SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOC STATE OF THE AGRICULTURAL ECONOMY
THURSDAY, JULY 30, 1998
House of Representatives,
Committee on Agriculture,
The committee met, pursuant to call, at 2 p.m., in room 1300, Longworth House Office Building, Hon. Robert F. (Bob) Smith (chairman of the committee) presiding.
Present: Representatives Combest, Barrett, Ewing, Doolittle, Goodlatte, Pombo, Smith of Michigan, Everett, Lucas, Lewis, Chenoweth, Bryant, Foley, Chambliss, LaHood, Emerson, Moran, Blunt, Schaffer, Thune, Jenkins, Cooksey, Stenholm, Condit, Peterson, Dooley, Clayton, Minge, Pomeroy, Holden, Baesler, Farr, Baldacci, Berry, McIntyre, Etheride, John, and Boswell.
Staff present: Paul Unger, majority staff director; Bill O'Conner, policy director; Pete Thomson, legislative director; John Goldberg, professional staff; Mike Neruda, Keith Menchey, Callista Bisek, assistant clerk/scheduler; Wanda Worsham, clerk; Chip Conley, minority staff economist; and Anne Simmons.
The CHAIRMAN. The committee will come to order. We have an excellent list of witnesses today, and therefore as usual I will have a short statement. I will then call on the ranking member, Mr. Stenholm.
OPENING STATEMENT OF HON. ROBERT F. (BOB) SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON
The CHAIRMAN. There is no question in anyone's mind here on this committee and throughout the country that we have problems in farm country. Prices have declined precipitously for farmers and ranchers. Many producers are wrestling with multiyear crop losses and others are suffering as a result of this year's severe adverse weather. Livestock prices are down, and in some parts of the country forage is virtually non-existent. It is a political reality that we will have to address this situation, as we have faced all challenges to agriculture, together as a committee.
Page 2 PREV PAGE TOP OF DOC For this reason, Mr. Stenholm and I thought it would be helpful to our members as we went forward with a common understanding to analyze what is occurring in the country and to ask representatives of the various areas of the United States to come here today and talk to us. If we are to be responsive and responsible, it is critical that we understand our own problems in this country and that of our neighbors.
Therefore, this hearing is intended to help to define the nature of the economic, of the disease, of the weather problems being faced in the upper Midwest and Oklahoma, Texas, North Carolina and the Southeast, and wherever they may be in the agricultural community. And that again is the reason that Mr. Stenholm and I and the leadership here joined together to try to address the long-term issue of agriculture when we advocated forthrightly and aggressively a square deal for agriculture which included lifting sanctions for foodstuffs to go into Pakistan and India, which was accomplished; to normalize relations with China, which was accomplished; and indeed to give the tools necessary to this administration and to all of us the opportunity to trade internationally with the support and funding of the International Monetary Fund and the passage of fast track.
Now if we are indeed going to go into 1999 with the tools that this administration needs, and we all need to rectify some of the many problems we have around the world and to reduce barriers against our products coming into those nations, we can't compete anywhere in the world, we can't compete if there are barriers and tariffs against our products. Those are the reasons that we were most aggressive on international trade.
In the short term, we have placed crop insurance on a program that is not subject to annual problems, and we agree that it is very possible that crop insurance ought to be revisited to see if it is taking the proper direction for our farmers.
We aggressively reached out and supported research which many of us believe is the future for agriculture in this country. And beyond that, we will pass next Monday the Emergency Farm Financial Relief Act which will place $5.5 billion in the hands of farmers across the country by the 1st of October which we think will help the cash flow immensely of farmers who are facing very difficult situations.
Page 3 PREV PAGE TOP OF DOC Before the August recess, I anticipate that there will be many other ideas, maybe ideas coming out of this hearing that we can address with respect to the disaster and income problems in farming. We have a responsibility, I believe, to consider each one of them. So today we will carefully weigh the testimony of our witnesses about the nature of the problem and about some of their thoughts of rectifying some of these issues, and together we will craft productive responses.
I would like to recognize the gentleman from Texas, Mr. Stenholm.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman and thank you for holding this hearing today. It has been a long time coming for us. When we passed the 1996 farm bill which was definitely a change, a new direction for U.S. farm policy, there were a lot of concerns expressed at that time, and many felt like we never got a good chance back in 1995 and 1996 to in fact explore what might happen under this new direction.
And I think it is very timely now that we are looking in year 3 to see what is happening. There is evidence that the safety net that was promised in the legislation may not be adequate. Worldwide production today is large. Increased stocks have depressed prices. Livestock prices remain depressed. Our milk prices are increasingly volatile; producers in Texas and many other States have suffered both crop and forage losses now over a multiple number of years. The Asian financial crisis, many of our farmers do not fully appreciate how significant that region of the country is to our own market opportunities; some 40 percent of our agricultural exports have to go to that area.
To protect from crop loss, producers have purchased crop insurance, but we are now finding that the coverage is inadequate, too expensive, and does not address multiple year losses in regions of the country that have multiple year losses.
Page 4 PREV PAGE TOP OF DOC The 1996 act removed much of Government's authority to address many of these problems. In some cases this was wise, such as eliminating curbs on producers' choice on which crops to produce. And in some cases it was folly; authority for a paid diversion, for example, should have been retained in order to give us the tools necessary to address problems in regions of our country that have had persistent disease problems.
Some now say that the administration and Congress have not lived up to their roles, and I think when you look at Congress's role, we have not fulfilled the promise made in 1996.
The lack of fast track authority, negotiating authority to continue to address the unfair trade practices and to open up new markets, we have not given that tool to the administration.
Zeroing out new research dollars after this committee worked awful hard, Mr. Chairman, to pass a research bill to find, unfortunately, the dollars were not forthcoming from the appropriators.
Ensuring an adequate crop insurance program, we have not lived up to that expectation or promise.
And as you mentioned, the IMF funding to address the Asian financial crisis, we have not done; but I hope that we do it before we adjourn next week.
The Commission on the 21st Century of Agriculture was required to release its interim report by June 1, 1998, and it has not done so as yet.
Mr. Chairman, there are a lot of questions and we will listen to the expert testimony today. I am pleased to have Secretary Glickman with us today, and I intend to ask all of the witnesses the following questions: Is the safety net adequate? Will producers who have suffered severe crop losses be protected in such a way that they can continue to operate economically? Can any of these problems be addressed administratively? What must or should Congress do? What problems lie beyond the scope of Government policy?
Page 5 PREV PAGE TOP OF DOC These are questions that I am sure many of our colleagues will have, and I look forward to hearing from the witnesses and seeing if there might be an answer or two out there, Mr. Chairman.
The CHAIRMAN. I thank the gentleman for an excellent statement. All members' opening statements will be made a part of the record so we can expedite the hearing and get as soon as possible to the Secretary and to the other witnesses.
[The prepared statements of Members follow:]
STATEMENT OF HON. JOHN THUNE
Mr. Chairman, thank you for calling this hearing. I, and the producers I represent, appreciate the bipartisan manner in which you and Mr. Stenholm have operated this committee over the last year and a half.
Producers from around the Nation are making their voices heard. There are real problems in rural America. At the close of the markets yesterday, spring wheat was as low as $2.78 per bushel, winter wheat was as low as $2.09 per bushel, corn was as low as $1.58 per bushel, and soybeans were as low as $4.93 per bushel. I understand producers' concerns. It is simply impossible to break even at these prices, let alone realize a profit. Market, weather, and financial conditions are such that the future of agriculture in my State of South Dakota and many other parts of the country is rather bleak. The variety of problems being faced by American agriculture cannot be solved by endless political banter. Only by coming together in a focused and non-partisan manner can we begin to address the problems by identifying and implementing timely solutions.
Regarding solutions, much of what has been discussed is somewhat long-term in nature. Approving fast track negotiating authority, replenishing and reforming the International Monetary Fund, reforming United States policy on sanctions, using the Export Enhancement Program and GSM credit guarantees, and actively seeking the elimination of barriers to trade with other countries will serve agriculture well and put the industry on a sound footing.
Page 6 PREV PAGE TOP OF DOC Producers in my State of South Dakota understand the need for a longer-term focus on trade and generally support current efforts to develop foreign markets. Additionally, they appreciate the production flexibility provided by the Federal Agriculture Improvement and Reform Act of 1996 (FAIR Act) and understand the need to reform United States agricultural policy. However, they also point out that inasmuch as these initiatives have a longer-term focus, they do little or nothing for them today. Many fear that without some form of assistance today, they will not be in a position to benefit from tomorrow's reforms. They fear personal and financial ruin.
Among the obstacles to providing immediate relief to producers are the impact on the Federal budget and honoring the seven-year program put in place by the FAIR Act. Congress has rightfully directed American agriculture toward a flexible, market-oriented economy and away from a market-distorting economy defined by Federal price supports, direct subsidies, and ad hoc disaster assistance. However, given the importance of a quality and consistent supply of food to the viability of our nation, immediate, calculated, and decisive action on the part of Congress is warranted.
I would like to highlight a number of simple initiatives that, if enacted, would deliver immediate relief to producers. Each of these initiatives, I believe, can be supported on a bi-partisan basis, can be implemented within weeks, and will bring real and timely support to American producers.
Country-of-Origin Labeling of Meat and Meat Products. Labeling should give domestically produced beef an edge in the domestic market and may also give American beef an edge in less nationalistic foreign markets seeking a quality product.
Interstate Shipment of State Inspected Meat and Poultry. This will allow local packers access to new markets and provide a new level of competition to the big packers.
Page 7 PREV PAGE TOP OF DOC The Emergency Farm Financial Relief Act. The Emergency Farm Financial Relief Act allows producers to take their 1999 AMTA payment as early as October 1, 1998. Essentially, this allows a producer to receive the 1998 and 1999 payments within one day of each other.
The Emergency Farm Financial Relief Act will provide producers enhanced flexibility and increased cash flow regardless of whether they have been able to plant a crop. The Emergency Farm Financial Relief Act will allow producers to make better decisions regarding the future of their operations. It is my hope that the infusion of capital will allow producers to ride out the current situation and that our efforts to increase the demand for American agricultural products through market development will then carry American agriculture into an era of stable prices and less volatile markets.
The Farm Life Extension Act (FLEX Act). The FLEX Act, which I introduced together with Mr. Moran of Kansas and Mr. Lucas of Oklahoma, is similar to the Emergency Farm Financial Relief Act in that it also accelerates the transition payments provided for in the FAIR Act. Unlike the Emergency Farm Financial Relief Act, the FLEX Act gives producers the option of taking the present value of all future transition payments in one lump sum, providing current flexibility and cash flow. I have heard from a number of producers regarding the current situation in agriculture and the impact of Freedom to Farm. Some believe Freedom to Farm is working as it was intended and others believe it is flawed.
The FLEX Act would allow producers total control over the future of their operationthe FLEX payment is entirely optionalproducers would need to decide whether to take the single payment or continue to receive annual payments. The FLEX Act would allow producers to pay down a considerable amount of debt, expand their base of operations, or retire from farming all together.
While producers appreciate the production flexibility of Freedom to Farm, those who have found fault with Freedom to Farm have consistently pointed to the lack of cash flow as their primary concern. The FLEX Act solves producers* cash flow problem by putting a considerable amount of capital in the producers* pockets right now, when it is most needed, allowing them to make the necessary decisions about the future of their operation. The FLEX Act provides cash flow even if the producer was unable to plant a crop. Without a crop, a producer receives no benefit from an increase in the marketing loan rate.
Page 8 PREV PAGE TOP OF DOC In conclusion, I urge members of this committee to voice loudly the concerns of producers to those Members of Congress not yet convinced of the problems faced by American agriculture. I urge all members to support the trade related items outlined by Agriculture Committee leaders and House leadership at a news conference last month. I urge all members to support the initiatives I outlined earlier in my comments.
It is my hope that through the actions of Congress and through their own sense of perseverance, producers will be able to avoid a 1980's style crisis in agriculture. Agriculture is, and will be into the foreseeable future, South Dakota's number one industry. Small, family-owned farms form the backbone of the agriculture industry in South Dakota, and I will work for their continued existence.
"The Official Committee record contains additional material here."
The CHAIRMAN.We are pleased, as always, to have the Secretary of Agriculture, Dan Glickman, who sat here many years and faced many of these same issues. We are delighted because he is here now with all of the answers. Mr. Secretary, welcome.
STATEMENT OF HON. DAN GLICKMAN, SECRETARY, U.S. DEPARTMENT OF AGRICULTURE
Secretary GLICKMAN. Mr. Chairman and Mr. Stenholm, thank you. Before I begin, I want to express my personal feelings, I haven't had a chance to do so, at the tragic loss of the two officers. Officer Chestnut was the officer who basically guarded the Intelligence Committee during the time I was the chairman, and he was friendly and had to deal with an unusual assortment of people often running up and down those stairs, and it was a very tragic loss for me personally as well.
Let me begin by saying that I don't have a shortened statement, but I am going to try to summarize my longer statement. I need to talk in a little bit of depth about what is going on in agriculture.
Page 9 PREV PAGE TOP OF DOC I just came back from Texas and Oklahoma. I was with Governor Keating most of the time, and Congressman Watkins was at one of our visits. I was in north Texas in Charlie's district and down in College Station, and I have also taken quite a few other visits. And one of things that strikes me is that we have unprecedented strength in the general economy, lowest inflation rate, lowest interest rate, highest employment, and it seems especially with respect to heartland agriculture, row crop agriculture, those strengths seem to have bypassed it.
That does not mean that there are not pockets of American agriculture doing quite well. In many areas, fresh fruits and vegetables are doing well, and poultry is doing well. We have parts of America that have not suffered from major weather problems. We have had big crops, highest wheat yields in history in Kansas. We expect seeing big crop yields in the Midwest in corn and soybean crops.
I can tell you, coming back from my visits, that there are farmers and ranchers that will suffer, I will say, billions of dollars in losses this year from natural disasters, and it is not just in those States. There are places in Georgia and South Carolina that have losses although regionally the most affected areas tend to be placed more in the South, Southwest and the upper Plains area. For example, Texas has had the hottest and driest second quarter since weather records have been taken, and those numbers are somewhat replicated in Florida, Arkansas, Louisiana, New Mexico and other States.
Second of all, the markets were pretty strong for 2 years, 1996 and 1997, but today the markets are limping. Wheat is off 25 percent from a year ago, as are soybeans. The price of corn is down about 15 percent. The turnaround that USDA has projected for beef has turned around, and prices are running well below the average for the decade, in part because of liquidations occurring, because there is no hay and pasture and animals are being marketed.
Overall, USDA's most recent estimate shows net farm income being reduced by about $7.5 billion this year. While I can't make it rain, I do think with the help of Congress I can do more to help the farmers and ranchers fighting the drought and disasters of 1998 stay on the land.
Page 10 PREV PAGE TOP OF DOC And the first thing I would say to you today with respect to strengthening the safety net, we must help farmers and ranchers weather the cruel downturn relating to natural disasters. The disaster reserve we have used over the last couple of years to aid ranchers is depleted, and I do not have authority to add to that without money from Congress. And without that feed assistance, livestock producers will be totally on their own to deal with disasters.
I will be the first to acknowledge that we have much work to do to strengthen crop insurance, both legislatively and administratively. It works some places. It is not acceptable in other places at all. And we have both tried to twist and stretch the program as far as we can, but without supplemental benefits that only Congress can authorize to address this year's problems and the accumulation of several years' worth of disasters whose effects are hemorrhaging parts of the country, conditions over which farmers have no control will force them into bankruptcy.
And I will talk in a moment about the Senate language in the appropriations bill.
I have with me Gus Schumacher, our Under Secretary. He and his team have been tirelessly promoting exports, opening markets. In fact, our general sales manager is in Asia today scouting out new opportunities. But trade alone, particularly in today's market environment, is not the complete safety net. It is part of it, but not the complete safety net. And so this afternoon I will give you a thumbnail sketch of the state of the farm economy and the actions I think we need to take.
But before going into that in more detail, I want to talk for a moment about our plans for responding to the Conrad-Dorgan amendment to the fiscal year 1999 agricultural appropriations bill which the President and I support. During its consideration, the Senators called on the Department to provide a comprehensive picture of the extent of the losses in farm country. Indeed the amendment itself requires that information. USDA's World Agricultural Outlook Board and the National Agriculture Statistics Service release the next world agricultural supply and demand crop reports on August 12, 2 weeks from today. Those reports will contain not only the most current but also the best assessment we have produced this year on the prospects for this year's crops. Crop production estimates will be based on actual in-the-field data. To meet the requirements of the amendment, we intend to base our estimate of losses on that report, using that assessment, and I have instructed the State executive directors of the Farm Service Agency in every State to then contemporaneously make a determination of disaster losses.
Page 11 PREV PAGE TOP OF DOC We intend to develop a proposal for consideration of the Congress, building on the proposals I previously outlined in my letter of July 16 to Senator Conrad. That letter proposes a Supplement Crop Insurance Benefit Program, a program to compensate farmers and ranchers for the loss of productive farm and pasture land from standing water and a program of Emergency Livestock Assistance.
We will revise our estimate of those costs of those proposals from the August 12 report. I suspect that the numbers will be considerably higher than the numbers that we gave the Senate last month.
In light of my recent trip to Texas and Oklahoma, we are currently reassessing the emergency needs in these States and throughout the country. We will be presenting to Congress the needs, financial and others, reevaluating the emergency situation sometime in the next couple of weeks.
Let me repeat, the President and I strongly support a legislative proposal to make sure that the disasters afflicting the farm country are addressed as financially responsibly as we can. I firmly believe that we should develop a system where no farmer goes under because of an act of God. We are not there yet. We all share in the responsibility of the administration and Congress to see what we can do in the short and long term.
With respect to a firsthand look, I am sure Earl Pomeroy has talked to you about this, but in North Dakota net farm income fell 92 percent in 1997 compared to 1996, the largest decline of any State. A further decline is expected this year in North Dakota and other northern Plains States. My trip there raised serious questions about the adequacy of the farm safety net. The current crop insurance program does not appear to provide sufficient protection at an affordable rate to prevent many farm failures in particular circumstances. The combination of weather and low prices is bringing many producers to USDA's door for credit. But limitations on how much we can lend and who we will lend to result in many being turned away.
Page 12 PREV PAGE TOP OF DOC My trips to the southern Plains and the Southeast, Georgia, South Carolina and Florida, showed the devastating effects of this summer's drought. We talked about this before. The April to June period was the driest since 1895 when we began keeping records for Texas, New Mexico, Louisiana and Florida. Dry land crops are burning up. Some 3 million acres of cotton are estimated to be lost in Texas. High hay prices and the condition of pasture and range, 72 percent of which have been rated poor or very poor, are causing producers to have to market their cattle, and they are squeezed by low cattle prices and high forage prices.
Even irrigation crops are suffering and irrigation costs are up sharply. Southeastern field crops such as corn and soybeans are generally faring poorly.
While the price is up now, milk production is down and there are numerous reports of other livestock losses due to heat.
The weather problems in agriculture are unusual because they are occurring at the same time that production and stocks are expected to be large and prices are declining. That is most unusual. The crop losses are regional and are not jeopardizing the Nation's food supply or leading to rampant national economic problems. The declining prices mean that those farmers facing crop losses are not getting any offset from higher prices that often come when weather reduces production. Even for cotton, where a substantial portion of the national crop is being lost due to drought and cool and wet weather in California, prices have been limited by large expected foreign production. These regional problems are a cause for national concern.
Now, I will provide on overview with respect to the agricultural economy. After strong performances in 1996 and 1997, characterized by record exports, high farm prices and incomes, and the market transition payments which helped significantly, the U.S. agricultural economy is now declining to some degree. The Asian economic problems, a strengthening dollar and record large global crop production have reduced U.S. agricultural exports from the record high of $60 billion in fiscal 1996 to about $55 billion this year. Falling commodity prices are expected to cause net farm income to decline nearly $7 1/2 billion below last year's record.
Page 13 PREV PAGE TOP OF DOC Despite these declines there are some positive indicators. First, net farm income for 1998, while down, is expected to be near the average in all of the rest of the 1990's.
Second, although farmer debt is rising the average debt-to-asset ratio for all farm operator is expected to remain stable at about 15 percent in 1998 compared to over 20 percent during the farm financial crisis of the 1980's. However, this is largely due to the fact that farm land values have appreciated.
And third, we have had stable interest rates, low oil prices, low inflation, and that has helped to bring production costs down by about a billion dollars last year.
But saying that, I don't have to tell you that the sharp declines in prices for some commodities have meant low prices for several years in a row. In addition, feed grain and oil stocks are rising and weather thus far suggests large fall harvests which, if realized, could drive prices down further.
Also, farmers are increasingly taking on more debt relative to their repayment capacity from current income. Following recovery from the mid-eighties farm financial crisis, farm debt fell by the early 1990's to 45 percent of the maximum debt producers could repay given current income, so-called debt repayment capacity utilization.
This year, use of debt repayment capacity is expected to be up to about 60 percent.
Low prices coupled with several consecutive years of below average crops and low cattle prices have greatly increased the financial vulnerability of certain areas, particularly the northern and southern Plains and Lake States. And the hot dry weather is further reducing crop yields in those areas as well.
I discuss in my statement that wheat has been particularly hard hit, and corn and soybeans hit to some degree by low prices. Cotton and rice prices are generally less hit, and in some cases unchanged.
Page 14 PREV PAGE TOP OF DOC Let me talk a little bit about actions taken to date. With respect to the Asian crisis, we have made a significant increase in the use of our GSM102 Program. Overall credit guarantees are operational worldwide, totaling nearly $5.8 billion, up from $4.6 billion last year.
We appreciate the support of this committee for this program and we will continue to help U.S. producers develop foreign markets through the GSM Program, the Market Access Program, the Foreign Market Development Program, the Cochran Fellowship Program and the others.
President Clinton recently announced that USDA will purchase surplus wheat, using the surplus removal authority of the CCC. Initially we expect to purchase roughly 2 1/2 million tons of wheat. The Department is in the process of purchasing the wheat, and the first tender for about 550,000 tons was issued last Friday.
We continue to purchase beef, pork and poultry for domestic food assistance programs. This year those purchases have been about $440 million for meat, poultry and fish alone. We have also purchased about $135 million of nonfat dry milk under the Dairy Price Support Program.
We also are proposing to revise crop insurance regulations to provide more effective assistance to producers in the northern Plains and other regions where successive disasters have sharply raised premiums and reduced coverage.
We are also expanding our research into developing new strains of wheat that are resistant to scab and other diseases.
And finally, Mr. Chairman, as you stated, the House and the Senate passed and President Clinton signed the Agricultural Export Relief Act dealing with sanctions, and the very next day Pakistan purchased over 300,000 tons of U.S. wheat, which would not have happened if Congress had not acted the way that they did.
Let me talk quickly about what additional actions we think are needed. We have proposed legislation to Congress to improve the 1996 act by strengthening the safety net for family farmers. In addition to the changes in the Crop Insurance and Livestock Disaster Programs that we are considering, if the Senate-passed version of the appropriations bill is adoptedand that is the highest priority right nowthat is the only way that we are going to get money into farmers' pockets right away, together with the AMTA payment that I will talk about in a moment.
Page 15 PREV PAGE TOP OF DOC Our proposals would also extend the term of marketing assistance loans, allow flexibility in farmers receiving advance 1996 act payments which we support, improve credit availability, and modify the one strike policy for farmers who have had a debt writedown and let farmers use USDA guaranteed operating loans to refinance debt.
I note the committee is considering legislation to make the entire fiscal 1999 payment available to farmers on October 1, 1998. We support advancing those payments.
I would say that I have two concerns which I hope the committee will address.
Number one, farmers frequently, some every year, reconstitute or reorganize their operations and leasing arrangements; meaning crop shares may change between landlords and tenants, and some individuals who share in the farm operation one year do not in the next. In most cases these arrangements are not final until planting season; meaning for crops covered by the fiscal 1999 payment, farm operating plans and leasing arrangements may not be finished until next spring.
That does mean if the entire fiscal 1999 payment is made available on October 1, some individuals who are on that date eligible for the payment may elect to receive it and then may not remain in the farming operation for the crop year. This issue can be remedied, and it is one that I think needs to be or else we will cause a great deal of confusion, particularly in those parts of the country where landlord and tenants' relationships change every year.
The other concern has to do with the flexibility given our short staff in situations where farmers can take a portion of the payment at any time. Some have construed the legislation to allow a farmer to come in and get 10 percent of his payment one month, 10 percent the next month, and 20 percent the following month.
I will have to tell you, if you want to start getting calls into your office because of confusionand my office as wellthat will create it. We need to set some reasonable standards about how those payments are going to be advanced to make it easy for those folks out there in those county offices to do their jobs. In principle we support the legislation and we want to work with you to see that it is passed.
Page 16 PREV PAGE TOP OF DOC Just a couple of final points. The farm bill imposes a lifetime ban, without exception, on USDA loans to family farmers who have received debt forgiveness. There is no such rule for obtaining private sector credit from any bank in America.
When I was out in Texas, I talked to several farmers who said, ''We restructurrd in 1989 or 1990 or 1991, and what can we do if we need new loans'' and they may or may not qualify for certain loans, but we have requested congressional authority to give creditworthy USDA borrowers a second chance. Unless this provision changes, some producers will be forced out of business even though they have the ability to repay the loans they need, and I urge Congress to work with us to try to fix those provisions.
Finally, let me say on the export front, I generally agree with you, Mr. Chairman, on most of your comments in terms of opening markets, but I will have to tell you that the No. 1 priority is the IMF assistance. That is what is going to get stability in the world immediately so these countries can use our GSM credits and buy our products right away.
I want to see us do nothing to take away our ability to get the IMF assistance adequately funded, aiding in the economic recovery of Asian economies which buy about 40 percent of American agricultural commodities.
I think I have summarized the statement as fast as I can. Short termshort term, we have to get emergency assistance. The agricultural appropriations bill provides it. We are going to get you a fuller assessment of damages in a couple of weeks, and I think we need to provide the augmentation of emergency assistance this year before you leave so that livestock producers and crop insurance holders who are not adequately covered can be protected.
We support the moving up of AMTA payments. We hopefully can work together to make sure that language is responsible so we can make those payments as quickly as possible. We support the IMF assistance. We think that is critical for American agriculture.
Page 17 PREV PAGE TOP OF DOC We do have some problems. It was a lot more fun being Secretary in 1996 and 1997 than it is this year, but I think we have the opportunity to do some positive things to help out, and that is what I would like to see us do working together.
Also, France has approved the two corn GMO varieties. I said this once before and then they told me I made a mistake. We should be able to participate in the remaining Spanish corn tenders and move a substantial quantity of corn there in the coming weeks. I thought I should mention these breaking developments.
Thank you, Mr. Chairman.
[The prepared statement of Secretary Glickman appears at the conclusion of the hearing.]
The CHAIRMAN. The other part of that tariff rate quota fulfillment is substantial to Spain. I have forgotten, what is it?
Secretary GLICKMAN. There are about 600,000 tons left.
The CHAIRMAN. That is what I thought it was. That is good news.
Thank you. And as you know, we worked together in Europe, and there is a lot of pressure upon the European Union and upon France to fulfill their commitment which they have finally responded to, and it will make a difference.
For clarification, I want to ask you about the language in the Senate bill that you are asking us to support. We understood that it was originally designed to impact North and South Dakota and Minnesota, which was designed to take care of losses in 3 out of the 5 years which they have experienced.
Having said that, looking at the language it does not narrowly identify that situation. It appears as though it is open now to drought conditions and severe weather conditions in Texas and the Southeast and all across the Nation. With that in mind, we understood that the cost would be about $500 million, now expanded to $800 million if we had the condensed version, 3 out of 5-year loss. What is the version that you propose with the expanded language?
Page 18 PREV PAGE TOP OF DOC Secretary GLICKMAN. I can't give you the amount yet, but if you used the same criterion of 3 out of the 5-year loss, coupled with the livestock feed assistance, coupled with the planting in the areas under water over an extended period of time and you based it on the amount of losses that occurred around the country, it is probably going to be significantly more than $500 million using that same criteria.
My belief is that we can get you, sometime in August, the nature of the loss and what costs would be under that criteria or under other criteriaand the conferees working with you are going to have to decide what eligibility criteria should be used. All I can tell you is at the time we came up with that proposal, I do not believe that there had been an adequate assessment done of the damage in the Southwest, particularly in Texas, and that damage is considerably higher now than we anticipated that it was going to be.
The CHAIRMAN. I only press you for accuracy, Mr. Secretary. So are you suggesting that we limit the language to 3 of the 5-year losses?
Secretary GLICKMAN. I would say the following. Chairmen Cochran and Skeen and the appropriators had asked us to come up with basically a formula by which we would spend that $500 million. If you notice, their amendment does not provide any specific allocation for how those funds are to be spent.
The CHAIRMAN. That is right.
Secretary GLICKMAN. So we came up with the proposal you could spend it that way, and we thought that the $500 million figure would be an adequate amount.
Now, saying that, I want to make it clear that while North Dakota and South Dakota and Minnesota were the prime places where there were problems, there were also disasters that occurred in other parts of the country, and this was not meant to just deal with one region of the country alone. There will have to be some limiting criteria to control the costs, I will grant you that, but the damage in other parts of the country is very significant.
Page 19 PREV PAGE TOP OF DOC The CHAIRMAN. We understand that, and I am attempting here to identify exactly what you are requesting. So you want to open up the criteria beyond 3- to 5-year loss?
Secretary GLICKMAN. We stand with the letter that we wrote on that criteria because we were requested by Congress to come up with some criteria. And we will let you know how much that criteria will cost as we do our full assessments in expanded parts of the country. But, we will work with the Congress if you decide that you want to modify that criteria in some degree. There was a lot of rush at the time to come up with some disaster assistance, and we came up with a criteria that we thought could fairly spend those dollars.
The CHAIRMAN. Your idea is to spend $500 million only?
Secretary GLICKMAN. No. The Senate put $500 million in the account. They asked us to come up with some funds to do that. I think the $500 million was basically based on what they thought and what we thought the extent of the damage would be at the time.
The CHAIRMAN. In North Dakota, South Dakota and Minnesota?
Secretary GLICKMAN. Primarily, but nationwide as well. It was mostly in the northern Plains. The damage now is clearly greater than that, and we are trying to figure out an assessment of what it is. If you live within that $500 million, those funds will have to be severely sequestered down to provide money for other States with disaster. I have been to Florida and Georgia and South Carolina and I can tell you that there are portions of those States that are every bit as bad as those in the Dakotas and Texas, although the Dakotas and Texas seem to be the worst overall in regional areas.
The CHAIRMAN. I am just trying to identify. Of course, if you expand the 3 losses out of 5 years, you have gone much beyond the issue.
