Segment 5 Of 5 Previous Hearing Segment(4)
SPEAKERS CONTENTS INSERTS
Page 693 PREV PAGE TOP OF DOC Segment 5 Of 5
THE FUTURE OF FEDERAL FARM COMMODITY PROGRAMS (FRUIT, VEGETABLE, AND HONEY)
WEDNESDAY, MAY 2, 2001
House of Representatives,
Committee on Agriculture,
Washington, DC.
The committee met, pursuant to call, at 10:02 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives Goodlatte, Smith, Everett, Chambliss, Moran, Thune, Gutknecht, Ose, Fletcher, Johnson, Osborne, Rehberg, Graves, Putnam, Kennedy, Stenholm, Condit, Peterson, Dooley, Holden, Berry, Etheridge, Phelps, Lucas of Kentucky, Larsen, Ross, Kind and Shows.
Staff present: William E. O'Conner, Jr., staff director; Tom Sell, Alan Mackey, John Goldberg, Callista Gingrich, clerk; Elizabeth Parker, Pelham Straughn, Danelle Farmer, Howard Conley, and Andy Johnson.
The CHAIRMAN. The hearing will come to order.
Today we will review Federal farm commodity programs with the fruit, vegetable, and honey industries.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Good morning. As we near the end of this current series of hearings on the future of Federal farm policy, I am pleased to welcome everyone this morning.
Page 694 PREV PAGE TOP OF DOC Segment 5 Of 5
Today we will be talking with representatives of the fruit and vegetable industry, as well as the honey industry. While these commodities are not supported in the same way as traditional program crops, Federal agriculture policy is no less important to them. What is more, both the honey and fruit and vegetable industries are faced with many of the same challenges that producers of all commodities face today—from a strong dollar giving foreign competitors a leg up and depressing domestic prices, to invasion of pests and labor shortages, and they are threatening our ability to produce.
Over the last several weeks, this committee has studied carefully the policy recommendation of all segments of American agriculture. Expectations have been high of every group that has taken a seat at the witness table. Like the commodity and farm interest groups that have come before them, today's witnesses will be expected to explain to us exactly what aspects of farm policy that they would like to change or would like to keep the same. They will also be expected to explain how their policy recommendations would affect related industries, our ability to move product in the export market, the effect on farm program expenditures and our WTO obligations.
Today it is my pleasure to introduce Mr. L. John Milam, who is chairman of the Sioux Honey Association. Mr. Milam will be presenting testimony on behalf of the American beekeeping and honey industry and is accompanied by Mr. Richard Adee, president of American Honey Producers Association, and Mr. Clint Walker, president of the American Beekeeping Federation.
I would also like to welcome Mr. Tom Stenzel, president and CEO of the United Fresh Fruit and Vegetable Association. Mr. Stenzel will be presenting testimony today on behalf of the U.S. fruit and vegetable industry.
We would like to welcome our witnesses to the table, and I would recognize Mr. Stenholm for any comments he might have.
Mr. STENHOLM. No opening statement, Mr. Chairman. I just welcome the witnesses and look forward to hearing from them.
Page 695 PREV PAGE TOP OF DOC Segment 5 Of 5
The CHAIRMAN. As always, without objection, all members' opening statements will be submitted and added to the record.
[The prepared statements of Messrs. Smith, Bishop, and Hastings follow:]
PREPARED STATEMENT HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Thank you, Mr. Chairman, for allowing the fruit, vegetable, and honey producers to testify before our committee today. My State of Michigan is one of the leading producers of fruits and vegetables in the United States, and we are second only to California in terms of diversity of crop production. Michigan ranks among the top five States in the production of cherries, apples, asparagus, dry beans, tomatoes, peaches, and pears, just to name a few.
Generally speaking, the fruit and vegetable industry has competed extremely well with our growing list of foreign competitors, and has been able to do so with very little Government policy intervention. However, with the new farm bill just around the corner and increasing financial difficulties within these industries, we must give serious consideration to incorporating programs for fruit and vegetable producers into the bill. If not, we risk losing an important but often overlooked sector of agriculture that provides Americans with the safest, highest quality fruits and vegetables in the world. I look forward to hearing the testimony today and I look forward to a productive discussion of these issues.
I would also like to mention legislation that I am introducing to reauthorize the Tree Assistance Program, known as TAP. This program would provide much needed assistance in the form of replanting reimbursements to orchardists and tree farmers whose crops have been significantly damaged by weather-related disasters and plant diseases. For example, apple fireblight has ravaged apple production in Michigan and New York as well as other areas of the country. Many of these farmers need funding assistance for replanting trees that were killed by fireblight or they will no longer be able to continue farming, and I think the TAP program is an excellent, proven means of providing relief. Thank you, Mr. Chairman.
Page 696 PREV PAGE TOP OF DOC Segment 5 Of 5
PREPARED STATEMENT OF HON. SANFORD D. BISHOP, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA
I would like to join my colleagues on the committee in welcoming representatives of our fruit and vegetable producers and our honey producers. Thank you for being here today.
In my State of Georgia, agriculture produces $57 billion of the State's total economic output of $350 billion. One of every seven Georgians is a farmer or works in an agriculture-related field. Along with forest products, broilers, and peanuts, fruits and vegetables are at the top of the list of our State's leading commodities. Honey has also become an important commodity in my area.
So, the commodities represented at this hearing are crucial to our standard of living and to the well being of our economy—especially in the area of southwest Georgia that I have the privilege of representing.
I commend everyone who is testifying today on you efforts to help shape sound, sensible, and cost effective farm policy for America's producers and consumers
PREPARED STATEMENT OF HON. DOC HASTINGS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON
Mr. Chairman and the committee, I commend you on your efforts to compile all the details, perspectives, goals and priorities necessary for the rewrite of the farm bill. You have a daunting task ahead of you, and I applaud your inclusion of testimony from all commodities, especially the fruit and vegetable industries today.
As you work to establish the framework for the upcoming farm bill and to develop the short and long-term policies that drive our Nation's tractors and combines, I am thankful you have taken the time to receive input from specialty crop producers who do not normally participate in Federal programs. These producers require Federal attention, nonetheless. To understand my interest in the future of our specialty crop producers is to take a quick snapshot of Washington agriculture.
Page 697 PREV PAGE TOP OF DOC Segment 5 Of 5
It may come as a surprise to many, but Washington State is home to more than 230 food, feed, and seed crops. Those crops accounted for a total agriculture production value of $5.3 billion in 1999, ranking Washington as the 13th in the Nation for cash receipts. The commodities grown in my own district accounted for $2.8 billion in sales.
It may also come as a surprise that the State of Washington leads the Nation in the production of apples, hops, Concord grapes, pears, spearmint oil, lentils, processing carrots and sweet corn, dry edible peas, and raspberries. We are second in the Nation in production of potatoes, peppermint oil, sweet cherries, apricots, grapes, asparagus, and green peas, and are third in the Nation for prunes, plums, tart cherries, butter, and onions. My district, the Fourth Congressional District, ranks as the 13th in the Nation for market value of agriculture products sold, and produces nearly all the aforementioned commodities.
These once highly profitable industries will come before you today looking for a sense of direction and leadership. Never before have the beleaguered markets cast such a shadow on these fiercely independent producers. But times are tough. None of us are strangers to the grim future facing the agriculture economy, nor the impact prices are having on our neighbor's pocketbooks.
As you prepare to listen and learn from this segment of the agriculture economy, I'd like to bring to your attention my district, and my State's most significant and symbolic commodity—apples.
In the past 3 years alone, apple growers nationwide lost an estimated $760 million due to unexpected market fluctuations, unfairly priced imported apple juice concentrate, adverse weather conditions, rising regulatory costs, and the increased inability to break through international phytosanitary barriers. Recognizing Washington produces nearly half of the Nation's apple crop, you can imagine how devastating these losses are in my district.
I recently visited with Washington's growers and discussed their efforts to seek solutions and relief. The industry on a national scale is currently ascertaining what specific requests are necessary for the farm bill and any short-term relief that may come available. In the context of the farm bill discussions today, I wanted you to know how much our apple industry is suffering. There are any number of thoughts, ideas, goals and recommendations that the U.S. industry will seek, and I hope to work with you once those priorities are pinpointed.
Page 698 PREV PAGE TOP OF DOC Segment 5 Of 5
Because you're seeking specific details regarding the farm bill rewrite, I'd like to highlight one program that has been tremendously successful for central Washington's apple producers and numerous other commodities—the Market Access Program. While there are any number of issues that should be addressed regarding foreign trade and regulatory relief for agriculture, the Market Access Program (MAP) continues to be successful when promoting U.S. commodities overseas.
According to the Washington State Apple Commission, MAP funds directly contribute to the health and longevity of the apple industry. For example, in the 1996–97 season, Washington State exported more than $461 million in fresh apples. In order to accomplish that task, $2.9 million in MAP funds were leveraged with $4 million in private funds.
At its highpoint, the Washington apple industry received more than $4 million in MAP funds. Due to MAP's success with other commodities, cooperatives, and small companies, in concert with its $90 million cap, the Washington State Apple Commission was only able to secure $2.5 million in MAP funds last year.
On the first day of the 107th Congress, I introduced, with Representative Allen Boyd, the Agricultural Market Access and Development Act. This legislation increases the MAP program from $90 million to $200 million, and utilizes unexpended Export Enhancement Funds to actually fund the increase. The legislation is supported by more than 80 agriculture-based organizations.
I have long supported the MAP, but not only because of its success in relation to the apple industry. The European Union budgets more than $7 billion annually for export subsidies, of which nearly $500 million is used for market promotion. U.S. agriculture needs and deserves a strong international promotion program in order to compete with these subsidies and ensure a level playing field. Interestingly enough, the EU spends more for wine promotion than the Unitede States. spends for all commodities combined.
Page 699 PREV PAGE TOP OF DOC Segment 5 Of 5
MAP also serves as a ''Buy American'' program. The MAP requires that funds be used to promote only American grown and produced commodities and related products.
Finally, as the House Agriculture Committee prepares to draft a new farm policy, careful consideration must be given to the World Trade Organization's (WTO) requirements. Because MAP funding is considered a ''green box'' allocation, House and Senate authorizers can increase MAP's funding levels and stay within international prescribed spending means. I urge you to include an increase in the MAP as part of your farm bill proposal.
Rest assured, whatever the final outcome of the farm bill, I am pleased that the House Agriculture Committee is reviewing farm programs with all commodities, and taking into account the various programs that support and promote U.S. agriculture. The American fruit and vegetable industry's significant impact on the economy and rural communities represents just one piece of the agriculture puzzle. I hope to continue working with you to ensure that all commodities produced from Washington's fertile soil will have a fair shake in the new farm bill, and that they receive some form assistance and support to ensure their continued vitality.
Thank you again for this opportunity to provide testimony today, highlighting the vital role specialty crops play in our Nation's agriculture economy.
The CHAIRMAN. Mr. Milam.
STATEMENT OF L. JOHN MILAM, CHAIRMAN, SIOUX HONEY ASSOCIATION, MOORE, TX, ACCOMPANIED BY RICHARD ADEE, PRESIDENT, AMERICAN HONEY PRODUCERS ASSOCIATION AND CLINT WALKER, PRESIDENT, AMERICAN BEEKEEPING FEDERATION
Mr. MILAM. Thank you, Mr. Chairman, members of the committee. We appreciate the opportunity to be here today.
Page 700 PREV PAGE TOP OF DOC Segment 5 Of 5
My name is John Milam. As you have noted, I am a honey producer from Moore, TX, and chairman of the board of Sioux Honey Association. Sioux Honey is a honey marketing cooperative, with members in 22 States, which markets approximately 60 million pounds of honey.
I am joined at the table by Richard Adee to my right, a honey producer from Bruce, SD, who is president of the American Honey Producers Association; and Clint Walker to my left, a honey producer from Rogers, TX, who is president of the American Beekeeping Federation.
We are presenting a joint statement in behalf of the entire American beekeeping and honey industry for legislative relief for an economically depressed industry. In the interest of time, we have shortened our statement, but we recommend that the entire text is perused for further information. The organizations listed above support a honey program for the 2001 year and succeeding crops that would continue in effect a program substantially the same as in effect for the 2000 year crop.
The program includes the following features: Number one, nonrecourse marketing assistance loans at a national average rate of 65 cents per pound; two, repayment at the loan rate, plus interest, of the market price, whichever rate is the lower; three, eligibility of a producer for a loan deficiency payment at a rate by which 65 cents per pound exceeds the marketing assistance loan repayment rate, multiplied by the quantity of honey a producer is eligible to place under loan; four, marketing assistance loan gains and loan deficiency payments would be subject to the same limitations that apply to loans and loan deficiency payments received by producers of the same crop of other agricultural commodities; five, to minimize forfeitures, a commodity certificate program, similar to the program in effect for other commodities, would be available to honey producers to encourage orderly marketing; six, if a producer marketed his crop prior to the time the regulations were issued, the producer could receive a payment based on the marketing date.
The beekeeping industry is in dire straits today as a result of an economic crisis that is forcing many of our Nation's beekeepers out of business unless help is forthcoming in the very near future. This means the loss of family-owned small businesses that have survived through two or three generations. The beekeeping industry is one of the few industries that predominantly consists of family-owned enterprises. It is also a tragedy for the Nation's agricultural economy, since so much of American agriculture is dependent on commercial beekeepers for pollination services.
Page 701 PREV PAGE TOP OF DOC Segment 5 Of 5
We would like to detail the reasons for the problem. Prices began to fall in 1996 from 88.6 cents per pound to 68.5 cents per pound in 1998 and continued to fall throughout 1999 to 50 cents per pound and lower levels. The situation became particularly acute last year as producers began to extract honey for the 2000 year crop. Prices on a per-pound basis for some producers have been quoted in the low 40's, and even at such prices many of them have been unable to find a market for their crop.
Fortunately, Congress included in the Agriculture Appropriation Act for fiscal year 2001 legislation providing for a nonrecourse marketing assistance loan program for the 2000 year crop of honey. This legislation provides for a loan rate of 65 cents per pound. The repayment price announced by the Department of Agriculture for March and April has been 51 cents per pound, the average market price for all grades of honey based upon information obtained by the Department of Agriculture from the trade. This legislation needs to be extended to cover the crop being produced in this current year as well as crops produced in succeeding years for which farm legislation is now being considered.
Not only are prices received by producers for honey less than 75 percent of what they were in 1998, but costs have increased since then.
Commercial beekeeping is a mobile operation. Beekeepers must move their colonies from place to place as they seek the best source of honey, as they provide pollination services, and as they locate their bees in winter nursery grounds. This is a fuel-consuming operation which translates into extra expense, particularly today with the spike in gasoline and other fuel prices.
Additionally, beekeepers are faced with special cost factors resulting from their need to deal with exotic pests that have been devastating their colonies. The USDA and university scientists have helped to provide tools to deal with these pests, the varroa and tracheal mites, and more recently the small hive beetle. Treatments are expensive. They are costly to buy and labor intensive to apply and are proving ineffective as resistant mite populations have developed.
Page 702 PREV PAGE TOP OF DOC Segment 5 Of 5
According to an analysis of the industry made by the International Trade Commission, net income of beekeepers before taxes in 1997 was 13 cents per pound. In 1998, it declined to 8 cents per pound; and in 1999 it was 2 cents per pound. If one takes account of net income, excluding pollination fees, net income ratio for 1999 showed a loss of a half cent a pound.
In the year 2000, the price of honey has been even lower than in 1999, and until implementation of the 2000 year crop marketing loan program began on March 15th of this year, honey producers have been incurring substantial losses.
A recent cost of production survey by the Agricultural Economics Department of Texas A&M University found that in 2000 it cost beekeepers 69 cents to produce each pound of honey.
The Nation's beekeepers produce about 200 million pounds of honey annually, and domestic consumption currently amounts to between 325 and 350 million pounds.
According to the National Honey Board, in the year 2000 imports amounted to about 194.2 million pounds, an increase from 174.3 million pounds in 1999 and 135.4 million pounds 1998. The record imports originate principally from Argentina and China. These imports have flooded the market and seriously depressed prices for U.S.-produced honey. These have given rise to countervailing duty proceedings based on evidence of subsidized imports from Argentina and antidumping proceedings based on sales of imports from both Argentina and China at less than fair value. These proceedings are currently pending before the Department of Commerce and the International Trade Commission.
Low prices and increasing costs have taken a toll on this Nation's beekeepers. The National Honey Board reports that 2,759 domestic beekeepers paid assessments in the year 2000. This is down from 2,953 in 1999 and reduced even further from the 3,285 beekeepers who paid assessments in 1998. There has been a similar reduction in the number of their workers employed in small towns and rural communities. Those beekeepers still in business are barely holding on. They are living off their equity, and they are praying for better times.
Page 703 PREV PAGE TOP OF DOC Segment 5 Of 5
If help is not forthcoming in the near future, not only would it affect the survival of many family-owned enterprises, but it would be magnified to impact much of U.S. agriculture and rural America.
According to a Cornell University study published in the year 2000, honey bee pollination adds nearly $14.6 billion each year to the value of U.S. crop production.
The production of many U.S. crops is greatly enhanced through increased yield and improved quality attributable to honey bee pollination. These include such diverse crops as almonds, apples, oranges, berries, vegetables and melons and field crops such as alfalfa, soybeans and cotton, among others.
In addition, honey bees provide invaluable services toward conservation by accelerating the development of plant cover for erosion control and other conservation programs, improving plantings for reforestation and increasing forage for wildlife. The recent infestation of honey bee colonies by the tracheal and varroa mites has practically eliminated pollination by wild bees so that American agriculture is now dependent on the services of commercial beekeepers.
The cost of a honey marketing loan program for the 2001 crop year should not exceed $28 million and would probably be less. We also anticipate that the cost should be further diminished beginning late this year when the final results of the pending countervailing duty and antidumping actions should be announced.
In conclusion, we believe that the industry's recommendations are conservative and necessary to sustain the beekeeping industry, as well as being in the interest of American agriculture and the American public. The program that we recommend is essentially an extension of current law and would not cost more than that program. In fact, program costs would be less if the countervailing duty and antidumping actions are successful. The program is also comparable to the marketing loan program for the major crops and would enable you as honey producers to compete with imported honey on a level playing field.
Page 704 PREV PAGE TOP OF DOC Segment 5 Of 5
We thank you for the opportunity to testify today, and we would be pleased to respond to any questions you might have.
[The prepared statement of Mr. Milam appears at the conclusion of the hearing.]
Mr. EVERETT [presiding]. Thank you very much.
Mr. Stenzel, let's go ahead and do your testimony now, and then members can ask questions of either or both.
STATEMENT OF TOM STENZEL, PRESIDENT AND CEO, UNITED FRESH FRUIT AND VEGETABLE ASSOCIATION
Mr. STENZEL. Thank you, sir. Good morning, Mr. Chairman and members of the committee.
My name is Tom Stenzel. I am president and CEO of United Fresh Fruit and Vegetable Association. I appreciate the opportunity to testify once again before the committee on behalf of the U.S. fruit and vegetable industry.
Over the past year our industry has become more immersed in farm policy and farm bill considerations than ever before. Frankly, our specially crop sector has had little involvement in the farm bill, leaving this process mostly to those segments of agriculture with traditional farm programs. Yet it is also clear that fruit and vegetable crops are a major and growing priority within U.S. agriculture. An importance is high value exports, vital food products to improve the health of our Nation and farm gate value, representing some 25 to 26 percent of the Nation's crop value.
So, Mr. Chairman, we appreciate your invitation and are pleased that you and members of the committee have made these strangers to farm bill policy feel more welcome.
Our industry began this process almost 9 months ago by pulling together a broad cross-section of fruit and vegetable producers, commodity groups and regional organizations to work together in developing consensus produce industry positions on farm policy. As you might expect, this was no easy task. But today I am submitting written testimony that includes more than 50 legislative recommendations, covering 11 key issue areas and ask that this testimony be accepted into the record.
Page 705 PREV PAGE TOP OF DOC Segment 5 Of 5
These recommendations are the consensus product of some 24 different produce organizations, representing every fruit and vegetable production region in the country. Our working group was charged with identifying specific industry needs and determining the most effective policy recommendations to bring to the Congress in order to address the future profitability of specialty crops. The result of that effort is the blueprint that we submit to you today for developing farm policy to most appropriately serve the fruit and vegetable industry.
Over the years the produce industry has gone through tremendous changes in an effort to remain profitable, satisfy consumer demands, adapt to new technology and compete in an increasingly global marketplace. Yet today growers are facing the lowest returns they have seen in decades. Wholesalers and distributors are being squeezed at both ends, and retailers and restaurants are facing stiffer competition in supplying our products to consumers than ever before. Meanwhile, the consumption of many produce commodities seem to be stagnating. For fresh produce, this market climate leads to extreme stress between market segments looking to assign blame to one another for their own losses and occasional calls for support programs that would only exacerbate the problem.
Let me be clear. While the perishable nature of our products presents unique challenges and highly volatile markets, the industry has not relied on subsidy programs to sustain our business. We are not only proud of our commitment to free markets, but we believe subsidy programs that sustain or encourage production would be a devastating blow to our industry.
Overall, the produce industry strongly supports the development of farm policies that will improve the financial viability of our Nation's produce industry. This will require appropriate flexibility for our producers and ultimately policies that promote consumption and demand for our agricultural products, rather than programs that distort the free marketplace in fruits and vegetables, or insulate our producers from critical market economic signals. In our fast-faced perishables industry, even the slightest variation in production can cause huge swings in fresh market pricing. Well-meaning efforts to subsidize grower income could easily result in lower grower returns.
Page 706 PREV PAGE TOP OF DOC Segment 5 Of 5
What we offer the committee today is a $3.58 billion blueprint of policies to drive consumer demand for fruits and vegetables, while providing a menu of options that growers can use to strengthen their current economic condition. These policies and program recommendations will require innovative thinking, both by our industry and the committee, to fully achieve the goal of assisting fruit and vegetable producers. Many recommendations will not fit nicely into the format of traditional program crops, and other recommendations will require adaptation of current farm programs that have not traditionally been used by the produce industry. However, we strongly encourage the committee to embrace the produce industry's participation in these types of programs to ensure the continued viability of the U.S. fruit and vegetable industry.
I cannot state too strongly that our industry has fought through the many conflicting views and priorities of different commodities and regions to bring you this consensus package of recommendations. The alternative, I fear, is increasing grower frustration that drives pressure on a commodity basis, triggering calls for narrow relief programs that can divide not only our own industry but the committee and the Congress as well.
I leave the great detail of our recommendations to the written testimony supplied to the committee, but let me briefly highlight some of the issues we have targeted in our package and ask the committee to consider these priority areas in more depth as you move the farm bill process forward.
Specifically, we urge the committee to consider $2.55 billion in nutrition priorities that can be utilized to increase the consumption of fresh fruits and vegetables and help Americans reach national health goals. Through an innovative combination of commodity purchase programs, food stamp and WIC enhancements and such for school lunch and breakfast programs, the committee can make a major investment in public health, while boosting the health of fruit and vegetable producers. This is a perfect example of how the farm bill can be used to stimulate demand for these agricultural crops, rather than subsidize production.
Page 707 PREV PAGE TOP OF DOC Segment 5 Of 5
We urge the committee to consider $700 million in conservation investment, allowing for increased participation from produce growers. Pressure continues to mount on minor crops with a decreased availability of crop protection tools and environmental regulations far more stringent than our international competitors. Growers should have access to fair compensation when choosing to invest in natural resource protection measures. We support a $163 million increase in investment in international market access and food aid programs. Dollar for dollar, the Market Access Program is one of the very best investments we can make in economic growth for U.S. agriculture and related industries.
We urge the committee to consider a new $50 million public/private partnership, offering matching funds to promote increased produce consumption domestically, similar to the MAP program internationally. We support $50 million in stronger plant and pest disease eradication efforts, bringing a concerted national commitment to what is now a fragmented and piecemeal approach. We support $34 million in new research priorities that will study produce health benefits and develop new pre- and post-harvest technologies to improve product quality, taste, convenience and appearance for consumer satisfaction.
Finally, we support a $10 million safety net fund to be established to compensate victims of the fraudulent and illegal actions undertaken by USDA inspectors at the Hunts Point Produce Market in New York City.
