with some of the large, almost monopolistic concentrations of power both in terms of those firms that buy from farmers and those firms that sell to farmers? We are approaching less and less competition. If we were to write Federal laws that could support, enhance, subsidize coops, could our coops, could a coop movement be strong enough to add to the competition and let farmers share in some of the profits that vertical integration might allow?
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Mr. GRAVES. Yes.
Mr. SMITH. There are some efforts and we are trying in some cases and some aspects, but it seems to me that there is a huge challenge now in the concentration of those people that buy from and sell to farmers.
Mr. GRAVES. There certainly is the challenge. Congressman, the challenge for cooperatives is that they are in fact owned by farmers who generally do not have deep pockets. They do not have access to the capital and financial markets for which many companies can draw the capital to finance those very fine businesses.
So if this committee and this Congress wanted to do something to help the farmer be able to participate more gainfully in those profits that do accrue, there could certainly be policies of the Federal Government that made it easier for the farmer and the cooperative business that the farmer owned to acquire the capital necessary to build a business that is a competitive business and that would be the counterbalance. That would be the leverage that the farmer could have to do business today in the marketplace as we see concentration taking place.
Mr. SMITH. Thank you, Mr. Chairman. Excellent panel.
Mr. FISCHER. Congressman, I have a couple of comments. As Mr. Johnson could explain better, being involved in integration up and down the value chain gives people a chance to participate in losses. As you are preparing legislation, I think you need to keep that in mind also.
Mr. SMITH. Make sure that they don't have any losses.
Mr. FISCHER. If you can figure out how to do that.
Mr. SMITH. May I have permission to give our panelists a bag of these Michigan dry cherries?
The CHAIRMAN. Mr. Berry.
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Mr. BERRY. I have no questions at this time, Mr. Chairman.
The CHAIRMAN. Mr. Chambliss.
Mr. CHAMBLISS. Thank you, we will give you some peanuts to mix with the cherries. It makes them taste better.
I have a couple of comments and then I want to make a suggestion to this panel. I concur with what Nick said and this is an excellent panel. We appreciate your input into what we are doing around the country. A couple of you made a comment about Eileen Rakers, and as an outdoorsman who loves to hunt and fish, I appreciate the fact that we have a CRP program that is working well from a conservation standpoint.
Unfortunately, I think we have a lot of farmers who think that if we increase the number of acres in the CPR program that will increase the money in their pocket. A couple made comments to the exact opposite of that and I agree with you. I think we need to continue that very valuable program, but we have to be very judicious in the way that we approach it because it is not going to increase prices in the world market. And I remember reading a quote not too long ago from a farmer in Argentina who said that he would love to see us expand our CRP program because for every hundred acres we added, he was going to add another hundred acres in Argentina. I appreciate your comment in support of that philosophy.
It was interesting to me that only one mentioned an issue which I think is critical to the future of farming, and it doesn't directly relate maybe to the 1996 farm bill but it certainly relates to the future of agriculture, and that is labor. That is probably the most critical issue outside of pricing that we have in our part of the world today and I will just tell you that Mr. Pomeroy and I have been working on a program to reform the H–2A program that we have in place now during the 6 years that I have been here, and we are getting very close to an agreement with the folks who have been opposing us to coming up with real meaningful reform.
I haven't been to your cotton gin, but I expect that your gin is like all of them around the eighth district of Georgia, where one movement this way is going to stop the gin in a heartbeat, and we don't need that to happen. So we are working on meaningful labor reform.
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The other issue that I want to address that all of you have talked about and all of you have spoken very favorably about is this PNTR issue with China. I have voted both ways on that issue, for nonagricultural reasons when I say that, and in part it has been agricultural reasons because I have felt in the past couple of years that China has been thumbing their nose at us from a trade standpoint. They are not dropping any trade barriers on agricultural products or any other products, and at the same time they have been asking us for more favorable treatment for their products coming our way. I think our agreement presents us with a unique opportunity, and I have almost come to the point where I have convinced myself that it is the right thing to do from an agricultural perspective primarily, but for other reasons also.
But we have a problem in our part of the world. We have had six of these hearings now around the country, and Mr. Stenholm is charged with the responsibility of asking all of our witnesses their opinion of granting PNTR to China. The overwhelming response is favorable to granting PNTR from a farmer's perspective, and that is who has been testifying basically, except interestingly enough when we got to Auburn.
Folks in our part of the world have a very negative impression of China, and it translates that we ought not to grant normal trading relations with China. This is where we need your help. I have told everybody to talk about this, whether they come from Boeing or TRW or the farming sector. We need your help to communicate to the farmers all across America about the advantages of PNTR with China. And if we don't do that, you can communicate with your Congressman and that is fine, but we need farmers to understand this and understand how critical it is and why we have got 1.2 billion people out there that are waiting for us to feed them, and our credit is going to be to folks like my son-in-law and his son 20–30 years from now. And you can do that by writing op-eds, by putting it in your publications which you probably all issue to your farmers on a monthly basis, and you may have done this. But we have a real education gap out there with the folks on the farm on this issue of PNTR.
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We need your help with it and I would just ask you if you will, make a special effort to try to communicate that directly to your farmers in the near term.
Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Boswell.
Mr. BOSWELL. No questions.
The CHAIRMAN. Mr. Thompson.
Mr. THOMPSON. No questions, Mr. Chairman.
The CHAIRMAN. Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman. These are challenging subjects and I appreciate your leadership in tackling this issue and approaching it in a way that is constructive and positive, and obviously we all want to have the very best policies in place as they relate to improving the outlook for agricultural economy.
In my situation in South Dakota, our entire rural economy hinges so much on the agricultural economy. Our economies are very dependent, and as agriculture prospers, so do all of the businesses on the Main Streets that are connected to that and we are seeing some real challenges and some struggles in a lot of particularly small towns, I think, across all of rural America. I am curious about some of the things that are being talked about throughout the course of the hearings being held around the country. There have been a lot of discussions. Are there any—Mr. Chambliss talked about the CRP program and increasing the acreage. There is another concept known as the flexible fallow program. I am just wondering if in your judgment there are any of these supply-side policies that will improve prices either in the immediate future or the long term future in your judgment?
Mr. JOHNSON. The Secretary is anxious to answer this one, but the simple answer is I haven't seen one and I don't anticipate seeing one. It was described earlier by a couple of different people. In our particular case we are competing head on with the South Americans, and anything that we set aside they are more than happy. Whether it is CRP or a set-aside program, they are happy to pick up the ball and run with it, and that includes the whole infrastructure, and once they get in it is going to be difficult to get them out.
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One of the comments about exporting under the cost of production, the short answer to that is no. But the answer to that isn't any particular Government program, the answer is expanding markets so that you have increased demand and lowering the cost of food to our final customer, and China PNTR is a perfect way of doing that in our industry, and the WTO or other negotiations, whether it is barriers on the importing side, our products, that is the way to increase the price so it is above our cost of production.
Mr. BLOCK. On the subject of Conservation Reserve, in 1985 I announced the Conservation Reserve on Senator Lugar's farm in Indiana. We went also on a fly-around supporting the Conservation Reserve because it was not legislation yet, and we passed it in 1985 in the 1985 farm bill. I support it, but I also think that there is a limit to how much good it can do and you have to remember the purpose. It is called a Conservation Reserve and it is not just a take land out of production, it is also a take erosive land, fragile land, and I think even this administration in the last few years has done a better job of focusing on the land that erodes. I think that is where you have to look at it, and with the filter strips and areas along streams and rivers, and it is serving a purpose there beyond just the idea of taking land out of production.
