SPEAKERS       CONTENTS       INSERTS    
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46–536 CC
1998
1998
REVIEW THE IMPACT OF AFLATOXIN IN SOUTHEASTERN PEANUTS

HEARING

BEFORE THE

SUBCOMMITTEE ON RISK MANAGEMENT,
AND SPECIALTY CROPS

OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

JANUARY 20, 1998, DOTHAN, AL

Serial No. 105–37

Printed for the use of the Committee on AgricultureCOMMITTEE ON AGRICULTURE
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ROBERT F. (BOB) SMITH, Oregon, Chairman
LARRY COMBEST, Texas,
Vice Chairman
BILL BARRETT, Nebraska
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
JOHN T. DOOLITTLE, California
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
RON LEWIS, Kentucky
HELEN CHENOWETH, Idaho
JOHN N. HOSTETTLER, Indiana
ED BRYANT, Tennessee
MARK FOLEY, Florida
SAXBY CHAMBLISS, Georgia
RAY LaHOOD, Illinois
JO ANN EMERSON, Missouri
JERRY MORAN, Kansas
ROY BLOUNT, Missouri
CHARLES W. (CHIP) PICKERING, Mississippi
BOB SCHAFFER, Colorado
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JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana

CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GEORGE E. BROWN, Jr., California
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLIARD, Alabama
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SCOTTY BAESLER, Kentucky
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
SAM FARR, California
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
VIRGIL H. GOODE, Jr., Virginia
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
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CHRISTOPHER JOHN, Louisiana
JAY W. JOHNSON, Wisconsin
LEONARD L. BOSWELL, Iowa

Professional Staff

PAUL UNGER, Majority Staff Director
JOHN E. HOGAN, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
VERNIE HUBERT, Minority Counsel
DAVID S. REDMOND, Communications Director

SUBCOMMITTEE ON RISK MANAGEMENT AND SPECIALTY CROPS

THOMAS W. EWING, Illinois, Chairman
LARRY COMBEST, Texas,
Vice Chairman
JOHN T. DOOLITTLE, California
RICHARD W. POMBO, California
NICK SMITH, Michigan
TERRY EVERETT, Alabama
RON LEWIS, Kentucky
ED BRYANT, Tennessee
MARK FOLEY, Florida
SAXBY CHAMBLISS, Georgia
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JERRY MORAN, Kansas

GARY A. CONDIT, California
SCOTTY BAESLER, Kentucky
SANFORD D. BISHOP, Jr., Georgia
EARL POMEROY, North Dakota
JOHN ELIAS BALDACCI, Maine
VIRGIL H. GOODE,Jr., Virginia
MIKE McINTYRE, North Carolina
BOB ETHERIDGE, North Carolina
LEONARD BOSWELL, Iowa
(ii)
C O N T E N T S

     Everett, Hon. Terry, a Representative in Congress from the State of Alabama, opening statement
    Ewing, Hon. Thomas W., a Representative in Congress from the State of Illinois, opening statement
Witnesses
    Adkins, Jerry, director, shipping point inspection, Alabama Department of Agriculture
Prepared statement
    Bowden, Ben, producer
Prepared statement
    Dorner, Joe W., microbiologist, U.S. Department of Agriculture
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Prepared statement
    Fincher, Doyle, president, Western Peanut Growers Association
Prepared statement
    Fortmier, Bob, senior manager, commodity trading, Hunt-Wesson, Inc.
Prepared statement
    Fryer, John E., division manager, Anderson Peanuts
Prepared statement
    Griggs, Billy, chairman, Georgia Peanut Commission
Prepared statement
    Hatcher, Hon. Charles, Director, Tobacco and Peanuts Division, U.S. Department of Agriculture
    Mobley, James Earl, chairman, Alabama Peanut Producers Association
    Nowell, Benny, producer
Prepared statement
    Powers, Camp, president, south Alabama division, First South Production Credit Association
Prepared statement
    Sanders, Carl, president, Alabama Peanut Producers Association
Prepared statement
    Springer, Robert D., State Executive Director, Farm Service Agency, U.S. Department of Agriculture
Prepared statement
    Ventress, Bill, president, Sessions Co., Inc.
Prepared statement
    Whitaker, Thomas Burton, agricultural engineer, Agricultural Research Service, U.S. Department of Agriculture
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Prepared statement
Submitted Material
    Brooks, Bob, president, Georgia Peanut Producers Association, statement
    Kirkland, Thomas and Debbie, statement
REVIEW THE IMPACT OF AFLATOXIN IN SOUTHEASTERN PEANUTS

TUESDAY, JANUARY 20, 1998
House of Representatives,
Subcommittee on Risk Management
and Specialty Crops,
Committee on Agriculture,
Dothan, AL.
    The subcommittee met, pursuant to call, at 9:06 a.m., in the West Gate Recreation Center, Dothan, AL, Hon. Thomas W. Ewing [chairman of the subcommittee] presiding.
    Present: Representative Everett.
    Staff present: Stacy Cary, director, Subcommittee on Risk Management and Specialty Crops.
OPENING STATEMENT OF HON. THOMAS W. EWING, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS
    Mr. EWING. The meeting of the Subcommittee on Risk Management and Specialty Crops to review the impact of aflatoxin on southeastern peanuts will come to order.
    I appreciate everyone coming out today. It certainly is a pleasure to be here on a nice winter day in Alabama and enjoy the sunshine. I am pleased to again be back in Dothan. It was slightly over a year and a half ago since the subcommittee was here to discuss the effects of the Federal Crop Insurance Program on coverage of crops damaged by Hurricane Opal. It is good to be back again.
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    Because much of the Alabama crop has experienced aflatoxin this past crop year, today's focus will be on the impact in the Southeast. I would like to thank my colleague, Terry Everett, for hosting the subcommittee today. The subcommittee looks forward to the opportunity to hear from as many of you as possible today.
    I would like to call on our host, Congressman Terry Everett, for an opening statement.
OPENING STATEMENT OF HON. TERRY EVERETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALABAMA
    Mr. EVERETT. Thank you very much, Mr. Chairman. I want to thank you for agreeing to hold this subcommittee hearing down here today.
    Our farmers have a real high level of frustration, and if you stop and look at what has happened in the Wiregrass in the last 4 years, the drought that we had. Out on my farm, we lost water in about the middle of August and did not get it back until the last of September. Grades were low, a lot of seg. 3s. We have had one disaster right after another for a number of years.
    I appreciate you coming down to discuss some of the problems that our growers feel like they face so that we can go back to Washington and meet with the full Committee and try to come up with some solutions to handle these problems.
    I am also particularly concerned about the fact that while we do have disaster relief funds available but the restrictions on those funds are really, really very tight. They are almost tight to a point where you have to be in bankruptcy before you can get the loans, you know. And I would hope at some point that something could be done about that.
    Again, thank you, Mr. Chairman, and I look forward to hearing our panels discuss our problems, and any possible solutions that they see, today.
    Mr. EWING. Thank you, Terry.
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    Sanford Bishop has given me a statement, a short statement, and I would like to read it on his behalf. He was unable to be here today. Unfortunately he had a conflict involving his duties as a member of the House Select Committee on Intelligence. They are searching for POWs and MIAs in Southeast Asia.

    As I have crossed the Second Congressional District of Georgia, which lies on the other side of the river from here, during the 1997 harvest season for peanuts, I have heard from scores of peanut farmers about how quality losses have substantially impacted their bottom lines.
    Indeed, on their behalf, I supported a requested rule change in the middle of the 1997 marketing year, which would have allowed for them to clean and regrade their seg. 3 peanuts, thereby allowing more of their crop to be sold at the support price.
    While this change was not allowed this past marketing year, I believe a solution can occur and should be sought before we get into the next marketing year. Of course, I think it better to act on this matter only after a consensus is first reached among all the industry segments. To the degree that work will be needed to convince my colleagues from the other two peanut growing regions of the country to support the changes needed by the Southeast, I am ready to assist.
    My District Director, Hobby Stripling, will be here throughout the hearing and he is available on my behalf to listen to any particular concerns that the subcommittee, witnesses or members of the public in attendance might have.