Mr. Chairman, this is not an exhaustive list but gives you a sense of the clarity and specificity of the recommendations contained in our testimony. We recognize that, as with any new or expanded program, financial resources will have to be reallocated or increased to account for the cost associated with these initiatives. On the other hand, farm program investments into these specific policy initiative activities will drive demand and utilization of fruit and vegetable products without the confounding and negative effects of more traditional subsidy programs.
Page 708 PREV PAGE TOP OF DOC Segment 5 Of 5
We believe the package of budgetary outlays we have presented for the committee's consideration represents a strategic, timely, and nontrade-distorting investment to meet critical needs in the U.S. fruit and vegetable industry. Fruit and vegetable growers represent a vitally important segment of American agriculture and bring to market crops that are equally vital to the health of all Americans. We look forward to working with the committee to address these important issues and the many other challenges facing our industry today. Thank you very much.
Mr. EVERETT. Thank you.
[The prepared statement of Mr. Stenzel appears at the conclusion of the hearing.]
Mr. EVERETT. First of all, so everybody will know where I am coming from, I am a former beekeeper, and I have a great respect for what you contribute to American agriculture.
In your testimony, you state that the price for honey was 88.6 cents per pound in 1996, and in 2001 the price is around 50 cents a pound. In your mind, what has contributed to this decline in price? Is it imports solely or what?
Mr. MILAM. Yes, sir, Mr. Chairman. Imports are the principal problem in the honey industry today, because we don't produce enough in this country to satisfy the market, as we have noted. We produce around 200 million pounds, and the market is somewhere in the 325, 350 million pound range, that requires that we have additional honey brought in as imports. But we see that much more honey is being brought in than what is required, actually, to satisfy the market. So that price then is depressed because of those additional supplies.
Mr. EVERETT. You mentioned in some detail about the pests that you have to deal with now and the added costs in doing that. Now, I do recall that I lost 12 hives to moths, oh, about 14, 15 years ago, and I had to destroy all the boxes. Do you have to destroy these hives and start over?
Page 709 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. MILAM. Mr. Chairman, may I refer that question to Mr. Adee?
Mr. EVERETT. Sure.
Mr. ADEE. Good morning. Some States have different health requirements on bees, and they do require that the boxes be destroyed. If they get American foulbrood, we do have antibiotics that pretty well control it now, and very little burning is taking place in the country. We do have the pests of the varroa mite and the tracheal mite, which are new in the last decade, basically, and those have really increased our cost of operating.
Mr. EVERETT. Well, also, I note that you point out that when you pollinate, that you have to move your hives around a lot; and, of course, gas prices being what they are today, many in agriculture are facing the same problem, so I understand that your import costs have gone up. That is pretty traditional in all agriculture, though.
I am very sympathetic to your testimony, and I would hope that the committee, as well as the House, would see fit to approve your request.
Mr. Condit.
Mr. CONDIT. Thank you, Mr. Chairman, and I would like to thank all the gentlemen for being here today. We appreciate your testimony.
I do have a couple quick questions to Mr. Stenzel.
First of all, I was interested in your suggestion in your written testimony about the expansion of authorizing funds and directing responsibility of the APHIS to develop emergency eradication research funds to address the threats of pest and disease and so on and so forth. I have been visiting with some of the scientists from CTC, and I realize that is not an agricultural program, but I have some interest in trying to duplicate that process as it relates to crops and to animals. We have a couple programs, I guess, APHIS, and then even the National Institutes of Health has some programs.
Page 710 PREV PAGE TOP OF DOC Segment 5 Of 5
Can you better describe for me what you have in mind when you are suggesting this legislation?
Mr. STENZEL. Congressman, I think this is an extremely important issue for our industry. Right now when there are outbreaks of plant diseases, invasive pests, generally these occur on a commodity basis or on a regional basis, and our industry is left coming to the committee, coming to USDA on a very piecemeal basis for help. What we are suggesting is the implementation of an emergency fund that would be readily available at the Secretary's discretion to be used on an emergency basis for these various plant pest and diseases. This is something that has become extremely important in your State with sharpshooter, Florida citrus canker.
The issues are not truly regional issues. They affect the entire health of the U.S. fruit and vegetable industry. So that is why we are suggesting a standing emergency fund for the Secretary's discretion.
Mr. CONDIT. Well, it is a good point. Those diseases, like the Paris disease, we all know that it is a long-term commitment. It is a 7-, 8-, 9-, 10-year commitment. For us to have to come back every year—I mean, if you are going to make the commitment for the first year, you are obviously going to make the commitment until you eradicate disease. If not, you are going to destroy a whole economy. So I think it is a good suggestion.
Have you thought about the possibility of being a little bit more proactive, understanding that if this administration and I guess the majority Members of Congress have their way, we will have a globalization of markets, therefore putting us at risk, in my opinion, a little bit more, I am not claiming that is a bad thing. It just puts us at risk—to be a little more proactive in terms of research? Knowing what is coming from whatever region of the world, have we thought about that at all?
Mr. STENZEL. That is an excellent suggestion. Our complete recommendations for APHIS and plant pest disease go very much at the heart of a comprehensive approach by the Government, not simply dealing with the emergencies when they arise. We have to be better prepared, know where the diseases are coming from.
Page 711 PREV PAGE TOP OF DOC Segment 5 Of 5
You can see the national attention that has had to be made on nailing the beef concern, hoof and mouth. But the same thing is applying on a commodity-by-commodity basis in fruits and vegetables. We have to know not only the imported fruits and vegetables but the world travel today is bringing tremendous new risks and threats to our industry in different parts of the country.
Mr. CONDIT. Well, I would like to work with you and your group on this. We have done some work. So we will take your testimony and look at it, and we may have some additional questions for you.
One additional question for all the panel, and you can do it as quick as you like. I just need to know what your position on NAFTA was and how did your members of your organizations fare, all, under NAFTA?
Nobody wants to jump in the pool, huh?
Mr. STENZEL. Shall I go first?
Mr. CONDIT. Sure, Mr Stenzel.
Mr. STENZEL. NAFTA was an extremely difficult issue for our industry. It divided the fruit and vegetable industry along the lines of export-dependent and import-sensitive commodities. It is one of the challenges that we have as a broad fruit and vegetable industry. With over 200 specialty crops grown in the United States, the interest of those commodities vary substantially. There are going to be winners and losers in globalization free trade.
Our organization on behalf of the entire fruit and vegetable industry did not oppose the NAFTA agreement, but we certainly didn't lobby strongly for it. I would suggest, in hindsight, we have seen pretty much what we would have predicted. Certain industries have benefitted by the NAFTA agreement in terms of opening markets, but, on the whole, the growth of imports from Mexico have been extremely challenging for our industry.
Page 712 PREV PAGE TOP OF DOC Segment 5 Of 5
I think if there is one message I would leave with the committee along the lines of your question about future trade agreements is that we have got to do a much better job of making sure that, when we go into these agreements, that we are not unilaterally disarming. We have got to make sure that we get access to the markets, that we are providing access to U.S. markets to those countries. That has been the problem.
Whether it is new SPS agreements or new SPS threats where Mexico might say, we will take U.S. apples or we will take U.S. grapes, but then, after a year of that, there is a new risk that they have identified, a new pest, and all of a sudden our producers are shut out of that market and seemingly forgotten.
So we have got to make sure that we have a much more aggressive opening of markets and new trade agreements, not simply opening ours.
Mr. CONDIT. Thank you, Mr. Stenzel.
Any other comments?
Mr. WALKER. Mr. Condit, Clint Walker. Thank you for your question.
I think the unified beekeeping industry did not have a position, per se, on NAFTA. We do recognize, however, in our discussions during that time frame and now as we consider a broader American trade—North and South American trade agreement that we do live in a GATT-NAFTA world, and that is just a reality that we are going to have to deal with.
As we expressed to Mr. Stenzel many times in meetings with him, we are not afraid to compete on a level playing field. I would just emphasize Mr. Stenzel's comments in that regard. At that point, that we can compete. We are confident of our ability to compete efficiently, but when we are paying a living wage and are dealing with health and safety practices and other issues that are a part of farm labor these days in the United States, at our southern border, especially with two Texans sitting here at the table, we are sensitive to that. The effect of NAFTA, to answer that question specifically, was a negative on us; and we continue to struggle with what that means for us at the borders.
Page 713 PREV PAGE TOP OF DOC Segment 5 Of 5
I will add that, thankfully, APHIS did hold the border with Mexico solid for importation of bees. If that is opened, we will suffer tremendous losses as we control our genetic populations to resistance to the mites that Mr. Milam mentioned in his testimony and other ill effects. So we recognize we are in that kind of world, and we will compete, but, as Mr. Stenzel said, we need a level playing field to compete on.
Thank you, Mr. Chairman.
Mr. EVERETT. Mr. Gutknecht.
Mr. GUTKNECHT. Thank you, Mr. Chairman.
I appreciate these hearings, because I learn a great deal. I did not realize, for example, that you produce about 200 million pounds, and we consume somewhere in the neighborhood of 325 million pounds or thereabouts. And I guess I am not clear, the problem you have, the reason the prices have been depressed is, obviously, there are imports coming in. You are not suggesting, though, that those imports are subsidized. Is that correct?
Mr. MILAM. We are indeed suggesting that, and we are trying to make that case currently through countervailing duty and antidumping petitions.
Mr. GUTKNECHT. Who do you believe are the real perpetrators?
Mr. MILAM. Well, the two target countries that we are looking at this time is Argentina and China. They furnish the greater proportion of the honey that is coming into the country.
Mr. GUTKNECHT. Have you explored the possibility or are you in the process of filing some kind of a WTO case against them?
Mr. ADEE. We have initiated antidumping action against both China and Argentina. In fact, we received a report on the subsidization part of it from Argentina, and the Department of Commerce made a 6.55 percent duty to offset the economy. Next Monday, they are to announce publicly duties to offset the dumping action against both China and Argentina. So we are quite far along in the process of trying to correct this problem.
Page 714 PREV PAGE TOP OF DOC Segment 5 Of 5
But as you notice in our testimony, we import 194 million pounds of honey. We produced 220 million last year. That put us over 400 million pounds of honey trying to fit into a 325 million pound market, and that is where our problem is.
Mr. GUTKNECHT. Well, and also with respect to the fruits or vegetables especially, people would be surprised that, between Mr. Kennedy's district and mine, we produce an awful lot of sweet corn and peas. In fact, the valley of the Jolly Green Giant divides our two congressional districts, and so we produce an awful lot of fruits and vegetables.
The truth of the matter is, we hear very little from those producers, but last year we had, particularly down in the local Landale area, a serious problem with three consecutive, very, very heavy rainfall events. For the first time, perhaps in a generation, those people were in serious straits.
It does strike me that we have to come up with something. I really don't want to get them into some of the commodity programs as such, but it seems to me that we have got to do a better job of taking care of those people when they desperately have a problem.
I certainly want to work with your organization to make certain that—I mean, we were able to give them a little bit of help last year, sort of on an ad hoc basis, but we need to have a more clearly defined role for the Federal Government to play when some of these folks fall into those straits because, as I say, normally they are laissez-faire. They go their own way, and we don't hear much from them, and they don't need a lot of help. But when they do, it is sort of like a tourniquet. You need one, and you need it right now. And they needed it last year.
So we want to work with your organization to see what we can do for those folks who, once in a while, do need some help from us.
Thank you, Mr. Chairman.
Mr. EVERETT. Mr. Stenholm.
Page 715 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. STENHOLM. Mr. Milam, in your testimony, you propose establishment of a nonrecourse market loan with LDPs. Last week the National Corn Growers opposed eliminating the market loan and the LDPs and replacing it with some kind of a supplemental income program. Have you examined their testimony? Is there anyone that would have some comment regarding that approach versus the one you have recommended?
Mr. MILAM. I personally have not examined their testimony, Mr. Stenholm.
Mr. WALKER. I would respond to that, Mr. Stenholm. We particularly were interested—in concert with my earlier comments about we realize we are in a GATT, WTO, NAFTA world, that their proposals do fall within the GATT green box. We are not opposed to some of the concepts that they put forth, although we have traditionally asked for nonrecourse MLP and LDP loans. Their national target income program that they testified for is, as we know in reading the testimony, is a recourse market and loan program. We particularly are interested in that target income program, and we think there might be some viability for that when applied to a honey industry.
One of the difficulties that we would see in overlaying such a framework in our industry is that we don't have an acreage certifiability. We have a colony count; and, as the chairman knows from his beekeeping days, we use our colonies in many different ways. We ship them around the country for pollination. We will take them at different times of the season for honey production. Wax is a by-product. We have a lot of income that comes out of the hive; and yet, without income from our honey production, we will fail as an industry.
So I think anything that puts us in a position to be available on our honey production is something that we would be glad to look at. So it is a fascinating testimony to us, and if the committee goes that direction in terms of overall farm policy, we would welcome the opportunity to work with that in how that might fit with the honey industry.
Page 716 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. STENHOLM. Mr. Stenzel, when the American Farm Bureau testified before this committee, they proposed adding fruits and vegetables to the counterreciprocal payment program. Is this something you recommend against doing?
Mr. STENZEL. Yes, Mr. Stenholm, we would recommend against that. Our industry groups, representing different fruit and vegetable producers across the country, different regions, debated and discussed very seriously that prospect and, in conclusion, came to the same place where our industry has always been, that we are dependent on a marketplace that is really free of any artificial controls, subsidies, target income, anything——
Mr. STENHOLM. Excuse me right there, Mr. Stenzel. Didn't your industry kind of break from that last year when we had apples and cranberries and potatoes that were suffering the same fate that corn growers and wheat growers—didn't your industry sort of come and ask for assistance?
Mr. STENZEL. This is a concern I referenced in my testimony, that if we don't come up with a farm policy that deals with the broad fruit and vegetable industry and increasing financial viability through nonmarket distortion programs, we are going to have more of that, unfortunately, individual commodity groups coming to the committee and coming to Congress asking for specifically that type of help.
This is not a unanimous opinion in the industry, but it is the consensus position that has been developed by all of our various groups, including apples and potatoes and those who were before you last year. We feel that it is important to get ahead of this issue, because we see that it is a very slippery slope for many growers who might have an initial appeal of that type of program but long-term could be a very devastating blow to our industry and lose our ability to respond to marketplace economic signals.
Mr. STENHOLM. Your membership is no different than every single farmer that I have met. They prefer to get their money from the marketplace. They do not wish to get it from the Government. But yet the marketplace is giving us prices by which most producers cannot survive, and that is the challenge that we have in the international marketplace when we deal with currency values that can vary 50 percent, of maintaining a, quote, unquote, level playing field gets to be somewhat difficult.
Page 717 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. Stenzel, I gather from your testimony and your request for additional funding that you are not too excited about the President's budget submission regarding agriculture?
Mr. STENZEL. Not too excited. We certainly encourage and support the committee's efforts to increase the total funding for farm programs and agriculture and encourage you to continue in that effort.
Mr. STENHOLM. Well, I would encourage you to continue to encourage my friends on the majority side who are involved in the budget to the total exclusion of anyone on this side that they might listen to you very carefully, because we are with you and with them.
Mr. EVERETT. He is with his friends.
Mr. Putnam.
Mr. PUTNAM. Thank you, Mr. Chairman.
I want to follow up on something that Mr. Gutknecht and Mr. Stenholm pursued. Mr. Stenzel, your industry is not asking for any direct subsidy?
Mr. STENZEL. That is correct.
Mr. PUTNAM. No supplemental income, no deficiency payment, no count reciprocal payment, none of these terms that we have heard addressed to correct grower payments in the past?
Mr. STENZEL. That is correct.
Mr. PUTNAM. That is remarkable, considering the state of the agricultural economy and the produce industry included in your testimony. You lay out what is essentially the underlying premise of your industry's philosophy, which is that agricultural policy should drive consumption, not production. Could you elaborate on that philosophy a little bit?
Page 718 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. STENZEL. It has certainly been the guiding principle for our industry, is our success in the marketplace will come by consumption, increasing demand for our products. We respond on a daily basis with many, many of our crops in terms of raising and lowering production to meet what is consumer demand. That gets out of sync sometimes in this perishables industry. But when we have taken all of our various constituents together and looked at this issue of countercyclical payments versus some more market-oriented-type approach, we keep coming back to the fact that agriculture policy for fruits and vegetables really needs to drive increased demand. Now, that takes some innovative thinking in light of traditional farm programs. Where does that fit? And that has been a challenge for all of us as we have begun work on this area.
But we simply can't sustain production in our crops and expect that that is going to help the grower. It is almost too easy of a quick fix. It might help you with this year's check, but it is not going to help the marketplace long term.
Our observation is that if the Federal Government—and we believe it does share a commitment to the support of fruit and vegetable producers; and to have a viable fruit and vegetable industry in this country, then your support needs to be channelled at marketplace enhancements, helping those growers succeed in the marketplace, not subsidizing a particular production level that might exist in any given crop.
Mr. PUTNAM. Along that line, could you please discuss your position on the flex acres production and restriction?
Mr. STENZEL. Yes, Mr. Putnam. In the FAIR Act, there was the prohibition on planting fruits and vegetables on flex acres during the period of transition payments. I think that is simply an issue of fairness. It is something that the committee has got to keep at the top of its mind as it goes forward in future farm bill policy. We simply can't afford to subsidize some farmers at the expense of other farmers. There is a principle involved there that if farmers of traditional program crops are still receiving some type of support or subsidy from the Federal Government and they move into fruits and vegetables, that is simply not fair. We have always said that if those farmers chose to give up their program payments, fine, we welcome them into production of our crops. But let's simply be very careful not to subsidize one set of farmers with a different set.
Page 719 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. PUTNAM. So without the flex acre restriction, a traditional program crop farmer would be able to continue to receive payments from the Government while setting aside some acreage for the production of fruits and vegetables that would be directly competing with someone who is not receiving the Government payment. Is that correct?
Mr. STENZEL. That is correct.
I will give you a hypothetical example. Perhaps production costs in one of our vegetable crops is $1,000 or $1,500 an acre. If a farmer is receiving a subsidy for some of that acreage from his other products, his other crops, he could then have a cost production that would be 50 percent lower than our producers of fruit and vegetable crops. It simply would be creating a subsidized competition for those farmers who are already growing fruits and vegetables without any kind of program support.
Mr. PUTNAM. Let me ask one final question for this round, and I will catch you the next time.
There has been testimony before the International Trade Commission that the European Union is subsidizing citrus production alone to the tune of $1 billion, a couple of hundred million just for Clementines. What is the impact of the European subsidies on our fresh fruit and vegetable market, and what can American agricultural policy do to attempt to level that playing feed?
Mr. STENZEL. We are very concerned about subsidies around the world, and oftentimes investigating and trying to identify those subsidies is a very difficult process. It kind of comes back to the statement of unilateral disarmament that I made earlier. For U.S. agriculture policy, we are going to have to continue to be vigilant in defending and trying to strike down other subsidy programs.
World Trade Organization negotiations are extremely important to us in identifying subsidies of the EU and other countries and then challenging those very directly. But, at the same time, U.S. agriculture policy could be much more effective in giving our producers tools to compete in an international marketplace. A good example of that is the Market Access Program. It is a modest, $90 million a year program now. I believe fruit and vegetable producers might have about $40 million of that total $90 million pie. It is a matching program, and the economists have shown us year in, year out, it is producing $7 of economic benefit to the U.S. economy for every dollar we spend.
Page 720 PREV PAGE TOP OF DOC Segment 5 Of 5
It is a great program. Yet we face every year a fight over the MAP program and people calling it corporate welfare. It is not. It is simply a way to give our producers some chance to compete on that international field. So one of our recommendations is to substantially increase the MAP program back up to $200 million to provide our producers more effective tools.
Mr. PUTNAM. Thank you. Thank you, Mr. Chairman.
Mr. EVERETT. Mr. Larsen?
Mr. LARSEN. Thank you, Mr. Chairman.
Just a few questions for Mr. Stenzel.
Your recommendations reflect a lot of what I heard during the Easter recess back in my district. My district in Washington State has many, many fruits and vegetable growers, some dairies, none of the program crops but certainly a lot of fruit and vegetable growers. The conservation, the research, the trade issues, certainly, again, reflect a lot of what I heard.
I want to make one comment and then a couple of questions. The comment is you mentioned Mexico and ports of Mexico. Just a reminder, there are two borders in this country. We took a tour with the USDA at the northern border, and they do their own interdictions there. I was asking questions about foot and mouth disease; and I said, well, that is pretty much under control coming through here. What we catch a lot of are the insects and the pests that will impact the fruit and vegetable growers in this country. So, as we are thinking about rapid respond teams, perhaps I would just suggest that we shouldn't forget our focus at the northern border as well.
That is sort of a plug for my district and the folks I represent.
But one issue that continually came up in these discussions with the folks in my district was the country of origin label, and I was wondering if you all had a discussion about that. I didn't see it, necessarily, in the testimony. Is that something that no consensus was built so you decided not to push on it or just some other reason?
Page 721 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. STENZEL. Mr. Larsen, the country of origin is another one of those issues where there is a lack of consensus across multiple fruit and vegetable commodities. Clearly, producers in the United States have the opportunity today to label their products ''grown in the USA.'' we encourage U.S. farmers to do just that. If they believe that is going to give them a marketing advantage, by all means put a U.S. flag on your product.
There is a question in terms of whether country of origin labelling would truly have any impact in the marketplace. I don't think we know that, but it has not been an issue that has developed a consensus position throughout fruit and vegetable agriculture.
Mr. LARSEN. OK. Just a second question, starting with a comment. Your description of your members certainly reflects the folks I represent—market oriented, really not wanting the Government programs to help subsidize what they are doing but perhaps to open up markets for them. But reflecting on Mr. Putnam's comments, as well as my colleague from Minnesota, the raspberry producers in my district—and they represent most of the raspberry production in the country—are getting hammered with raspberry imports. So they are starting now to talk about something they have never talked about. That is one-time emergency relief. And I guess I just would roll that out first as a comment.
Second, as a question, are you hearing more of that, and have you heard specifically from raspberry producers in this country as well?
Mr. STENZEL. Mr. Larsen, we are certainly hearing more of that sentiment from a number of commodity groups. Depressed markets like we are facing kind of bring that to the fore and year after year kind of adds to the frustration level.
What concerns us with that thinking, though, is that once we start into that process, we don't know how to stop. There is sentiment within portions of your district in the apple industry that would look at some type of support program. But on the other hand, as we had our meetings, I had strawberry producers and watermelon producers and other citrus producers saying, we are going to oppose the apple industry if you go forward and try to get us support for our program, because we don't have one.
Page 722 PREV PAGE TOP OF DOC Segment 5 Of 5
So the fact that there are 200 specialty crops out there—and we really do compete with each other—we try to maintain an umbrella approach to these policies.
But what we believe we have offered to the committee is a very different type of approach. It goes at the question of demand management, and that is something that is untraditional. It looks at the nutrition programs that this committee funds and looks at the WIC program and looks at the Food Stamp Program.
One of the more interesting concepts that we have proposed is a $10 a week supplement for fresh produce purchases on food stamps. Now, that amount of support—it may not sound like much but would make a tremendous amount of difference for fruit and vegetable producers equally across the country.
We as an association have to be very careful not to discriminate between the raspberry producers in your district and the citrus producers in Mr. Putnam's. Let them compete with each other to see which the consumer wants to buy. But if we could provide through nutrition funding opportunities, through purchasing of commodities for School Lunch Program, through purchasing of commodities to be redistributed through Second Harvest and through hunger programs in the inner city, we could not only help our producers but we could also be making a major impact on public health at the same time.
Mr. LARSEN. Thank you. Thank you, Mr. Chairman.
Mr. EVERETT. Mr. Thune?
Mr. THUNE. Thank you, Mr. Chairman. I want to thank the panel for their testimony, too.
Most fruit and vegetable production in my State of South Dakota is confined to the garden-style variety, but we are very definitely big consumers of those products, and so I am interested to hear what we can do to keep your industry viable as we look at farm policy down the road.
Page 723 PREV PAGE TOP OF DOC Segment 5 Of 5
I would like to also welcome Mr. Adee, a gentleman, constituent of mine from South Dakota, has a fine reputation producing honey, and would like to pose a question, if I could, on the whole honey issue. Because one of the things that you have mentioned is that there is about a $325 million pound market.
Mr. ADEE. That is correct, Mr. Thune.