Secretary GLICKMAN. The Congress will have to determineif they want to go this roadwhat the criteria ought to be. The fact is if you go 3 years out of the past 5, 3 out of 5 where indemnities have been paid, and you use that as the period to augment crop insurance, virtually every State that suffered a disaster will have large areas that will be covered under that as well.
Page 20 PREV PAGE TOP OF DOC The other thing is the Livestock Feed Assistance Program is one that will probably affect the State of Texas and perhaps Oklahoma even more than it will affect the Dakotas.
The CHAIRMAN. Very quickly, you purchased $250 million worth of wheat for the assistance, the Food Assistance Program from the CCC stocks?
Secretary GLICKMAN. Right.
The CHAIRMAN. Which have in them some $30 billion of money. Have you considered using additional parts of CCC to purchase either feed, which you can do, or other grains for other purposes, using the authority you already have to assist in this problem?
Secretary GLICKMAN. I would ask Mr. Schumacher to come up here, if I might, because it is a good question. I told my folks we need to use the authorities of the CCC as liberally as we possibly can, and we need to have good lawyers who don't necessarily respond to questions the way that you expect them to, but are creative and imaginative in using this fund with a $30 billion authorization to it, although its use eventually requires appropriations.
The CHAIRMAN. Is Gus a good lawyer?
Secretary GLICKMAN. We are training him.
Mr. SCHUMACHER. Just to bring you up to date on the initial question, the President authorized us to move forward with 2.5 million tons of purchases under the CCC charter, roughly equivalent to about $250 million without transportation included. The Secretary tendered for 550,000 tons last Friday. Additionally, purchases will be made in the coming weeks. We intend to ship a portion of the 2.5 million tons by the end of the year. We need to finalize the plans with the different countries and are negotiating agreements with recipient countries. This by and large has been focused, all has been focused on wheat, and we are also looking at wheat flour. A number of the countries have expressed an interest in that and we are going to work closely with USAID. We will keep you informed on that.
Page 21 PREV PAGE TOP OF DOC The CHAIRMAN. I appreciate that, Gus. I am going to ask you to look at the authorized $30 million that you have at your elbow to use, and to be aggressive about how you might improve the situation with the authority already given to the Secretary and to the Department of Agriculture. I wish you would do that.
Secretary GLICKMAN. Can we use that CCC money to buy livestock feed for domestic use? How aggressive can we be and what have our lawyers told us?
Mr. SCHUMACHER. The counsel has counseled us on interpreting the law. We can only use it to dispose of surpluses and then to move those for humanitarian purposes overseas. As far as I understand it from the attorneys, we are not permitted under the CCC Charter Act to use it for things like domestic livestock feed.
Secretary GLICKMAN. I think I would encourage your lawyers to work with us if you have a contrary view.
The CHAIRMAN. I think we ought to examine it carefully because I think that may be a narrow view, but we will be working with you.
Mr. STENHOLM. Just following up on the supplemental crop insurance benefits which was in the Senate-passed package of $500 millionif I understood you correctly, with the other States involved now in what is rapidly growing into a multistate disasteris $500 million enough?
Secretary GLICKMAN. In my judgment, no.
Mr. STENHOLM. Do you have an estimate what might be required to meet the same guidelines present in the Senate amendment?
Secretary GLICKMAN. I don't have a good estimate. I think you have to wait until August 12 when we get the crop reports. It is going to be substantially more than $500 million, in my judgment.
Page 22 PREV PAGE TOP OF DOC Mr. STENHOLM. What becomes even more important to us becausedo you have an answer from the leadership and the House of Representatives when the conference report between the House and Senate conferees might be concluded?
Secretary GLICKMAN. I do not.
Mr. STENHOLM. Mr. Chairman, do you have any information concerning when the conference will begin to work out the multiple details of this supplemental insurance benefit?
The CHAIRMAN. I can't answer the question. I do not know.
Mr. STENHOLM. I suppose it is reasonable to suppose it is not going to be done this week or next week?
The CHAIRMAN. Next week is the only time we are in, and the Senate is out next week. It would have to be done in the next day or two. So it would be done in September.
Mr. STENHOLM. That would be my assumption, also.
Mr. Secretary, you mentioned that the most critical aspect other than the supplemental benefits were the IMF funding. Have you received any assurances or any direction from the leadership from the House of Representatives when we might consider IMF funding?
Secretary GLICKMAN. No. I know that the President has repeatedly asked that this be put on the table and voted on as quickly as possible.
Mr. STENHOLM. Mr. Chairman, do you have any information as to whether we might consider IMF funding next week?
The CHAIRMAN. I don't have any direct information. The only information is that we will vote on IMF and fast track before we adjourn in October.
Mr. STENHOLM. So from the leadership of the House, we might guess that we will not consider IMF funding before we go home for the August break unless something changes, which we hope it does, and I know that you share that benefit?
Page 23 PREV PAGE TOP OF DOC The CHAIRMAN. I will be pressing to try to get a vote on IMF next week, as I have told you often.
Mr. STENHOLM. I would certainly join again with you, as many other members on the committee on both sides of the aisle, join with you in encouraging the Speaker of the Houseand which he indicated very strongly that we would be considering IMF funding before we went home for August. And I would hope that the leadership would see the importance of this, because we are literally playing with fire as wheat prices hit $2.11 in Texas today. We have someand that isthe same in all of your States. The prices are collapsing, and part of this can get to be very serious if the Congress has not exercised our responsibility dealing with IMF properly in this. So I certainly will join with you, Mr. Chairman, in encouraging the leadership of the House to take this up.
My final question, and you referred to it somewhat, the advance of the AMTA payments. I think it is important for us to understand these are not new dollars, these are dollars expected by farmers next year. I support this. It was on our immediate list when we started looking at what could be done. This would be one way that we could possibly help in this at a relatively modest cost. But I have found now in talking with bankers and producers that this is not a panacea. And as you responded to the chairman's questions a moment ago, I think it behooves all of us to understand that this can be a very complicated, and not nearly as helpful across the board, program as might first have been indicated by me and by others.
Can you just amplify a little bit again on the problems associated with advance payment of AMTA?
Secretary GLICKMAN. From a landlord-tenant relationship, this has been somewhat of a problem during the operation of the 1996 farm bill. The relationships with landlord and tenants is often not settled until the next calendar year. We just have to make certain that we don't mislead certain people into getting a payment and then not sharing it with their tenant or otherwise messing up a landlord-tenant relationship. This can be worked out, but it needs time to secure that relationship.
Page 24 PREV PAGE TOP OF DOC The other thing is that we are going to have a sign-up on the Conservation Reserve program sometime in the fall. Unfortunately because of low prices, we also have to make loan deficiency payments in wheat and possibly corn country, and in some county offices there have been people lined up around the block waiting to get those.
And with these advances, I just would encourage you to do it in such a way that is as simple as possible. I may be arguing against myself, because on the one hand I say we have to take care of the landlord-tenant problems. But on the other hand we have to make sure if we do this and advance payments that the county offices are able to cope with it.
Mr. STENHOLM. Just a brief comment. I feel concern that Vice-Chairman Combest will bring this up in a moment, but as part of the movement to get guaranteed lending more efficiently through our county offices, we have run out of time regarding simplifying the program. And unless you can bring some heat to bear on your own Department and FSA personnel dealing with farmers' home loans, we have a major problem because we do not have the manpower. We don't need the manpower. We had hearings a year and a half ago regarding guaranteed lending that has not been accomplished, and we have run out of time on that one.
And I hope that you heed what Mr. Combest has talked to your folks about earlier this week, and I certainly concur in this necessity of moving forward to make sure that the Guaranteed Lending Program can be delivered by the banks and PCAs. Otherwise we have deep troubles in doing the routine financing, much less the emergency. Thank you.
The CHAIRMAN. Mr. Secretary, you now demand a lease between landlord and tenant, I just recommend that you do the same thing.
Mr. COMBEST. Thank you. Mr. Secretary, you said that around the 12th of August you thought you would have some better figures in terms of losses?
Secretary GLICKMAN. That is correct.
Page 25 PREV PAGE TOP OF DOC Mr. COMBEST. My questioning runs along the line of questioning that my colleague from Texas was asking, but underI am just making an assumption hereobviously what we would like to do is to try to deliver a package in as timely a fashion as possible, but also to make sure we don't get ahead of the problem to the extent that we don't recognize fully the extent of what the problem is. And I guess in terms of timing of consideration of the agriculture appropriations bill, what I want to make sure that people out there understand is that we don't yet know what the full extent is and what we potentially might be able to do in recognizing that now we are at a point of working out something in conference. That may be one of the best vehicles we have to try to address some of these things. And I think possibly, rather than trying to expedite for the sake of expediting, we may want to give some considerations as to what else we may try to do in that conference report.
But, for example, in TexasI am glad you went to Texas. A lot of people don't know how bad it is down there. It is not a pretty picture. But for the most part, the disaster in Texas wouldn't be covered under the criteria which has been laid out in the number of losses over the last period of years.
So to those people that are out there that are suffering some tremendous disasters today, when you go down and talk about programs, they don't necessarily realize they wouldn't be a part of that. And I am not being critical of you, I am just trying to ask would the Department support a program by which you didn't have the multiple loss criteria in it so that some of the problems that are current this year could be addressed?
Secretary GLICKMAN. Well, I recognize that in some cases a multiple loss criteria creates an unfairness.
Mr. COMBEST. In many cases in Texas, it does.
Secretary GLICKMAN. For some people who suffer a very serious loss, one loss can be more catastrophic than someone who got crop insurance and indemnities over the years. But from talking with Ken Ackerman, many people would qualify in Texas even under the criteria that we are talking about. This year so far we have paid outwe estimate about $511 million in indemnities in the State of Texas, and that is for all crops. My judgment is that there will be a lot more issues in Texas covered than you might think and, in addition, the livestock feed assistance probably has more value in Texas than any other State in the country.
Page 26 PREV PAGE TOP OF DOC You are correct. Limiting eligibility using a number of years of losses does reduce the number of people.
Mr. COMBEST. I have to think in the Senate consideration of the agricultural appropriations bill, the area that was primarily being looked at for the $500 millionand I realize that you said it is going to be substantially more. I think we are talking about substantially more. I think we are talking about if we were going to extend this into other areas as well, we are looking at at least twice that amount if not more. So I think this is a fairly heavy dollar amount if we are going to actually try to come up with that amount to be as far-reaching as we possibly can.
Does the Department support the removal of the caps as has been proposed in the Senate? The capital loans?
Secretary GLICKMAN. I made the statement when the Department sent its proposal up for the 1996 farm bill, we did not support capping loan rates. That remains our continuing position.
Mr. COMBEST. So you would support removing the caps?
Secretary GLICKMAN. I would. I also recognize that has a budget exposure of $1.9 billion over 1 year and a multiple of that over 5 years. So while I support it, I fully recognize that it would require an offset. So we have indicated that the idea of capping loan rates has led to a situation where grain prices have fallen lower than they would have otherwise fallen, but given the budget restraints, I realize that it is something
Mr. COMBEST. Do you think that one could remove the caps and not have some kind of production controls?
Secretary GLICKMAN. I think if the caps were moved to what they were before the 1996 farm bill, you could, yes.
Mr. COMBEST. Without having production controls?
Page 27 PREV PAGE TOP OF DOC Secretary GLICKMAN. As long as you have planting flexibility.
Mr. COMBEST. Moving them to another point and removing the caps are two different things.
Secretary GLICKMAN. The loan rates were set as a percentage of a 5-year moving average.
Mr. COMBEST. Moving back to that formula?
Secretary GLICKMAN. Yes, that is what we support. Removing the caps would be a return to the formula.
Mr. COMBEST. In the testimony of virtually every one of the witnesses today and certainly in your trade, recognizing that the price comparisons that you are using today and how much prices have come down compared with prices that were under this same farm bill, and so at points they were virtually record-setting highs, so it is not always the farm bill which determines what pricing is, and I think it points out the concern and interest in export programs. What about fast track?
Secretary GLICKMAN. We support fast track. I called virtually every Member of Congress, I felt like a dentist pulling teeth, to try to get fast track through.
Mr. COMBEST. Can we give you some dental tools?
Secretary GLICKMAN. If you provide enough novocaine for Members of Congress, it would be easier.
I hate to see fast track pushing the IMF assistance out of being front and center. What concerns me is that the most important thing that we can do in the next 60 to 90 days is to make sure that the markets are open to us. IMF does that. Fast track requires negotiations with individual countries. The President needs and wants that authority, but it is an extremely volatile political issue. Maybe things have changed. We talked to Chairman Smith about this before, but we didn't have the votes before. I would hate to get into a situation where fast track gets tied up with IMF and other things, and nothing passes. I don't think that it is worth that risk.
Page 28 PREV PAGE TOP OF DOC Mr. COMBEST. If I can indulge my colleagues with one more question specifically on the credit issue. As you know, you and I have been corresponding about this for some time, and while there is some difference about the number of forgiveness and whatever, have you had an opportunity to look at the bill that the subcommittee, which I chair, on creditchanging some of those changes in terms of disaster provisions as well as the one-time writedown forgiveness for guaranteed loans?
Secretary GLICKMAN. Yes. Carolyn Cooksie has been before your committee and she has looked at the bill. We would prefer it not be limited to guaranteed loans. I understand that has been your position. We would rather have it geared towards direct as well as guaranteed loans.
Mr. COMBEST. Obviously, one of the things that we have to make certain in order to sell the program to farmers as well as to the Congress is that this is something that is a fiscally responsible program. And the reason that those were limited to guarantees is we want to make certain that there has been a positive pay history since the time of the writedown. And obviously by engaging an outside lender as a part of that, we think that that would be much more responsible. And recognizing that there is some difference in that as we have come to this point, to where we are, would it be fair to say that you would support the bill that was reported from the subcommittee rather than doing nothing else?
Secretary GLICKMAN. First of all, our delinquency rates on direct loans are coming down. I don't have the statistics now. I do think that it is fair that you set some standards in order to get a second
Mr. COMBEST. Right. We just differ on what those standards should be.
Secretary GLICKMAN. I think it ought to be applicable to both direct and guaranteed loans. In many cases USDA is the lender of last resort, and the Direct Loan Program is the only program that a lot of small and limited resource borrowers have.
Page 29 PREV PAGE TOP OF DOC Mr. COMBEST. Thank you.
The CHAIRMAN. Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman, and I want to thank you for holding this hearing.
I just want to say that I am somewhat disappointed that there is nobody on the panel from northwestern Minnesota or North Dakota, and I know the limitations. I just wish one of these farm groups could have gotten somebody. I guess it is going to be up to Earl and I to tell you about our serious situation, and I am handing out some information that I would like you to look at.
First of all, I want to introduce Jim Tunheim who is from the area that I am going to talk about. He has done a lot of work in our State legislature, calling attention to this problem and I would like to introduce some information that he has brought here.
The CHAIRMAN. Without objection so ordered.
Mr. PETERSON. And I have a copy for you, Mr. Chairman and Mr. Stenholm.
I very much support raising the loan rate and extending the loans. I have introduced a bill, H.R. 3678, to do that and to fix crop insurance, but I understand the political reality of situations.
We have a problem in our area which I think is unique. Those of you that are now experiencing this problem where you have low prices and you have no crop, you need to understand that we have had this problem for 5 or 6 years and we had it during a time when prices were relatively good. So when there was an opportunity to sell, we didn't have anything to sell. I feel for the people in Texas and other places, but they are experiencing now what we have been experiencing for 5 or 6 years. And so whatever we do, I hope that whatever aid we can come up with we don't dilute, and we can get some help to these people; because without it, frankly, a lot of our people are not going to be around.
Page 30 PREV PAGE TOP OF DOC On this handout that I have given you, you can see in the Red River Valley, if you take out insurance in Government payments, we lost money every year for the last 4 years. It looks like we are going to lose money again this year. This is because of this disease called scab. We have farmers who lost their crops 5 out of the last 6 years. Secretary Glickman came up there and he has seen this firsthand.
I would just like to focus on what I think we can maybe do to help the situation. I have a couple charts here. The first one is what has happened with crop insurance up in Kittson County, and this is my chart man here, Mr. Condit. You can seeit is in your handout. The problem is that the way that the crop insurance system works, every year you have a loss that is less that you can insure, and it is more that you have to pay the next year. And so this is how much acres you can insure that goes down, and this is how much it costs which goes up. So you can't get enough coverage to cover your crop, and it costs more money than it is worth. They have eaten up all of their equity.
And the next chart will show you in the Red River Valley which, contrary to what the Washington Post said, is the most fertile farm country in the worldand they are saying that we feel sorry for these people but we understand that this is not very good landthat is not true. This has produced wheat for a hundred years.
This is what we have made for income and this is expenses, and we have basically lost money 3 out of the last 4 years in the Red River Valley which is the best farm land, I will argue, in the world.
So we need this help for these people that have not been able to get crop insurance and have not been able to keep their head above water. They have lost their equity.
And so I just implore you, we want to help all of these other parts of the country, but we have a circumstance if we don't get some kind of substantial help to these people, they say we are going to lose 50 to 60 percent of our producers in these northern counties. This is so far north you can't grow corn or soybeans. You can grow canola, but not everybody can do that. There are a lot of problems.
Page 31 PREV PAGE TOP OF DOC Mr. Secretary, another thing you could do for usand I know that Parks Shackleford has been looking at this and that is with CRP. When we adopted the new rules they eliminated a part of my district where they couldn't qualify for the CRP rules. And what we are asking, if you would take a look, we put in a proposal to bring this area in so that they could at least make bids. Under the current law they can't bid in the 17th sign-up. If you bring this in, they could at least make a bid to put this land into CRP.
Yesterday the technical committee in Minnesota met and everybody on the technical committee signed off; 100 percent support, all of the environmental groups, everybody involved. And it would very much help us. This is the area that is probably in the worst trouble with the least options. We have lost 32 percent of the CRP in the last 2 years. If all of that CRP comes outplus we have a situation that we can't grow any crops that make any moneythese land values are going to totally collapse.
Secretary GLICKMAN. You are talking about the area in green?
Mr. PETERSON. Yes. To add them to the priority area so we could at least make a bid, which would stabilize the situation. The banks up there are concerned about their viability. You know, it is just a serious situation. It is basicallythis part of my district, the whole thing has just been devastated, similar to what has happened in North Dakota, which Mr. Pomeroy will tell you about.
Mr. Chairman, I want to thank you. I know that you have heard from me many times on this, and I hate to keep bringing it up, but we really need some help. We need to get substantial help to these people in this situation or it is going to be just devastation.
Thank you again for holding this hearing, and I look forward to working with everybody as we go through this process and hopefully come up with some answers that make sense and work. Thank you.
The CHAIRMAN. I thank the gentleman and I certainly endorse his idea. Mr. Secretary, there is no reason in my opinion that the 2 to 3 million acres that you have left to designate in saving crops, in saving country, CRP, could not be usedwhy couldn't it be used in North and South Dakota and Minnesota?
Page 32 PREV PAGE TOP OF DOC Secretary GLICKMAN. We will take a look at it.
The CHAIRMAN. And somebody said Texas.
But the point is if you have lostand we are mixing definitionsif you have lost three crops out of 5 years, that is what they have done. Then it seems to me that the opportunity to give themto put it under CRP would be a savior until we get control of scab and some of these other diseases. Here is a great opportunity. You can do that if you choose.
Secretary GLICKMAN. We will look at it. As you know, there are some criteria in the statute as to what is supposed to go into CRP.
The CHAIRMAN. We will change it.
Secretary GLICKMAN. We will look at it.
The CHAIRMAN. Mr. Barrett.
Mr. BARRETT. Mr. Secretary, it is good to have you with us. I can relate to some of the problems mentioned by Mr. Stenholm and Mr. Combest. Last weekend I toured the southwest corner of my district, and what has happened in Texas and Oklahoma, now western Kansas, has impacted of course the southwestern corner of my district which you are very, very familiar with.
Do you have any idea whether you have received the emergency haying request for these three counties: Red Willow, Dundee and, I think, Hitchcock?
Secretary GLICKMAN. We will check on it.
Mr. BARRETT. There might be a couple of contiguous counties.
Secretary GLICKMAN. They have all been approved for grazing. I don't know about haying.
Mr. BARRETT. When the emergency wheat program was mentioned, I know that you had a good positive feeling about it, as I do, and I am sure that the rest of us did. But what happened, the prices went down shortly after the announcement was made, so what it seems to be saying is that perhaps the market at least is telling us maybe we didn't buy enough wheat. Or how would you interpret it?
Page 33 PREV PAGE TOP OF DOC Secretary GLICKMAN. The price of soybeans went down and corn went down. I would interpret it as the harvest continued, the production has gotten better and greater, not only here but around the world. I don't know what impact that purchase had. I think it has had to have had some impact, but the fact is that the world supplies are very, very great and our harvests are indeed spectacular in some parts of the country.
Mr. BARRETT. Absolutely. Did you indicate earlier that you expected more sales?
Secretary GLICKMAN. More than the 2 1/2 million tons?
Mr. BARRETT. Yes.
Secretary GLICKMAN. The instruction so far is 2 1/2 million tons. Gus, do you want to
Mr. SCHUMACHER. In addition to the 2.5 million, as I mentioned earlier, and the Pakistan GSM, we also received notification that the Indonesians have now opened their markets to international tender, and yesterday we learned that American wheat received 230,000 tons on the international tender. That is good news for wheat farmers, that market is opening to international tender as opposed to being limited to certain State traders.
Mr. BARRETT. It came to my attention that the USDA is having difficulty finding countries to donate wheat to. Is there truth in that?
Mr. SCHUMACHER. We started just last week identifying countries. That is my mission as the chairman of the working group, we are working very hard, as I mentioned earlier in response to Mr. Smith, and we are looking forward to future tenders. The agreements are now being finalized with a number of countries and we expect to move forward expeditiously with future tenders in the next few months.
Mr. BARRETT. So there is an element of truth in that statement?
Page 34 PREV PAGE TOP OF DOC Mr. SCHUMACHER. We are working very hard and we don't want to buy and remove surplus unless we have a good knowledge of where this wheat is going to be moved over time. We expect to finalize those donations in the very near future.
Mr. BARRETT. Going back to the farm bill, Dan, you recall the QUICK program which was established in the 1996 bill? Half of the funds for that program were directed, as I recall, to livestock producers. I have been concerned that half of the funds available, for my State at least, are not going toward livestock-related problems, and I have some indication that others might be having the same concerns. I understand that USDA is not requiring all States to meet that 50/50 requirement but that the Department is meeting the requirement on a nationwide basis?
Secretary GLICKMAN. That is correct.
Mr. BARRETT. Please explain that to me. Why shouldn't each State have the same allocation?
Secretary GLICKMAN. I think your understanding is correct. Parks Shackleford is here. He tells me nationally at least 50 percent must be directed to livestock. Some States do not have very extensive livestock operations. I do not know why Nebraska is not at that threshold, and we will find that out.
Mr. BARRETT. Nor do I.
Secretary GLICKMAN. You are a very significant livestock State, obviously. That decision is made by the State conservationist and by the State technical committees, but I will try to find out why Nebraska is not at that threshold.
Mr. BARRETT. Including all of the other problems that they have to face, I think they should receive their fair share. Let me know if you could, please.
Mr. BARRETT. Thank you.
The CHAIRMAN. I should say that there is a gentleman here from Minnesota who will testify, and his name is Ted Winter. He is not from the northern area. He has identified himself and he says he is from the middle area. That covers both the north and south.
Page 35 PREV PAGE TOP OF DOC Mr. Minge.
Mr. MINGE. On Mr. Peterson's time, I will just welcome this gentleman to this hearing.
Now on my time, I want to thank you for holding this hearing. It is long overdue. They are long neglected, the problems that we face in agriculture. We need to focus in the House Committee on Agriculture on the nature and extent of these problems and what we can do to provide the Department of Agriculture with the tools that it needs to work with the farming and the producing community.
In watching the unraveling of the farm economy in the upper Midwest over the past several months, it has certainly become obvious that we have tens of thousands of producers that are raising and selling the same crops. They are competing against each other and they are competing in a market which is extremely volatile, especially when you are looking at the international trade. Our currency value relative to other currencies has skyrocketed, and the economies of several important parts of the world have deteriorated. The consequence is that what we find now domestically is a very strong economy and a good market for American agricultural products which is not nearly adequate to offset what has happened internationally. And the American farming community is suffering.
I would like to know, Mr. Secretary, if we would look back at 1996 and what was on the table then and what we could look at again now here in 1998 and 1999, would a Market Loan Program at the level that the Department was recommending and some of us were recommending in 1996, provide some of the stability that I think all American farmers would like to find in the market in which they are selling?
Secretary GLICKMAN. Well, as I mentioned to Mr. Combest, the methodology for setting the marketing loan pre-1996 was based upon a percentage of a moving average of past market prices, and what that did was set it at a level not to interfere with world markets but to provide some protection against significant down movements in markets, and I think it would have provided some additional protection.
Page 36 PREV PAGE TOP OF DOC Mr. MINGE. As I understand it, there is some concern about the cost of the program. Would it be possible to mix both a producer liabilitythat is, moving away from a totally non-recourse loan situationand some limitation on the dollar value of the loan so as to minimize the cost to the U.S. Treasury but hopefully provide some greater stability in the marketplace?
Secretary GLICKMAN. I presume you could theoretically establish something like that, because if the markets continue to go down, you will have loan deficiency payments which will grow. That is where the potential liability is in those payments. And to limit them, I suppose you could target those payments in some way.
Mr. MINGE. Mr. Chairman, I would like to comment that in the last week I met with Parks Shackleford from USDA and discussed with him the possibility of trying to develop some mix between non-recourse and recourse loans and between an unlimited ability to participate in the program and some cap on participation. And hopefully we can control the budget costs but at the same time provide some market stability. And I would hope that we could work on the committee exploring those options, because I think if we don't take that type of action, we are going to find with the feed grain situation deteriorating and wheat and barley becoming feed grains, it is going to be a more acute problem this winter and certainly in 1999.
I would like to recommend that to my colleagues and urge the Department of Agriculture to work with us in that regard.
Mr. MINGE. I would also like to ask the challenges that you face in the Department in attempting to administer these programsand we have not had a chance to ask you about the adequacy of your personnel levels. You talked about CRP sign-ups. You are talking about the U.S. Senate proposal, and we are talking about a number of other initiatives, including the AMTA payments and so on. Do you feel the personnel at USDA is adequate to handle these tasks at the local level? I think it is really in the FSA offices?
Page 37 PREV PAGE TOP OF DOC Secretary GLICKMAN. Well, we are looking in the next budget year ifGus, what are the numbers?
Mr. SCHUMACHER. It is 1,142.
Secretary GLICKMAN. In the Farm Service Agency alone, staff reduced from about 12,000 down to 11,000. The Deputy Secretary testified yesterday before one of the Senate committees on this point. And as you know, we have closed a significant number of offices around the country. My concern is that we can get to a point where we can't serve the people, we can't provide the service at all, and I am concerned about that.
Mr. MINGE. I visited approximately 25 county offices in my district. And I know that the morale and the workload problems are severe because of what has been done in terms of downsizing to date, and I am concerned about your ability to do what we think ought to be done at USDA if we don't have adequate staffing in those offices to perform these tasks.
Secretary GLICKMAN. What we are trying to do is give our State directors more authority to use their people better to try to meet some of these needs and problems and use the other parts of the Department of Agriculture as well. So we are going to have to be as flexible as we can be to meet their needs.
Mr. SCHUMACHER. This is a serious problem. As the Secretary has indicated earlier with the CRP, particularly with the bill for advancing the AMTA payments, the restitutions, LDPsthere are lines around the block in a number of the heartland States. We are very stressed even now, Congressman, and if we have to go with the budget in the House adopted in conference, we are going to be extremely stressed in heartland America to administer existing as well as new programs that may come down as a result of the Senate-House conference. We are very concerned about that.
Mr. MINGE. Thank you.
Page 38 PREV PAGE TOP OF DOC The CHAIRMAN. I thank the gentleman.
Mr. LUCAS. Thank you, Mr. Chairman. And thank you, Mr. Secretary, for being in Oklahoma to see some of the things that are going on with some of my fellow farmers and ranchers there. I would like to open to some particular questions and then to some broad questions.
Over the last 6 weeks my constituents have been very vocal. Some, it might be better to describe them as very intense as what they perceive as the inadequacies of the Loan Deficiency Payment Program. Walk me through the program with particular emphasis about when the FSA personnel were trained on the program, and if you feel that there was enough time before harvest for that information to be made available to the producers in Oklahoma and Texas so they could make the necessary decisions?
Secretary GLICKMAN. I would like Parks Shackleford to respond.
Mr. SHACKLEFORD. The Loan Deficiency Payment Program has been around in one form or another, going back to the cotton title of the 1985 farm bill. It is a payment that a producer can accept in lieu of placing the commodity under loan.
We found that rather than marketing loans, with prices below the loan rate, rather than require the producer to come in, put the commodity under loan, suddenly, almost immediately redeem that loan to get that gain, we came up with an easier system where they could be eligible for that payment.
In terms of the training, we conducted national training on this program in February of this year. We have done everything we can to try to make sure that producers are aware of the provisions of the program. One of the difficult parts of it is that a producer must have beneficial interest in the grain to be able to place it under the loan, and the grain must be eligible to be placed under the loan to receive an LDP. We have come up with many options for producers for different marketing arrangements.
Page 39 PREV PAGE TOP OF DOC For example, some producers market the grain directly upon harvest. We have a form the producer can come into the office and fill out in advance so that producer can receive that LDP on the date that the grain is harvested.
We have tried to be as flexible as possible to get that information out. Producers can also request LDPs at any time that they have beneficial interest in the grain before it is sold.
Mr. LUCAS. Clearly many folks in western Oklahoma feel that they were not in a sufficient position to make the necessary decisions that they needed to make in a timely fashion. I will take back what you just told me. I will interact with my constituents and see what input or concepts that they care to offer.
Secretary GLICKMAN. I would tell you, I would venture to say that this LDP program is for the most part new, we have not had to deal with it in a practical sense for grain. It has been dealt with in some of the other commodities, cotton and rice.
Mr. SHACKLEFORD. We have not been in a situation primarily in wheat where the prices have been low enough, below the loan rate, so producers are not as familiar with it.
Secretary GLICKMAN. And it may be that price decline has been so rapid in some areas that we didn't do as good a job as we should have in terms of explaining this program to producers. So I am not going to tell you that did not happen in some places.
Mr. SHACKLEFORD. Reference has been made to the lines. We have tried to simplify the process. Because the prices fluctuate daily, it also creates pressures. If producers think prices are going up, they try to get in and get the LDP before the market changes. So we have tried to simplify the process.