    Is his District Director here? Would you stand up so everybody can see Sanford's District Director, and I want you to take all the problems to him. [Laughter.]
    Sanford is always a very cooperative and helpful member of Congress as we deal with problems with specialty crops and I am sorry he could not be here today, but I know that he is concerned.
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    We will now go to the first panel. Before we do that, I want to indicate to the panel that we are going to use the 5-minute rule. That way, we can have as many people as possible heard from during this hearing. We would like for you, if you can, to summarize your statements, hit the main points if you have more than a five-minute statement, and that will help us have more time for questions, which is often the time when we get to some of the real crux of the issues that we need to address here today.
    Today's first panel is Mr. Mobley, Alabama Peanut Producers; Mr. Sanders, Alabama Peanut Producers Association; Mr. Griggs, the Georgia Peanut Commission; Mr. Fincher, the Western Peanut Growers Association; Mr. Nowell, the Nowell Farms; and Mr. Bowden, Westover Plantation. We will start with you, Mr. Mobley, welcome.
STATEMENT OF JAMES EARL MOBLEY, CHAIRMAN, ALABAMA PEANUT PRODUCERS ASSOCIATION
    Mr. MOBLEY. Thank you, Mr. Chairman. I appreciate the opportunity to be here today, and I certainly appreciate your holding this hearing down in the Southeast. On behalf of all of the growers in Alabama and the Southeast, we appreciate what you are doing to help us try to correct this bad situation that we are living under. And certainly, I want to tell Congressman Everett the hard work that he has done to try to help us survive this transition. We appreciate him very, very much. We know he was instrumental in getting you to hold this hearing down here today.
    We are living under a grading system that is about 35 years old. I was fortunate to be one of the original members of the PAC, which we had a crash program to come on to try to keep the quality, to keep from losing completely. But now it is time for us to change this and come back to do something for the producer.
    When we did away with the disaster transfer for all practical purposes in the 1996 farm bill, it did not impact the farmers the first year, but in 1997, it come home to roost. It will take a lot of farmers out this year on account of this outmoded type grading system. And I think as you hear testimony here this morning, you will agree that we need something done.
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    Again, I want to thank you for having this hearing in the Southeast and we will move on with the other people to testify.
    Mr. EWING. Mr. Sanders.
STATEMENT OF CARL SANDERS, PRESIDENT, ALABAMA PEANUT PRODUCERS ASSOCIATION
    Mr. SANDERS. Mr. Chairman and members of the committee, my name is Carl Sanders and I am here representing the peanut producers of Alabama as president of the Alabama Peanut Producers Association. I am also a full time farmer with peanuts being the primary crop in my farming operation.
    First, on behalf of the producers of Alabama and the Southeast, I want to express our appreciation to you for holding this hearing today and the promptness to which you responded to our request. The consequences of the 1997 crop disaster in the Southeast, combined with the changes in the peanut program will have dire effects on many in our area for years to come. Many of our neighbors may not be farming this year.
    We realize the necessities of changes made in the program and the political realities that existed. We also appreciate the efforts made by you and others for the program we were able to maintain. We are not here today to debate the program, but to discuss how we can better manage the risks associated with years like 1997.
    We have a program today that has evolved from 1978 to the present. At the same time, we have regulations and procedures that have changed little over that time. Program changes have made today's program less forgiving for adverse weather.
    There are two areas that we feel need to be addressed. The first is an evaluation of the current grading system. The second is a realistic review of the grower regulations that restrict the grower from maximizing his marketing options. Both must be accomplished while protecting the integrity of the program. One program change that has made many of these issues critical is the provision dealing with disaster transfers. Under the old program, quality issues did not have the negative impact on growers that the current program does. Instead of a $25 deduction for seg. 3s, growers now have a $183 deduction and only 25 percent of their quota qualifies. Growers must have additional tools to address quality problems.
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    The current grading system uses a visual detection method for determining segregation 1 from segregation 3 peanuts. This system was established in the mid-1960's and has changed very little since then. Widely varying crop years have placed undue stress on supplies. While we may have adequate production, we could still have inadequate supplies of edible peanuts for the marketplace.
    Since October 1, 1997, Alabama has had 22 percent of its peanuts graded segregation 3. This compares to an average year of less than 1 percent. The process of evaluation of farmer stock peanuts is outdated. The current system is restricting the efficiency of our industry. There are a number of reasons that we should not solely rely on visual detection to condemn peanuts.
     (1) There is often little difference between seg. 1s and seg. 3s. (2) The industry is denied peanuts that it wants and needs. (3) The value of seg. 3 peanuts drops from $610 to $132. (4) The implementation of new technology is denied and the development of new technology is discouraged. (5) Our competition uses technology that we are denied, yet that was developed in the United States. (6) We are seeing a lessening of confidence in the Federal/State Inspection Service. (7) And this year, it will contribute to some growers going out of business.
    The visual method has been proven to be inaccurate. Research proves that the current system does not separate wholesome peanuts from unwholesome peanuts. In fact, as far back as 1980, a three judge Federal panel in Texas acknowledged that there was adequate reason to believe that the visual testing was an inaccurate means of evaluating aflatoxin in farmer stock peanuts.
    Like the grading system, only minor changes have been made in the grower regulations since the two-tier price system went into effect in 1978. Growers need flexibility to maximize revenues and to deliver their quota.
    In modifying the grading system and increasing flexibility, we would like for the solution to consider including the following:
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     (1) Allowing the grower to clean peanuts to improve quality before grading, without penalty. Also, at his option, he should be allowed to clean peanuts after initial grading and have the peanuts regraded. (2) Since the purpose of cleaning is to improve quality, inferior and high risk peanuts removed by cleaning should be considered ineligible for the edible market. (3) Producer regulations should be evaluated in order to improve flexibility in an effort to assure that the producer can deliver quota. (4) Industry incentives to deliver improved quality by removing inferior kernels in order to enhance food safety and instill confidence in the United States as a reliable supplier. (5) The CCC loan program must be protected as a safety net for producers. Also, improved crop evaluation would improve the integrity of the loan.
    In closing, we would ask that the USDA be encouraged to continue work with the southeast growers to develop a plan for addressing the seg. 3 issue in relation to the grading system. Also, we ask that FSA work with us in reviewing grower-related regulations to streamline and modify those that are burdensome and restrictive. Furthermore, where possible, these solutions should be implemented for the 1998 crop.
    We pledge to work with the USDA and the industry to develop a fair solution. The producer is being squeezed and only wants a fair chance to compete.
    Again, on behalf of the producers of Alabama and myself, we thank you for your time and concern.
    [The prepared statement of Mr. Sanders appears at the conclusion of the hearing.]
    Mr. EWING. Thank you, Carl. And now, Mr. Billy Griggs.
STATEMENT OF BILLY GRIGGS, CHAIRMAN, GEORGIA PEANUT COMMISSION
    Mr. GRIGGS. Mr. Chairman, members of the committee, I am Billy Griggs, chairman of the Georgia Peanut Commission. I want to thank you for holding this hearing here today in an effort to help our farmers find a solution to the economic crisis we face because of the crop disaster we have suffered this year.
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    Our Commission represents the 6,200 farmers who produce peanuts in Georgia. We are greatly concerned that the number of farmers will be further and significantly reduced as a result of the 1997 crop disaster.
    As farmers go out of business, the burden is transferred to our rural economies as production loans go unpaid to our banks and to our farm suppliers. The farmers who are able to survive this disaster have also felt the impact as their net worth has diminished. Also, the rest of our industry suffers as we fail to have the production to supply demand, especially in the export market.
    I think we would all quite reluctantly agree that at this late date there is not much we can do to fix the problems of the 1997 crop, short of some influx of government disaster payments which could be legislated.
    Because of the fact that the government payments were fixed for all agricultural crops under the 1996 farm bill and there are no savings in other areas, such as target prices, to be drawn from, it would appear that a fix from shifting government dollars is not in the realm of reality. If that observation is correct, we would ask that you help us effect an administrative fix to lessen the blow of such a disaster in the future.
    In the 1980 farm bill, beginning with the 1981 crop of peanuts, farmers gave us the right to clean and regrade segregation 3 peanuts in exchange for a disaster transfer provision, which allowed farmers to place segregation 3 peanuts in the loan with a $25 deduction from the price support. The government assumed the risk of crushing those peanuts at the balance of the cost.
    In the 1996 farm bill, that risk was transferred to the grower in an effort to eliminate government cost in the program. The disaster transfer provisions were reduced to a level which was ineffective in protecting farmer income. At the same time, USDA has maintained its prohibition on cleaning and regrading segregation 3 peanuts.
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    Earlier this year, we contacted the Secretary of Agriculture to ask that cleaning and regrading of segregation 3 peanuts be allowed in light of the fact that the disaster transfer provisions were ineffective. This change has not been allowed. Foreign peanut growers are exempt from the same restrictions placed on U.S. farmers by our grading system.
    Last year, we began working through the American Peanut Council to move forward the peanut industry revitalization project. This would have addressed our concerns. Unfortunately, this has also not come to fruition. Our industry began this process in an effort to improve our ability to compete with cheaper foreign peanuts which have fewer restrictions in their grading.
    In our board meeting in November, we again addressed this issue. Our board asks that you help us in obtaining the ability for farmers to clean and regrade segregation 3 peanuts. This position came after extensive discussion and study of the issue. Two significant factors lend support to the fact that this is not a detrimental move to our industry or our consumers.
    First, research has proven that most of the suspect or hot kernels are in the fraction of the load which would be screened out. In the select cases where the mold occurs in the peanuts that ride the screens back to the sampler, those peanuts will again be subject to detection.
    Second, the Peanut Administrative Committee, which assures the wholesomeness of peanuts, has eliminated programs that indemnified suspect lots. They have now adopted more stringent standards that are placed on outgoing quality. Aflatoxin levels will be maintained at a safe and approved level on the outgoing product.
    With the loss of viable disaster transfer provisions in the farm bill, we need your help. Please help our farmers in changing government regulations to allow the cleaning and regrading of segregation 3 peanuts. This is critical to the competitiveness of our industry, and especially our farmers. Currently one kernel with the presence of Aspergillus flavus will condemn an entire 5-ton load, while producers in other countries would be allowed to market that same load of peanuts into the edible trade.
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    Again, thank you for your concern. We look forward to working with you to find solutions to these problems which will place our farmers in a position to be more competitive.
    Thank you.
    The prepared statement of Mr. Griggs appears at the conclusion of the hearing.]
    Mr. EWING. Thank you, Mr. Griggs.
     Mr. Fincher with the Western Peanut Growers Association.
STATEMENT OF DOYLE FINCHER, PRESIDENT, WESTERN PEANUT GROWERS ASSOCIATION
    Mr. FINCHER. Thank you, Mr. Chairman. My name is Doyle Fincher, president of the Western Peanut Growers Association. The Association consists of peanut growers in west Texas who are responsible for production of the majority of peanuts produced in the state.
    The hearing was called today on proposals that would allow for the marketing by growers of farmer stock peanuts that have been found to contain visible Aspergillus flavus mold and have been graded as segregation 3 peanuts.
    One proposal would allow the grower to have the peanuts resampled and regraded before the sale, thereby providing him with an opportunity to clean up the peanuts. Another that has been proposed would allow the segregation 3 peanuts to be sold as segregation 1 peanuts so long as the peanuts were within the quota of the producer, the peanuts otherwise graded as seg. 1, and the parties have agreed to the sale. While these proposals have been made in the past, we understand that they are being pressed at this time because weather conditions in the Southeast have contributed to an unusual amount of segregation 3 peanuts in the current crop.
    We understand there is proven technology that enables shellers to clean up peanuts so that on delivery to manufacturers or otherwise in commercial channels the peanuts no longer have any presence or a low presence of aflatoxin. We believe there is merit in the proposal that has been espoused that would allow growers to sell segregation 3 peanuts to shellers. But there is equal merit in treating segregation 2 peanuts in the same manner. In fact, segregation 2 peanuts do not present the hazard to human health that has led to the restrictions on marketing of segregation 3 peanuts.
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    Accordingly, we would support a change in the price support regulations that would allow the sale of segregation 3 peanuts to shellers only if the growers could also sell segregation 2 peanuts, and the sale did not cause the grower to exceed the quota on his marketing card. Any such proposal should be conditioned on a requirement that the shellers would clean the peanuts so that prior to delivery on a sale to a manufacturer or otherwise, Agricultural Marketing Service or an approved commercial laboratory would grade the peanuts as No. 1.
    We do not believe that there should be any restriction on the price at which these peanuts would be sold and understand that the General Counsel of USDA has ruled that there is no legal authority for imposing a minimum price on the sale of these peanuts. If the grower should have more seg. 2 and 3 peanuts than reflected in his quota allocation, the excess should be treated as under current rules insofar as commingling of peanuts is concerned. The sheller should be permitted to commingle segregation 1, 2 or 3 peanuts that the sheller owns but not with CCC peanuts, unless the commingling with CCC peanuts are of segregation 1 peanuts only.
    In our view these recommendations provide for fair and equitable treatment for all producers regardless of their location. This is a necessary prerequisite for any change in the current regulations. There should be no change in the current relations that would provide a special privilege to growers in any region that does not apply to all growers.
    Mr. Chairman, thank you for the opportunity to testify at this hearing. I would be pleased to respond to any questions.
    [The prepared statement of Mr. Fincher appears at the conclusion of the hearing.]
    Mr. EWING. Thank you very much. Mr. Benny Nowell of Nowell Farms.
STATEMENT OF BENNY NOWELL, NOWELL FARMS
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    Mr. NOWELL. Thank you, Mr. Chairman. My name is Benny Nowell with Nowell Farms. Thank you for allowing me to address two very serious issues that we as peanut farmers are facing. One being the aflatoxin mold found in peanuts and how this is determined; the other being the ineffectiveness of crop insurance.
    I am 48 years old and have been involved in farming all my life. I grew up on a family farm in Dale County, AL. My father would work a public job at night and by day would work on the farm, to be able to provide the essentials and educate five children. Money was tight for our family; but through a commitment to succeed and hard work, we were able to prosper through the years.
    After graduating from college with a degree in business administration, I returned to our family farming operation. Today, my father Durwood Nowell, and my brother Ronny Nowell, and I still operate that farming operation that my father started over 50 years ago in Dale County. We have been able to continue to prosper through diversification. Along with the farming operation, we are also a commissioned peanut buyer for Cargill peanut products. I have been able to see first-hand at the peanut buying point that the visual method of determining if a load of peanuts has aflatoxin mold is not a fair assessment for the farmer. This method also creates undue pressure for the Federal/State inspectors to make this assessment against the farmer.
    I have a son who will be attending Auburn University to major in agriculture. My brother Ronny also has a son that is in college now. Both of these grandchildren would like to return to their grandfather's farm and make a career of production agriculture. I submit to you that I do not encourage them to return to the farm because of the present crisis in agriculture.
    At the present time, agricultural commodity prices have not kept up with input cost. In addition, equipment costs have tripled in the past 10 years. The farmer has less control over his product than any other industry. We have little control over what price we are paid for our product and we cannot pass on price increases on input cost or equipment cost. In addition, farmers have little control over how their product is graded. Growers need increased options and greater flexibility to market their crops.
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    I submit to you that it is time to change the way aflatoxin mold is determined in a load of farmer stock peanuts. The system used today is an antiquated way to determine the level of aflatoxin found in farmer stock peanuts. With the present system, it only takes one kernel in a load of farmer stock peanuts, regardless if the load has 1 ton or 10 tons, to declare the peanuts unfit for human consumption. When a kernel is found in a load of peanuts, the farmer has no recourse. To clean these peanuts in some cases would remove the kernel that would allow the load to be sold for quality stock. When the load of peanuts has been determined by the Federal/State Inspection Service to contain aflatoxin mold, the price immediately drops from the segregation 1 price, which in the past has been $615 per ton, to a price of $132 per ton in the GFA pool. When these peanuts go into the pool, these peanuts are only allowed to be crushed for oil.
    The 1997 crop year has been a disaster on our 1,100 acres of peanuts grown. Because of the drought in late July, August and September when peanuts were maturing, 8 weeks of no rain wreaked havoc on the peanut farms in the Southeast. On our farm, 51 percent of the total production were declared seg. 3 peanuts. This represents a dollar loss of approximately $300,000, which is about one half the gross sales of peanuts for our farm on a normal year. It will take many years of growing high quality and high yielding aflatoxin-free peanuts to be able to recover from this loss.
    I submit to you that the peanut farmer has no recourse in dealing with the seg. 3 problem. It is my proposal that the peanut farmer should have increased options to reduce losses that occur when one kernel is found in a load of peanuts.
    My recommendation to the committee:
    Give the producer the opportunity to clean and regrade a load of peanuts after visual testing has indicated aflatoxin mold. After cleaning this load, if aflatoxin mold is still found, give the producer and buyer the option to determine the amount of mold that is found in the load through an up-to-date testing procedure and use a scale to determine the price according to the amount found. One way to accomplish this is to have the peanuts chemically analyzed and use a scale of premiums and discounts to price according to quality parameters.
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    Give the buyer the opportunity to purchase the peanuts that have been cleaned, tested and have been found to contain manageable levels of aflatoxin mold.
    The other issue that is of real concern to producers is the erosion of crop insurance coverage due to lowering yield averages. Crop insurance was determined by Congress to be the risk management tool for producers by eliminating a disaster program. Under the present crop insurance provisions, the coverage is determined by a 10-year moving average. In the past 10 years, the yield averages for peanuts has steadily declined in Alabama, making today's average 2,166 pounds per acre. Under the current provisions, the highest level of coverage available is 75 percent of the farmer's established yield average. Using Alabama's average yield, this is approximately $200 less than the break-even per acre. With the total elimination of a disaster program, crop insurance coverage is not providing sufficient coverage to minimize risk.
    My recommendations eliminate disastrous year yields as part of production on farms or use the county's average yield for that year, or allow the producer to purchase levels of insurance higher than 75 percent at a reasonable rate.
    Thank you for your consideration concerning the economic impact that aflatoxin mold has had on the peanut farmers in the Southeast, and concerning provisional changes in the crop insurance program.
    [The prepared statement of Mr. Nowell appears at the conclusion of the hearing.]
    Mr. EWING. Thank you, Mr. Nowell. And now Mr. Ben Bowden.
STATEMENT OF BEN BOWDEN, WESTOVER PLANTATION
    Mr. BOWDEN. Congressmen Everett and Ewing, we want to let you know we thank you for this hearing and appreciate you being here. I have been farming for 43 years and I started right out of high school. I began with 16 acres of peanuts and 17 acres of cotton, some 18 acres of corn. I did not have any farming experience and I was not raised on a farm. I just wanted to be a farmer. Today, I have got 5,900 acres in cultivation and I have one of the largest peanut quotas in the state of Alabama. Like I said, this was 43 years ago.
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    I work with all the major commodity organizations and presently I am active in a lot of environmental and property rights and water rights organizations.
    I have spent a lot of time trying to educate myself by participating in these organizations and learning how these organizations contribute to agriculture. I think it has made me a better farmer and has made me better able to understand how government and laws can work to the advantage or to the disadvantage of farmers.
    We are here to talk about peanuts and I think I know peanuts. I know how to produce peanuts and how much it costs to produce peanuts. I know how to recognize quality in peanuts and I think we are at a crossroads with farmer stock quality peanuts in this country. We may be even at the crossroads of economical peanut production in this country if we do not have some changes.
    You know, U.S. farmers are the only farmers in the world with a zero tolerance for aflatoxin. All other farmers have flexibility in their grading systems. Before the last farm bill, this zero tolerance did not hurt producers much, not nearly as bad, because the cost was shared by GFA, the CCC and the public. Now all this cost rests on the backs of farmers. You know, the weather is the one practice that has more control and the single greatest influence of all production practices on peanut quality. It seems like farmers are being penalized because we have no control over the weather.
    I want to share with you some of my personal experiences with this 1997 peanut crop. I planted with 2,100 pounds of quota allocated to each acre expecting to make more peanuts and have three marketing options for the additional peanuts—the fall transfer, the buyback or just the sale of additionals. None of this materialized. Before I became aware of the seg. 3 problem, I started picking, I had a good crop so I knew I needed some extra quota. I went out and bought some extra quota. The day I signed the quota, it started raining and I started having seg. 3 peanuts. I spent $17,830 for quota that I could not use. Today, I have got 350 tons of quota left over. This has all changed my ability to work within this program because of the regulations that we have.
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    It seems like seg. 3 peanuts started coming from every direction. I had several days that everything I dug was seg. 3. I put six loads of these peanuts back under the farm shed and when I got to my irrigated peanuts, the seg. 3 problem cleared up, just like you would expect, but before I got through with the irrigated peanuts, I worked in those six loads that I had put under the shed, none of them were identified as seg. 3. Now all these peanuts were produced on the same farm, same farm number and I do not know what happened to these peanuts under that shed. Maybe I ought to put them all under there and let them cleanse themselves. They seemed to have cleansed themselves sitting under that shed. But seriously, we need a better grading system. This is just a good example of the poor grading system that we have.
    I look at two to four samples out of every load, 4.5 to 5 tons, produced on my farm. I brought you some samples here out of these seg. 3s this year. My family, my friends and I will eat these peanuts, as we do each year. I want you to please inspect these peanuts closely and take them home and share them with your family. I feel confident these peanuts will contain much less contamination than the peanuts we will import to take their place. You know, foreign peanuts are contaminated with bacteria, fungi and chemicals that are outlawed in this country. But yet, they are allowed to be sent in here and consumed.
    Now look at the economic impact all this has on the farming operation. I received $28,805.44 for 220 tons of seg. 3 peanuts that was worth $148,749.75 had they graded seg. 1. This constitutes a loss of $122,944.30 that cannot be justified, in my estimation.
    Every farmer in this country knows our future centers around quality. We should have better ways to deliver quality products to our customers. Once we have a seg. 3 identification, as a producer we have no options. We can pay to have them cleaned, we can do anything we want to, but the stigma of seg. 3 is still with us. It is absolute and cannot be changed. So with a more up-to-date grading system, we also need a tolerance and relief on regulations regarding aflatoxin. We cannot live with a zero tolerance.
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    Producers, we are condemned, but the sheller and the end user can clean them up after they get them. Farmers around the world can attempt to clean them up. Why should the American producers who can least afford it be so severely penalized.
    I want you to look again at the peanuts I gave you. These peanuts are too good to be condemned by an antiquated grading system and the U.S. farmers cannot afford this unnecessary expense.
    Now if you travel down 431 just about 10 miles at Headland, you will see a field with just a tremendous amount of equipment. That is where all the farmers, peanut farmers and farmers in general, in this country are headed if we do not get some kind of relief on our peanut system.
    Thank you. I have a book here, 40 years ago when peanuts were $200 a ton and the buying power. If you have a little time or any questions, I would like to try to answer them.
    [The prepared statement of Mr. Bowden appears at the conclusion of the hearing.]
    Mr. EWING. Thank all of you on this panel. I know that you have created some questions with me and I know you have with Congressman Everett, and we are going to ask those.
    Ben, I guess I would just suggest maybe you should consider going into the manufacturing of those sheds and selling them. There might be a real good market here—but you make an excellent point with your comment there.
    Mr. Mobley, we have dealt together for now 6 or 8 years since I have had the opportunity of working with this subcommittee. How do you divide the difference between the problems we have with the way we are testing peanuts and the grading of peanuts and the problems that have affected farmers down here this year or the last 3 or 4 years with the weather? Is it a combination of the both coming together or without the adverse weather, would we have had as many problems or complaints about the way we grade peanuts and test them?
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    Mr. MOBLEY. As you have heard me say many times, Congressman Ewing, most of the adverse grades that we get out of peanuts were created by act of God. It is not something that the farmer does, it is adverse weather conditions. If it was not for that—we went for many, many years in the 1960's and 1970's where we had very few problems and then all of a sudden something called El Nino or El something come along and it has almost done us in at this point.
    As I say, in 1996, the first year that this farm bill was in, we did not have too big a problem by doing away with the disaster transfer that year, but it came home to roost last year when weather conditions and all just created so many seg. 3s. I believe that if we had had the opportunity to chemical test those peanuts that was visually found to have aflatoxin that we could have survived this thing a lot better. And this is just one man's opinion now from looking at data that has been run through, and experiments all over the country.
    So yes, it is an act of God that creates these adverse grades in peanuts and we need something, and I wish that I knew all of the answers to it, but if I did, I would not be sitting here.
    Mr. EWING. Would you say that the economic conditions probably are as bad as you have known them in 20 years here?
    Mr. MOBLEY. Yes, today they are, I am sorry to say.
    Mr. EWING. Mr. Bowden, you mentioned something that other members on the panel have mentioned also. What is your competition, the rules and regulations they are playing by. Would you want to expand on that a moment? Certainly we are all hunting for a level playing field.
    Mr. BOWDEN. Well, as I understand it, you know, all of the foreign growers do not have zero tolerance but they do have to comply with parts per billion, which we would not have any problem at all. These peanuts that you have up here, I feel real confident have no Aspergillus flavus in them, they have only been screened on a 16/64 screen, same screen that they use in the peanut plant. I have a little small screen. And most of the—95–99 percent of the damage that we had was on real small peanuts that would fall through in the first screening. Now within the shelling plants, they have electric eyes, any peanut that is discolored, it immediately removes and that gets just about all of the rest of the aflatoxin. But even then, when they find aflatoxin, you can go further and blanche them and remove all of the aflatoxin.
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    Now all of our foreign competition has these tools available to them but we have this zero tolerance and once we identify any, all of it is out the window and all the modern technology is unavailable to us. It is just not a fair, level playing field.
    Mr. EWING. When you get to that zero tolerance, is that by loads as you take it in or——
    Mr. BOWDEN. I believe it is three or four spores, and it could be on a 20-ton load or a 1-ton load, the whole load is condemned. If they find one kernel with as many as three to six spores now of what they assume is aflatoxin. Aflatoxin is really hard to identify within itself, it is so many different molds. And this Aspergillus flavus is the mold that is supposed to cause the aflatoxin, or the poison, the cancer-causing agent. Zero is unreasonable.
    Mr. EWING. Zero is none.
    Mr. BOWDEN. Yes. We are talking about just a few spores.
    Mr. EWING. In a decent year when your weather conditions are kinder to the producer, if you looked hard enough, could you find that same possible number of spores in a load of peanuts?
    Mr. BOWDEN. Not in every load. Like James Earl mentioned, the weather has a tremendous influence. Dry weather followed by a wet spell has some way of bringing it forward. In the soil itself—the aflatoxin is in the soil. It is just like cutting your hand. You do not get an infection until you break the skin. And if the peanut some way gets the skin or the hull broken, it has an opportunity for these spores to enter, and bad weather conditions just cause more of that problem.
    Mr. EWING. Thank you. Mr. Everett.
    Mr. MOBLEY. Can I ask you one final question? You asked about the economic situation and I told you that it was. I just wondered if this group got on their knees and begged, would it help any? That is how desperate we are.
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    Mr. EWING. I am sorry, would you repeat that?
    Mr. MOBLEY. Would it help for us to get on our knees and beg?
    Mr. EWING. No. [Laughter.]
    Mr. MOBLEY. Well, we are prepared to do it if it will help. Thank you. We thank you again.
    Mr. EWING. Well, you make the point and that is what you are trying to do, and I appreciate that.
    Mr. MOBLEY. Thank you, sir.
    Mr. EWING. Terry.
    Mr. EVERETT. Ben, let us continue on with the example. I am going to advise my colleague to take these home, spread them out in a pan evenly and put them in the oven and—slow heat—300 degrees, and in about 30 minutes, you are going to have a smell coming out of there that is just going to drive you crazy—roasted peanuts, it is one of the best smells in the world.
    Now that I have described that, Ben, these same peanuts that we are going to enjoy so much by roasting them——
    Mr. BOWDEN. Put them in the microwave, it is a lot quicker.
    Mr. EVERETT. Yeah, but you have to stir them a lot more often. I have tried that.
    Describe to us now, these wonderful, great peanuts, when they go into the loan program, in the pool, describe for the record what is going to happen to them then.
    Mr. BOWDEN. Well, those very same peanuts will be pressed to oil just like the dirtiest, sorriest, lowest grade peanuts that you have and the scrap and the trimmings out of everything else, they will be blended in and have to be crushed for oil.
    Mr. EVERETT. It is in fact against the law to sell these for edible consumption within the United States.
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    Mr. BOWDEN. Or even the meal, in the United States. It can be exported for feed purposes and I am sure it is all fed where it goes.
    Mr. EVERETT. Benny, I would like to talk a little bit more about input, input into—that farmers cannot control the prices of increases in equipment, chemicals. But there is also another one that the farmer cannot control. To get your crop in, if things look real good, you are going to continue to do for that crop what you need to do for that crop to make a good yield.
    Mr. NOWELL. Absolutely.
    Mr. EVERETT. And this year, we thought we were going to have a great year. Rather than being able to cut back on input at the farm level, at the production level, which is what you do when you recognize early on that drought will be a problem, we continued to do for that crop what needed to be done under good weather conditions.
    What would be your comments on that? And then of course the bottom fell out when we did not get any weather.
    Mr. NOWELL. We took the crop all the way to all the fungicide sprayings. We were within 3 weeks of making the crop, then the rain stopped and all of our input cost was already there. There was no turning back. We had already spent all the input costs on it. So all of our money was there, not like say in early June, if the rain cuts off and we realize that maybe it is a losing situation, we can pull back on our use of chemicals, of our fungicides, whatever. We had gone the full gamut in putting all of our input costs as far as chemicals and we had no recourse there then.
    Mr. EVERETT. And of course, the weather is something we cannot control.
    Carl, you mentioned that producer regulations should be evaluated in order to improve flexibility in an effort to assure that the producer can deliver the quota. Would you like to elaborate on that a little bit?
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    Mr. SANDERS. Yes. There is lots of times where the regulations as they are now would limit a producer from delivering his quota, as we say. We just need some flexibility with Farm Service Agency. We have talked with them, they have been very cooperative and we just would like to encourage them to continue to talk with us to work on these regulations.
    Mr. EVERETT. What specific regulations are you referring to?
    Mr. SANDERS. Well, I do not have the specifics right here in front of me, but we do need to work on all the regulations. I know, for instance, we had one grower that if you spring transfer, sometimes you cannot fall transfer and such as this, and we need to work on these regulations that people get into. You do not anticipate it until you get that problem.
    [Mr. Sanders responded for the record as follows:]