Mr. BOSSMAN. As a South Dakota native, I understand the psychology. They are a long ways from an ocean and frequently forget that the export market is their marketplace, and every time I go back and every time I talk to them I talk to them about it. I was there during the time when the CRP acres right beside our family farm was out of production and the small towns started to dry up and literally go away. To answer your question, no, I don't think that there are any good programs that take acreage out of production that earn a long term benefit.
Mr. THUNE. Another thing I hear a lot about in that part of the country is the whole question of concentration, competition. Congressman Smith addressed that issue a little bit. I am just wondering—and he talked about what we could do to change. I am just wondering as a general question, are the antitrust laws that we have today sufficient to ensure adequate competition? Or is that something that we ought to be looking at how we go with about shoring up or strengthening the laws that are on the books or finding a new way to ensure that there is adequate competition up the chain?
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Mr. BOSSMAN. We certainly think that there are adequate laws to provide that projection right now.
Mr. THUNE. Do you think that they are being enforced?
Mr. BOSSMAN. Yes, from what we have seen, the diligence that the Government has done when there has been the mergers, if you will. It seems to me I get enough calls asking. Somebody is looking, anyway. Adequate would depend on where you want to be at the end.
Mr. FISCHER. Congressman, I am going to give you an anecdote. I read the text of a speech that Warren Buffett gave a couple of months ago. Among that was at one point in time in this country there were 2,000 companies that made automobiles and today there are two American-owned automobile companies. Yet I don't hear any hue and cry from consumers in this country that they have lost choices. There were 129 airlines in this country at one time. Why is concentration in agriculture uniquely bad? I think that is really a pertinent question.
Mr. GRAVES. Just an additional comment on that note. I agree with the statement made just then by Mr. Fischer about there is nothing necessarily inherently bad about concentration. I think you need to just—it would be interesting to take the question one step further then to understand if there were any bad, in quote, consequences in terms of either political interests or the interests of farmers in particular from such concentration. And if the conclusion was that yes, there are unacceptable outcomes, then the question would get to be what do you do about that.
Again I think in our testimony we lay out some options and would urge Congress to take a look at exactly how well today Federal policy and programs continue to provide the farmer an opportunity to participate even in the concentration.
Mr. THUNE. Mr. Chairman, thank you. Thank you, panel, I can't offer you cherries or peanuts, but if you want to come to South Dakota, we have some pretty good pheasant hunting.
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Mr. BLOCK. One point. In some respects Government and their policies are forcing farmers off the land. We ought to quit forcing them off. Some small businesses are finding over regulation, especially on the part of the Federal Government, continuing to reach down and pressure them more. We are also finding the estate taxes have become not just a problem for poor farmers or farmers that are not doing well. A lot of sophisticated smart farmers that could prosper decided it is smarter to sell out because of passing the farm from one generation to the next. And I know that you are supportive of change here, many of you on the committee are. But this is something that really should be given a lot of consideration if we are concerned about concentrating an industry.
Mr. THUNE. We are trying to fix the estate tax.
Mr. BLOCK. I know you are.
Mr. THUNE. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. Each of you look into your crystal ball and tell me what you believe agriculture would look like today had Congress not appropriated additional money over and above what was determined to be the effect of Freedom to Farm? And I say that in the context, Freedom to Farm was designed to be the last farm bill, no question about that. We were going to have a phase-out payments and we were going to depend on the marketplace. We lacked the flexibility part of it. Where would rural America be and your customers and members be if we had not interfered with the marketplace and just said we are going to succeed or fail in the international market? What would American agriculture look like today?
Mr. BLOCK. First of all, I applaud the Congress for stepping forward.
Mr. STENHOLM. That is not my question.
Mr. BLOCK. I will get to that. I applaud the Congress for stepping in and providing emergency help to farmers and I think the help that you provided did a minimum amount of interference in the marketplace.
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Now, where would we be if you had done absolutely nothing? I think land values would have come down, and that is really the underpinning of wealth in the farm community, is these land values. They would have gone down 5 percent.
Mr. STENHOLM. Some would say if all we are doing is propping up income and land values, that is long term harmful.
Mr. BLOCK. That is what they would say, but the fact is when you have the base of a wealth in agriculture collapse, that is when you have people sell out and lose the land. This is a complex problem. We have been dealing with it for a long time. There are not any easy solutions, but I would submit that one of the objectives of making those emergency payments was to keep at least a reasonable amount of stability in agriculture and hopefully land values would not collapse, or not very much, in order to carry people through this downtime, hoping that the export markets would open up and prices would recover. I think we are seeing some indication of recovery. I am fairly optimistic about what you have done and the future right now. That is one reason that land values have not collapsed is because farmers still have a little more confidence than we think that they have.
Mr. STENHOLM. Mr. Johnson.
Mr. JOHNSON. I think it is fair to say that you won't have record and near record farm income. I believe it is in the CCFAS papers, and I believe they have in there a forecast of what income was over the last several years or at least with support of farmers from the Government in the last several years under the current farm program versus if the existing farm program prior to 1996 measure had been continued. I think the Government support would have been on average what it would have been under the old farm bill.
Mr. STENHOLM. So had we not provided the payments, what would the face of agriculture look like?
Mr. JOHNSON. I am saying relative to if the previous farm bill had been continued as opposed to the existing farm bill. I think the amount of Government outlays over the period is above what it would have been in the previous farm bill. That is not to say—and again I support the Secretary's view, that that support was necessary and that support did serve a useful purpose in this period and the most valuable aspect is what the Secretary said. The way that it was delivered did not distort market signals, and it was done in a way that apparently did a fair amount of good in maintaining land values and providing some economic stability. I believe I saw in the last week or so that the Federal Reserve had in their review of the agricultural sector had a little more optimistic view than they had 6 months or a year ago.
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So I think you should be commended for having done that. I am not going to be able to speculate as to exactly what would happen, but I think you did some good and you accomplished many of our objectives.
Mr. STENHOLM. Are all of you basically going to agree? If you have a little different perspective, I would like to hear it.
Mr. GRAVES. Mr. Stenholm, I believe that there would be no doubt that without the extra funding there would have been a significant change in the face of production agriculture. Then to the extent that production agriculture is tied closely to other aspects of the rural economy you would have had a domino effect out in that direction from the farmer. To the extent that agriculture, as you might describe it, would include the total production in all of the businesses related to processing and marketing the production, you would have less of a change in what we have today because unfortunately, as I talk to various industries across the country, what you find happening is when one farmer goes out of business, someone picks the land up, provided the land is productive land. We have all seen over time the technology can allow for less land to produce the same or even greater quantities of production. So you would have a change most dramatic, to whatever degree it would be at the production level with less change of just processing the commodities and more change where the economy itself depended on the farm and the farmer's expenditure of funds.
Mr. BOSSMAN. We would have seen more livestock moved out of the country. With an unstable supply of ingredients and feed grains, it would have been much easier to move the livestock production outside. Coincidentally, at the same time that all of this happened, we have to remember that the Asian flu came along. We have multiple things going on here, so it is not necessarily a fair trade-off.