Mr. LUCAS. Mr. Secretary, did you do a figureI believe you didabout what the net farm income was projected to be this year?
Page 40 PREV PAGE TOP OF DOC Secretary GLICKMAN. I said it was about $7 billion less than last year. So we are talking about $54 billion. Net cash income is forecast at $53 1/2 billion compared to $60.7 billion last year.
Mr. LUCAS. So the concept of giving producers the option in effect at the end of September and the beginning of October to take 1 1/2 years' payments, which I believe is in the range of about $8 billion, would have a substantial impact, a substantial cash infusion out in farm country?
Secretary GLICKMAN. Certainly it advances it up, and that will help some folks.
Mr. LUCAS. And going the AMTA payment route, it would make funds available to all people, wheat and cotton people across the board, everyone who had signed up and participated in the 1996 farm bill?
Secretary GLICKMAN. At their option, that is correct.
Mr. LUCAS. At their option, which is the way it should be. One other observation and question of sorts, the administration and past administrations have been very supportive of NAFTA and GATT. You yourself have worked diligently on fast track and have on many occasions made a very strong case for IMF replenishment; in fact, efforts that move us further and further into the world market, which as you and your colleagues have pointed out is an increasingly aggressive place to play or to work and try to deal. You also made comments earlier about the approximately $2 billion cost of doing something like removing the loan caps.
In the spirit of goingand these are questions that are coming up in my district at my town meetings and in my interactions with my constituents. There is a group out there that advocates removing the loan caps and paying the $2 billion. There are other folks who come to my town meetings and say whatever it costs to remove the loan caps, put that into the AMTA payments and allow us to fight more and harder for that market share out there. From which perspective, which would enhance our ability the greatest to compete with the Australians and the New Zealanders and the Canadians and the Europeans?
Page 41 PREV PAGE TOP OF DOC Secretary GLICKMAN. Let me answer it this way. Trade is a critical part of this issue, but it is not the only part of the issue because we have seen what happens when you have giant markets in the world in trouble, as we do right now. I would not want to see us have a support price that is so low in order for us to compete in the world, because I am not sure that we have a Treasury that is big enough to take care of that problem, because you could see prices going down considerably more if it weren't for the loan that is there right now.
So I think it has to be a balanced view of reasonable supports and effective use of our trade tools, with one exception, which I have said before. We do not have an adequate risk management system in America. We do not have a way so a farmer or his banker can know with some degree of certainty that they will not get wiped out because of an act of God, and that is under the Republican and Democratic administration of Congress, and I was here for 18 years and we were never really able to develop a system. What I would like to see us do is use the tools that we have right now and put our efforts in, in addition to developing something so people don't get wiped out when there is an act of God.
Mr. LUCAS. Touching on the topic of CRP, I would urge you, Mr. Secretary, if it requires law changes, if it requires the action of your shop or the changing of minds within the administration, let's utilize those CRP acres. Don't waste that soil. If we are in a period of time when Mother Nature is going to pick it up and carry it off in the air, if we don't need the necessary production let's save that soil for the future. Let's use every authorized acre of CRP, please. I thank you, Mr. Secretary and Mr. Chairman.
The CHAIRMAN. I understand that about 5 million acres are coming out shortly, and you have about 10 million acres available with the 5 coming out?
Secretary GLICKMAN. That is approximately correct.
The CHAIRMAN. Thank you.
Page 42 PREV PAGE TOP OF DOC Mr. POMEROY. Thank you, Mr. Chairman. First let me thank you for having this hearing. It is a very important discussion that we are having today, and I thank you for convening the hearing.
Second, did you indicate that next Monday we would be bringing up the bill to advance the AMTA payments?
The CHAIRMAN. Yes, sir.
Mr. POMEROY. Is the Senate bringing that up?
The CHAIRMAN. If the gentleman will yield, I won't reduce his time for these questions.
Mr. POMEROY. Thank you.
The CHAIRMAN. The Senate anticipated taking up the advanced transfer payments today or tomorrow. There was an objection from the minority.
So if they can work it out, they will try to vote tomorrow. They see no problem in passing it. We would have hoped that they could pass it tomorrow or today, and we pass it Monday and it becomes a reality, as the President has indicated his support and he will sign it. That is the best I can give the gentleman at this point.
Mr. POMEROY. This segues right into my comments. Let us not kid ourselves what this AMTA advance is. Our problem in the upper Plains is not a cash flow problem. Our problem is not that suddenly we have some kind of bills piling up and we have to take care of them this fall and so getting next spring's money this fall will take care of the bills. That is not our problem.
Our problem is that we have had devastating losses and not a cash flow interruption. We just don't have the income. And the AMTA advance isn't addressing the losses, it is a cash flow response.
The press release is going to be, ''Congress Passes $5.5 Billion Aid to Farming.'' Baloney. It is all baloney. All we are doing is advancing next spring's payment.
Page 43 PREV PAGE TOP OF DOC We are taking the money that they need to get crop in the ground in the spring of 1999 and take it in the fall of 1998 so they can pay bills that are immediately due and owing. We are simply letting them have the satisfaction of having Christmas on their farmsteads. We are giving them absolutely nothing by way of a continued ability to farm because we are not meeting their losses.
And so in terms of this AMTA advance issue, I am for letting farmers have the choice and I am going to be supporting that proposal, but don't kid anybody that this is a response to the disaster that somehow gives Congress a pass on passing meaningful disaster assistance.
We have got to have an emergency disaster assistance bill because we have had devastating losses, and under the present structure of farm programs, farmers do not have the ability to cover those losses and that is why this emergency response is so critically necessary. And if you are looking for some rationale when we have a new program and why in the world would we do this, we promised that the crop insurance program would deal adequately with the losses they are taking on the production side, and it has failed. It has failed beyond my expectation, and I was a cosponsor of the legislation. It has failed beyond the Secretary's expectation, and he was a prime advocate and his agency was an architect of the revisions. It failed. It didn't work like we thought it would.
The farmers have suffered devastating results under the losses that they have taken and now we need to make it up to them with an emergency package.
I have some charts that illustrate the structural problems that we are in. On the AMTA issue before I leave it, Mr. Chairman, if we are going to do it, we are going to do it on a fast track and that is what we are going to say to farm country. Let's plus it up just a little bit. Let's add to that AMTA the Combest second chance on the loan bill that we have already had a hearing on and discussed. I think the Combest bill falls short of what we ought to do relative to farm credit, but it is a step forward. Let's put it on the bill. We already heard it. There ought not to be a great deal of contention. It doesn't cost the Treasury.
Page 44 PREV PAGE TOP OF DOC The second thing is the marketing loan period. I am not talking about lifting the caps on the marketing loan. Let's just talk about the marketing loan period, taking it from 9 to 15 months.
In the spring wheat country. The marketing loan periods are expiring. The new crop is coming in. We have got the most god-awful mess in terms of supply coming on the market at once that you have ever seen, which is why we have had the lowest wheat prices that anyone has seen in many, many years.
If we could attach to the AMTA payment advancing the marketing loan period only, I don't think you have a Treasury cost, but you are helping us deal with this glut of supply all at once issue. You are giving the farmer additional flexibility for that farmer to make their individual management decisions to try to get through this crisis point that we are in for agriculture.
Let me then make a comment on the Emergency Disaster Assistance Program. We in the upper Plains have been fighting this lonely fight, and we don't wish bad times on anybody, but we certainly welcome the support of other areas of the country in trying to get disaster assistance. The addition of Texas to the fight is a mixed blessing. We have a lot of horsepower in Texas advocating for emergency disaster payments, but suddenly if we take the North Dakota disaster package or the or Upper Great Plains disaster package and spread it out, suddenly we make a nominal response rather than a serious response to the emergency disaster assistance.
We are going to have to make a difficult decision. Do you limit the response to multiyear disasters, or do you significantly increase the price tag? I will vote for significantly increasing the price tag of emergency response and broadening the criteria. But the worst thing to do would be to liberalize the criteria but leave the amount the same, because then it wouldn't be a meaningful response. We would raise hopes and we again wouldn't deliver. We can't go that route.
Page 45 PREV PAGE TOP OF DOC If the members would by unanimous consent give me just a moment, I wanted to point out some structural issues relative to the farm bill.
The CHAIRMAN. Without objection. The gentleman's time is extended 2 minutes.
Mr. POMEROY. Farmers have risks they can't control, and the structure of farm policy ought to be to assist them in managing those risks. Those risks are production loss and price collapse, and the tools presently are falling short.
On the price collapse issue, we virtually have nothing out there but the AMTA payments themselves. And let me show you for wheat what the structure of the AMTA payment is now and going forward. We have taken the big hit and we are moving rapidly downward to where there is no bottom line price protection for wheat. Wheat is something that everyone can grow and has enormous volatility. Price protection has to be this, a road to nowhere. We also have production problems and this is where the crop insurance has fallen so far short.
Basically farmers can't cover their exposure, and that is the bottom line problem. It is like having a $20,000 car financed for $18,000 and being able to insure it for $5,000. That is what we are having in farm country. Here is the cost, $108, and we see a declining coverage level down to $59, so they are only able to insure a fraction of their cost exposure.
Now a family size farm can't continue with those uncontrolled risk exposures. Sooner or later you run into the price and production problems, or you have years like we have had in North Dakota where you have no crop and no price, and it tips you over.
The consequence is we are seeing relative to profitability in agriculture in North Dakota a situation where the net farm income is in free fall, in free fall, yet the cost of farming is going up. Inputs alone up 71 percent since 1992. This mismatch cannot continue.
My final chartand let me just hold this up because I know some of these peoplethese are the option sales in March and April of last year. And this is nothingthis was just typical, this was taken from a week's, a couple pages in a weekly agriculture periodicalthis is nothing to what we are going to see if we don't do the following: emergency disaster assistance now.
Page 46 PREV PAGE TOP OF DOC And secondly, structurally revisit the farm bill and give family farmers some bottom line ability to manage their risks on price and to manage their exposure on production loss.
I thank the chairman and I thank the committee members.
The CHAIRMAN. I thank the gentleman for his information. The extension of the loan is rated by CBO as $403 million the first year, which means if we incorporate it we lose jurisdiction to the appropriators. We will look at the Combest bill as the gentleman suggested, but to move the AMTA issue immediately, which I hope we can do, we need to stay away from other jurisdictional problems.
For the gentleman's interest, the North Dakota share of AMTA, which will be available to farmers by the 1st of October if we pass this bill, is $215 million. That is not to suggest, as the gentleman identifies, that this is the answer, total answer to anything.
However, he and I agree that moving this opportunity at the choice of farmers is very, very important now in a cash low situation in agriculture.
Mr. POMEROY. Mr. Chairman, I agree with you and I am for giving the farmers that flexibility and I will vote for that measure, but really we are talking about letting them access next spring's operating money to pay this fall's bills; and it doesn't do anything but kick the problem down the road a little ways, conveniently for us a little past the election period, but it doesn't structurally answer a thing in terms of problems in farm country.
The CHAIRMAN. It may save the farm. Mr. LaHood.
Mr. LAHOOD. Thank you.
I met with the FSA administrator about the proposed future cutbacks in FSA offices. I think it is going to be very bad all over the country. I appreciate the flexibility that you have given to FSA State directors to really look at where the services need to be delivered. Rather than saying I have 40 offices in Illinois, we have 102 counties, it is silly to do that, and I think that is the right way to go. But now they have another thousand or 1200 employees reduced. I think it is very, very bad, and I think we share some of the responsibility here for that, and I hope you will look carefully and give as much flexibility as you can to that.
Page 47 PREV PAGE TOP OF DOC I just want to talk about this trade policy thing for a minute because I think it is critical. When you came up here with Alan Greenspan and Secretary Rubin, I think you made the case for IMF funding. You absolutely did. And you have gone all over Capitol Hill doing that, and I fault our leadership for not bringing that up. I hope we do it at the amount that the administration has asked for. I think we should do that and I think you all make a very good case for that. Many of us supported MFN funding, and we also think that is going to be very, very helpful.
I do want to give you my perspective on fast track because I am very irritated at the administration; not at you, because I know that you have worked hard, but at the administration.
Specifically, I want to say something about the President's efforts, which I think have been abysmal. He went down to South America and talked a very good game about fast track, and he went to China and talked a very good game about fast track. He has run all over the world outside of the U.S. borders and talked the talk about fast track.
He comes back to this country2 days this week in a publication that is published here on Capitol Hillthis publication hereone day Ms. Barshefsky is saying we don't support fast track; yesterday Mike McCurry is saying we are not going to support fast track. Now, you can't have it both ways and I don't mean you, Mr. Secretary, but I do mean the President.
Because it is an election year and because he doesn't want to honk off, to use a midwestern term, the labor unions and the Democrats, he goes elsewhere and talks a good game about fast track, but he doesn't do it in this country. And what happened last time was we were within 8 to 10 votes of passing fast track, and you worked very hard on the Democratic side on the phones to do that, and I believe that the President tried, but at the last minute the President decided we were not going to take a vote on it, and he and the Speaker made that decision, but the Speaker tells us the President made that decision.
Page 48 PREV PAGE TOP OF DOC And now, a year later, he talks a good game outside the U.S., but he has not talked the talk on Capitol Hill, and we need to pass fast track. It is very important. He needs to get to the bully pulpit and take examples from you and others who are promoting fast track. That is the way that it will happen. I think it is important for some of the problems that we have in farm country. And I listen to what Mr. Pomeroy says and I listen to what you say and I know it is not the only answer, but it is part of that 3-legged international stool that we have in order to engage our ability to really have exports.
And finally, you don't need to respond to this, this is something that I have been wanting to say, because at the last two full committee hearingswe have to go vote. Let me just say that I just had a meeting with some of my central Illinois farmers, and we grow a lot of corn and soybeans, and we are not in as bad a shape as some other areas of the country. As a matter of fact, we are in very good shape. But as a member of the Agriculture Committee, I want to find and be part of the solutions, and part of it is fast track. I hope that we can get the message back because I think it is very, very important for our ability to free trade, fair trade and have the markets to do it. And I thank you for letting me sound off, Mr. Chairman.
The CHAIRMAN. I thank the gentleman. And the Secretary may cogitate on the answer while we vote. There are two 15-minute votes. We should be back here in 20 minutes. We will recess for 20 minutes.
The CHAIRMAN. Without objection, Mr. LaHood is recognized for 1 minute.
Mr. LAHOOD. Mr. Secretary, do you think in reality that we can get the President engaged in fast track this year? And I don't want to put you on the spot, and if you don't want to really get involved in this, you don't have to.
Secretary GLICKMAN. With my great respect for the outstanding member from Peoria, Illinois, which is the headquarters of one of the most important research laboratories in the United Statesone by the U.S. Department of Agriculture, and one that he works very hard to continue thereI would say that it looks to me like we are going to have to get a lot of people engaged. And the last count I had was, a majority of the members of House Agriculture were against fast track. So I don't know where the votes are.
Page 49 PREV PAGE TOP OF DOC I can tell you this, that the President worked very hard, made dozens, if not hundreds of phone calls, and my judgment was, the Speaker and the President made, essentially, a joint decision not to go ahead with it.
What I don't want to see is, I don't want to see a focus on fast track somehow pull IMF off the track, and that is what worries me, because, you know, let's be honest about this, there are a lot of political consequences. Some people think that maybe the fast track vote is being put up at the very end of September, not necessarily all for trade purposes. There might be some, God forbid, political implications to this vote one way or the other.
The CHAIRMAN. Will the gentleman yield?
Secretary GLICKMAN. But in any event, I don't say that is the desire of anybody here. But it would strike me that anything that sidetracks IMF is a serious mistake, that is all.
Mr. LAHOOD. Let me just conclude, Mr. Chairman, by saying that one of the things I do like about Mr. Glickman, who is a former member of the House, is he is very bipartisan. He has been to Peoria, Illinois twice. He has been there to tour the agriculture lab and see what wonderful work goes on there, and he came there to announce a program, which is a great, great program for our area and saving the Illinois River.
I appreciate all that you do. Thank you.
The CHAIRMAN. I just want to correct the Secretary. There has been another count, Mr. Secretary, since last year. And don't worry that the Agriculture Committee, by majority, is very interested in fast track; we are going to pass it. We are very interested in IMF; we are going to pass it. We need the help of you and the President and the Members. Now, we will have the Members; we need you and the President on both.
And I must say to you that I am not speaking alone, Mr. Stenholm, and I and other members have agreed that this is our purpose, our dedication, and we are going to pass both. So don't think it is a political gimmick, and don't think we are going to pass fast track and sacrifice IMF. We are not, nor are we going to sacrifice IMF and pass on it, either way.
Page 50 PREV PAGE TOP OF DOC Secretary GLICKMAN. I would say, just say so that you know, I have great respect for you, I don't believe that you are involved in any conspiracy or gimmickry at all. I think you are dedicated to seeing this thing pass.
The CHAIRMAN. Absolutely. And by the way, if I were dedicated to some sort of political gimmickry, I would still remain in Congress and not go back to Oregon.
Thank you, Mr. Secretary.
Mr. COMBEST. Mr. Secretary, I think it has to be said based on what you have saidand I think you know me from a lot of years of experienceI don't get into political games. But the same thing could be said about the administration's apparent lack of support, that it very well could be a political gimmick. And the thing is that just because it is an election year, I don't thinkI don't believe that that means we should do nothing to try to do things right.
The effort was made once before and it wasn't there. And we think that the dynamics have changed substantially; given the conditions in agriculture today, that possibly gives us that chance. So, you know, the politics of it can be played both ways.
Secretary GLICKMAN. I don't disagree with the fact that it has been known at some point in time that my side of the aisle has engaged in the political game, the same way your side of the aisle has done it. I am just saying that in terms of the relative significance to the country and to farmers over the short term, the IMF is more immediate than that.
Mr. COMBEST. I don't disagree with that. But you also have to know to schedule things around here when the conditions seem to be right. And I think, unquestionably, the conditions in agriculture today, and I think the support we will see for fast track is going to be substantially higher than it was before.
Page 51 PREV PAGE TOP OF DOC Mr. LAHOOD. Would you yield just on that point?
Mr. COMBEST. I would yield back.
Mr. LAHOOD. Let me make this one point. I think for the long haul, people who want to short-circuit Freedom to Farm, fast track means so much more in terms of our market and the our ability to really have the markets to make Freedom to Farm work. I agree with you on IMF, in the short term that is important. For the long haul, fast track is very important if we are going to have markets out there for the things that we do.
Secretary GLICKMAN. I can't resist saying that H.L. Mencken once was asked, what is the difference between the short haulshort term and the long term. He answered, long term, the only difference is, we are all dead.
I am not saying ignore the long termthat is not necessarily a good analogy, but we have to deal with the short term first.
The CHAIRMAN. Just quickly, Mr. Schumacher, answer me this question. Without fast track, what tools do you have and does this administration have in the revisitation of the 1999 Uruguay Round in the WTO renewal of the decision-making?
Mr. SCHUMACHER. We will need fast track at some point once we get into the final agreements, to get that done.
The CHAIRMAN. Of course, you will. Thank you.
Mr. BERRY. Thank you, Mr. Chairman. I, too, appreciate your holding these hearings and appreciate Secretary Glickman, Under Secretary Schumacher, being here.
Mr. Secretary, from what we have heard today and from all the information that is coming from the countryside, I think there is no question but what we have got an abundance of wheat that has already been produced, and we are looking at a bumper corn crop and, very likely, more transportation problems moving some of that product out of the country and getting it to the market.
Page 52 PREV PAGE TOP OF DOC And I wonder if you all have looked at using export enhancement programs to try to move some of this grain and get it on out of here now, so we will have room for the winter crop or the fall crop coming in? I know it is a consideration in our part of the country as well as the Midwest.
Secretary GLICKMAN. Well, Marion, let me make the following comments.
Of course, we have used EEP for barley recently and in the case where we are being tread upon by subsidies, excessive subsidies by foreign nations. The heart of the use historically has been to meet those kinds of threats.
We are currently looking at it in the connection of wheat flour. Recently, thejust the last few days, the Europeans, particularly the French, have been reported to have sold wheat to Egypt at fairlywe don't know what the level of the subsidy is. We don't even know if that has been established yet, but we are watching that very closely to determine if that level of subsidy would warrant us to respond in kind, which would be the use of EAP.
I also appreciate your comment on transportation, because I think one of the discussions has been, you need to move grain in order to clean up the backlog. That is not the only reason. Certainly another thing is humanitarian. The donation of 2 1/2 million tons, which is $250 million worth of productfor humanitarian, by the waythat is 60 percent more than the EEP authority that we have right now. We have $150 million in EEP, but this CCC authority is $250 million worth of donations. Theoretically, we will have some movement in that direction as well.
But, saying that, the belief is we need to use EEP to meet fire with fire, and we are examining the use of that authority in connection with these other European sales.
Now, let me just tell you a couple of things. Generally speakinggiven the world stocks today, $150 million worth of EEP is nothing. Next year, the budget could be $550 million, which would be a larger amount to deal with the Europeans that might be sitting over there with 10 times that amount in subsidies. If you are going to go down this subsidy road, you have to have enough resources to meet that threat, or else we will get pushed out of whatever sales that we have been trying to make, and that worries me.
Page 53 PREV PAGE TOP OF DOC Second, what worries me a little bit is that the use of EEP probably will have the consequence of bringing in lower-priced grain from Canada, because they are sitting up there with very large quantities of wheat. That concerns me.
And three, you know, you could get down to the point in Ray LaHood's district where the price of wheat isthe prices of both corn and wheat are down, but the price of wheat in Ray LaHood's district, I suspect, is not much over $2 per bushel, low $2. And if you begin to drop that price of wheat considerably, it would have a significant effect on feed use of corn, which would affect his area.
So I don't mean just to say that we are not looking at EEP, because we are, particularly to meet these foreign threats. But with the huge quantity of wheat that is in the world market, it is a fairly complicated issue.
Gus, I don't know if you have any additional comments on that, but, sobut I am worried about this latest sale to Egypt; and we are going to make sure that we know all of the consequences of the sale. Notwithstanding all that I said, if we are being tread upon by excessive subsidization by the European Union, we will not sit by with our hands tied behind our backs.
Mr. BERRY. I appreciate your remarks, Mr. Secretary. As you know, I am just a poor old dirt farmer from Arkansas.
Secretary GLICKMAN. That is why I am careful when he says that.
Mr. BERRY. But I do know that shortage of storage and poor transportation capacity and low markets and a bumper crop end up with mighty poor farmers, and that is something I am very concerned about for this winter.
Secretary GLICKMAN. I might say, as you know, I do not have the authority to or the money to provide storage facility loans. And the appropriators, I don't think they gave me any money to do that, and that is something that would probably be of help right now. That is another reason why Mr. Pomeroy talked about loan extensions might be of some help, as well, too.
Page 54 PREV PAGE TOP OF DOC Mr. BERRY. Thank you, Mr. Secretary.
The CHAIRMAN. I thank the gentleman. Just to amplify his point, Mr. Secretary, you can leverage those EEP funds and leveraging them at 50 cents a bushel gives you the chance to sell 500 million bushels before the end of the year. That is not insignificant.
I just want to make sure we understand that you can leverage $150 million.
Secretary GLICKMAN. You could use any kind of subsidy you wanted, to get as much grain sold as you wanted, is what you are saying?
The CHAIRMAN. That is what I am saying.
Secretary GLICKMAN. Yes.
The CHAIRMAN. With the money you have now. Thank you.
Mr. MORAN. Mr. Chairman, thank you. Thank you for holding the hearings.
Mr. Secretary, thank you for being here, and I appreciate your being in Kansas City, where I thinkalthough I was not there for the entire time, I think you heard about the crisis we have in rail transportation, as well as other modes of getting commodities to market. And I appreciate you and Secretary Slater taking the time from your schedule to come and address that issue.
I think the Department has been very good in the area of transportation, agriculture transportation for a number of years on a number of issues, and I am grateful. As much as I hear about commodity prices as I travel the First District of Kansas, and in theit must be in Wichita that you know who H.L. Mencken is. In the western part of the State, that is a foreign name to us. And I will have to look and see who you are quoting.
Secretary GLICKMAN. Whoever it is, he said what I said he said. You just have to trust me there.
Page 55 PREV PAGE TOP OF DOC Mr. MORAN. Mr. Secretary, you hear almost as often as commodity prices, the lack of rail transportation, grain storage on the ground. We anticipate a different problem than the upper Midwest with a huge harvest. It wouldn't surprise me that Kansas' wheat harvest perhaps will be the largest ever, outdoing last year's pace, which was the record before, followed by what appears to be a tremendous fall harvest. And we are lacking greatly in grain storage capacity following the fall harvest, and rail transportation.
I want to follow up with what the gentleman from Arkansas said. I think there is value to the Expert Enhancement Program in the short term as well as the long termshort term dealing with storage transportation, commodity prices, but in the long term as a tool of meeting the threat we face from our competitors.
If EEP is not the answer, what is the answer to this tremendous disparity in subsidization by the European Community compared to the United States? What leverage do we have in succeeding in our fight? You had mentioned fighting fire with fire.
What is it that we need to do to convince the Europeans to reduce that subsidy, and what is it that we must do to demonstrate our commitment to opening up markets, absent the use of EEP or some other tool and
Secretary GLICKMAN. Go ahead, I am sorry.
Mr. MORAN. And I know that the Department talks about EEP not being the perfect tool and we ought to look at using those dollars elsewhere. I think it is past time for the Department to tell us how we ought to be using that money.
Is there a better way of getting money directly into the pocketbooks of family farmers? And particularly in light of the French sale to Egypt, which at least is reported to be a subsidy of a dollar a bushel, what is the Department's thinking?
In my past discussions with the Department about the use of EAP, it has been that the Europeans have been restrained; therefore, we don't want to rock the boat, is what I think is the story that was previously told.
Page 56 PREV PAGE TOP OF DOC Is there a change in what is going on in the European Community? What trend is being set? What do we do next?
Secretary GLICKMAN. Let me just say this, since the Uruguay Round, the fact is that the Europeans have been restrained. But in recent months, it seems to be turning, and they should know that that will not go unmet. And now I do not know the specifics of this recent sale. That is where Gus was saying, we don't know what the subsidy level is other than the anecdotal reports or the hearsay reports.
But we cannot let EU dump grain onto the world markets and us do nothing. And the question is, dumping occurring?
This is very interesting, a reporter just asked me, right before we started again, if the Australian trade minister called on me to stop dumping U.S. grain in Indonesia, because of our donations of CCC grain for humanitarian purposes. He says what I am doing is dumping grain in Indonesia and taking their markets away from them. So dumping is always in the eyes of the beholder.
My response to that is, the United States has always engaged in the humanitarian assistance to those countries in the world which need our help. We have surpluses. The program has been on the books for years and years and years, and it is not intended to displace commercial sales.
Mr. MORAN. Is there any indication that the French action is in response to the providing of the commodities to those countries?
Secretary GLICKMAN. I don't think so.
Gus, do you have any comments on that?
Mr. SCHUMACHER. No. What information we have so far, we will sendwe will keep you closely informed, as we discussed earlier. From what we understand, the EU only accepted bids for 20,000 tons on that so far.
Page 57 PREV PAGE TOP OF DOC Secretary GLICKMAN. Twenty thousand tons?
Mr. SCHUMACHER. That is pretty modest, and we are watching this very carefully, and I want to keep you all very informed on that issue.
Mr. MORAN. Mr. Secretary, if we don't use EEP for the purposes of combating those, it is the chart in my office that I keep going back to the $47 billion European Community, the 5.3 in the United States in support of agriculture.
What incentive does the European Community have to negotiate or to remove that tremendous difference; and if we don't solve that problem, how can we expect farmers to farm in the market?
Secretary GLICKMAN. Well, I think it is a good question. I think you have to look at where they subsidize, and the biggest chunk of European subsidies is in the dairy industry; it, by far, dwarfs everything else. So the share of $47 billion that actually goes into grain subsidies in the export market is quite small.
It is true they spend a lot of moneythat is, the biggest part of the EU budget is in agricultureand we will see whether they adopt in the common agriculture policy an effort to reduce that spending.
But let me say in the barley situation, we determined it was inexcusable that they did that, and we had to meet that threat. We are looking seriously at the wheat flour area, which I have said before. And we won't tolerate the kind of subsidies that are geared to dump grain into the world; and we will use the authority, if we have to.
I would have to tell you that it is as much a political message as it is an economic message, because with the vast quantity of wheat in the world, you recognize that EEP can be an effort to pull prices down, not bring prices up.
Mr. MORAN. My constituents often tell meand I'm sorry, Mr. Chairman; I will wrap up quicklythat we ought to reestablish quotas, set-asides, determine how much grain we can grow in this country. And the fact is, at least in wheat, we raise 11 percent of the world wheat, which means what we do here in that regardsimilar to what you are saying about the volume that is out there, our ability to influence the market is unfortunately limited in trying to control supply.
Page 58 PREV PAGE TOP OF DOC Secretary GLICKMAN. And what we do in wheat affects corn. And we are the big player in the world corn market. We still grow, what, three-fourths of the world corn for export purposes. And we have to be carefulI mean, the crops do relate to each other.
Mr. MORAN. I encourage you to continue your EEP for wheat flour.
Secretary GLICKMAN. Thank you.
Mr. MORAN. Thank you, Mr. Chairman.
The CHAIRMAN. Thank you, sir.
Quickly, Mr. Secretary, wouldn't you agree with me that the only way to change EU policy is in the revisitation of the Uruguay Round in 1999? And that is, partially, you and Mr. Schumacher and the USTR are going to be our chief negotiators; and without fast track, you can't do it?
Secretary GLICKMAN. Well, certainly without fast track ultimately passed, you can't do it.
The CHAIRMAN. Thank you.
Mr. BOSWELL. Thank you, Mr. Chairman. I will be short. I appreciate your having this meeting. I have two things: I have got a short statement I would like to include in the record; is that all right?
The CHAIRMAN. Absolutely, without objection.
Mr. BOSWELL. And second I would just make a brief remark.
I think it was February 12 that we met in this room with Mr. Greenspan and Mr. Rubin and the Secretary here to have an informal conversation right around that table, and we talked about things. And IMF was a subject that day, and not always did Mr. Greenspan and Mr. Rubin agree. And I think that is all right, but this day they were in agreement, as well as you, Mr. Secretary, that IMF wasat least short term, was a very serious matter with what we saw going on in the Pacific Rim, et cetera. And the point was made, they can't buy if they don't have money.