    The regulations dealing with the transfer of quota between farms needs to be liberalized. Specifically, producers currently are unable to fall transfer quota to a farm if the peanuts to be marketed have been graded segregation 3. If a producer has peanuts yet to be marketed on a farm and unused quota on a separate farm, he should be allowed to transfer the quota to the needed farm regardless of segregation. This would be helpful should the producer desire to utilize the disaster transfer provision or if he wanted to save the segregation 3 peanuts for seed.
    Producers who clean their peanuts to remove loose shell kernels, immature kernels and damaged kernels should have the flexibility to market these peanuts as oil stock. Also, if peanuts are graded segregation 3, the producer should not have to place these peanuts in the loan, if there is an alternative market (oil market) with a greater return than the CCC loan of $132 a ton.
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    Mr. EVERETT. James Earl, have you got anything you would like to add to those list of regulations that we need to look at?
    Mr. MOBLEY. No, we will make them available to the committee any time.
    Mr. EVERETT. We appreciate it. Ben.
    Mr. BOWDEN. I have one. You know we have a regulation that you cannot transfer on and off of the same farm in the same year. Now I transferred this quota onto my farm before I started having seg. 3 peanuts. I had all these seg. 3 peanuts, here I had bought this additional quota and put on that farm and I had some other farms that I needed to transfer quota on, irrigated farms, and I could not move that quota off of that farm because I had moved some on that year. Now we should have some kind of special, you know, for disaster type reasons that we could do that, because I was trapped with an expense that I made and I had absolutely no control over, was not even aware of it.
    Mr. EVERETT. Mr. Chairman.
    Mr. EWING. Thank you, Terry.
    I wanted to talk with Mr. Nowell a minute. In your testimony, you mentioned the difference between what you would have anticipated receiving and what you did receive, which is an enormous decrease and certainly something that would hurt the big producer or a little producer.
    Mr. NOWELL. Absolutely.
    Mr. EWING. With the size operation you have, do you make any efforts to clean your crop before you take it in? Is that something that is done here?
    Mr. NOWELL. Yes, we clean all of our peanuts before we take them in, just to get the quality to what we think will bring the best grade and the best price. So yes, we do make every effort to bring the quality and clean them before we bring them in.
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    Mr. EWING. When you take that action, is there any way to kind of insulate yourself against the aflatoxin problem that you run into when you get to the sheller?
    Mr. NOWELL. It is random. You do the cleaning, you may find it in the load, you may not find it in the load, it is sporadic. Sometimes cleaning may help, sometimes it may not help.
    Mr. EWING. Is there changes in the rule that would allow you as the producer to pretty well assure that you are going to have all those infected peanuts or most of them out of there so that you will be able to get your quota price?
    Mr. NOWELL. If the aflatoxin is found in the load of peanuts, I think the producer should have the option to take it back to the cleaner or have it cleaned and determine at that time, if it has aflatoxin in it then get the producer and you to work out details and sell it to the producer.
    Mr. EWING. Well, I guess that is the point I am trying to get at——
    Mr. NOWELL. I mean to the buyer.
    Mr. EWING [continuing]. Do you take it to the cleaner in a year like 1997 to try and avoid having the aflatoxin show up when you take it in?
    Mr. NOWELL. Yes.
    Mr. EWING. But that did not solve the problem.
    Mr. NOWELL. In some cases it helps, in some cases it does not help. It is random, you just cannot say it helps in every case.
    Mr. EWING. But when we talk about then having the opportunity to go back and clean up those peanuts, which is something you cannot do after you have taken them in, I guess.
    Mr. NOWELL. Yes, that is correct. After you have had it graded and they have determined that aflatoxin is present.
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    Mr. EWING. You cannot.
    Mr. NOWELL. Yes. If they grade the load of peanuts and it does not find aflatoxin—say it is running too high in foreign material, you can take it back and have it recleaned to get the foreign material lowered. But if they find aflatoxin in there, you have no recourse, you cannot take it back to the cleaner.
    Mr. EWING. I guess the problem I am having and it is partly because I do not understand your processes, is why you do not make every effort—or why you cannot clean it well enough so it will not show up. If you can do it after they say it is there, why can you not do it before?
    Mr. NOWELL. Because it is in the hull, I guess you would say. The kernel has the A. flavus in it and the peanut is still in the hull, and I suppose that would be why.
    Mr. EVERETT. Mr. Chairman, I think James Earl would like to contribute to that too.
    Mr. EWING. All right.
    Mr. MOBLEY. Mr. Chairman, I think there are some handlers on one of the panels in a few minutes. They have explained to the growers that if they knew the parts per billion of aflatoxin in that sample, that they could, up to a certain extent, they could clean that up and they could ratchet it down and charge the grower what it costs to clean them up and the grower would be dollars and dollars and dollars ahead of what they are now. So I do not see any reason why, if this load of seg. 1 peanuts goes and then after they get in there, they are determined to be seg. 3, they have to clean them up, they have that choice to clean them up. It looks like to me that we could work with the handlers some way, you know, if we determine it is not too high. Of course, if it gets beyond a certain level, you want to crush them anyway. But they tell us that there is not much difference in a seg. 1 and a seg. 3.
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    Mr. EWING. Thank you. And I guess is the testing done while the peanuts are in the shell or after they are shelled?
    Mr. NOWELL. The testing is done after they are shelled.
    Mr. EWING. But you are cleaning them in the shell.
    Mr. NOWELL. That is correct.
    Mr. EWING. All right, so that is one of the problems that keeps you from identifying this in your cleaning process.
    Mr. NOWELL. Yes.
    Mr. EWING. The other point that you made and one that I think certainly is very important, particularly when we have bad crop years is how can we improve the Federal Crop Insurance Program.
    Mr. NOWELL. Yes.
    Mr. EWING. Do you have the choice now of taking the county average or your farm average?
    Mr. NOWELL. You have to take your farm average. You do not have the choice to take the county average.
    Mr. EWING. And do you believe that because your weather conditions here were fairly widespread, that a county average is going to help that much? Would the county average not have been depressed over the last three or four years also?
    Mr. NOWELL. In some cases it could, in some cases it could not. The county averages—it is according to how the weather is in different parts of the county.
    Mr. EWING. Well, I made a note of your comments on that and that is an area that we will look into.
    What the insurance companies and the rules and regulations of course try to avoid is somebody who never has a good average buying insurance. And that is one of the problems. But you make a very good point and it does not matter whether it is peanuts or any other product, any other commodity, we often seem to have bad years in a row or within a decade that tend to reduce that.
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    Mr. NOWELL. My point also is since we do not have a disaster program, that we should not be penalized for those disaster years because of low yields. We need some way to control our risk and all we have now is the crop insurance. And with the erosion of the coverage we will have nothing to fall back on and our lending institutions are not going to loan us production money if we do not have adequate crop insurance to cover us.
    Mr. EWING. Thank you. Carl, you wanted to make a comment?
    Mr. SANDERS. Yes, I just wanted to address the issue of the visual testing that the farmer is under now, which is determining that there is a fungus present on that peanut. It does not mean there is any aflatoxin in that peanut. Aflatoxin and the fungus are two separate things. That fungus can cause aflatoxin, it does not necessarily cause it. And there are other funguses that look very similar to Aspergillus flavus that do not cause the toxin.
    The growers think that there is a big margin of error because you are doing a visual test and a chemical test on a regrade would be a big help to us.
    Mr. EWING. I wanted to ask a few questions of you about that because we visited about it before and I got some help here in understanding the reason why you do not check all this out before you take your crop in.
    Have you made or your association made requests to be able to regrade those peanuts after they have been taken in and shelled?
    Mr. SANDERS. Yes, we did last year and we did not even receive a reply until the crop year was over.
    Mr. EWING. What did the reply say when it came?
    Mr. SANDERS. It was no.
    Mr. EWING. No explanation, just two letters, n-o?
    Mr. SANDERS. Well, basically that is what it was; yes, sir.
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    Mr. EWING. Did they give a reason? Is it a legislative problem, is it an administrative problem, is it because of rules and regulations?
    Mr. SANDERS. There are some rules and regulations that might have to be changed, but that is changeable, in my opinion.
    Mr. EWING. So you believe that if—which is the most important, to go from a visual test to a chemical test or to go to a better grading system, and I am using grading in terms of cleaning up the crop if there is a need to do so.
    Mr. SANDERS. Yes, I think we need to overhaul and sometimes you have to overhaul one step at a time. And what I had heard talked about was if you have a visual seg. 3, then you clean it, regrade it and possibly run a chemical test then to really determine if there is any aflatoxin present.
    Mr. EWING. So you think that we need to address both the testing and the grading to make a really workable system.
    Mr. SANDERS. Right; yes, sir.
    Mr. EWING. Maybe someone on the panel could address just one issue that was talked about, the transfer of quota from a grower such as Mr. Bowden mentioned, from farm to farm.
    Now did we address that, James Earl, in the farm bill? Was there talk about allowing that transfer of quota?
    Mr. MOBLEY. I am not sure whether it was in the farm bill or not, but it was in the regulations. You know we can pass a good farm bill and when they get through with the regulations, we do not even recognize it. And I think this is something that was caught up in interpretation by the legal department in USDA.
    Mr. EWING. Is there a resistance, any of you, in the industry to allowing producers to transfer quota from—that quota has to be assigned to one piece of ground?
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    Mr. MOBLEY. Well, the main reason why—and you can understand down through the last 50 years it has become a part of the economic situation in each county—and the national grower group looked at it from the standpoint they did not want them transferred out of, too many of them transferred out of an area, because it would have too much of an economic impact on it. That was relaxed in the 1996 farm bill to where it can be transferred within the state from one county to another, shifting around.
    Mr. EWING. That would have been a big help in this crop year to a number of producers.
    Mr. MOBLEY. I think it would except in Alabama, it was just about a total wipeout in 1997. It was the worst year I believe overall. You did not have very many pockets that made good peanuts in Alabama. I think the last figure I saw, about 25 percent of them went seg. 3s and the rest of them, the grade was very poor on them. It is kind of like you have heard Congressman Everett say, he was fortunate he did not have but four loads of seg. 3s, but unfortunately, that was all of his crop. So there was a lot of farmers hit like that, you know.
    Mr. EWING. Mr. Fincher, is there a different feeling among the Western Peanut Growers about changing the way we test peanuts and the rules on cleaning up the crop afterwards and maybe making more of the crop meet the quota?
    Mr. FINCHER. We would be in favor of changing the regulations to where these peanuts can all be gotten in.
    Now let me say seg. 3 peanut is not a west Texas problem at all, but seg. 2 is our problem and that is why we are injecting the seg. 2 in there with the seg. 3s.
    Let me talk to you a little bit on this transfer, the way I understand it. If you make a spring transfer to a farm, you can also transfer off that farm providing you met the 90 percent rule of planting those acres. Now we do have a problem in the fall transfer. If you transfer peanuts to that farm, then you do not make that farm, then you are not eligible to transfer them to another farm. The problem that that creates in west Texas is the fact that a lot of times central Texas is not through by the time we are but they may go ahead and know that they are going to make a bad crop and they want to transfer some peanuts to west Texas. Well, we cannot afford to contract those peanuts on a lease basis in the fall until we get our harvest kind of out because we never know when we are going to get a freeze, you know. And if we transfer them peanuts in there and we get a freeze and end up with seg. 2 peanuts, then we cannot deliver the quota and that is considered a loss I think back to the producer where the peanuts originally came from. So that holds back on a lot of fall transfers.
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    Now the grading system—well, central Texas has a little problem with the seg. 3 peanuts, not as great as it is here in Alabama, but it is a problem down there. But to my knowledge, west Texas in the last 15 years has had three loads of seg. 3 peanuts and I am referring to semi loads, that's the way we haul our peanuts in our there.
    Mr. EWING. That is a Texas thing, is it not?
    Mr. FINCHER. That is a Texas thing. But the trucks that hauled this come from central Texas and two of these particular loads, the seg. 3 was proven to be on the trailer and it was not swept out before it was loaded. They hauled seg. 3 peanuts to a crusher in Lubbock and came on down and picked up peanuts to go to the sheller. The third load was pretty well proven that the seg. 3 come on the outside of a circle of peanuts where a man was doing some dry landing and he did not keep them separate and blended them in. So that was where our third load came from. That is the best of my knowledge on that, you know, from the shellers.
    Mr. MOBLEY. Very few seg. 3 peanuts come off of irrigated land, very few.
    Mr. EWING. To you, Mr. Griggs and any others on the panel, how do we get—is there a consensus in the industry to make these changes? And if not, how do we get that consensus?
    Mr. GRIGGS. Mr. Chairman, I think with the hearing we are having here today and what we are hearing from different areas of this Nation in peanut production, I think we have a pretty good consensus here. We do not have the VC area represented at this particular time, maybe we have some testimony that is going to be coming. But we have got an industry problem. If there is a problem in the Southeast, then that problem flows to the southwest or the VC and vice versa. I believe we have got to address the industry, to make it whole and to make it strong, irregardless of whether the problem is in the Southwest or Southeast or the VC. We need to pull together and I think we are approaching a point to where all the growers are beginning to see that and we can bring that consensus together. I would hope that that is the case and certainly pledge to work toward that myself and from Georgia, and I believe the other men sitting here at this table, in their comments and how close we are in our feelings, I believe that is do-able.
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    Mr. EWING. Thank you. Terry, do you have some more?
    Mr. EVERETT. Mr. Chairman, I just want to point out that the last 10 or 15 minutes, I have been sitting here eating and enjoying these seg. 3 peanuts.
    Mr. EWING. I can hear you, Terry.
    Mr. EVERETT. You can hear me. That is because of how good they are.
    I do not want to move away from the seg. 3—take the focus off the seg. 3 problem, but Billy, you touched on that foreign growers, peanut growers, are exempt from the same restrictions that U.S. growers have to face. For the record, to get something in the record, would you care to talk about that just a minute?
    Mr. GRIGGS. On the foreign producers, they have no restrictions on what they bring in. If they see a problem, then they can clean them, they can do whatever they want to do with them, and bring them into this country. Now if they do not meet whatever test they may come up to in the United States, they may have to take them back out, but they have no restrictions coming into this country. If they are tested before they arrive on U.S. soil and they find any kind of a problem, they run them back through, they do whatever is necessary to bring them up to the standard that they believe will pass, where they can capitalize on our markets. And in fact, that is what they do, is they are taking our markets with cheaper produced peanuts. They do not have the food safety regulations the way they grow, they do not have the labor, they do not have the environmental factors that are mandated on us, that create costs to us. So therefore——
    Mr. EVERETT. Touch a little bit more on input, on chemicals and food safety restrictions.
    Mr. GRIGGS. There are many things in this country that we are not allowed to use, certain chemicals. You know, through the years, they have been taken and banned in production of our crops, not only peanuts but other crops too. In foreign countries, most of those countries that compete with us in peanuts are underdeveloped countries. They do not have these regulations or these banned positions that we do in America, they are not as concerned with environmental safety or food safety or those kind of things past the point of being able to get them into our market and to sell them into our market to our consumers.
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    Mr. EVERETT. And to your knowledge at the border when these peanuts come across?
    Mr. GRIGGS. According to what I have read, the law says they would be tested and everything would be checked to make sure they are safe.
    Mr. EVERETT. Have you any figures on what percentage of them that they actually do check when they come across the border?
    Mr. GRIGGS. Congressman, I have heard a lot of different numbers. I know we had a major problem where roughly 3 or 4 percent were being tested. I think that there has been some major changes made to improve that situation but we were having quite a few that were found not to be fit, early on. And as we can bring more and more light to this, maybe we can improve that situation.
    Mr. EVERETT. The improvement, do you think that has come from foreign peanuts or has it come from American peanuts that have gone across the border and are now coming back in Mexican sacks?
    Mr. GRIGGS. Well one of the latest things we have seen was some work by Customs which, I mean they have a job that is extremely hard to do, they are under-staffed, they do not have enough people and that sort of thing, but the ones that were tested were running around 10 to 11 percent that were illegal transshipments, and some of those were, as you mentioned, U.S. peanuts that had gone out labeled as Argentine or some other origin and sent back in to the United States illegally. That was found by U.S. Customs. That is one example of what we are faced with. Of course, there are many areas that are problems to us because the U.S. market is the desired market of the world.
    Mr. EVERETT. Mr. Chairman, I did not want to get away from the focus on seg. 3—Ben, did you have something?
    Mr. BOWDEN. I just wanted to mention when you were talking about inspection, I do not know the exact figures, but I do know that just a few years ago we were importing some $15 billion worth of food—coffee, tea, bananas, coconut, chocolate and those tropical crops that we could not produce. Other than that, we were pretty well producing everything we needed. I understand last year, we imported some $40 billion worth of food and it is peanuts, fruits and vegetables and all the other things we are consuming. At the same time, I think we have less inspectors today inspecting this $40 billion worth of food than we did that $15 billion worth of food, and very, very little of it is being inspected at all. We have E. coli, we are having all these other outbreaks that people are having problems with. We have people that cannot eat a fresh salad any more. They say boy, those farmers are putting those preservatives on it and it upsets my digestive system. It is not, it is the bacteria in those countries where those things are grown. You cannot even drink the water there and yet we import it in this country and try to consume it raw and your digestive system does not handle it. That is another problem. But we are not having inspection, I do not think, on our food that is imported.
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    Mr. EVERETT. And of course in our area, we grow a lot of tomatoes here and a lot of those tomatoes have been displaced by foreign shipments from Mexico.
    Mr. BOWDEN. Right.
    Mr. EVERETT. As I started to say, Mr. Chairman, I did not want to get away from the seg. 3—take the focus off the seg. 3 too much, but I did want to get something on the record about this so-called level playing field that just does not exist. Our producers are under huge restrictions that foreign producers are not under and it greatly increases their cost.
    That is about all I have at this time, Mr. Chairman.
    Mr. EWING. Mr. Griggs.
    Mr. GRIGGS. Mr. Chairman, I would like to bring a point back where we talked about the cleaning and why farmers do not clean them beforehand. There is a cost involved in that. We do have our backs up against the wall with increased costs and reduced prices of our peanuts. I just thought it to be important that we recognize that that cost is there, growers would rather not have to spend that money if they did not have to. Of course, if I had a load of peanuts that I suspected of being hot, then I would try to clean them beforehand, but recognize that if everybody—under the current laws and regulations that we have today, if everybody cleaned their peanuts, then our price would go down because of the grade sheet. Everything is on an average and the way they have the pricing set up, if everybody cleaned their peanuts, as a standard practice, then in fact, our price would go down. We would be improving our quality at a cost to the grower, but actually reducing the price of the higher quality peanuts. In other words, it would not rise up any more. The grade sheet impacts us on that level.
    And on the point that Congressman Everett was making then, we are in a food product that is vulnerable to perception. The strawberry issue of Mexico is a good example of that. We want to maintain the highest quality food product in the world here in America, we are extremely proud of our peanuts and the products that we have here. And we do not want to tarnish that with impurities coming in from foreign shores or for whatever reason. We want to make sure that the integrity of our food product and the production of American food is protected and maintained, and we feel threatened and jeopardized by peanuts that are allowed to come in from under-developed countries without the same standards that we have.
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    I just wanted to bring that point up. Thank you.
    Mr. MOBLEY. Let me make one more statement.
    If we had the regulations fixed where the grower and the handler could bargain up to a certain percentage that he feels like he could clean up and he would charge the grower whatever it cost to clean those peanuts up to a certain level, and if they went over a level that he could not clean up, then I believe the disaster transfer that is in place now would work, I do not believe we would have to change it. But the regulations would have to be changed where we could work those seg. 3s up to a certain point, if it is 5, 10, 15, 20, 25 parts per billion.
    Mr. EWING. I want to thank everyone on this panel for their participation. Terry, did you want——
    Mr. EVERETT. I think Ben had one more remark.
    Mr. BOWDEN. I just had one more comment I wanted to make. When you are talking about cleaning up the peanuts, there is a time factor that is involved. We have to operate with such a volume today—I have an invoice here. The first peanut picker I bought to pick peanuts up off the ground cost $1,190, peanuts were $200 a ton. It did not take but 6 tons to buy that picker. This year I bought two to pick them up off the ground at $63,000. Today, it takes 100 tons at $600 to buy a picker. Same thing with a tractor or pickup truck or your other inputs into peanut farming. You have to have such a volume and anything you do extra that slows down the harvest is a tremendous burden.
    Mr. EWING. I appreciate the comment and I hope that all of you will stay around for the other panels. In fact, I ask the members of the first two panels to stay if they can, so that if we need a resource on any of the later testimony, it will be available.
    I know that I am in Alabama and not in Georgia, but we were talking about cleaning peanuts, how come these little packets that have Alabama peanuts in them are very different from the Georgia peanuts? Billy, it is your Commission. They have a lot of little red hulls in them on those packets that we get in Washington that I think says Georgia peanuts. I am sorry, those are Texas, I am sorry. Just wanted to get that cleared up so the next time I am asked——
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    Mr. FINCHER. Those are western Spanish peanuts, Mr. Chairman.
    Mr. GRIGGS. Mr. Chairman, I will have to say that the Alabama peanuts are real good and the only one better is the Georgia one.
    Mr. EWING. OK, thank you all very much.
    I would ask the second panel to come forward.
    [Pause.]
    Mr. EWING. Ladies and gentlemen, we need to move on. We have the second panel in place. If you will take your seat, or your conversation out in the hall, we will move ahead with the second panel.
    I want to introduce Mr. Fryer of the American Peanut Shellers Association; Mr. Fortmeier with the Beatrice/Hunt-Wesson Foods; Mr. Ventress, Sessions Peanut Company and Mr. Powers with the First South Production Credit Association, and a great golfer.
    I thank you all for coming. Mr. Fryer, we will start with your testimony.
STATEMENT OF JOHN E. FRYER, DIVISION MANAGER, ANDERSON PEANUTS AND CHAIRMAN, AMERICAN PEANUT SHELLERS ASSOCIATION LEGISLATIVE COMMITTEE
    Mr. FRYER. Mr. Chairman, I am John Fryer, division manager for Anderson's Peanuts and chairman of the American Peanut Shellers Association's Legislative Committee. I want to thank you, Mr. Chairman and members of the committee for this opportunity to present our views on this most important topic to the peanut industry. Thank you for coming to Alabama.
    The American Peanut Shellers is an association of commercial peanut shellers in the United States. Our members handle approximately 65 percent of the peanuts used in the United States for edible purposes and approximately 90 percent of the peanuts exported from the United States for edible purposes.
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    We support allowing growers to clean and regrade farmers stock as part of a package that incorporates other marketing changes as well. Farmer stock cleaning and regrading alone will not solve the problem.
    As you know, peanuts are divided into three segregations. Under current regulations only seg. 1 peanuts may be purchased for edible use. Segregation 2 and 3 peanuts must be crushed for oil and meal. Some exceptions are made for seed.
    This method of marketing has been with us for at least 30 years. It was developed based on the visual inspection of a small sample for the presence of A. flavus mold, in order to segregate lots of peanuts that might have or might develop aflatoxin.
    When this method was adopted, it was the best procedure available. It relies upon a human inspector visually noticing the mold in or on only one kernel in a particular load.
    Growers and shellers agree that this method results in the misclassification of a large number of lots of peanuts. Very high quality peanuts can be classified as seg. 3 and, therefore, crushed, while poor quality peanuts can be classified as segregation 1.
    There is unanimous agreement among the members of the industry that technology has progressed over the last 30 years to the point that shellers and blanchers can produce, from their milling and blanching process, a peanut that will readily meet the Peanut Administrative Committee's outgoing quality regulations. Industry plants today contain high-tech equipment, including electronic eyes, that have the ability to remove low quality peanuts. Mandatory outgoing quality regulations require that only safe peanuts be shipped. The result of the technology and the outgoing quality regulations is an assurance to both this Committee and the public that only very high quality peanuts will leave the shelling or blanching plant for use in peanut products, even if the quality of some of the farmer stock used is not what is presently classified as a seg. 1 peanut.
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    Please let no one interpret testimony given here today as any indication that the quality of peanuts entering the edible market will be lowered in any way if these changes are adopted. Our interest is finding a better way, using modern technology, for the farmer to market his peanuts. It is our view that growers and shellers should be able to agree upon voluntarily whether or not there will be a chemical inspection, a visual inspection or perhaps no inspection at all, with respect to peanuts being sold by growers to shellers for edible purposes. Any peanuts purchased by the sheller, regardless of the inspection method utilized, would be considered segregation 1 peanuts. The seller will simply have to make its own business decision to purchase the peanuts considering the potential cost of milling and/or blanching necessary to bring the purchased peanuts in compliance with the outgoing regulations.
    There may be issues of price or displacement, but there are no issues relating to the ability of the industry to meet outgoing quality regulation because we believe that a better way is to allow segregation 1, 2 or 3 peanuts to be sold by the grower to the sheller. Thereafter, before the peanuts can enter the edible trade, the outgoing quality regulations of the Peanut Administrative Committee must be met. That includes an outgoing chemical test for the presence of aflatoxin. As you can imagine, a chemical test is much more accurate than the visual method which, despite inspectors' best efforts, is much like finding the proverbial needle in a haystack.
    These matters have been discussed over the last several years. No one can dispute the ability of the industry, technologically, to clean up most peanuts. The cleanup here is accomplished by eliminating the suspect kernels from the edible trade. It can be done. In fact, it is being done today. The unresolved issues do not have anything to do with the ability to clean up peanuts. While the industry can clean up virtually any quality peanut, there are costs associated with that cleanup. The poorer the quality, the more cost involved in the cleanup. Obviously, at some point the cost of cleanup becomes economically prohibitive, but the marketplace can deal with that issue.
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    Frankly, the visual inspection method for aflatoxin is worthless. It is a cost incurred for no value, and arguably harmful to both the farmer and the sheller. If the visual inspection method determines that one kernel from the wagon or truckload has A. flavus present, the farmer has his entire load graded as seg. 3 and suffers a serious financial loss. Conversely, if in fact the wagon or the truckload has significant aflatoxin present, but the small sample does not reveal a kernel with visible A. flavus, the sheller has purchased what amounts to a bad segregation 3 load of peanuts for segregation 1 prices.
    It is our view that all of these needed changes can be made by changes in the regulations by appropriate governmental agencies. In 1996, after hundreds of hours of work and negotiations, an industry-wide proposal was presented to the Peanut Administrative Committee. The proposal failed to pass. We urge all of those associated with this decision-making process to use their influence to allow us all, growers, shellers, manufacturers, to compete with the 1990's technology. We simply must leave the 1960's. All of our competitors in foreign countries are in the 1990's and we must be too.
    Again, thank you for the opportunity to speak today.
    [The prepared statement of Mr. Fryer appears at the conclusion of the hearing.]
    Mr. EWING. Thank you, Mr. Fryer. Now Mr. Fortmeier.
STATEMENT OF BOB FORTMEIER, SENIOR MANAGER, COMMODITY TRADING, HUNT-WESSON, INC.
    Mr. FORTMEIER. Mr. Chairman, thank you for the opportunity to present this testimony before the committee.
    Good morning. My name is Bob Fortmeier, senior manager of commodity trading for Hunt-Wesson, Inc., a subsidiary of ConAgra. Hunt-Wesson operates two peanut butter plants; one in Sylvester, GA and one in Dallas, TX.
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    Our principal concerns regarding peanuts are: No. 1, quality, and No. 2, adequate supply. We buy shelled peanuts from shellers that meet our specifications. Those shellers must abide by the USDA's outgoing regulations for shelled peanuts which require a negative aflatoxin certificate, less than 15 parts per billion, issued by USDA by chemical analysis and must accompany each lot of peanuts before it is acceptable for edible use. We recognize and appreciate the huge investments that shellers have made over the years in order to meet these requirements.
    The FDA regulates aflatoxin levels for manufacturers' finished products at a maximum of 20 parts per billion, also measured by chemical analysis. Measuring aflatoxin levels by chemical analysis is accepted as the most direct state-of-the-art methodology. It is scientific, reliable and fair to grower and sheller and manufacturer. The USDA Agricultural Research Service has extensive data supporting this statement.
    Although we look to the sheller to supply the peanuts required, Hunt-Wesson wholeheartedly supports the recent initiative by the southeast growers and this Committee to improve an outdated, unscientific, unreliable, indirect and unfair system for detecting and measurement of aflatoxin, namely the visual method.
    In 1990 and 1991, I was privileged to serve as co-chairman with Mr. James Earl Mobley of the Alabama Peanut Farmers and peanut scientist, Dr. Paul Blankenship, on the industry-sponsored chemical assay project. This project, which cost over $1 million and was funded by the entire industry with the support of the USDA, had a mandate to determine if during harvest chemical testing could be utilized in a time frame which would not retard the handling of peanuts at the buying points. In addition, the project was devoted to comparing chemical analysis versus visual testing for aflatoxin. The results clearly demonstrated that quality of U.S. peanuts would significantly improve and risks be reduced if chemical testing would be implemented. During the next year, the results of the study were released and presented to the industry. Notwithstanding the recommendations of the chemical assay project, chemical testing was not implemented industry wide.
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    In 1997, I served as chairman of the National Peanut Council, now the American Peanut Council, and as a member of the industry revitalization committee. On April 29, our committee presented to the Peanut Advisory Committee a proposal that would allow shellers to evaluate incoming loads of farmer stock peanuts and to determine voluntarily through chemical analysis if lots showing visible A. flavus mold could safely be utilized in commercial channels.
    This proposal received unanimous support from manufacturers. All but one grower member of the National Peanut Council supported the proposal. Unfortunately, at the PAC meeting, a solid and comprehensive proposal to adopt chemical testing went down to defeat, this time over regional opposition and potential problems as seen by the USDA legal staff. Now please see the attached letter from Mr. Charles Hatcher.
    Members of the Committee, the bottom line is that this industry has known for almost 10 years that implementation of chemical analysis for testing aflatoxin would significantly improve the quality of U.S. peanuts. However, regional differences and potential legal problems associated with the peanut program have been formidable obstacles.
    Hunt-Wesson strongly supports adoption of the chemical analysis method for testing all peanuts in the Southeast. Concurrently, we are supporting research sponsored by the Peanut Foundation to eliminate aflatoxin, both through financial contributions and participation of Hunt-Wesson's technical personnel.
    There is now available a commercial non-toxic biocompetitive mold that visually looks identical to the A. flavus mold. If this biocompetitive agent is utilized, only a chemical analysis can determine the difference. Additionally, a commercial aflatoxin resistant seed should be available to the market in the future and this promises to be the long-term solution for the aflatoxin problem.
    Nevertheless, in the short run, chemical testing affords the industry an opportunity to significantly improve quality by accurately and fairly characterizing each lot of peanuts brought in by the growers.
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    Hunt-Wesson stands ready to support any sincere effort where the goal is to improve the wholesomeness of our peanuts as well as ensure an adequate supply to grow our business.
    Thank you very much.
    [The prepared statement of Mr. Fortmeier appears at the conclusion of the hearing.]
    Mr. EWING. Thank you, Mr. Fortmeier. Mr. Ventress with the Sessions Peanut Company.
STATEMENT OF BILL VENTRESS, PRESIDENT, SESSIONS CO., INC.
    Mr. VENTRESS. Thank you, Mr. Chairman and Mr. Everett. I am Bill Ventress, president of Sessions Company. Sessions is a family-owned processor of shelled peanuts and other peanut products. I appreciate your invitation to address this committee.
    There is a problem in the peanut industry that needs to be addressed and we are thankful today that you are here to look into that problem—peanut risk management. In 1965, a system to grade peanuts and determine the presence of aflatoxin was instituted based on the best available technology at the time. We are reminded of the limits of technology in 1965 when we recall that it was also the first year the Andy Griffith Show appeared in color and no one had ever heard of a VCR.
    The goal of the grading process to determine the presence of aflatoxin then and now should be to separate the wholesome peanut from those that are not wholesome. I challenge you to ask any representative of government agencies charged with overseeing this process as to whether I have properly stated the goal and whether that goal is being served. My opinion, along with the opinion of many farmers here today, is the present system does not separate wholesome peanuts from unwholesome peanuts.
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    Just as today's technology now provides us with color TV and VCRs, modern technological methods allow us to more accurately assess aflatoxin contamination and deal with contamination when we find it. Chemical tests of each load allow shellers to determine when a load is at risk, thereby being a great aid in risk management of the various levels of quality. These loads can be stored separately and handled separately to reduce and virtually eliminate aflatoxin problems. That is not to say this is done for free; it takes money to clean up contaminated loads. But it can be done.
    A system in which farmers feel they must haul peanuts over 100 miles to find a location where they can receive a consistent grade is not fair. A farmer should be able to present the same load of peanuts to 10 different locations and receive the same grade at each location. If the nature of the system is such that the difference in value can exceed $500 per ton at those locations, then the system needs to be changed. At one buying point where we bought 57 loads of segregation 3 peanuts, 25 loads were chemically tested at 10 PPB or less.
    A system that makes farmers fearful of improving quality is wrong. This year, a farmer who might have a load that was high in foreign material or loose shell kernels was afraid to take steps to bring that load up to quality standards demanded by most manufacturers today. The attitude of the farmer was that it is better to take the penalty for a poor quality load than try to improve the load and run the risk of losing $500 per ton.
    Farmers in Argentina compete with our farmers to ship peanuts into the U.S. marketplace. Those Argentine farmers face no such restrictions on their ability to improve quality. The standard they must meet is the same standard that a U.S. sheller must meet—the PAC outgoing quality standard. We ask simply that you impose no greater restriction on the American farmer than is imposed on an Argentine farmer. If our farmers are allowed to clean and regrade farm stock peanuts, we can improve the quality of the peanut eaten by the consumer and improve the overall income to the U.S. farmer.
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    Mr. Dorner and Mr. Whitaker will testify here later. Articles they have published in ''Peanut Science'' last year show clearly that aflatoxin is a problem that can be managed. Management of the problem requires additional expense in cleaning some peanuts after purchase from the farmer. Our company has been involved in this process for the last 8 years and our results are similar to those in Mr. Dorner and Mr. Whitaker's articles.
    We recommend that USDA immediately allow cleaning and regrading of peanuts prior to final determination of grade to take advantage of improved ability to clean peanuts. USDA has not produced any law, regulation or other legal policy that would prohibit Mr. Hatcher from changing today the policy that prohibits cleaning and regrading prior to final grade determination. In addition, the Department should move rapidly toward a system of grading that reflects the quality of peanuts delivered.
    In closing, I would like to thank you again for this opportunity to share my thoughts. I have often heard the expression, ''If it ain't broke, don't fix it.'' However, we have a grading system that is broke, but can be fixed, and it needs to be fixed now. I look forward to working with the Committee and other segments of the industry to reach this goal.
    Also, Mr. Chairman, at the appropriate time, I would like to respond further to one of the questions with Mr. Nowell about cleaning peanuts.
    [The prepared statement of Mr. Ventress appears at the conclusion of the hearing.]
    Mr. EWING. Thank you, Mr. Ventress. Mr. Camp Powers.
STATEMENT OF CAMP POWERS, PRESIDENT, SOUTH ALABAMA DIVISION OF FIRST SOUTH PRODUCTION CREDIT ASSOCIATION
    Mr. POWERS. Yes, sir, thank you. My name is Camp Powers and I am president of the South Alabama Division of First South Production Credit Association. I appreciate the opportunity to come before the committee this morning, for holding these hearings and for showing interest in our problems. Your past efforts on our behalf are greatly appreciated and we thank you in advance for the efforts you will make on our behalf in the future.
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    I was asked to come before you today to briefly discuss the current financial health of the peanut farmers in our area. Parts of our area the past 3 years have seen a lot of adverse weather conditions, tough times. A lot of things have happened that have greatly affected crop yields and quality. These conditions, combined with a farm bill that effectively reduced income by 22 percent, have dealt serious blows to peanut farmers.
    After the numbers are finalized for this year's crop, we believe our portfolio of peanut and peanut-related accounts will break down as follows:
     Thirty percent are doing OK; not great, but OK. They will survive another couple of years without making major changes to their operation.
     Sixty percent of these farmers will survive and pay their operating costs but will have some difficulty in meeting their capital debt payments.
     Ten percent will not be able to pay all of their operating costs nor meet their capital debt repayment requirements. This group will be making the hard decision as concerns their future in farming as a business this year.
    Based on this, I judge the overall health of 70 percent of our peanut farmers to be fair to poor.
    None of us present here today can do anything about the weather. Crop insurance helps us deal with the weather but due to recent years' adversity, the protection that this gives has been reducing. Higher coverages at normal year yields are much needed. What you can do to help this situation is to get the trading field between our farmers and foreign farmers level. At this time, we believe it is not.
    Competing against foreign labor, higher safety and quality standards and things of this nature is awful tough, but specifically the manner in which our farmers are penalized for seg. 3 peanuts is extremely unfair.
    The peanut grading system is based on the premises that once a peanut is charged with being a seg. 3 peanut, it is automatically sentenced to death and consequently sentences the farmer who grew it to economic adversity. We estimate that the peanut farmers that we do business with lost approximately $6 million worth of income because of seg. 3 peanuts. In an already tight economy, this is a tremendous hit.
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    It is my understanding that in other countries, if seg. 3 peanuts are honestly detected and accounted for, they are given the opportunity to be cleaned and regraded to see if they will pass as seg. 1 peanuts. This seems fair and should be the minimum policy in this country.
    I believe that everyone recognizes and appreciates that we must live and do business in a world economy. I want to know where my food comes from because I do not want good American products mixed and reduced in quality with inferior and unsafe products from other places. To me, it is a matter of justice and fair play not to make our farmers compete with other farmers who continue to be subsidized in spite of treaties to the contrary and to compete against farmers who do not practice the same high quality environmental and food safety standards that we do.
    No one that I know believes that we do not need a strong defense system to maintain and protect our way of life and freedom, but we also need a strong agriculture to go with our strong defense. We do not need to put our own farmers out of business and become dependent upon foreign farmers to feed us. That will spell disaster and ruin just as quick as a weak defense system will. But unfortunately, we are on a course of eliminating farmers in our area and across this country and we are also eliminating productive farmland as we go. You gentlemen and your peers have the power to reverse this and make a change and make something happen and we sure hope you will do so, and realize just how serious this situation is.
    Again, I want to thank you for allowing me this opportunity to address you this morning.
    [The prepared statement of Mr. Powers appears at the conclusion of the hearing.]
    Mr. EWING. Thank you, Mr. Powers.
    Mr. Ventress, you wanted to make another comment. You may do that now.
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    Mr. VENTRESS. Your question to Mr. Nowell concerned why did farmers not clean all of their peanuts prior to grading and a number of reasons were given, but another reason is I do not believe there is enough cleaning capacity to clean every load of peanuts. There is sufficient capacity to clean all of the peanuts that are at risk. This past season—there is also no restriction on cleaning a load of segregation 3 peanuts, but the peanuts remain segregation 3 even after cleaning. This past year as an experiment, we cleaned three loads of segregation 3 peanuts and then had them regraded, even though they remained segregation 3 afterwards. Two of those three loads were graded as segregation 1 after they had been cleaned out; two out of three odds would be pretty good for Mr. Nowell and I suspect if it added $200,000 to his farm income this past year, it would have made a much happier holiday for both Mr. Nowell and his banker.
    Mr. EWING. Thank you.
    The reason, of course, that they remain seg. 3 is that is the law or that is the rules now, that you cannot clean them up once they are designated as seg. 3, is that correct?
    Mr. VENTRESS. As I understand it, that is the policy of CCC.
    Mr. EWING. Thank you.
    Mr. Fryer, you mentioned the PAC turned down the change—turned down the recommendation to go to a different grading system.
    Mr. FRYER. That is correct, Mr. Chairman. There were concerns by some of the growers on the PAC, but the main thing was there was opposition from the other two growing areas. PAC is made up of three growers, three shellers from each of the three American growing, peanut producing areas; three shellers, three growers from the Southeast, three of each from the other two areas and it takes, what, Bill, a 75 percent vote to pass a major item similar to this.
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    Mr. EWING. Is there resistance to change from the shellers?
    Mr. FRYER. I would say less—well, I used the word in my testimony of displacement, there seems to be some concern in some parts of the west and maybe the VC that if I am allowed to buy what was first determined to be seg. 3s, then I might be displacing some quota from Texas or Virginia. I do not believe that is the case. As I mentioned in my testimony, I think questions of displacement and price can be and should be negotiated with the seller and the buyer.
    Mr. EWING. There is then some economic competition between different segments of the industry from different parts of the country where maybe the poor conditions here in the Southeast will benefit other areas that grow peanuts, is that correct?
    Mr. FRYER. It could and has happened in some other areas.
    Mr. EWING. So that tends to maybe cause a lack of cohesiveness in the peanut industry in America.
    Mr. FRYER. Well, it is a very competitive business.
    Mr. EWING. You made a statement, ''Frankly the visual inspection method for aflatoxin is worthless.'' Do you believe that USDA knows that?
    Mr. FRYER. I believe they do. You may hear that later on another panel. I do not know that, but manufacturers believe that. We have manufacturers that do not really care about receiving a USDA grade certificate on a load of shelled peanuts that we send them. They want a sample that we have run in our lab at our shelling plant.
    Mr. EWING. How do they do that sampling? Do they have somebody that inspects every peanut or is it just——
    Mr. FRYER. Samples are drawn in shelling plants, the size of the sample is based on the size of the lot. There is an automatic sampling probe that will take a portion from each bag of peanuts or each number of dumps into a 1-ton boxload of peanuts. They actually come up with about a 150-pound sample of shelled peanuts and they take and grind and then chemically analyze one of those samples and get a parts per billion reading for aflatoxin.
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    Mr. EWING. Would the sampling process have been maybe the best available when it was instituted?
    Mr. FRYER. Well, the sampling of shelled lots of peanuts, the chemical analysis, was instituted back in the 1960's on peanuts coming out of the shelling plant, or shortly thereafter. Back in the beginning in the 1960's, all growers' peanuts were quota, every pound of peanuts produced on a farm were quota, the seg. 1s. And when they identified seg. 3s, there was none or very little deduction from the price, the top price paid for peanuts. Over the years that deduction increased from somebody mentioned earlier today $25, it got up to $30, $35, $40. And then in 1978, with the two-price system, the big change was made.
    Mr. EWING. But I guess the question I was trying to get at, was there a time when the sampling process would maybe have been the best way to determine whether aflatoxin was present?
    Mr. FRYER. I believe that the sampling process, the grading process, the visual inspection, was the best available in 1965 because of the equipment available out at all the buying points. We have got three shelling plants operating in Alabama today. Back then we had about 50 shelling plants. There were a lot more of them, they were smaller, a lot more growers and times have changed, improvements have been made in the ability to sample and grade peanuts and they need to be implemented in the farmer stock grading in the 1990's, today.
    Mr. EWING. Thank you.
    Mr. Fortmeier, you mentioned in your statement that recommendations of chemical assay project, chemical testing was not implemented by the industry. Do you think that was because of resistance from growers or shellers or from manufacturers or——
    Mr. FORTMEIER. No, Mr. Chairman, manufacturers have been solidly behind a change to chemical testing for quite a period of time. I believe that the objection has been over the regional differences. As Mr. Fryer has mentioned, when we made the presentation to the PAC this past April, we recognized that something like voluntary chemical testing for seg. 3s that would allow a sheller to buy from a grower would really only occur in a year like we had this year. In a good year, it probably would not even happen because it would not be required, because the quality would be so good that you would not have to do it. But I think the industry has been solidly behind this change except for the issue of displacement, which I believe Mr. Fryer covered in that if shellers in the Southeast were allowed to buy the seg. 3 peanuts from growers, it would conceivably add more supply to the market and this perhaps might affect the grower in the VC or the grower in the West. I think that was the major concern. Plus the issue of if you adopted chemical testing, would you have to adopt it everywhere, and shellers and growers in the VC and the southwest do not have the problem, why should they have to incur these economic charges for putting up chemical testing labs when they do not have a problem. And I think one of the things we are trying to find out is if there can be a change within the USDA where you could apply chemical testing just perhaps in the Southeast only, where the problem exists.
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    Mr. EWING. You represent the manufacturers, not the end consumer, but the user of peanuts to make into products.
    Mr. FORTMEIER. That is correct.
    Mr. EWING. Do you believe that those that you represent would be opposed to regrading, retesting and using seg. 3 peanuts that have been cleaned up, assuming the quality is as good as seg. 1?
    Mr. FORTMEIER. Well, I cannot speak for all manufacturers again, because I am no longer the chairman of the American Peanut Council, but I believe if we were to reconvene again as an industry revitalization, I think all manufacturers would agree to that proposal.
    Mr. EWING. That so long as the quality was there——
    Mr. FORTMEIER. So long as the sheller met the outgoing quality requirements of manufacturer specifications, as a manufacturer, I would not have any objection.
    Mr. EWING. Fine. Terry.
    Mr. EVERETT. Thank you, Mr. Chairman.
    Mr. Fryer, you said growers and shellers agree that this method results in the misclassification of large numbers of peanuts. Very high quality peanuts can be classified as segregation 3 and therefore crushed while poor quality peanuts can be classified as segregation 1. Have you any idea what percentage that might be?
    Mr. FRYER. It would vary, Congressman, from year to year, but we are mainly talking about the 1997 crop of peanuts. The last numbers I heard from the Peanut Administrative Committee, approximately 25 percent of the peanuts that shellers in the Southeast had milled and had tested chemically had serious problems. The comment that you just reiterated, you heard earlier the growers say they have had some good loads of peanuts that were misclassified, therefore they were hurt. Shellers have bought millions of pounds of peanuts that, for whatever reason, that mold was not seen when those peanuts were graded and we got them as seg. 1s. When you shell them and work on them, you get down to the lick log and you find out what you really have. We shellers in the Southeast are spending a lot of money remilling our peanuts that have gone out on aflatoxin and/or some large numbers that are having to go to blanchers for further cleaning before they meet that outgoing quality regulation of the PAC.
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    Mr. EVERETT. For the record, when a load is determined to be seg. 3, would you describe for us what happens to that load?
    Mr. FRYER. Under today's regulations that load is graded as seg. 3, it is put into a specific warehouse that is owned by CCC, Commodity Credit Corporation, they are stored in the Southeast at various locations, we call it identity preserved. When the CCC sells those peanuts to a crusher, then the handler loads those peanuts on a truck and they are hauled to an oil mill.
    Mr. EVERETT. The reason I asked you to do that, I had mischaracterized at one point what happened to seg. 3s when they got into the hands of the sheller and I wanted to make sure—of course, Bill and I are from the same hometown—that we recognize that those peanuts are not sold back into the market as seg. 1 peanuts but indeed are put in as crushed peanuts and milled.
    Bill, you point out that at one buying station where we bought 57 loads of segregation 3 peanuts, 25 loads were chemically tested at 10 PPB. Would you put that in plain English and tell us what that says now?
    Mr. VENTRESS. Well, those 25 loads that tested at 10 PPB or less were better than a lot of the peanuts that we bought that graded seg. 1 and I do not think we would have any problem in our shelling plant cleaning those peanuts up, without any further cleaning.
    Mr. EVERETT. In other words, those peanuts would be seg. 1 peanuts.
    Mr. VENTRESS. Those were good peanuts.
    Mr. EVERETT. They would be seg. 1 peanuts.
    Mr. VENTRESS. Almost half.
    Mr. EVERETT. And then except—just taking the $132 a ton rather than what might possibly come back out of the pool, the difference between the $132 a ton and the highest I got I believe was $650, we are talking about a considerable loss up front to the producer.
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    Mr. VENTRESS. You are talking about say $2,000 per load, if you average 4 tons in a wagonload, and just those 25 loads, that would be $50,000.
    Mr. EVERETT. Fifty-thousand dollars right there.
    Mr. VENTRESS. And we talked about Mr. Nowell, that could be $200,000 on his farm.
    Mr. EVERETT. The reason I wanted to point those out, Mr. Chairman, is to sort of outline the scope of the economic disaster that faced many of our producers in this area. We had a large number of producers who had a great percentage of their crop to go seg. 3. As James Earl pointed out, I only had four loads of seg. 3, but that was my entire crop. So it has really hurt. I think Camp said $6 million this year—is that what your figures showed?
    Mr. POWERS. That is just a close estimate on what we do business with. That figure certainly would be a lot larger if you took all the farmers combined.
    Mr. EVERETT. Considering the entire area, would you have any guess about what that figure might be?
    Mr. POWERS. I would hate to guess, but we do business with about 20 to 22 percent of all the peanut farmers in the 11–12 county area. So it would be $30 million, if you wanted to——
    Mr. EVERETT. Roughly $30 million.
    Mr. POWERS. Could be, yes, sir.
    Mr. EVERETT. Which is a huge economic impact on our area.
    Thank you, Mr. Chairman.
    Mr. EWING. Thank you.
    Mr. Ventress, when we talk about cleaning up peanuts and you mentioned—I believe it was your testimony—about the cost of cleaning up peanuts so that we avoid this being designated as seg. 3; if the farmers do that, is that going to be a benefit that maybe they could—that currently somebody else is paying for, either the shellers or the manufacturers?
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    Mr. VENTRESS. I am not sure that I really understand.
    Mr. EWING. Well, I think in all the stages of the system there are certain amounts of clean up, certain clean up costs. More has been maybe spent at the shelling level and at the manufacturing level to be sure that peanuts were at the seg. 1 quality before they go into food products. If we do that at the producer level, does that save money at the shelling level, at the manufacturing level?
    Mr. VENTRESS. It should have an economic advantage. A number of farmers already do that. As I mentioned, we have cleaning capacity and some people are doing that because they might get a quality bonus for having good peanuts. But it depends on the farmer, and his peanuts may not need cleaning. Not every load needs to be cleaned. We know that once we have graded the peanuts, but if it is a segregation 3, we never have an opportunity to take further action. On the ones that grade seg. 1, we do have an opportunity to take further action if we want to. This year the farmer did not want to because you do have to—if you regraded the peanut, the risk of economic disaster was so great that he did not want to take that action.
    Mr. EWING. Would you repeat that? I do not quite understand that.
    Mr. VENTRESS. If he is getting a bonus of say maybe $10 or $20 per ton because his quality is good, in some years he might spend a little money to clean the peanuts and get that bonus. This past year though, the potential of losing $500 offset any potential bonus that you might get.
    Mr. EWING. So the producer did not try and—maybe avoided spending any additional money cleaning up the peanuts because he was afraid or she was afraid that they were going to get seg. 3 out of it.
    Mr. VENTRESS. Exactly right.
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    Mr. EWING. Even though that might have helped them avoid that classification?
    Mr. VENTRESS. It might have helped avoid it, but it is a random thing the way it happens and there was no way to predict whether or not you could avoid it.
    Mr. EWING. But the bottom line for potential—if we had a different system, if we had a little more predictable system and if we allowed the cleanup of peanuts where aflatoxin has been found, the bottom line to the producer could be an enormous increase, right?
    Mr. VENTRESS. That is exactly right.
    Mr. EWING. And how does that affect the peanut company, or the sheller?
    Mr. VENTRESS. Well, it helps the sheller because that farmer is still in business and growing peanuts in the future. And if he goes out of business, then there are less peanuts to handle.
    Mr. EWING. Mr. Powers, you gave us I think an idea that at least here in the area of Alabama that you serve, you feel that the peanut producing industry, those involved in that, are not in the best shape.
    Mr. POWERS. Yes, sir, that is correct.
    Mr. EWING. And is this something that you have seen coming on over the last several years with the weather conditions that we have had?
    Mr. POWERS. The weather I think has hastened the economic ruin that I think we have been headed to for several years, with changes in the program and reductions in farmers' quota, farmer income. I mean you are just talking about a steady downhill. The adverse weather has maybe just kind of snowballed that situation to bring it to a head a lot quicker for a lot of people.
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    Mr. EWING. Well, have the weather conditions this year affected the quality of peanuts more than in the last 2 or 3 years, either of you?
    Mr. VENTRESS. Yes, I would say so.
    Mr. POWERS. Yes, sir.
    Mr. EWING. Do you, any of you, have a feel—we are here today and we are talking a lot about the effect on producers, but when there is that much potential income taken out of a rural community, I would think it would have an enormous impact on every business in town.
    Mr. POWERS. Congressman, in previous testimony, we have talked about that all of us are from rural areas. I live outside of a small town that has got the soap on the windows from stores going out of business. You start taking out tax dollars, you start affecting education, you start affecting what people have to spend on roads, you start affecting businesses that would come into an area that will not come because people are not there to spend money. NAFTA—and I am not real gifted in all this, but NAFTA did a lot to take a lot of jobs out of southeast Alabama in the textile industry. We have got vacant buildings where those people used to work. Now they are on welfare rolls or they have moved on. The peanut industry adds tremendously to this area, it is the lifeblood of this area and it has been slowly and slowly going down, and consequently you can just ride the roads, you can go to Enterprise, you can go to any town in the Wiregrass you want to and you will see buildings that used to house businesses that are no longer there because of economics.
    Mr. EWING. A final question to all of you, and you can just say yes, shake your head or you can make a comment. The problem appears to be fixable if we would just, through the government, take necessary steps. Would you all agree?
    Mr. FRYER. Yes.
    Mr. FORTMEIER. Yes.
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    Mr. VENTRESS. Yes.
    Mr. POWERS. Yes, sir.
    Mr. EWING. Thank you. Terry, do you have any other questions?
    Mr. EVERETT. Just to outline what Mr. Power said, Mr. Chairman. One of the reasons I served as the chairman of the Anti-NAFTA Task Force was that fact of what it did to agriculture in my District plus the fact we lost around 7,000 textile workers in this district alone. It has taken us some time to recover that. And you take that along with the last few years that we have had really bad farm crops, you can see overall, as you were getting to, what an overall economic impact it has been on some of our smaller communities.
    Thank you.
    Mr. EWING. Thank you to the panel, and I hope that you can stay for our final panel. And I would ask the third panel to come forward. Mr. Robert Springer, Alabama Director, FSA, USDA; Dr. Thomas Whitaker, ARS, USDA, North Carolina State University; Mr. Joe Dorner, ARS, USDA; and Mr. Jerry Adkins, director, shipping point inspection, Alabama Department of Agriculture. Also, Mr. Hatcher, director of Tobacco & Peanut Division of USDA.
    We are doing very well, we are staying on time and I thank everybody for coming and we will now start our third panel and we are going to start with Mr. Springer, USDA, Farm Service Agency.
STATEMENT OF ROBERT D. SPRINGER, STATE EXECUTIVE DIRECTOR, FARM SERVICE AGENCY, USDA
    Mr. SPRINGER. Thank you, sir. Chairman Ewing, Representative Everett and other distinguished members of the subcommittee, I am Robert Springer, State Executive Director of the Farm Service Agency in Alabama, and I thank you for the opportunity today to present a brief synopsis of the extreme weather conditions that Alabama's farmers faced in 1997.
    Alabama's agriculture experienced a very broad spectrum of weather related problems in the planning and growing seasons of 1997. North Alabama lost a cotton crop extremely early in the year due to unseasonably cold temperatures and too much rain. Hurricane Danny decided to park in the bay outside of Mobile and negatively impacted our agriculture production in the southwestern part of the State. Then a period of drought late in the summer affected pastures and remaining crops across the State but in particular the southeastern part. Not only were our farmers hit with much lower yields in several major crops in the southern part of our State, but they also paid a high price in loss of quality.
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    Alabama's Farm Service Agency assisted the Governor's office in their preparation of a request for a Secretarial Disaster Declaration for the entire State of Alabama. Effective December 15, 1997, the Secretary of Agriculture approved a disaster declaration for 62 of Alabama's 67 counties. Currently, the Farm Service Agency is taking applications from producers for emergency loan assistance.
    In the process of the Secretarial Disaster Declaration, the Secretary's Office requested that damage assessment reports be done for all counties in our state. Those reports reflect the best guess of our farmers who serve on our FSA County Committees and other local agricultural officials, and they show a significant drop in our peanut yields for 1997. In our top 10 peanut producing counties, their estimates for 1997 are approximately 1,700 pounds per acre, which is a 40 percent reduction from the previous year. Even if their estimate were to be off by 15 to 20 percent, it still represents a large reduction in yields by 20 to 25 percent from 1996. NASS is currently projecting a peanut yield for Alabama of slightly over 1,900 pounds per acre, which is the lowest since 1990. I will not take time today to read historical production figures to you, but have included them for your information as part of this testimony.
    Accompanying the significant yield reductions, many farmers have experienced the financial disaster of peanuts grading seg. 3s. Because two of the five Farm Service Agency State Committee members were active peanut producers, the State Committee was aware of the tremendous financial impact these seg. 3s were having on Alabama peanut producers. The State Committee wrote the national office of Farm Service Agency to express their grave concern over the impact seg. 3s were having in Alabama and to see if there was any relief that could be granted to producers.
    In conclusion, on behalf of the Farm Service Agency State Committee, I express appreciation to you for coming to Alabama to further explore the serious problems so many producers have experienced with seg. 3 peanuts in 1997.
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    Thank you.
    [The prepared statement of Mr. Springer appears at the conclusion of the hearing.]
    Mr. EWING. Thank you, Mr. Springer. Mr. Whitaker.
STATEMENT OF THOMAS BURTON WHITAKER, AGRICULTURAL ENGINEER, AGRICULTURAL RESEARCH SERVICE, USDA
    Mr. WHITAKER. Thank you, Mr. Chairman, for inviting me to this hearing. I am Tom Whitaker, and as an agricultural engineer, I have worked with the Agricultural Research Service of the U.S. Department of Agriculture for 31 years.
    Much of my professional career has been spent trying to solve the problems that are associated with detection and control of aflatoxin contamination in peanuts.
    The Peanut Administrative Committee has regulations that require peanuts to be inspected for aflatoxin at two locations in the marketing system. First is at the buying point where farmers bring their peanuts to sell; and the second location is after the shelling plant operations. Two very different technologies are used at these two locations to detect aflatoxin contaminated peanuts.
    When a farmer sells his peanuts at the buying point, each peanut kernel in a small grade sample is inspected for the mold that produces aflatoxin. The visual method was developed in the mid–1960's by ARS scientists. The visual method specifies that if one or more moldy kernels are found in the grade sample, the farmer's lot is classified segregation 3 and it is diverted from the food channel.
    Next, shelled peanuts are inspected for aflatoxin after processing in the shelling plant. Before a manufacturer can take possession of shelled peanuts, aflatoxin is measured in as many as three 48-pound samples. The three samples must average 15 parts per billion or less before the lot can be shipped to the manufacturer.
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    The visual method was developed at a time when analytical procedures used to measure aflatoxin in peanuts were still in their infancy. As a result, analytical methods in the mid–1960's were not well suited for use in the busy environment of a buying point. The advantages of the visual method are that it was simple to implement, it does not require highly trained personnel and it was relatively inexpensive. But on the other hand, the disadvantages of the visual method are it does not measure aflatoxin directly, aflatoxin thresholds cannot be established to classify lots into defined aflatoxin categories, classification errors are high, sample size cannot be significantly increased to reduce the classification errors and the method cannot detect the non-toxic strains of A. flavus mold presently under development, which you will hear about later from Joe Dorner.
    Since the visual method was implemented approximately 30 years ago, analytical procedures have continued to improve.
    Results of a study by the peanut industry and USDA indicated that analytical tests to measure aflatoxin in farmer stock peanuts would fit into the buying point environment and is a viable alternative to replace the visual method.
    The advantages of using analytical methods to measure aflatoxin are farmer stock lots can be classified into categories based upon aflatoxin thresholds; analytical procedures allow for larger samples to be used, which will reduce classification errors and reduce the economic risk to farmers and to shellers; shelling plant efficiency should increase or improve which will remove more aflatoxin during the shelling operation; PAC costs associated with testing shelled peanuts for aflatoxin will be reduced since fewer shelled lots will be rejected and require additional cleanup; aflatoxin records can be developed for farmer stock peanuts which will be beneficial for both research and for industry use.
    The disadvantages of analytical methods are you have higher inspection costs and you need more highly trained personnel.
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    In conclusion, I would like to say that the peanut industry has continued to improve its aflatoxin control program over the past 30 years mainly by improving the aflatoxin test that is associated with shelled peanuts. However, no significant changes have been made concerning the inspection of farmer stock peanuts for aflatoxin over that same time period.
    The technology certainly exists today to implement the direct measurement of aflatoxin in farmer stock peanuts. Also, ARS has developed methods to design and evaluate aflatoxin sampling plans for farmer stock peanuts and ARS has made these methods available to all segments of the peanut industry. Measuring aflatoxin in farmer stock peanuts will allow for the implementation of control strategies such as increasing sample size and establishment of thresholds that will reduce classification errors and reduce aflatoxin contamination in both domestic and export peanuts that cannot otherwise be obtained with the visual method. However, I think the challenge before the peanut industry will be the establishment of aflatoxin limits or thresholds that will meet the objectives of both the farmer and the sheller.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Whitaker appears at the conclusion of the hearing.]
    Mr. EWING. Thank you, Dr. Whitaker. Mr. Dorner.
STATEMENT OF JOE W. DORNER, MICROBIOLOGIST, AGRICULTURAL RESEARCH SERVICE'S NATIONAL PEANUT LABORATORY, USDA
    Mr. DORNER. Thank you, Mr. Chairman, for inviting me to present testimony concerning the impact of aflatoxin on southeastern peanuts. My name is Joe Dorner and I am a microbiologist with the U.S. Department of Agriculture, Agricultural Research Service's National Peanut Research Laboratory in Dawson, GA.
    Much of my work in the last 10 years has centered on the development of strategies to reduce or prevent preharvest aflatoxin contamination of peanuts. My testimony today will focus on the strategy of using biological control to reduce aflatoxin contamination and the impact that could have on the grading of farmer stock peanuts.
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    Aflatoxin is a toxic carcinogenic compound that is produced by the fungi Aspergillus flavus and Aspergillus parasiticus. These fungi are naturally present in agricultural soils and they can infect peanuts and contaminate them with aflatoxin when the peanuts are subjected to drought conditions during the latter weeks of the growing season.
    A. flavus and A. parasiticus occur in many different forms or strains and not all strains are capable of producing aflatoxin. Strains that do not produce aflatoxin or other toxins are termed atoxigenic. One strategy we have used in experiments to reduce aflatoxin contamination in the field is biological control wherein a large population of atoxigenic competitive strains of A. flavus and A. parasiticus are applied to the soil early in the growing season. The atoxigenic strains then occupy the niche that would normally be occupied by the native toxin producing strains. By the time peanuts are exposed to late-season drought, they are surrounded by the harmless strains of A. flavus that have been introduced and the chance of invasion by native toxigenic strains is greatly reduced.
    The National Peanut Research Laboratory began conducting experiments using this biological control strategy in 1987. Over this 10-year period, we have observed reductions in aflatoxin contamination ranging from 70 to 99 percent. In 1997, tests were conducted in a field in Terrell County, GA in which 1 1/2 acres of peanuts were treated with the atoxigenic strains and compared with 1 1/2 acres of peanuts that were not treated. Analysis of peanuts for aflatoxin at harvest showed that the treatment produced an overall reduction in aflatoxin of 91.6 percent. Use of this biological control strategy does not mean that peanuts will no longer be infected with A. flavus. However, greatly reducing the number of peanuts that are infected with strains that do produce aflatoxin can have a dramatic impact on the resulting levels of aflatoxin in peanuts.
    The current farmers stock peanut grading system utilizes the VAF method to determine whether each lot is classified as seg. 1 or seg. 3. If the biological control strategy were utilized, it would be in the best interest of the peanut industry to discontinue use of the VAF method. The reason for this is that the atoxigenic strains used for biological control are indistinguishable from the naturally occurring toxigenic strains. If peanuts were subjected to late season drought stress, the atoxigenic strains would be visible on some peanuts and those lots would be condemned as seg. 3 by the VAF method. However, such lots may contain little or no aflatoxin. In field tests conducted in 1997, both biocontrol treated peanuts and untreated peanuts were classified as seg. 3 by the Federal/State Inspection Service. However, edible size peanuts from the treated field contained an acceptable level of 2.5 parts per billion of aflatoxin, whereas edible size peanuts from the untreated field contained an unacceptable level of 22.2 parts per billion.
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    The best evidence to date, which is quite preliminary, indicates that use of the biocompetitive fungi should not greatly increase the number of seg. 3 lots, if the VAF method continued to be used. The total percentage of peanuts infected by A. flavus, including both toxigenic and atoxigenic strains, has usually been about the same, whether peanuts were treated with the atoxigenic strains or not. The primary point to consider is that utilization of the biological control approach, coupled with the continuation of the use of the VAF method could result in the classification of many lots with acceptable levels of aflatoxin as seg. 3. A direct chemical test for aflatoxin would be the most reliable way to assess the aflatoxin risk associated with each load.
    The biological control approach to aflatoxin reduction is still in the developmental stages. ARS is currently working with the peanut industry to develop the most economical formulation for delivering the atoxigenic strains to the field. That formulation would then have to be registered by EPA before it would be available for general use. Optimistically, these processes will take a minimum of 1 to 2 years; therefore, a product for biological control will not be available before crop year 1999 or 2000.
    Mr. Chairman, this concludes my remarks and I will be happy to answer any questions a little bit later.
    [The prepared statement of Mr. Dorner appears at the conclusion of the hearing.]
    Mr. EWING. Thank you, Mr. Dorner. Mr. Adkins, Alabama Department of Agriculture.
STATEMENT OF JERRY ADKINS, DIRECTOR, SHIPPING POINT INSPECTION, ALABAMA DEPARTMENT OF AGRICULTURE
    Mr. ADKINS. Thank you, Mr. Chairman. My name is Jerry Adkins, I am director of shipping point inspection for the Alabama Department of Agriculture.
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    What I am about to say is in no way intended to try to set policy. This is only an attempt to explain the problems we have in the inspection of farmers stock peanuts under the method we use to determine A. flavus mold.
    The method that we use now, we do not determine aflatoxin, it is strictly just to determine A. flavus mold, which is a known producer or the primary producer of aflatoxin. When this method was placed into effect in the 1960's, I do not think it took into consideration at that time the human error that might be involved with the price differential that we have today.
    The Inspection Service is self-supporting. Therefore, for financial reasons, our work force on farmers stock peanuts consists mostly of seasonal employees. These employees work 3 to 4 weeks, they are asked to make decisions that can cost someone thousands of dollars per day. This alone complicates things. With all the safeguards we have in place, we still make some mistakes and we have strong and weak inspectors. We find when pressure is applied at the buying point by interested parties, for whatever reason, the weak inspectors feel they are better off to go along—or to not follow the rules and go along to get along. When this happens, these inspectors are considered by a few to be using common sense and are good inspectors. Inspectors who are strong and honest and believe in doing the job by the rules are called names—and I will not repeat some of those right now. Usually things are said to other people in the presence of the inspectors in various locations such as buying points, church or ball games, PTA meetings, so on and so forth, anonymous phone calls in which death threats and other threats are made. They are told they are putting the buying point or the farmer out of business and intimidated in many ways.
    Some inspectors have the ability to see and find A. flavus mold easier than others. When someone sees them looking for A. flavus mold, they are accused of hunting it. This is what we are supposed to do. If it is in there, we are supposed to find it.
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    While it is true it only takes one peanut in the sample with A. flavus mold to classify the whole load as segregation 3, we must keep in mind we are only probing on most loads of approximately 8,000 pounds, five times and get approximately 65 pounds. This is then divided down to a working sample of approximately 4 pounds. Only the loose shelled kernels and other kernels and damaged kernels are examined for A. flavus mold. Loose shelled kernels are based on 1,500 to 1,800 grams sample, approximately 4 pounds. The other kernels and damaged kernels are based on 500 grams.
    The goal of the Inspection Service is to determine all facts as accurately as possible. It makes no difference who may be the grower, shipper or buyer. It is of no concern whether the supply is poor and light with demand active and prices high, or heavy supply of good stock with poor demand and low prices. However, some people cannot understand why we will not change the policy to suit them. The policy for our work is set by the different agencies in the USDA, not by the Inspection Service. We only follow policy. We have no authority to make or change policy.
    This past season, we had 161 inspectors, 134 of these inspectors were seasonal employees. This was to staff 67 buying points located throughout southeast Alabama. This included our supervision which is 19 people that we use in the supervision, to supervise and promote uniformity and accuracy. No circumstances can be permitted to influence the accuracy of the work.
    I ask you under the circumstances mentioned above using human beings with the visual method we are using, are we doing the job and treating all segments of the industry at each buying point the same. No circumstances should be permitted to influence the accuracy of our work. Again I will say it is absolutely essential that all facts be determined and stated as accurately as possible. If this is not done, someone will be injured and our Service will suffer in value and prestige. Should we continue this method? If so, I assure you the Alabama Federal/State Inspection Service will continue to do the best job we possibly can under the circumstances.
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    [The prepared statement of Mr. Adkins appears at the conclusion of the hearing.]
    Mr. EWING. Thank you, Mr. Adkins. Mr. Hatcher, USDA Farm Service Agency.
STATEMENT OF HON. CHARLES HATCHER, DIRECTOR, TOBACCO & PEANUTS DIVISION, USDA
    Mr. HATCHER. Thank you, Mr. Chairman, Mr. Everett.
    I have heard more consensus expressed here today regarding shortcomings in the present method of determining aflatoxin than I have heard heretofore.
    In 1996 and 1997, USDA worked closely with the peanut industry on what they called a revitalization project. This regarded chemical testing or change in the present system. Last spring, as you have heard already today, the Peanut Administrative Committee refused to endorse changes in the method of determining seg. 3 peanuts and I thought at that time well, perhaps this issue is dead for a good while. Then along came the weather in Alabama and the 1997 crop disaster in this state has refocused attention on the shortcomings of the present system in dealing with aflatoxin.
    Mr. Chairman, several times here today you have returned to the issue of industry consensus regarding change or concern about the present system. Mr. Bishop's written statement stressed the need for consensus. The Peanut Administrative Committee is scheduled to meet tomorrow week in Atlanta. If the peanut industry can have some consensus regarding whether we have shortcomings and how those shortcomings should be addressed, we at the Farm Service Agency at USDA stand ready and willing and want to help implement those changes.
    Thank you.
    Mr. EWING. Thank you, Mr. Hatcher.
    I guess the first question I would have reminds me of the story of the old gentleman who was a member of the church and he voted no on everything, and he said there was going to be no unanimous vote while he was there. I just hope that we do not look at the PAC group and we say we cannot move without that. I mean if it is good, if it is an improvement, if it is right, why would you not move without them? We very seldom ever get total consensus.
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    Mr. HATCHER. I have heard more consensus within the Southeast here today than I have heard even within this region. If in fact what has been expressed here today is representative of the various segments of the peanut industry in the Southeast, there does not seem to be a problem in making a change. I guess the only difficulties that would remain would be regional. You have heard from one grower group from Texas today and I was pleased to hear that there is no problem there except that they want to be included as well. You have not heard from Virginia/Carolina or from the more traditional growing area groups in Texas.
    But we want to find a solution.
    Mr. EWING. Well, I guess to follow up on that. If aflatoxin is a problem here in the Southeast, there has been testimony it is not a problem in Texas or in Virginia/Carolina, why can we not solve that problem here?
    Mr. HATCHER. Perhaps we can, but other regions have expressed deeply held concerns, some of which you have heard enumerated here today. It comes down to economics. In the past it has come down to economics between segments within this particular region and the question of economics between the three competing regions. Some people do think that they have a competitive advantage by fewer southeastern peanuts going into the domestic edible market. Perhaps that is not important.
    Mr. EWING. Well, I guess I do not want to belabor that, but I do not think it is important in deciding whether we have the best system here, a fair system and a system that serves the growers in this area. I come from corn country. If we could shut off Iowa, we would do a lot better too. [Laughter.]
    But I do not think that is reasonable or practical.
    Mr. HATCHER. Well, I come from this region, and I would like to see as many peanuts as possible produced in Alabama, Georgia and Florida go into the domestic edible market.
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    We do have a problem with the system. You have heard it here today and it has become more apparent to me over the years. You get better peanuts in many instances declared seg. 3 and not able to go into domestic edible market than the peanuts that the sheller has paid quota price for and that are going into the domestic edible market. It is a hit and miss proposition.
    Mr. EWING. It seems to me there is a lot of similarity between this and what the Congress finally did with the Delaney Clause. We have gone beyond, in our ability to technically determine things where the old system is not very practical and it certainly does not serve the industry, at least a good segment of the industry. Would you agree?
    Mr. HATCHER. Yes, sir.
    Mr. EWING. Mr. Adkins, I guess you have the maybe sometimes less than enviable responsibility of hiring the inspectors through the state.
    Mr. ADKINS. This is correct.
    Mr. EWING. And so you get a lot of the flack I suppose when you have a season like this last season and the inspectors find more reasons to segregate peanuts to seg. 3.
    Mr. ADKINS. This is correct.
    Mr. EWING. Do you believe that the system can be improved?
    Mr. ADKINS. I feel that it could be with just one elimination, that is price. Any time you are involved in determining a load of peanuts and you are going—through our grading interpretations, the peanuts go from $650 a ton down to $130 a ton, then it puts a lot of pressure on people. You have a few people that are going to always be human and change things. However, I realize that that cannot be done.
    Yes, I think what I hear today that there is ways to do better, a better job. I would certainly hope so, since the 1960's.
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    Mr. EWING. It would probably make your job easier if we had a little more up to date—what the producers in their own minds might believe is a fairer way of inspecting these peanuts.
    Mr. ADKINS. This is very true. We are a service organization and to carry out the policies that we do have to carry out, it makes it awfully hard on our people.
    Mr. EWING. And I understand that and I think most people should understand that you are given an instruction and it is a matter of carrying out those instructions.
    Mr. ADKINS. This is correct.
    Mr. EWING. Mr. Dorner, do you believe that there are some pretty good new methods of neutralizing the toxic problem caused by aflatoxin—you are better at putting that into words than I am—by what you called a more friendly toxic than could be put on the fields.
    Mr. DORNER. Well, as I said, you know, we talk about A. flavus and aflatoxin almost synonymously, when they are not. A. flavus is the fungus, it has to grow in a peanut in order for aflatoxin to be produced. It also has to be a strain of the fungus that has the capacity to produce aflatoxin for that to happen. And it turns out that if you use a very competitive, aggressive strain of the fungus that does not make aflatoxin and apply a large population of that to the field, it essentially competitively excludes a lot of the wild natural strains that are out there from getting into the peanuts, so that peanuts are still infected with fungus but the fungus does not have the capacity to make aflatoxin. The result then is less aflatoxin in peanuts.
    We are well on the way, I think, to taking a step at greatly reducing aflatoxin. This would not eliminate aflatoxin in peanuts, but it would certainly help the industry deal with this problem because they have got less to deal with.
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    Mr. EWING. Would that be an expensive treatment?
    Mr. DORNER. Well, we are working with the industry to try to come up with a formulation that we can put out at around $20 per acre. One of my closing statements says that that is where we are right now is to get the formulation cost down so that it would not be cost prohibitive to use.
    Mr. EWING. But that type of treatment would totally be—you could not do it under the current inspection system and not come up with a real problem.
    Mr. DORNER. Well, you could do it under the current system. The current system would not preclude your putting this stuff out, but it would—it would not do the farmer any good because, you know, they would still be graded as seg. 3, because you would be finding A. flavus. It would do the other segments of the industry good because peanuts that are graded as seg. 1 would have less aflatoxin in them than they do now.
    Mr. EWING. Do you believe, as a scientist and one who works on—has worked on peanuts for a long time, that we could come up with a better system of inspecting our peanuts?
    Mr. DORNER. Absolutely.
    Mr. EWING. And it is time to do it, I guess, as we move into the next century.
    Mr. DORNER. Well as a scientist, you know, we work to develop technology and it is rewarding to see technology implemented. So I would have to answer that in the affirmative, yes.
    Mr. EWING. Dr. Whitaker, do we need one system for this inspection throughout the United States? We are a big country, have different growing conditions in the West and the Southeast and maybe in the East.
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    Mr. WHITAKER. I am not sure what you mean by one system, but you mean regionally testing?
    Mr. EWING. Right.
    Mr. WHITAKER. Yes. Certainly there is more aflatoxin produced here in the Southeast than in the other two regions and implementing chemical testing has been in part an economic problem and the shellers in the VC area and in the southwest have not wanted to pay the price to put in testing laboratories when they do not have as much aflatoxin. So from that standpoint, it seems to me that it does make sense to do it on a regional basis.
    Mr. EWING. Well, I understand that and I can understand why they may not want to pay those costs, but what is the impact on the industry or what is the adverse impact on them if we do it here in the Southeast where it is needed?
    Mr. WHITAKER. Well, as a researcher, I am not sure the answer to that. The Southeast may start producing a better product from an aflatoxin standpoint and would be more competitive with the VC and the southwest area.
    Mr. EWING. So you believe though that we could institute a better system here that would be more effective and fairer to the producers?
    Mr. WHITAKER. Here in the Southeast?
    Mr. EWING. Yes.
    Mr. WHITAKER. Yes.
    Mr. EWING. Mr. Springer, you mentioned that you wrote a letter to the national office of FSA to express your grave concern. You did not say what the response was.
    Mr. SPRINGER. It was the same response as the gentleman that talked to you earlier and that was that nothing could be done at that time. And Mr. Hatcher and I have discussed that, and of course that letter was written from the five farmers that serve on the Farm Service Agency State Committee.
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    Mr. EWING. Do you think that reflects from the Farm Service Agency in Washington, the fact that this year or 1997 we could not do anything about it or that there was not anything that could be done period?
    Mr. SPRINGER. I think from the timing standpoint, the focus at that point in time was more on the 1997 season.
    Mr. EWING. Now we do not know if we are going to have that problem in 1998.
    Mr. SPRINGER. That is correct, sir.
    Mr. EWING. Are we going to wait until we know we have the problem again or is it time to be asking the Washington office what they are going to do about it?
    Mr. SPRINGER. The Alabama Farm Service Agency staff has been meeting with Randy and the peanut producers here in Alabama to determine needed changes as far as regulations, policies, handbooks and other things, and those are being prepared for the state and national level now.
    Mr. EWING. And those will be sent on to——
    Mr. SPRINGER. Mr. Hatcher.
    Mr. EWING. Will those be sent to Washington soon?
    Mr. SPRINGER. Yes, sir.
    Mr. EWING. And they go to Mr. Hatcher and then on to Washington, DC. So when do we think those will be in Washington, with the possibility of dealing with the Farm Service Agency people at the national level?
    Mr. HATCHER. Well, I am one of those, of course, I am in the FSA, Farm Service Agency, in Washington. We deal with this on a regular basis, we deal with this issue. As I said, it came to a head last spring and broke down. At that time, I heard no willingness last spring for producers to take any less than $610. I heard today almost unanimously from the panel that the farmers understand that if it is a $30 cleanup, that maybe they are not going to get $610. We had not heard that before today. I would like to see the very best testing system, the very best system for determining aflatoxin and maximize the income to farmers in Alabama. There is no question about that.
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    Mr. EWING. Well, and maybe those producers have had a change of heart.
    Mr. HATCHER. Maybe, a crisis has a way of focusing the mind sometimes.
    Mr. EWING. Thank you. Terry.
    Mr. EVERETT. Thank you, Mr. Chairman.
    Charlie, in a meeting that Senator Shelby and I had with Secretary Glickman and Dallas Smith, our understanding was that the Secretary made a firm commitment to myself and Senator Shelby to address this problem. I later saw Secretary Glickman in the House restaurant and while denying my bolt for fast track, I did approach the subject again, and he assured me that they would get to this problem. And I would hope that you would take back to the Secretary what you have heard here today. I know that you are aware that Alabama has been working with the Department on ideas to resolve this issue for some time now and I would ask you, and I take by your comments that you might agree, that some progress has now been made.
    Let me ask you if you feel like we can make the changes through non-legislative—with non-legislative solutions or if we need legislative solutions.
    Mr. HATCHER. I do not see any bar, any legal bar, to the Department changing regulations to effect the kind of changes that I have heard discussed here today and previously.
    Once again, I do not want to over-emphasize this, but you know, it is so much better when people are moving together. I have found that to be true in various parts of my life and where I am now in the USDA. It is so much better if the folks can get together and agree on something instead of USDA trying to impose something that 35 percent of the folks want and 65 percent of the people are raising Cain about. If the industry could come to some consensus, it is a lot easier for the Department and for FSA to deal with it. That is not to say, as the Chairman said, that you have got to have everybody agreeing 100 percent before you can do anything. I do not mean to imply that.
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    Mr. EVERETT. After participating last spring in the farm bill, it was one of the hardest things I ever did in my entire life in seeing the disagreements between the various grower groups. I now know why James Earl is bald headed, over the years of putting up with this.
    But there is a point, for instance, the test for determining seg. 3s and seg. 2s would be completely different, seg. 2s being frozen kernels and that kind of thing and not aflatoxin. And I would hope that the Department would recognize that there needs to be—obviously there needs to be movement within the industry itself to get together, but in addition to that, that the problems are different. As the Chairman was mentioning with Dr. Whitaker, there may be solutions to different situations with different peanut growing areas, and that the Department should recognize that.
    Mr. HATCHER. Well, Mr. Everett, we will certainly continue to work on that and we will do so with renewed vigor after this hearing today. It might be helpful to USDA to hear from the House Agriculture Committee with some direction about your concern about this situation in the Southeast. Sometimes that helps.
    Mr. EVERETT. I think we can probably arrange that, Mr. Hatcher. And by the way, Charlie, I know that you represented what was the largest peanut growing district in the country for a number of years and that you are not unsympathetic—while you were a Member of Congress—and you are not unsympathetic to peanut farmers, and I recognize that.
    Mr. Adkins, would you just briefly describe—you boil this 65 pounds of these samples down to approximately 4 pounds, and I assume you do that by just separating out the loose kernels?
    Mr. ADKINS. When we pull the sample from the load of peanuts, it is divided down at the sampler at that time and we wind up with maybe 8 to 12 pounds of peanuts that we bring in through the buying point and further divide those peanuts down to a working sample size of 4 pounds.
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    Mr. EVERETT. Which consists mostly of loose kernels or——
    Mr. ADKINS. This gives you all of the peanuts that you are going to worry with, this gives you your total sample representing that load of peanuts, the loose shell kernels, other kernels, the whole—all of it. And then those are divided down into the different components to make up the—for the different determinations we make in the inspection process.
    Mr. EVERETT. Well we sympathize with you and your inspectors that, as you put it, try and do a real good job. But on the other hand, by your own testimony, you recognize and comment that these folks are only human and that some of them may take the course of least resistance.
    Mr. ADKINS. Unfortunately this is true, and when this happens we are not treating everyone the same. A lot of these peanuts are going in the warehouse to be shelled out for edible trade and so therefore the buyer has problems there, it causes everyone problems, costs everyone. If we had some system that we could make a proper determination without this pressure, without that concern. Let me stress also now that we are using part time seasonal people that live in these neighborhoods and have to live and get along with all these people there, so that has a pressure applied to these people. Whereas the people like myself who work full time, we have more to recognize out of the fact than people who are working part time. It is getting harder each year to find the qualified people to do the job because of the pressure that is applied.
    Mr. EVERETT. The current system—I think any fair minded person would have to admit that the current system has built in tension between the inspector and the grower. On the one hand, the inspectors who feel like they are just trying to do their job and on the other hand though, you have got a situation where the results of that system, and we know the system, if we just take Mr. Ventress' sample of 25 to 57, we know the system is bad and you see this grower out here who sees his entire livelihood fixing to go down the tubes on this, you can see how that tension mounts. And I would say that that's a pretty good indication that we need a new system to do this. Would you agree with that?
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    Mr. ADKINS. Yes, sir, I agree with you.
    Mr. EVERETT. Mr. Dorner, is there some possibility—or Dr. Whitaker—that we can get beyond where we are today and get proactive with this thing by having a seed perhaps that is resistant to aflatoxin?
    Mr. DORNER. I am afraid that is down the road in the unforeseeable future to end up with a seed that is totally resistant to the fungus because the fungus is really not a pathogen, it is not a plant pathogen. That is why you need drought conditions really for the process to occur, the peanut actually starts drying down in the soil, but there is still enough moisture in the peanut for this particular fungus to grow. So it is hard to visualize that there is a true naturally resistant peanut available, but it is possible that through, you know, molecular biological approaches that a gene could be inserted that could make it resistant to the fungus and that is why we are talking probably years down the road before something like that could be developed.
    Mr. EVERETT. We have a high humidity level here in southeast Alabama, where the aflatoxin problem is the greatest, by the way, and once that peanut gets under stress at that critical time of moisture, then that is when we see aflatoxin more present?
    Mr. DORNER. That is correct.
    Mr. EVERETT. And what you are saying, to develop a seed that would be resistant to all of that is probably down the path?
    Mr. DORNER. It is down the road quite a ways, yes.
    Mr. EVERETT. Thank you, Mr. Chairman.
    Mr. EWING. Mr. Hatcher, is there any discussion about a pilot program, has that been discussed or anything?
    Mr. HATCHER. It has and I have had some confusion in my mind about the extent of a pilot program. First we had talked with Randy Griggs from Alabama about a small pilot project which did not materialize for the 1997 crop, but lately I have been hearing from various sources about a pilot project that would encompass the Southeast. Well, that seems to be contradictory. I mean, I do not think you implement, in the region that produces over half the peanuts in the country or 60 percent, and call it a pilot project. That does not fit my conception of a pilot project.
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    The last time I have had any discussion about a pilot project which would be what I consider to be a pilot project was a proposal for the 1997 crop that was not implemented.
    Mr. EWING. Well, gentlemen, I want to thank you for coming. I think you have heard probably some information here today that is useful to you. I know I have heard information that I think is useful to our subcommittee and Mr. Everett I am sure will not allow us to forget it when we go back to Washington, and we will bring it to the full Committee or even continue this hearing when we get back to Washington. It just seems to me that there is so much at stake here and the solution is not so difficult that we should not be moving toward it very quickly, hoping that we will not have that problem for the next dozen years or more. But we never know when that problem will resurface again.
    So I thank you all for coming, I appreciate very much your cooperation and help and this panel is dismissed or you can leave.
    Finally, I want to say thanks to Maria Allen and Joe Williams of Mr. Everett's staff, who have worked very hard. Bo Greenwood is with the House Agriculture Committee staff, the ranking member, Mr. Charlie Stenholm of Texas—he was with us. And a special thanks to Teresa Roper with the Alabama Peanut Producers Association for her help in setting this up. And of course to Terry for all of his hard work and his staff in bringing this important issue to my attention, to the attention of the subcommittee and keeping it before the people on the full Agriculture Committee. I anticipate that there will be considerable follow up from this hearing in Washington with my subcommittee and with the full Committee and we are going to hope that this is one problem that we can put behind us before the next crop year.
    The record will remain open. Everything that has been said and submitted today is being recorded. The record will stay open for 10 days, we will accept statements or additional information on the subject matter of the hearing during that period of time and we welcome your input if you want to have it contained in the record.
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    With that, if there is no other——
    Mr. EVERETT. Mr. Chairman, I just want to again thank you for bringing the hearing down here. As I pointed out to some of my friends in the industry and I would like to point out to you here today, Tom Ewing is an unusual member of Congress, if you have noticed the way he conducted this hearing, one of the things that he really does is listen, he listens very well. Beyond listening, it is obvious to me from my past association with him that he also understands. And I can assure my constituents here that—and I will also in behalf of them thank you for what we know will be your continuing efforts along these lines. So thank you very much.
    Mr. EWING. Thank you, Terry.
    [Applause.]
    Mr. EWING. The subcommittee is adjourned.
    [Whereupon, at 12:20 p.m., the subcommittee was adjourned, subject to the call of the chair.]
    [Material submitted for inclusion in the record follows:]
Testimony of Ben Bowden
    I have been farming for 43 years, started right out of High School. Began with 16 acres of peanuts, 17 acres of cotton, and 18 acres of corn. I had no farming experience—just wanted to be a farmer. Now I have 5,900 acres in cultivation and I own or hold one of the largest peanut quotas in the State. For many years I have worked with the major commodity organizations in our area.
    I have served as: vice president, Alabama Peanut Producers Association; president, Alabama Cotton Producers; area vice president, Southern Cotton Growers; secretary-treasurer, National Cotton Board; president, Tri-Rivers Waterways Development Association; Alabama representative National Peanut Grower Group, as well as many other local and State organizations, including cattle and commodities. Presently, more active in water related organizations, environmental interests and property rights. I am now serving as:
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    I am a member board of directors, Alabama Peanut Producers Association; member board of directors, Alabama Cotton producers; member board of directors Alabama Cotton Commission; commissioner Alabama Water Commission; commissioner, Forever Wild Land Trust of Alabama
    Member, Alabama Soil and Water Committee; member, Tri-Rivers Waterways Development Association; chairman, National Watershed Coalition—last meeting had representatives from 49 States and three foreign countries. Director, Alabama Farmers Federation; vice chairman of board, Southern Bank of Commerce.
    I have spent a lot of time educating myself by participating in these organizations and learning how much these organizations contribute to agriculture. It has made me a better farmer and I know peanuts! I know how to produce peanuts, how much it costs to produce peanuts, and to recognize quality in peanuts. We are at the crossroads with farmers stock peanut quality maybe even with economical peanut production in the United States.
    U.S. farmers are the only farmers in the world with a zero tolerance for aflatoxin. All other farmers have some flexibility in their grading systems. Before the last farm bill this zero tolerance did not hurt producers as bad because the cost was shared with GFA, CCC and the public. Now all costs rest on the backs of farmers. The weather, that no one has any control over, is the greatest single influence of all production practices that influence quality. Seems like farmers are being penalized because they have no control over the weather.
    I want to share with you some of my personal experiences with this 1997 peanut crop on my farm. This years' crop was planted with 2,100 pounds of quota allocated to each acre. Expectations were to make more peanuts and have three marketing options including fall transfer quota, buy backs, or sales of additionals. None of this materialized because before becoming aware of the seg. 3 problem, which totaled 220 tons, I had bought additional quota totalling 127 tons at a cost of $17,830. This changed my ability to work within the program and was an additional loss because of regulations.
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    It seemed all of a sudden seg. 3's were coming from everywhere. Peanut grades actually improved from 68–72's to 72–77's but were identified as seg. 3's. Approximately two, consecutive days of all harvesting production graded seg. 3. Six of these loads were stored on farm and not graded then. When the harvesting of irrigated peanuts began the seg. 3 problem cleared as you might expect. Before the irrigated peanuts were all harvested, the six stored loads were sent to the buying point and none were identified as seg. 3's. All of these peanuts were produced on the same farm number. I don't know what happened but maybe I should store all of my peanuts under this shed and let them cleanse themselves. Seriously, we need a better grading system, this is a good example of a poor grading system.
    I look at two to four samples out of every load (approx. 4.5 tons) produced on my farm. I have brought you some samples out of some of my seg. 3's this year. My family, friends and I will eat these samples as we do each year. Please inspect these peanuts closely, then take them home and share with your family. I feel confident these peanuts will contain much less contamination than the peanuts we will import in their place. Foreign peanuts are contaminated with bacteria and fungi as well as chemicals that have been outlawed in the U.S. Chemicals not allowed here are being used by peanut producers around the world.
    Now look at the economic impact this all has on my farming operation. I received $28,805.44 for 220 tons of seg. 3's worth $148,749.75 if graded seg. 1's. This constitutes a loss of $122,944.30 that really can't be justified. Every farmer in this country knows our future centers around a quality product. We should have better ways to deliver quality products to our customers. Once you have a seg. 3 identification, as a producer we have no options. We can pay to have them cleaned but we receive no benefit because the stigma of seg. 3 identity is absolute and cannot be changed. So, along with a more up to date grading system we also need some tolerance and relief on regulations regarding aflatoxin. When a 4.5 ton load of peanuts has one aflatoxin peanut in the sample and it is condemned we are denying that we have the technology to clean them up. However, the sheller or the end user can clean them and they can be used for any purpose. Farmers around the world can attempt to clean them up and use them. Why should Americans producers, who can least afford it, be so severely penalized?
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    Please look again at the peanuts I gave you. These peanuts are too good to be condemned by an antiquated grading system. Peanut farmers cannot afford this.
     