Mr. STENHOLM. Mr. Bossman, you are correct in pointing out that the livestock industry has benefited tremendously from stable supplies and cheap prices of grain. The only real bright spot in our exports have come from the domestic side but it is value added. It is the feeding of the increased markets being gained by the beef industry, the poultry and hog industry, it is where we have been able to export: The records apparently are showing that we have not gained market share. We have inflicted on bulk commodities. We have gained market share in the value added, which is a positive sign. There is substantial evidence that we are not gaining share in bulk commodities even though, as Mr. Block testified, a whooping 35 million acres have been reduced in the world. We are not gaining market share but there is a world of hurt out there as evidenced in the complaints coming from the Brazilians because no one can produce $2 wheat and 50-cent cotton, et cetera, so there is a world of hurt.
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This leads me to a question that is a little bothersome. This morning's Washington Post headlines ''Starved for Aid in Africa,'' 16 million people are starving and at the same time worldwide agriculture policies are designed to eliminate production in other areas of the world. That is what we have testified. That is what the facts show. Our policies and other policies are contributing to other farmers not being able to produce, therefore taking production out.
In business we have got a new terminology now called ''just in time delivery'' and it is very efficient. We meaning the United States and labor and everyone else can gain because of the efficiencies that management has been able to effectuate within their industries of not keeping a lot of inventory because that is expensive. Basically that is where we are headed with agriculture. It is also where we were headed for oil and we paid dearly for a while on that here not too long ago, which is going to have an effect on the cost of agriculture, $2 to $3 billion more cost because of the cost of energy.
Is this a smart policy for the world to follow, just in time delivery, of continuing to push the most inefficient out until we have gotten supplies down so low that the market reacts and then we can start producing again? Is this a good worldwide policy to be following?
Mr. BLOCK. Congressman Stenholm, I am not sure and someone may have numbers, we have substantial reserves in the world today at high levels. I don't think that we have swept the cupboard bare.
Mr. STENHOLM. Not yet.
Mr. BLOCK. I am not so sure we are going to go there.
Mr. STENHOLM. There are folks that suggest that if we should have a widespread drought in a significant part of the United States this year——
Mr. BLOCK. It will tighten. You can be over supplied and under supplied almost——
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Mr. STENHOLM. I am asking the question in the context that one of the suggestions that we keep getting in the hearings is that a return of the farmer held reserve. There is ample reason to show if we build a reserve here that becomes price depressant. There are also suggestions being made what would be wrong with the world sharing in a food reserve. That would be a true reserve. That is a question being asked. Unilaterally. Just like unilateral sanctions, we shoot ourselves in both feet every time we deny Cuba or those who will vote against permanent trade relations. But if it is multilateral, and that is where I come in, when you have a headline where you have starving people in the world, is it good worldwide policy to follow just in time delivery to force something major to happen and then not have a reserve to deal with it?
Mr. BLOCK. I would just suggest we do have a reserve and if we start going to the situation where there are no reserves, maybe what you are suggesting would have some support. I don't think that there is going to be support for worldwide reserve when we have huge worldwide reserves, and the reason that those poor people don't have any reserves is because somebody has to give it to them. They will just have to take it along with the other rich countries.
Mr. JOHNSON. The problem you are describing is one more of a worldwide economic development. That is issue number one. Do these things that deal on an annual basis or every once in a while with great depressions in food shortages, is it in some effect due to the fact that we don't have a strong economy in order to develop the buying power or the infrastructure to survive. That is I think part of our obligation in the WTO process, is to explore how can we improve the world economic environments so that all bevel, coming on line, which is one of the big fears that I have of the stigma that is being attached to it. There is research going on today, and I am certainly not an expert in this area but I have been to enough forums where this has been discussed, that is providing technology, whether it is drought resistance or it meets the individual needs of different parts of Africa and other regions that technology today if it was not thwarted, as mentioned by Mr. Smith, if it is not cut before it is given a chance to run, it can help begin to solve some of these problems.
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My road show teaches us that the United States cannot underestimate the benefit that we have gained by having 96 percent plus of our population not having to be worrying about where their food is coming from that allows them to spend their time focusing on the high technology and investment and be able to have 89 percent of our income be spent on something besides feeding ourselves. That benefit, I think we have done a good job in the United States of explaining to the world what evolution we can create in the way that we feed ourselves by lowering trade barriers.
Certainly we have been supportive of food aid programs. We have been working with the American Soybean Association and others in trying to propose food aid programs which have some value, which is one of the reason why we are very resistant in a WTO context to have WTO define, and that is why I think we need to control the debate in the WTO, food aid as a budget subsidy.
Mr. STENHOLM. The budget conference that we will pass out of the Congress this week cuts foreign aid and the very ability to do what you have said that we need to do more of. It cuts it dramatically.
Mr. JOHNSON. What you are describing is a problem and what I am describing are some of the steps to the solution.
Mr. FISCHER. Congressman, I sense that you have a strong level of frustration right now. You would like to think that there is a way to figure out this situation, and it seems like most anything that the Government does has some unintended consequences, and it is very hard to get your arms around it.
I think that is all true and it is because the situation is so dynamic. I guess I would just urge you to think in terms of maybe using a term that is common in the medical community, and that is ''do no harm.'' maybe the less you do, the better off we are.
Mr. STENHOLM. You would make the second witness that we have had. One farmer suggested that we made a mistake when we passed the additional AMTA payments. We should have let Freedom to Farm work because we would have had declining land values and a whole bunch of folks weeded out and those we had left would be very efficient and capable of going broke this year, and then there would be another group come in next year. That is a very honest opinion that two of you have put forward.
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Mr. GRAVES. Your question was whether or not the concept of just in time is a bad policy. I think there is absolutely nothing terms of economic analysis that would suggest that there is anything wrong or weak about that as a policy because it is a flexible term. It does not come wrapped with one particular set of volumes in mind. The market when allowed to play out will determine the level of risk associated with any market and will so regulate the amount of supplies that are considered to be just in time.
Mr. BOSSMAN. I shared your distress this morning with the same headline, and I was immediately reminded not too long ago I was on a panel with Ambassador Jeane Kirkpatrick, and she made the statement that no famines occur in countries that do not have repression of their people. I also agree with Jack when he said that we need to feed those people. I am not sure that a worldwide storage of grain could be unpolitical enough so we could successfully do that.
Mr. GREENE. Mr. Stenholm, I think the concept of just in time plays very well for American agriculture. I think we are a consistent and efficient producer of commodities. We have technologies available to us that would make us better available to participate in a just in time delivery system.
I think the issue of the lesser developed nations and hungry people is one of delivery and of payment and not necessarily supply. I also think that the supplemental payments that were made over the last 2 years to American producers kept them in the game. It would have dramatically changed the face of production agriculture. There would have been a relocation of many growers into other sectors of the economy, and I am not sure that it would have been picked up and kept, certainly not kept in row crop production. I think a lot of this land would have been converted to trees, which may or not be good for local economies. I think what Congress did over the last 2 years is a huge benefit to American agriculture.
The CHAIRMAN. Mr. Pomeroy, did you have some questions?
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Mr. POMEROY. Yes. I am very interested in beginning with Mr. Fischer. Let me see if I understand this right. It is the position of the National Grain and Feed Association that the disaster bill of 1998 was a mistake?
Mr. FISCHER. No, I didn't say that.
Mr. POMEROY. You said sometimes the less we do the better off we are. Now I had understood that to mean the disaster bills of 1998 and 1999. Maybe that is not what you meant.
Mr. FISCHER. I was really trying to respond to Congressman Stenholm's obvious frustration. Yes, those payments have been capitalized into land prices. Yes, they are going to have negative long term consequences. Yes, you are going to have to figure out a way to deal with that at some point in time or come here year after year with ad hoc programs to try to put a Band-aid on the problem de jure. All I am suggesting is that a real long term look at things would probably indicate the less the Federal Government did the better. I wasn't particularly talking about those emergency payments.