Page 59 PREV PAGE TOP OF DOC And I was quite impressed at what Mr. Greenspan said at least, asking maybe four or five different ways about it. But he was very consistent, and the twothe other two of you agreed that we never lost a dime on IMF, that it is kind of like a line of credit. If they use, they have to put up hard collateral, sometimes gold, whatever; and if we don't replenish that, the first impact is going to be on agriculture. And we have certainly seen that happen.
So I am very concerned about that. I walked out of here convinced on February the 12th that we need to really work on that, and I have tried to convince people that I have contact with to agree, and some are.
I am very disappointed that this is being put off until September now. I don't know why we can't deal with this right away.
And the other factors are important. I want to see tradeI have got a history of thatbut IMF has got big concerns for me. So, Mr. Chairman, if there is something I can do to help you get us to go on before we go on break, I would be willing to sure try.
The CHAIRMAN. I agree with the gentleman, and I thank him for his effort.
Mr. BOSWELL. Thank you.
The CHAIRMAN. Mr. Ewing.
Mr. EWING. Thank you, Mr. Chairman, for the meeting and thank you, Mr. Secretary, for all that you do and for being here. I want to add my voice to the cause for fast track and IMF. We will do our best to get those both passed in a very timely matter. I do believe the success of that can be impacted greatly by what the administration does.
What bothers me somewhat is the discussion today about the problem areas in the United States with agriculture; and I don't doubt that we have them in the upper Midwest and in Texas and across Georgia where we have had droughts. It seems to me there is kind of an undercurrent here that under the old farm bill, we had a panacea to handle all of these.
Page 60 PREV PAGE TOP OF DOC What was that, Mr. Secretary? I don't remember it.
Secretary GLICKMAN. The only thing you had that handled the disasters, of course, is ad hoc disaster assistance; and that was in addition to crop insurance program that was less ample than what we have right now.
Mr. EWING. That is the way I remember it. And yet we talk about doing the disaster payment.
One of the things that I am most proud of the Clinton administration's doing when I was first in Congress was, they added a billion dollars to the crop insurance program so that we could have a program that would be a safety net. We couldn't do that and didn't do it under the Bush administration, but we did it under the Clinton administration.
I wonder if we pass another ad hoc disaster, what do we say to the farmers in Illinois? And they have had to call on that crop insurance program; we have had our bad times, too. What do we say to the farmers that are paying for their crop insurance and aren't going to have a claim? Are we saying, don't worry, ad hoc disaster payments are back?
Secretary GLICKMAN. Well, that is a very good question, and let me answer it this way.
Number one is, whatever you do, by and large, I think that you have got to make your disaster assistanceyou have to bootstrap on it those people who have bought crop insurance; otherwise, you do have that problem.
Number two is that we have a serious problem with the livestock industry. Livestock is uncovered in terms of risk management for crop insurance. And we used to have a livestock feed program before 1996. After the 1996 farm bill, we have no livestock feed program authority, so that is one area where there is a big gap. And we have been able to come up with some alternitives to deal with that through the Disaster Reserve Assistance Program and others, but that needs to be helped.
Page 61 PREV PAGE TOP OF DOC But let me just say something because, Tom, some parts of this country just don't have the level of disaster programs that other parts of this country have.
Some people are blessed and living in areas that, generally speaking, if you have a crop disaster, it is one out of 6 years, 7 years or 8 years, and you probably live in one of those areas in terms of few large regional disasters. Other places have them all the time. I mean, it is just a fact of life; they have them all the time, and they have them more frequently.
So the question is, what do we do? And our program has to be run in an actuarially sound way under the statute. So what do these folks do in an area that has disasters all the time? And you have got to make it actuarially sound where we end up increasing their premium and decreasing their indemnity. And it justironically, in the cases of the two regions of the country, in the Dakotas and Texas, they can't produce a lot of high-yielding crops there. So we have some gaps in this program.
Some places it works much better than others. And by the way, we said we are probably going to pay in excess of $500 million in crop insurance in the State of Texas. So there is a lot of money going out there as well, but we do have gaps in that coverage in some parts of the country.
And we also have gaps with respect to crops that aren't covered by insurance, but under the NAP program; that does not work very well. And what we do there is, try to develop insurance products. But, we don't get these new crops insured as fast as we should, at the same time we have encouraged farmers to plant flexibly, try new crops. So I mean, I do think it is a real burden for us to come up with some way to deal with these problems.
Mr. EWING. Well, Mr. Secretary, I think we also have to look at the reality. If you have disasters 4 out of 5 years, maybe that is not an area we should be encouraging continued production if we are overproducing.
Page 62 PREV PAGE TOP OF DOC Mr. POMEROY. Will the gentleman yield?
Mr. EWING. No.
Mr. POMEROY. This is a very important point, Tom. Let me respond to you.
Mr. EWING. Mr. Pomeroy, I will yield to you when I am through, on your time.
Mr. POMEROY. All right.
Mr. EWING. Do you understand my question, Mr. Secretary?
Secretary GLICKMAN. The only problem isI understand your questionthere is still a human face to this. You still have people living in these areas.
Mr. EWING. But government policy has helped create some of our problems because we have always come with the disaster payments.
Secretary GLICKMAN. Well, you know, my response to you is that life is not totally fair, but at the same time, there are places in this country that rely on agriculture that are just more risk prone; and what we have to do is, we have to have a policy that deals with that.
The other thing I would say is, we have weather cycles. I don't know what kind of weather cycle we are in. Texas and the Southwest have had the hottest and driest weather since they began keeping records by the United States Weather Service.
You know, maybe that will happen, God forbid, to Illinois and Indiana and you end up not being able to produce corn for 3 or 4 years, you might get 60 bushels an acre or something. It hasn't happened yet, but it could happen, and I think we need to be prepared for that kind of a scenario.
Mr. EWING. Mr. Chairman, I would like to ask permission for 2 additional minutes.
Page 63 PREV PAGE TOP OF DOC The CHAIRMAN. Without objection.
Mr. EWING. We have had
Mr. SMITH of Michigan. Reserving the right to object. Will the Secretary be here so that all of us have a chance to ask questions?
The CHAIRMAN. Yes. The Secretary is planning on the evening with us.
Mr. EWING. Thank you, Mr. Smith, for not objecting to mine or any of the others before me.
We have had those years even in Illinois where we have some of the best soybean producing country in the world, and we are blessed with that.
Let me cover one other point, which I think was important. When we did Freedom to Farm, we said we were going to do some other thingswe were going to promote a fair tax policy for farmers, death taxes, capital gains; we have done some of that. And we said we were going to have fair regulations, or we were going to try and curtail excessive regulations. We could get more help from the administration.
The methyl bromide issue is one that is very important; HM200, which is the desire to make every farmer deal with hazardous wastes like they were carrying it across five States, which the University of Illinois said would cost every farmer in my district $2,000; those are things coming out of this administration. I would ask your help and your influence with your fellow Cabinet members and others in the administration. We don't need that; that isn't fair regulation, and I would just ask your help on that.
Secretary GLICKMAN. Thank you.
The CHAIRMAN. I thank the gentleman. By unanimous consent, I am going to yield 1 minute to the gentleman from North Dakota.
Mr. POMEROY. That is very decent of you, Mr. Chairman. I appreciate it.
Page 64 PREV PAGE TOP OF DOC The point I want to make back to my friend, Congressman Ewing, is that agriculture in North Dakota goes back a long, long way. They go back a century. I represent more agriculture under production than any other Member of Congress. We are the No. 1 production State for durum wheat; we are the No. 1 production state for spring wheat.
Often our production exceeds Canada in terms of wheat. We are always jockeying in terms of who is the No. 1 wheat State. We are No. 1 in sunflowers. We are No. 1 in canola. We are No. 1 in all kinds of things. And the gentleman ought to look the third- and fourth-generation family farmers in the eye, as I do, and see them struggling to continue this legacy on their land and tell them that they have got no business trying to farm in that area.
It is fine farmland; it has had a century of production history, but the problem is weather cycles and disease cycles. And we have got a real wet cycle that has given us some new diseases that we don't have the strains to deal with that very well, and this will happen. It happens to our area now; it will happen to other regions as well. It is not an indictment in terms of the essential productive capacity of the land or the ability of North Dakota, for heaven's sake, to sustain agriculture. That is a given.
The CHAIRMAN. Mrs. Clayton.
Mrs. CLAYTON. Thank you, Mr. Chairman. Thank you for holding this hearing.
I want to agree with Mr. Pomeroy, this is a very important hearing on the agricultural economy or the status of the agricultural economy. I also want to thank the Secretary for being here and being willing to stay and respond to what the administration is doing, or plans to do or doesn't plan to do, so we will have a feel for how to respond to this.
As you have heard our colleagues describe what is happening to our farmersand when they say ''farmers,'' they are also talking about large farmers, as well as small farmers, I presume. But let me just say, if indeed there are serious dislocations and difficulties for large farming, you can understand what there must be for small family farmers. Indeed, if they are having to respond to the many forces in the economy and the global economy, in addition to that of weather, you can begin to understand what is happening there.
Page 65 PREV PAGE TOP OF DOC If I just look at North Carolina, North Carolina farmers started out this year without much optimism. And I am told due to a variety of reasonsone, the present economy prices, increased debt load, increased operational expenses, not feeling very good about the Freedom to Farm bill, Mr. Ewingthey aren't too sure whether that is exactly what they have. They have a question about that.
Somethere is still a question whether thatI am not necessarily saying that is the cause of the problem, but that is one of the things that give them worry, whether they will survive post-Freedom to Farm.
They also have in my State the additional burden of not knowing what this whole tobacco settlement is. I have the burden of tobacco farmers. And then we have the severe weather all there together. And there are some who will say the Government shouldn't be involved in any of those risk managements; indeed, we should have completely no aversion to risks or intervention by the Government. There probably is a limit to what the Government can do or should do, but I, for one, think there is a role that the Government can play appropriately when there are severe interventions and dislocation of economies.
Now, I was pleased that the administration did take some action, I think it was last week, and I just want to go through that, if Iso I can understand it.
My understanding, and I gatherI got it from one of my colleagues; there were some problems in the action they took in finding the donor countries; my understanding, the countries were Sudan, Indonesia, Ethiopia, North Korea. Is that correct or is that not correct?
Secretary GLICKMAN. Mr. Schumacher might know the answer to that.
Mr. SCHUMACHER. Congresswoman, we are working to finalize the initial group of countries. Sudan is in terrible, terrible condition, as we have seen in the papers and on television. We are working very hard to include Sudan. And as the Secretary mentioned, Indonesia is in very powerless economic condition. USAID Administrator Brian Atwood announced in Paris that we intened to include Indonesia in the generous donation under the CCC Charter Act as well. The additional countries we will be announcing very, very shortly.
Page 66 PREV PAGE TOP OF DOC Mrs. CLAYTON. So I am not correct in assuming that Ethiopia and North Korea is part of the group?
Mr. SCHUMACHER. We will be announcing those details very shortly. We have to work out some details.
Mrs. CLAYTON. I hear you.
The other concern I have, and I have had it for some time, is the whole issue of credit, the availability of credit; and the availability of credit to socially disadvantaged farmers is as critically important as is the availability of farmers who indeed can get unguaranteed loans.
So hopefully we not only can find how we take care of the one time you're out, but also the credit that is usually available at the market price, if people want to elect not going into the buying selling their surplus and to the credit corporation. I think the availability of credit is central in terms ofnot only for meeting this short term, but also some structure change in that, so people will have a dependable source of credit in the future.
One of the solutions, I understand, is the advanced payment of the AMTA payment. I just want to ask this question, if I may, H.R. 4265, as currently drafted, do you have any problems with that?
Secretary GLICKMAN. In principle, no, but I have indicated that I have talked to Mr. Smith and his staff, that I want to make sure that the legislation is clear that producers would have options of either receiving their full payments at any time they choose or an option of receiving, frankly, no more than two payments of the same predetermined fixed percentage for all producers.
My point is, however we do this, we have got to have the flexibility so it doesn't create a scenario where people can come into the county office at any time and get any portion of their payment. That would be absolutely impossible for us to administer.
Page 67 PREV PAGE TOP OF DOC Mrs. CLAYTON. So you want a fixed plan?
Secretary GLICKMAN. We need the flexibility to determine how to do it on a practical basis. You are moving the advance payments up 4 months or so, and the final 12 months. And so we propose either getting the full payment at any time they choose within that time period, or the option of receiving two payments of the same predetermined fixed percentage for all producers receiving those payments at any time during the fixed year at their option.
What you need is, you need a predictable way of doing it in advance so that we can set up our computers to handle the process which should be in the form of legislation, which we would prefer. Our lawyers say it has to be in legislation, but administration is the thing that I am most concerned about.
The second thing has to do with the landlord/tenant situation, ensuring we have the resources to deal with it. We have to do that anyway, as Mr. Smith says. But, moving it up is a work load problem as much as anything else.
Mrs. CLAYTON. May I just ask for one more minute? Thank you.
The capacity of the computers, the technical capacity, but also there may be a capacity for staffing; and I think I want to join some other staff members. I have already had delegations of farmers come visit with me that are about to propose cuts that are not based on work performance, but based on kind of an arbitrary scheme to downsize.
Now, we are talking about giving them an extra, a responsibility for work to be responsive to the farmers, and we are not adding to that. So you can begin to understand the difficulty to be able to respond to that.
Now, is there some revisitation for that, do you know?
Secretary GLICKMAN. Well, you know, it depends on the appropriation amount we get from the appropriations bill. But if that amount goes through as it is, there will be significant additional reductions in the Farm Service Agency next year.
Page 68 PREV PAGE TOP OF DOC Mr. SCHUMACHER. We are very concerned, and Mr. Minge raised this earlier; it is not only greater efforts in the Dakotas, but in Texas. We just came back from Oklahoma and Texas. We are not only dealing with farm credit and LDPs, but if the new legislation that you are considering goes through, there will be emergency assistance. And then if this additional advance goes through, we are going to be extraordinarily stressed at the Farm Service Agency to administer this. And I am very, very concerned, as Mr. Minge says, we may have to revisit this at the appropriating level to sustain our services and make budget adjustments to them.
Mrs. CLAYTON. I would be remiss if I didn't say, though, although the emergency issues that we have been talking about are very goodI support all of themI think eventually if our problems are severely hurting any State, whether it is Texas or North Dakota or wherever, all of us eventually are affected because the economy as a whole is perceivedour American economy for agriculture is significant.
However, tobacco farmers in my State have a different set of problems. And I think I want to just commend the Secretary, who is going to come to my State very soon, hopefully, that this committeeI know you don't want to deal with that, but I have to deal with it; that is the jurisdiction of this committee.
Mr. Chairman, I want to lay on your plate of things you need to look at, how we begin to lookhow we look at tobacco farmers as well.
The CHAIRMAN. Mr. Chambliss?
Secretary GLICKMAN. Mr. Chairman, let me just sayI have got your bill in front of meand I just think we need, as long as we are here, see if we can work on this.
It says, ''notwithstanding the times for making the payments, the Secretary shall pay the full amount, or such portion as the owner or producer may specify of the contract payment required to be paid during fiscal year 1999, at such time or times during that fiscal year as the owner or producer may specify, so long as the full payment is completed by the end of that fiscal year.''
Page 69 PREV PAGE TOP OF DOC Now, what I don't want to get into is a situation where somebody comes in and says, I want 2 percent next month, I want 5 percent the following month, I want 13 percent the next month.
The CHAIRMAN. That is clear, Mr. Secretary.
Let's move along. I understand. I understand.
Mr. CHAMBLISS. Thank you, Mr. Chairman.
Mr. Secretary, I appreciate very much the level to which this crisis has risen on your radar screen and the radar screen of USDA, and I hope it is not too late.
But very honestly, I am a little bit disappointed. You visited my district and the district adjacent to me, the district represented by Mr. Bishop, with Mr. Bishop and myself, back in March, at which time you examined not only current 1998 problems, relative to the freeze in the peach industry.
But just as importantly, we showed you a number of cotton fields where the 1997 crop, which should have been harvested in October or November of 1997, was still in the field and still under 6 inches of water in March and never did get harvested. And it was not just an isolated situation. We showed you a good bit of that, but there were a significant number ofliterally thousands of other acres that obviously we didn't see.
But that created a real financial crisis in our part of the world, and it is the first crisis related to weather that has taken place in the country since the implementation of the 1995 farm bill. And it showed what problems are created, particularly from an emergency loan standpoint, by the farm bill.
And you and I talked about those barriers that are up there with respect to the two turndowns, the one-for-one collateral and the writedown. And we talked about those specific instances and what we needed to do to remove those barriers, because the money was there, but our farmers simply weren't able to get the money.
Page 70 PREV PAGE TOP OF DOC And you come today and you say that, you know, you are excited about removing these barriers, because now we have got the problems in North Dakota and Minnesota and Texas and other parts of the country, which I am sorry we have got; but if that is what it takes to raise the level, obviously, for my farmers, I am glad we have gotten to that point today.
But you really failed to address those problems back in March and April, even after Mr. Coverdell and I, Senator Coverdell and I wrote you a letter on May 6 outlining the problems, what needs to be done and what we have done from an legislative standpoint in the supplemental appropriations bill to authorize you to do thedrop those barriers, and frankly nothing was done.
If we had done anything back in March and April to help those farmers in Georgia who faced that problem, by the time we got to the problem that Mr. Pomeroy has enumerated and the Texas folks had talked about, then we wouldn't be arguing about or discussing the extent of that situation today.
So, frankly, I am very disappointed. And I very honestly don't see anything that has been done even as of today to try to relieve those barriers.
And I talked with Ms. Cooksie on numerous occasions. We had some confusion in the language and what authority the USDA had to, on its own, remove those barriers and allow farmers to go in, and you could waive some of those restrictions and whatnot. But in spite of that, we put legislation in to authorize you to do it, but then you just haven't done it.
And my farmersI think there was a total number of applications that we had in Georgia, we have had something like 12 or 14 approvals of emergency loans for the 1997 crop year.
And you may be correct when you said a little earlier that there have been no farms that have gone under because of an act of God, but I will bet you, if I looked
Page 71 PREV PAGE TOP OF DOC Secretary GLICKMAN. I said no farm should go under because of an act of God.
Mr. CHAMBLISS. I will bet you if I look at Earl's list up there, I would find a number of them that have gone under because of an act of God. And I can put you to a number of peanut, cotton and tobacco farmers in my district that are not farming in my district this year because of an act of God that occurred in 1997 and the failure of USDA to meet their needs from an emergency loan standpoint, which is not the long-term answer.
All of us know that you don't borrow yourself out of debt, but that is a vehicle that is available. And I think we simply have not done what we should have done to put ourselves in a position to keep those farmers above water for this year.
Secretary GLICKMAN. I was in your district and I know this problem. And I have looked at the statute, and the statute is very restrictive and it wasthe statute was restrictive because in the 1970's and in the 1980's we made many marginal loans, and as a result, USDA ended up with the largest uncollected loan portfolio in the United States Government.
And so Congress tightened that up considerably when I was here as well. I don't even think you were here.
So we tightened the program considerably, because there were many of these multimillion dollar loans that were undercollateralized, that were for emergency loans, for people during disasters.
Now, when you brought this problem to me, I came back and I said, you know, what is the issue of collateral? Because when you look at the statute, it is pretty hard to qualify for these emergency loans. And I am aware that you added language in the appropriations bill, I think it was the supplemental bill.
Mr. CHAMBLISS. The supplemental appropriations bill, right?
Page 72 PREV PAGE TOP OF DOC Secretary GLICKMAN. Perhaps Carolyn might discuss it. The USDA folks tell me that that does not remove the requirement for collateral that is in the base statute, which limits my jurisdiction. Perhaps Carolyn would address it right here, because I would like to help.
You know, I don't want to not give the money, but I would like to see what Carolyn could say here.
Ms. COOKSIE. The authorizing language didn't remove the statute requirements, but the bigger problem that we have is the
Secretary GLICKMAN. When you say authorizing you mean the appropriating language
Ms. COOKSIE. Right, but the bigger question we have is the fiscal responsibility of the programthe EM, the emergency loan program is the program that I administerthat has the biggest losses in it, bar none. And so, you know, the question, Mr. Chambliss, as I have talked to you and your staff about, is, I think, three issues; you have mentioned one of them.
And we went to Georgia and we looked at what the barriers were; and you are right, there are basically three or four of them. The biggest one by far, though, is the debt forgiveness, because a lot of the farmers down inparticularly your neck of the woods and Mr. Bishop's neck of the woods are farmers who have been restructured, and over the last 10 years or so have had some kind of debt forgiveness. And the 1996 farm bill says there is no way that we can continue to do business with them. And so that is the bigone of the big barriers.
Secretary GLICKMAN. That is an absolute bar, right?
Ms. COOKSIE. Right, absolutely.
Mr. CHAMBLISS. And are you saying that we didn't give you the authority to remove that and that you didn't have the authority under your regulations, even without that appropriation?
Page 73 PREV PAGE TOP OF DOC Ms. COOKSIE. Absolutely.
Mr. CHAMBLISS. That is contrary to what you told us in this room about 2 months ago.
Ms. COOKSIE. Those are two issues. What you are talking about, sir, are collateral requirements. That is different from the debt forgiveness requirement that we are talking about. I am going to get to that in a second.
The debt forgiveness, we absolutely cannot do anything about it until the statute is changed. It says that if you have had some kind of debt forgiveness on the Federal debt to the USDA that we cannot make you another loan; and that is one of the prohibitors.
The second prohibitor that we are looking at in Georgia is the collateral issue, which is exactly what you are talking about, which is different from the debt forgiveness issue. And you are right, we have had several conversations about it, and I have to tell youeven though I understand, I think, part of itthe language talks about to do what SBA does on collateral.
And what SBA says is essentially becauseand they do agriculture business, not individual farm loans the way we do. What it essentially says is that if you have some collateral, let's take it; if you don't, let's don't take it. But
Mr. CHAMBLISS. But it is based on the ability of the borrower to repay is what it is based on, instead of a one-for-one collateral.
Ms. COOKSIE. It is somewhat based on the ability of the borrower.
Mr. CHAMBLISS. That is what it says, it is based on the ability of the borrower to repay and not on one-for-one collateral; that is exactly what it says.
Ms. COOKSIE. Let me go just over again what the regulation says that is attached to the farm loan programs, actually three things. One of them is, you absolutely have to have 100 percent; if you have 150 percent collateral, then we take 150 percent.
Page 74 PREV PAGE TOP OF DOC The other piece of that is, if you can show in a 3-year period that you can pay down your principal, that is, you are fully collateralized, we will go ahead and make the loan.
And we went out, and with the full force in Georgia, and talked to all of our loan officers about that, because there was some misunderstanding, I think, about whether they knew that or not. And we did that.
The question here isand we have talked about it with the Secretary on many occasionswhat is our fiscal responsibility for taxpayer dollars and do we make loans that are not fully collateralized for the Government. That is the question, and I know it has not been answered to your satisfaction, but, Mr. Secretary, that is the answer.
Secretary GLICKMAN. The question was, did that appropriations language whereyou encouraged us to do thisdid that obviate the statutory language, whichit is pretty ugly on its face, but pretty clear; and our folks say, no, it says work with it the best way you can.
But I can't waive the collateral requirements. I wish I could.
Mr. CHAMBLISS. Well, I will tell you, we are getting about three different statements from the same people on this very issue, and it gets very frustrating on this side of the microphone when we talk about this. This is directly addressed in Mr. Combest's credit now.
Now, Dan, if you all really want to help farmers, you all don't need to get farmers wrapped up in the bureaucracy of what you consider to be guaranteed versus nonguaranteed loans. If you want to help farmers, you all need to get on board with that bill, and let's move that bill forward to give farmers relief now.
Here we are, 6 months after the fact, and you haven't done anything with respect to farmers in Georgia. And it is not right, and obviously you have not done anything with respect to farmers in the Midwest. So we need to move this forward.
Page 75 PREV PAGE TOP OF DOC And I have taken more time and I apologize, Mr. Chairman.
The CHAIRMAN. Mr. Johnson.
Mr. JOHNSON. Thank you very much, Mr. Chairman. I know it is late. I just wanted to say, I hope the Secretary will stick to the schedule to work on the fair milk pricing policy. It is nice to be able to go home sometimes and have the farmers say, What are you doing to for me, and I can say, Look at the cheese and butter prices.
I appreciate and I want to commend Congressmen Pomeroy and Peterson for their assessment of the North Dakota-Minnesota problems.
I hope we can get these emergency payments, finding a safety net. I think the picture they have drawn really resembles the flood and guys were hanging on only by their hands; and now they are down to their fingertips up there in North Dakota and Minnesota, and the water is rising and the boat is sinking and the winds are coming up.
So if we can help find a safety net, I would just be happy to join the effort, if one is being planned right now.
Secretary GLICKMAN. Okay.
Mr. JOHNSON. Thank you, Mr. Chairman.
The CHAIRMAN. Thank you.
Mrs. CHENOWETH. Thank you, Mr. Chairman.
Mr. Secretary, I am very pleased that you were able to spend as much time as you have with this committee today. As you can tell, we are all very, very concerned about the situation at hand. I first want to say, Mr. Secretary, how pleased I am that the administration responded to Congress' concern about the restoration of the GSM credits on the Pakistan wheat sale. I understand, Mr. Secretary, that about 300,000 tons have been sold.
Secretary GLICKMAN. Three hundred and fifty thousand.
Page 76 PREV PAGE TOP OF DOC Mrs. CHENOWETH. That is very good news, and I am very pleased with that. You have gotten my attention on the future with regard to a threshold on force majeure questions here. It just does seem logical that an act of God, somehow there should be a threshold that doesn't move around with reaction of the politicians; and I am looking forward, next year, to working on that, and I appreciate your thoughts on it.
I do want to say that in our Freedom to Farm Act, section 417, we were able to provide for payment to our producers directly, based on any loss of the marketplace due to an action by the administration involving sanctions because of foreign policy or our national security. And as the law states, I guess those payments will be paid based on the previous 3 years' market, export market values.
I have received concerns and complaints from some of my farm organizations that we have not been able to work on actually getting the claims in; and I think that I need to ask you, while you are here, how we can do that or, more importantly, who we can work with, who we can have people like Mr. Kleckner from the Farm Bureau and Mr. Swenson from National Farmers Union, a lot of these organizations whoand how can we
Secretary GLICKMAN. Are you talking about payments that would be under the antiembargo sections of statutes?
Mrs. CHENOWETH. Yes.
Secretary GLICKMAN. I mean, I am not exactly sure how the law reads. I know that a lot of it relates to unilateral versus multilateral embargoes, most of these are multilateral.
But I would suggest that you have someone with your questions contact me directly, and I will do my best to respond. We have had quite a bit of discussion on that, and you know, I don't believe under most of these sanctions that the payments would be required under the statute. But I am willing to talk to folks about it.
Page 77 PREV PAGE TOP OF DOC Mrs. CHENOWETH. I appreciate that, Mr. Secretary. And we have moved through the Pakistan situation. But between the time that was enacted into law and now, from what I understand, about 11 percent of our potential market has somehow been interrupted. And Ias the author of that section of the bill, I know that there has been some concern about the interpretation of ''unilateral,'' and there has been some interpretation that it meant across-the-board crops, more than oneand I can tell you, as the author, I meant in this country, acting in its sole capacity.
And so I would look forward to working with USDA on that and making sure that our organizations are able to work with you on it.
Thank you very much.
Secretary GLICKMAN. Thank you.
Mrs. CHENOWETH. You also mentioned earlieroh, I do want to say that with regards to your comments about H.R. 4265, the chairman's bill, Emergency Farm Financial Relief Act, I was pleased to see that you are working through, not on the general philosophy, but working with the chairman on the technical corrections to the bill.
Secretary GLICKMAN. Right.
Mrs. CHENOWETH. Because I think you share with him, as I do, the fact that this was very necessary not just because we are going to be spending the money from the AMTA in the fall, expediting of the AMTA payments. People won't necessarily be spending the money in the fall, but that will provide a better cash flow and more stability for operating loans that our people need to qualify for in the fall.
And so I really am pleased to see the level at which the cooperation is occurring and am very pleased to see that you are working through that with the chairman.
And then, finally, I do want to say that in one of your statements, Mr. Secretary, you indicated that 40 percent of our market is in sales overseas. And up in the Northwest through the Columbia Basin system, we are able to transport about 40 percent of our nation's grain out to the Pacific Rim. And I am speaking to you as a Cabinet member now, of course, and the fact is that there is much serious talk about discharging that system to another priority and reaching a lot of the dams, which would really interrupt the barging system, and in doing so, when we are not able to transport by barge, it doubles our costs to transport by rail and quadruples our costs to transport by truck.
Page 78 PREV PAGE TOP OF DOC And so, when we are looking to foreign markets to the degree that we are, and yet we can see whole areas not only in the Columbia system, but possibly on the Mississippi system, where our barging systems can be interrupted, I just wanted to raise that concern with you, Mr. Secretary. And hopefully you will be watching it with us.
Secretary GLICKMAN. I assume that you are talking about the Columbia River initiative, and there is no intention of interfering with the flow of commerce on the Columbia River.
Mrs. CHENOWETH. That is good news. Thank you very much, Mr. Secretary.
The CHAIRMAN. Mr. Smith.
Mr. SMITH of Michigan. Thank you, Mr. Chairman. Some of these will be statements that can be responded to later.
Low commodity prices are putting our farmers and ranchers at risk of survival, and so if I had a message that I would like to convey to the consumers of this country, it is that if we allow other countries to subsidize and protect their farmers and restrict imports of our goods into their country, and we continue to not fight back, we are at risk of losing the high quality of food and fiber production that we have had in this country, with consumers paying the lowest amount of their take-home dollar of any country in the world for the highest quality of food.
On the trade issue, I would humbly suggest that you do not need to stop negotiating trade agreements because fast track is not here, and I assume that you are proceeding with the trade agreements?
Secretary GLICKMAN. That is correct.
Mr. SMITH of Michigan. And then we will lock it in when we get fast track.
Page 79 PREV PAGE TOP OF DOC And on the issue of FQPA and the global warming restrictions, I would suggest that you don't push on our farmers at this time the kind of restrictions for food quality protection or for global warming where we are being singled out without the rest of the world looking at that, at a time when we have so much stress on our farmers for survival.
Let me ask, what percentage of farmers have signed up for income production under the insurance policy? Are we looking at more or less than 5 percent? I am asking regarding income protection insurance.
Secretary GLICKMAN. Ken Ackerman is head of our Risk Management Agency.
Mr. ACKERMAN. Overall we have three different revenue insurance products. Crop Revenue Coverage is the largest, Income Protection is the smaller one of them. Generally, about 10 percent of farmers have signed up for those. That program is in, I believe, its third year now. It is a new program and a lot of people are looking at it. That is very fast growth for a brand new program.