    Testimony of Joe W. Dorner
    Thank you Mr. Chairman and members of the subcommittee for inviting me to present testimony concerning the impact of aflatoxin on southeastern peanuts. My name is Dr. Joe Dorner and I am a microbiologist with the U.S. Department of Agriculture, Agricultural Research Service's National Peanut Research Laboratory in Dawson, Georgia.
    Most of my work in the last 15 years has focused on understanding the natural process of preharvest aflatoxin contamination of peanuts, development of analytical methods for measuring aflatoxin in peanuts, and development of strategies to reduce or prevent aflatoxin contamination, particularly biological control. My testimony today will briefly discuss these areas of research.
    I. Preharvest Aflatoxin Contamination of Peanuts and its Impact
    Aflatoxin is a toxic, carcinogenic compound that is produced by the fungi, Aspergillus flavus and A. parasiticus. These fungi can infect peanuts and contaminate them with aflatoxin when the peanuts are subjected to drought conditions during the latter weeks of the growing season. The extent of aflatoxin contamination is, therefore, related to the extent of drought stress across peanut-producing areas. Years in which we have experienced significant late-season drought are also the years in which we have experienced the greatest aflatoxin contamination of peanuts. Aflatoxin does not reduce the production level or yield of peanuts in the field, but it causes quality and marketability problems with harvested peanuts. The entire peanut industry (growers, shellers, manufacturers, and allied industries) suffered severe economic losses in 1980, 1986, 1990, and 1993 when widespread drought resulted in significant preharvest aflatoxin contamination. It now appears that 1997 will be another such year.
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    It is difficult to assess the economic impact of aflatoxin because it affects every part of the peanut industry. The grower experiences an immediate loss if A. flavus is found during the grading of his or her peanut lots. This results in a seg. 3 classification, and such lots are diverted from edible supply channels. However, A. flavus is not always detected in lots that are contaminated with aflatoxin, and in those cases, contaminated lots are purchased by shellers at the higher seg. 1 price. Before the sheller can sell peanuts to a manufacturer, they must be analyzed for aflatoxin, and the result must show that they contain no more than 15 parts per billion (ppb). If they contain more than 15 ppb, the sheller must employ expensive sorting measures to try to reduce the level. If unsuccessful, the lot is diverted from edible supply channels, resulting in further economic loss. However, because aflatoxin is not homogeneously distributed in a lot of peanuts, errors can be made in the analysis that result in a manufacturer's purchase of a lot that does, in fact, contain greater than 15 ppb of aflatoxin. The manufacturer also must utilize expensive sorting techniques, which may or may not be successful, in an attempt to ''clean up'' the lot. Therefore, aflatoxin contamination of peanuts is a costly problem to deal with, and it often results in the loss of a large volume of peanuts from the edible market.
    II. Biological Control of Preharvest Aflatoxin Contamination
    The fungi responsible for aflatoxin contamination are naturally present in agricultural soils. Because peanut pods develop underground, they are in contact with spores of the fungi during the course of their development. Spores are the ''seeds'' of the fungi from which a fungal colony can develop. It is during the development of an A. flavus colony in a peanut that aflatoxin is made. The population of A. flavus spores naturally present in soil in which peanuts are grown is quite variable, but during the early part of the growing season the number is usually relatively low (around 100–200 spores per gram of soil). However, when peanuts are exposed to drought stress while pods are maturing, the population of A. flavus increases dramatically (up to 10,000 spores per gram of soil). This increase of A. flavus in the soil greatly increases the risk that a peanut will become infected by the fungus. If the peanut has lost its natural defense mechanism against fungal growth because of its exposure to drought stress, then, it may become contaminated with aflatoxin.
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    A. flavus and A. parasiticus occur in many different forms, or strains, and not all strains are capable of producing aflatoxin. Strains that do not produce aflatoxin or other toxins are termed ''atoxigenic''. One strategy we have used in experiments to reduce aflatoxin contamination in the field is biological control. In this biological control strategy, a large population of atoxigenic, competitive strains of A. flavus and A. parasiticus are applied to the soil early in the growing season. The atoxigenic strains are just like the strains that are naturally found in the soil, except that they lack the ability to produce toxins. The atoxigenic strains then occupy the niche that would normally be occupied by the native, toxin-producing strains. By the time peanuts are exposed to late-season drought, they are surrounded by the harmless strains of A. flavus that have been introduced, and the chance of invasion by toxigenic, native strains is greatly reduced.
    The National Peanut Research Laboratory began conducting experiments using this biological control strategy in 1987. Over this ten year period, we have observed reductions in aflatoxin contamination ranging from 70 to 99 percent. Differences in the degree of control achieved seem to be related to the strains of A. flavus/parasiticus used, the formulation used to apply the atoxigenic strains to the soil, and the amount of the formulation that is applied. Tests were conducted in a field in Terrell County, Georgia, in 1997 in which 1.5 acres of peanuts were treated with the atoxigenic strains and compared with 1.5 acres of peanuts that were not treated. Analysis of peanuts for aflatoxin at harvest showed that the treatment produced an overall reduction in aflatoxin of 91.6 percent (based on analyses of all seed size categories). Treated peanuts that could be marketed as edible (seed size categories greater than or equal to in.) contained only 2.5 ppb of aflatoxin compared with 22.2 ppb in edible size peanuts that were not treated (88.7 percent reduction).
    Further evidence that the naturally present strains of A. flavus/parasiticus were being successfully displaced in soil by the introduced atoxigenic strains comes from examination of the peanuts that were actually infected. Peanuts were predominately infected by the atoxigenic strains, although a small percentage were still infected with the natural, toxin-producing strains. It is important to note, however, that the total number of infected peanuts coming from the treated and untreated areas has usually been about the same. Use of this biological control strategy does not mean that peanuts will no longer be infected with A. flavus/parasiticus. However, greatly reducing the number of peanuts that are infected with strains that produce aflatoxin has had a dramatic impact on the resulting levels of aflatoxin contamination.
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    II. Impact of Biological Control on the Grading of Farmers' Stock Peanuts
    The current farmers' stock peanut grading system utilizes the visual A. flavus (VAF) method to determine whether each peanut lot is classified as seg. 1 or seg. 3 as discussed in the testimony presented by Thomas Whitaker. Farmers' stock peanuts are not directly analyzed for aflatoxin. If the biological control strategy were utilized, it would be in the best interests of the peanut industry to discontinue use of the VAF method. With use of biological control as previously described, peanuts will continue to be infected with A. flavus, although predominately by atoxigenic strains. The atoxigenic strains are indistinguishable from naturally-occurring, toxigenic strains. If peanuts were subjected to late-season drought stress, the atoxigenic strains would be visible on some peanuts, and those lots would be condemned as seg. 3 by the VAF method. However, such lots may contain little or no aflatoxin. In field tests conducted in 1997, both biocontrol-treated peanuts and untreated peanuts were classified as seg. 3 by the Federal-State inspection service. However, edible size peanuts from the treated field contained an acceptable level of 2.5 ppb of aflatoxin, whereas edible size peanuts from the untreated field contained an unacceptable level of 22.2 ppb.
    The best evidence to date, which is quite preliminary, indicates that use of the biocompetitive fungi would not greatly increase the number of seg. 3 lots. The total percentage of peanuts infected by A. flavus/parasiticus (including toxigenic and atoxigenic strains) has usually been about the same whether peanuts were treated with the atoxigenic strains or not. For example, in one experiment the percentage of untreated peanuts infected by A. flavus/parasiticus was 9.8 percent. In peanuts treated with the biocompetitive fungi the percentage infected was 10.6 percent; however, 7.7 percent were infected by the atoxigenic strains while only 2.9 percent were infected by toxigenic strains. The primary point to consider is that utilization of the biological control approach coupled with a continuation of use of the VAF method could result in the classification of many lots with acceptable levels of aflatoxin as seg. 3. A direct chemical test for aflatoxin would be the only reliable way to assess the aflatoxin risk associated with each load.
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    The biological control approach to aflatoxin reduction is still in the developmental stages. ARS is currently working with the peanut industry to develop the most economical formulation for delivering the atoxigenic strains to the field. That formulation would then have to be registered by EPA before it would be available for general use. Optimistically, these processes will take a minimum of one to two years; therefore, a product for biological control will not be available before crop year 1999 or 2000.
    IV. Summary
    Aflatoxin contamination of peanuts continues to have a detrimental economic impact upon every segment of the peanut industry. Future use of a biological control strategy for reducing preharvest aflatoxin contamination could significantly reduce this economic impact. To realize fully the benefits of implementation of the biological control approach, the VAF method of classifying farmers' stock peanuts would need to be replaced with a chemical test for directly measuring aflatoxin. If that were not done, economic benefits should still be realized by some segments of the industry because seg. 1 peanuts should have reduced levels of aflatoxin; however, the potential would exist for misclassifying many acceptable lots as seg. 3.
     