Mr. THUNE. And about 220 million pounds that we produce domestically and then we import another $194 million, which leaves us with a surplus. One question I have is, do we do any exporting of honey? I mean, do we help address some of that trade and balance—do you have exports?
Mr. ADEE. We export a little honey, but most of the export honey is specialty honeys, and it doesn't amount to very much, 4, 5 million pounds. It is a very, very small amount.
Mr. THUNE. Is there anything that can be done to increase that? I mean, are there things that we ought to be doing, incentive-type programs, initiatives that would help improve our ability and opportunity to export honey? Or is that just not a——
Mr. ADEE. We are competing against the same honeys on the export market that we are competing against here in the United States, and they have the same advantage over us in the export market as they have over us here in the United States. So with us having a market for all of our honey here in the United States, not a lot of U.S. honey has been exported. We ourselves export maybe 4 or 5 container loads a year to Germany, but that is about the extent of it.
Mr. THUNE. Let me ask a question this way, then, as a follow-up to that. In your mind, what is more important as you look at restoring profitability to the honey industry? Is it the program foreign policy, nonrecourse loans, LDPs, or is it really the trade issue, the sanctions that you referenced earlier? I mean, if we made changes or do things in terms of farm policy, does that help solve your problem or ultimately is it—the bigger—I guess in the bigger picture, the better solution to address the unfair import question?
Page 724 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. ADEE. It is a combination of how we get to profitability. But addressing the trade issue is a big issue right now because there is such a surplus of honey in our market, and we are hoping to bring about some help on that one. They announced those dumping duties against China and Argentina on Monday. We want a level playing field. The numbers now look like that possibly there is some dumping going at the 40 to 50 percent range, and so that really distorts the playing field. But, in the meantime, we do need this program, the LDP program, the nonrecourse loan to help us market the honey and to give us a safety net.
Mr. THUNE. Maybe this was addressed in Mr. Milam's testimony, but has the trend consumption-wise domestically on honey, is that up, down, flat?
Mr. ADEE. It is pretty flat.
Mr. THUNE. So you have got a static market?
Mr. ADEE. Right. Consumer habits are change. We used to see a lot of honey served at the breakfast table. A lot of people now are not eating at the breakfast table. They are picking up a quick breakfast, and that has changed demand somewhat. The majority of our honeys now are sold in products, the honey bread, honey mustards, where at one time more of it was at the retail level basically for honey spreads.
Mr. THUNE. I appreciate very much your testimony.
Yield back, Mr. Chairman. Thank you.
Mr. EVERETT. Mr. Dooley.
Mr. DOOLEY. Thank you, and I thank the panel for your testimony.
Mr. Stenzel, I appreciated the focus in your priorities that you advanced in your testimony on behalf of United Fresh Fruit and Vegetable. I was interested, though, if you could elaborate a little bit on some of your proposals, in particular on the WIC Program. Were you basically advocating that we expand that to provide vouchers that would be specifically for fruits and vegetables and we would just expand the commodities or the products that those recipients could purchase?
Page 725 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. STENZEL. Mr. Dooley, there is several ways I think that we can go at some of the supplemental feeding programs. One that has been at work in the Department for over a year now has been simply expanding the range of products available under the WIC vouchers. There was a commitment from the Secretary to look seriously at including fresh produce items that are not currently included. It almost seemed counterintuitive that we are trying to feed people who are at special nutritional risk and we are not offering them any fruits and vegetables.
Mr. DOOLEY. What is the history behind that? How did that ever get established like that?
Mr. STENZEL. I am not sure. I know from a fresh product standpoint it is much more difficult to handle fresh products, pricing variability. Sometimes you can reimburse for a box of cereal and you know what that price is going to be year in, year out. But difficulties should not be a reason not to do it, and we found some degree of intransigence in the Department's administration of that program. We feel that there needs to be a strong leadership from the Congress that says, it is time to do this. So that is simply expanding the range of products available under WIC.
Mr. DOOLEY. On the food stamp, if I understand what you are advocating, would be a fairly fundamental change, in that we would only allow for that $10 to be utilized for the purchase of fruits and vegetables?
Mr. STENZEL. Yes, sir. It is a very innovative and new approach. The concept there is that to provide support to fruit and vegetable producers is the charge of this committee or what we are grappling with here and to find a way to do that in a nonproduction-stimulating way. This clearly marries the goals of supporting the fruit and vegetable industry with supporting the health of America. That is something that we have been dealing with in HHS and CDC budgets, the division of nutrition, but clearly feeding policy in this country is not geared toward what we say about health policy.
Page 726 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. DOOLEY. Have you had any conversations with any of the advocacy groups on the food stamp proposal? I am wondering if there will be acceptance if we had linkage of this additional money to the specific purchase of fruits and vegetables.
Mr. STENZEL. There is more work to be done in that area. I can't come to you today and say we have the support of the advocacy community, but I think that intuitively that can be built. We have had support on pilot programs. There is a farmers market program that provides supplemental assistance to purchasers of fruits and vegetables at farmers markets. That is a great idea. But why discriminate to only promote farmers markets instead of your producers, for example?
Mr. DOOLEY. On the APHIS funding, what is the rationale by having the—rather than just having an increase—advocating an increase in the baseline to this $50 million revolving fund to replenish the drawdown? My concern here is that, should we be making this increase in investment, that we build up an infrastructure that is adequate to respond to these emerging problems rather than having a funding mechanism that looks to be, perhaps, a little more variable?
Mr. STENZEL. I think we need to do both. I think you are right in that assessment.
The first step toward that would be freeing up all of the AQI funds that could be spent totally on pest exclusion. The concept of the emergency fund arose from different segments of our industry that constantly have to come back when there is a crisis and gen up support again and do all of the education process of this is a crisis. There is a feeling that the Secretary needs flexibility to take action quickly, and that is the nature of that emergency fund, but it shouldn't be instead of the infrastructure that really does provide an ongoing exclusion, interdiction program, many of the same things that were passed in the National Plant Protection Act last year.
Page 727 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. EVERETT. Mr. Moran?
Mr. MORAN. Mr. Chairman, thank you very much.
Mr. Adee, the last time I visited South Dakota, I was a guest of Mr. Thune. We were presented with a hospitality basket that included specialty honeys. Fortunately for us, you provided us enough of this raspberry honey that we have not had to go back and buy any more, but it is a great marketing technique, because it was excellent.
I smiled when you talked about changing eating habits. I remember as a kid, every time you went to the local cafe that on the counter, on the table was the bottle of honey, and it was just part of the way that we dined, certainly in rural America. But I appreciate your extension of hospitality. You have got a great product in South Dakota.
Mr. ADEE. Thank you.
Mr. MORAN. Kansas honey is fine as well, I should add.
My question really is directed to Mr. Stenzel.
Mr. ADEE. May I make a comment about the squeeze bottle?
Mr. MORAN. Certainly.
Mr. ADEE. It was a good way to serve honey. A lot of restaurants had to quit doing that, because the kids were taking the bottles right from the table and eating the honey, and it was not very sanitary.
Mr. MORAN. So it is a disciplinary problem, not an eating habit issue?
Mr. ADEE. Yes, sir.
Mr. MORAN. I do know that during my time in college, peanut butter and honey was the staple every day. It has been a part of my life.
Mr. Stenzel, on a more serious note, I have had a number of constituents who have difficulties in the penalties that are assessed in violation of the fruit and vegetable violation. As you know, when you plant what is considered fruits and vegetables on AMTA acres, you run into a problem. Do you, I assume, encourage that that provision be included in a new farm bill? Is that accurate?
Page 728 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. STENZEL. Yes, sir. We believe that that is essential to fairness among competing producers.
Mr. MORAN. Is the current penalty, the current regulations in regard to that penalty satisfactory to you, or is there some opportunities or suggested changes?
Mr. STENZEL. We believe the current penalty structure is fair. It provides an adequate deterrent to growers planting fruits and vegetables on those AMTA acres. I have heard this question raised from others in terms of its enforcement by the Department, and that is something that we would certainly be happy to work with you or others to ensure that the Department is fairly enforcing those current regulations.
Mr. MORAN. Well, I appreciate your offer to work with us. Fairly, suppose there is a definition that we would need to determine. The concern I have is that, in a number of instances, inadvertent violations, even the violation done with the approval of the local USDA office resulting in a violation, which results in a penalty, the penalty is based upon the fair market value of the crop, and in many instances in Kansas, that penalty is greater than the value of the land per acre if you were buying the land.
We had a young farmer—a beginning farmer that paid the penalty and went out of business. So we have had conversations, particularly with Secretary Glickman, about the level of the penalty and the consequences of having too harsh of a penalty in regard to inadvertent first-time violations.
In fact, Congress has spoken on this issue twice. There was report language in 1999 and 2000 encouraging the Secretary to develop a reasonable penalty system. USDA proposed a new rule, which was published, and did you respond to that publication and on your opinion—or your position in regard to the proposed rules?
Mr. STENZEL. Yes, sir. We opposed the proposed rule. We felt that the current restrictions are appropriate and are fair. They do provide an adequate deterrent.
Page 729 PREV PAGE TOP OF DOC Segment 5 Of 5
There is clearly a case for better education. There is clearly a case where that should not have happened, what you described to your constituent. Particularly if the USDA local agency did it with their support, that doesn't make any sense.
One of the things we did in evaluating the proposed rule was look at the number of violations that have been across the country, and I think the analysis shows that it was an extremely low incidence. So I don't believe that this is a pervasive problem throughout agriculture, where there is substantial confusion. But, in those cases, I would suggest that we approach those on a case-by-case basis.
Mr. MORAN. So if there is not a substantial number of violations, it would suggest, at least to me, that there is an opportunity for us to assist or at least to treat those who make mistakes inadvertently. I guess all the stakes are inadvertent, but an inadvertent error, the kind of consequences that I have seen in 2 or 3 occasions in Kansas, particularly with the planting of dry, edible beans. That is something that you would be willing to work with me and other Members of Congress and the USDA to resolve?
Mr. STENZEL. Our interpretation of the fact that they are not substantial violations is that the deterrent is working. So we may have a slightly different interpretation there, as opposed to lessening the deterrent value in future policy. Certainly on that case-by-case basis, we would support efforts with the Department to look at mitigating factors.
Mr. MORAN. I think that is——
Mr. EVERETT. The gentleman's time has expired. I will be here for the second round.
Mr. Rehberg.
Mr. REHBERG. Thank you, Mr. Chairman. Just a real quick question for Mr. Adee.
Page 730 PREV PAGE TOP OF DOC Segment 5 Of 5
The countervailing duty proceedings and the antidumping proceedings, could you refresh my memory, when did that start, and has the process been as rapid as necessary for you?
Then I will follow it up with another question.
Mr. ADEE. We filed our petitions, I think, September 29, 2000 and it is been proceeding right on schedule. The countervailing duties were announced March 4 or 5, I believe, against Argentina. Then we brought the dumping action against both China and Argentina.
Mr. REHBERG. You said it has been going along as planned or according to the schedule. In your opinion is that a good schedule, or do you believe that it takes our individual agencies too long to make that determination?
Mr. ADEE. No. I think it is moving on a good schedule, and there is a lot of information that had to be gathered, and we are pleased with the way it has been moving along. It has been right on target.
Mr. REHBERG. Then my last question would be based upon your opinion, do you believe if Argentina and China are in fact penalized, does that carry forward to the individual producer—I have a neighbor in Billings, MT, who is just about out of business. He looks at me and says, this isn't fair. I am about to go out of business. Can't you guys make a decision faster? And, oh, by the way, when you penalize Argentina or China, I don't see any of the benefit, because my price doesn't go up in relation to the loss that we have incurred back in Montana.
Mr. ADEE. Yeah. It definitely will go down to the producer. This is a producer action that is brought by producers, being paid for by producers, and it will definitely go to the producer.
Mr. REHBERG. Yes. Thank you.
Page 731 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. ADEE. It will create additional higher prices for the imports, and they will buy domestic honey rather than import.
Mr. REHBERG. If you can stay in business that long.
Mr. ADEE. Yes, yes. I think next week we are going to have an announcement, I think, on this new crop. We will see price increases. Again, that is why we need this safety net in place, is to keep us in business until we can address these trade issues, yes, sir.
Mr. REHBERG. Thank you, Mr. Chairman.
Mr. EVERETT. Mr. Chambliss.
Mr. CHAMBLISS. Thank you, Mr. Chairman.
I apologize for missing most of this, and I don't want to, hopefully, repeat what has already been asked, but I just had a couple of questions. In the 1996 farm bill, we had some restrictions on planting fruits and vegetables by growers of conventional row crop. Are you proposing that we continue with that same planting restriction that is contained in the 1996 farm bill?
Mr. STENZEL. Yes, sir, Mr. Chambliss. We feel that that is extremely important for fairness and parity among competing growers. As long as a grower is receiving a subsidy payment, AMTA payment, some type of support that way, we simply think it is a matter of fairness that they not be able to grow fruits and vegetables on those subsidized acres.
Mr. CHAMBLISS. OK. From the standpoint of what is going on in the world of biotechnology, what is happening in the fruit and vegetable industry, and what do y'all see taking place in the future in that respect?
Mr. STENZEL. There is a tremendous amount of research and interest in biotechnology in the fruit and vegetable industry. I think we could probably be here the rest of the day talking about some of those issues. They are great opportunities, and there are also going to be great risks for our producers.
Page 732 PREV PAGE TOP OF DOC Segment 5 Of 5
We have first got to make sure that there is a level of consumer acceptance of these products in our country before our producers introduce those to the market. We simply don't want to go forward and have some of the problems we have seen with other products in export markets.
So there is clearly excitement and anticipation about new varieties that will have better tastes, better nutritional profiles, better opportunities for meeting consumer needs. But, at the same time, there has got to be a commitment to public acceptability of these products.
Mr. CHAMBLISS. Well, I say that because—or I ask that question because it just looks to me like, even though I haven't heard much from my growers of fruits and vegetables about the biotech issue, it looks to me like there is more opportunity there and maybe even than in the conventional row crop industry. But, again, I think you are exactly right. We have got to have that market out there, and we have got to have that consumer confidence. We are going to be doing some things on my subcommittee hopefully to try and clear that atmosphere up and make that better, and I look forward to you folks being involved there.
Mr. STENZEL. Thank you, Mr. Chambliss. If I could add one point on that subject.
Mr. CHAMBLISS. Sure.
Mr. STENZEL. I do think you are right that the fruit and vegetable industry has more potential than any of us have recognized. Probably the fruit and vegetable industry is going to be the sector that introduces acceptable products of biotechnology to consumers.
You can pick up a tomato, you can pick up a peach, and you can see it is a normal fruit. It is not weird. It is not different. It tastes good. And as consumers start to have that opportunity to consume products of biotechnology as whole fruits and vegetables, we believe that will also help drive consumer acceptance. So we feel that there is a unique role for the produce industry to play in having biotechnology become more acceptable to consumers across the world, really.
Page 733 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. CHAMBLISS. OK. Thank you, Mr. Chairman.
Mr. EVERETT. Thank you, Mr. Chambliss.
We have a vote, and the Chair does not wish to bring the committee back. Let me ask two questions to submit for the record. But as far as honey folks, if we in the name of free trade, if we lose our honey industry in this country, I would like for you to respond to a figure that would tell us how much that would cost agriculture in this country and the consumers. Do that for the record, please, sir.
Mr. STENZEL. All right.
Mr. EVERETT. On vegetables, respond to the question, are you fighting a trend where you are going to see fewer and fewer fresh vegetables consumed in this country because of the culture difference that is apparent—we grow vegetables on my farm and I enjoy that, but I also see a younger generation that goes to the grocery store and picks up a can rather than—a can of string beans rather than fresh beans.
Mr. EVERETT. With that, let me say, without objection, the record of today's hearing will remain open for 10 days.
Mr. CHAMBLISS. Mr. Chairman?
Mr. EVERETT. Yes?
Mr. CHAMBLISS. Before you close out, I did have one other quick question that may have already been addressed. But what is your position on fast track?
Mr. STENZEL. On the fruit and vegetable industry, we support the enhanced trade promotion authority.
Mr. CHAMBLISS. Thank you.
Mr. EVERETT. The committee will receive additional material and supplemental written responses for witnesses to any question posed by a member of the panel.
This hearing of the Committee on Agriculture is adjourned. Thank you for your testimony.
Page 734 PREV PAGE TOP OF DOC Segment 5 Of 5
[Whereupon, at 11:21 a.m., the committee was adjourned, subject tothe call ofthe Chair.]
[Material submitted for inclusion in the record follows:]
Statement of John Milam
My name is John Milam. I am a honey producer from Moore, TX and chairman of the board of Sioux Honey Association. Sioux Honey is a honey marketing cooperative, with members in 22 States, which markets approximately 60,000,000 pounds of honey throughout the entire United States. I am joined at the table by Richard Adee, a honey producer from Bruce, SD, who is president of the American Honey Producers' Association and Clint Walker, a honey producer from Rogers, TX, who is president of the American Beekeepers Federation.
We are presenting a joint statement in behalf of the entire American beekeeping and honey industry for legislative relief for an economically depressed industry. The proposal recommended in this statement is supported by the American Honey Producers' Association, American Beekeeping Federation, Sioux Honey Association, Mid-U.S. Honey Producers, U.S. Beekeepers, and the National Honey Packers and Dealers Association. These organizations represent virtually all the nation's commercial beekeepers and honey packers.
RECOMMENDATION FOR LEGISLATION
The organizations listed above support a honey program for the 2001 and succeeding crops that would continue in effect a program substantially the same as in effect for the 2000 crop, a program that includes the following features:
1. The use of Commodity Credit Corporation funds to make non-recourse marketing assistance loans to honey producers at a national average rate of 65 cents per pound;
2. Repayment of marketing assistance loans at the loan rate plus interest, or the prevailing domestic market price, as determined by the Secretary, whichever rate is the lower;
Page 735 PREV PAGE TOP OF DOC Segment 5 Of 5
3. Eligibility of a producer of honey to obtain a loan deficiency payment if the producer agrees to forgo obtaining a marketing assistance loan; the loan deficiency payment to be at a rate by which 65 cents per pound exceeds the marketing assistance loan repayment rate multiplied by the quantity of honey the producer is eligible to place under loan;
4. Marketing assistance loan gains and loan deficiency payments a person may receive for a crop of honey would be subject to the same limitations that apply to loans and loan deficiency payments received by producers of the same crop of other agricultural commodities;
5. The program to be implemented in such a manner so as to minimize forfeitures of honey marketing assistance loans, and a commodity certificate program, similar to the program in effect for other commodities, made available to honey producers so as to encourage the orderly marketing of honey pledged as security for loans;
6. A producer that has marketed or redeemed a quantity of a crop for which the producer has not received a loan deficiency payment or marketing loan gain could receive such payment or gain as of the date on which the quantity was marketed or redeemed.
ECONOMIC CRISIS IN THE BEEKEEPING INDUSTRY
The beekeeping industry is in dire straits today as a result of an economic crisis that is forcing many of our nation's beekeepers out of business unless help is forthcoming in the very near future. This means the loss of family owned small businesses that have survived through two or three generations. The beekeeping industry is one of the few industries that predominantly consists of family owned enterprises. It also is a tragedy for the nation's agriculture economy since so much of American agriculture is dependent on commercial beekeepers for pollination services.
We would like to detail the reasons for the problem. Prices began to fall in 1996 from 88.6 cents per pound to 68.5 cents per pound in 1998 and continued to fall throughout 1999 to 50 cents per pound and lower levels. The situation became particularly acute last year as producers began to extract honey for the 2000 crop. Prices on a per pound basis for some producers have been quoted in the low forties, and even at such prices many have been unable to find a market for their crop.
Page 736 PREV PAGE TOP OF DOC Segment 5 Of 5
Fortunately, Congress included in the agriculture appropriation act for fiscal year 2001 (enacted October 28, 2000), legislation providing for a non-recourse marketing assistance loan program for the 2000 crop of honey. The program has only recently become effective upon issuance of implementing regulations by the Department of Agriculture on March 15, 2001. The legislation provides for a loan rate of 65 cents per pound—the repayment price announced by the Department of Agriculture for March and April has been 51 cents per pound, the average market price for all grades of honey based upon information obtained by the Department of Agriculture from the trade. This legislation needs to be extended to cover the crop being produced in the current year as well as crops produced in succeeding years for which farm legislation is now being considered.
Not only are prices received by producers for honey less than 75 percent of what they were in 1998, but costs have increased since then. Commercial beekeeping is a mobile operation. Beekeepers must move their colonies from place to place as they seek the best source of honey, as they provide pollination services, and as they locate their bees in winter nursery grounds. This is a fuel consuming operation that translates into extra expense, particularly today with the spike in gasoline and other fuel prices. Additionally, beekeepers are faced with special costs factors resulting from their need to deal with exotic pests that have been devastating their colonies. The USDA and University scientists have helped to provide tools to deal with these pests, the varroa and tracheal mites, and more recently the small hive beetle. Treatments are expensive—costly to buy and labor intensive to apply, and are proving ineffective as resistant mite populations have developed.
According to an analysis of the industry made by the International Trade Commission (see Publication 3369, dated November 2000) net income of beekeepers before taxes in 1997 was 13 cents per pound. In 1998 it declined to 8 cents per pound; and in 1999 it was two cents per pound. These figures were arrived at by including producers whose income is derived solely from honey production as well as producers whose income is derived both from honey sales and pollination services. If one takes accounts of net income, excluding pollination fees, the net income ratio for 1999 showed a loss of 0.5. In 2000, the price of honey has been even lower than in 1999, and until implementation of the 2000 crop marketing loan program began on March 15 of this year, honey producers have been incurring substantial losses.
Page 737 PREV PAGE TOP OF DOC Segment 5 Of 5
The findings of the USITC are supported by a honey cost of production survey just completed by the Agricultural Economics Department of Texas A&M University. It found that in 2000 it cost beekeepers 69 cents to produce each pound of honey. Even worse, this cost represents only the five largest expense items: labor, transportation, feed, replacement queens and bees, and pest and disease treatments. Lesser expenses and depreciation were not included.
The depressed prices are attributable to a surge in imports. Beekeepers in most countries enjoy an economic advantage when they compete in the U.S. market with our honey producers. They pay wages substantially less than wages paid workers in the United States and are not required to comply with worker safety rules, health code requirements, environmental regulations, product liability standards and transportation regulations that apply to beekeepers in the United States.
The Nation's beekeepers produce about 200 million pounds of honey annually, and domestic consumption currently amounts to between 325 and 350 million pounds. According to the National Honey Board, in 2000 imports amounted to about 194.2 million pounds, an increase from 174.3 million pounds in 1999, and 135.4 million pounds in 1998. The record imports originate principally from Argentina and China. These imports, coupled with a large carry-over from 1998 and 1999, have flooded the market and seriously depressed prices for U.S.- produced honey. These have given rise to countervailing duty proceedings based on evidence of subsidized imports from Argentina and anti-dumping proceedings based on sales of imports from both Argentina and China at less than fair value. These proceedings are currently pending before the Department of Commerce and the International Trade Commission.
IMPACT ON AMERICAN AGRICULTURE IF HELP IS NOT PROVIDED
Low prices and increasing costs have taken a toll on this nation's beekeepers. The National Honey Board reports that 2,759 domestic beekeepers paid assessments in 2000. This is down from 2,953 in 1999, and reduced even further from the 3,285 beekeepers who paid assessments in 1998. (Assessments are due from those who produce at least 6,000 pounds of honey per year). There has been a similar reduction in the number of their workers employed in small towns and rural communities, as well as in the number of the smaller beekeepers. Those beekeepers still in business are barely holding on, living off their equity and praying for better times.
Page 738 PREV PAGE TOP OF DOC Segment 5 Of 5
If help is not forthcoming in the near future, not only would it affect the survival of many family owned enterprises, but it would be magnified to impact much of U.S. agriculture and rural America. According to a Cornell University study published in 2000, honey bee pollination adds nearly $14.6 billion each year to the value of U.S. crop production.
Some crops, such as almonds, for which California produces more than half of the world's supply, are entirely dependent for their production on honey bee pollination. The production of others is greatly enhanced through increased yield and improved quality attributable to honey bee pollination. These include such diverse crops, as apples, oranges, berries, vegetables and melons, and field crops, such as alfalfa, soybeans, and cotton, among others. In addition to the foregoing, honey bees provide invaluable services towards conservation by accelerating the development of plant cover for erosion control and other conservation programs, improving plantings for reforestation, and increasing forage for wildlife. The recent infestation of honey bee colonies by the tracheal and varroa mites has practically eliminated pollination by wild bees so that American agriculture is now dependent on the services of commercial beekeepers.