Mr. SMITH of Michigan. Let me ask you a question on GSM. Have we expanded the activity on GSM during the whole Asian crisis, and how much?
Mr. SCHUMACHER. We are running about $5.7 billion. That is up from about $3.5 billion. That is helpful in places like Korea and Asian countries. Without GSM and without the IMF to let us do the GSM, we would have been in real trouble. But I met with the Korean feed millers and they said that GSM was critical to their imports of corn last year, and we are now in the midst of negotiating for this year. It is absolutely essential to have GSM, and the IMF to back it.
Mr. SMITH of Michigan. Mr. Secretary, will you request more money for export subsidies to make sure that we can compete with other countries and what they are subsidizing consistent with what is allowed?
Page 80 PREV PAGE TOP OF DOC Secretary GLICKMAN. There is no statutory limit on our GSM. We will use it.
Mr. SMITH of Michigan. I am talking about the budget request of the administration. Will you put in a higher budget request to have the kind of money that might be used within the parameters of the WTO?
Secretary GLICKMAN. For next year.
Mr. SMITH of Michigan. For next year.
Mr. SCHUMACHER. On the Export Enhancement Program the Congress has funded at the permissible levels under the WTO of $550 million. But certainly for the coming year, we are discussing that now in terms of our export promotion programs which are completely consistent. We may be coming back to the Congress with some additional suggestions on how to improve.
Mr. SMITH of Michigan. Do I understand correctly that you don't have sufficient funds now for the export enhancement, for example, for cotton?
Mr. SCHUMACHER. On cotton that is step 2. It is a somewhat different program.
Mr. SMITH of Michigan. Yes.
Mr. SCHUMACHER. We will be exhausting step 2 payments later this year, early next year.
Mr. SMITH of Michigan. So that request is in the committee?
Secretary GLICKMAN. That would need to be addressed in the appropriations bill.
Mr. SMITH of Michigan. Anyway, I hope that you get that message in on the agriculture appropriations.
Let me askthere are several rail lines suggesting that they are going to have a problem shipping. I am concerned about some of the restrictions of the Jones Act. I would like the Department to look at the possibility of just allowing legislation that would allow several bulk container ships to act to take some of the burden off of the rails in terms of moving some of the products, because not only do we have the prospects of low commodity prices, restrictions on rail transportation, as you well know, also reduces the prices that farmers are going to receive.
Page 81 PREV PAGE TOP OF DOC I have legislation in that suggests let's have a limited number of ships, making sure that they are American owned and American crewed, but they could be foreign simply to eliminate some of the pressure for maybe even a limited time.
Mr. Secretary, I would like the opportunity to put in additional questions in writing. Thank you.
The CHAIRMAN. Thank you.
Mr. BLUNT. Thank you. Some trade questions, and you mentioned IMF while I was gone and you may have answered this already, and if you have I would be glad to refer to today's record to get that answer. But with IMF could you give us an idea of some concessions that have opened some markets, some specific concessions in some countries based on the recent IMF
Secretary GLICKMAN. I would ask Mr. Schumacher to talk about Indonesia and Korea.
Mr. SCHUMACHER. Briefly, without the IMF, we would not be able to operate the GSM at all. It is sort of broad, but it was very, very important.
Secretary GLICKMAN. The reason is that they would not have been creditworthy, and the GSM involves bank loans that are backed by U.S. Government guarantees, and they require a creditworthiness test that would not have been able to have been made without the IMF assurance that the currency and the government was stable.
Mr. SCHUMACHER. Very important. That was a very substantial portion. We have now $1.5 billion operating. There are two examples in Indonesia and one in Korea. In Korea, the transparency issue; and it is unusual for the IMF to be getting involved in something as detailed as that, but as I said earlier, there must be a farmer in the IMF because they took some of those agricultural issues very to heart when they were negotiating with the IMF.
Page 82 PREV PAGE TOP OF DOC In Indonesia, we recently won, yesterday, the tender under international competitive bidding for 235,000 tons of wheat. Previously it was kind of a sweetheart deal between two trading entities, an exporter or importer. Now that it has been opened up and we are getting some transparency and open tenders, it is very encouraging for more tendering. That is very important for hard-pressed American wheat farmers.
Mr. BLUNT. As we deal with countries with IMF, are we trying to make opening these markets a top priority?
Secretary GLICKMAN. Yes. And it may have been over the years that some the agricultural transparencies didn't get the priority that should have been gotten. But it is kind of interesting, we have had two briefings here before this committee with Secretary Rubin and Alan Greenspan, and I think the point has not been lost on either of them as they negotiate IMF changes that agricultural transparency is a key part of future financial assistance to the IMF.
Mr. BLUNT. Chairman Smith has been a consistent advocate of moving forward with the fast track vote. What can you do with this 1999 round of trade talks without fast track? How quickly do we get behind in that discussion?
Secretary GLICKMAN. We are going to need fast track to complete those trade talks and to have any ability to be a player in any of them. I have said that to Congressman Smith. There is no choice, and the President cannot be encumbered by not having the ability to negotiate bilateral trade agreements.
Mr. BLUNT. If we do not vote this year, how late into 1999 could we put that vote?
Secretary GLICKMAN. I will answer this perhaps a little more pragmatically. I want to see it pass. Whatever the time is more likely to get it passed into law and signed, I want to see it happen. So early next year is not too late. I am just sayingI think the IMF, priority-wise, is a higher priority for the short term, but you will need a fast track vote and we will need it done.
Page 83 PREV PAGE TOP OF DOC Mr. BLUNT. And no later than next year?
Secretary GLICKMAN. We need fast track next year.
Mr. BLUNT. What is the status of the market development programs?
Mr. SCHUMACHER. I think we are using fully the market access program, and we are very pleased that the Congress has funded that at the full $90 million authorized. There were some debates in the House and Senate. We need that money.
Also, foreign market development; that is very important for our cooperators. Those are two critically important programs we are using fully. Both are fully funded. I think the Congress has been meeting fully the request of the administration, and we are very pleased about that.
Mr. BLUNT. Earlier, Mr. Johnson mentioned butter and cheese prices. Have you made a decision on changing the quota on imported butter?
Secretary GLICKMAN. I do not intend to change that.
Mr. BLUNT. Good. Then I will take that as a decision.
Secretary GLICKMAN. Did I say something wrong? I don't see why dairy farmers should suffer from lower prices. My answer should in some way get to the same point without violating the Administration Procedures Act.
Mr. BLUNT. In a letter that a number of us sent you, we made the point that you can't tell dairy farmers for a year and a half that you have to live with the market, and the first time a relatively small segment of the market begins to work to their advantage, you can't say ''But now in this case, we are going to have to change the market.''
Secretary GLICKMAN. I did make the statement that we are not going to change that.
Mr. BLUNT. Thank you.
Page 84 PREV PAGE TOP OF DOC Mr. COMBEST [presiding]. Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman. I would also ask, if there is no objection, to include a statement for the record.
Mr. COMBEST. I think the chairman indicated earlier that all statements will be part of the record.
Mr. THUNE. If you could characterize the agricultural economy in South Dakota this year, it would probably be as follows: We will lose a little bit on each sale, but make up for it in volume, and you can't do that very many years in a row. And unlike North Dakota where they have some serious shortages due to disease and weather-related problems, we should have some substantial yields in our State, which is encouraging. Normally under those circumstances, farmers would be ecstatic, but we have a whole lot of frustration and discouragement in South Dakota because prices are in a free-fall and there does not seem to be any end in sight. You were in Aberdeen a few months back, and the atmosphere would be less favorable now. It wasn't, as I recallwe all got an earful that day.
A lot of the things that are being proposed are very important, and again I think down the road the export issues are critical in terms of what we are able to do to assist and make agriculture competitive, but that seems abstract to producers who are struggling to make it this year and whose very survival is up in the air.
It seems to me that we have to figure out a way to bring some stability to income and prices and minimize the volatility that we have in the farm sector of the economy. And we have put in place, and you were there involved with it, as were others here before our time, a crop insurance program which was designed to do that.
And I am just wondering what you or Mr. Ackerman can respond to this as well, what you might suggest as to how we fix that program to make it work as opposed to going back to the old system? I sort of view this as where we are kind of wandering around in the wilderness and are trying to find the promised land, but I am not sure that we are ready to go back to Egypt to the old system.
Page 85 PREV PAGE TOP OF DOC I think we have some tools in place. Can we make them work? I am open, and I think other members of the committee are, about what we can do to fix that program and make it work.
Mr. ACKERMAN. I appreciate the question. I was very involved in the advocacy of the 1994 statute when it was before Congress a number of years ago. We gave a lot of thought about what went wrong. Is there something that we did not think of in writing that statute?
As the Secretary said, there are a lot of good things in the 1994 Crop Insurance Reform Act that we achieved, but there are some shortcomings. Crop insurance has to be actuarially sound. It is based on contracts. Those facts give it a lot of strengths but they also create some limits. Crop insurance is quick, automatic, very predictable. Farms can tailor their own coverage, it is financially sound. It avoids competing Government programs. But at the same time, because it has to be actuarially sound and it is based on contracts that can't be changed midyear, it does give it a lack of flexibility to adjust to changes, to adjust to shortfalls, to gaps that become apparent.
The biggest one that we have seen is a situation of multiyear losses around the country. Under an actuarially sound program, when you have a multiyear loss, rates tend to go up and coverage goes down, and the drain on a farmer financially with multiple years of loss can be very serious.
That is why we proposed the Supplemental Benefit Program that came up with the Conrad-Dorgan amendment. The fact is the coverage is limited, and it is based on contracts which makes change difficult to do. But we are obviously going to be going to the drawing board over the next few weeks and months to try to think this through.
Secretary GLICKMAN. Philosophically, I don't know if you can protect everybody against an act of God, but in this modern era of less regulation on the pricing side of the pictureand we are not going to go back to what it used to be, where Government micromanaged supply and priceit does strike me that we have an opportunity to come up with a risk package which does provide reasonable protection for most producers, whether in a high- or low-risk area, to know that they will be covered if Mother Nature kills their crops.
Page 86 PREV PAGE TOP OF DOC And in some areas it works fine. If you are in an area with one disaster out of 7 years and predictable yields, that is fine. If you are in an area where you want to switch crops and there is no crop history in the new crop, if you can't get coverage, four disasters out of five, those are really the areas where it is a real problem, and there is a huge gap there and it is not right.
I do think to some extent we in the Government promised people that there would be this coverage. Let me tell you, one of the reasons why North Dakota and Texas have such problems right now is because of the nature of the repeated disasters. They did much better under the Ad Hoc Disaster Program. A big chunk of the payments used to go to those two States every single year. A big percentage of the programs would go to those States. It has nothing to do with the quality of the soil, as Earl said. It is the weather is more unpredictable in those parts of the country. I think legacy-wise this is one of the most important things that we can do for agriculture.
Mr. THUNE. It does seem to me that is going to be a critical component in trying to fix this. We are all floundering around trying to come up with solutions, and a number have been proposed. But the fact of the matter is that it is an inherently risky business. We have had successive bad years in our part of the country. We have to figure out a way to make this program work that makes that an efficient program and a program which people in agriculture year in and year out can depend upon so they have one way to manage the risk.
Just one last question, because there has been a lot of discussion as well about the marketing loan rate, lifting the caps and extending the term, and I am not averse to any of those solutions, again presuming that we can figure out a way to pay for those things.
But my question is again, how does that impact price, because ultimately the impact is to raise prices, and it seems to me at least in some ways it might actually be counterintuitive to start talking about doing that. I would be curious to know what your thought is about how raising the marking loan if you have the price going below where the marking loan is today. Doesn't perhaps further raising it further aggravate the problem and cause producers to hang on for longer periods of time and just add to the surplus problems we already have?
Page 87 PREV PAGE TOP OF DOC It seems to me from the supply and demand, from an economic standpoint, that would seem to be the case. I am curious to know what your thoughts are.
Secretary GLICKMAN. The key part of the 1996 farm bill was flexibility so people can move from crop to crop. I think higher loan rates might encourage more production. As long as you have the loan rates pretty much in sync with each other, you won't have that.
If we wanted to get rid of the loan rates, I would assume that Congress would have done away with them in the 1996 farm bill. What they did was cap them. They capped them at a level that didn't relate to the market price. I just think you are better off supporting a level based upon a percentage of the market price, because that gives a little more security to a producer during up and downparticularly during down markets. Up markets, it is not needed as much.
I think you have a situation of big crops in the world and weaker demand, and when the market goes to hell, basically there isn't that floor that we used to have. And it scares people. I think it scares their bankers, quite honestly.
But I don't think that if you had the loan rates that we had pre1996 during that 5-year period, it would have encouraged more production, provided you had planting flexibility and people could move from crop to crop.
Mr. THUNE. Going back a few years under this bill, prices are fairly comparable to where they are today and under the old system. But the loan rate itself, which acts as a floor, you have market prices already below the floor today.
Secretary GLICKMAN. And you will have loan deficiency payments because of that as well.
Mr. THUNE. I just appreciate your answer to that and I yield back, Mr. Chairman.
Page 88 PREV PAGE TOP OF DOC The CHAIRMAN [presiding]. I thank the gentleman. We will have a vote very shortly, Mr. Secretary, and I thank you for your patience, and those who are waiting to testify as well.
I want to ask you if you would agree with us on this committee that it is time to hold a high-level meeting with Canada regarding livestock and grain, wheat. We would like you to think about inviting your counterparts, Ms. Barshefsky, to Washington so that members of this committee and those interested could have a sit down with the Canadians as soon as possible. We will work with you about the timing, but we just want to state that is of great interest to us and we have great problems on our northern border.
Secretary GLICKMAN. I think that is a good comment, and we will work with you.
The CHAIRMAN. I am going to read from a piece that was sent on July 28, 1998, written by Dwight Ackrey, who the gentleman may know, who is from North Dakota State University Extension Service, and I think it adds to the total discussion here.
The 1996 farm bill, commonly called Freedom to Farm, has been criticized as the primary cause of the financial difficulties our farmers are facing. That is only true if it is compared to a benchmark that doesn't exist. In other words, for the 2 crop years covered by the current farm program, the region's farmers are financially better off than they would have been under both of the previous two farm bills.
He points out the total transition payments received in North Dakota for the 1996 crop year were $311,500,000.
If the previous farm legislation, the 1990 farm bill, had been in effect, the total deficiency payments would have been zero. The next year the total transition payments received by North Dakota for the 1997 crop year were $246,900,000. If the 1990 farm bill had been in effect, deficiency payments would have been $197,148,000.
Page 89 PREV PAGE TOP OF DOC Then he goes on to identify the 1998 crop would have been down some $150,000,000. I place that in the record only to point out that maybe this fellow is right and maybe he is wrong, but he does point out the facts. It doesn't take care of the situation. It is not an excuse for where we are, I don't mean it to be, but I want to put the balance of the decision here.
Mr. MINGE. Mr. Chairman, would you yield?
The CHAIRMAN. I would.
Mr. MINGE. I would like to follow-up and ask the Secretary for his comments on the extent to which these payments have actually been benefiting production agriculture and the extent they have been captured in land values, and in essence benefiting landownership. And it is my understanding from publications that have come from USDA that the Freedom to Farm transition payments have had the unexpected benefit for landownership and not for production agriculture.
Secretary GLICKMAN. With the chairman's indulgence, I might ask my chief economist to respond to that. I think perhaps he is better equipped to answer it than I am.
Mr. COLLINS. Only 30 seconds?
Secretary GLICKMAN. Whatever.
Mr. COLLINS. I think there is some evidence that the payments have been capitalized in land values. That is the way payment programs have traditionally worked. Over the first 3 years of this farm bill, the average land values in the United States have gone up 6 to 7 percent per year. Last year, 1997, farm land values went up 6 percent. That is pretty high. Part of that reflects the higher income prospects we have had the last few years and part of it reflects the lower interest rates, but I think part of it also reflects the payments. Only landowners who share in the crop get the payment directly, but other landowners who have cash rents can still get it by raising the rental rate. I can't tell you what percentage exactly, but a large part has probably gone to landowners.
Page 90 PREV PAGE TOP OF DOC Mr. MINGE. There has been a great deal of anecdotal evidence in my area that landlords immediately demanded that these payments somehow be reflected in rents and that land values were increased precipitously not so muchalso because of increased crop prices, but this coincided with it and augmented the increase.
Mr. COLLINS. I think the value of land reflects the expected return that the land can generate. Payments are part of that return. So as soon as the return is up because of the guaranteed payments in the 1996 act, that should raise the price of land and the rental rates.
Mr. LUCAS. Would the gentleman yield?
The CHAIRMAN. Yes.
Mr. LUCAS. Isn't that reflected in any Government program or effort to create a higher return from land? Isn't the most valuable asset of any farmer his land? Won't farmers on any occasion bid as much as they can to control land? Isn't that the nature of anything that we do on the Federal level? Any program since 1933?
Mr. MINGE. I believe the question is directed to me, if I may respond.
The CHAIRMAN. Please respond.
Mr. MINGE. This, in a way, is revisiting the 1996 farm bill, which is perhaps a healthy thing to do this afternoon. One of the problems, it was pointed out, that a direct payment to the producer is more apt to be capitalized in land values than payments that are geared to respond to the nature of the farm economy to try to deal with the spikes, the valleys, and that payments that go for production as opposed to payments that are automatic are more difficult for the landowner to capture.
Mr. LUCAS. But, Mr. Minge, any payment that creates a potential higher return will cause the business person to respond by competing for those assets that potentially generate those payments with more intensity. The price goes up, that could be the 1996 farm bill, or the 1933. It is the net effect of any Government payments.
Page 91 PREV PAGE TOP OF DOC The CHAIRMAN. Gentlemen, it is an interesting exchange, but we are trying to interrogate the Secretary and we have many, many more witnesses. Could I ask that we allow the Secretary to retire, or is there something burning in your mind?
Secretary GLICKMAN. To move to Oregon?
The CHAIRMAN. Sure. Is there something of burning interest that Mr. Pomeroy has that in 30 seconds he will deliver?
Mr. POMEROY. I have great respect for the gentleman that you quoted from, and I am glad that his statement is in the record. I would like to quote another sentence within that document.
Farmers haven't yet experienced the downside of the 1996 farm bill, but this year they probably will. It is very likely that the fixed transition payments that the farmers received for their 1998 crop, plus the national average market prices they get will add up to less than the old target prices of $4 for wheat, $2.36 for barley and $2.75 for corn.
So we have this big hit of money in 1996 which got capitalized, and the consequence of this is higher cash rents and higher land payments. And now we are down here in 1998 where we have a price collapse situation and no response to it, leaving farmers with higher prices and no support in 1998.
For the crisis in 1998, it doesn't do much good to talk about what we did 2 years ago. It is not responding to the here and now in production agriculture. I thank the chairman.
The CHAIRMAN. The gentleman remembers that I mentioned that you are $152 million short in 1998, and I am quoting from this document.
Mr. Secretary, thank you very much, and Mr. Schumacher. They have a voice vote on the rule, so those of you who have been patiently waiting, please come forward.
The next panel is Dr. Gary Adams, Dr. Bruce Gardner, Dr. Neil Harl and Dr. Jerry Skees. These are professors and economists from as far away as Missouri and Texas and Maryland and Iowa and Kentucky. Dr. Gary Adams is accompanied by Dr. Scott Brown. Is Dr. Brown here?
Page 92 PREV PAGE TOP OF DOC Mr. ADAMS. Yes.
The CHAIRMAN. Please come forward, Dr. Brown. Thank you for being so patient. I hope it was an intriguing discussion.
STATEMENT OF GARY M. ADAMS, PROGRAM DIRECTOR, FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE
Mr. ADAMS. Thank you. Let me begin by thanking the chairman for the opportunity to appear before the committee to provide information concerning the outlook for the U.S. agricultural economy. The testimony presented here is the result of the work of several analysts at FAPRI and it is designed to provide an update to the FAPRI outlook that was presented to committee staff back in March of this year.
As 1998 has progressed, certainly the market attention has been increasingly focused on the downward pressure on prices that we are seeing for a number of major commodities. This, of course, is occurring at the same time that some of the regions of the U.S. are experiencing severe drought conditions, with the combination of the two putting even greater pressure on those producers.
In regards to the price pressure we are seeing, it is difficult to isolate just one cause, but I think there are a combination of fundamental developments in the supply and demand of the major commodities that are at work here.
On the supply side, world grain and oilseed markets are being pressured by increased production that have allowed stock levels to rebuild from the tight levels that we saw in 1995 and 1996. The higher production has been the result of both increased area as well as generally favorable yields. In response to the strong price signals that we saw in 1995 and 1996, the area that is devoted to the major crops has increased quite significantly both in the U.S. and abroad. Just as an example, we have seen the world area devoted to major oilseeds is some 8 percent higher in 1998 than the 1996 level.
Page 93 PREV PAGE TOP OF DOC At the same time that we saw the increase in area, the world has also experienced several years of fairly good yields. If the projections for 1998 do bear out, this will be the third consecutive year where we have seen world coarse grain yields up above average, and if we look back over the past 30 years, we only find one period, the 1984 to 1987 period, where we saw that many consecutive years with above-average trend yields in the world.
Certainly price pressure is not limited to the crop sector. On the livestock side, the most notable example is the pork sector. Again, in response to some strong price signals, we are expecting that another 1.5 billion pounds of pork production will come on the market in 1998. This is expected to lower our prices some 25 percent below the 1997 levels.
As we look at the same time that we have had production increases worldwide, there are a number of concerns about the demand side. Most notably is the Asian financial crisis. We have seen currency devaluations in recent months that have reduced purchasing power for what had been one of our strongest growth regions. In addition, income growth levels for 1998 and for 1999 are expected to be much below the recent historical period.
I think initially the consensus was for a fairly quick downturn in recovery, but as these problems have persisted, economists are becoming much more pessimistic about the scope and severity of the problems.
I think if we look ahead for the rest of this year and into 1999, barring any major production problems, crop and livestock prices will average substantially lower than what we observed in the 1995 to 1997 period. But again we must remember that during the 1995 to 1997 period, prices averaged quite a bit above historical levels, and those were probably levels that could not be sustained for any length of time. If we look at reasons behind the low prices, the high prices that we saw back in 1995 and 1997 spurred additional production, and that has increased supplies and increased competition to the U.S., and that is the primary reason for the price situation that we are looking at now.
Page 94 PREV PAGE TOP OF DOC A secondary factor that is adding to it is, of course, the Asian financial situation. I think we can also add that it is very difficult to attribute much if any of the current price situation to any specific provisions of the 1996 FAIR Act.
I think as we look in aggregate, we should remember that lower crop prices that we are seeing do provide some benefits to the livestock sector in the way of lower feed costs, but certainly when we add up the positives and the negatives and look at overall net farm income, the negatives are still going to outweigh the positives.
We do anticipate as we look at 1998 and ahead to 1999, that net farm income is probably going to be some 12 percent or so below the 1996 level. And so while things sound rather bleak, and certainly we have heard many instances of that today, we should also remember that the income levels we are talking about are still below historical levels and certainly above the worse times that we have observed back in the 1980's. And also I might say that indicators such as the debt-to-asset ratio are still at fairly low levels as well.
In closing, Mr. Chairman, I would like to thank you for the opportunity to address the committee and would hope to have the opportunity to entertain any questions.
[The prepared statement of Mr. Adams appears at the conclusion of the hearing.]
Mr. COMBEST [presiding]. Thank you, Dr. Adams.
STATEMENT OF BRUCE L. GARDNER, PROFESSOR, DEPARTMENT OF AGRICULTURAL AND RESOURCES ECONOMICS, UNIVERSITY OF MARYLAND
Mr. GARDNER. I would just like to focus briefly on the low price situation and what might be done about it, particularly with reference to the grains.
First, one little bit of difference I would like to make in my presentation is to refer to the longer term perspective on real grain prices. I have a couple of charts in the back of my testimony that show the real prices of wheat and corn since 1960 and it is notable that both wheat and corn have experienced very substantial long-term real price declines and that the midpoints of USDA's current price projections for 1998 crop prices are the lowest of any of these historical data in real terms.
Page 95 PREV PAGE TOP OF DOC These forecasts are also quite consistent with recent new crop futures prices. There are two main causes behind this long-term trend decline.
The first is decreasing real costs of producing wheat and corn, and the second is market competition. U.S. grain producers have been able to produce more and more output with given inputs. Farm productivity has been rising at a rate of 1 1/2 to 2 percent per year for the whole post-war period. Real costs per bushel are cut in half over a period of 40 years, and this is roughly the trend rate in decline that those charts show.
Competition forces these prices down over time because any prospects of profit generate increased production, and this extra production only clears the market at prices that get down near these marginal costs of production. In this situation, it is fortunate that a third causal force has been positive over the last several decades; namely, expanding world demand for grain. Otherwise, millions of acres of U.S. crop land would become redundant and farmers would face further long-term threat to surviving, especially in marginal producing areas.
With that in mind, what explains the short-run drop in prices that is happening this year? I agree with what I have just heard about this and what several members have mentioned here. The way was prepared by the worldwide production response to the higher grain prices that we had in 1995 and 1996. In the last 2 years, world wheat and coarse grain production rose by 12 percent and 8 percent respectively over the 2 years before that, and despite the weather problems that we have heard about, the prospect is for big crops here and abroad this year again. And at the same time, we have had some weakening of foreign demand, particularly in Asia, where commodities cost so much more now that the currencies in Asian countries have fallen and the real incomes of some of our foreign buyers have stopped growing.
It should be noted, too, that this outcome is not a big surprise. Over 2 years ago in CBO's scoring of the 1996 Farm Act, they based their projections on prices falling in 1998 to just about the levels where we now find them.
Page 96 PREV PAGE TOP OF DOC With that as background, what steps should Congress take in this situation, either with respect to the long-term trend or this year's especially low prices?
First, as many people have said, it is definitely in our economic interest to keep shipping farm products to willing buyers in China, India, Pakistan and elsewhere, indeed to promote these sales and the reliability of the United States as a supplier.
Second, with the long term in view, it is important to keep the pressure on for better access to foreign markets and reduce subsidies of foreign producers by their governments in those countries, and this requires intensive efforts both at the bilateral level and in organizations such as the WTO and the World Bank, in addition to the IMF. But both these WTO and World Bank organizations have continually pressed countries around the world to reduce trade restrictions and subsidies, and Congress should strongly support the efforts of these organizations as well as of the IMF.
Now, what about this year's particularly low prices? What about the CCC loan program? Two aspects it seems to me are important. One is the credit provided so that the farmers don't have to sell their crops at low prices immediately to pay their production bills.
The second is a price protection resulting from the Government's obligation to accept the commodity at the price given by the CCC loan rate, or to make equivalent loan deficiency payments. Harvest-time credit provision is a task that it seems to me USDA has been able to carry out well over the years and will be helpful to many producers this year. But the idea of raising the loan rate to increase the price guaranteed for producers is a bad idea. Assistance to farmers who are in desperate straits is a worthy objective, but this should be done by a mechanism that targets the assistance of those who are in separate straits and does not further economic difficulties for those individuals or for agriculture as a whole.
When I look at the economic condition of farmers in detail, what is most striking to me is the diversity of their situation. And to get some comparison of where we are today, I look back at 1990 and 1991, and it is a previous period of low wheat prices, and again it is on the low side of this long-term trend. A detailed situation of farmers' economic condition was done in 1991 by USDA in the process of preparing the data they use in the Family Farm Report that Congress requires each year.
Page 97 PREV PAGE TOP OF DOC USDA estimated that of about 390,000 cash grain farms, they had an average farm-related income of $9,700 potential. Of these farms, 41 percent were estimated to have negative incomes. They operated at a loss. Seven percent of these grain producers earned a net income of over $50,000 from their farm operation. These were the larger farms, ready and able to allocate their resources in search of profitable opportunities.
The problem, it seems to me, is that the situation of raising loan rates together with the 4.5 billion in contract payments is going to send a counterproductive signal; so just to take a minute to finish this thought, while it is true that many grain producers, especially in the plains, wheat production areas, only have limited options available for using their land, some producers do have the options to increase their acreage, and an increase in the guarantee price that is going to wheat producers is going to cause them to produce more wheat.
It is such price responses that led to fixed basis and set-asides under pre1996 programs, and without these kinds of constraints in place today, raising loan rates now is going to create the likelihood of an even bigger price problem next year. And for these reasons, I think it is better for Congress to focus its efforts on the long-run situation. Thank you.
[The prepared statement of Mr. Gardner appears at the conclusion of the hearing.]
Mr. COMBEST. Thank you.
STATEMENT OF NEIL E. HARL, CHARLES F. CURTISS DISTINGUISHED PROFESSOR IN AGRICULTURE, AND PROFESSOR OF ECONOMICS, IOWA STATE UNIVERSITY
Mr. HARL. Thank you, Mr. Chairman, for the opportunity to appear here today. I would like to echo the Secretary in terms of his concern about the advance payments this fall. We think that there will be an unusual amount of renegotiation of leases, particularly cash rent leases. Landowners are going to resist dropping their cash rents. In some cases they eventually will, and in some cases these will shift to a share lease, and in some cases they may delay all winter until they make a final decision. So that is a significant problem in terms of any advance payment.
Page 98 PREV PAGE TOP OF DOC Now, I am hesitant to raise the second point because this is not the House Ways and Means Committee, but if there is a provision enacted that makes it possible for producers to collect the payment in the autumn or later at their option, this produces for taxpayers a very serious problem of constructive receipt.
So if it is possible jurisdictionally between this committee and House Ways and Means to include a little provision which says that receipt is what matters and that an opportunity to receive the payment would not be considered as taxable income, it is a very simple point but it is a very important one.
Now, related somewhat to that is the fact that we have a 1-year deferral opportunity for crop insurance and disaster payment, provided that you can show that there was a pattern of delay. Unfortunately, it appears that that does not apply to revenue insurance. Unless we get a legislative fix on that, there are going to be some surprised people who discover that their revenue insurance payments are not eligible for the deferral under section 451D. Again it is a jurisdictional thing, but one that can be very important to producers.
Now, very quickly, because you have my testimony which devotes most of the space to three things: a longer term look at farm policy, commentary on the export picture and concerns about stress in the sector right now. Before I proceed, I should acknowledge that I have a modest conflict of interest. In addition to my day job at Iowa State University, I also own a couple of farms with my wife, and although I try to keep and isolate my investments from my policy commentary, you should be aware that there is that potential conflict.
I think the problems today are heavily the consequences of two factors, weather and exports, and as I have sat here today it strikes me that the mood here in this committee and the mood around the country as I have traveled the last several months is one of fine-tuning our agricultural policy.