    Testimony of the Western Peanut Growers Association
    My name is Doyle Fincher, president of the Western Peanut Growers Association. The Association consists of peanuts growers in West Texas who are responsible for production of the majority of peanuts produced in the State.
    The hearing was called today on proposals that would allow for the marketing by growers of farmer stock peanuts that have been found to contain visible aspergillus flavus mold and have been graded as segregation 3 peanuts. One proposal would allow the grower to have the peanuts re-sampled and re-graded before the sale, thereby providing him with an opportunity to clean up the peanuts. Another that has been proposed would allow segregation three peanuts to be sold as segregation one peanuts so long as the peanuts were within the quota of the producer, the peanuts otherwise graded as segregation one, and the parties have agreed to the sale. While these proposals have been made in the past, we understand that they are being pressed at this time because weather conditions in the Southeast have contributed to an unusual amount of segregation 3 peanuts in the current crop.
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    We understand that there is proven technology that enables shellers to clean up the peanuts so that on delivery to manufacturers or otherwise in commercial channels the peanuts no longer have any presence of aflatoxin. We believe that there is merit to the proposal that has been espoused that would allow growers to sell segregation 3 peanuts to shellers. But there is equal merit to treating segregation 2 peanuts in the same manner. In fact, the segregation 2 peanuts do not present the hazard to human health that has led to the restrictions on marketing of segregation 3-peanuts.
    Accordingly, we would support a change in the price support regulations that would allow the sale of segregation 3 peanuts to shellers only if the grower could also sell segregation 2 peanuts, and the sale did not cause the grower to exceed the quota on his marketing card. Any such proposal should be conditioned on a requirement that the sheller would clean the peanuts so that prior to delivery on a sale to a manufacturer or otherwise, Agricultural Marketing Service or an approved commercial laboratory would grade the peanuts as No.1.
    We do not believe that there should be any restrictions on the price at which these peanuts would be sold. And understand that the General Counsel of USDA has ruled that there is no legal authority for imposing a minimum price on the sale of these peanuts. If the grower should have more segregation 2 and 3 peanuts than reflected in his quota allocation, the excess should be treated as under current rules Insofar as commingling of peanuts is concerned, the sheller should be permitted to commingle segregation 1, 2, or 3 peanuts that the sheller owns but not with CCC peanuts, unless the commingling with CCC peanuts are of segregation 1 peanuts only.
    In our view these recommendations provide for fair and equitable treatment of all producers regardless of their location. This is a necessary prerequisite for any change in the current regulations. There should be no change in the current regulations that would provide a special privilege to growers in any region that does not apply to all growers.
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Testimony of John Fryer
    Mr. Chairman, I am John Fryer, division manager for Anderson Peanuts and Chairman of the American Peanut Shellers Association legislative committee. I want to thank you, Mr. Chairman and other members of the committee for this opportunity to present our views on this most important topic to the peanut industry. Thank you for coming to Alabama.
    The American Peanut Shellers Association is an association of commercial peanut shellers in the United States. Our members handle approximately 65 percent of the peanuts used in the United States for edible purposes and approximately 90 percent of the peanuts exported from the United States for edible purposes.
    We support allowing growers to clean and regrade farmers stock peanuts as part of a package that incorporates other marketing changes as well. Farmerstock cleaning and regrading alone will not solve the problem.
    As you know, peanuts are divided into three segregations. Under current regulations only segregation 1 peanuts may be purchased for edible uses. segregation 2 and 3 peanuts must be crushed for oil and meal. Some exceptions are made for seed. This method of marketing has been with us for at least 30 years. It was developed based upon a visual inspection of a small sample for the presence of A. flavus mold in order to segregate lots of peanuts that might have or might develop aflatoxin.
    When this method was adopted it was the best procedure available. It relies upon a human inspector visually noticing the mold in or on only one kernel in a particular load.
    Growers and shellers agree that this method results in the misclassification of a large number of lots of peanuts. Very high quality peanuts can be classified as segregation 3 and, therefore, crushed while poor quality peanuts can be classified as segregation 1.
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    There is unanimous agreement among the members of the industry that technology has progressed over the last 30 years to the point that shellers and blanchers can produce, from their milling and blanching process, a peanut that will readily meet the Peanut Administrative Committee outgoing quality requirements. Industry plants today contain high-tech equipment, including electronic eyes, that have the ability to remove low quality kernels. Mandatory outgoing quality regulations require that only safe peanuts be shipped. The result of the technology and the outgoing quality regulations is an assurance to both this committee and the public that only very high quality peanuts will leave the shelling or blanching plant for use in peanut products even if the quality of some of the farmerstock used is not what is presently classified as a segregation 1 peanut.
    Please let no one interpret the testimony given here today as any indication that the quality of peanuts entering the edible market will be lowered, in any way, if these changes are adopted. Our interest is in finding a better way, using modern technology, for the farmer to market his peanuts. It is our view that growers and shellers should be able to agree upon, voluntarily, whether or not there will be a chemical inspection, a visual inspection, or perhaps no inspection at all with respect to peanuts being sold by growers to shellers for edible purposes. Any peanuts purchased by the sheller, regardless of the inspection method utilized, would be considered segregation 1 peanuts. The sheller will simply have to make its own business decision to purchase the peanuts considering the potential costs of milling and/or blanching necessary to bring the purchased peanuts in compliance with the outgoing regulations. There may be issues of price or of displacement, but there are no issues relating to the ability of the industry to meet outgoing quality regulations because we believe that better way is to allow segregation 1, 2 or 3 peanuts to be sold by the grower to the sheller. Thereafter, before the peanuts can enter the edible trade, the outgoing quality regulations of the Peanut Administrative Committee must be met. That includes an outgoing chemical test for the presence of aflatoxin. As you can imagine, that chemical test is much more accurate than the visual method, which, despite inspectors ''best efforts,'' is much like finding the proverbial needle in a haystack.
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    These matters have much been discussed over the last several years. No one disputes the ability of the industry, technologically, to clean up most peanuts. The clean up here is accomplished by eliminating the suspect kernels from the edible trade. It can be done. In fact, it is being done today. The unresolved issues do not have anything to do with the ability to clean up peanuts. While the industry can cleanup virtually any quality peanut, there are costs associated with that clean-up. The poorer the quality, the more costs involved in the clean-up.
    Obviously, at some point the cost of clean-up becomes economically prohibitive, but the marketplace can deal with that issue.
    Frankly, the visual inspection method for aflatoxin is worthless. It is a cost incurred for no value, and arguably harmful to both the farmer and the sheller. If the visual inspection method determines that one kernel, from the wagon or truck load, has A. flavus present, the farmer has his entire load graded segregation 3 and suffers a serious financial loss. Conversely, if in fact the wagon or the truckload has significant aflatoxin present, but the small sample does not detect a kernel with visible A. flavus, the sheller has purchased what amounts to a bad segregation 3 load of peanuts for segregation 1 prices.
    It is our view that all of these needed changes can be made by changes in the regulations by appropriate governmental agencies. In 1996, after hundreds of hours of work and negotiation, an industry-wide proposal was presented to the Peanut Administrative Committee. The proposal failed to pass. We urge all of those associated with this decision making process to use their influence to allow us all, growers, shellers and manufacturers, to compete with 1990's technology. We simply must leave the 1960's. All of our competitors in foreign countries are in the nineties and we must be too.
     