Mr. POMEROY. Okay. As we face the question of low price environment this year, no safety net in the farm program to respond to those other than the loan rates, do you think we should not do a disaster bill this year?
Mr. FISCHER. Oh, I don't even see that is a role for our industry to have an opinion on. As long as it is not trade distorting, I think our position is to sort of stay out of the fray. I would tell you that our farmer customers in the western Corn Belt are doing extremely well right now. There are always exceptions to that rule. We operate a dozen grain facilities in Congressman Barrett's district. They are forward contracting their production for next year more than ever before.
I told somebody at breakfast this morning I think you have a real problem potentially looming, and that is if prices don't go down from current levels this year. You have got thousands of farmers contracting new crop production and corn at $2.20 a bushel or pick your price, they are anticipating getting 40 cents a bushel of LDP payments to tack on top of that. If these guys only end up with $2.20 on an average crop, you are going to see a real whack in farm income, and I would like to know how you are going to explain to Members of this body that prices are up 30 percent and we need more energy funding than we needed last year. You would have to be Houdini to make that pitch.
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Mr. POMEROY. I think you fairly discuss some of the complex interrelationships when you look at support and its consequences. I am pleased to hear you not suggest that the disaster bills were a mistake and that you are not taking a position whether or not we will need one this year.
Mr. Johnson, I particularly look at oilseeds, stock soybeans. What is the price of soybeans today?
Mr. JOHNSON. Well, it depends where you are at. The USDA forecast as of this month was $4.75.
Mr. POMEROY. Any recollection what it was when Freedom to Farm passed?
Mr. JOHNSON. I am sure it was significantly above that.
Mr. POMEROY. About $7, and now it is $4.75. Do you know the loan rate?
Mr. JOHNSON. It is $5.26.
Mr. POMEROY. Do you know what production planting is this year?
Mr. JOHNSON. Again, USDA forecasting is approaching 75 million.
Mr. POMEROY. Where is that relative to prior plantings?
Mr. JOHNSON. Prior to the farm bill?
Mr. POMEROY. No.
Mr. JOHNSON. It is up by about 10 percent.
Mr. POMEROY. Actually I think relative to the time the Freedom to Farm passed, 10 million acres more.
Mr. JOHNSON. Right.
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Mr. POMEROY. What is the effect on the price of soybeans?
Mr. JOHNSON. I think you have to look at the entire market environment that has changed. As anybody here knows, in our particular industry we have been hard hit by two factors in the last couple of years. One is the Asian crisis itself and how it has affected our exports and our customers' exports, such as meat.
The other thing is what has happened in China from our industry's point of view. Our industry has shut down about 7 percent of our plants in the last 2 months, and a lot of that is simply due to what has happened with the Chinese changing the way that they administered their imports in the last couple of years. One is due to—they implemented 13 percent VAT in an arbitrary way, if you want to call it that, on soybean meal, and on soybean oil they implemented a licensing regime that allows them to control how much oil is imported so it has dropped from 2 million to 1 million.
Mr. POMEROY. It seems to me that an increase in planting 10 million acres, 15 percent in the United States, is going to give you more product and therefore be a price impact in addition to the global things that you have mentioned; is that correct?
Mr. JOHNSON. Again the combination of all of those is what sets what the market is.
Mr. POMEROY. Does 10 million acres have an effect on price?
Mr. JOHNSON. Yes.
Mr. POMEROY. Thank you. Do you think it might be helpful if—do you think some of this planting is loan, market loan induced?
Mr. JOHNSON. We have had interesting debates within our own organization on that subject. Some believe it is not. Some obviously believe that it is. If you read a lot of the trade press, that sort of comes down both ways, although it leans more towards whether they are thinking it is having an impact. The question is——
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Mr. POMEROY. I will ask the questions here.
Mr. JOHNSON. All right.
Mr. POMEROY. It seems if you have a level of loan support behind soybeans that is closer to the cost of production than you have got behind grains, you will have an incentive to where you will move to more protection.
Mr. JOHNSON. Again, the thing I would pay attention to is that most of the land that you see shifted into soybeans is not shifted because of the loan rate. It was shifted prior to the loan rate took effect. If you are making the argument that the loan rate distortion between soybeans and any other commodity, that has really been an impact over the last couple of years when the prices have fallen below the loan rate, if you buy that side of the argument.
Mr. POMEROY. I think you have to look at $4.75 and $4.15 projected in 2001 in light of this additional acreage, and people are planting like crazy. They are not planting for market price because it is the lowest market price, and nothing but worst conditions ahead. That is a compelling demonstration that they are seeking the greater level of support of a higher loan rate, and that indeed the disparity in loan rates between oilseeds and grains is changing—is not market incented planting, but farm bill incented planting?
Mr. JOHNSON. Again what I think you need to look at is during what period did most of that 10 million acres switch to soybeans. It did not switch to soybeans during times when they were below loan rate. It switched when they were above loan rate. The last couple of years some have made the argument, and again we have a debate within our own organization what the impact is, in the last couple of years, yes, the additional increase in production over the last couple of years, some of that may be due to distortion of the market loan. But the vast majority came into soybeans before the marketing loan.
Mr. POMEROY. It is not a perennial. They came in and stayed in despite collapsing prices. I am not suggesting that we should reduce that loan rate. I don't think that we should. I would like to see it come up to reflect the full cost of production. But I certainly think when the farm bill capped the loan rates at artificially low levels for the grains, creating a disparity behind more loan support behind the oilseeds than the grains, we unbalance the equilibrium and we have farm bill incentive planting.
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I thank you.
The CHAIRMAN. Mr. Hill, any questions.
Mr. HILL. No questions, Mr. Chairman.
The CHAIRMAN. We appreciate your testimony today. Without objection the record of today's hearing will remain open for 30 days to receive additional materials and supplementary written responses to any questions posed by the members.
This hearing is adjourned.
[Whereupon, at 11:45 a.m., the committee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Testimony of John Block
Good morning. I am John R. Block, president of Food Distributors International and a member of the steering committee for the Coalition for a Competitive Food and Agricultural System. I appear before you on behalf of the Coalition which represents a broad range of interests working for market-based policies designed to benefit all 21 million people working in the U.S. food and agriculture industries. The Coalition consists of over 120 trade associations and agribusiness companies.
Over the past few years, the Coalition has actively participated in discussions regarding the 1996 farm bill. We have noted the attempts of some to blame the farm bill for today's current economic climate in agriculture. Since the Coalition believes the market-based farm policies adopted by Congress in 1996 have benefited U.S. agriculture, we recently commissioned several papers to review whether freedom and flexibility have indeed been good or bad for U.S. farmers and agriculture businesses. I am pleased to share the highlights of those papers with you today.
We live in an interconnected world where demand is growing but competition is fierce. To succeed in today's environment, farm policy must (a) allow producers to compete in world markets, (b) support incomes without interfering in markets and (c) give farmers flexibility to make their own production decisions. So is Freedom to Farm working to help achieve these three goals? The answer is yes.
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As we all know, 4 years of favorable growing conditions along with increased production that followed the historically high prices of 1995 and 1996 have resulted in larger grain supplies. At the same time, demand from Asia began to slide. The effect of higher supplies and lower demand has been to keep prices far lower than any of us would like. I should point out that those of us involved in agriculture beyond the farmgate typically suffer reduced earnings too when supply and demand are realigning. It is our experience, though, that market forces do a better job than government in rewarding efficiency, encouraging productivity, managing risks, and allocating resources. We believe that Government programs to support farm income should minimize market distortions.