PROGRAM COSTS
The cost of a honey marketing loan program for the 2001 crop should not exceed $28 million, and would probably be less. This figure was obtained by multiplying 200 million pounds (the average annual crop) by the March loan deficiency payment of 14 cents per pound (a figure which has been stable during the past few months). There are several reasons why the cost of the 2001 crop program should be less. First, it is likely that not all producers would participate in the program; perhaps, about 90 percent would apply for program benefits, the balance being small back yard producers who would not know about the program or wish to bother to apply for program benefits because of the small amount of their individual production.
We also anticipate that the cost should be further diminished beginning late this year when the final results of the pending countervailing duty and anti-dumping actions should be announced. The Commerce Department recently made a preliminary determination for the application of a 6.55 percent ad valorem countervailing duty, and a preliminary determination in the anti-dumping case should be made early in May. We understand that a final decision in these two cases should be made late in the year. Assuming that the industry is ultimately successful in these cases, the market price of honey should rise resulting in a substantial reduction in the cost of a marketing loan program in future years.
Page 739 PREV PAGE TOP OF DOC Segment 5 Of 5
WTO CONSISTENCY
It is our understanding that the honey program would be considered as an ''amber box'' program under the WTO rules, and thus, the program costs as described above would be counted towards the overall limit that currently applies to amber box programs of the United States. It should be pointed out that the program espoused in this statement is a continuation of the program currently in effect which is being accommodated today within the amber box limits.
We believe that the industry's recommendations are conservative and necessary to sustain the beekeeping industry, as well as being in the interest of American agriculture. The program that we recommend is essentially an extension of current law and would not cost more than that program. In fact, program costs would be less if the countervailing duty and anti-dumping actions are successful. The program is also comparable to the marketing loan program for the major crops and would enable U.S. honey producers to compete with imported honey on a level playing field.
Thank you for the opportunity to testify today. We would be pleased to respond to any questions regarding our testimony.
Statement of Thomas E. Stenzel
Good morning Mr. Chairman and members of the committee. My name is Tom Stenzel and I currently serve as president and CEO of United Fresh Fruit & Vegetable Association (United). I greatly appreciate the opportunity to testify this morning on behalf of the U.S. fruit and vegetable industry, regarding the future direction of farm policy.
As the national trade association representing the views of producers, wholesalers, distributors, brokers, and processors of fresh fruits and vegetables, United has provided a forum for the produce industry to advance common interests since 1904. Over the years, the produce industry has gone through tremendous changes in an effort to remain profitable, satisfy consumer demands, conform to new technology, and compete in an increasingly global market place. While the perishable nature of our products present unique challenges and highly volatile markets, the industry has not relied on traditional farm programs to sustain the industry. Rather, we have relied on the economics of supply and demand. However, many of the economic stresses inherent to other commodity sectors are impacting the fruit and vegetable sector as well as other issues unique to our industry. Virtually all commodity sectors of the U.S. produce industry are distressed and American producers have suffered economic damages over the past few years as a consequence of:
Page 740 PREV PAGE TOP OF DOC Segment 5 Of 5
Increase trade competition from subsidized foreign competitors and a strong U.S. dollar;
Increased cost of production in large part tied to government regulations and mandates in the United States; and
Adverse consequences of consolidation in U.S. retail trade and other markets reducing the number of supplier customers and reducing access to consumers.
With the combined fruit and vegetable industry in the United States at over $30 billion farm gate value, it is extremely important that all issues affecting our industry be laid on the table for consideration and appropriately acted upon.
FRUIT AND VEGETABLE INDUSTRY OVERVIEW 1\
As we enter this next century, the U.S. fresh fruit and vegetable industry is focused on adding value and decreasing costs by streamlining distribution and understanding customer needs. This dynamic system has evolved towards predominantly direct sales from shippers to final buyers, both food service and retail, with food service channels absorbing a growing share of total volume. The make-up of the industry is also changing as more produce companies introduce value-added products like fresh-cut produce, designed to respond to the growing demands for convenience in food preparation and consumption. In turn, fresh produce also continues to be a critical element in the competitive strategy of retailers, and its year-round availability is now a necessity for both food service and retail buyers.
Because produce's highly perishable nature, the industry's distribution system has evolved in order to move product quickly and efficiently from the major production areas to the retail markets. A number of different, often competing industries form the produce distribution system that procures, packs, ships, warehouses, facilitates transactions between buyers and sellers, and distributes to local retailers and foodservice outlets.
After being harvested, fresh produce is handled and packed either by a shipper or by the grower. For instance, bulk lettuce is often washed and packaged in the field; grapes are pre-cooled and shipped; and potatoes are stored, packed, shipped, and often repacked near the point of harvest.
Page 741 PREV PAGE TOP OF DOC Segment 5 Of 5
To estimate the value of fresh fruits and vegetables at the production level, these handling and packing costs are added to growing costs to derive the total value of fresh produce before it is shipped to market. Because the production of fresh produce is highly integrated with the harvesting, packing, and shipping systems, production values are estimated using the shipping point, or f.o.b. (free-on- board), values.
The value of U.S. production of fresh fruits and vegetables by grower-shippers reached $16.8 billion in 1997, up from $10.7 billion in 1987, a 57-percent increase. Fresh fruit production rose from $6.0 billion to $7.1 billion, while fresh vegetables jumped from $4.7 billion to $9.7 billion.
To arrive at the total value of grower-shipper shipments (sales) to the U.S. domestic food marketing system, we must account for imports and exports. Imports of fresh fruits and vegetables equaled $4.1 billion in 1997, a 105-percent increase over 1987's total of $2.0 billion. Both grower-shippers ($2.6 billion) and merchant wholesalers ($1.5 billion) took delivery of 1997's produce imports (See Attachment 1 and 2).
Exports by both grower-shippers ($1.6 billion) and merchant wholesalers reached $3.1 billion in 1997, up 158 percent over 1987. Thus, the net value of produce imports minus exports in 1997 by grower-shippers is $1 billion, which, when added to domestic production of $16.8 billion, gives total shipments to the United States distribution system of $17.8 billion. One decade earlier, the total value of produce entering the U.S. distribution system from grower-shippers was $11.2 billion.
Although shipments of both fruits and vegetables increased between 1987 and 1997, vegetable shipments jumped 102 percent, versus 19 percent for fruits. The top three vegetables shipped for fresh use were lettuce, tomatoes, and potatoes. These accounted for 52.9 percent of total shipments in 1987, but for only 33.4 percent in 1997. This is partially due to the reporting of more vegetable items beginning in 1997. Among fresh fruit shipments, those with the highest value in 1987 and 1997 were apples, oranges, and strawberries. The leading fruits accounted for 48.4 percent of shipments in 1987 and 51.8 percent in 1997.
Page 742 PREV PAGE TOP OF DOC Segment 5 Of 5
Grower-shippers serve a number of domestic produce customers, including wholesalers, self-distributing retailers, foodservice firms, and direct markets. The share of fresh vegetable purchases by wholesalers was estimated to vary from 35 to 55 percent in 1994, by retailers 20 to 40 percent, and by foodservice establishments 25 to 45 percent.
PRODUCE INDUSTRY OUTLOOK 2\
U.S. Farm Receipts—Between 2001 and 2010, projections indicate that total farm value of produce will increase at an average rate of 2.3 percent per year, reaching $37.0 billion in 2010. The farm value of fruits is expected to reach $16.7 billion by 2010, while the value of vegetables and melons is expected to reach $20.3 billion. These increases over time, though, contradict the current situation in the fruit and vegetable sector.
To put it mildly, the U.S. fruit sector is hurting. This year, for instance, lower prices are expected due to an expected bumper grape crop in California which is likely to put downward pressure on grape prices; frost in Florida is expected to reduce production of oranges in that state; and lower prices are expected for apples due to large supplies in Washington and tougher competition in the global apple market. These large supplies have produced persistent low grower prices during the last few years and recovery is not expected for at least another four years for some crops. Unfortunately, the recovery will not be helped much by domestic demand.
Consumption Increases Expected to be Modest—While produce farm receipts are expected to rise a total of about 23.3 percent during 2001–10, per capita domestic use is expected to increase a total of only 4.0 percent during the same period. Domestic per capita use of the major vegetables and melons is projected to grow at a faster rate than the major fruits. For the major vegetables and melons (including potatoes), domestic use will increase by about 5 percent during 2001–10, while the increase in domestic fruit use will be less than 1 percent. Total consumption of vegetables (all vegetables, including potatoes, and melons) is projected to reach about 473 pounds, while per capita consumption of fruits (including citrus and non-citrus fruits, and berries) is expected to reach 310 pounds. As in the recent past, much of the rise in domestic per capita use is attributed to the processing sector (mainly potatoes, sweet corn and tomatoes for vegetables, and apples, grapes and oranges for fruits). On average, potatoes are expected to make up 35 percent of all domestic consumption of vegetables during 2001–10. Further, processed potatoes (mainly frozen) will account for about 49 percent of all domestic processed vegetable use during the period. Total potato consumption is expected to increase at an average rate of 1.6 percent per year compared to an average rate of 2.1 percent per year for processed potatoes.
Page 743 PREV PAGE TOP OF DOC Segment 5 Of 5
Export Demand Important to U.S. Produce Industry—With production of the major fruits and vegetables increasing in recent years and domestic consumption of these commodities remaining flat, U.S. growers have relied on export demand for some major fruits (e.g. apples, grapes, oranges, sweet cherries, and prunes) and vegetables (e.g. potatoes) to soften downward pressures on domestic prices. Effort in the form of product introduction and promotion abroad had started paying off when the Asian economic crisis hit. The affected Asian economies are now recovering well, and several other developing economies in Asia, Central and South America, Eastern Europe, and Africa are also showing growth. In the future, though, it is the overall world economic growth that will greatly influence U.S. fruit and vegetable exports. It is expected that the developing countries of the Pacific Rim region, Eastern Europe and South America have more potential for U.S. export growth, as their economies are likely to grow faster than the mature economies of Western Europe and North America.
This year projections on trade are in line with those published by the U.S. Department of Agriculture. Specifically, the value of fruit imports is expected to grow at an average rate of 3.2 percent a year, while that of vegetable and melon imports may grow at an average rate of 4.1 percent a year during 2001–10. Exports of the major fruits and vegetables will also grow during this same period. The value of fruit and vegetable exports are expected to grow at an average rate of 4.3 percent and 3.6 percent, respectively, per year during 2001–10. This resumption in growth partly explains the recovery in price for some products in the next two to four years. Export growth may also be influenced by developments in trade and production support policies at home and abroad.
FARM BILL WORKING GROUP
In September 2000, produce industry leaders met at United's Washington Public Policy Conference to discuss the industry's participation in developing policy positions for the Farm Bill debate during the 107th Congress. These leaders agreed that as a significant contributor to our nation's agricultural production and positive trade balance it is extremely important that the issues affecting the produce industry be considered and the industry play a major role in the development of the nation's farm policy. As a result, the Farm Bill Working Group was created with 40 industry members representing 24 produce organizations from every fruit and vegetable producing region in the United States participating in this effort (See attachment 3).
Page 744 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. Chairman, let me be clear about this process, the working group took seriously the call from the industry to work and find solutions to the economic concerns expressed over the last several years by our industry. In turn, what we present to the House Agriculture Committee today is the most comprehensive effort to date by the produce industry to develop Federal farm policy which elevates the Federal Government's financial investment into program priorities for the produce industry.
The Working Group was charged with identifying specific issue items and deciding what would be the most effective way to participate in order to advance our policy positions. The results of that work are contained in a ''blue print'' as the produce industry's recommendations for developing farm policy which would be beneficial to the fruit and vegetable industry. Consequently, we also took heed of the message from Congress and examined Federal farm programs from top to bottom in developing over 50 legislative recommendations covering 11 key issue areas.
Overall the produce industry strongly supports the development of farm policies that will sustain financial stability and viability of our nation's agriculture industry while maintaining appropriate flexibility for our producers. Ultimately, we believe the goal of any farm policy development by Congress, the Administration, or commodity groups should not advocate recommendations which distort the market place, but rather promote the development of policy from a ''market basket'' approach. This market basket approach will look to advance farm policy that promotes consumption and demand for our agricultural products while developing tools for the agriculture industry that will drive utilization of the tremendous resources we offer the world. Simply stated, the working group supports the overall farm policy goal:
Federal farm policy should be developed for the produce industry which ensures good producers are not put out of business due to forces beyond their control. The Federal Government should elevate its financial investment into program priorities for the produce industry and work cooperatively in achieving the industry's continued growth and prosperity. Ultimately, the goal of any farm policy should be to enhance the tools necessary to drive demand, utilization, and consumption of our agricultural products and not distort the growth of U.S. agricultural products in the domestic and international market place.
Page 745 PREV PAGE TOP OF DOC Segment 5 Of 5
As Congress examines how our present farm policy should be reviewed and modified in this new era of global markets, it is critical that long and short-term solutions be considered that will help the U.S. agriculture industry remain world leaders in food production and competitiveness.
PRODUCE INDUSTRY FARM POLICY RECOMMENDATIONS
Agriculture Research
Research serves as a foundation for the advancement of any industry. Unfortunately, over the years, investment in Federal agricultural research specifically targeted to meet the needs of the fresh produce industry has been directed to limited priorities and areas of need. Investments in Federal research should be re-examined to meet the unique research and development needs of the fresh fruit and vegetable industry including competitive prominence in both the domestic and international marketplace. In particular, research should be focused in the areas of nutrition; new technological enhancements to production and processing systems; new variety and quality improvements; environment and conservation benefits of produce production; crop protection tools and alternatives; and, prevention of exotic pests and diseases.
Policy Statement—To further increase economic efficiency within the fruit and vegetable sector as well as document applicable health and environmental benefits to all Americans, the produce industry supports a coordinated Federal research agenda to further promote produce consumption and competitive prominence in both the domestic and international marketplaces.
Legislative Recommendations: Enactment of legislation directing the USDA Agriculture Research Service (ARS), Cooperative State Research, Education, and Extension Service (CSREES) and Economic Research Service (ERS) to expand ongoing research in the area of human nutrition to specifically address:
The impact of increased fruit and vegetable consumption toward preventing chronic diseases, including reducing obesity, diabetes, diverticulosis, cataracts, cancer, heart disease, stroke, and hypertension, and the overall benefits of whole food consumption including documentation of certain phytonutrients found in fresh produce that may help prevent such chronic diseases;
Page 746 PREV PAGE TOP OF DOC Segment 5 Of 5
Development of more effective behavior-based dietary interventions and health promotion programs within Federal nutrition programs to increase consumption of fruits and vegetables based on Federal dietary guidelines, including environmental influences, strategies for overcoming barriers to behavior change, and food preference development for children and adolescents; and
Influences on food choices and options for providing an optimal environment for making informed healthy food choices in a free-market economy including evaluation of different health communications and delivery mechanisms to reach underserved and nutritionally ''at risk'' populations.
Enactment of legislation directing to ERS to quantify the clean air benefits of the specialty crop industry in relation to urban sprawl or fallow land.
Enactment of legislation directing the ARS and CSREES to conduct additional research in the areas of mechanized harvesting and new production and processing methods for fresh fruit and vegetable commodities.
Enactment of legislation directing the ARS and CSREES to conduct pre-harvest and post harvest research specifically targeted to maintain and enhance the quality of fresh produce, including taste and appearance.
Enactment of legislation authorizing funding and directing USDA to conduct additional research to develop cost effective and efficacious new crop protection tools and Integrated Pest Management (IPM) systems to address the loss of key pesticides through the implementation of the Food Quality Protection Act (FQPA) and related measures.
Enactment of legislative language to require greater transparency and coordination in the planning and dissemination of Federal research findings between Federal research agencies and private sector commodity associations and related produce companies.
Enactment of legislative language directing USDA to elevate the priority of current methyl bromide alternative research and extension activities and reexamine the risks and benefits of extending the current phase-out deadline for methyl bromide based on the economic impact of leaving U.S. farmers and the food industry with no viable alternative.
Page 747 PREV PAGE TOP OF DOC Segment 5 Of 5
Enactment of legislation that would authorize funding for USDA to conduct specific research to identify and prioritize the harmful economic/health impact of foreign invasive pests and diseases now threatening the United States and for the development of corresponding eradication/control programs.
Conservation
Today, consumers have affordable access to the most abundant and diverse food supply in the world. However, aside from market diversity and competitive prices, consumers demand that food be held to a very high standard. Likewise, consumers want an agricultural production system that not only produces abundant, affordable and safe food and fiber, but also conserves and enhances the natural resource base and protects the environment.
Unfortunately for producers, investments in natural resource management and conservation are rarely recouped. The short-term economic value for the farmer does not compare to the ecological and fiscal benefits for the public and for future generations. The benefits increase for the public in the form of a more stable and productive farm economy and an improved environment. Protecting the environment and productivity today will mean less cost for producing products in the future and will therefore assist in ensuring sustainability in the years ahead.
For the produce industry, there continues to be mounting pressures of decreased availability of crop protection tools that can be used to provide the abundant and safe food supply the consumer demands. In turn, environmental regulations continue to put pressure on the industry's ability to be competitive in a world economy. Because of these factors, the industry should consider any available assistance that encourages producers to invest in natural resource protection measures they might not have been able to afford without such assistance.
Policy Statement—The Federal Government should offer a basic level of funding assistance and credit to preserve its commitment to support conservation initiatives to guarantee a safe, healthy and sustainable environment within produce production areas.
Page 748 PREV PAGE TOP OF DOC Segment 5 Of 5
Legislative Recommendations:
Enactment of legislation which would allow tax credits and/or deductions for environmental stewardship investments by producers, and include infrastructure improvements and the use of best agricultural practices measures.
Enactment of legislation to provide cost saving incentives for the investment into currently defined IPM practices.
Enactment of legislation initiative to provide economic incentive-based policies for voluntary participation in conservation programs to include the expansion of the Conservation Reserve Program, Conservation Reserve Enhancement Program, and Conservation Buffers cost-share programs and allow for increased participation for fruit and vegetable producers.
Enactment of legislation to increase the funding authorization for the Environmental Quality Incentives Program to $4 billion annually, removing payment caps, and increasing funding availability for fruit and vegetable producers. Domestic Agricultural Policy
In an effort to control farm spending, give farmers greater planting flexibility, and be consistent with trade agreements to lessen subsidies and production controls, the 1996 farm law discontinued production controls, capped marketing loan assistance, and broke the link between farm payments and market prices. Eligible farmers were guaranteed annual, lump sum ''market transition'' payments that declined in amount each year until 2002, when they were to be phased out entirely. These annual contract payments were made regardless of market prices and production, and farmers were given almost total planting flexibility—with the exception of the limitation of planting fruits and vegetables. For the first two years after the Farm Bill, prices for many farm commodities and farm income reached record highs. However in late 1997, prices and income began to fall as supplies grew and demand fell. The absence of a so-called ''safety-net'' to counter economic downturns put pressure on Congress to approve a series of ''emergency'' farm aid measures to shore up farm income.
Page 749 PREV PAGE TOP OF DOC Segment 5 Of 5
The fact that large supplemental payments were adopted three years in-a-row has caused a critical examination of domestic support policy. A substantial portion of the farm relief was disaster assistance, which is not related to commodity support policy, however, about $27 billion in supplemental relief was paid to farmers. In general, the produce industry agrees that fruit and vegetable producers should be an equal participant in Federal assistance programs that neutralizes forces beyond its control such as weather, disease, or other natural disasters.
Policy Statement—The Federal Government should elevate its financial investment into program priorities for the produce industry and work cooperatively to ensure U.S. fruit and vegetable producers are competitive in domestic and international markets. In turn, the goal of any farm policy should be to enhance the tools necessary to drive demand, utilization, and consumption of fruits and vegetables, and not distort the production and marketing these commodities in the United States.
Legislative Recommendations:
Congress should establish a funding mechanism that ensures the produce industry receives a proportionate share of Farm Bill outlays, equal to 26 percent, for our industry program priorities. This percentage is based on the comparative farmgate values of the U.S. specialty crop sector measured against other agricultural sectors over the past decade. This investment would fund program priorities including: nutrition; risk management tools; infrastructure investments; tax deductions and credits; trade enhancements; conservation incentives; pest and diseases prevention initiatives; marketing mechanisms; research priorities; and, other initiatives.
The current planting restrictions for fruits and vegetables, as prescribed under the Federal Agricultural Improvement Act of 1996 (FAIR), should be maintained.
The current limit on direct operating loans of $200,000 should be increased to $500,000 for producers of perennial fruit and vegetable crops.
Page 750 PREV PAGE TOP OF DOC Segment 5 Of 5
The current limit on guaranteed operating loans of $731,000, which is adjusted annually for inflation, should be increased to $1.5 million for producers of perennial fruit and vegetable crops.
Overall funding for the direct loan program should be expanded to accommodate the increased demand for loans likely to result from changes in current loan limits.
Federal Nutrition Policy
Fruits and vegetables are more than simply an agricultural crop—these products are the keys to health for millions of Americans. Today, between 300,000 and 600,000 Americans die each year due to unhealthy eating and physical inactivity. The greatest opportunity to exert some budgetary control over the soaring health care costs associated with these premature deaths is to invest in prevention efforts through healthy eating. For the first time, the Dietary Guidelines for Americans 2000, jointly published every five years by the U.S. Department of Health and Human Services (HHS) and the USDA, includes individual guidelines urging all Americans to eat a minimum of five-to-nine servings of fruits and vegetables daily. While nutrition policy is not solely a Farm Bill issue, we have a unique opportunity to make sure that policies under the purview of the House and Senate Agriculture Committees are carefully considered so that the new Guidelines are fully implemented. To this end, future farm policy will not only support American agriculture; it will support and encourage the health and well-being of all Americans.
Policy Statement— Across the life span, proper nutrition is critical in promoting health, preventing disease, and improving quality of life. Therefore, agriculture policies and related domestic and international nutrition assistance programs should support incentives and key strategies that help Americans reach national health goals and ultimately reduce health care costs.
Legislative Recommendations:
Enactment of legislative reforms to the AMS procurement and contracting procedures to optimize the amount of fresh produce purchased through USDA nutrition programs, specifically including: authorization of additional funding for surplus purchases of produce commodities; and, a USDA study of procurement, contracting and delivery procedures to be completed, within six to 12 months, aimed at increasing produce purchases within Federal nutrition programs based on the Dietary Guidelines for Americans 2000. This study should have the direct participation of produce industry experts.
Page 751 PREV PAGE TOP OF DOC Segment 5 Of 5
Enactment of legislative reforms to increase the availability of fresh produce to participants in Federal feeding programs based on nutritional status and need, specifically including: establishing double food stamp coupons for produce purchases; expansion of produce commodities in the Women, Infants and Children (WIC) program; adequate increase of reimbursements to local school districts for increased produce purchases; and, the expansion of salad/fruit bars within the school lunch and other appropriate nutrition assistance programs.
Enactment of a public/private matching program to initiate a nationwide education program to promote increased fruit and vegetable consumption.
Enactment of legislation to expand USDA's Global Food for Education pilot program, formally announced in September 2000, to allow the purchase of U.S. fresh produce commodities in order to meet nutrient deficiencies of under-served populations.
FOOD SAFETY INITIATIVES
The Federal Food, Drug, and Cosmetic Act (FFDCA) provides' ample authority to FDA to assure the safety of fresh fruits and vegetables. Under the FFDCA, FDA is granted wide latitude to refuse food into interstate commerce if it appears from an examination, or otherwise, that a food is adulterated, misbranded, or has been manufactured, processed or packed under unsanitary conditions. The produce marketplace is highly intolerant of unsafe food and will react swiftly to outbreaks of foodborne illness. Today, grocery retailers and restaurant operators routinely ask their produce suppliers what measures have been implemented to assure safety and likewise, insurance carriers ask their grower, packer and shipper clients to take appropriate steps to minimize food safety related risks. The produce industry has made great strides domestically and internationally to identify potential sources of microbial hazards in fresh fruits and vegetables, and the industry has and is willing to implement prudent measures to prevent the outbreak of problems in the future.