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    Testimony of Bennie Nowell
    Thank you for allowing me to address two very serious problem that we as peanut farmers are facing. One being the aflatoxin mold found in peanuts and how this is determined, the other being the ineffectiveness of crop insurance.
    I am 48 years old and have been involved in farming all of my life. I grew up on a family farm in Dale County, AL. My father would work a public job at night and by day would work on the farm to be able to provide the essentials and educate five children. Money was tight for our family; but through a commitment to succeed and hard work, we have been able to prosper through the years. After graduating from college with a degree in Business Administration, I returned to our family farming operation. Today my father, Durwood Nowell and brother, Ronny Nowell and I, still operate that farming operation that my father started over 50 years ago in Dale County. We have been able to continue to prosper through diversification. Along with the farming operation, we are a commissioned peanut buyer for Cargill Peanut Product. I have been able to see first hand at the peanut buying point, that through the visual method of determining if a load of peanuts has aflatoxin mold, is not a fair assessment for the farmer. This method also creates undue pressure on the Federal-State inspectors to make this assessment against the farmer.
    I have a son that will be attending Auburn University to major in agriculture. My brother, Ronny, also has a son that is in college now. Both of these grandchildren would like to return to their grandfather farm and make a career of production agriculture. I submit to you, that I do not encourage them returning to the farm because of the present crisis in agriculture.
    At the present time agricultural commodity prices have not kept up with input cost. In addition, equipment cost has tripled in the past 10 years. The farmer has less control over his product than any other industry. We have little control over what price we are paid for our product, and we cannot pass on price increases on input cost or equipment cost. In addition, farmers have little control over how their product is graded. Growers need increased options and greater flexibility to market their crops.
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    I submit to you that it is time to change the way aflatoxin mold is determined in a load of farmer stock peanuts. The system used today is an antiquated way to determine the level of aflatoxin found in farmer stock peanuts. With the present system, it only takes one kernel in a load of farmer stock peanuts, regardless if the load has 1 ton or 10 tons, to declare the peanuts unfit for human consumption. When a kernel is found in a load of peanuts, the farmer has no recourse. To clean these peanuts, in some cases, would remove the kernel that would allow the load of peanuts to sell for quality stock. When the load of peanuts has been determined by the Federal-State Inspection Service to contain aflatoxin mold, the price immediately drops from the segregation I price, which in this past year has been around $615 per ton to a price of $132 per ton in the GFA pool. When these peanuts go in the pool, these peanuts are only allowed to be crushed for oil.
    The 1997 crop year has been a disaster on our 1,100 acres of peanuts grown. Because of the drought in late July, August and September when peanuts were maturing, 8 weeks of no rain reaped havoc on peanut farms in the Southeast. On our farm, 51 percent of the total production were declared seg. 3 peanuts. This represents a dollar loss of approximately $300,000, which is about one-half the gross sale of peanuts for our farm on a normal year. It will take many years of making high yielding and aflatoxin free peanuts to be able to recover from this loss.
    I submit to you that the peanut farmer has no recourse on dealing with seg. 3 peanuts. It is my opinion that the peanut farmer should have increased options to reduce losses that occur when one kernel is found in a load of peanuts.
    My recommendation to the subcommittee: Give the producer the opportunity to clean and regrade a load of peanuts-after visual testing has indicated aflatoxin mold. After cleaning this load, if aflatoxin mold is still found, give the producer and buyer the option to determine the amount of mold that is found in this load through an up-to-date testing procedure and use a scale to determine the price according to the amount found. One way to accomplish this is to have the peanuts chemically analyzed and use a scale of premiums and discounts to price according to quality perimeters.
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    Give the buyer the opportunity to purchase the peanuts that have been cleaned, tested and have been found to contain manageable level of aflatoxin mold.
    The other issue that is a real concern to producers is the erosion of crop insurance coverage due to lowering yield averages. Crop Insurance was determined by Congress to be the risk management tool for producers by eliminating a disaster program. Under the present crop insurance provisions, the coverage is determined by a 10 year moving average. In the past 10 years the yield average for peanuts have steadily declined in Alabama, making todays average 2,166 pounds per acre. Under the current provisions, the highest level of coverage available is 75 percent of the farms established yield average. Using Alabama average yield, this is approximately $200 less than break-even per acre. With the total elimination of a disaster program, crop insurance coverage is not providing sufficient coverage to minimize risk.
    My recommendation to the subcommittee: Eliminate disastrous year yields as part of production on farms or use the counties average yield for that year.
    Allow the producer to purchase levels of insurance higher than 75 percent at a reasonable rate.
    Thank you for your consideration concerning the economic impact that aflatoxin mold has had on the peanut farmers in the Southeast and concerning provisional changes in the crop insurance program.
     