With respect to weather, the only thing worse than bad weather is good weather in terms of what it does to price, and we are seeing the effects of that. We really have, I think, two different kinds of problems that we are facing today. One is a disaster question, and I think that should be dealt with. The other is low prices, and that is, to a degree at least, the 1996 farm bill working. Markets are telling us something. They are telling us that we are producing too much. I will come back to that in just a moment.
Page 99 PREV PAGE TOP OF DOC Because the light will probably cut me off at some point, I would like to turn to my suggestions which are at the end of my paper.
In my view, it is critically important not only for farm exports but for worldwide stability for the IMF to be funded adequately. I cannot emphasize strongly enough how important I think that is to total economic stability, and certainly in the agricultural sector.
IMF-led efforts to stabilize economies in Asia and bring about reforms, structure reforms, I think will pay large dividends. Without that happening, I think our exports will decline significantly. The effects of that Asian crisis will have a greater impact on the U.S. economy.
In that regard, I would ask you to turn to a table on page 5 of my paper. I would invite you to look at the pattern of agricultural imports and exports over the last 20 some years; and we, of course, have experienced some decline, but what I would like to emphasize is not that, because further decline is in the realm of the speculative. What I would like to emphasize is what happened between 1981 and 1986 when we lost 40 percent of our agricultural exports because of problems relating heavily to unstable fiscal and monetary policies in the seventies and into the eighties. The dollar rose very strongly from a very weak dollar to a strong dollar. The efforts to try to bring inflation under control slowed economic growth worldwide so that the countries with the very high elasticity demand were not eating as well. That was a 40 percent, roughly, decline.
If we experience anything similar to that, and we could if we take about the worst case scenario from the problems in Asia and elsewhere, I think it is absolutely critical that we do what we can to try to shore up that side.
Now, on the matter, if you turn back now to the second page of my testimony, I would like to just say a word or two, before I am totally out of time, about the role of low prices.
Page 100 PREV PAGE TOP OF DOC Low prices have certainly returned. Farmers are the world's best economic citizens. Given half an incentive, they will increase production every time and drive down price, and they will bid their profit into land values, as we have seen the discussion this afternoon.
Now, there is also, of course, weather; which as we note on the second page is something about which we are not very clever. We are clever with respect to seed and chemicals and machinery. We are not clever in managing the weather.
And, secondly, there is the question of the number of producers, making it very difficult for the economic shift of the state of agriculture to get turned around once we head down a path of too much production.
The market is now signaling that we do have too much, at least given the current level of demand and given the fact that we have a certain idea about what price is acceptable. But at the bottom half of page 2, I discuss a little bit about the dynamics of adjustment, the fact that land use shifts occur, and we should be prepared to see production recede in some areas; and in administering that medicine, the market is rather indifferent to where that is. It is true, in addition, that the medicine is painful for even the people in the areas that will remain in production, in the core production long term. But surrounding every major crop area which is more compact, always remaining in production corn, soybeans, cotton, wheat, we will have the ''swing zones'' of land that will swing into production and out of production over time. This is painful in terms of the community, as well as painful for the producers.
We need to isolate and separate in our thinking the fact that we are going to be dealing with adjustment in this fashion. Between 1933 and 1996 Government was really the agency that tried to balance demand and supply. It did it in checkerboard fashion, idling some of the best land and some of the worst. Not very rational, but it spread the pain and adjustment over the face of the sector, and it also was administered without exacting a lot of pain from the producers, but that is not how the market functions, and we need to remember that.
Page 101 PREV PAGE TOP OF DOC And so there will be some districts and some represented here that may not be producing intensive crops all the time. They may shift to grazing land, and that is a fair jolt, and it is simply the way that the market tends to function. So I would suggest that we look at that and keep that separate from the issue of disasters.
My other two suggestions toward the end of my testimony were, in addition to the IMF funding, we made a point also and I am very supportive of efforts to do something about the disaster side.
Thirdly, I am not at all opposed to some increase in the loan rates and a strengthened storage program so long as it doesn't induce too much supply-focusing attention on the marginal lands that would most likely be responsive to that. But I do believe that this would be part of the fine-tuning, without losing and changing the basic nature of the 1996 farm bill.
I do think that we need a better downside net in terms of protecting producers from these very difficult spikes down that really are difficult to turn around, short of something that I think we do have in place now. Thank you.
[The prepared statement of Mr. Harl appears at the conclusion of the hearing.]
Mr. COMBEST. Thank you, Dr. Harl.
STATEMENT OF JERRY R. SKEES, PROFESSOR, DEPARTMENT OF AGRICULTURAL ECONOMICS, UNIVERSITY OF KENTUCKY
Mr. SKEES. Thank you. I think I had the unfortunate prospect today that my area of expertise is risk management. The rest of you have been able to comment on prices, and it is my job to come in here and talk about risk management, and that is a tough area to talk about, particularly in light of the particular problems in your district and Texas and North Dakota. Clearly we have serious problems.
Page 102 PREV PAGE TOP OF DOC I heard a discussion a little bit ago about unintended consequences, and I decided whenever I accepted this assignment to write about the bigger picture and unintended consequences rather than to get into the nitty-gritty detail about the crop insurance program, and I will talk about that in the questions and answers.
As we think about unintended consequences, we have some serious things to consider here, it seems to me. Agricultural responses in the past have encouraged producers to grow additional acres on more risky land in a continuous pattern. This places downward pressure on prices. It has also meant that we have had serious implications into the future because we would have more losses from the same natural disasters, the same natural weather patterns. We would have more exposure, and I have written a couple of stories in here as a student, and I still consider myself a student of risk management. We have been struggling with a book for 5 years on risk management. It is not finished yet. You guys keep changing the rules, and we have to keep going back and restarting the thesis of the book. But I will tell a couple of stories that should bring some points home.
A few years back, about 20 years ago, the engineers looked at the problem of tractor safety, and they said there is a serious problem here. People are dying when tractors turn over. They thought that they could engineer this problem away, and they put roll bars on tractors. And after they did this, they looked and saw that the statistics in terms of the rate of deaths had not changed. And they went back and said, What happened here?
And what happened was that people drove on steeper slopes, they drove faster and harder, and just as many people died.
We had a nice issue of National Geographic, the last issue, tremendous maps in there showing that the population of the U.S. is moving into the areas where we have natural disaster risk. The thing that National Geographic failed to mention or even discuss was quite possibly the reason people do this is because they realize that the Government is going to protect them when the natural disaster occurs.
Page 103 PREV PAGE TOP OF DOC These are tough issues. This is not an easy message. When I teach my students, I often tell them I don't want to be the one interviewed on NPR saying don't give disaster assistance because it has long-run consequences, but today I am here to talk about those consequences.
Time and again, we have to consider these kinds of things. We must recognize that there is a behavioral response. The incentives, the things that you do as a body of Congress, does have implications down the road. And it is in the record so I am not going to through all of the details. But what I do try to do is compare the risky regions of the country with the less risky regions, and I am not trying to pit one region against the others, because this is a story that happens on every individual farm that has any kind of marginal land; the same story will occur.
If you take the risk away, farmers are going to accept a higher threshold of risk. That is the thesis. It is a reality.
When we look through the data and the story that I try to tell here with some of the major crops, with the Plains States versus the Midwest where about 80 percent of our major commodities are grown, through the period of 1988 through 1993, we transferred about 25 cents on a gross dollar of revenue to the Plains States. That was about 12 cents in the Midwest. The reason was because of the very design of the programs, and the design of the programsthe details are herebut the design of the programs basically favored risky production. And the concern and the issue you should think through is the very simple fact that as you provide protection in the risky regions, people will take on more risk.
Texas cotton before 1980, 7 percent of the acres that were planted were not harvested. Since 1980, 14 percent of the acres that have been planted have not been harvested.
It is my contention that part of that is public policy. Those are hard pills to swallow, because what that means is that the very actions that we take to try to help people do have long-run consequences, do change people's behavior.
Page 104 PREV PAGE TOP OF DOC There is a threshold of risk that people are willing to take, and they will move to a higher threshold. You can't take the risk away.
I am sorry. That is a reality. I sat here and listened to the Secretary a while ago say that it would be nice if, for every time there is an act of God, we make sure that somebody doesn't get hurt. That is very difficult, because what I am painting for you is a very simple fact that if you do that in a way that is not market oriented, you are going to continue to cause people to produce in more risky regions and in the longer run, you are going to have to pay more losses.
So that is the thesis of what I have written here.
And in the conclusions, I conclude with a couple of things that you might want to think through, if you do seriously want U.S. agriculture to become more market oriented. One of those is clearly a need to think about multiple-year risk and helping facilitate private sector developments in protecting against multiple-year risk.
And we have done some work on this and we have some ideas. One of the ideas is that maybe we could develop a trade in land prices, asset values, because as we all know, asset values do ultimately reflect the downturns in the agricultural economy.
So I have delivered a painful message. I know that is not a popular message to deliver today, but earlier some members did talk about unintended consequences, and that is what my message is about, unintended consequences. And I know it is a tough decision for you.
[The prepared statement of Mr. Skees appears atthe conclusion of the hearing.]
Mr. COMBEST. Thank you, Dr. Skees. That obviously is interesting. I don't know what Mr. Stenholm is going to do. We need to make him not grow any more cotton in his district; it is all over, move it all over to mine. I thought he was talking about me.
Page 105 PREV PAGE TOP OF DOC The interesting thing is, I find more and more as we do this business, I don't think there is a one of us of the 50 on thethank goodness you all are not here, you don't have to listen to each one of us.
We all have the same intent. We want towe are obviously interested in agriculture. We desire to be on this committee and are not drafted to be on it, andbut how we get to where we want to be, obviously all of us have some differences on that. That is true of the five of you there at that table and exactly how we get there.
Dr. Harl, I don't disagree, but as you are indicating Dr. Gardner is talking about loan rates and didn't think that was the thing to do; and you are talking about the chance of increasing to that point at which you don'twe don't know what that point is. And that is one of the real difficult things is, how do we really know where that point is and how we get there, because we are doing it beforehand, rather than after the fact. And if we could look back and see and change it in the past, it would be a lot easier.
And I think that is wherewhere we have a lot of caution and obviously a lot of concern, that what we don't dowhat we do do in an effort to try to be helpful in a situation does not only make the problem worse or only cure the problem for today and make it more complicated tomorrow.
Tax issues are part of it. Mr. Pomeroy mentioned earlier his concerns, as did the Secretary, relative to the bill that is going to be dealt with on Monday, relative to advancing thepardon methe AMTA payments, and if anyone thought this was a catchall and it was the end of all discussion about the fact we have got a problem out there, it certainly is not.
It is one of the things that we find very difficult. You can't do one thing and fix everybody, so what we are obviously having to try to do is to look at a number of ways in which we can possibly help.
Page 106 PREV PAGE TOP OF DOC You talked about tax policy. We are talking about the Ways and Means Committee. There are a number of things there that potentially they can do, that are going to help farmers as they help other peoplecapital gains and some of those things. But there are some specific farm things that we are looking at; and particularly, given the last few years of how they happen, income averaging is something that a tremendous number of people on this committee, I think, support, providing the opportunity so that payments can be looked at in terms of not creating an additional tax liability this year.
I think you raised a very good point about some of the other issues that need to be looked at in terms of tax consequences.
Mr. HARL. I spent a great deal of time educating practitioners in quite a number of States every year. And several of these points I mentioned here come up time after time after time. So I commend you for working with Ways and Means, instead of Finance, especially on the constructive issue, as well as the issue on the 1-year deferral, because those two are central.
I spend great deal of time in North Dakota every year with the practitioners up there. And this is a big problem; it is going to be very large this year. I think it is a small item in terms of budget, but it is a very large one in terms of
Mr. COMBEST. This can be one of those things that help us a great deal in terms of providing more money to the farmer. While it may not come in a higher price or it may not come in a disaster program, whatever, if that farmer can keep more money, rather than having to pay it in terms of taxes, then the farmer gets to keep more money.
Mr. HARL. Mr. Chairman, can I comment a little on your first point, which is the supply response if the loan rates are raised. The easy thing is to say, well, focus on the cost of production, the marginal lands. That is too easy, because it isn't the total cost of production that influences the behavior of people as much as it is their variable costs versus their fixed costs. And so it takes a very careful assessment not to unleash even more production, because the one thing you don't want when you already have low prices is to cause a greater problem.
Page 107 PREV PAGE TOP OF DOC On the other hand, I think there is a need for some assistance in trying to turn the economic ship of the agriculture sector around a little bit. And I think one way to address that may be through a modest and carefully set loan rate that might go a little higher and permit holding for a longer time period in terms of managing the marketing for the farmer. I think that is part of the package of things that could be helpful.
I don't think, as you say, any one move is going to be the magic wand. But I think some things could be done that would ease it.
Mr. COMBEST. I appreciate it. And let me move on to another subject.
I want to ask you, Dr. Skees, your feelings in regarddo you recommend in all of those very high risks of production that people not be in the farming business? That is not a cute question. Is that kind of where you are headed, where you think they eventually ought to be?
Mr. SKEES. If they have to pay for the risk, that may be what happens in terms ofthey would switch into pasture or some other uses possibly. But adjustments would occur if those risks are fully paid for. It is part of the painful process of a market.
Mr. COMBEST. And I guess that is the thing, as what do we do with all of those people that are out there today, and the capital investments they have and the fact that land prices, based upon an irrigated farm or a good dry-land farm or whatever, versus what it would be worth as pasture land or, substantially different, if you loanadd any money on it. You have got economies of small towns or larger towns that are all dependent upon that.
And I guess theoretically that you may be, you may have something there, at least to be looked at. But there are huge other implications there that are sometimes very difficult to try to measure as well. And what kind of an economic stress does that put on an entire geographic area of literallyof tens of thousands of square miles that are dependent upon it, when there is reallyif you can't do that, what else can we do?
Page 108 PREV PAGE TOP OF DOC And I guessthat is a real dilemma obviously for us, and looking at those other risks and complications may be a whole lot more expensive than doing what we are doing.
Mr. SKEES. There are lots of trade-offs that you have to consider, and obviously those are things that the committeeyou have to weigh out which of these performance criteria you think are most important.
Mr. COMBEST. Well, I also try to abide by that red clock.
Let me say, from a housekeeping standpoint, we appreciate you being there, and I know it has been a long afternoon. To you and to the next panel, let me say simply because we are getting on into the day doesn't mean it is a lack of interest. What it is, is a full amount of interest. I can assure you that probably every member of the committee has read all of your statements, in toto. And so the fact that each of you may not have as much time as the Secretary had doesn't take away at all from your significance.
I appreciate you for being here.
Mr. STENHOLM. Dr. Gardner, did I understand correctly that the charts which you have showed the real price of wheat and corn is at the lowest level it has been since the 1960's?
Mr. GARDNER. Yes.
Mr. STENHOLM. That the costs have come down commensurately so that that does not indicate a major problem?
Mr. GARDNER. In the trend level.
Now, this year's price is at the low end of that range. So I am not saying this year's price; if we look at the ones of the last couple months, those indicate a problem for sure, but on the trend, they do not indicate a problem. And, in fact, you can see that just by goingif you look at what we considered the high prices of 19501995 and 1996, they are not so high in the real long-term trend situation.
Page 109 PREV PAGE TOP OF DOC I think prices were higher than that in real terms back in the 1960's, and that does reflect the reduction in costs to produce these products.
Mr. STENHOLM. I guess there isyou know, I have got you now. There is a problem, and you have got a lot of folks making good crops in wheats this year and losing moneyand I mean by that, making a good yield and assuming efficiency, and are losing money this year. And you don't discount that on the trend line?
Mr. GARDNER. No, I don't discount that.
Mr. STENHOLM. One of the elusive questions that always faces us, and I have read all of your testimonies, when we start dealing with markets, we talk about the world market, the world market is setting our price structure. And that world market now is a result of the strength of the dollar. In many cases, we are seeing our prices that we can receive for that which we produce being cut by as much as 40 percent.
That is very difficult, is it not, for farmers to compete in that world market on a pure, philosophical ''get the Government out of our way'' and ''survival of the fittest''?
Is it or is it not? Any one of you.
Mr. GARDNER. Let me just take a shot at one point.
It seems to me if you are talking about the very weak currencieslike in Asia, I wouldn't put it in terms of their paying 40 percent less; it is at the given dollar price, but is costing them double in some cases what it was a year ago to buy our product. That is going to reduce their demand for our products, and when we ship less, we have got a problem.
Mr. STENHOLM. I say it wrong. I am not an economist; I say it wrong, but the results are the same.
Mr. GARDNER. Well, yes, they are.
Mr. STENHOLM. Particularly when, in many cases, our competition in the market is the Europeans who happen to be more willing to subsidize their producers, whether it is marginal land, the land that shouldn't be in production, et cetera. When they are, that makes it difficult for our farmers to compete, right?
Page 110 PREV PAGE TOP OF DOC Mr. GARDNER. Yes, but the problem is not so much that we have to do something because the value of the other currencies has fallen. That, in itself, I don't think would justify a subsidy, but the other subsidies of other countries, of course, that isthe Europeans in particular, that is the real nub of the problem.
Mr. STENHOLM. And I concur with that.
Mr. HARL. As a sector, I think agriculture is very vulnerable to unstable monetary and fiscal policy and trade policies. I think our experience from 1981 to 1986 was, we saw a decline in agriculture exports because of those same kinds of factorsvery, very important. Agriculture is damaged greatly by that kind of instability.
So I think the most important single factor that we can ask for is to try to have a little more rational, stable fiscal monetary policies, long term. I think probably we have that to a great extent now. But I think it is very, very important, and I think trying to stabilize Asia is part of that picture.
Mr. STENHOLM. That is why I am more than a little defensive with those that come with philosophical arguments that we should not intervene in the Government, our Government to intervene, because I happen to believe, whether it is agriculture products or any other product, unless our Government stands shoulder to shoulder with our producers in a world market that is not playing by the same rules as we play by, we are guaranteed to lose in the long run and, often, in the short run.
Mr. HARL. Can I add one thing to that?
We traveled a lot in Central Europe, Eastern Europe, and if you saw the appended material, you can see we do a lot of project work involving Federal funds in the former Soviet bloc and Central and Eastern Europe. One of the things that I am convinced of is that we have to be very careful in assuming behavioral response to reduction of trade barriers. One thing it may do is cause land values to fall, but producers may stay in place and be producing something.
Page 111 PREV PAGE TOP OF DOC They will. We have seen this happen as trade barriers have gone down, and they will shift to different crops, but they still will be producing something. And they may be producing the original crop, but with a lower margin and with lower land values.
The big game is seeing what happens to land values around the world as we eliminate trade barriers.
And you will notice in my testimony a paragraph about the fact that if you have complete freedom to move goods, if you have completely free capital movement and if technologies are going to go right, you are going to end with the same value of land for the same quality of land as a resource. And the same thing is largely true of labor as well.
So I think it is important for us to realize the dynamic of the adjustment process here, as countries begin to confront reality, which is, the trade barriers are going to fall at some pointslowly, but they are going to fall.
Mr. STENHOLM. It was fascinating to go back a few years and see the opposition to the CRP program, the arguments that were made by many that said, we really don't need it, we need to produce every acre because there is a market for it. So sometimes we have conflicting views that are presented to this committee based on the lucid market.
My time, too, has expired. I want one more round, but I will let other colleagues go.
Mr. COMBEST. Thank you, Mr. Stenholm.
Mr. EWING. Thank you, Mr. Chairman.
Mr. Gardner, one quick question. When you talk about real prices on your chart, I see corn, real price was almost $8 in 1970. My memory has slipped if we ever got that close. Could you explain that to me just quickly?
Mr. GARDNER. These are dollars expressed in terms of 1992 purchasing power. And soalthough we think inflation has been lifted to some extent now, if you look at what has happened since 1960, the price level today is about five times what it was in 1960; therefore, if you take a $1.50 corn price in 1960 in terms of today's dollar, that is the equivalent of $7.50. That is why it gets so high.
Page 112 PREV PAGE TOP OF DOC Mr. EWING. My memory is right, that is how we got $1.60. All of you at the table, thank you for coming and bringing your expertise. Without picking it apart or going into any great detail, do most of you believe that we moved in the right direction for agriculture policy with Freedom to Farm?
Mr. GARDNER. Oh, I do.
Mr. HARL. I like the basic core idea. I do think that we need to do something more on the downside, but if we can somehow manage that, then I feel very comfortable. I think it has given some things we would not have had very clearly. It is a more rational system, more rational system for allocating scarce resources, and that is what society expects of us.
But at the same time, we need to recognize the uniqueness of the sector in terms of the difficulty in making the adjustments.
And so that is the challenge that seems to be, as we focus on the downthose down-spikes, to see that we provide some mechanism for dealing with those without providing more distortion.
Mr. GARDNER. Just to amplify that point, I agree generally with what you are saying. One thing I do like about the 1996 farm bill is that it did take more seriously sort of the private sector approaches to dealing with the down-spikes so thatyou know, encouraging more use of options and contracting and other kinds of financial advances that have been made that farmers didn't think about so much years ago. And it seems to be that there is a real prospect there for farmers to manage their own affairs and handle this downside risk to an extent that we hadn't taken seriously in farm policy until the 1996 act.
Mr. EWING. Anybody else quickly? I want to go on to another question.
Mr. HARL. I just want to add one thought to that. That is one of the problems the farmers have; they bear not only price risk, but they bear production risk, and some are very reluctant to get too aggressive in their marketing because they may not have it to deliverthe old dog rule, He who sells what isn't his'n pays the price or goes to prison.
Page 113 PREV PAGE TOP OF DOC So if you don't have the crop to deliver, you have a very significant problem on your hands, and we have seen that happen in some of the areas.
Mr. EWING. I know what you mean, and some of us have been close. One of my responsibilities on this committee is to chair the subcommittee that deals with risk management. So I have dealt in that and am very interested in it. And I understand that many times we get very frustrated at insurance, because the more losses we have, the higher our rate goes and the less they will insure.
And I wonder how, what your thoughts are whenyou know, that is where we are now in parts of the country, in Mr. Pomeroy's part of the country.
And we have been there in Illinois in the 1980's when we had 3 or 4 dry years in one decade. What do we do with that? And what do we do when we come along now with the disaster payment? Do we send a message or do we destroy that as a real part of our safety net by discouraging farmers from buying crop insurance?
Mr. SkeesDr. Skees, pardon me.
Mr. SKEES. That is quite all right. The question about what you do with cycles is quite intriguing because, as you know, the APH program, in and of itself, requires only 4 years of records. And 4 years of records does not make a story when it comes to expected yield for a farmer. Ten years of records, when there is a lot of variation, does not make a story when it comes to measuring the average yield of a farmer and the potential of that farm; and asking for anything more would be ridiculous, right?
So we have got a little bit of a conundrum here. There are ways and procedures to extend other datasets, like county yield data, to try to understand whether or not the pattern that we are looking at is an anomaly or is something that is more endemic to the area. So I think there are some things that can be done on this.
We have done some research on this. The people at Montana State University have introduced this with the income protection plan. They have those kinds adjustments in the rating and the coverage for that revenue insurance product. They extend the county data back 50 years to try to take a count of the longer series of breaks, if you will.
Page 114 PREV PAGE TOP OF DOC Mr. EWING. So you would say, you believe there are ways that we could enhance our program, make it work better and that it not be so subject to 3 or 4 bad years in a decade?
Mr. SCHUMACHER. Yes. And I would point out, though, that a few years back, in the 1980's, we had a program called IYOC, where we adjusted the farm's yield with the county yield and people didn't like it. They didn't like it because they thought they could always do better than the county.
It wasn't done properly. It should have been done on deviations from trend, and that is a little bit technical. But it basically adjusts you for a higher level than the county if your production is there.
But there are ways to deal with this, and I think it is really an important area of effort; and a lot of people around the country and some of my friends and colleagues are working on it.
Mr. EWING. Thank you very much.
Mr. COMBEST. Thank you.
Mr. PETERSON. Dr. Skees, I want to follow up on this topic. One of the things you suggested in my county, which has the same problems, in North Dakota is that we throw the disaster years out of this formula. What do you think about that?
Mr. SKEES. Do you want to be actuarially sound as well?
Mr. PETERSON. No, I don't, but other people do. I don't want to be, but
Mr. SKEES. I guess that is my answer. If you throw them out, you are going to throw out actuarial soundness.
As we know, if we look at the last 20 years' crop insurance program, you have had two major goals, participation and actuarial soundness, which one do you want to put in front of the bus? We have been switching back and forth.
Page 115 PREV PAGE TOP OF DOC Mr. PETERSON. Are you talking actuarial soundness, when you are saying that, do you mean in my area or nationwide? Not all the rest of the Nation has the problem that we do.
Mr. SKEES. I understand. But I think it is important that you focus the actuarial soundness question on an individual area.
Mr. PETERSON. Well, that kind of leads into the next question.
Do you think that disease problems should be treated the same way as weather problems? Have you looked at that?
Mr. SKEES. Not enough to give you an intelligent answer. It is a good question.
Mr. PETERSON. See, we have been growing wheat up there for 100 years and been doing a pretty good job, and all of a sudden we have gotten into this disease and we can't really do anything about it until we figure a way to weed it out or whatever. So this program has just killed us, you know, and that is largely the problem that we have got, that you can't protect yourself. And there is no other way to do it.
And it doesn't seem to make sense that we should quit growing wheat when we have grown it, you know, for 100 years. Some people suggest that we should quit for 10 years, try to get rid of this, and then start up again. I don't know what we are going to do in the meantime. But it is a real dilemma. And, you know, if you say you are going to make this thing work, actuarially sound, and you are going to have to operate the way we set it up, you know, it just seems like we are going to have situations where it is not going to work, and you are going to drive people out of businessI am not sure for any good reason, you know.
Mr. SKEES. I don't know enough about the uniqueness of the problem that you are talking about to give you a good answer. Those are legitimate questions.
Mr. PETERSON. You haven't actually looked at what has gone on?
Page 116 PREV PAGE TOP OF DOC Mr. SKEES. I have looked at it, but I don't understand it. I don't understand why it hasn't been solved, why it is that people haven't started to make the adjustments to the fact that it is 5 years in a row now, right?
Mr. PETERSON. Well, for a while. Until 1996, they couldn't because they had to protect their base.
Mr. SKEES. Right.
Mr. PETERSON. So that was going on. And then we got 1996; then they didn't have to protect their base. Now the problem is, what are you going to switch to, you know, up in Kittson County, there are not a lot of options; it is just too far north, you know. And that is another part of the dilemma.
You know, probably the best solution would be going to livestock. But they haven't been in livestock for 30, 40 years up there, you know, and they are not real wild about doing it at this point.
So, you know, it is a realand I forgot, I had another salient point, but I forgot. But I have a question for the rest of the panel that I can't quite remember what it was, but maybe I will yield to Representative Minge, and maybe it will come to me here.
Mr. MINGE. Yes, thank you for yielding. I would like to make a comment.
We batted around Freedom to Farm considerably, and I don't think there was anyone on the Agriculture Committee in 1996 that opposed flexibility. It was recognized that the crop-specific programs that we had with base acres and target prices and deficiency payments and so on, it was complex. It was Byzantine, it was hard to administer, it created a great deal of frustration, and it was a consensus that that had to go.
The question then became, what do we do with the budget authority that is helpful to American agriculture, and the criticism and the difference really emerged because some of us felt that that budget authority should be used in a marketing loan program, strengthening crop insurance, crop revenue coverage and other tools that farmers could use to manage risks. But the bill that came whizzing through the committee said, we take all that money and put italmost all of that money and put it into transition payments, which are just automatic payments, good year or bad, that do not have any sort of characteristic that would enable the farmer to use those payments, use that money to manage risks, except to put it into the bank.
Page 117 PREV PAGE TOP OF DOC Well, that is a good idea, but if land costs go up, as they did after the bill was passed, and we had programs prior to that so that farm programs that already had been capitalized in the land costs, but now they are capitalized further, we don't have that money available. And it is like saying to the kids in elementary school, or whatever level, here is a lot of candy, but don't take it.
Once the farmers had that money, we knew they were going to use it; if they did not need it to cover crop losses that year, they would use it for improving their equipment, to acquire some additional land, or somehow they were going to invest it in their operation, but not necessarily whether it be a quick payback.
So I think it is important to set the record straight as to how this Freedom to Farm debate was structured in 1996, and then translate that forward here to 1998.
Thank you for yielding.
Mr. COMBEST. Thank you, Mr. Minge.
The Chairjust so that everybody sort of has an understanding of what the Chair understands is going to be the case on the floor, around 8 o'clock, there will be apparently a series of votes. And I would think that, obviously, we would need to be completed by that time. And everybody would certainly be welcome to stay around.
Members need something to do in the evening. Just be glad you weren't here last night, when we were here until 1, and we would be going on real late. But in perspective, we want to make sure we give everybody the opportunity, including our next panel.
Mr. LUCAS. Thank you, Mr. Chairman. I would like to offer an observation to the panel that I am absolutely quite confident that they are aware of; but as elected officials representing different districts scattered across the country, we have the obligation, of course, to attempt to mold good economic policy with reasonable, doable politics in an order that will come up with something that benefits our constituents and our fellow citizens.
Page 118 PREV PAGE TOP OF DOC And sometimesas you well know, obviouslywhen this group has worked with public officials at different levels and different periods of time, that can be a heck of a challenge.
Let me ask first to the panel: We talk a lot about the world market in our grain sales; just how long has this country been dependent on grain sales outside of the United States? How far back in history do you have to go to find a period where it didn't matter? King George?
Mr. GARDNER. Before that.
Mr. LUCAS. So we have always been dependent upon the world market to move our grain?
Mr. HARL. Not to the extent that we are today; I think that is fair to say. But there has been exporting actually from the beginning of time as far as this country is concerned, I believe.
Mr. LUCAS. But we have always been in a position, granted not every year, but by and large, where we had a surplus and that sale overseas, wherever it went was the deciding factor between excess and a reasonable amount. So those foreign markets have always mattered.
One other, I guess, observation or question I would like to make. The farm bill in 1996 has generated huge amounts of debate in the discussion within my coffee shops back home in western Oklahoma, huge amounts.
Not very far into the process, it dawned on me that to be a producer in western Oklahoma and to have never participated in a Federal foreign program or to have been in a position that you were confident there would not be a Federal farm program, you literally had to have been, what, 21 years old in 1933, give or take. So you have to be almost 90 years old to have farmed in a time when there wasn't a potential for Uncle Sam to come charging over the hill, good or bad, good or bad. That has helped make this more of a challenging process.