The 1996 farm bill's combination of substantial direct payments along with marketing loan and loan deficiency payments have stabilized U.S. farm income and minimized market distortions. Including the emergency payments passed by Congress, 1999 was actually the highest cash income year in U.S. history, despite low prices. And even without emergency payments in 1998 and 1999, average net cash income would still have been $55.4 billion, or $1.7 billion greater than the average under the 1990 farm bill.
The structure and payments under the 1996 farm law have provided real strength to land values. Land values, rather than dropping as economics would suggest with lower crop prices, have remained surprisingly strong. The February 2000 newsletter from the Federal Reserve Bank of Chicago noted that land values in the Seventh Federal Reserve District rose by one percent in 1999. That is a far cry from the huge devaluation of land assets that took place in the mid–1980's.
I have heard my friend, Agriculture Secretary Dan Glickman say it is more fun to be Secretary when prices are stronger. That is certainly true. But, I can tell you from experience it is absolutely no fun to be Secretary of Agriculture when land values in some areas fall by one-third.
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Although some opponents of the 1996 farm bill have suggested that a more ''countercyclical'' income support policy is necessary to help alleviate periods of low prices, we would note that the combination of marketing loan and loan deficiency payments—payments to producers during periods of low prices—reached $6.9 billion in 1999 and a projected $7.9 billion in 2000. Based on those figures, we would suggest that the 1996 farm bill provides significant benefits to producers during times of low prices.
As the committee reviews the 1996 farm bill, we hope you will take a hard look at the consequences of going back to the policies of the past. First, farmers would risk losing the planting flexibility and production freedom they so recently gained. Although the critics of Freedom to Farm claim they do not want to take away this flexibility, if they succeed in tying program benefits to market prices and current production once again, powerful incentives will exist for the Government to limit its cost exposure by reducing production and limiting farmers' planting alternatives. This would hurt U.S. farmers and rural communities while providing a tremendous advantage to our competitors.
Second, going back on Freedom to Farm would mean Government programs would again affect production and pricing. Consider livestock and poultry producers. Corn, soybean meal and other feedstuffs are major components of their production costs. If acreage set-aside programs short the market and prices rise artificially, then the Government has in effect taxed cattle, pork and poultry producers. All in all, farmers and ranchers will be better off if the market—rather than the Government—sets prices.
However, after all the data is reviewed and all the economists have spoken, probably the best way to assess the performance of U.S. farm policy is to examine the response of our competitors to our new, market-oriented farm program. Data already suggests that Freedom to Farm has discouraged overseas acreage expansion, encouraged importing countries to rely on trade rather than domestic production and encouraged increased overseas demand for U.S. agricultural products.
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The numbers tell the story. Since the 1996 farm bill was passed, harvested area for grains and oilseeds outside the United States has fallen a whopping 35 million acres. In short, foreign farmers—rather than only U.S. farmers—are adjusting to the reality of international competition, and the reality that when demand decreases, like it did in Asia, they and not only U.S. farmers will face reduced exports. We believe that the vehement opposition to Freedom to Farm from farmers in Brazil and the European Union should tell us that this farm bill is making U.S. agriculture more competitive in world markets.
On the demand side of the equation, we believe the 1996 farm bill has encouraged importing countries to rely more on trade. Outside of the countries affected by economic crises (the former Soviet Union and the Asian crisis countries), total grain consumption is now more than 25 million metric tons higher than the 10-year pre-Freedom to Farm trend predicted.
In evaluating current farm policy, it is important to recognize that not all U.S. farmers have benefited from the payments provided by the 1996 farm law. Direct payments reach only 36 percent of the nation's farmers. They do not extend to livestock, poultry, fruits or vegetables. The solution to this issue is not to change the entire policy structure, but to recognize there is more to farm policy than commodity programs. Positive incentives are more effective than punititve sanctions in encouraging sound environmental stewardship. The diversity of rural America highlights the need for a range of polices that go beyond commodity programs, from estate tax reform to infrastructure improvements to Internet access.
In some circles, Freedom to Farm has become a convenient scapegoat for other policy failures. Remember that the Freedom to Farm law was just one of the commitments made to farmers. Congress provided farmers with more flexibility to meet market conditions; but in the promised trade and regulatory relief Congress and the administration have both been slow to act.
In trade in particular much more could be done, and should be done, to grow our markets abroad. The fast track authority, so essential to capturing added market share has, on more than one occasion, been rejected by the Congress. Trade sanctions on food products continues to deprive American farmers of billions of dollars of exports. Passage of PNTR for China is one of the highest priorities for the American farmer. Attention to these impediments to trade cry-out for immediate action in the face of today's farm crisis. Agriculture needs further trade liberalization through a comprehensive WTO agreement that insists on meaningful reform in agricultural trade.
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I urge Congress to put your politics aside and clear the trade channels for American farm products. I urge President Clinton to bring the power and force of his office to help lower trade barriers.
In closing, commodity programs alone cannot address all the problems of the farm sector. The Coalition would make the following recommendations to help promote prosperity in both agriculture and rural America:
Preserve the 1996 farm bill.
Continue to press for new customers for U.S. farm products through various trade initiatives.
Promote tenets of the science-based environmental policies that reward sound stewardship.
Encourage farmers to manage their risks.
Reduce the tax burden of farming by repealing the estate tax and enacting Farm and Ranch Risk Management accounts.
Increase public investment in research and infrastructure, especially our nation's transportation systems that are critical to U.S. competitiveness, and telecommunications systems that will allow farmers to benefit from revolutionary progress made possible by the Internet.
Attached to our statement is a set of the policy papers the Coalition commissioned to look at the effects of market-based policies. We would ask that you give the findings careful consideration as you proceed with your discussions on the future of U.S. farm policy. Thank you.
Statement of David Bossman
Good morning. Mr. Chairman, members of the committee, I am David Bossman, president of the American Feed Industry Association (AFIA) in Arlington, VA. I appreciate the invitation to appear today to provide AFIA's insight into what we believe to be the success of Freedom to Farm, as we've come to know the 1996 farm bill.
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AFIA is the national trade association representing more than 75 percent of the livestock, poultry and pet food sold annually in the U.S. Our membership includes private and publicly held feed and pet food companies, as well as animal health product manufacturers, equipment manufacturers, large integrated livestock and poultry producers, as well companies providing goods and services to the feed and pet food industries.
AFIA represents more than 5,000 facilities in 49 States, and enjoys the support of nearly 50 State, regional and international trade associations. Nearly 200,000 workers are employed in all segments of the feed industry, with more than 75 percent of AFIA companies defined as small businesses by the Federal Government.
The feed and pet food industries annually purchase more than $18 billion worth of feed ingredients. Livestock and poultry feed uses over 90 percent of the soybean meal processed and more than 60 percent of the corn produced in the United States, making the animal feeding industry the single largest purchaser of domestically produced grains, oilseeds and byproducts.
AFIA joins with other organizations today in telling the committee we believe the 1996 farm bill is working. AFIA commends Chairman Combest and Representative Stenholm, as well the other members of the committee for taking this show on a national tour, actually going into the country and talking with farmers, ranchers, their suppliers and others about how Freedom to Farm is working.
Given feed is the single largest on-farm production cost for livestock and poultry producers, it is natural that AFIA be an active participant in farm policy discussions. AFIA was involved in the evolution of Freedom to Farm, both as an individual organization and as a member of the steering committee of the Coalition for a Competitive Food & Agricultural System (CCFAS).