Policy Statement—The fresh produce industry is committed to reducing the risk of foodborne illness and is highly intolerant of unsafe food that may result in foodborne illness and can affect public perception about the health benefits of increased produce consumption. Stringent voluntary measures should continue to be employed to identify and reduce potential sources of microbial hazards in fresh fruits and vegetables. Additionally, the fresh produce industry supports the implementation of prudent measures including education initiatives at the industry and consumer levels to reduce occurrences of microbial pathogens and promote sound sanitary practices.
Page 752 PREV PAGE TOP OF DOC Segment 5 Of 5
Legislative Recommendation:
Enactment of legislation that would authorize a public/private food safety education initiative to educate consumers and growers, shippers and handlers of fresh produce about scientifically proven practices for reducing microbial pathogens and consumer/handler messages for reducing the threat of cross contamination through unsanitary handling practices.
International Market Access Policy
The economic well-being of the produce industry and other agricultural commodity sectors depends heavily on exports which account for one-third or more of domestic production, provides jobs for millions of Americans, and makes a positive contribution to our nation's overall trade balance. This year, the value of U.S. agriculture exports is projected to be approximately $53 billion, well below the record $60 billion in 1996. This decline is due to a combination of factors, including continued subsidized foreign competition and related artificial trade barriers. Without improved international trade policies that advance open and fair trade practices in the global market, the U.S. surplus in agricultural trade which has declined over 50 percent during the last five years will continue to fall.
U.S. fruit and vegetable growers face significant obstacles in the development of export markets for their commodities and unique challenges due to the perishable nature of our products. Without further commitment to export market development by the Federal Government and commitment to reducing tariff and non-tariff barriers to trade, the U.S. produce industry will continue to lose market share to global market competitors.
Policy Statement—To eliminate of the trade inequities created by the combination of world subsidies, tariffs, and domestic supports as measured against the current U.S. tariff structure and trade policy, aggressive policy measures should be enacted to maintain and expand U.S. agricultural exports, counter subsidized foreign competition, maintain and enhance U.S. agriculture's favorable trade balance, improve agricultural income, protect and increase export-related jobs, and strengthen U.S. trade negotiating positions under the WTO.
Page 753 PREV PAGE TOP OF DOC Segment 5 Of 5
Legislative Recommendations:
Enactment of legislation to increase funding authority for the Market Access Program (MAP) from $90 million to $200 million.
Enactment of Legislation to authorize a minimum of $35 million for the Foreign Market Development (FMD) Cooperator Program.
Enactment of legislation to allow up to 50 percent of any unobligated Export Enhancement Program (EEP) funding to be used for market development and promotion to encourage U.S. exports.
Enactment of legislation to provide flexibility in expanding the five year stipulation for international product promotions under the MAP based on existing market access and trade barriers.
Enactment of legislative reforms for all foreign food aid programs such as the P.L. 480, to allow the purchase of U.S. fresh produce commodities by eligible countries in order to meet the nutritional needs of various underserved populations.
Enactment of legislation that would provide the United States Trade Representative with enhanced authority to automatically enforce retaliatory actions based on the substantiation of any unfair trade barrier found to severely threaten the economic viability of any agricultural commodity.
Enactment of legislation to authorize a total of $12 million, over a five-year period, for a Technical Assistance for Specialty Crops (TASC) fund within the Foreign Agriculture Service (FAS) to address the unique technical problems facing exports of U.S. fresh fruits and vegetables. Such a fund would be used to remove, resolve and/or mitigate phytosanitary and technical trade barriers. Activities would include but not be limited to research, pest risk assessments, field surveys, development of database/resource materials, training, technical and/or professional exchanges.
Page 754 PREV PAGE TOP OF DOC Segment 5 Of 5
Full implementation of the Byrd amendment as related to anti-dumping compensation.
MARKETING ORDERS AND PROMOTION PROGRAMS
Under the Agricultural Marketing Agreement Act of 1937, marketing orders and marketing agreements, were established to help stabilize market conditions and expand, maintain, and develop markets in the United States and abroad for fruit and vegetable products. Promotion and research programs are similar to marketing orders, but are established under separate legislation or the under the authorities established in previous Farm Bills. Fruit and vegetable marketing orders, promotion programs, and research programs are administered and overseen by USDA's AMS and all handlers who are in a geographic area prescribed by an order must abide by its rules. Ideally, the programs assist farmers in allowing them to collectively work to solve marketing and promotion problems. Industries voluntarily enter into these programs and choose to have Federal oversight of certain aspects of their operations. Programs for fruits and vegetables are administered by local administrative committees, which are made up of growers and/or handlers, and often a public member. Committee members are nominated by the industry and appointed by the USDA Secretary. The regulations are issued and become binding on the entire industry in the geographical area regulated if approved by at least two-thirds of the producers by number or volume and if approved by the Secretary.
Policy Statement—Congress and the Administration should continue to support the use and development of marketing orders, promotion programs, and research programs as tools for the fruit and vegetable industry to help influence consumption and facilitate increased marketing opportunities. In general, the produce industry believes that marketing orders and promotion programs share common goals to stabilize the agricultural economy, promote agricultural products, protect consumer health, and providing funding for necessary research and new product initiatives. Overall, these programs benefit producers, consumers, and the agricultural economy.
Page 755 PREV PAGE TOP OF DOC Segment 5 Of 5
Legislative Recommendations:
Enactment of legislation which would require a review of the regulatory structure for marketing orders, promotion programs, and research program guidelines to streamline the current regulatory structure in order to enhance the use of promotion programs and limit administrative cost for the participants to a specified budget percent or dollar cap whichever is less.
Legislative stipulations on USDA's appointment to commodity boards and local committees defining a specific timeframe for USDA to act on nominations submitted.
Clarify the ability of marketing order and related promotion and research boards to participate in public discussions regarding food safety, product quality, and market access to increase export market development.
Enactment of legislation to expand USDA's current options to enforce compliance.
Review the use of the generic marketing orders, promotion programs, and research programs established in the 1996 Farm Bill to enhance its effectiveness and usefulness.
Enactment of legislation to exempt certain competitive or proprietary (such as competitive sector analysis or research results) information from disclosure under the Freedom of Information Act.
Enactment of legislation which would clarify the definition of ''persons'' under the Sherman Act, and apply greater anti-trust protections to committee members when acting within the scope of their service to the industry.
PEST AND DISEASE EXCLUSION PROGRAMS POLICY
The liberalization of international trade in agricultural commodities and commerce coupled with global travel has greatly increased the number of pathways for the movement and introduction of foreign, invasive agricultural pests and diseases. Fruit imports increased from 1.35 million metric tons in 1990 to 2.82 million metric tons in 1999, while imports of fresh citrus products alone increased from 101,000 metric tons in 1990 to 348,000 metric tons in 1999. Vegetable imports increased from 1.90 million metric tons in 1990 to 3.73 million metric tons in 1999 and fresh tomato imports have doubled during that period as well. In addition, states such as California and Florida are seeing record numbers of tourists and other visitors arriving each year. Some 330 million visitors entered California and Florida collectively through airports, seaports and highways in 1998, a combined increase of over 4.5 percent over the previous year. Also, new pest pathways such as wood packing materials are emerging.
Page 756 PREV PAGE TOP OF DOC Segment 5 Of 5
The estimated economic harm to the United States from these biological invaders is now estimated in excess of $120 billion annually. Recognizing the need to address this serious situation, the produce and nursery industries strongly supported the passage of H.R. 2559, the Plant Protection Act of 1999, which now offers USDA the improved means to protect our nation's agricultural crops from invasive pests being transported into this country. Additionally, USDA's APHIS report, Safeguarding American Plant Resources - A Stakeholder Review of the APHIS-PPQ Safeguarding System, which was coordinated by the National Plant Board contains over 300 recommendations for preventing the further spread and future outbreaks of exotic diseases and pests in the future. Expeditious implementation of the Plant Protection Act, in coordination with the recommendations included in the Safeguarding Report, are imperative to preventing future losses and maintaining stability within the produce industry.
Policy Statement—With economic damages from invasive pests and disease now exceeding $120 billion annually, the fresh produce industry supports expedited and aggressive actions by the Federal Government in cooperation with the industry and stake holders at the state and local levels to eradicate and protect the domestic market from increasing threat of exotic pests and diseases entering the U.S. through international commercial shipments of products as well as the importation of agricultural contraband by vacationing travelers and commercial smugglers.
Legislative Recommendations:
Enactment of legislation authorizing funding and providing direct responsibility and related expanded authority for APHIS to develop an adequate emergency eradication/research no-year fund that could be accessed to address economic and health threats posed by invasive pests and disease as determined by the USDA Secretary.
Enactment of legislation to codify the primary role of APHIS in ''safeguarding America's plant resources from invasive pests'' and underscoring the importance of expeditious implementation of the 300+ recommendations contained in the Safeguarding Report and related efforts to facilitate market access.
Page 757 PREV PAGE TOP OF DOC Segment 5 Of 5
Prohibition on any legislative action sought which would reinstate authority after FY2002 for Congress to appropriate Agriculture Quarantine Inspection (AQI) funding through the annual appropriations process.
RETAIL TRADE PRACTICES
In the past year, trade practices between fresh produce shippers and food retailers gained national attention. The Federal Trade Commission (FTC) and the U.S. Senate Committee on Small Business conducted hearings with industry leaders, government officials, and academics who offered their perspectives on how both the recent wave of supermarket mergers and the growth of new trade practices have affected various industries, including the produce industry.
Fruit and vegetable growers are deeply concerned about the consolidation of retail food marketers in the United States. In turn, the produce industry strongly supports appropriate Federal and congressional oversight of retail mergers and consideration of the impact of that consolidation on the fruit and vegetable industry. For example the five largest food retailers in the country accounted for 40 percent of industry-wide sales equaling $270.7 billion in 1998 compared to five years earlier, when the top 20 companies were needed to reach the same percentage of sales. As buying power concentrates within the retail industry, fruit and vegetable producers have fewer customers to whom they can sell their highly perishable and price sensitive commodities. The net result is continued pressure to reduce prices paid to growers. Unfortunately, consumers rarely see the benefit of these lower producer prices. Recent government surveys confirm a wide disparity and general lack of relationship between farm and retail prices.
In addition to heightened pricing pressures, fruit and vegetable growers and shippers are increasingly being asked to provide trade promotion payments to retailers, ostensibly to support the marketing costs of the grower's crops. In practice, however, growers report that these
Page 758 PREV PAGE TOP OF DOC Segment 5 Of 5
pay-to-play payments rarely result in visible benefits, and may only serve to boost profit margins for retailers. Ultimately, the cost of these fees comes from the growers' profit margins, which in today's environment are very slim and in many cases non-existent.
Policy Statement—Congress and the Administration should thoroughly review the implications of consolidation of food retailers and suppliers and the impact on fruit and vegetable growers and shippers should be a major component of that review. Ultimately, produce marketing and retail trade practices must be measured against the criteria of whether they add value to the product, enhance market access, and increase availability to the consumer.
Legislative Recommendations:
Enactment of legislation allowing USDA's ERS to augment existing research efforts on the impact retail trade practices has on the fruit and vegetable industry.
Enactment of legislation that would allow USDA to prepare guidelines and recommendations of PACA enforcement latitude for slow pay, inspection retribution, and other reprisal type activities.
Enactment of legislation supporting the joint examination by Congress, USDA, and FTC of the effect on small businesses and consumers and whether the concentration of market power is adversely affecting normal market place efficiencies.
Risk Management Tools
Risk has always been a part of agriculture and today, agriculture producers have an array of tools at their disposal with which to manage risk. These tools include crop and/or revenue insurance, production contracts, marketing contracts, hedging in futures, futures options contracts, vertical integration, diversification, off-farm income, and production and cultural practices.
The produce industry has changed dramatically over the years and the industry is now learning that it is a game with new rules, new stakes, and most of all, new risks. The nation's most successful producers are now looking at a deliberate and knowledgeable approach to risk management as a vital part of their operations. For them, risk management means operating a business with confidence in a rapidly changing world and their ability to deal with risks that come with new and attractive business opportunities. Over the years, little has been done at the Federal level to ensure that the fruit and vegetable industry has access to risk management tools that are cost effective and reliable. Additionally, the produce industry has become increasingly concerned about the development of risk management products that can create market distortion.
Page 759 PREV PAGE TOP OF DOC Segment 5 Of 5
There now exists a window of opportunity to change the way produce industry risk management tools are developed and administered in such a way to reflect the fundamental differences between growing and marketing fruit and vegetable crops as opposed to traditional farm program crops. By increasing the flexibility of risk management tools that will respond to the diverse and heterogeneous needs of producers and commodities, and by creating policies that are of real value to growers, opportunities for effective risk management options for the fruit and vegetable industry can be achieved.
As Congress begins its consideration of the 2002 Farm Bill, general oversight of the ARPA will clearly be a part of the mix. This will allow the produce industry an opportunity to assure that USDA is giving proper weight to its mandate to improve service for fruit and vegetable growers. If there are weaknesses or gaps in the legislation, we will have a chance to refine it so that the produce industry is supportive of the effort.
Policy Statement—Public and private sector development and utilization of risk management tools which help to neutralize forces beyond the produce industry's control such as weather, disease, or other natural disasters should be strongly encouraged. In turn, the produce industry also supports improvements and innovation for the advancement of risk management tools that do not distort the fresh fruit and vegetable market by price elections that are higher than the market place or by having policy provisions that encourage additional or over production. Finally, the adoption of strong enforcement mechanisms which will prevent fraud, manipulation, and abuse of risk management options must continue.
Legislative Recommendations:
Enactment of legislation to allow for a portion of FCIC funding to focus on product development of risk management tools which limits the distortion in the market place for specialty crops. The Agricultural Risk Protection Act of 2000 (ARPA) provides substantial seed money ($175 million over 5 years) in the forms of grants, cooperative agreements, reimbursements, and contracts to develop new insurance policies and approaches. Much of this work was intended to involve ''specialty crops'' and primarily fruits and vegetables. At the same time Congress opened the door to all players, not just insurance companies, to submit new policies to the FCIC Board of Directors for approval and financial backing. In other words, organizations can develop products themselves, or partner with an insurance company, university, or other analytical group for development work. They may then qualify for Federal funding of developmental costs. If the product was approved, it would receive full FCIC subsidy which is substantial
Page 760 PREV PAGE TOP OF DOC Segment 5 Of 5
Enactment of legislation which requires the expansion of this outreach campaign to areas which are under-served and underutilized by Federal crop insurance. APRA also provided funding for outreach and education regarding risk management tools that currently exist. Most of the funding is focused on the Northeast but there is some funding to leverage at the national level.
Enactment of legislation to assure that changes are implemented properly for fruit and vegetable growers, and that growers are fully aware of the new requirements. ARPA also mandates several important changes in the Non-insured Assistance Program (NAP) administered by the Farm Service Agency.
USDA's Inspection Service and Fair Trading Practices Programs
USDA's fruit and vegetable inspection is a voluntary, fee-for-service program, administered by the AMS since 1928. The objective of the inspection program is to facilitate trade by providing buyers and sellers of fresh fruits and vegetables with impartial and accurate information about the quality (inherent, non-progressive characteristics, such as size or shape) and condition (defects of a progressive nature, such as decay or ripeness) of shipments of fresh produce based on well-known, published USDA standards.
The inspection program for fresh fruits and vegetables is available at shipping points located in growing areas and at wholesale markets and other points where large volumes of fresh produce are received. At shipping points, inspection is requested by growers, processors or packers for quality assurance, to satisfy the requirements of state or Federal marketing orders, or to verify compliance with specifications on fresh produce. At wholesale markets, fresh produce inspection is most often requested to resolve a dispute between a buyer and seller about the quality or condition of delivered produce. In either case, the inspection program enables financially interested parties to verify the extent to which shipments meet expectations.
Page 761 PREV PAGE TOP OF DOC Segment 5 Of 5
At wholesale markets, either the seller or a prospective buyer can request AMS inspection. Although shippers at times initiate the request, most often it is buyers that ask for inspections, generally when they suspect that the shipment does not meet contract requirements and are seeking an adjustment in the price. Approximately 180,000 inspections are performed at wholesale markets each year and the cost can vary depending on a variety of factors (e.g., amount of product involved, whether quality and condition or just condition are evaluated, etc.). An hourly rate of $43 is charged, with an average two-hour inspection to determine the quality and condition of a shipment typically costing $86.
The AMS also administers the Perishable Agricultural Commodities Act of 1930 (PACA). PACA established a code of fair trading practices covering the marketing of fresh and frozen fruits and vegetables in interstate and foreign commerce. It protects growers, shippers, distributors, retailers and others who deal in those commodities by prohibiting unfair and fraudulent practices. Specifically, PACA: (1) prohibits unfair and fraudulent practices in the fresh and frozen fruit and vegetable industry; (2) provides a means of enforcing contracts between buyer and seller; and (3) helps ensure that produce-related assets remain available to pay suppliers if a receiver enters bankruptcy proceedings. Most traders of fresh or frozen produce must obtain a valid PACA license which is issued by the Fruit & Vegetable Programs and that license fees support the administration of the PACA program.
Last year's bribery and racketeering scandal at the October 1999 Hunts Point Terminal Produce Market in New York has severely damaged the fruit and vegetable industry's confidence in USDA's inspection system. Fruit and vegetable growers, and indeed the entire produce industry, depend heavily on the inspection system to provide a credible and consistent third-party analysis of product condition at both shipping point and upon arrival. Without a sound inspection system in place, growers are at the mercy of unscrupulous buyers who would use bogus condition problems to leverage a reduction in the price of the load.
Page 762 PREV PAGE TOP OF DOC Segment 5 Of 5
It is critical that the entire USDA inspection system be overhauled to ensure that this kind of corruption of the system is eliminated. The 106th Congress approved $71 million to modernize the inspection system across the country, while keeping both inspection costs and PACA license fees to all industry members at current levels for at least the next five years. Industry recommendations such as an inspection training center, technological improvements, and inspector training modules should be implemented as a part of this modernization. Expeditious implementation of these recommendations is urgently needed so that confidence in the system can be restored and a seamless, transparent, and efficient system is in place as soon as possible.
Policy Statement—The produce industry strongly supports the Federal inspection service program and believes it serves as one of the fundamental safeguards for the produce industry. In turn, USDA should work closely with the produce industry and state inspection systems to prepare a strategy of utilizing the $71 million allocated by Congress to modernize a system that will administer fair and impartial inspections. The produce industry also supports the full utilization of the PACA law and encourages USDA to administer the law in a fair and timely manner.
Legislative Recommendations:
Enactment of legislation which will provide a ''safety net'' for victims of the Hunts Point incident, to be accessed in situations where an insolvent company cannot adhere to the results of a PACA formal complaint finding.
Development of performance standards (i.e. timely inspections and PACA case reviews) for USDA employees.
A thorough review by AMS regarding the consistency and reliability of produce inspections throughout the delivery chain, including the examination of inspection data from both the shipping and destination points. In addition, AMS should address the appeals process and have it subject to oversight and random audits.
Page 763 PREV PAGE TOP OF DOC Segment 5 Of 5
Legislative safeguards which allow for industry consultation of PACA and Inspection Service reserve funds.
Development of an annual report which provides information to the produce industry on the PACA and Inspection Service Programs. This information could be a tremendous benefit to both the industry and AMS while providing transparency into the use-fee program. Examples of information in the report could include: number of inspections completed; average time for the consideration and completion of PACA case; allocation and investment of funding for PACA and inspection programs; and average cost of inspections by region.
MISCELLANEOUS POLICY PROVISIONS
Support for the inclusion of a Farm, Fishing and Ranch Risk Management (FFARRM) accounts which allows for agricultural producers to contribute up to 20 percent of their farm income into a FFARRM account and defer this amount from their taxes for five years.
Within the Office of the USDA Secretary, increase funding for USDA's Office of Pest Management Policy (OPMP) to $5 million annually.
Elimination of the estate tax.
WTO OBLIGATIONS
The produce industry recognizes the prevailing WTO agreements are designed to impose disciplines on U.S. farm policy. In general, the WTO provisions tend to favor price and income support measures that are decoupled from acreage, production and prices. Such supports are considered non-trade distorting and are not limited under current WTO rules. In turn, our analysis indicates that the recommendations that the produce industry have presented the Committee fall under the non-trade distorting WTO rules.
IMPACT ON OTHER COMMODITY SECTORS
With over 200 specialty crops grown in the United States it is extremely important to develop farm programs that do not provide a distinct competitive advantages for a particular commodity or segment of the industry over others. What has been presented by the produce industry in this proposal are a menu of options and programs that any grower can use to help strengthen their current economic condition. In turn, a segment of these recommendations allows for the expansion of current farm programs that have not traditionally been utilized by the produce industry. However, we strongly encourage the Committee to embrace the utilization by the produce industry of these types of programs to ensure the continued viability of the United States fruit and vegetable industry.
Page 764 PREV PAGE TOP OF DOC Segment 5 Of 5
Overall Farm Program Spending
As indicated in our statement today, the produce industry encourages Congress and the Administration to elevate its financial investment into program priorities for the produce industry and work cooperatively in achieving the industry's continued growth and prosperity. What we have presented in this testimony is a comprehensive list of priority issues and legislative recommendations for the Committee to consider. In turn, we recognize that as with any new or expanded program, in most cases, financial resources have to be applied, increased, or reprogrammed to account for the cost associated with these initiatives. On the other hand, in the produce industry's analysis, investments into programs and policy initiatives which drive demand and utilization of agricultural products is the most strategically feasible utilization of the budgetary outlays for agriculture. We consider this proposal as following along those lines of strategic thinking.
In addition, the produce industry strongly supports the efforts of the House and Senate during the budgetary debate to increase the investment in farm spending. We particularly applaud the commitment of Chairman Combest for his role in securing additional funding for the agriculture community. In turn, the produce industry would like work closely with the Committee to obtain the necessary outlays that can be utilized for our priority programs through additional funding expenditures or current funding mechanisms.
Conclusion
On behalf of the produce industry's Farm Bill Working Group, we look forward to working with the Committee to take on these important issues and the many other challenges facing the fruit and vegetable industry. Fruit and vegetable growers produce crops that are vital to the health of Americans and represent a significant segment of American agriculture. We urge Congress to take these issues, and the many other challenges facing the fruit and vegetable industry, fully into consideration as you move forward in the development of the successor to the Federal Agriculture Improvement and Reform Act (FAIR).
Page 765 PREV PAGE TOP OF DOC Segment 5 Of 5
1\Information researched from USDA's Report Understanding the Dynamics of Produce Markets
2\ Information researched from National Food and Agriculture Policy Project 2001 U.S. Fruit and Vegetable Outlook
Statement of Western Growers Association
Western Growers Association is pleased to participate in policy issues and their importance and impact on California and Arizona's fruit and vegetable industries. Western Growers Association (WGA) was established in 1926, and represents over 3,500 members in Arizona and California who grow, pack and ship more than half of the Nation's fresh vegetables, fruits and nuts. Our members ship over 90 percent of the fresh vegetables and 60 percent of the fresh fruits and nuts grown in California and Arizona.
FEDERAL AGRICULTURAL POLICY
The U.S. horticultural sector has always been on the periphery of farm policy because our fruit and vegetable growers have never participated in the historical farm programs, as have other agricultural commodities such as cotton, dairy or wheat. Our growers, however, believe that Federal farm policy currently influences the fruit and vegetable sectors and could play an increased role if focused on by policy makers in the context of the farm bill deliberations and development. Some of the specific areas that WGA believes may directly or indirectly impact the California and Arizona fresh fruit, nut and vegetable sector are as follows: (1) trade policy, including the tenets of strong import and export programs and policies; (2) marketing policy specifically the Perishable Agricultural Commodities Act; (3) phytosanitary protection as conducted by the Animal and Plant Health Inspection Service; (4) planting flexibility on subsidized acreage; (5) risk management programs; (6) supermarket consolidation and retail market power; (7) agricultural research; (8) food and nutritional policy; and a variety of other important issues that may affect our industry.
Page 766 PREV PAGE TOP OF DOC Segment 5 Of 5
SUBSIDIES FOR FRUIT AND VEGETABLE GROWERS
Recommendation: WGA opposes any subsidy program for the fresh fruit, vegetable, and nut industry.