Page 119 PREV PAGE TOP OF DOC A lot of my constituents out there, I think, doubt that we have the stomach or that the 1996 farm bill will survive its entire 6 or 7 years, and they are making judgments based on that assumption. There are a lot of them who have a deep sense of fear that if this does indeed prevail, it will cause them to makeit will make extra burdens on them. That sets the background.
Now, having said that, changes go on in my home county. In Roger Mills County, OK, in 1930, when the census was taken, before the 1933 act, we had 14,000 warm bodies according to the Census Bureau; and in the 1990 census, after almost 60 years of various policies, we had 4,000 warm bodies, and you probably would be hard-pressed now, depending on the obituary list this morning, to find 3,800 people. So things are changing out there. No matter what we do or don't do, things are changing out there.
Now, that said, could I touch just for a moment on the land value issue, because I consider thatI think in my father's first lecture on economics to me when I was about 15 or 16, that farmers, by and large, didn't decide the value of land in my home county; it was, how much would the banker loan, that was the determining factor, saying to me that farmers value that basic unit of property, of production, so highly that they will do whatever they can to acquire it. That is just the way we operate. That is the nature of the beast.
Farm programs have affected those land-based. Could you just touch for a moment, anyone who dares to venture out on the thin ice, what the social consequences have been, if any? I mean, I have a deep suspicion that if Federal crop programswhatever they may be, new or oldhave a certain effect on land values, then there is a disparity between beginning farmers and established farmers perhaps as the result of that impact. Any observations on that?
Mr. HARL. Can I offer just two?
First of all, we do an every 5-year land ownership and land condition study in Iowa. The last one was in 1992. We found that 70 percent of the land in Iowa is totally paid for, and it is held by older farmers; more than half of the land is owned by people over age 60. We saw a dramatic increase in concentration of land ownership from 1982 to 1992. The only two age groups that showed an increase in land ownership were those 65 to 74 and 74 and above. They jumped 38 and 50 percent, respectively.
Page 120 PREV PAGE TOP OF DOC The second thing, what is driven, I think, since the 1930's, has been technology and what goes along with it. I grew up on a farm where we had horses as a source of motor power. And it didn't take a lot of acres to keep my brother and I and my father busy, very busy; in fact, 160 would do it. But before I left the farm, we had two tractors and we could see what was beginning to happen there. So that is why we have so many fewer, I think.
I don't know how important foreign policy factors into this, whether it slowed it down or not. But every year since 1935 we have had an increase in the size of the farm and a drop in the numbers.
Mr. GARDNER. Your statement about how the land market works, this is just
Mr. LUCAS. Slightly exaggerated, but not far from the truth, I think.
Mr. GARDNER. I think the market for land works quite well most of the time. Your statement suggests a risk that I think is really there, and that is of whatof a speculative boom. Or Mr. Greenspan talked about irrational exuberance in the stock market. I don't think it is as much a problem in the land market, but it can happen; and it does happen sometimes.
I think we had one very painful experience of its happening in the late 1970's, when I believe, in retrospect, everybody believes that people got irrationally exuberant about the prices that were being paid for commodities in the 1970's. And people were willing to bid more for land than what it really turned out to be worth. And we still haven't recovered to the 1981 peak in land prices to this day.
I think a lot of our problems in the 1980's stemmed from people who bought at the very highest prices.
Mr. LUCAS. Which is not just an experience of the 1980's. My mother's father's lecture to me about his father buying a quarter next door in 1917 because of $2 wheat$2 gold wheat, so to speakand his son paying the mortgage off in 1943, that those things do happen.
Page 121 PREV PAGE TOP OF DOC We areanyway, thank you, Mr. Chairman.
Mr. COMBEST. Mr. Minge will be recognized for his own time.
Mr. MINGE. Thank you, Mr. Chairman.
One thing that has struck me about our agricultural economy is that we are highly dependent on exports, yet we have a very stable and important domestic market. And the advantages of that stable domestic market are not somehow benefiting producers because the volatile international market is creating a very volatile price structure.
It also strikes me that at Agriculture we have these tens of thousands of producers and fungible commodities, and these tens of thousands of producers don't have a way to differentiate their product, as almost as any other sector of the economy tries to differentiate its product, and everybody else in the agricultural sector other than producers.
And it is these two factors that have led me to conclude that agriculture is a very unique sector of the economy, and if we are going to make sure that agriculture is treated fairly in our Nation's economy and that somehow the benefits of an extremely cheap food supply that consumers enjoy are shared back with the producers, then it is going to take more than just a market system. A market system is not going to result in a fair allocation of our Nation's resources when it comes to food production.
And I would like to ask if you on the panel have any observations as to anything that we could do in Congress to try to address the problems of volatility, especially in the international sector, because there has been a great deal of time spent this afternoon talking aboutextolling the virtues of fast track. And if experience is any indicator, agriculture has a very tough time when it comes to these large trade agreements in making sure that agriculture is treated fairly, as opposed to intellectual property or something else.
So it is a very risky proposition that we face as we get into these negotiations. So is there anything that you would recommend that we do when it comes to identifying opportunities for agriculture to make sure that the volatility in the market situation does not continue to drag down agriculture, but instead, benefits those that are actually producing the products that we are exporting?
Page 122 PREV PAGE TOP OF DOC And I would like to direct this, first, to Dr. Harl, and then anyone else.
Mr. HARL. I would say that to reduce volatility, you could do it a number of ways. You can do it by reducing variability in supply, which is heavily related year after year to weather. And I don't see too much coming relative to accomplishing that.
Mr. MINGE. We have tried here in Congress, but the weather has sort of eluded us, at least up until now.
Mr. HARL. It has. Or reduce the fluctuations on the demand side. And we have looked at that as well. And as long as we are dealing with export markets, we are going to have problems in that respect.
Now, the third way is to develop nondistorting, multiyear storage so that you even out the supply; and I tend to think that that may have some possibilities. The other remaining part is, live with the variability and try to deal with it in a risk management sense. Just accept the fact we are going to have a lot of volatility.
Now, if I can add one other thing, you were describing the agricultural sector, and that is the closest thing we have to perfect competition which we think it serves consumers very well. One of the things we are concerned about is the consolidation that is occurring in input supply and agriculture is, I see that in the next 10 years as a bigger problem than what we are grappling with today.
I think that particularly the control over germ plasm and the concentration occurring there suggests that we want to keep our antitrust people fully conversant with the evils associated with undue concentration, especially in the seed business.
So I would urge the committee, if they haven't given it some thought, to consider that as a longer-term concern.
Mr. MINGE. So investment in crop insurance or crop revenue coverage or some program like that would be a way to use resources that are available to agriculture in the Federal budget?
Page 123 PREV PAGE TOP OF DOC Mr. HARL. I think that if we have a premium-based system that does notthat reflects basically the long-term risk pattern of an area, does not reflect the near-term variability within the long-term trend, then I think that makes some sense. I think that makes some sense.
I think that the real trick here is to figure out what the long-term risk feature is of an area and base our premiums on that, and not to get bent out of shape just because we have some variability.
On pagetoward the end of my paper, I have figure 4, the loss ratio for acres and shares in 1997 for the top 20 States. Iowa has only 8 cents of every premium dollar collected back. There have been years when Iowa was much higher than that. North Dakota had $1.19, which meant $1.19 of benefits for every dollar of premium.
But we can't look at this out of a year-term sense; that is what it is supposed to do, to provide protection against those kinds of variabilities from year to year, as long as we keep in focus the long-term risk of an area and that the premium be based on that.
Mr. MINGE. Well, I would just like to conclude by saying that it strikes me that the American public and the United States as a nation reaps tremendous benefits from this perfect competition model that producers in agriculture face. And also our export policies provide us with tremendous income as a country in return for this, and that it is a real bargain for the American consumer and for this nation, to have an agricultural system which is like the one we have; and the price we are paying is very, very modest for that bargain.
Mr. HARL. I have a lecture I gave abroad in Eastern Europe, and I say, the consumer is king in the U.S. We elevate the consumer to a high pedestal. In their system, the consumer was dead last, they were the last person to consult about anything.
But the fact is, the consumer in this county is a very favored person, and they are assured of that as far as the eye can see into the future.
Page 124 PREV PAGE TOP OF DOC Mr. COMBEST. The gentleman from Kansas indicated he has no questions.
Mr. THUNE. Thank you, Mr. Chairman.
Just a couple of questions if I can, and I will direct them generally to whoever might desire to answer. Because we were having this conversation out in the hallway earlier, I want to come back to the pointthe thing I hear over and over from producers in my State is, we need a price, it is all about price. And, you know, there has been a suggestion that by, you know, lifting the caps on the marketing loans that the prices will follow the loan.
And I am justfrom a purely economic standpoint and realizing that this is not a purely free market system in which we operate in agriculture, but is it your view that lifting the caps on the loans and allowing the loan to come upright now, the price is below the loans, you are looking up to see the floor, but I am wondering to what extent that will track or trail.
If we had a higher loan rate, I would like to have a higher price; I guess that is where I am going with this.
Mr. ADAMS. If I might address that, given the marketing loan structure that we are under now, where repayment of the loan is dependent on the relative world market price or whatever USDA sets for repayment, those loan rates do not provide price floors like the traditional nonresource loans that we have had prior toreally prior to the most recent time or back in the 1980's. So if we come in and do an adjustment upward on loan rates, that does not guarantee that prices will follow.
In fact, there is probably really no mechanism about the loan rate that should suggest that prices are going to recover as you raise those loan rates; not to say that doesn't put the potential for more income to producers.
Page 125 PREV PAGE TOP OF DOC Mr. THUNE. Right, it would improve income, no question.
Mr. ADAMS. It would improve income, but not necessarily will it be tied to a higher price.
Mr. THUNE. It is still going to be artificial, though, in terms of the income. What I am suggesting is that, long term, if somehow figuring out ways to improve prices if, in fact, prices will follow that. I guess that is where I was going.
Mr. ADAMS. Right.
Mr. THUNE. Any other?
Mr. HARL. One thought. One is, the Holy Grail of high pricesenduring, long-term high pricesis probably something that will elude the sector because, long term, the price of agricultural commodities will never depart very far or very long from the cost of production of marginal lands, because as soon as it does, people in the marginal lands are going to increase output and drivethe price will come down, which is the good news for the producer.
The second thing is, if we do have profitability, it would be admitted in land values. And that is why of the four groups that benefit from exportslandowners, producers, input suppliers and those who handle dry store and process outputsthe one group that can't hang on to much of anything is the group of producers, because they are going to bid their portion of it into land values. And so the people who gain here, long term, if there is any gain, tend to be those who own the land.
So I hear this, too. And people want the high prices of the early 1970's. They keep talking about, gee, if we just had the high prices of the early 1970's. We are not going to see that very long. If we see it at all, it would be brief, just as it was then; it soon dropped back. But the memory was still there, and it propelled people for months and months after those prices fell back.
Page 126 PREV PAGE TOP OF DOC Mr. THUNE. One other question, and it has to do with my guess that at some point this year we will probably be voting on a tax bill. If there was anything that could be done on the tax side of our public policy that might help farmers, benefit farmers in terms of cash flow, anything that you can think of that we might want to incorporate into a tax bill to assist agriculture, what would it be?
Mr. HARL. I would suggest extending income averaging, clarifying income averaging. There are several issues. For example, it is not clear who is eligible for it; and the IRS still hasn't issued any regulations or rulings, even temporary, and we are just about to start filing returns on that point.
It is a 3-year program, it is in 2000, and I think it ought to be longer term. And I think a good compelling argument can be made that income variability is somewhat unique in the agricultural sector.
I mentioned two others earlier. One deals with the 1-year deferral, and the other, trying to tidy up the handling of revenue assurance payments. I think there are some others.
There are some very technical problems that are faced in the agricultural sector right now. If you have been listening to your practitioners, there is a problem, and especially important in the Red River Valley, because that is where the audit activity is going most aggressively, is the so-called myzel issue.
If you are running land to your family entity, you have to pay a C-tax, and that is based on a provision in the Internal Revenue Code, section 1402, that said if you are producing agriculture or horticulture commodities, you have got to pay a C-tax, if you are involved at all in that business, to the extent it reaches a level of material participation.
So if there is one thing that I would argue for that would ease the pressure, it is a very technical point, and it that is that myzel issue. We have tried to get that aboard in the 1997 bill and failed because of a procedural problem. The House Parliamentarian said it messes with Social Security, and it does, and out it went. We tried to get into the IRS bill in conference, and we were unsuccessful.
Page 127 PREV PAGE TOP OF DOC So I think that is one that I would plead for, and it may not look big in the long term. I also think that the idea, long term, of providing kind of a bank for farmers to make a contribution. Canada has had this now for several years and it is working reasonably well. The FARRM program would be a takeoff on that. I think it needs some attention, but I think that has some possibilities tooagain, part of the long-term management of risk, if you will, relating to profitability.
Mr. THUNE. Thank you, Mr. Chairman. Thank you.
Mr. COMBEST. Mr. Pomeroy.
Mr. POMEROY. Thank you, Mr. Chairman.
I want to commend the panel. It an absolutely fascinating discussion. A comment to my friend, Mr. Lucas, he indicates no one there remembers what it was like before the farm programs in western Oklahoma, all they have to do is read Steinbeck's historic work, ''Grapes of Wrath''; it might give them a little insight into what it was like before we had a farm program. Those are days that we don't want to go back to.
I don't mean to get emotional; and I had to apologize to my friend Tom Ewing about getting a little excited about earlier comments he was making. But it does seem to me that some of this discussion is implying that agriculture in risky areas just simply doesn't have a rational economic basis. I take the strongest exception to that.
Mr. Skees, I think you perhaps with your testimony advanced that proposition more than any others on the panel. And let me just tell you that some of your foundationthe foundation for your conclusions is flawed, fundamentally flawed. On page 6, you suggest that you quote from a Ph.D. student of yours that says for every acre retired in CRP, another acre went into production.
We have 3.5 million acres of CRP in North Dakota. I guarantee you, we didn't have 3.5 million acres of cropland come under production that wasn't under production previously. In fact, those of us representing that area heard a great deal about just what has happened to the infrastructure's small towns across the State, the impact on land rents and the whole bit, the difficulty for beginning farmers, because of the land coming out of production with the CRP program. Anecdotally and cumulatively, that just isn't accurate.
Page 128 PREV PAGE TOP OF DOC There is a differentI think we have to deal with this not as an absolute proposition, but as a business venture. I spent 8 years regulating insurance in North Dakota. I know a bit about risk management. And so I am not talking about having programs that people farm rather thanthey are not farming the land, they are farming the program. We are not talking about that. But on the other hand, you can quite appropriately have in higher-risk areas, due to weather volatility, preset volatility, price volatility, given certain commodities, management programs that work, that help keep people through the cycle.
Another thing that I would point out about your testimony is that you take a measurement window of 1988 through 1993 to determine the payback to North Dakota. 1988 and 1989 were two of the toughest drought years we have had since the Depression. I don't think that isI think that is another methodology fault to some of your conclusions.
I do want to make the point that as we talk about the farm bill, you didn't have to do the Freedom to Farm bill, as it was constituted, to get planting flexibility. We all supported planting flexibility. And so that really wasn't the issue.
But the decoupling of the Federal Government payment and troubled times in farm country, in my opinion, isn't a rational extension of farm policy, as Dr. Harl suggested, it is an irrational extension of farm policy.
Look at this; this is how our payments went. We had great prices in 1986. We had huge checks mailed out from the Federal Treasury. To me, that just doesn't pass the basic
Mr. MORAN. Would the gentleman yield?
Mr. POMEROY. I am not done yet, and I want to finish my point. Then I would be happy to.
Mr. MORAN. Thank you.
Mr. POMEROY. This came against a backdrop of this relative to the situation facing the individual farmer.
Page 129 PREV PAGE TOP OF DOC So this isn't, as you suggest, Dr. Skees, here they go again, they take that money and go buy stuff. They didn't have any choice. They are looking at these trend lines. This is back in 1996, right here, they have already crossedthey are seeing that the costs ofthey are gettingthe profitability you squeeze is tighter and tighter and tighter, and the onlythe only hope in terms of keeping an economically viable unit under this circumstance is to increase product, that is, before you fall off the cliff with the pricing.
And so, of necessity, they had to take all of the income they had this year and put it into land acquisition, because their only hope of long-term sustainability was having a sufficiently sized farm. And then, with no downside risk protection under this for price collapse, in absolute free-fall, because we have got an inflated land value situation and nothing to deal with price collapse.
And with Asia's financial turmoilAsia represented 45 percent of our export marketswe were in real trouble.
Now, the issue, thank you, on the ability of private risk management tools to address that kind of situation involves more than whether or not, you know, it makes economic sense in given areas on the fringe. It really is an issue of actual reinsurance capacity in the private market system to carry that kind of risk; and we have exceeded the private capacity. That is why you have a public-private partnership with crop insurance, one, I think, that needs a little more public participation in light of what I have seen.
There are many points I want to make, but I will close with getting back to Dr. Harl's point on marketing loans. You know, when you have a marketing loan under the old formula, which was a 5-year Olympic average of85 percent of the 5-year price, throwing out the high year and the low yearyou know, it is pretty hard to imagine you are going to induce planting. You are going to increase production so someone can get 85 percent of what was paid over the previous 5 years.
Page 130 PREV PAGE TOP OF DOC On the other hand, you do provide some kind of cushion to get through the spiked period that you have got now.
Is it your assessment that that prior formulation would probably not induce planting?
Mr. HARL. It is veryI think it is difficult to say, Mr. Pomeroy, as to how much impact it had. I think we need to look at a newmy perception is, I don't think it had a huge impact in terms of inducing supply. But I am not really quite prepared today to say that clearly. I think we need a close look to see what motivates people at the margin to bring land into production and cause additional supply problems for us.
I am always suspicious of a formula because circumstances change, and a formula just leads you down the path. And I think it may be more difficult than that. I think it may be more complex than that, and I think we need to have some kind of a mechanism that addresses this and doesn't get it too high.
Mr. POMEROY. Yes, I agree with that.
Mr. HARL. Nor let it drop too low.
Mr. COMBEST. If the Chairthe Chair would hate to cut anyone off and, obviously, we are working under somewhat of an unusual situation in the fact that the House schedule has changed so much in order to accommodate the unfortunate tragedy that was here. If this witness panel is dismissed at this time, it would take 30 minutes for the additional panel just to give their opening statements.
And, again, in order to be courteous to those who have comeI hate doing this. This is an issue maybe we need to talk about having another hearing on as well. The Chair does apologize for that. But I think we all recognize that both members and the panel are somewhat under a constraint. And I apologize to everyone for that. And so, consequently, if we might bring on the next panel. And members
Page 131 PREV PAGE TOP OF DOC Mr. BOSWELL. Mr. Chairman.
Mr. COMBEST. Mr. Boswell?
Mr. BOSWELL. Does that mean that the junior member can say a word?
Mr. COMBEST. The junior member can certainly say a word.
Mr. BOSWELL. I think we just had a very distinguished panel this afternoon, and I want to thank you and everybody else that we have had discussion with about volatility and what we do.
As far as pricingand pricing and weather concerns, it hasn't changed since I have been around. And I think the income averaging thing is very, very important to people who do what we do, compared to what others do.
And I just appreciate the discussion that has taken place here. It is something that I have been looking forward to. And I have stayed. I wanted to hear.
Thank you for coming.
Mr. COMBEST. Thank you very much to the panel. We appreciate it.
The next panel is Mr. Dean Kleckner, Mr. Ted Winter, accompanied by Mr. Leland Swenson, Mr. Phil McLain, Mr. Jack Hamilton, Mr. William Northey, and Mr. Al Ambrose.
Gentlemen, we thank you and we appreciate your patience and understanding in the somewhat changed schedule.
Mr. MINGE. On behalf of Minnesota's Second District, we are very proud to have both Representative Winter and Mr. Ambrose.
Mr. COMBEST. Mr. Kleckner, if you would start, please.
STATEMENT OF DEAN KLECKNER, PRESIDENT, AMERICAN FARM BUREAU FEDERATION
Page 132 PREV PAGE TOP OF DOC Mr. KLECKNER. Thank you, Mr. Chairman. I am Dean Kleckner. I am the elected president of the American Farm Bureau. I am a farmer from northern Iowa. I grow corn, soybeans and hogs.
Let me say at the beginning, there are real problems in some areas of agriculture today. Prices are painfully low for some field crops, not all. Some livestock. They are for me. I have got 60 percent of last year's corn crop to sell. If you can call $1.90 a bushel a price, because that is what I was offered this morning for last year's corn, $1.90.
But, I could have sold that 1997 corn and this year's crop too, for that matter, earlier this year at a significantly higher price. Some of my friends did, but I didn't. A good friend of mine in northeast Nebraska with about the same basis I have, his wife does the sellingthat is probably the reasonthey marketed all of their last year's crop at $2.55 a bushel, average, several times during the year, plus 25 cents a bushel on all of the corn. It is more than, 37 cents, but averaging across he got 27 cents transition payments. My friend got $2.80 a bushel for all of his corn. She has also sold 25 percent of the 1998 crop, projected four different times so far at local price, not Chicago price, at $2.67, $2.63, $2.60 and $2.43. Not shabby. Why didn't I?
Every morning when I am shaving, I am looking at the person who made the decision not to sell. No one else is to blame, not the farm program, not USDA, not the House Agriculture Committee. I wish they were to blame, but they are not. The FAIR Act is working as intended. It is allowing farmers to shift crops. Jim Harmon, the president of the North Dakota Farm Bureau, told me, ''Thank heavens for the FAIR Act.'' Because of scab, he shifted a lot of his crop to canola and sunflowers. He said that he couldn't have done it under the old farm program.
The market is providing producers with the opportunity, with pricing opportunities, while the market transition payments and loan rates offer a safety net. We have got, according to Secretary Glickman, $8 billion more in agriculture under the FAIR Act than we would have in the same years under the old farm program in the transition payments, 1996 and 1997. I just hope that if you fellows do the unthinkable, the Congress and the administration, and revert back to the old farm program with higher loan rates and extended maturities, that you don't make us pay back that $8 billion that we got that we would not have gotten under the old farm program.
Page 133 PREV PAGE TOP OF DOC The chart on page 4 of my report shows that we farmers have had marketing opportunities. This farmer at least just has to learn to manage risk better. I am talking about me. I also know, I have to tell myself sometimes that 150 bushel per acre corn at $2 is the same as 100 bushel corn at 3 dollars in gross income, and it doesn't always make me feel very good. We have got to develop more customers, and the FAIR Act and what was promised to come with it was supposed to help with foreign market development. We need to use the Export Enhancement Program to retain foreign markets for farmers.
I saw in the Wall Street Journal a couple of days ago, France just sold 200,000 tons, 7 1/2 million bushels of wheat to Egypt at $2.30 a bushel. That is ridiculous. The subsidy on that must have been more than the price to go into Egypt. We simply got to have fast track so our negotiators can negotiate in the next WTO round to get rid of export subsidies.
What else can be done? We applaud Chairman Smith and Speaker Gingrich on their proposed legislation to pay the 1999 transition payments after October 1. A good move. In addition, altering the crop insurance program is necessary to make it a more effective management tool. Continuous years of poor crops in parts in North Dakota and Minnesota and other States is a downward spiral, making it impossible to adequately insure crops at a reasonable level. We need revenue assurance available for farmers to buy. One of the best ideas to come down the pike is the concept of the farm accounts, which I hope will be passed quite soon. It is too late this year, but what a great time to have it. We could have put away 20 percent of income in 1996 and 1997, the good years, to put it away pretax.
This is my 43rd crop on my farm. All I know is prices go up and down, and they will keep doing that and we need something like this to average things out.
We need income averaging. That is a tax management tool. Farm accounts is a business management tool, and many people think they are the same. They are not. We have got to have regulatory reform. Gentleman, that was promised to us in the FAIR Act, that there would be regulatory reform. You said, ''We are going to move you to a market system. We are going to do some things to accommodate that.''
Page 134 PREV PAGE TOP OF DOC Arbitrary oppressive regulation, I am hearing as much about that as I am about the low prices. Please, regulate the regulators they say. They are taking at least $20 billion out of our pockets each year out of net. The way FQPA is being implemented by EPA is a perfect example. We are going to lose irreplaceable pesticides pretty soon. Food costs will soar, hurting most those who can least afford it, the poor people and their children. Kids are going to go without fruits and vegetables or come in from other countries because we won't be able to grow them here.
A final point. Despite, or maybe to spite congressional instructions, the administration seems intent on pursuing the Kyoto Protocol to reduce emissions from so-called greenhouse gas. Energy prices would soar. Our studies and Sparks' and other ones show that net farm income would probably plummet 50 percent related to what we are talking about today, because we are talking about farm income this year because of the weather and the prices falling 10 percent. We are saying under the Kyoto Protocol, 50 percent.
Stay the course on the FAIR bill. Don't go back to the failed policies of the old farm bill. Address our concerns about reg reform, trade, additional and improved risk management tools and taxes. Congress assured us when the FAIR Act was passed that there was an unfinished agenda and the attention would focus next in some of those areas. We ask you to keep that promise. Thank you.
[The prepared statement of Mr. Kleckner appears at the conclusion of the hearing.]
Mr. COMBEST. Thank you.
STATEMENT OF TED WINTER, NATIONAL FARMERS UNION
Mr. WINTER. Mr. Chairman and members of the House Agriculture Committee, it is my pleasure to be here. I want to thank you for holding this hearing to consider the price crisis facing farmers and ranchers in Minnesota. I am also here as a spokesman for the 300,000 family farmers and ranchers that are members of the National Farmers Union.
Page 135 PREV PAGE TOP OF DOC I bring deep concern from farmers and ranchers on the 20-year low prices that they face today. In my local market, which is in the Worthington area, southwest Minnesota, we are looking at farm prices for corn at a $1.80 and lower today, the price of soybeans at $5.50 and lower today. That is more than what farmers can deal with as they try to manage their farms and deal with the issues of increasing commodity prices and the overall concern they have for how they pay those bills that are out there today at a price that they feel, and is, below the cost of production for them to maintain good viable operations in rural America.
The natural disasters talked about today by Congressman Peterson and Congressman Pomeroy and Representative Minge are real and true. We have held hearings in the House Ag Committee in Minnesota in the last session, and we ended up putting $8 million of State money into helping shore up some of those high insurance costs which farmers were being required to pay because it didn't work right for them. I think there needs to be some work and some issue dealt with for the natural disasters across the country and how they impact farms and farm families as we move forward.
It seems ironic that we have natural disasters in Minnesota that impede the production of farmers and give them low production levels. We have the same thing in Texas and Oklahoma and Georgia and Florida, natural disasters that are lowering the ability of those farmers to pay their bills, and at the same time overproduction in the Nation. It never works for farmers to deal with the weather and it never works quite right for farmers to deal with the world market supplies, because they can't control either one of those. Those are out of their control, but they have to deal with them and is how they manage their farm operation and is how they manage their families and how they keep their families as part of those farm operations in the future.
A 72-year-old man that I talked to said in the past we have always been able to deal with low grain prices because we have livestock prices that have been able to compensate for that time period. But he says today they are all bad. Cattle, hogs, they are still to the point where they can't pay, so he said we need to do something with that issue as we move forward with the farmers and the farm prices.
Page 136 PREV PAGE TOP OF DOC The bottom line is that the price crisis in farming is destroying the family farms and ranchers in these rural communities, and something needs to be done to address that issue where those spikes in the low side of the market are driving them out of business today, and that is not fair for those farms and farm families.
I believe we need to take some action. You need to take the tools that farmers would take out of their tool boxes to fix their equipment, the same tools we use as Congress to take tools out of your tool box and try to fix what is going on in the farm communities. I think we need to remove the cap on marketing loans to allow that average to move up a little bit when prices are high so we have a better floor price long term.
That would add 60 cents to wheat, 30 cents to corn, 30 cents to soybeans across the communities and that would help the price today. The price today is the problem with the farmers that are out there today and how they manage the cost of their operations.
Extend the loan periods so we don't force all of crop that is out there.
Mr. Kleckner's crop that is still there today, the way that the Loan Marketing Program is today, those loan markets will be forcing that crop to come onto the market right now at a fire sale price, and a fire sale price in any kind of business is not good for long-term survivability of that operation. And fire sale prices will happen with the prices we have got today on all of those commodities that people hold today and what is coming off, the crop that is being raised in Minnesota will also be a fire sale price.
Look at what you do with indemnity payments, and help those farmers that are having stress because of 3, 4, 5 years of crop losses, scab which they can't control, natural conditions that they can't control, and I think that has to be a part of it. We have to look at the export side of it. Increase the exports in a way that will allow farmers to move more of that surplus. We can produce more than we can sell and more than we can use domestically here, and that is our problem. And the surplus always hangs over the back of the farmers.
Page 137 PREV PAGE TOP OF DOC In rural Minnesota we are the grain bank of the world. Everybody else's commodity goes out at a higher price, earlier. Along the river trade, they get more money for their products and we end up holding because our prices never get that high. We always take a lower price because of transportation, because of the bid on the border trade.
We need to aid the livestock industry in Minnesota. Mandatory price reporting for livestock sales. We should look at country of origin labeling on import meats so people know what they are buying and where it is coming from. And we should look at the milk price and ask the Secretary of Agriculture to look at those milk marketing orders and see if we can't work some way to have farmers who are out there dairying every day from 5 o'clock in the morning until 10 o'clock at night so they can come up with some way to have value for what they are doing.
In conclusion, Mr. Chairman and members, there is a price crisis facing farmers today. The price crisis will not go away tomorrow unless you control some of the ways that supply is created out there. If you can help some of the export side out there, and look at the market loan rate to allow farmers to have a little more price protection for what we have, the surpluses that are created even at the times when we have disasters across our States, and we have surpluses which drive the price to a price crisis problem. We need to address it because farmers and farm families are going to go out of business. They are going to sell themselves out because they can't make it, even with their wives working and themselves taking other kinds of jobs off the farm.
Mr. Kleckner has outside income. I have outside income. We both farm. Every other farmer has his wife working. My wife is working. I don't know if his wife is working or not. That is the problem. Outside income, outside cost coverage because of that outside income that the farmers are not having to pay, and the prices they have today are driving them out of business. And if you don't fix it, the problems will get worse in rural America and worse in the country; and, long term, the problems that we create for the food supply of this Nation will be worse for people, and the consumers will lose in the end.
Page 138 PREV PAGE TOP OF DOC [The prepared statement of Mr. Winter appears at the conclusion of the hearing.]
Mr. COMBEST. Thank you, Mr. Winter.