Testimony of Bill Ventress
    I am Bill Ventress, president of Sessions Co., Inc. Sessions is a family owned processor of shelled peanuts and other peanut products. I appreciate your invitation to address this committee.
    There is a problem in the peanut industry that needs to be addressed and we are thankful that you are here today to look into that problem: peanut risk management. In 1965, a system to grade peanuts and determine the presence of aflatoxin was instituted based on the best technology available at the time. We are reminded of the limits of technology in 1965 when we recall that it was also the first year ''The Andy Griffith Show'' appeared in color and no one had heard of a VCR.
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    The goal of the grading process to determine the presence of aflatoxin then and now should be to separate the wholesome peanut from those that are not wholesome. I challenge you to ask any representative of government agencies charged with overseeing this process as to whether I have properly stated the goal and whether that goal is being served. My opinion along with the opinion of many farmers here today is the present system does not separate wholesome peanuts from unwholesome peanuts.
    Just as today's technology now provides us with color TV and VCR's, modern technological methods allow us to more accurately assess aflatoxin contamination and deal with contamination when we find it. Chemical tests of each load allow shellers to determine when a load is at risk, thereby being a great aid in risk management of the various levels of quality. These loads can be stored separately and handled separately to reduce and virtually eliminate aflatoxin problems. That is not to say this is done for free; it takes money to clean up contaminated loads. But, it can be done!
    A system in which farmers feel they must haul peanuts over one hundred miles to find a location where they can receive a consistent grade is not fair. A farmer should be able to present the same load of peanuts to 10 different locations and receive the same grade at each. If the nature of the system is such that the difference in value can exceed $500 per ton at those locations, then the system needs to be changed! At one buying station where we bought 57 loads of segregation 3 peanuts, 25 loads were chemically tested at 10 ppb or less!
    A system that makes farmers fearful of improving quality is wrong! This year, a farmer who might have a load that was high in foreign material or loose shell kernels was afraid to take steps to bring that load up to quality standards demanded by most manufacturers today. The attitude of the farmer was that it is better to take the penalty for a poor quality load than try to improve the load and run the risk of losing $500 per ton.
    Farmers in Argentina compete with our farmers to ship peanuts in to the U.S. marketplace. Those Argentine farmers face no such restrictions on their ability to improve quality. The standard they must meet is the same standard that a U.S. sheller must meet—the PAC outgoing quality standard. We ask simply that you impose no greater restriction on the American farmer than is imposed on an Argentine farmer. If our farmers are allowed to clean and regrade farm stock peanuts, we can improve the quality of the peanut eaten by the consumer and improve the overall income to the U.S. farmer.
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    Mr. Dorner and Mr. Whitaker will testify here later. Articles they have published in ''Peanut Science'' last year show clearly that aflatoxin is a problem that can be managed. Management of the problem requires additional expense in cleaning some peanuts after purchase from the farmer. Our company has been involved in this process for the last eight years, and our results are similar to those in Mr. Dorner and Mr. Whitaker's articles.
    We recommend that USDA immediately allow cleaning and regrading of peanuts prior to final determination of grade to take advantage of improved ability to clean peanuts. USDA has not produced any law, regulation, or other legal policy that would prohibit Mr. Hatcher from changing today the policy that prohibits cleaning and regrading prior to final grade determination. In addition, the Department should move rapidly toward a system of grading that reflects the quality of peanuts delivered.
    In closing, I would like to thank you again for this opportunity to share my thoughts. I have often heard the expression, ''If it ain't broke, don't fix it,'' however, we have a grading system that IS broke, but can be fixed, and it needs to be fixed now! I look forward to working with the committee and other segments of the industry to reach this goal.
     
Testimony of Thomas Burton Whitaker
    Mr. Chairman, I am Dr. Thomas Burton Whitaker, an agricultural engineer who has worked for the Agricultural Research Service, U.S. Department of Agriculture for approximately 31 years. I am pleased to participate in this important hearing.
    Much of my professional career has been spent solving problems associated with efforts to detect aflatoxin contaminated commodities. I have worked more with the peanut industry than any other industry as part of the unique USDA aflatoxin control program associated with the peanut marketing system.
    My testimony today will focus on the detection and control of aflatoxin contamination in peanuts. I submit my full statement for the record with your permission.
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    I. Peanut Aflatoxin Control Program
    Once inspectors identify contaminated peanuts, they can be diverted from food and feed channels. The USDA Peanut Marketing Agreement, administered by the Peanut Administrative Committee (PAC), controls aflatoxin contamination in peanuts before peanuts go to a manufacturer of consumer products. PAC regulations specify that peanuts are inspected for aflatoxin at two locations in the marketing system: (1) at the buying point where farmers sell their peanuts and (2) after shelling plant operations or before purchase by a manufacturer. Two very different technologies are used at these two locations to detect contaminated peanut lots.
    Farmers' Stock Peanuts:
    As part of the grading process at the buying point, each peanut kernel in a 1 pound grade sample is inspected for the mold that produces aflatoxin. This procedure is called the Visual A. flavus method or the VAF method.
    The VAF method was developed in the mid 1960's by ARS scientists. The concept behind the VAF method is that A. flavus mold on peanuts indicates that the peanuts have been subjected to environmental conditions of temperature and moisture that are conducive for mold growth and aflatoxin MAY have been produced.
    If one or more moldy kernels are found in the grade sample, the lot is diverted from the food chain and classified segregation 3. seg. 3 lots are usually crushed for oil which results in a much lower economic value for the farmer. If no moldy kernels are found in the grade sample, the farmer's lot is classified seg. 1 and processed for food use.
    Studies showed that lots classified seg. 3 have, on the average, more aflatoxin than lots classified seg. 1.
    Shelled Peanuts:
    About 30,000 shelled lots are tested for aflatoxin each crop year. PAC specifies that three 48 pound samples must average 15 parts per billion (ppb) or less before a lot can be shipped to a manufacturer.
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    II. Detection Errors
    Regardless of where lots are inspected for aflatoxin in the market system, it is difficult to detect and measure aflatoxin contamination in bulk peanut lots because of the nature of the contamination among peanut kernels. This primarily due to what I call ''the needle-in-the-haystack'' problem because:
    (1) Aflatoxin usually only contaminates a very small percentage of the peanut kernels. As a rule of thumb, about 1 kernel per 1000, or 0.1 percent, is contaminated.
    (2) Contaminated kernels can have widely varying levels of aflatoxin, up to extremely high levels such as 1,000,000 ppb.
    Because of this highly variable distribution of contamination in a lot, some lots are mis-classified by the test procedure. Some good lots are classified bad and some bad lots are classified good. One major way to reduce misclassification of lots or reduce the farmer's and sheller's risk associated with the aflatoxin test is to use bigger samples.
    III. New versus Old Technology
    The VAF method was developed when analytical procedures used to measure aflatoxin in peanut samples were still in their infancy. As a result, analytical methods at that time were not well suited for use in the busy environment of a buying point. The advantages of the VAF method are that it is simple to implement, does not require highly trained personnel, and is relatively inexpensive.
    On the other hand, the VAF method has disadvantages: VAF does not measure aflatoxin directly, aflatoxin thresholds cannot be established to classify lots into defined aflatoxin categories, misclassification error is high due to the use of small size sample, sample size cannot be significantly increased to reduce misclassification errors, and VAF cannot detect non-toxic strains of A. flavus under development.
    Since the VAF method was implemented approximately 30 years ago, analytical procedures have improved. They are now more accurate, more precise, cheaper, and quicker than analytical methods in use when the VAF method was implemented.
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    The peanut industry, represented by farmers, shellers, manufacturers, USDA's Agricultural Marketing Service and ARS, came together during the 1992 crop season and conducted a feasibility study to determine if currently accepted aflatoxin test procedures, consisting of sampling, sample preparation, and analysis, could fit into the buying point environment. Aflatoxin laboratories were established at 37 randomly chosen buying points throughout all three marketing regions. About 40,000 farmers' stock lots were tested for aflatoxin.
    Results indicated that an analytical test to measure aflatoxin directly in farmers' stock peanuts would fit into the buying point environment and was a viable alternative to replace the VAF method.
    The study also demonstrated that:
    (1) A test procedure consisting of a 5 pound sample and a 180 ppb threshold was found to classify about the same number of farmer's lots seg. 3 as the VAF method.
    (2) Fewer lots are misclassified when measuring aflatoxin in a 5 pound sample than when using the VAF method.
    The advantages of using analytical methods to measure aflatoxin directly in farmers' stock peanuts are:
    (1) Analytical procedures allow for samples larger than 1 pound to be used which reduce misclassification errors and reduce the risks to the farmer and to the sheller. Farmers' stock lots can be classified into categories based upon aflatoxin thresholds.
    (2) Shelling plant efficiency should improve which will remove more aflatoxin during the shelling operation.
    (3) PAC costs associated with testing shelled peanuts for aflatoxin will be reduced since fewer shelled lots will be rejected and require additional clean-up.
    (4) Aflatoxin records can be developed for farmers' stock peanuts which will be beneficial for research and industry use.
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    The disadvantages of using analytical methods to measure aflatoxin directly in farmers' stock peanuts are:
    (1) Higher inspection costs, (2) Need for more highly trained personnel
    IV. International Considerations
    It is becoming increasingly more difficult for the U.S. to sell peanuts in international markets because large importers of U.S. peanuts continue to lower their aflatoxin guidelines below that of the United States. Testing aflatoxin directly in farmers' stock peanuts should reduce the aflatoxin contamination of export peanuts and reduce the risk associated with export lots being rejected by an importer.
    V. Conclusions
    The peanut industry has continued to improve its aflatoxin control program over the past 40 years mainly by improving the aflatoxin test procedure used for shelled peanuts. However, no changes have been made concerning the inspection of farmers' stock peanuts over this same time period.
    The technology certainly exists and is available to farmers to implement the direct measurement of aflatoxin in farmers' stock peanuts. Applying the technology will allow for the implementation of control strategies developed by USDA/ARS that will reduce aflatoxin contamination in peanut products that can not otherwise be obtained with the VAF method. Different segments of the peanut industry have to come together and design sampling plans that measure aflatoxin directly in farmers' stock peanuts that meet all of the industries' objectives. This hearing is a good way to help the industry reach some conclusions.
     