We participated not only because Federal farm policy affects our farmer/rancher suppliers and customers, but also because these discussions directly impact the continuing viability of rural America where the vast majority of our facilities are located. We participate because your decisions in these critical areas directly affect our source of ingredient supply, our cost of doing business and the profitability of our customers.
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For us the equation is simple: The more successful livestock and poultry producers there are on the land, the better it is for the feed and feed ingredient industries, and the better for it is for the communities in which we operate.
My colleagues on this panel today—particularly Secretary Block on behalf of CCFAS—have done an outstanding job of laying out for the committee both the statistical and anecdotal evidence that the 1996 farm bill is working. AFIA supports the CCFAS testimony and its call for proactive measures to supplement the positive effects of Freedom to Farm.
AFIA joins with others on this panel in urging this committee to carefully and thoughtfully weigh the evidence gathered so far, as well as that to come, before making any decisions about changes to Freedom to Farm.
It's an election year, the pressures are great and the decisions politically tough, but this committee showed tough decisions can be made went it approved Freedom to Farm. We urge you to stand behind that decision now. Let the full positive impact of Freedom to Farm be felt in the country and overseas.
ADEQUATE TRANSITION
As has been pointed out today, Freedom to Farm—thanks to direct payments, marketing loans and deficiency payments—strikes anappropriate balance in farm income, with minimum market distortion.
And while we recognize 3 years of back-to-back emergency payment packages authorized by Congress and their inescapable impact on farm income, it is also true that had Congress not authorized such payments, average net cash income to farmers was still higher under Freedom to Farm than under the previous 5 years of the 1990 farm bill—and its outmoded programs.
We can't forget the greatest pain in giving birth to Freedom to Farm was abandoning the 45 year-old system of program benefits tied to production levels and market prices—and their market-distorting effects. And while domestic and international market realities may never allow a full transition to perfect ''freedom'' to farm, the 1996 farm bill has provided to be the best formula to date.
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No one could have predicted 4 years of favorable weather, bumper crops, and a collapsing Asian market would conspire to drop prices. However, the American farmer did not operate in a vacuum during that period, and even this myriad of factors does not logically argue for returning to Federal policy options we know don't work.
This is a time of transition—made more difficult because of market and weather vagaries. It's too early—and too painful—to contemplate returning to the fractious debates of 1995 and 1996. We must let Freedom to Farm run its course. Only then can its success be fairly judged.
Farmers for the first time in half a century are literally re-learning what it means to personally decide what crops to plant and when to plant them, responding to both domestic and rapidly multiplying international market signals, and not to the Federal Government.
And it's been said that the best income support policy is one that recognizes its own limits and does not try to do what it cannot. Randy Green, *U.S. Agriculture in a New Millennium,* *Freedom and Prosperity: Growing Opportunities for U.S. Agriculture,* CCFAS, winter, 2000.
For the first time in nearly 50 years, farmers are operating under an elegant income safety net that protects but does not distort the very market signals farmers must anticipate and to which farmers must react.
Ensuring farmers have adequate professional risk management tools is critical to improving this system, and decisions are being made today that will affect our evaluation of Freedom to Farm's success in 2002.
This committee is to be commended for action it took last year to truly reform the Federal crop insurance program, bringing it more in line with its original intent and Chairman Combest's vision. Insured acres have doubled since 1994, with 75 percent of eligible acres now insured against some level of loss, Randy Green, *Protecting our Opportunities,* Freedom & Prosperity: Growing Opportunities for U.S. Agriculture,* CCFAS, winter, 2000
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and three-quarters of those acres protected by more extensive coverage.
Incentives such as cost-shared premiums as well as development reimbursement for the private sector to create much-needed new products—such as the livestock risk insurance pilot authority included in the House version of HR 2559—must be recognized as important new components of the Federal farm income safety net. Revenue insurance complements production insurance products, and will be in greater demand, as markets and forecasting become more complex.
AN INTERNATIONAL LEARNING CURVE
Producers and agribusiness are also learning what it means to operate in an international market. Gone are the days when U.S. exports were largely food aid shipments to developing nations; the very recipients of those food aid shipments of decades ago are now competing with the United States in global markets.
Our customers today are very different—forget Russia as the big customer, look to Canada and Mexico. And if Congress demonstrates its wisdom, we can look to an explosion of demand from China—through granting of permanent normalized trade relations (PNTR) status to this Asian giant. There can be no greater trade priority for American agriculture today.
In the feed industry, we recognized in the 1980's, that business growth was not necessarily tied to the increased export of our finished feed products, but to the success of our customers—the livestock and poultry producer—in overseas markets. We've watched significant demand shifts worldwide; we understand that lower wheat and feed grain sales have given ground to a 25 percent runup in world sales of U.S. red meat, and a nearly 200 percent increase in global sales of U.S. poultry. Randy Green, *A World of Opportunity,* *Freedom and Prosperity: Growing Opportunities for U.S. Agriculture,* CCFAS, winter, 2000
This translates to stronger domestic feed sales.
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Long-term growth in U.S. exports must not take a backseat to temporary market fluctuations. Given that every dollar of farm exports generates at least $1.32 in additional economic activity—and that, in part, is money in all our pockets. The feed industry urges this committee to identify export incentives, streamlined regulation and necessary infrastructure improvements as part of any attempt to make our farm income situation brighter.
There are no perfect Federal programs, no perfect policies, and no perfect marriage of production and marketing freedom with price and income predictability. However, Freedom to Farm has unleashed farmer productivity and flexibility, and we should not place roadblocks in the way of such progress.
The changing global market place has taught us that new buyers will not wait for U.S. products to satisfy a demand. They will find our worldwide competitors are ready to fill the need. Any limiting of our ability to supply will only restrict future sales.
AFIA respectfully urges the committee to give Freedom to Farm its full run. The last 4 years have not been typical, but neither have they been so unusual that they don't provide a good test of the farmer-directed systems within the 1996 farm bill.
In a year or so we will return to this room and resume this debate, but until then we urge you to preserve Freedom to Farm intact.
Through creative trade incentives and forward-thinking export policy, such as enactment of PNTR for China, you dramatically improve Freedom to Farm's chances of success. By enacting progressive legislation such crop insurance reform, you add to the structural support necessary to successful farm policy, and by examining the core of our food production, processing and delivery system we can address problems before they become fatal obstructions to success.
Freedom to Farm, the 1996 farm bill is one component—albeit a critical one—in a dynamic, competitive U.S. and global agriculture. We ask that you let it work.
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Thank you again for this invitation to participate.
Statementof David Graves
Thank you, Mr. Chairman. The National Council of Farmer Cooperatives (NCFC) appreciates very much this opportunity to share its views with regard to agriculture policy and programs. In particular, we want to express our continued concern over the state of the farm economy and to urge additional actions by Administration and Congress to help meet the near and long term challenges facing U.S. agriculture.
NCFC is the national trade association representing America's farmer cooperatives. Our members include nearly 100 regional cooperatives whose members, in turn, include over 3,500 local cooperatives which are owned and controlled by a majority of America's nearly 2 million individual farmers. These farmer cooperative businesses are engaged in virtually every facet of agriculture. This includes handling, processing, marketing and exporting of U.S.-produced agricultural commodities and related products; the manufacture, distribution and sale of farm supplies; and the providing of credit and related financial services, including export financing for and on behalf of their farmer owners.