Western Growers Association opposes the subsidization of production in the fruit and vegetable industry. Fresh produce growers and shippers in California and Arizona have always sold their products in a free, open market environment, without Federal subsidies. We do not want our trade policy to move in the direction of a subsidized fruit and vegetable industry. Fruit and vegetable producers make planting, harvesting, and marketing decisions in a fast-paced, highly competitive, and always-volatile marketplace. Even a small increase in fresh fruit and vegetable production can cause large swings in market prices for fresh produce commodities.
WGA will strongly oppose any 2002 farm bill which establishes a subsidy program for fruit and vegetable growers.
PLANTING FLEXIBILITY ON SUBSIDIZED ACREAGE
Recommendation: WGA urges Congress to maintain the current policy of prohibiting fruits and vegetables from being grown on subsidized acreage.
Western Growers Association is strongly opposed to allowing fruits, vegetables and nut trees to be grown on acreage, which is enrolled in USDA subsidy programs for the bulk commodities. This is necessary to ensure that producers of fruits and vegetables who do not receive USDA subsidies are not put at a competitive disadvantage or subject to the disruption of produce markets due to artificially imposed signals arising from changes in government policy.
Along with other produce organizations, WGA worked hard to ensure that Congress abided by this policy in writing both the 1990 and 1996 farm bills. Section 118 of the Federal Agricultural Improvement Act of 1996 (1996 farm bill) prohibits the planting of fruits and vegetables on all USDA contract acres, with certain narrow exceptions specified in the law. WGA will strongly oppose any new legislation that would allow subsidized producers to compete against non-subsidized growers in the production of fruits and vegetables.
Page 767 PREV PAGE TOP OF DOC Segment 5 Of 5
WGA remains committed to ensuring that the fundamentally fair policy of prohibiting subsidized growers from competing against growers who do not receive government assistance in fruit and vegetable production remains the law of the land, and that the law is effectively enforced.
AGRICULTURAL TRADE POLICY—MARKET ACCESS PROGRAM
Recommendation: WGA urges Congress to enact a 2002 farm bill which authorizes $200 million in funding for MAP.
With U.S. tariffs on imports being among the lowest in the world, our markets are open to fresh fruits and vegetables from around the world. When trade negotiators raise the issue of reducing domestic and export subsidies, there is nothing to debate with regard to the U.S. fruit and vegetable industry. Our industry receives no trade distorting subsidies from the Federal Government. There are no protectionist safeguards or sophisticated price and volume mechanisms designed to keep imports out when produce is being harvested and marketed in California and Arizona.
This is not the same as the situation with the European fruit and vegetable industry. If we take a look at recent data (marketing year 1996–97), provided to the World Trade Organization by the European Union, we find that the EU's aggregate measure of support (the WTO's measure of domestic support) exceeded $17 billion. To put this in blunt terms—the European industry received $17 billion in subsidies for one marketing year, compared to zero for the U.S.!
Additionally, the EU was allowed in the Uruguay Round to basically retain its Reference Price System for certain fruits and vegetables. It is now called the Entry Price System. This system imposes a duty on imports that enter the EU below a specified price. For the EU's most sensitive fruits and vegetables (15) there is a special volume based safeguard (additional duty) that protects the domestic industry by effectively keeping out U.S. exports when the EU is harvesting and marketing their own crop. In the 1996–97 market year, this particular safeguard was used for tomatoes, cucumbers, oranges, clementines, mandarins, lemons, apples and pears. In addition to these measures, the EU uses Producer Organizations (POs) to provide subsidies more directly to fruit and vegetable growers. USDA's FAS estimates that total EU direct support to POs was approximately $1.8 billion in 1999.
Page 768 PREV PAGE TOP OF DOC Segment 5 Of 5
WGA is a member of the Agricultural Coalition on Trade (ACT), which is comprised of various fruit and vegetable associations. ACT has reviewed the U.S.-EU fruit and vegetable picture since the implementation of the Uruguay Round and has successfully demonstrated that there has been a significant increase in imports from the EU—over 141 percent in quantity and 95 percent in value—while there has been a corresponding decrease—approximately 12 percent in quantity and 16 percent in value—of U.S. exports to the EU.
WGA believes that this disturbing imbalance of trade is due primarily to inadequate attention to the U.S. fruit and vegetable sector in prior trade negotiations such as the Uruguay Round. When the U.S. negotiating strategy is to reduce subsidies, the U.S. fruit and vegetable sector has nothing to reduce and as such our industry stands to gain very little.
Congress can help strengthen the bargaining position of U.S. trade negotiators by strengthening non-trade distorting programs, especially the Market Access Program. WGA strongly supports the maintenance and expansion of the successful Market Access Program (MAP). Specifically, H.R. 98 would authorize $200 million annually for the MAP, $35 million annually for FMD, and allow 50 percent of unused Export Enhancement Program funds to be used for market development and promotion activities. The MAP has proven to be extremely successful in promoting the expansion of U.S. agricultural exports in international markets, especially those in which we face unfair trade barriers. The restoration of MAP funding to the levels of the early 1990's would expand agricultural exports and would also strengthen the U.S. negotiating position in new WTO trade discussions. WGA urges Congress to enact a 2002 farm bill which authorizes $200 million in funding for MAP.
PERISHABLE AGRICULTURAL COMMODITIES ACT
Recommendation: WGA supports the creation of a ''restitution fund'' to help fruit and vegetable shippers recover losses caused by unscrupulous Federal employees as part of the 2002 farm bill.
Page 769 PREV PAGE TOP OF DOC Segment 5 Of 5
The Perishable Agricultural Commodities Act (PACA), which is administered by USDA to regulate trade in fresh produce, but which is fully funded by the industry, is critically important to our industry. PACA has enabled growers, shippers and receivers to move perishable fruit and vegetable crops great distances with assurances that all parties are fairly compensated. In playing a critical role in ensuring an abundant and affordable supply of healthy fruits and vegetables, PACA provides many benefits to consumers, as well as to all sectors of the industry.
HUNTS POINT TERMINAL MARKET CRIMINAL ACTIVITY
While USDA inspectors and wholesalers at the Hunts Point Terminal Market in New York City entered into a massive kick-back scheme to defraud growers and shippers by falsifying inspections of fresh produce over nearly a two decade period, it was heartening to see that all of the inspectors involved in the scheme, and most of the wholesalers' employees, have agreed to plead guilty in criminal proceedings.
Even though WGA is pleased to see that this criminal activity has been uncovered and prosecuted, we remain concerned that growers and shippers will have great difficulty in recovering the substantial financial losses they have suffered due to the Hunts Point criminal activity. While the PACA process permits defrauded shippers to file grievances against the wholesalers in order to recoup losses as a result of this admitted criminal activity, the burden of proof rests solely with the shippers. This has made it virtually impossible to recover fully the losses caused by this criminal activity. In addition to the burden of proof problem, the industry has had the burden of investigating all the inspections by the AMS inspectors who have pleaded guilty. The inspection certificates used for the indictments have been the shipper's basis for filing a PACA grievance, but there remains the investigation of all the inspections made by the indicted inspectors. It has been the contention of WGA that all of these inspections are suspected of being part of the same kickback scheme, and therefore need to be fully investigated by the Federal Government, not by the industry.
Page 770 PREV PAGE TOP OF DOC Segment 5 Of 5
WGA remains highly concerned that shippers harmed by illegal activity on the part of United States employees at the Hunts Point Terminal Market may never recover their losses through PACA and other legal channels. WGA supports the establishment and funding of a ''restitution fund'' which could be used to help already beleaguered shippers recover some or all of their losses caused by unscrupulous Federal employees as part of the 2002 farm bill.
ANIMAL AND PLANT HEALTH INSPECTION SERVICE
Recommendation: WGA supports language in the farm bill to clarifies and enhance the role of APHIS in expanding access to new markets for U.S. agricultural exports.
WGA encourages strong oversight and adequate authorization of funding for one of the most important agencies of the U.S. Department of Agriculture, the Animal and Plant Health Inspection Service (APHIS). This agency provides invaluable assistance to exporters of U.S. agricultural products by working with foreign plant health officials to resolve phytosanitary barriers, which stop or delay our exports. Unfortunately, APHIS's efforts to improve our export picture have been diminished by the growing list of import petitions received from foreign governments eager to export to the United States. In fact, APHIS appears to have made consideration of import petitions a priority at the expense of assisting American exporters. WGA fears that APHIS has somehow strayed from its original mission of focusing on the problems facing our exporters.
Another concern is that the responsibilities of APHIS were increased dramatically with the adoption of the Uruguay Round WTO Agreement (which includes the Sanitary and Phytosanitary (SPS) Agreement), yet the agency's personnel and other resources were not increased at anything close to the level needed. The release last year of the National Plant Board's study, Safeguarding American Plant Resources, makes clear how extensive the needs are at the agency - and how important this agency is to the future of U.S. agriculture.
Given the critical importance of opening new international markets for our fresh produce exports, WGA believes that APHIS should have a specific mandate from Congress to assist U.S. agriculture in these efforts.
Page 771 PREV PAGE TOP OF DOC Segment 5 Of 5
Western Growers is also quite concerned that APHIS is being made subject to political pressures, and is not taking the necessary care required to protect domestic agricultural crops from the risk of pest infestation before approving new import petitions. Exotic pest infestations are much more prevalent than they were even 10 years ago, due to the increased level of international trade. With increased trade comes increased risk of exotic pest infestation, and APHIS must have the resources to confront the task of keeping exotic pest infestations to a relatively low level. Obviously this is necessary if we are to continue to have a successful agriculture industry - for both specialty crops and commodity crops.
WGA believes that Congress, under the auspices of the 2002 farm bill, should undertake a comprehensive review of APHIS activities and adopt a new law which clarifies the role of APHIS with respect to expanding access to new markets for U.S. agricultural exports. Further, Congress must provide the agency with vastly increased resources. There is no more important investment that can be made for the future of U.S. agriculture.
AGRICULTURE RESEARCH
Recommendation: WGA strongly encourages an emphasis for increased agricultural research in the 2002 farm bill.
WGA appreciates the small increase in funding for Federal agricultural research that Congress has provided in the last year or two. However, our industry has two concerns regarding research. First, the Agricultural Extension Service has been decimated over the last 15 years. Their advice and applied research are critical to assisting growers in the development of more efficient ways of growing crops. Many of the long time extension advisors are reaching retirement age, and it is not clear that there is the will to replace them. Secondly, we believe that more funding should be directed towards applied research. As we struggle with changes in pest control, new environmental legislation, and other challenges, applied research has the potential to assist in the development of new solutions to these issues.
Page 772 PREV PAGE TOP OF DOC Segment 5 Of 5
FOOD AND NUTRITION POLICY
Recommendation: WGA believes that provisions to promote the necessity of fresh fruits and vegetables in a healthy diet should be included in the farm bill.
Federal policies on food and nutrition have a direct and indirect impact on the California and Arizona fresh fruit, vegetable and nut industry. WGA is extremely interested in working with the health and nutritional communities in the development of the 2002 farm bill. Programs such as the school lunch program, WIC program and food stamps can all be vehicles for increased deliveries of fresh fruits and vegetables to the American consumer. This in turn provides economic and health benefits alike. While concepts regarding Federal food and nutrition policy are in their embryonic stages at best, some of those ideas that WGA finds intriguing include:
Encouraging schools to purchase directly from growers and shippers.
Incentives for direct school purchasing such as grant funds, reimbursements, et cetera.
Evaluation of the consumption habits of Federal program participants and the impacts on diet and health.
Facilitation of increased sales between schools and farms by matching willing buyers/sellers and qualifying (in accordance with local requirements) the transaction.
Incentives for the purchase of fruits and vegetables with food stamps.
These and other concepts remain open for discussion and hold some level of interest conceptually for the California and Arizona fruit and vegetable industry. Opportunities to increase the sale and distribution of California and Arizona produce and correspondingly improve the diet and health of program participants by providing increased access to fruits and vegetables could be important parts of a 2002 farm bill.
Page 773 PREV PAGE TOP OF DOC Segment 5 Of 5
WGA is optimistic about the prospects for developing an increased presence in the 2002 farm bill for the horticultural crops and specifically for California and Arizona fruits, nuts and vegetables. WGA is committed to working collaboratively to move forward a comprehensive platform for Federal policy reforms that will benefit our sector
SUPERMARKET CONSOLIDATION
Recommendation: Congress should include language in the 2002 farm bill which urges USDA to work with other Federal agencies to discourage further consolidation among retail supermarkets.
Supermarket consolidation is a concern for everyone from the grower to the consumer. The ability of the supermarket to drive farm-gate prices down and drive retail prices up when a supermarket chain dominates the market is economically unacceptable. Unlike non-perishable consumer products, a family farmer with a perishable crop ready for harvest does not have the alternative of waiting for prices to rise. The immediate requirement to market the product is further complicated when the market is dominated by a few large chain supermarkets. The trend of retail supermarkets demanding off invoice fees from growers/shippers of fresh produce is evidence of market power, which puts family farmers at a great disadvantage.
FEDERAL CROP INSURANCE
Recommendation: WGA recommends that no revenue/income crop insurance policies should be approved for the fruit and vegetable industry.
WGA remains cautious regarding the Risk Management Agency's efforts to expand crop insurance and other risk management proposals into the produce industry. In particular, producers of crops which have not had access to crop insurance coverage in the past are vulnerable to market disruptions if a new crop insurance program is not designed properly and implemented effectively. WGA believes that programs that ''protect'' producers from harm must be carefully developed and implemented so that they provide protection from catastrophic losses, but do not disrupt the competitive playing field for fruit and vegetable markets.
Page 774 PREV PAGE TOP OF DOC Segment 5 Of 5
This latter point is critical. The fresh fruit and vegetable industry is characterized by a free and open market where producers can compete on a level playing field unfettered by government intervention. WGA will always remain firmly opposed to programs that might disrupt or distort these traditional marketing patterns or would provide artificial signals or stimulants toward increased acreage and supply.
Western Growers Association appreciates the opportunity to submit this statement and hopes that the Committee seriously considers these recommendations. We look forward to working with the Committee and its members on the development of the 2002 farm bill.
Fresh Fruit & Vegetable Answers to Submitted Questions
In their testimony before this committee, the American Farm Bureau Federation proposed counter-cyclical payments to producers of fruits and vegetables (up to $1.5 billion annually). Is this something you recommend against doing? How did you arrive at this decision? Is there division in the industry on this issue?
As part of the Farm Bill Working Group efforts over the last 9 months, extensive discussion focused on the issue of direct government payment programs for fruit and vegetable growers. Several options were considered including counter-cyclical type programs, a proposal to counterbalance European Union horticultural subsidies, and even allowing fruit and vegetable growers to become eligible for AMTA payments. Based on the Working Group's deliberations, it was decided to give top priority to policy objectives that drive demand, utilization and consumption of produce. Therefore, the other programs mentioned were not deemed to meet the criteria set up by the Working Group and were not included in the recommendations submitted. The Working Group also indicated strong support for Congress to utilize the farm bill as a tool to allocate funding that ensures the produce industry receives a proportionate share of outlays for industry priorities. We are hopeful that the committee and its members will work with the produce industry toward this goal.
Page 775 PREV PAGE TOP OF DOC Segment 5 Of 5
Regarding the American Farm Bureau Federation counter-cyclical proposal, the Working Group and other produce industry interested parties examined the Farm Bureau proposal, and we collectively appreciate the effort of Farm Bureau to recognize the importance of including the produce industry in the current farm bill debate. Unfortunately, the produce industry has indicated strong reservations regarding this program, specifically, this proposal:
(1) Establishes a Government-mandated petition process for funding eligibility that seems to be dictated by USDA bureaucratic red tape and extensive paperwork;
(2) Would pit farmer-against-farmer and commodity-versus-commodity, competing to justify why their economic plight is greater, only for a small portion of a finite amount of funding.
(3) Could allow for planting decision to be dictated, thus overproducing certain commodities, based on the 75 percent farm revenue requirement; and,
(4) Could manifest a system of abuse and fraud by growers who want to manipulate planting decisions based on commodities receiving payments (i.e. watermelon pilot program).
More importantly, the Farm Bureau proposal list justifications as to why the produce industry is experiencing weak economic conditions. The Working Group has failed to understand how their counter-cyclical program would work to alleviate these conditions. The Working Group has addressed these concerns and provided the House Agriculture Committee specific recommendations to increase international market access for our products; stronger plant and pest disease eradication programs; investments in our research priorities for crop protection tools; and, environmental stewardship incentive programs for water quality and conservation practices.
As with any proposal that is presented, or legislation that is developed and introduced, there will always be concerns raised regarding its effectiveness, and this is true even with the proposals we presented. However, what we have presented the House Agriculture Committee is the most comprehensive effort to date to develop farm policy recommendations for the committee to consider as part of the farm bill process. This proposal is a consensus document that was developed over a nine-month period and considered and endorsed by over 30 regional produce associations, commissions, and commodity boards representing thousands of growers from every fruit and vegetable growing region in the United States. For your review, a roster of the Farm Bill Working Group and United Fresh Fruit & Vegetable Association's Allied Council, the primary architects of the farm policy recommendations presented to the committee, is attached for your perusal.
Page 776 PREV PAGE TOP OF DOC Segment 5 Of 5
You state that the current FAIR Act planting restrictions for fruit and vegetables on contract acres or farms with contract acres that did not have a planting history should be maintained. This provision represented a reduction in planting flexibility in the 1990 farm bill that permitted fruit and vegetable production on so-called flex acres, which were ineligible for deficiency payments. The FAIR Act restrictions were based upon the contention that fruits and vegetables receive no direct government assistance, unlike PFC crops, and should not be forced to compete with government-subsidized production. Yet, last year, producers of fruits and vegetables, such as apples, potatoes and cranberries, received income assistance for low prices. How do you reconcile this apparent inconsistency with maintaining the planting restrictions?
For the first time in recent memory, certain fruit and vegetable commodities were successful in obtaining direct government economic assistance through the FY2001 Agriculture Appropriation process. These payments were based on a one-year emergency contingency and not considered permanent changes in agricultural policy established through the 1996 FAIR Act. As is the case with other commodities receiving over $27 billion dollars in supplemental relief over a three-year period, no changes were made to the programs and policies they currently operate under as a result of the 1996 Act. Therefore, there is no reason to make changes to the current planting restrictions for fruits and vegetables established under the 1996 FAIR Act based on this short-term emergency funding. Moreover, short-term emergency actions should not challenge longstanding safeguards provided by the flex-acre provision to the fresh produce industry in protecting non-subsidized producers from competing with subsidized producers.
It goes without saying that the domestic fruit and vegetable industry is facing significant and direct competition from foreign subsidized fruit and vegetable producers. Therefore, we believe it would be prudent for Congress to consider the policy implications of allowing subsidized domestic agriculture producers to compete side-by-side with subsidized foreign producers against the U.S. produce industry and thus providing an increasingly uneven playing field.
Page 777 PREV PAGE TOP OF DOC Segment 5 Of 5
Nevertheless, the committee does pose an interesting question regarding how the relationship between the short-term relief provided certain fruit and vegetable commodities with the current flex-acre provision should be considered. First and foremost, the produce industry consistently supports the policy that any farmer should have the opportunity to plant fruits and vegetables as long as they forgo any current or expected payments based on the 1996 FAIR Act. However, if Congress believes that challenging longstanding safeguards provided by the 1996 provision in protecting fruit and vegetable producers from competing with subsidized farmers is a viable policy consideration, we would welcome the opportunity to work with the committee. An example could be the development of language that would provide protections for those producers who opt not to receive such assistance who could be unjustly injured as in the present flex-acre provision. Additionally, we also encourage the committee and Members of Congress to strongly scrutinize any further attempts to seek short-term economic relief by produce industry commodities, specifically, questioning the long-term policy implications these payments could have on these particular commodities.
You indicate that you would like to increase the authorization level for the CRP to 39 million acres, yet you only allot $182 million per year over the baseline to accomplish this. How did you arrive at the $182 million figure to carry this out?
The increase in Conservation Reserve Program (CRP) acreage is based on discussion within the produce industry relating to how to best utilize the CRP. It is agreed that conservation buffers, filter strips, and increasing the state designation of CRP priority areas from 10 to 15 percent would account for the 2.6 million acre increase in CRP. The associated increase in funding outlays for the CRP program over the current baseline is the industry's, based on discussions with conservation organizations and the President's fiscal year 2002 budget proposal. We welcome the committee's attention into the specific budgetary justification for this increase and look forward to working with you.
Page 778 PREV PAGE TOP OF DOC Segment 5 Of 5
You also state your support for a new program like the Conservation Security Act (CSA). You have only allocated $200 million per year for such a program. Are you aware that the rough estimates for running a program like the CSA have been in the billions of dollars per year? Also, some of the groups who are supporting CSA want it to be a true entitlement program with an open-ended funding stream. In light of this do you feel that your $200 million figure is a little low?
The program set forth would establish a pilot program that could be utilized by fruit and vegetable farmers across the country, and do recognize that other policy proposals, such as the Conservation Securities Act (CSA), are substantial in their budgetary outlays. We are presently reviewing the CSA and how the produce industry could utilize this legislative proposal. In turn, the concept of environmental stewardship payments has been discussed by the industry and should be considered as well, however, no policy decisions regarding this type of conservation program have been made.
Are you aware that the backlog level of unfunded applications for the Environmental Quality Incentives Program, which is authorized at $200 million per year, is currently $1.3 billion?
Yes, we are aware that there are approximately 196,000 unfunded EQUIP proposals currently awaiting approval, and add that this is one of the few conservation programs that the industry strongly supports and utilizes. Given the industry's active participation in this program since its inception, we strongly support increased funding for this worthy program.
In your testimony you reference a number of research projects that you would like to see the USDA specifically authorized and directed by Congress to conduct. You may be aware that there is also an effort underway by a number of agricultural producer and research organizations to double funding for the total Federal research effort currently focused on all of agriculture. This coalition is encouraging Congress to increase the generic funding for agricultural research and then to allow the competitive priority-setting within the various programs to allocate dollars efficiently. Would such a generic increase in funding for USDA competitively-awarded research programs meet the needs of the fruit & vegetable industry? Or are there structural problems with these competitively-awarded grant programs that makes them less helpful to your industry?
Page 779 PREV PAGE TOP OF DOC Segment 5 Of 5
We agree and fully support the doubling of agricultural research funding as supported by the C-FAR coalition. However, we believe that the priorities of the produce industry as outlined in our testimony have not been adequately funded in the past, including the competitively-awarded research process or direct research projects offered by USDA. Therefore, we recommend that this issue be appropriately addressed in any legislation considered by the committee to double agriculture research funding.
In your testimony, you state that net fruit and vegetable trade, exports net of imports, was $1 billion in net imports in 1997. Yet the figures you present raise questions. You state that grower-shippers imported $2.6 billion and merchant wholesalers imported $1.5 billion, a total of $4.1 billion fruit and vegetable imports in 1997. Grower-shippers exported $1.6 billion and merchant wholesalers exported $3.1 billion, according to your testimony, for a total of $4.7 billion of fruit and vegetable exports in 1997. This sums to a net export amount of $0.6 billion. Would you please clarify this discrepancy?
Our submitted testimony specifically states that, ''exports by both grower-shipper ($1.6 billion) and merchant wholesalers reached $3.1 billion in 1997''. Thus, exports by grower-shippers totaled $1.6 billion and exports by merchant wholesalers totaled $1.5 billion, not $3.1 billion as was ascertained in the question posed. We apologize for any confusion in the structure of the text submitted.
We hope that these answers satisfy all of your questions. However, please don't hesitate to contact me with additional questions, and comments.
THE FUTURE OF FEDERAL FARM COMMODITY PROGRAMS (NATIONAL FARMERS ORGANIZATION)
Page 780 PREV PAGE TOP OF DOC Segment 5 Of 5
THURSDAY, MAY 3, 2001
House of Representatives,
Committee on Agriculture,
Washington, DC.
The committee met, pursuant to call, at 9:36 a.m., in room 1300 of the Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives: Smith, Lucas of Oklahoma, Chambliss, Moran, Gutknecht, Johnson, Rehberg, Graves, Kennedy, Stenholm, Peterson, Dooley, Clayton, Etheridge, Boswell, Phelps, Lucas of Kentucky, Hill, Acevedo-Vilá, and Shows.