Testimony of Carl Sanders
    Mr. Chairman, members of the committee, my name is Carl Sanders. I am here representing the peanut producers of Alabama as president of the Alabama Peanut Producers Association. I am also a full time farmer with peanuts being the major crop in my farming operation.
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    First, on behalf of our producers in Alabama and the Southeast, I want to express our appreciation to you for holding this hearing today and the promptness to which you responded to our request. The consequences of the 1997 crop disaster in the Southeast combined with the changes in the peanut program will have dire effects on many in our area for years to come. Many of our neighbors may not be farming this year.
    We realize the necessities of changes made in the program and the political realities that existed. We, also, appreciate the efforts made by you and others for the program we were able to maintain. We are not here today to debate the program, but to discuss how we can better manage the risk associated with years like 1997. There will be many here that will explain firsthand the impact that this year had. I want to address the fact that the extent of this disaster could have been avoided.
    We have a program today that has evolved from 1978 to the present. At the same time, we have regulations and procedures that have changed little over that time. Program changes have made today's program less forgiving for adverse weather. The result is that some aspects of the program's implementation have become restrictive at a time when growers as well as the industry need increased flexibility to maximize returns just to stay in business.
    There are two areas that we feel need to be addressed. The first is an evaluation of our current grading system. The second is a realistic review of the grower regulations that restrict the grower from maximizing his marketing options. Both must be accomplished while protecting the integrity of the program. One program change that has made many of these issues critical is the provision dealing with disaster transfers. Under the old program quality issues did not have the negative impact on growers that the current program does. Instead of a $25 deduction for seg. 3's, growers now have a $183 deduction and only 25 percent of their quota qualifies. Growers must have additional tools to address quality problems.
    The current grading system uses a visual detection method for determining segregation I (edible peanuts) from segregation 3 (non-edible) peanuts. This system was established in the mid-sixties and has changed little since then. Widely varying crop years have placed undue stress on supplies. While we may have adequate production we could still have an inadequate supply of edible peanuts for the marketplace. Since October 1, 22 percent of peanuts inspected in Alabama have been classified segregation . This compares to an average year of less than 1 percent . The process of evaluation of farmer stock peanuts is outdated. The current system is restricting the efficiency of our industry. There are a number of reasons that we should not rely solely on visual detection to condemn peanuts.
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    There is often little difference between seg. 1 and seg. 3 peanuts.
    The industry is denied peanuts that it wants and needs.
    The value of seg. 3 peanuts to the farmer drops from $610 to $132.
    The implementation of new technology is denied and the development of new technology is discouraged.
    Our competition uses technology that we are denied, yet that was developed in the U.S.
    We are seeing a lessening of confidence in the Federal/State Inspection Service.
    And this year, it will contribute to some growers going out of business.
    The visual method has been proven to be inaccurate. Research proves that the current system does not separate wholesome peanuts from unwholesome peanuts. In fact, as far back as 1980, a three judge Federal panel in Texas acknowledged that there was adequate reason to believe that visual testing was an inaccurate means of evaluating Aflatoxin in farmer stock peanuts.
    Like the grading system, only minor changes have been made in the grower regulations since the two-tier price system was put in place in 1978. Growers need flexibility to maximize revenues and to deliver their quota. With a more exact quota being set each year, the industry needs the quota to be delivered in all areas. There is less margin for error.
    In modifying the grading system and increasing flexibility, we would like for the solution to consider including the following:
    Allowing the grower to clean peanuts to improve quality before grading without penalty. Also, at his option, he should be allowed to clean peanuts after initial grading and have the peanuts regraded.
    Since the purpose of cleaning is to improve quality, inferior or high-risk peanuts removed by cleaning should be considered ineligible for the edible market.
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    Producer regulations should be evaluated in order to improve flexibility in an effort to assure that the producer can deliver quota.
    Industry incentives to deliver improved quality by removing inferior kernels in order to enhance food safety and instill confidence in the U.S. as a reliable supplier.
    The CCC loan program must be protected as a safety net for producers. Also, improved crop evaluation would improve the integrity of the loan.
    We feel that addressing these issues fairly benefits everyone. The grower has the potential for increasing the value of his peanuts plus has other options available. The sheller has a better product that means cost savings through reduced transportation cost, reduced storage cost, better risk management of the crop and increased plant efficiency. The manufacturer has the potential to lower clean up cost and have greater confidence in the product purchased. The industry can have greater food safety assurance plus increased competitiveness versus other origins.
    The need and direction of changes is supported by sound science. These issues can be addressed without the need for legislation. The industry has discussed many of these issues with the USDA in the past. The USDA has been very cooperative and encouraging. They have routinely agreed to consider any proposal upon which the industry could reach a consensus. Unfortunately, because of regional and marketing differences, the industry has failed to agree.
    This year illustrates the need for seeking regional solutions to regional problems. However, any solutions should not inflict unnecessary cost on other segments or regions of the industry. Since this is a Southeast problem the solution should address the Southeast. There are currently different Federal inspection standards in other commodities for different regions of the country. For example, the citrus industry has different Federal standards for Texas, California and Florida. The precedent exists for addressing the Southeast problem without causing an imposition on other regions if it is not needed.
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    In closing, we ask that the USDA be encouraged to continue work with the Southeast growers to develop a plan for addressing the seg. 3 issue in relation to the grading system. Also, we ask that FSA work with us in reviewing grower-related regulations to streamline and modify those that are burdensome and restrictive. Furthermore, where possible, these solutions should be implemented for the 1998 crop.
    We pledge to work with the USDA and the industry to develop fair solutions. The producer is being squeezed and only wants a fair chance to compete.
    Again, on behalf of the producers in Alabama and myself, thank you for your time and concern.
     
Testimony of Camp Powers
    My name is Camp Powers and I am president of the South Alabama Division of First South Production Credit Association.
    First South PCA is part of the nationwide farm credit system. Our sole mission is to serve american agriculture and rural America.
    We accomplish this mission in the following manner:
    (1) we are strategically located in the farming areas of our territory. (2) we stay in touch with our farmer-owners as concerns the problems and difficulties they face in running their businesses.
    I appreciate the opportunity to come before you today and wish to thank this committee for holding these hearings and for showing concern for the adversities which face our area farmers.
    Your past efforts on our behalf are appreciated and I thank you in advance for the efforts you will make on our behalf in the future.
    I was asked to come before you today to briefly discuss the current financial health of the peanut farmers in our area.
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    My analysis of this situation is based on the customers we have and those non-customers that I talk with. We have approximately 244 operations that are predominantly peanuts. We have probably another 75 to 100 where a peanut crop comprises less than 50 percent of the total operation.
    In parts of our area, over the past 3 years we have seen a lot of adverse weather conditions which have greatly affected crop yields and crop quality. These conditions combined with a farm bill that effectively reduced the quota income by 22 percent (quota cut plus price reduction) have dealt serious blows to peanut farmers.
    The November, 1997 issue of the Alabama Peanut News had an item in it that gives a good accurate picture of our situation.
    There is a cartoon-like picture that was a reprint from another newspaper that showed a peanut farmer in the background and news reporter up front. The news reporter was saying ''and now for a look at the latest addition to the endangered species list''. The cartoon was not meant to be funny and i assure you that everyone that I know takes this situation extremely serious.
    After the numbers are finalized for this year's crop, we believe our portfolio of peanut and peanut related accounts will breakdown as follows: 30 percent are doing OK, not great but OK, they will survive another couple of years without major changes to their operation. they are able to pay all of their bills and payments.
    Sixty percent will survive and pay their operating cost but may have some difficulty in meeting their capital debt payments. To meet their required payments these farmers will need some level of asset sales or will possibly need some short term debt restructuring.
    Ten percent will not be able to pay all of their operating cost nor meet their capital debt repayment requirements. This group will not be able to reflect that over a 3–5 year period that they can overcome the economic shortfall they have experienced and built up over the past 3 years. This group will be making the hard decision as concerns their future in farming as a business.
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    Based on this, I judge the overall health of 70 percent of our peanut farmers to be fair to poor. None of us present here today can do anything about the weather. Crop insurance helps us deal with the weather but due to recent year's adversities, the protection that this gives us is reducing.
    What you can do to help this situation is to get the trading field between our farmers and foreign farmers level. at this time it is not. we realized that we must compete in the global marketplace. to do this, we need more flexibility and marketing options.
    Specifically, the manner in which our farmers are penalized for seg. 3 peanuts is extremely unfair.
    Our justice system is based upon the premise that once you are charged with a crime, you have the opportunity to redeem yourself. The peanut grading system is based on the premise that once a peanut is charged with being a seg. 3 peanut it is automatically sentenced to death and consequently sentences the farmer who grew it to economic adversity.
    We estimate that the peanut farmers that we do business with lost approximately $6,000,000 worth of income because of seg. 3 peanuts. in an already tight economy, this is a tremendous hit.
    It is my understanding that in other countries, if seg. 3 peanuts are honestly detected and accounted for they are given the opportunity to be cleaned and regraded to see if they will pass as seg. 1 peanuts. this seems fair and should be the minimum policy in this country.
    It is also my understanding that agencies and departments of the Federal Government are supposed to carryout the will and intent of our leadership which are our elected officials. I do not believe this is being done as the current grading system says once accused of seg. 3, always accused of seg. 3. This method is not in the law but rather is a regulation put forth by the department of agriculture. pressure needs to be exerted as much as possible to have this regulation eliminated.
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    I believe that everyone recognizes and appreciates that we must live and do business in a world economy. I will put our farmers up against anybody in the world anytime, anyplace as concerns their work ethic, their stewardship of the resources they control, and their love of their country. I appreciate them and what they do. Less than 2 percent of the population makes it possible for approximately 20 percent or more of our country to have jobs and for 100 percent of our population to have healthy, safe food to eat and the cheapest prices anywhere in the world.
    I want to know where my food comes from because I do not want good American products mixed and reduced in quality with inferior and unsafe products from other places.
    To me it is a matter of justice and fair play not to make our farmers compete with other farmers who continue to be subsidized in spite of treaties to the contrary and to compete against farmers who do not practice the same high quality environmental and food safety standards that we do.
    We celebrate Veterans Day to honor those that fought and died to keep us free and made it possible for our way of life to continue. No one that I know believes that we do not need a strong defense system to maintain and protect our way of life and freedom. But we also need a strong agriculture to go with our strong defense. We do not need to put our own farmers out of business and become dependent upon foreign farmers to feed us. That will spell disaster and ruin, just as quick as a weak defense system will. But unfortunately, we are on a course of eliminating farmers and productive farm land. You gentlemen and your peers have the power to reverse this trend. Please do so.
     
Testimony of Bob Fortmeier
    My name is Bob Fortmeier, senior manager of commodity trading for Hunt-Wesson, Inc., a subsidiary of ConAgra. Hunt-Wesson operates two peanut butter plants; one in Sylvester, GA., And one in Dallas, TX.
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    Our principal concerns regarding peanuts are: No. 1 quality, and No. 2 adequate supply. We buy shelled peanuts from shellers that meet our specifications. Those shellers must abide by the USDA's outgoing regulations for shelled peanuts which require a negative aflatoxin certificate (less than 15 ppb) issued by USDA. By chemical analysis and must accompany each lot of peanuts before it is acceptable for edible use. We recognize and appreciate the huge investments that shellers have made over the years in order to meet these requirements.
    The FDA regulates aflatoxin levels for manufacturers' finished products at a maximum of 20 ppm—also measured by chemical analysis.
    Measuring aflatoxin levels by chemical testing is accepted as the most direct state-of-the art methodology. It is scientific, reliable and fair to grower and sheller and manufacturer. The USDA Agricultural Research Service has extensive data supporting this statement. Although we look to the sheller to supply the peanuts required, hunt-wesson wholeheartedly supports the recent initiative by the southeast growers and this committee to improve an outdated, unscientific, unreliable, indirect and unfair system for detecting and measurement of aflatoxin, namely the visual method.
    In 1990 and 1991, I was privileged to serve as co-chairman with Mr. James Earl Mobley of the Alabama Peanut Farmers and peanut scientist, Dr. Paul Blankenship, on the industry sponsored chemical assay project. This project which cost over $1 million and was funded by the entire industry with the support of the USDA, had a mandate to determine if during harvest, chemical testing could be utilized in a time frame which would not retard the handling of peanuts at the buying points. In addition, the project was devoted to comparing chemical analysis vs. visual testing for aflatoxin. The results clearly demonstrated that quality of u.s. peanuts would significantly improve and risks be reduced if chemical testing would be implemented. During the next year, the results of the study were released and presented to the industry. Notwithstanding the recommendations of the chemical assay project chemical testing was not implemented industry wide.
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    In 1997, I served as chairman of the National Peanut Council—now the American Peanut Council—and as a member of the industry revitalization committee. On april 29, our committee presented to the peanut advisory committee (PAC) a proposal that would allow shellers to evaluate incoming loads of farmer stock peanuts and to determine voluntarily through chemical analysis if lots showing visible a-flavas mold could safely be utilized in commercial channels.
    This proposal received unanimous support from manufacturers. All but one grower member of the national peanut council supported the proposal. Unfortunately, at the pac meeting, a solid and comprehensive proposal to adopt chemical testing went down to defeat; this time over regional opposition and potential problems as seen by the USDA legal staff (see attached letter from Charles Hatcher, director Tobacco and Peanut division, USDA.).
    Members of the committee, the bottom line is that the industry has known for almost ten years that implementation of chemical analysis for testing aflatoxin would significantly improve the quality of U.S. peanuts. However, regional differences and potential legal problems associated with the peanut program have been formidable obstacles.
    Hunt-Wesson strongly supports adoption of the chemical analysis method for testing for all peanuts in the Southeast. Concurrently, we are supporting research sponsored by the peanut foundation to eliminate aflatoxin both through financial contributions and the participation of Hunt-Wesson's technical personnel.
    There is now available a commercial non-toxic biocompetitive mold that visually looks identical to the a-flavas mold. If this biocompetitve agent is utilized, only a chemical analysis can determine the difference. Additionally, a commercial aflatoxin resistant seed should be available to the market in the future and this promises to be the long-term solution to the aflatoxin problem.
    Nevertheless, in the short run, chemical testing affords the industry an opportunity to significantly improve quality by accurately and fairly characterizing each lot of peanuts brought in by the growers.
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    Hunt-Wesson stands ready to support any sincere effort where the goal is to improve the wholesomeness of our peanuts as well as insure an adequate supply to grow our business.
     
Testimony of Billy Griggs
    Mr. Chairman, members of the committee, I am Billy Griggs, chairman of the Georgia Peanut Commission. I want to thank you for holding this hearing here today in an effort to help our farmers find a solution to the economic crisis we face because of the crop disaster we have suffered this year.
    Our Commission represents the 6,200 farmers who produce peanuts in Georgia. We are greatly concerned that the number of farmers will be further and significantly reduced as a result of the 1997 crop disaster.
    As farmers go out of business, the burden is transferred to our rural economies as production loans go unpaid to our banks and to our farm suppliers. The farmers who are able to survive this disaster have also felt the impact as their net worth has diminished. Also, the rest of our industry suffers as we fail to have the production to supply demand, especially in the export market.
    I think we would all quite reluctantly agree that at this late date there is not much we can do to fix the problems of the 1997 crop, short of some influx of government disaster payments which could be legislated.
    Because of the fact that the government payments were fixed for all agricultural crops under the 1996 farm bill and there are no savings in other areas, such as target prices, to be drawn from, it would appear that a fix from shifting government dollars is not in the realm of reality. If that observation is correct, we would ask that you help us effect an administrative fix to lessen the blow of such a disaster in the future.
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    In the 1980 farm bill, beginning with the 1981 crop of peanuts, farmers gave us the right to clean and regrade segregation 3 peanuts in exchange for a disaster transfer provision, which allowed farmers to place segregation 3 peanuts in the loan with a $25 deduction from the price support. The government assumed the risk of crushing those peanuts at the balance of the cost.
    In the 1996 farm bill, that risk was transferred to the grower in an effort to eliminate government cost in the program. The disaster transfer provisions were reduced to a level which was ineffective in protecting farmer income. At the same time, USDA has maintained its prohibition on cleaning and regrading segregation 3 peanuts.
    Earlier this year, we contacted the Secretary of Agriculture to ask that cleaning and regrading of segregation 3 peanuts be allowed in light of the fact that the disaster transfer provisions were ineffective. This change has not been allowed. Foreign peanut growers are exempt from the same restrictions placed on U.S. farmers by our grading system.
    Last year, we began working through the American Peanut Council to move forward the peanut industry revitalization project. This would have addressed our concerns. Unfortunately, this has also not come to fruition. Our industry began this process in an effort to improve our ability to compete with cheaper foreign peanuts which have fewer restrictions in their grading.
    In our board meeting in November, we again addressed this issue. Our board asks that you help us in obtaining the ability for farmers to clean and regrade segregation 3 peanuts. This position came after extensive discussion and study of the issue. Two significant factors lend support to the fact that this is not a detrimental move to our industry or our consumers.
    First, research has proven that most of the suspect or hot kernels are in the fraction of the load which would be screened out. In the select cases where the mold occurs in the peanuts that ride the screens back to the sampler, those peanuts will again be subject to detection.
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    Second, the Peanut Administrative Committee, which assures the wholesomeness of peanuts, has eliminated programs that indemnified suspect lots. They have now adopted more stringent standards that are placed on outgoing quality. Aflatoxin levels will be maintained at a safe and approved level on the outgoing product.
    With the loss of viable disaster transfer provisions in the farm bill, we need your help. Please help our farmers in changing government regulations to allow the cleaning and regrading of segregation 3 peanuts. This is critical to the competitiveness of our industry, and especially our farmers. Currently one kernel with the presence of Aspergillus flavus will condemn an entire 5-ton load, while producers in other countries would be allowed to market that same load of peanuts into the edible trade.
    Again, thank you for your concern. We look forward to working with you to find solutions to these problems which will place our farmers in a position to be more competitive.
     
Testimony of Thomas & Debbie Kirkland
    Mr. Chairman, members of the committee, thank you for your time in reading our testimony. We have been producing peanuts in southeast Alabama for over 20 years. In the past few years, we have cultivated over 600 acres in the tri-county area of Houston, Henry and Dale Counties. The heat units unique to the Southeast produce the most flavorful peanuts. For this reason, you will never open a jar of peanut butter that does not contain some southeastern peanuts. We are proud producers of a quality product and would like to continue being so. But we can only produce those peanuts if it is profitable. In the last 2 years, it has not been profitable. We would like to testify concerning the grading issue and another issue that many are missing.
    Concerning the grading issue, we would like to submit for the committee review the attached article from ''Peanut Science'', a publication of the American Peanut Research and Education Society. This article is authored by J. W. Dormer, who testified earlier, and R. J. Cole. You can learn many things from this article, but we will only emphasize a couple of points. Before commenting on this research we would like to point out that in the normal processing of peanuts, the sound kernels which are known as SMK's (sound mature kernels) and SS's (sound splits) are separated from all other kernels. It is these sound kernels which are utilized on the edible market.
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    The research documented in this article shows two things of which we should all be aware.
    Peanuts may pass the visual A. flavus (VAF) method of testing and be declared seg. one yet still contain aflatoxin. While it is said that it only takes one peanut to condemn a whole load the inspector only has to miss a few peanuts to certify a contaminated load free of aflatoxin. Therefore chemical testing may actually produce even more 3's.
    Peanuts that fail the VAF test and are declared three may not have any aflatoxin in the sound kernels. Please note that in table 1 on page 48, that of the 39 loads that had been declared seg. three by the VAF method, only six loads had any aflatoxin in the sound kernels (SMK's and SS's). This is significant when you realize that all other kernels are removed from the lot in the normal in processing (if they are seg. one's). Therefore, even if a lot of peanuts were seg. three, the aflatoxin could be completely cleaned out by the processor and then they could sold on the edible market and pose absolutely no danger to the consumer.
    Realizing this raises many questions, three of which are as follows:
    Since the stress of drought causes the seg. three problem, why is the farmer so severely penalized for a problem that is (1) beyond his control and (2) is eliminated in the normal processing procedures?
    Also, why should the consumer be denied a safe supply of edible nuts just because there is aflatoxin in the culls that are graded out anyway?
     We see by this research that the amount of aflatoxin at the farmer stock level does not necessarily affect the amount of aflatoxin at the consumer level. Therefore, should the farmer be so heavily penalized? Actually, should he be penalized at all?
    Let us stress that unless the price for our product is increased significantly, we don't believe the solution lies in some new technology that will enable the farmer to treat the soil or produce aflatoxin resistant nuts. Our profit margin will not support any more input expenses.
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    This brings us to the other issue that we fear many are overlooking: we believe that the seg. 3 issue is only a part of the problem! We fear that many are like a horse pulling a buggy. He wears blinders and only sees one thing, the road in front of him. Many have their blinders on and are only looking at the seg. three problem and not other issues of the program.
    The 1996 crop year marked our eleventh year of computerized farm records. I can clearly and easily show you that, despite above average yields in both our cotton and peanuts and despite the fact that we had almost no seg. three problem, 1996 was, at that time, our second worst year in the eleven years of computerized records. If we had not had the cotton, it would have definitely been the worst year. Also, if I went back to our manual records, the picture would probably not change.
    What happened? First, the 1996 year also marked the first year that the new Freedom to Farm bill went into effect. This bill reduced the support price by ten percent and reduced quota by 18.5 percent. On our farm, this resulted in a 24 percent reduction in gross revenues from peanuts. At the same time all our inputs continued to rise with inflation. From 1981 to 1995, peanut legislation included an ''escalator clause'' which provided for the support price to go up as the cost of production went up. We lost that with the new farm bill. We also lost many marketing options and crop insurance provisions that need to be returned if we are to continue to produce peanuts.
    Our 1997 crop is now on record as our worst year. But we ask that you pay close attention to Camp Powers who testified earlier. In response to one of your questions, he remarked that in his opinion, the farmers in this area were already on a ''downward spiral'' and that the problem with seg. threes in 1997 year only served to ''snowball'' the situation.
    In 1983, we had the opportunity to purchase from a cousin the land that was homesteaded by Thomas's great great great grandfather. Our family cemetery with the graves of six generations of Kirkland's is on there. Before we mortgage this place to finance a farming operation, we will cease to farm.
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    Gentlemen, if things do not change, there will be many farmers who will go out of business. Some will be forced out. Others will have to drastically alter, reduce, or liquidate their farming operations before their net worths are eroded and while they still have other options. We plan to be in the latter group. So for the first time in 24 years of marriage, we are very carefully considering other options. Actions taken by our government will greatly influence our decision. We need prompt action before we put our 1998 crop in the ground. Otherwise, we'll be farming with blind faith—something we do not wish to do.
    "The Official Committee record contains additional material here."