Over the past 2 years, Congress has responded to the near term challenges facing U.S. agriculture by providing farmers with needed emergency economic and disaster assistance. For many farmers, such emergency assistance has been the difference between survival and going out of business. However, it appears that given the current economic outlook, similar assistance will again be needed this year. Accordingly, we are pleased the House and Senate budget resolutions include additional funding for this purpose and we strongly support such action as may be necessary.
At the same time, we believe it is critical that additional action be taken that will lead to improved farm income, better risk management tools, increased market opportunities and sustained economic growth for U.S. agriculture on a long term basis. It is within this framework that current farm policies and related programs should be reviewed and evaluated, as well as strengthened. In this regard, Mr. Chairman, we want to commend you and your committee for beginning this process through hearings across the country and here in Washington.
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In looking at the challenges facing U.S. agriculture, we believe it important that public policies and programs be focused on strengthening the ability of farmers to join together in cooperative self-help efforts to improve their income, manage their risk, and compete more effectively in a rapidly changing global economy.
It is important to emphasize that farmer cooperatives are farmer owned and farmer controlled. They exist for the mutual benefit of their membership. In doing so, they provide a means by which farmers can join together to improve their income, manage their risk and compete more effectively in a rapidly changing global economy. Earnings derived from such activities are returned to the farmer owners of these cooperative businesses on a patronage basis and, therefore, help strengthen farm income. Such activities also help strengthen the rural economy and contribute significantly to the employment and tax base of many local communities.
In recognition, public policy has long been in favor of protecting and promoting cooperative self-help efforts by farmers. However, it is time for a renewed emphasis in support of such policies and programs. For example, funding should be specifically authorized at such levels as necessary to revitalize Federal programs relating to research, education, and technical assistance in support of farmer cooperatives.
Additional actions are needed to help farmers through cooperative efforts become more involved in value-added production, processing and marketing activities beyond the farm gate, and to capitalize on new market opportunities. Not only would this help farmers capture a larger share of the consumer dollar, thereby strengthening their income and providing greater economic stability, it would promote needed competition in the marketplace.
To achieve this, farmers and their cooperatives must have in place policies and programs, including adequate tax incentives, to help attract needed capital and investment. Equally important is the need to maintain access to a strong and competitive cooperative farm credit system. Current loan guarantee programs should be expanded to provide financing for both new as well as existing farmer cooperatives seeking to become more involved in value-added activities. Other initiatives should also be considered to further meet capital requirements.
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Farmers also need access to improved risk management tools. We appreciate your leadership, along with that of Reps. Stenholm, Ewing and Condit, and other members of the committee in support of legislation to improve the Federal crop insurance program. In particular, we want to express our strong support for the provisions contained in section 109 of the House-passed bill (H.R. 2559) now pending before a House-Senate conference. As approved by the committee and the full House, section 109 would maintain and strengthen the ability of farmers to join together through their associations and cooperatives to purchase or obtain needed coverage under the Federal crop insurance program. Such provisions provide important benefits to farmers.
Specifically, section 109 would help clarify existing law by allowing farmer cooperatives on behalf of their members who elect such coverage to pay all or part of the fees associated with catastrophic (CAT) insurance coverage. Current law requires the producer to pay such fees. USDA/RMA has interpreted this to mean the individual farmer. However, virtually all Federal farm programs have long recognized the relationship of farmers and their cooperative with regard to participation in such programs.
In addition, it should be noted that RMA has entered into an agreement with the State of Pennsylvania whereby it is paying all or part of the fees and premiums for CAT and/or Buy-Up coverage for Pennsylvania farmers. At the same time, commercial banks and lenders are paying associated premiums for other types of insurance for their customers. A farmer cooperative should be able to do the same for its farmer owners.
Section 109 would also maintain and protect the ability of farmer cooperatives to enter into joint marketing arrangements with approved insurance providers for the benefit of their farmer owners as allowed under current law and applicable state and Federal regulation. Farmer cooperatives that are licensed agents would continue to be allowed to engage in marketing and selling activities as authorized under current law and applicable state and Federal regulation.
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Finally, section 109 would protect the ability of farmers to join together in cooperative self-help efforts to better manage the risks associated with production agriculture, provide improved access to needed coverage on a more competitive basis, encourage participation and expanded coverage, and ensure more of the benefits of the crop insurance program accrue to farmers. Again, for these reasons, we urge that such provisions be included as part of any legislation that may be approved by Congress and signed into law.
To further address the near and long term challenges facing U.S. agriculture, we believe the Administration and Congress should work together this year to achieve approval of a comprehensive trade agenda aimed at boosting U.S. agriculture exports. This is especially important given the fact the economic well-being of U.S. agriculture, and farm income, are heavily dependent on continued access to foreign markets and exports, which account for as much as one-third of domestic production and more for some commodities.
A major priority this year should be approval by Congress of permanent normal trade relations (PNTR) for China. In this regard, we are pleased that a vote has now been scheduled for the week of May 22 and we urge all members of this committee to support such action. China is our fourth largest export market and is expected to account for a significant percentage of future growth in agricultural trade. Approval of PNTR is essential to ensure that U.S. agriculture gains access to this important market in order to achieve the full benefits of the recent U.S.-China trade agreement, and to make sure that China is required to play by the same international trading rules as we do.
We also want to take this opportunity to express our continued support for legislation to eliminate the use of unilateral trade sanctions and embargoes relating to U.S. agriculture, as well as for fast track trade negotiating authority. While fast track trade negotiating authority may not be considered this year, it remains important to achieving our trade policy goals.
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In addition to providing increased access to foreign markets for U.S. agriculture, it is equally important that we have the tools and resources to capitalize on such market opportunities. Over the past several years, we have seen the European Union (EU) and other foreign competitors continue to outspend the U.S. when it comes to export subsidies by more than 20 to 1. The EU is spending nearly $100 million alone just to promote its products into the U.S. market. This is more than the U.S. currently spends to promote the export of U.S. agricultural commodities and related products worldwide! In 1999, for the first time, according to USDA, the U.S. became a net importer with regard to agriculture and the European Union.
Overall, since 1996, U.S. agriculture exports have fallen nearly 20 percent to $49 billion in 1999, and without aggressive action, are projected to remain under $50 billion in 2000. At the same time, U.S. agriculture's positive trade balance has declined by nearly 50 percent to just $11.5 billion. Clearly, action is needed to reverse this alarming trend.
Funding for USDA export programs should be increased, and action taken to aggressively utilize the full range of authorities allowed under existing trade agreements to help increase U.S. agriculture exports, counter subsidized foreign competition, and capitalize on potential new market opportunities such as China.
For these reasons, we strongly urge support for legislation (H.R. 3593/ S. 1983) by Reps. Doc Hastings and Allen Boyd and Senators Patty Murray and Larry Craig that would provide up to $200 million for USDA's Market Access Program (MAP), establish a minimum of $35 million for the Foreign Market Development (FMD) Cooperator Program, and allow up to 50 percent of unused funds under the Export Enhancement Program to be utilized for market development and promotion activities.
Increased funding is also needed for USDA's Foreign Agricultural Service (FAS) in support of its mission. Strengthening U.S. agriculture export programs would send a strong message to our foreign trade competitors, especially the European Union, and strengthen the U.S. position in upcoming trade negotiations under the WTO.
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The Administration and Congress should also join in support of other initiatives to further increase U.S. agriculture's overall global competitiveness.
These include providing increased funding for waterways infrastructure, and ensuring access to a competitive and efficient rail and highway system. In addition, action is needed to streamline and improve programs to help meet the labor needs of U.S. agriculture to prevent costly disruptions in the production, marketing and transportation of related commodities and products both to domestic and international markets.