STATEMENT OF PHIL McLAIN PAST PRESIDENT, NATIONAL ASSOCIATION OF WHEAT GROWERS
Mr. MCLAIN. Thank you, Mr. Chairman and members of the committee. I am Phil McLain, a wheat producer from Statesville, NC where I operate a diversified dryland farm. I also grow on that farm corn, soybeans, barley and cotton. I am the past president of the National Association of Wheat Growers. It is a pleasure to once again appear before this committee on behalf of the Nation's wheat producers. We appreciate the opportunity to discuss the state of the wheat economy and agriculture in general.
In a word, Mr. Chairman, the economic prospects for many wheat farmers and others involved in the industry are bleak. Unfortunately, there appears to be a strong indication that things may likely get worse before they get better. While recent media attention has focused, and for good reason, on the economic crisis in the northern Plains, wheat producers' incomes, and hence, the financial viability of families and farms, rural agribusinesses and communities are suffering across all wheat production areas of the United States.
I have attached several tables to my full statement for the record that demonstrate the reasons for little optimism concerning wheat producers' income this year. Mr. Chairman, I hope you will review table 3, the list that lists the August cash bids for soft white wheat delivered to Portland.
Over the most recent 2-month period, cash bids for wheat produced in Oregon has declined by over 50 cents per bushel, or more than 15 percent. For some farms, recent yields have been high enough to maintain the economic integrity of their winter wheat and their wheat farming operations at the prevailing price levels when coupled with market transition payments of the FAIR Act.
Page 139 PREV PAGE TOP OF DOC A large number of wheat producers, however, are failing to cover their increased production expenses. A significant cost-price squeeze now exists for most wheat growers. This is not an isolated or regional circumstance but a widespread situation. The impact of this situation does not stop at the farm gate. However, less graphic than the North Dakota auctions or the Texas drought, banks and agribusinesses in my area in the Southeast and Pacific Northwest and elsewhere are concerned about non-performing loans and production credit extended for the current crop. An increasing number of producers are being told they will not be eligible for operating loans for next year. Declining farm and rural community incomes are pressuring public services as well.
In Whitman County, WA, the Nation's largest wheat producing county, several public school levies have failed, some for the first time in memory. Whitman County has not been ravished by weather or disease and in fact has produced above-average crops for the past several years.
There have a number of events that can be pointed to as a cause for the rapid decline in farm income and economic health of the wheat industry. Weather is the major determinant of farm production and income. While some regions of the United States have been ravished by severe weather occurrences, other areas here and abroad have been the beneficiaries of nearly a perfect production environment leading to record yields, increased market competition, and reduced import requirements. When coupled with the impact of the Asian economic crisis and continued unfair trading practices of both exporters and importers, demand for U.S. wheat exports has not maintained a level necessary to provide economic stability or opportunity for wheat producers.
The 1996 FAIR Act is not the cause of our current economic difficulties. While some meaningful progress has been made, the Congress and the administration have failed in a timely manner to fully enact the underlying commitments made here in consideration of the farm bill, including an aggressive U.S. export and trade posture, improved risk management opportunities, expanded agricultural research efforts and tax and regulatory reform. This situation is increasingly demonstrating that the economic safety net contained in the act is inadequate to address the numerous factors beyond the producers' control.
Page 140 PREV PAGE TOP OF DOC We applaud the recent action taken by the Congress to waive sanctions on the Agricultural Credit Guarantee Programs in the cases of India and Pakistan. We urge the Congress to go further and comprehensively review current laws to ensure that agriculture is not asked to bear the cost of unilateral economic sanctions imposed as a matter of U.S. farm policy.
The President's announcement of expanded purchases of commodities for humanitarian efforts is also to be commended, as are the legislative efforts in several tax reform areas. The recent passage of the agricultural research title represents a renewed commitment to long-term U.S. competitiveness and productivity while stabilizing the Federal Crop Insurance Program. However, much more can be accomplished, and soon, if we are to avoid further economic distress in the wheat industry.
The NAWG developed and presented a wheat action plan that identifies specific proposals which should be acted upon by the Congress and the administration. We appreciate the bipartisan commitments made by this committee. The Speaker of the House and your Senate colleagues take action on several of those issues during the remainder of the session. We must recognize, however, that it will take time for farmers to feel the positive economic effects of trade and market liberalization. It is, therefore, imperative that immediate action be taken to address the economic stress in rural America.
The NAWG supports actions to provide additional compensation for producers who have purchased crop insurance but suffered multiple years of crop losses. Currently, crop insurance remains a marginal risk management tool for most producers. For those with declining production history from causes beyond their control, the program is totally inadequate.
We also encourage Congress to remove the caps on the Commodity Marketing Loan Program for the current year and eliminate forfeiture as an option for settling those loans. This action will provide immediate income assistance to producers while ensuring U.S. price competition in export markets. Such a program can also provide part of the leverage necessary to complete successful negotiation to promote free and fair trade by all market participants. While we recognize that potentially higher marketing loans will increase Government outlays, we would point out that those costs are now being paid by farmers, agribusinesses and rural communities through reduced economic activity and increased risk.
Page 141 PREV PAGE TOP OF DOC Finally, the National Association of Wheat Growers urges Congress to consider providing trade compensation to producers impacted by the continuation of unilateral trade sanctions on agricultural products. Currently, U.S. wheat producers are precluded from participating in about 11 percent of the world wheat trade due to U.S. sanctions. Not only do these sanctions reduce U.S. exports at the expense of U.S. farmers, but they also provide an umbrella of market production for our competitors.
Mr. Chairman, for many producers, the 1998 wheat harvest will be their last. The income health of the wheat industry is in poor shape. We encourage the Congress and the administration to work in bipartisan fashion to develop and implement both short- and long-term strategies for addressing this situation.
Thank you for the opportunity to be before this committee and I am pleased to respond to any questions you may have at the appropriate time.
[The prepared statement of Mr. McLain appears at the conclusion of the hearing.]
Mr. COMBEST. Thank you, Mr. McLain.
STATEMENT OF JACK HAMILTON, PRESIDENT, NATIONAL COTTON COUNCIL OF AMERICA
Mr. HAMILTON. Thank you for the opportunity to testify. I am Jack Hamilton, a cotton producer from Lake Providence, Louisiana, and I am president of the National Cotton Council. In addition to producing cotton, I also grow rice, corn, soybeans and wheat, and I operate a cotton gin and a cotton warehouse. I am not going to read the rest of my testimony because it has been said about 10 times today, and I would like to make about 4 comments in 60 seconds.
I have farmed for 44 years, one more than you, Dean, and the best years I had farming were 1986 to 1995. Those were wonderful years in the cotton business. We increased our domestic consumption 100 percent. We went from about 5 million bales to 11, and these were awfully good years for the cotton industry.
Page 142 PREV PAGE TOP OF DOC The second comment, on crop insurance. Crop insurance in our area would make a very good program for ABC on ''Fleecing of America,'' because the only people who take crop insurance in our area are people who plan to defraud the Government. That is a broad statement, but I am telling you it is true. The crop insurance would never work in our area unless the premiums and the benefits are designed to attract in the low-risk farmer, and I am one of those low-risk farmers. I would probably never call on it, but no insurance program works unless you get the low-risk people in, and you don't have them in my area.
On taxes, of course, income averaging would be very helpful. One of the best things that was ever done tax-wise in my entire career was investment tax credit, and I am sure that we can't get that back, but that was a good one. It sold farm equipment and it helped us to no end.
My last statement is in my 44 years of farming, it has changed more in the last 4 years than it did the previous 40, and the reason is biotechnology, genetic engineering. We are doing things that I never dreamed of, and there are two great threats and this worries me very much.
Number one is the monopoly that is being created and was mentioned here earlier today on the part of some chemical companies as they begin to merge and go together; and they do control this situation, and it would be a terrible thing if they made this technology cost us more than it benefits us.
The second great threat to that technology is the FPTA. If we are denied the right to these crop protection chemicalsthey told me to say ''crop protection products''if we are denied access to those through FPTA regulation, we have lost the technology that can move us, along with the rest of America, that is getting more production through technology.
I appreciate the opportunity to be here today and we appreciate your efforts and your hearing of all these things which have been said. This has been an interesting afternoon. I didn't know you guys worked so late.
Page 143 PREV PAGE TOP OF DOC [The prepared statement of Mr. Hamilton appears at the conclusion of the hearing.]
Mr. COMBEST. Thank you, Mr. Hamilton.
STATEMENT OF WILLIAM H. NORTHEY, PAST PRESIDENT, NATIONAL CORN GROWERS ASSOCIATION
Mr. NORTHEY. Thank you, Mr. Combest. My name is Bill Northey. I farm near Spirit Lake, Iowa. I am past president of the National Corn Growers Association. And thank you for the opportunity to testify on behalf of the NCGA and its 30,000 corn farmer members.
Well, farming involves risk and risk management. We accept some of the risks and we try to minimize some of those risks. One of the areas is trying to minimize price risk. We have marketing tools, hedging options contracts to try to do that. We try to minimize weather and disease risk. We use crop insurance, irrigation and crop rotations. We even join associations sometimes to attempt to reduce our risk by joining together to manage trade disputes and tariffs and regulation and tax policy, or at least to participate in those discussions.
I think there are many factors that have gone together to create the current crisis in the farm community. There have been ravishes of weather and problems with rail and river transportation of grain and declining exports due to the Asian financial crisis. However it started, and it is an amazing difference from 1996, it was an extraordinary year, with record farm income, tight markets, strong worldwide demand, even talk of new plateaus of prices, where we are never going to get back into the areas where we are now, and by 1998 almost every market factor that led to that positive performance has now turned the other way.
These have all changed, but the causes of these and the changes of these was not the FAIR Act, but they do point out that it takes more than a farm program to make a successful farm economy, in that a farm program alone will not cover all of the production costs and other expense, and it is certain you will get the attention of a lot of people when that does happen.
Page 144 PREV PAGE TOP OF DOC We have very low corn prices. They are above the record lows, but they are very low, especially compared to what they were 2 years ago. The average corn prices for the 5 years of the 1990 farm bill was $2.49 and the average corn price for the last 3 years was $2.44. We are in the low end of that right now, but over the life of these two, it has been actually very similar to FAIR.
But we have had problems with weather, and the ravishes of weather have been reducing individual yields in many areas of the country and the major part of the corn belt there has been excess moisture, leaf spot and green stem. In Texas, of course, it has been very hot weather that has devastated the crops of many of our members there.
And crop insurance is very important to our members to try and indemnify some of those losses, and it does work well for some, but in some cases it doesn't work well.
As was mentioned earlier, when there are problems and those problems are repeated, lower total coverage and higher premiums seem to go along with it and that needs to be addressed. We would just encourage that as well.
Certainly, even the 35 percent level that is subsidized to the greatest extent which encourages producers to ensure to that level is definitely below the cost of production for most producers, and you can't continue to have that kind of loss.
We do believe that along with Freedom to Farm there should be freedom to trade, and the currency devaluations in the Asian countries are causing us severe problems. The financial crisis going along at the same time has actually caused corn prices in some of the Asian countries to be higher now than they were a year ago in spite of the lower prices right now.
NCGA supports the full funding of the IMF. We support fast track negotiating authority. We support sanctions reform and expanding corn exports markets.
We also have a concern about transportation. It has a very significant impact on the farm economy. A transportation system means better prices for corn and other commodities, and certainly a poor transportation system definitely lowers prices.
Page 145 PREV PAGE TOP OF DOC We know that 1997 was an especially bad fall and there are some indications that this fall looks like there could be some of those same problems.
Well, what is next? The NCGA was the first national commodity organization to embrace the concept of Freedom to Farm during the 1995 and 1996 farm bill debate. Our support was contingent on the Federal Government's support for agricultural research, adequate risk management tools, market expanding opportunities, a fair tax system and relief from excessive regulation, and we still support the concept of ''Freedom to Farm.'' We do believe that farmers will make better production decisions than Washington, but we do need the Federal Government's help to address some of the concerns that are beyond the farmer's control.
We need a commitment to research and we need affordable, effective crop insurance tools. We need a strong global economy and access to markets. We need a tax system that allows us to keep a reasonable portion of what we own. We need a viable, efficient transportation system. And I look forward to working with the committee on furthering this agenda. Thank you.
[The prepared statement of Mr. Northey appears at the conclusion of the hearing.]
Mr. COMBEST. Thank you, Mr. Northey.
STATEMENT OF AL AMBROSE, ON BEHALF OF THE COALITION FOR COMPETITIVE FOOD AND AGRICULTURAL POLICY
Mr. AMBROSE. Thank you, Mr. Chairman and members of the committee. I appreciate the opportunity to be here today. I am Al Ambrose, senior vice president of processing for Cenex Harvest States of Inver Grove Heights, Minnesota, one of the Nation's largest farm cooperatives, representing a quarter million farmers and ranchers in 18 States. I also serve as chairman-elect of the board of directors of the National Oilseed Processors Association, and I am here representing the Coalition for Competitive Food and Agricultural Policy. This coalition is comprised of 120 trade associations, companies and farms from across the Nation, working to promote agricultural protocols that will allow U.S. agriculture to compete in growing domestic and world markets.
Page 146 PREV PAGE TOP OF DOC A few facts. We have not seen a significant increase in per capita food consumption in the United States for a decade. Therefore, the greater opportunity for agricultural growth lies outside of this Nation. We need to access those opportunities, and it requires a 2-step process:
First is to stimulate and encourage economic growth in societies where widespread dietary deficiencies are common.
The second step is to allow the free flow of food from the most cost-effective food supply in the world to that undernourished consumer.
To this end, we should try to help stabilize currencies overseas and to vigorously attack trade barriers. Those of you who have my written text, there are some charts that I would like to refer to, and I don't have anything to put up on the wall so I hope that you can look at them.
In the 199495 marketing year, we saw global consumption of oilseeds jump over 11 percent due primarily to rising demand for vegetable oil, protein meal and meat in Asia, most notably China.
As demands in overseas markets increased, the U.S. responded by stepping up production of those goods. That growth is clearly demonstrated in chart No. 1. For what it is worth, between 1985 and 1994 the U.S. soybean crop averaged 2 billion bushels a year. In the last 2 years it has averaged 2.8 billion. That is a 40-percent increase, a monumental increase in that short a time, and it was only possible through growth of demand in Asia.
Chart 2 depicts soybean prices. Note that the soybean price remained above $6.50 for the last 3 years, meaning that high prices can coexist with significant production increases as long as consumption remains strong. Currently prices are declining because of economic stagnation in Asia.
Charts 3 and 4 demonstrate the massive increases in oil and meal consumption in China since 1992 when China adopted market reforms. In the last 4 years, meal consumption in China alone has doubled by 3 1/2 million tons and oil consumption has gone up threefold.
Page 147 PREV PAGE TOP OF DOC Another fact. The least Government-supported crop grown in America is soybeans. In 1985 we opted out of help. The 3-year average farm price for soybeans is $4.84. The 5-year is $6.48. Call any farmer today and ask him how we would like $6.48 soybeans.
There are tools available to us. Normal trade relations with China becomes essential. IMF funding to stabilize economies and reinvigorate demand. Fast track, we have to negotiate in good faith and make the people on the other side of the table believe us. And sanctions reform is absolutely essential if you believe in the future of farming in America. We ship half of our goods outside this country. Farmers are going to continue to increase production, and it is up to us as policy makers and marketers to access the demand that already exists in the world by opening up those markets and assuring those people that we will supply their food.
Who among us would want to become dependent for our food supply on a party who has demonstrated a tendency to withhold food based on moral value differences? Sanctions do not work. They do not stop the free flow of food. You simply alienate your potential customer and you inspire doubts in the minds of your existing customers. Would it not be better to try to meet the other's needs? Chances are he will become more open to your needs in the process. Positive, mutually rewarding terms builds bridges across chasms of disagreements.
It is imperative that we do not resort to supply restricting policies to either reduce production or artificially stimulate hoarding. Market access is a code word for demand. Farmers will create the supply. It is up to us to access the demands. We have the tools available to us if we have the political will to employ them. Interestingly, three of four of these tools employed together will be far less effective than the 75 percent that they represent numerically. We need all four. You have to convince the world that you will be a reliable supplier and not use food against them on your basic points of disagreement. It is not only ineffective, it is immoral.
Page 148 PREV PAGE TOP OF DOC We respectfully ask that your efforts be directed towards accessing existing global demand as well as providing short-term help for producers which you deem appropriate. However, it is imperative that such relief does not distort markets.
If we are ever to expect import-market nations to lower their import tariffs and barriers, we must provide them with food security, guaranteeing the prohibition of future food embargoes and sanctions. We believe that short-term relief is appropriate for the farmers. Research and education and risk management are in order. We would strongly encourage, however, long-term solutions which pursue market access and expanding world demand. Thank you.
[The prepared statement of Mr. Ambrose appears at the conclusion of the hearing.]
Mr. COMBEST. Thank you very much.
Mr. PETERSON. Mr. Chairman, I have a statement from the Minnesota Association of Wheat Growers, a letter from their president.
Mr. COMBEST. Certainly, it will be a part of the record.
Mr. BOSWELL. No questions.
Mr. COMBEST. Mr. Stenholm.
Mr. STENHOLM. Thank you, Mr. Chairman. Just some interesting numbers regarding what has happened to agriculture since 1995. In light of the previous panel's discussion regarding land values and some discussions regarding land values, it is fascinating to look in the Agricultural Outlook Economic Research Service and see 1995 real estate assets of all farms and ranches in the United States have increased by $134.3 billion, real estate debt has increased by $6.9 billion. When you look at total farm equity, total farm equity has gone up $129.5 billion.
Page 149 PREV PAGE TOP OF DOC So something all farmers understand: If you own land, that is what is keeping you in business because of your net appreciation in asset value. We are not making any money. At least we are not adding it to our asset columns on the average in the United States in the production of grains or livestock, on the average. That does not mean that there are not some making money, some are losing money. But it is fascinating when you look at that in light of the discussion that we have had today.
My question to all of you: On a scale of 1 to 10, how helpful do you expect the advance of AMTA payments to be on October 1with 10 being very helpfulcompared to improvement in insurance, IMF, et cetera, et cetera? Mr. Kleckner.
Mr. KLECKNER. I wish I could pop out with a number, but it surely depends on how bad off that individual is. Some will take it and some will not because of the tax implications. I suppose when you compare it to IMF, fast track or tax reform, reg reform, which are way, way more important long termbut this is short term, you said 10 is highI suppose I would give it a 3 or 4. We do support it.
Mr. NORTHEY. Mr. Stenholm, I think certainly October 1, it seems like a 10 to producers, those that are having real concerns, and of course it is just moving payments ahead. And a lot depends on what happens from then on. It will allow producers to get to the other side of harvest and to see if prices respond after that. Of course, it is just bringing money forward, it is not new money. And the other things that we are talking about, IMF and fast track and other trade things are.
Mr. STENHOLM. Including supplemental insurance payments in light of the Senatethat's all. Thank you. I just wanted to get a little feeling, if any of you had one.
Mr. MCLAIN. We think that it is important that we have those payments, but that is a short-term fix. We need long term to get the health and viability back to wheat farmers, but we certainly believe that is necessary at this time.
Page 150 PREV PAGE TOP OF DOC Mr. WINTER. Mr. Stenholm, Mr. Chairman, 3. Long term it doesn't impact the price crisis that is facing farmers today. It allows them to have the money so they can pay their bills, but it does not impact the price of every bushel of wheat and corn that they sell off their farms. If you want to help farmers, take the caps off the loan rates and allow the price to move up so they can garnish a little more money out of those commodities, and the payments early will help shore up some cash flow needs. But in the long term it will not fix the price problem that they face today. So, 3.
Mr. STENHOLM. I put it at 3. I intend to support it. I think it is a tool that we can do at minimal cost, and I personally would give it a 3 also. I have no further questions. I thank the indulgence of the panel for an extra long day.
Mr. COMBEST. Thank you, Mr. Stenholm. Mr. Lucas.
Mr. LUCAS. An observation coming from a line of Okies that picked some peaches in California and cotton, and worked in a Kaiser shipyard in the 1930's and 1940's but came home to Oklahoma and an appreciation for the soil and land. Not many days ago, the State president of the bureau and the union, the cattleman's executive director, the State president of the Wheat Growers Association, came to D.C. to see the Oklahoma delegation, and they made it clear that with the drought coming across the line from the Red River and the price conditions that we were facing, that they needed something to, as Phil said that day, happen now.
Being an elected official trying to represent my good constituents, I have been visiting for some time with many of my colleagues in leadership about this concept of advancing the payment. It met the requirement of something that was not economically unreasonable but politically doable, and I think that is how it came about. I wholeheartedly agree with my colleagues. It is not the permanent address to a variety of issues, but it addresses the needs of the constituents in my district, many of whom are part of your organizations, that they needed something to happen now, something with certainty. $8.3 billion as my colleague's chart points out, amounts to a substantial amount, at least on the wheat payment this year. So that is how that came about.
Page 151 PREV PAGE TOP OF DOC Let me address the question to the panel, I guess. Looking down the road in the direction we are heading, realizing that we don't have that many legislative days left in this session, realizing that this $8.3 billion is an option, can you tell me how aggressively you intend to work in the coming spring session on some of these other issues?
Mr. KLECKNER. $8.3 billion being what?
Mr. LUCAS. The second half of the 1998 AMTA payment, and if you exercise the option on October 1 to take the 1999 AMTA payment, potential dollars that could be available to folks who signed up for the 1996 farm bill of about $8.3 billion this fall.
Mr. KLECKNER. We are strongly in support. We think that for those farmers that are really hurtingnot all are, the Red River area and many other areas alsothis can be very helpful. But as Bill Northey said, this is simply paying ahead. But we are in support of it.
But all of the other things that we talked about longer term, the IMF funding, we are going to work on that; fast track; certainly the tax changes; farm accounts; permanent income averaging; lowering the capital gains tax rate. I think that would be tremendously helpful to many farmers, including those that want to retire and sell it to their children. 15 is probably too high, but a heck of a lot better than when it was at 28. We are going to work very hard on those things and some other.
Mr. LUCAS. But the resources have to be there to put that next crop in the ground. Mother Nature may change, we may have to do whatever we have to do next year for the good of American agriculture, but we have to get to that next year, and this looks like the most practical opportunity out there.
Mr. SWENSON. Congressman Lucas, we also support the AMTA payments. It is critical to look at how much is leveraged or built into cash flows for 1999 that are dealt with within the financial institutions which farmers and ranchers operate under, and to how much then will yet be available to assist with the financial crisis that many producers are facing because of low commodity or the loss of crop in 1998. And so that is a story yet to be unfolded.
Page 152 PREV PAGE TOP OF DOC But I will guarantee you that we will be here in September when you come back to try to address these problems, because low prices will not go away just because we advance the AMTA payments. In fact, projections are that we will have lower prices in 1999. And if we give up the advanced payments in 1998 for 1999, we are still going to have a major crisis unfolding in 1999, so we will be here to deal with price in September. We will be back in January and February until we get some response.
I also want to take the time, if I may, to say I don't know of anyone, any farm organization, that is advocating going back to the old farm bill. We are trying to look at where some enhancements may be made in the structure of the 1996 farm legislation. And I think the implied aspect of many of those that advocated enhancements are advocating going back to the old way of doing things is a misjustice from the voices of agriculture, and we believe that those elements that we have advocated, many of which we all agree on, IMF and other aspects, are ways to enhance and improve the farm legislation. Thank you.
Mr. LUCAS. Thank you, Lee. Thank you, Mr. Chairman.
Mr. COMBEST. Thank you. Mr. Peterson.
Mr. PETERSON. How many of you would support, as we are going through overhauling the crop insurance system, support throwing out years in which you had a disaster from the formula? It has been brought up to me a number of times by people in my area that when you have that kind of a year, the best thing that we can do is throw those out and consider the years when we do not have disasters, because it gives you a more accurate picture. Can each of you comment on that?
Mr. NORTHEY. Mr. Peterson, I don't know what the criteria should be, but there are problems. Because of repeated crop problems, those yields and the cost of that insurance is getting to the place where producers don't feel that they can afford to buy it and are not getting the coverage that they should be getting, and something has to change. Now, how you decide what a disaster is
Page 153 PREV PAGE TOP OF DOC Mr. PETERSON. I should clarify that. In an area where you had a presidential or secretarial disaster declared in your county, that we would throw out any year that you had that happen and that would just leave the years where you had sort of normal production?
Mr. NORTHEY. It certainly seems like something needs to be done, and that might be one criteria that would make sense.
Mr. MCLAIN. What about the areas where you have 2 or 3 years; can you throw all of those out?
Mr. PETERSON. In our area whereI think one county we have had 5 years out of 6, and with the 10-year situation, you can imagine what that has done.
If you throw out those 5 years and just use the other 5, we would have a fairly normal yield situation and insurance then would work.
Mr. MCLAIN. We need a fix for crop insurance. We want to be able to operate as other businesses are able to, and we don't feel that we have that tool in crop insurance that we ought to have.
In the Southeast, crop insurance has never worked for us. I have never paid a premium on crop insurance that has helped me a bit. 1986 was the worst year we ever had, and I had crop insurance and it just barely paid the premiums. And so we need to put a lot of effort into crop insurance.
Mr. HAMILTON. I never bought crop insurance until the catastrophic insurance was required in order to receive my AMTA payments, and otherwise I never did, and it is just a contribution now. Crop insurance totally doesn't work in our area. You might as well not have it.
Mr. WINTER. The natural weather disasters that farmers face are out of their control. So when they are stuck in that position where they have a problem, you need to average that out over some way or reduce that out-of-control exposure. And to throw a year out because they have been declared a disaster area, I think makes some sense to farmers because it is not their fault. They can't put a cover over their farm to shield them from the rain. They can't defeat the heat that comes in Texas and destroys their crop. They can't control that.
Page 154 PREV PAGE TOP OF DOC So I believe there has to be some sense in how you deal with the issue of those natural disasters that people are exposed to that they have no control over.
Mr. KLECKNER. Mr. Peterson, I have never collected on disaster insurance. My poorest crop I have ever had is half a crop. I have done that a couple of years. That is the poorest I have ever had.
You asked a very good question, and that is you need to accommodate it some way. However, as was pointed out by one of the economists on the panel, actuarially it all has to be figured in at some point in some way.
If there are areas of the countryand I could have 5 years of disasters in north central Iowa. Just because I haven't doesn't mean that it is not coming, starting next year.
I ask myself how fair is it for the taxpayer, including the rest of the farmers, to subsidize or pay in some ways the areas that have many more years than normal of disaster.
I wonder if a better idea wouldn't be to take a longer time frame to average it in than 5 years10 is probably too short15 minimum, or 20 years, and just keep the disasters in and that wouldn't change. If you have 5 years of disaster out of 20 years versus other areas that have 1 or 2 years, you wouldn't have a lot of variation. I don't know. I would like to see some studies done on that. It is an excellent question.
Mr. PETERSON. Some people think the Government is to blame because they were pushing no-till farming. And I personally think that a lot of this problem is because we gave up mowered plowing, and we have kept the residue and the stub grows in it, and we have people on the television advertising about this and so forth.
So it is a really complicated issue, and I was trying to get some information from this other gentleman that has been studying it. But it is a very frustrating situation for our people, and we have got to come up with some solution or we are going to be out of business. They are telling us 60 percent of the producers up north are going to be gone if we don't get something done here. That is serious.
Page 155 PREV PAGE TOP OF DOC Mr. MCLAIN. Somebody mentioned that we might need some disease insurance for those States having problems with scab. I think that is an interesting idea, too.
Mr. PETERSON. Thank you, Mr. Chairman.
Mr. COMBEST. We are at 8:15. I think this is probably going to be the end of this, but you go ahead.
Mr. MINGE. I would like to thank all of you for coming. Two comments. I understand, Mr. Northey, that the National Corn Growers does support uncapping the loan rates; is that right?
Mr. NORTHEY. We do, and we did in the 1996 farm billwe support no cap on thatthat that be 85 percent of the 5-year moving average, throwing out the high and the low.
Mr. MINGE. Secondly, I have followed over the years, not that many years that I have been here, but the last 2 years, the concerns that agriculture has that some of the other things that should have happened in 1996 have not yet happenedthe removal of regulations which handicap the farm economy and so on.
I think it is important that we continue to work on that. However, my impression is that that was not a part of the 1996 farm bill, and I am not quite sure who made the commitment and I am not quite sure how we are going to collect on it.
The one person I know who was here then is not here now, his picture hangs over there, and if there is a way that we can collect from him, I would sure like to do that. So I look forward to working with all of you in that respect. I yield back.
Mr. COMBEST. Thank you, Mr. Minge.
Let me make a couple of comments about some things that you said. Mr. Swenson, you said something that I think was very important, and it is the first time I heard it mentioned, and that is the early AMTA payments. Many of those are going to be committed to credit obligations down the road. That is one of the things that we can do quickly, because it did not have a budget exposure. Nobody ever thought about that being an end-all.
Page 156 PREV PAGE TOP OF DOC There are a number of other things that we need to continue to do, and I mentioned taxes and some of those other things that we are looking at, as well as potentially some other things.
I think it is important that the committee be willing to look at a variety of different things. I don't know how much of those realistically can be implemented. I don't know how many, budget-wise, can be implemented. We need to look at things creatively. How can we finance them? I don't know that status quo is totally locked in.
Also, Mr. Northey, you were talkingand it has been mentioned several timesyou said you were the first group that got on board with Freedom to Farm, and I was probably on the last train that got on. And it is like going to a family reunion where you have to kiss that ugly cousin. You can kiss her but you don't have to hug her, and that is sort of what happened. But you are right in terms of the fact that a lot of the discussion during consideration of Freedom to Farm was regulations. It was tax reform. It was a lot of others things that were also going to be a part of agriculture change, as well asand, Mr. Kleckner, you mentioned regulations as being one of the main concerns that the Farm Bureau has.
Some effort certainly has been made, but we have not seen those, for a variety of reasons, totally implemented, but they are important. And I think it is critical that we continue to talk about the fact that those issues were discussed.
Mr. Minge is right, they were not a part of the farm bill, but they were issues that were discussed because they have impacts. And a lot of the things that impact agriculture today don't even come under the jurisdiction of this committee, and that is a lot of the regulations that are out there, and obviously tax issues and those kinds of thing.
So I think it is important that we look at this as a package, and what can we do in a whole variety of different ways to recognize and see where the problems in farming are today and what we can do to solve them.
Page 157 PREV PAGE TOP OF DOC I would again say thank you very much for coming and your patience and your understanding of why the hearing was delayed from the earlier set time. I feel quite certain we will be having further conversations about this subject in a ready manner, and I appreciate the willingness of everyone wanting to continue on with this fight because we can be assured that the people on the other sides of the issues are never hesitant to let their feelings be known, and we want to balance that with pro-agricultural arguments as well. Thank you very much.
[Whereupon, at 8:20 p.m., the committee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]