Staff present: Alan Mackey, John Goldberg, Callista Gingrich, clerk; Elizabeth Parker, Anne Simmons, and Howard Conley.
STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
The CHAIRMAN. The hearing will come to order.
Good morning and welcome to the last in our series of hearings where we have asked commodity and farm interest groups to present very specific policy proposals to our committee.
Over a year ago we began a deliberate process of examining the current state of the Nation's agricultural economy and the impacts of Federal agricultural policy. At first we heard from producers of all types of crops and livestock from all segments of the country through the series of field hearings that we held last year. This year, we invited the commodity and farm interest groups to present specific recommendations about the changes that they would like to see enacted in farm policy. Witnesses were expected to explain in detail how their recommendations would affect related industries, our ability to move product in the export market, and the effect on the farm program expenditures, and WTO obligations.
Page 781 PREV PAGE TOP OF DOC Segment 5 Of 5
After today, 15 organizations will have taken the opportunity to develop a consensus approach within their organization and present testimony to the committee. Now, it will be time for the committee to digest these many ideas and the work to produce a farm policy that is in the best possible situation and provides the best possible solution for the economic problems facing American producers today.
This will not be an easy task, but the members of this committee are dedicated to the American farmer, and I am confident that when all is said and done, we will find a solution that will sustain a strong and vital agriculture sector for America's future.
Now, last, but certainly not least, we have Ms. Linda Reineke. She is the national director of the National Farm Organization, joining us to present testimony on behalf of the NFO. Accompanying Ms. Reineke this morning is Mr. Gene Paul, dairy policy analyst for the National Farmers Organization.
I would like to welcome the witnesses to the table. I would note again that all Members' opening statements will be made a part of the record.
[The prepared statement of Mr. Smith follows:]
PREPARED STATEMENT OF HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Thank you Mr. Chairman, for holding this hearing today to review and discuss the concerns of the National Farmer's Organization regarding the next farm bill. NFO has been a strong voice in the agricultural community for many years, and is very active in my home State of Michigan. Their activities as contract negotiators on behalf of their member farmers gives them a unique perspective on the problems facing the agricultural industry. Their Strategic Food Security System proposal is a different approach than many of the producer groups that have come before the committee have proposed. A supply-side approach to influencing prices may prove difficult in today's globalized agricultural economy, but I am looking forward to some productive discussion today on these issues. As we work to find solutions for the ongoing challenges in American agriculture, we will need to consider all of the many different viewpoints that have been brought before our committee in the past 4 months.
Page 782 PREV PAGE TOP OF DOC Segment 5 Of 5
DeVere Noakes, an NFO leader in Michigan, asked that we assist in arranging for this hearing. I suggest to my colleagues that the National Farmers Organization has been doing a good job in serving their members. My reading of the NFO proposal includes the following:
NFO proposes a ''Strategic Food Security System and Tax Savings Plan.''
The proposal intends to increase prices for farmers through increased storage of grain via government storage subsidies.
Specifically, the USDA would allow season ending stocks of grain exceeding 10 percent of the current stocks-to-use ratio to be admitted into the grain storage program (farmers to be paid 25 cents/bushel annually for storage).
The grain within the system could not be released until a certain floor price was reached.
If prices did not reach the trigger price within 3 years, the farmer would have to reapply for storage funding or forfeit the grain to the CCC in exchange for loan cancellation.
NFO estimates this proposal would save billions of dollars through the elimination of AMTA, LDP, and market loss payments
They also propose setting an $11.08 floor for class III and IV milk. (estimated cost $6.2 billion).
Please let me know other provisions and/or corrections of my summary. Thank you Mr. Chairman.
The CHAIRMAN. Ms. Reineke, welcome.
STATEMENT OF LINDA REINEKE, NATIONAL DIRECTOR, GRAIN DEPARTMENT, NATIONAL FARMERS ORGANIZATION
Ms. REINEKE. Thank you. Good morning, Mr. Chairman. I am Linda Reineke, director of the Grain Department of National Farmers Organization. With me today is Gene Paul, who works as a policy analyst for our Dairy Department. We thank you for the opportunity to speak to this committee on U.S. farm policy.
Page 783 PREV PAGE TOP OF DOC Segment 5 Of 5
For 55 years, NFO has served as marketing agents for our members who are involved in grain, livestock, dairy, and specialty grain production from Maine to Washington State. I believe we are the only organization testifying to this committee who markets the commodities for farmers. Every NFO member is a farmer, as is our management, including our board of directors and our president. This gives NFO a somewhat different perspective.
We develop personal relationships with our producers and they entrust their livelihood to our marketing personnel. Because of that obligation, that responsibility, we have studied market tendencies from every aspect. The farm bill is one of the most important factors in determining marketing trends in grains.
Because of growing populations and expanding uses for our renewable resources, we really only have a very small supply of our commodities. In the United States, we only have a 67-day supply of corn, a 43-day supply of soybeans, and a 121-day supply of wheat left over this year. The world supply of grain is less than a 70-day supply of all commodities.
NFO proposes establishing a Strategic Food Security System in conjunction with eliminating the Marketing Loan Program and implementing the Flexible Fallow Program, H.R. 32, and the Conservation Security Act, H.R. 1321. These simple changes would be price-supportive and cost-efficient, saving taxpayers as much as $20 billion in LDP, marketing gain, AMTA, and other market-loss assistance payments.
A Food Security System in the United States would provide consumers security in our grain system for industrial, feed, and food usage, be price-supportive for the agricultural commodities, and save taxpayers as much as $20 billion through reduced payments to farmers.
The grain put into the Strategic Food Security System would be grain that had been under the CCC 9-month loan. The USDA would allow ending stocks of grain exceeding 10 percent of the current stocks-to-use ratio to be admitted into the Food Security System. Farmers would be paid 25 cents per bushel annually for storage and to maintain quality. The grain in the Food Security System could not be released into the market until certain price levels were achieved, indicating a demand in the market had increased due to a shortage of available supply.
Page 784 PREV PAGE TOP OF DOC Segment 5 Of 5
And the trigger prices would be set on these prices. Trigger prices reduce volatility in the market because of the release of supplies to end users during emotional shortages, eases concerns of unavailability of supply, and of prices inflated by emotion. Suggested trigger prices would be $3.25 per bushel on corn, $6.50 per bushel on soybeans, and $4 per bushel on wheat.
The issue of food security is a green box exemption within the agreement on agriculture. Our domestic usage is a large part of our utilization on all grains. Therefore, securing a supply for internal use during periods of low stocks, would be an important social objective and would not distort trade. The green box allows for expenditures in relation to the accumulation and holding of public stocks for food security purposes.
We support H.R. 32, the Flexible Fallow Program, introduced by Mr. Bereuter and Mr. Schaffer. Farmers having the choice of reducing the percentage of their normal crop acres planted in return for a higher loan rate would be within the blue box exemptions of our trade agreements, encouraging increased conservation measures and best management practices. Rising costs of inputs are a natural catalyst to reduce acres in return for higher loan rates. The current marketing loan encourages increased production and acres planted, which increases the LDP and marketing gain payments to farmers.
Our domestic livestock and dairy industry is the biggest customer for grain producers. Feed usage accounts for almost 60 percent of our total usage. The deviation in prices shown on chart 3, on page 3, and the prices between hogs and milk and dairy in my statement coincides with the utilization of the loan deficiency payment and marketing gains first received by grain farmers in late 1998. Therefore, the effects of eliminating the LDP would be to simply return to a system of paying the full cost of their inputs by the livestock industry, as was the case prior to 1998, rather than being subsidized by LDPs.
Independent dairy producer income has intermittently dropped below the cost of production for several years. Like in other commodities, we have seen many herd dispersals recently in most dairy areas because of the devastating impact of the $10 per hundredweight milk last fall on the local dairy industry and the infrastructure of those local communities. Since the U.S. dairy industry, for the most part, produces for domestic consumption, it would seem that it would be relatively easy to put in place legislation that would bring stability and prosperity to the entire industry.
Page 785 PREV PAGE TOP OF DOC Segment 5 Of 5
Programs that could be most beneficial to dairy producers are in the areas of animal health and disease control, class III Supplemental Payments, and Trade Regulations.
Class III and class IV supplemental payment component of this program would authorize the use of CCC funds to augment revenue in Federal and State milk marketing order pools to ensure that class III and class IV revenues per hundredweight are not less than $11.08. This program is truly counter-cyclical in nature in that producers would receive no payment unless class III and class IV prices have fallen to $11.08 per hundredweight.
There are various legislative proposals being offered along these lines that vary somewhat in the formula used, but they would establish a type of floor under milk prices. The analysis of the costs and benefit in appendix 3 and 4 of the statement is taken from the National Milk Producers Federation testimony on April 5, 2001. We concur with this analysis.
National Milk Producers Federation estimated that in the most expensive year of the plan, dairy's contribution to the U.S. amber box will total $6.3 billion. This amount represents an additional $1.8 billion to our current average U.S. notification of $4.5 billion for the amber box.
In the United States, we have several animal health and disease control programs, such as bovine tuberculosis and swine psuedorabies. We believe we have a need for funding to control and eradicate a serious concern for our domestic dairy producers, Johne's disease. The proposal we support would help fund a national voluntary program under which the cost of testing a farmer's herd for Johne's would largely be underwritten by Federal money and administered by the USDA through the States. The program would also provide funds to indemnify producers against the economic loss of animals that test positive.
We propose that animals found to be infected with Johne's be sent to rendering plants as opposed to meat-packing facilities. This will be done to avoid any disruptions to the beef cattle market and to avoid any perception issues with animals testing positive for Johne's and subsequently entering the food supply.
Page 786 PREV PAGE TOP OF DOC Segment 5 Of 5
The cost of the program over 7 years is estimated to be $1.3 billion, or approximately $191 million per year. This program would be available to both dairy and beef cattle producers.
In the area of trade, the importation of Milk Protein Concentrates is causing a great deal of concern among dairy producers because of its impact on milk prices. The Government Accounting Office detailed this concern in a recent report. They found that limiting MPC and casein imports to their calendar year 2001 levels would reduce Government costs by $874 million over the 2002 to 2008 period, and would increase dairy producer income by $694 million over the same period.
Congress should enact legislation to prevent the circumvention of dairy tariff rate quotas at a cost savings of nearly $900 million to the U.S. taxpayer.
We know that not any one of these proposals, nor the combination of the three, result in a quick fix for U.S. milk prices, but would provide some market stability. National Farmers Organization continues in our belief that equitable milk prices must be obtained from the marketplace and that the use of collective bargaining and the formation of marketing agencies in common can best accomplish these goals. Thank you.
[The prepared statement of Ms. Reineke appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much. I am sure other members have, as I have, been looking over a variety of the suggestions that had been made, the discussions we have had in our hearing process here, as well as out in the field. And from my own standpoint, looking over recently the concept of flexible fallow—and I am bringing it up to you since you specifically mentioned that. We have had some suggestions of that, of the committee looking at that, as we have gone through the hearing process. But I have some questions and so all I want to do is to see how exactly how it was that you were proposing that. Would the basic idea of a flexible fallow, in your mind, be to reduce production or would it be for a farmer income assistance?
Page 787 PREV PAGE TOP OF DOC Segment 5 Of 5
Ms. REINEKE. It would be to reduce production. And it would be the farmer's choice.
The CHAIRMAN. Right. All right. And you mentioned that what you would do would be for each additional 1 percent of acreage that one set aside, they would be eligible for a higher loan rate.
Ms. REINEKE. Yes.
The CHAIRMAN. One percent of what?
Ms. REINEKE. One percent of the base acres that they normally plant.
The CHAIRMAN. That they normally have planted over the past several years.
Ms. REINEKE. Past 5 years. Yes.
The CHAIRMAN. The previous 5.
Ms. REINEKE. Yes. And then give them the freedom to decide what commodities that they want to plant. But reduce the total crop acres.
The CHAIRMAN. This is where then that question came up. If you have got a quarter section on a center pivot, 160 acres, and without any kind of allotment process for the past several years, what could happen and what has happened in a lot of cases. Let us just take cotton, for example. If you plant that quarter section in cotton, that 160 acres, you have 132 acres under irrigation. You have got four corners that would be out around 7 acres a corner. So you have got 132 acres under irrigation. You have got 28 acres in that under dry land. What would you use as the base for reduction, the total quarter or the amount under irrigation?
Ms. REINEKE. What would they be using now, or what was originally used. It would be the entire 160 acres——
The CHAIRMAN. Well, what was used before the current farm program was that there was a specific allotment, in which most of the times, at that point in time, the corners were left out. But under the past several years, they have not had an allotment and, therefore, they have been able to plant it total.
Page 788 PREV PAGE TOP OF DOC Segment 5 Of 5
Ms. REINEKE. I would say if they have been planting it, then that would be considered cropland that they would have to——
The CHAIRMAN. OK. So, in reality, what you could do, however, would be on that farm is, you could leave out your corners and, in that case, if you left out 10 percent of that quarter, it would 16 acres. If you left out 20 percent of that quarter, it would be 32 acres. So in reality, what you could do would be to qualify for leaving out 20 percent of your acres and still basically put it all under irrigation. And the question I have got is, is that how is that actually going to address the production side of the equation if you are irrigating the same amount you were and qualifying for that by just leaving out primarily the corners that were dry land anyway, how is that going to reduce production?
Ms. REINEKE. Well, that is going to reduce production because the acres that were planted on the corners probably were planted, correct?
The CHAIRMAN. Right.
Ms. REINEKE. But they weren't producing as well as the others. And this would promote good environmental, good best management practices, by letting those outside areas return to natural growth and to natural soils.
The CHAIRMAN. The argument I am making in this and the question I have got is—and that is why I am trying to decide exactly what it is when people are recommending flexible fallow. If it is just as an income level, the farmer would be able to receive—and by laying out 20 percent, would be able to receive a higher loan payment, but, in reality, they are going to be producing as much. Set-aside never reduced production. All it did was take acreages out of production. It did not reduce overall production, because generally what happened was that people would put more inputs into the land they were farming as I think would on this quarter section of cotton. And in terms of it actually affecting production, which overall then it affects price, I really am questioning whether it would get there. I am not arguing that it is not a concept we should consider.
Page 789 PREV PAGE TOP OF DOC Segment 5 Of 5
Ms. REINEKE. Yes.
The CHAIRMAN. I just think we need to look ahead, that if we are going to use a Flexible Fallow Program or something of that sort, in order to decrease production, I don't think it is going to have as much of an impact on overall production, as it might appear, just by saying all of a sudden you have got 20 percent of your acreage left out. In that case, I don't think it is probably going to make a difference in a bail of cotton.
Ms. REINEKE. I am not familiar with cotton. I am sorry.
The CHAIRMAN. Corn—anything we want to use—any example you want to use.
Ms. REINEKE. I believe in most areas of the country, it would promote best management practices and discourage the planting of acres that probably need to be in some sort of ''set-aside'' anyway.
The CHAIRMAN. You don't recommend any mandatory set-aside.
Ms. REINEKE. No.
The CHAIRMAN. OK. Mr. Stenholm.
Mr. STENHOLM. In your testimony you propose a Food Security System arguing that it would be price-supporting.
Ms. REINEKE. Yes, sir.
Mr. STENHOLM. You cite the declining price trend for corn, falling from $2.64 in 1989, to $1.80 in 1999, as U.S. ending stocks decline from 26.5 percent of total use in 1989, to 18 percent in 1999. However, if you consider world stock-to-use ratios, the relationship is reversed. World stock-to-use ratios increased from 15.4 percent in 1989 to 20.7 percent in 1999, as U.S. farm prices fell from $2.64 to $1.80. During that period, U.S. share of world market stocks also declined from 46 1/2 percent to 39.8 percent. The United States, in effect, allowed other countries to hold a greater share of world corn stocks in 1999 than in 1989.
Page 790 PREV PAGE TOP OF DOC Segment 5 Of 5
Considering both the smaller level of U.S. stocks, and the share of world stocks, how do you address the assertions that stock building in the United States would reduce stockholding by other countries with no increase in price?
Ms. REINEKE. I believe the current estimated world-ending stocks for this year is back to 16 percent for the year 2001, is what is being projected. The fluctuation in supply in the world—it appears that the world stocks are being eaten up rather quickly, and I feel it is a security—it is in the best security interests of the United States. The producers of livestock, of ethanol, all our domestic users, need to have security when we have some shortage of supply, because 80 percent of our corn usage is domestic usage. And I think that we need to assure them that we are able to supply them with the product that they need in case of a manmade or natural disaster.
Mr. STENHOLM. like the chairman's first question on flex acres, I like the concept, personally, but we have a history of it not working very well. We have a history of selling set-asides, diverted acres, and they have never worked like we hoped they would. If we do a flex fallow, I would like to see it work. I happen to like the idea of a food security reserve. I think it makes sense and I think that we can. The question though is, how do we make it work in an international marketplace? You mentioned $4 for wheat, I believe, is your target.
Ms. REINEKE. Correct.
Mr. STENHOLM. How are we going to sell wheat for $4 when the Australians have got a 50 percent advantage over us on the currency value alone? How are we going to sell wheat into the international marketplace for $4 when they have got a 50 percent advantage over us just on the value of their dollar?
Ms. REINEKE. Well, that $4 is a trigger price.
Mr. STENHOLM. Which means it sits in the reserve until somebody pays us 4 bucks.
Page 791 PREV PAGE TOP OF DOC Segment 5 Of 5
Ms. REINEKE. That is right.
Mr. STENHOLM. How are we going to get somebody to pay us 4 bucks when the Australians——
Ms. REINEKE. I believe that that $4 is—any of those trigger prices are the—that is what the—what happens when we have a shortage.
Mr. STENHOLM. When we have a shortage.
Mr. REINEKE. Yes.
Mr. STENHOLM. You are correct. But how are we going to achieve a market situation in which there will be a shortage if we are the ones doing the cutting back without somebody else also participating in the same system?
Ms. REINEKE. That is hard to predict because you can't predict a drought or a quality problem.
Mr. STENHOLM. But hasn't that been the overall problem of the NFO approach—which, again, I happen to like cooperative marketing. I happen to believe that is one of the tools that farmers are going to have to learn to use better. But I don't think your track record has been nearly as successful for your members as you would like it to have been. I believe that is a safe way to put it.
Ms. REINEKE. Regarding what, sir?
Mr. STENHOLM. Price—enhancement for your membership, who have chosen to market their products cooperatively through the NFO system in the United States. Or this would be a good opportunity for you to give me some success stories so that you might enhance your membership.
Ms. REINEKE. Sure. Since 1989, we have been marketing the grain products for our producers in the top third of the market, other than we missed 1 year—the volatility of 1996. But actually, I believe in doing a good job of marketing the product for our producers.
Page 792 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. STENHOLM. But how are we going to use a reserve if the United States is the only one having a food reserve—how are we going to achieve the kind of prices without encouraging production elsewhere in the world, which clearly has been the track record that we have to deal with?
Ms. REINEKE. I don't think we have the ability to discourage the expansion in the rest of the world anyway. I think they are going to expand. I think that we need to rely on some research and development to try to utilize more of our products, especially wheat, it seems to be—is a big—export is one of the things we rely on for wheat. I think 45 percent of our usage on our wheat is for export.
But some research and development that perhaps promotes usage of those products and any excesses in the reserve for use domestically. As the expansion—the 2.3 billion bushel expansion in usage in corn since 1989. I believe that the other products, the other commodities, probably have areas that they can expand into too, and we need to be encouraging that.
There also seems to be a natural tendency, and I am sure you are aware of it, if there is cheap wheat prices, it encourages more feeding of wheat also. Because of the limited amount of—well, we really don't have a big supply of corn. I think that if the corn prices would start easing up, the wheat switches over and gets fed too. Those sort of switch-offs occur when various commodities encounter shortages. So I would say that research and development is one of the reasons, or one of the ways, that we need to encourage further usage of those commodities.
The CHAIRMAN. Mr. Smith.
Mr. SMITH. Thank you, Mr. Chairman. Back in the early 1970's, there was a strong feeling and strong economic recommendations that the additional storage that we had in this country at that time was hung, if you will, over the market, and had the effect of depressing prices. So through the Earl Butz time at USDA, there was a strong policy decision to get rid of the storage, to better allow the market to work. And I guess my question would be, what do you see is the potential danger of this increased storage again being sort of a lid over the market because they know if they exceed that trigger level, then there is a new flood of grain or rice or cotton or whatever commodity back into the market?
Page 793 PREV PAGE TOP OF DOC Segment 5 Of 5
Ms. REINEKE. I don't believe it hangs over the head of the producers when there is a supply being held out there for a specific price. I think commodity prices achieve those trigger levels when it is needed in the marketplace. And, in fact, it tends to take some of the emotion out of the marketplace in that, if prices rise to those levels or if end users know they need the product, that it is there for their use, but they have to pay the higher price. It is a very supply and demand-oriented market. That if the price goes higher, they need the product, then it is released into the market and used as they need it.
Mr. SMITH. That would be somewhat different than sort of the experience through the 1960's, where we had—I guess, is there any difference between the 1960's program in terms of releasing that stored grain as opposed to what you are suggesting now?
Ms. REINEKE. No. Not at what I have looked at now. I think it is pretty close to the same.
If there is a build-up of stocks in a Food Security System, we had the pick and roll in the past that helped reduce that reserve. We have had a long run of good crops. We can't rely on mother nature to let us have a good crop every year.
Mr. SMITH. Well, let me just say that DeVere Noakes, who is an NFO leader in Michigan, asked me to assist in encouraging the opportunity to NFO to testify today.
Ms. REINEKE. Yes, sir.
Mr. SMITH. And I have respected the service that NFO has done for many of their members in the marketing area. And I applaud you for coming in with an idea that isn't simply asking for more Federal money. I think the greater challenge for farmers in this country, is trying to compete with other countries that are determined to subsidize their farmers even more than we are subsidizing our farmers in this country. And then their extra production goes into what otherwise would be our markets.
And so I question a little bit us reducing production without some kind of a comparable effort in other countries. And in the long term, if we could work together with these other countries and farmers and farm organizations and farm policy could reduce worldwide production, there is no question that all countries would see a greater advantage to having the reimbursement for farmers come from the marketplace rather than from Government programs.
Page 794 PREV PAGE TOP OF DOC Segment 5 Of 5
Ms. REINEKE. Thank you, sir. I agree with that.
Mr. SMITH. And I would yield back. Mr. Chairman. Well, and maybe I didn't understand, just following up in the last minute with Mr. Stenholm's question of if we reduce production, why aren't other countries going to fill that gap, whether it is Brazil on soybeans or other parts of the world on other commodities?
Ms. REINEKE. I think that other countries are going to expand their production no matter what we do. I don't think their costs of productions, for example, is so different than ours and a lot less than ours, that I don't think we can discourage them from planting more. They are going to continue expansion.
Mr. SMITH. Maybe if I can direct a question to Mr. Paul. I introduced the bill in the House—the Senate bill went through—that said in milk marketing, we need to have a greater reporting from all of the cheese sold, rather than the small percentage that we are depending on. As the farm price of milk has gone up this last month, what do you see as the future of the milk industry and would these kind of prices negate your suggestion that we really need to increase the floor price on milk?
Mr. PAUL. I believe that at the present time, or as we are starting to see the milk prices go up, I think it is a good time to put some floors under that market. When we look into the future this year, we see that milk production is going to be short. I think that with the hot weather coming on, with the tremendous amount of sell-outs that we have seen in various areas, I think milk production is going to be short. I think we are going to see a very strong cheese market. We have seen a very strong butter market. But as the experience we have seen in the past, is we have some extreme volatility in those prices. They go up, but then they come down to disastrous levels. So I think now would be the time to put some type of a floor in place.
Mr. SMITH. Thank you. Thank you for being here. Thank you, Mr. Chairman.
Page 795 PREV PAGE TOP OF DOC Segment 5 Of 5
The CHAIRMAN. We will take a brief recess for Members to go over and vote and return as quickly as possible.
Mr. BOSWELL. Mr. Chairman could you just yield me a second before you recess?
The CHAIRMAN. The gentleman is recognized for 1 second.