Finally, we want to express our support for efforts to help reduce the overall regulatory burden on U.S. agriculture. There needs to be more emphasis on encouraging voluntary, incentive-based partnerships involving farmers, their cooperatives, and local, state and Federal officials. Increased funding is also needed to provide technical and cost-sharing assistance to help farmers meet important environmental and related goals.
Again, Mr. Chairman, we appreciate the opportunity to share our views, and we look forward to working with you and your committee as this process goes forward in support of policies and programs that will help position U.S. agriculture to be a profitable and growing industry long term.
Testimony of Robert W. Greene
Mr. Chairman, my name is Bobby Greene. I am a cotton ginner from Courtland, Alabama. I am speaking today in my capacity as Chairman of the National Cotton Ginners Association and as the ginner Vice President of the National Cotton Council. I am also the Vice President of Southeastern Cotton Ginners Association, and a Board Member of the Alabama Agribusiness Council.
I appreciate the opportunity to speak with you today, and I want to thank you and the committee for holding this series of hearings, here and across the United States.
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I am certain you have heard testimony from a number of witnesses about American agriculture's chronically ailing economic condition. Likewise, the cotton economy has not significantly improved. The emergency financial assistance provided by Congress in 1998 and 1999 was absolutely necessary to keep the entire sector afloat.
We applaud the efforts by Congress to include comparable funding in this year's budget resolution. This is another example that our representatives are sensitive to agriculture's economic plight.
Cotton ginning is one step beyond production in the cotton processing chain and a necessary stop between the field and the end-user. Although the services we render growers have expanded beyond the traditional one of fiber and seed separation, our financial viability remains directly tied to the producers who bring us their commodity. Many gins now offer a variety of services to producers, including warehousing, marketing, operating as loan servicing agents and, in some instances, financing. Without question, as the farmer goes, so goes the ginning industry.
There has been an unprecedented consolidation of gins over the last 20 years. Because fewer gins are now handling larger volumes, economics are dictating that we offer more services and employ operational efficiencies for our customers.
Gins have traditionally credited the value of cottonseed against the cost of ginning services provided our grower customers. This is why congressional recognition of the negative impact on gins resulting from very low cottonseed prices was so important. Though not yet delivered, the cottonseed assistance provided our industry in 1999 was crucial.
Mr. Chairman, we do not blame the 1996 farm bill for current low prices. We are functioning in a world market. Prices are driven largely by world supply and demand conditions. However, the last 2 years have shown very clearly that the 1996 Act was not designed to effectively protect agriculture during a sustained, low-price cycle. It clearly offers less protection than earlier laws in times of low prices.
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The cotton industry, including the ginning associations, has not formalized recommendations for the next farm bill. But I would like to offer some general points that I hope will help this committee as it grapples with structuring a farm policy for the future.
The cotton industry believes in quality, we believe in competitiveness, and we believe in a private industry/government partnership that enables U.S. producers to meet a widely diverse set of competitive environments in world markets. There are trade and production distortions worldwide, with governments involved in agriculture at every level. The U.S. Government must not abandon agriculture in such an environment.
Possibly the most crucial component in the debate over future farm policy is adequate budget authority. We urge Congress to not handicap the development of workable, worthwhile farm policy by placing unreasonable budget caps on this process.
Mr. Chairman, our industry supports one of the basic tenets of the 1996 Act—that farmers have planting flexibility. As a ginner, the wide-open flexibility introduced in 1996 meant that I couldn't always count on a specific amount of cotton acreage in my area. And in 1997, when fewer cotton acres were planted, it hurt gins. The opportunity to shift production into more profitable crops helped producers, however, and ensured they would be financially able to plant cotton when it offered a better chance at a profitable return.
Hand in hand with support of flexibility is a consensus in our industry that we do not support a return to mandatory supply management provisions. Prices tend to be driven largely by world supply/demand conditions and, therefore, U.S. set-aside programs have generally proven to be ineffective. More than anything else they encourage foreign acreage expansion while providing little or no help for prices.
The marketing loan has long been a cornerstone of successful cotton farm policy. This is evident with its acceptance by other commodities. The marketing loan program, coupled with cotton's 3-step competitiveness plan, has helped U.S. cotton maintain market share, even in these times of intense international competition.
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Our industry is still developing policy concerning the declining decoupled payment under the Agricultural Market Transition Act. Without doubt, the certainty of the AMTA payment gives producers the ability to make their planting decisions based on market prices and not on potential Government payments. At the same time, the fixed payment has proven inadequate when prices are very low. The certainty of this fixed payment has also been reflected more in rental rates than previous income support mechanisms.
Further, there are regions of the country, the Southeast being among them, where cotton acreage has increased from the 1996 base. Many southeast producers are concerned that the AMTA payment does not come close to reflecting actual production.
Because of this discrepancy, and due to the 1996 Act's failure to adequately protect producers from very low prices, the cotton industry will be reviewing proposals that include a supplemental approach to income support that will do more during periods of low prices and could be more reflective of actual plantings.
Our industry is opposed to the targeting of benefits based on the operation's size. Fundamentally, this policy ignores the need for efficiency in operations in order to meet competition. And it is efficiency that, in the long run, will reduce the need for direct Government assistance. Unless the U.S. is willing to sacrifice its agricultural production capacity to foreign subsidies, we must have farm programs that enable commercial size farming operations to enjoy a reasonable partnership with our Government.
Payment limits are even more egregious when applied to the loan program. Mr. Chairman, our loan rates are pegged well below production costs. When producers receive the loan rate for their crop, they are not making money.
The payment limit problems experienced by most commodities over the past 2 years has been centered on marketing loan gains and loan deficiency payments—items that have grown in value for producers as world prices have fallen well below U.S. loan rates. Low, low prices have triggered payment limits which, in turn, have made it more impossible for current legislation to provide an adequate safety net.
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The health of our industry depends on a healthy demand for cotton. U.S. export programs are crucial to maintaining our international market share. Cotton's programs utilizing assistance under the marketing assistance programs are truly groundbreaking, innovative marketing campaigns that have raised consumer awareness of the quality of U.S. cotton worldwide. The step 2 program is central to the price-competitiveness of U.S. cotton. Our industry also has been a consistent participant in the export credit guarantee program. All of these tools remain as important today as ever.
Mr. Chairman, the members of this committee have demonstrated through the years that they are very aware of the impact of Federal regulation in increasing costs and limiting profitability. Cotton ginning's industrial classification as an agricultural service industry is resulting in increased regulatory coverage and fewer exemptions. We want you to know that we appreciate your efforts to ensure that Federal regulatory efforts ranging from ergonomics to immigration are cost-effective and not overly burdensome to our industry.
Likewise, many of the ginning industry's advances in quality preservation and operational efficiency are products of the ginning laboratories and other ARS research programs. We appreciate the committee's support for these efforts and recognition that these programs must be continued if our industry is to maintain a competitive edge with foreign competition.
Five years ago when the debate on farm policy began, it centered largely on budget concerns and a general distaste for annual disaster programs. At this point, we find ourselves dipping into the annual funding well more routinely than any time I can remember. We believe the hearings being conducted by this committee, your effort to thoroughly consider a wide range of policy options, are a strong signal that this debate will be driven by policy concerns first. We are confident that if Congress remains focussed on effective policy, the next farm bill will significantly reduce the need for annual fixes, and will help restore profitability across rural America.
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"The Official Committee record contains additional material here."