Mr. BOSWELL. I just want to welcome Linda Reineke here. I happen to know Messina, IA, where she lives, and it is a beautiful little community, a little town, that sets on the southern slope. And good farmers. And, Mr. Stenholm, I can tell you that she has got a good crew for marketing that works in her department. And so I am glad they have come and shared. I don't know that we have got a solution here yet, but I think with the questions that have been shared with you, Linda, and so on, go back and put your mind to that too and respond back to us. It will be very helpful. And thank you for——
The CHAIRMAN. Would the gentleman go ahead and utilize his time? I think we would have time for your questioning before the vote.
Mr. BOSWELL. I am not going to question. I think I will just leave it there. But I think it would be important for you to go away, when you do today, after we have had the discussion, and offer back to us, if you have something, because both the chairman and the ranking member have made some very good points, as well as Mr. Smith, and we would like to hear from you.
Ms. REINEKE. Thank you. I will.
The CHAIRMAN. If our guests would just relax for a few moments, we will be back.
[Recess]
The CHAIRMAN. We will resume. Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman.
Page 796 PREV PAGE TOP OF DOC Segment 5 Of 5
Thank you, Ms. Reineke, for your testimony. I want to focus on the dairy stuff a little bit, and I guess that is maybe Mr. Paul's area of expertise. And welcome, Mr. Paul. I appreciate everything that you have done over the years for agriculture. The proposal that you have got in the testimony is pretty close to what National Milk proposed. It is the same thing, basically.
Mr. PAUL. That is correct.
Mr. PETERSON. My concern is whenever we get better prices it seems like we get a lot of extra production primarily in the west and, as I understand it, most of the CCC purchases that have gone in have come out of the west. My concern is that if we raise the floor price for class III milk, given, for example, what California has for a system where they have got—still have quota milk that are supporting certain of their producers—without having some kind of an inventory management system, or whatever you want to call it, coupled with this $11.08 floor price, I am just a little bit concerned that we are going to end up getting a lot of extra production out west as a result of that policy. And I just would like your take on whether you think that is something we ought to be concerned about and——
Mr. PAUL. Well, I think that is something that is entirely possible and we have always supported a supply management, inventory management program, whatever terminology you want to use. And I think that, perhaps, in conjunction with this class III proposal, now would be a good time to put some type of supply management program in place. I know that at various times we have had some assessment programs and so on, but I believe that perhaps something could be worked in conjunction with this class III proposal that payments would be made to producers providing they did not increase over a certain percentage. But we would certainly support some activity along that line.
Mr. PETERSON. Do you think, apparently under the proposal that has been put forward, that you would get this $11.08 price up to the level of the production you had last year, or whatever your—as I understand it—and then what you went above production, you wouldn't get the payment. That is how it is works under the proposal that has been put forward. Am I understanding that right? So that the penalty for people that produce more than they produced last year would be only the loss of the $11.08 floor price over and above the production.
Page 797 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. PAUL. That is my understanding.
Mr. PETERSON. And do you think that would work? I mean, do you think that would really reign it in?
Mr. PAUL. I question if it would really control production. I think we would probably end up with more production than we are getting at the present time. So I still believe that, as I said earlier, some type of additional program would be well put in place.
Mr. PETERSON. Would you maybe haven't taken a position, but if we had a system that if we put in a floor price on class III, and we had some kind of a system where if you increase production, say, more than 102 percent of what it was a year before, that you would not get any deficiency payment. So the only people that would get the payment would be the people that kept their production within that range. Would that be something that your folks would look at?
Mr. PAUL. I think our folks would look at that. Again, we would have to go back and talk to our board. But I believe they would look very favorably at that.
Mr. PETERSON. What is your position on compacts? Is your organization in favor of them?
Mr. PAUL. Yes. We have always supported compacts. We have a resolution favoring the continuation of the northeast compact, expansion of the compact, and setting up additional compacts.
Mr. PETERSON. Is there any caveat to that, that there should be some kind of inventory management with those compacts or not?
Mr. PAUL. We have supported the Northeast Compact as it is in place and there is a supply management program of sorts within that, and we would support that.
Mr. PETERSON. And if the compacts were extended to the south, southeast, are they envisioning that there would be some kind of inventory management with that southeast compact or not?
Page 798 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. PAUL. Now, that I don't know the answer to, but I can find out.
Mr. PETERSON. Thank you. Thank you, Mr. Chairman. Pardon? Well, I think those are my main concerns. I mean, I think that we have got to figure out some way to get this feast or famine situation out of dairy. And I am being told now that because there is a shortage of heifers and because of other conditions that we may see these prices stay up a little longer than we have in the past. But I think our history has shown that if we artificially raise prices, we get a lot more production at some point, and then the prices go collapse back down to price supports.
In my judgment, we have got to get a system in place where we can deal with that. And I don't think it should be a permanent program. I think it should be some kind of temporary authority for the Secretary, maybe, to only use this when we actually have a situation where we have more milk than we can get rid of. And, you know, I am going to do what I can to try to see if we can get something put in place. And I think you are right, that when prices are better, we probably have a better chance of accomplishing that than when prices are lower.
Mr. PAUL. I would agree with you on that. And I think, again, now would be a good time, to put something like that in place, because without something in place to put some stability or take some of that volatility out, what I feel may happen, as we start to see prices rise, you may see a certain amount of dairymen just cash in on some of their equity that they have and further decimate the dairy industry in the Midwest.
Mr. PETERSON. What about MPC? We are all concerned about this MPC coming into the country. Do you guys have a silver bullet on how we are going to get this stopped?
Mr. PAUL. Well, I don't know if we have a silver bullet, but we are supporting the efforts, I think, of National Milk and I think Farmers Union and several other groups that are working on that issue and we are very supportive of that.
Page 799 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. PETERSON. Thank you. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Kennedy.
Mr. KENNEDY. Yes. Thank you very much. It is good to have you again here. And, as you know, I have one of your board members, Joe Nate, renting my farm and giving me an NFO update on a regular basis. So we appreciate that and we appreciate the good things you do to try to help farmers get a better price for their crops.
I had a couple of questions. First of all, on the target price that you talked about, how would you see that affecting the ultimate clearing price in the market? Would you see that target price being the clearing price in the market or would you see the actual clearing price for grain that would happen on a day-to-day transaction basis being different than that target price?
Ms. REINEKE. I see the target price as being a goal to be achieved to release the grain in the reserves on a day-to-day basis until the supply that is in a Food Security System is needed in the marketplace. In the market, the supply and demand factor of the market drives the prices to those levels.
Mr. KENNEDY. OK. So you would still have the supply and demand drive the day-in and day-out prices, but this would be the release valve from which you would have the food security reserves being released would be at that target price.
Mr. REINEKE. That is correct.
Mr. KENNEDY. And in the dairy business, you proposed a class III dairy support. I have a couple questions on dairy. The first is specifically speaking from a Midwest perspective, are we better off and do we really need to have a class I, II, and III and IV differential? Or is the idea that that was developed under many years ago, really run its course, give it our ability to really transport milk from one region to another? Can we still assure a class I milk across the country without having those differentials, and is that just something that remains in place by momentum as opposed to need?
Page 800 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. PAUL. Well, we have always supported the Federal Order System that is in place and would favor the continuation of the Federal Order System, because I think it does bring about some orderly marketing. It does put in its place some type of price levels. And so I think that a Federal Order System is needed.
Mr. KENNEDY. And is that primarily because it puts in place the price levels or is it because it is there to assure that there is fluid milk across the country?
Mr. PAUL. Well, the enabling legislation says the purpose is to make certain that there is an adequate supply of milk available. But I think it also has some impact on the prices and so on in the various areas of the country.
Mr. KENNEDY. OK. And, you know, there is obviously a lot of talk about compacts here in this Congress. And, you know, one of the questions, you know, in the real sort of deciding factor on whether compacts are good or bad is whether or not, you know, excess production in the compact area ultimately has a depressing effect on, you know, the prices outside of that compact area. Could you maybe explain further your views on whether or not it does have a depressing effect outside of the compact area?
Mr. PAUL. Well, the only compact that is really in effect at the present time is the northeast compact. And I don't believe there has been an increase in production there that has had a negative impact on prices in other areas of the country. They do have some type of supply management in that compact area and we are very supportive of that compact and additional compacts.
Mr. KENNEDY. But is that support predicated on having a supply management function within the compact area to prevent the excess production from coming into other areas or——
Mr. PAUL. We have not differentiated on that, but we have supported the northeast compact as it is written, which does have that in there. And I believe we would expect some type of a system like that in other compacts.
Page 801 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. KENNEDY. Good. Well, I thank you for your comments and look forward to working with you. I will yield back my time.
The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. You don't really come out and say it in your testimony, but it appears that in addition from moving away from the market loan aspect of the current program, you are assuming a move to a recourse loan program as opposed to the current nonrecourse loan. Do you want to go to a recourse loan for all commodities?
Ms. REINEKE. Yes.
Mr. STENHOLM. Why?
Ms. REINEKE. When farmers really receive a loan on their product and they won't move it into the system until that price is achieved, then that drives the prices of those products above the loan rate. Right now, we have a system in place that there is a constant flow of grain to town and to the users of the products, no matter what the price is, because of the LDP. So in order to release that product to the end users, to the feeders, to the ethanol plants, then those farmers are going to leave that grain in the bin until they can achieve their loan price plus interest.
Mr. STENHOLM. I agree with your basic philosophy and what you are expressing there, but how does that differ from the Food Security System? What is going to be different if we have a Food Security System in which we have got a release point or a nonrecourse loan?
Ms. REINEKE. Oh. I see. The Food Security System is grain that has been in the 9-month loan. And at the end of the 9-month loan, the Secretary would have the ability to put a portion of that into a Food Security System. That prevents a glut of grain on the market at the end of the loans, which is typically on corn and——
Mr. STENHOLM. In your food security proposal, is there a guaranteed price or is there a targeted price for the release from the food reserve?
Page 802 PREV PAGE TOP OF DOC Segment 5 Of 5
Ms. REINEKE. For the release from the reserve there is a targeted price, a trigger price——
Mr. STENHOLM. But not guaranteed. Let us assume that a producer of corn that has their corn in a recourse loan for 9 months, which they have not sold it during that 9-month period, then they are eligible for the food reserve.
Ms. REINEKE. Correct. Yes, sir.
Mr. STENHOLM. But there is no guarantee of a higher price. See, what I am getting at, as a farmer knew that all I got to do is wait 9 months on a recourse loan, and then I will have a guaranteed higher price in the food reserve, I am going to stick it out if I don't get my price. And then we are going to have accumulating stocks in the food reserve. Right?
Ms. REINEKE. Unless we have some sort of issue that reduces production and would trigger the prices to release it back into the market.
Mr. STENHOLM. From your expertise and experience in marketing—and you mentioned alternative uses—ethanol, et cetera. And I agree and concur that these are areas in which we can manage our inventory by converting corn, wheat, other biodegradables into needed fuel. If, in this food reserve, or in this energy reserve or whatever we want to call it, do you anticipate selling grain at a lower price for fuel than other marketing opportunities if that is what is necessary to maintain a competitive supply of ethanol, i.e., competitive with other energy sources? Would you consider, in your thinking of marketing, and just picking a number out of the air—let us say, 10 percent of our grain supplies go into ethanol. But rather than $2.64 per bushel, if that is the target, you may have to sell it for $2 to the ethanol plant in order to maintain competitive ethanol.
Ms. REINEKE. I hadn't given that any consideration.
Mr. STENHOLM. That makes you normal. Nobody else has either as yet. But I am asking you to think about it because I do think that if we are going to have a viable alternative energy production, that we who are going to be producing for it are going to have to stay competitive or otherwise, we are going to have to be subsidized. If we are subsidized, then we get into the same argument that caused me to be opposed to ethanol for the first 20 years of my Congressional career, because I represent the oil patch. And it was difficult to convince independent oil producers who are going out of business with $8 oil that we farmers were enjoying the 79-cent diesel, but difficult why they should have a subsidized competitor. Now, we are looking at how can we have a level playing field so that we produce the energy we need, but we do it in some semblance of a market. So I ask you to think about that and if is there any logic to that, to help us with that.
Page 803 PREV PAGE TOP OF DOC Segment 5 Of 5
Ms. REINEKE. Thank you. I will.
Mr. STENHOLM. And one other concept, and, again, I don't expect a response, but I ask you to think about it. flexible fallow has got a lot of appeal because there are some logical reasons for doing it. It fits within what our farmers are saying. We like the flexibility. But there is one suggestion out there that says—and let us just take a hypothetical.
Let us assume that on your farm or your operation you have 1,000 acres and you are producing all 1,000 acres. The flexible fallow says we don't need the production for that. The market price tells us we don't need the production from all of that. But rather than a flexible fallow, what if we rekindle an old idea of sorts in which—again, just pulling a hypothetical out of the air—that we only need 70 percent of our productive acres in production. Therefore, we only support 70 percent of those acres. Now, if you put it all in corn, all in wheat, all in soybeans, mixture—some in cotton, depending on where you are, that is your choice. But only 70 percent of those acres would be supported and it would be prorational within the various commodities. It would assume that we have rebalanced our loan rate so that we do not have an incentive to plant one over the other strictly for the Government. If we go in that direction or if we are going to a recourse loan, then that is immaterial right now.
But I ask you to think about that because I know you have given a lot of thought to the proposal you bring to us today, the rationale for the flexible fallow, the rationale for a marketing program, all of which has merit. The question is, how do you do it and how do we make it fit within an international marketplace and how do we make it fit within a budget? How do we make it fit within WTO, green box, amber box, blue box—all of those? But that is one concept that is kicking around out there. And I would ask you to take a look at that to see if you can give us some comments later on that.
Ms. REINEKE. I would be glad to.
Page 804 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. STENHOLM. Thank you for your testimony today, Mr. Paul, and, Ms. Reineke.
Ms. REINEKE. Thank you. I would be glad to.
The CHAIRMAN. Mr. Gutknecht.
Mr. GUTKNECHT. Thank you, Mr. Chairman. I am sorry I am late. I had several other meetings going on. I wanted to ask Mr. Paul a little bit about dairy policy, and I am sorry I missed your discussion. And we represent an awful lot of dairy farmers in southeast Minnesota, fewer than we used to in—down around Blue Earth. But I am concerned that so many of the farm groups now are saying, well, yes, dairy compacts are a good idea. Milk-marketing order system, which was created in 1934, is OK, if we just somehow prop up the price of class III milk. And I don't want to overstate your position, but I think that is essentially your position. Is it, Mr. Paul?
Mr. PAUL. We have supported the idea of a floor price in class III, yes.
Mr. GUTKNECHT. But don't—isn't there a very good chance of that floor price also becomes the ceiling price if we increase production and also, in effect, with these dairy compacts and the milk-marketing order system, which we believe, in the upper Midwest, works against our dairy farmers—now, we remain to be convinced if we are wrong. But doesn't that make a—I mean, my—from my vantage points, this just makes a bad situation worse.
Mr. PAUL. Well, we would support the idea of, you know, a floor under class III simply because it would put some money in the pockets of dairy farmers. But as I discussed a little earlier, we also think that now would be the time to put in place some type of a supply management program as well, which would reward farmers who do not increase production. And I think it would have to be structured to such that there would be really a—I am going to use the word disincentive to increase production in conjunction with something like this. Otherwise, I believe you would end up with more milk.
Page 805 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. GUTKNECHT. And more milk ultimately backs up either into cheese or to powdered milk.
Mr. PAUL. Generally, that is true.
Mr. GUTKNECHT. What about the whole idea of maybe just going to a national pool or allowing milk to be milk, wherever it comes from, or whatever it goes into?
Mr. PAUL. We have not really taken a position on the overall national pool. We have supported the Federal Order System. But I think what we are seeing today is milk being pooled on various orders from various parts of the country, something we have not experienced in the past. So I think just with what is happening within the marketing system itself, we are moving in that direction, although we have not taken a position, as an organization, on whether we would favor just one national pool.
Mr. GUTKNECHT. Your point is very good and, Mr. Chairman, I think we should pay attention to this, because it is happening now to a certain degree, but only with certain processors. Others are limited, as I understand, in their ability to do that. Can you explain that a bit more? I know enough about this to be a little bit dangerous.
Mr. PAUL. Well, in order to do that, you have to have milk basically in various areas of the country. Producers, let us say in the west, and have some markets in the Midwest where you could bring some milk into the markets there so we have the opportunity to pool the milk, or milk from the Midwest, pool it out, and some markets out in the northeast. It is an advantage to those processors or producer groups that are national in scope more so than those that are just localized. That is correct.
Mr. GUTKNECHT. And so, in some respects, we have really created an incredibly complicated milk-marketing order system, because it does allow some of the national groups, without picking out any names or letters from the alphabet, who can do this. And, as a result, some of those producers are saying, you know, we kind of like the system the way it is, because we now are able to pool in with the other orders.
Page 806 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. PAUL. I understand what you are saying, but at the same time, we are seeing more marketing agencies in common being formed, which is entirely legal under the Capper-Volstead Act, which does give some ability to some of the other groups to capture some of those markets advantages as well. But I understand what you are saying.
Mr. GUTKNECHT. I have no further questions. I mean, basically, what we are saying in the upper Midwest is we want some reform of the milk-marketing orders. I mean, the whole notion in 2001 that we continue to implement an order system which was created back in 1934, that prices of milk based on where it comes from and what it goes into. I mean, I am not sure they could defend it that well back in 1934. I think the system is almost completely indefensible today. And it does work to the disadvantage of the dairy producers in the upper Midwest. Now, I understand in the argument, the others always say as well, yeah, but you get over-order premiums, but that is separate and aside from the basic Federal Order System. I mean, that is sort of above and beyond what the orders are. And we are going to be arguing pretty aggressively this go-round that the system is indefensible and it is time for some real reform. So, thank you.
The CHAIRMAN. Has the gentleman completed?
Mr. GUTKNECHT. Yes.
The CHAIRMAN. Thank you. Mr. Hill.
Mr. HILL. Thank you, Mr. Chairman. I want to kind of switch gears a little bit and follow up with Congressman Stenholm's remarks about ethanol. I don't know what your position is on ethanol. But in the current debate about our energy crisis, I think ethanol needs to be a significant part of a solution to our energy crisis and I would like to just to hear your comments about what we should be doing in Congress about the issue of ethanol, funding, and that sort of thing.
Ms. REINEKE. I would encourage continued funding for ethanol. As far as the question regarding a reserve for ethanol, an expanded use for ethanol, I think those are needed. And I think we need to continue to use our renewable resources to expand our domestic energy problems right now. Mr. Stenholm asked me to give some consideration into, you know, should the people who are providing the corn or the wheat or whatever to ethanol, be paid at the same rate as anyone else, and I am going to try to work on that to some extent.
Page 807 PREV PAGE TOP OF DOC Segment 5 Of 5
My initial reaction, which may not be the same when I have finished my analysis, but my initial reaction is, if we are wanting to implement a flex fallow system where people who want to plant 100 percent of their acres are going to be at a lower loan rate or a lower CCC loan rate than people who only plant 80 percent or 70 percent of their acres. That perhaps there is some way to funnel that to the ethanol system at some lower rate. But that is just an initial reaction. I do support, though, continued expansion of our renewable commodities for energy usage.
Mr. HILL. Mr. Paul, do you have a comment?
Mr. PAUL. Well, I would agree with that position.
Mr. HILL. What should we be doing in Congress, specifically—either funding? Because most of the testimony that has been given to this committee is in favor of an expansion of the ethanol program. But we are not really doing much and we are not reacting to that as Members of Congress. Do you have anything specific that you would like to see Congress do to make ethanol a higher priority than what it already is?
Ms. REINEKE. Not at this point in time. But I can get back to you with some ideas after I discuss it with my people. I would be glad to.
The CHAIRMAN. Mr. Peterson.
Mr. PETERSON. Mr. Paul, one of the things I am concerned about with this $11.08 floor, is that we may be locking in an advantage for one part of the country over another in addition to the problems that we have with the Federal Order System. As I understand it, cheese and milk in California are cheaper than cheese and milk in the Midwest. Is that right?
Mr. PAUL. I believe that is right.
Mr. PETERSON. It is like 80 cents, $1, a hundredweight cheaper.
Mr. PAUL. Right.
Mr. PETERSON. So if we put in an $11.08 floor, what we are basically doing is the Federal Government is paying those California producers to give them the same price as the Midwest, but the people that make cheese are getting the milk for a $1 cheaper than they are in the Midwest, and the Federal Government is papering over the difference. Am I right about that?
Page 808 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. PAUL. I have to think about that. I am not following your math on that.
Mr. PETERSON. I have got California dairy farmers in my office and the ones that don't have quota are in as much trouble as the farmers in Minnesota because of the low price of class III milk. So that is where I think this push in national milk is coming from. You know, these producers are hurting, so they are trying to get them some extra money—$11.08. We just had a cheese plant close in my district.
Mr. PAUL. Right.
Mr. PETERSON. And we are going to have more probably. And one of the reasons is, they are moving to California because they can get the milk at $1 a hundredweight cheaper and they also have a higher make allowance, as I understand it.
Mr. PAUL. Right.
Mr. PETERSON. So if we put this program in place, we are basically locking in this system that is going to eventually move more cheese production out of the Midwest, and the Federal Government is actually, in a way, subsidizing it, because we are allowing California to lock in those lower cheese prices and we are paying the farmers and the benefit is going to the cheese manufacturers. Am I wrong?
Mr. PAUL. I am hearing what you are saying, but I have got to think about that a little bit. I am not certain that that is correct, but I am not going to disagree with you at this point.
Mr. PETERSON. Well, I would appreciate if you could think about it and get back to me.
Mr. PAUL. OK.
Mr. PETERSON. Because that is one of the things I am worried about.
Page 809 PREV PAGE TOP OF DOC Segment 5 Of 5
Mr. PAUL. Yes.
Mr. PETERSON. And why I am so adamant that if we are going to do this, that we have got to have a tough supply management program with it or we are going to devastate the cheese industry in the Midwest, in my opinion.
Mr. PAUL. OK.
Mr. PETERSON. You know, and that is what I am concerned about. I mean, I want to help dairy farmers all over this country. I mean, none of them are getting rich. It is hard work. There is a lot of capital. We don't have enough people staying in the business and we don't have enough young people getting in the business. So we need to improve the prices, but we don't want to devastate the dairy industry in the Midwest in the process.
And that is what I am concerned about, that we are going to end up with Federal policy moving the entire industry to the West and then eventually the environmental problems and water problems are going to put them out of business out there. And 40 years from now, the Federal Government is going to be teaching people in the Midwest how to dairy farm because there is nobody left. And that could happen if we are not careful here.
The CHAIRMAN. As we have in the other hearings, there may be additional questions. If there is additional information that you would like to submit, the committee would be glad to receive it. As it was indicated in the opening statement, this is the final of the hearings in this group.
We will now move, of course, quite expeditiously, toward looking at a farm bill and I am sure we will have several more hearings. But I do want to express to the members the Chair's appreciation for their attendance, and for their interest in this. I think these hearings have been very fruitful. I think they have been very helpful to us. And I think we will utilize a tremendous amount of the information that people have provided as we begin to move forward with beginning to write a farm bill. I thank you very much for appearing today and the hearing is adjourned.
Page 810 PREV PAGE TOP OF DOC Segment 5 Of 5
[Whereupon, at 10:57 a.m., the committee was adjourned, subjectr to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of the National Family Farm Coalition
We appreciate the opportunity to submit this statement for the record of the House Agriculture Committee on the debate surrounding the commodity title for the 2002 farm bill. Reality in the countryside dictates the need for dramatic change in our Nation's farm and food policy. We urge this Committee to hold hearings where farmers could express directly to you effective and workable solutions to the ongoing and deepening crisis that has put this country's food production system at risk. It is time to craft a comprehensive bill, which not only addresses the commodity title, but also incorporates related issues such as credit, conservation, rural economic development, civil rights and minority access, community food security, concentration and vertical integration of agri-businesses, and trade. Together, these factors determine the future sustainability of this Nation's food production and marketing system.
Restoring farm income from the marketplace must be the primary focus of any new farm program. There is no competitive market in agriculture, yet the production of food, which is a basic human right, requires a role for the government that helps to ensure that the market does function. This means the reinstatement of programs that have historically worked for farmers, consumers, and taxpayers, including a reserve program, support prices set at a fair level, and a way to manage our inventory.
These provisions will be found in the ''Food From Family Farms Act'' which is a proposal being developed by grassroots member organizations of the National Family Farm Coalition, in coordination with other groups that make up the National Farm Action Campaign. Similar proposals are also being supported by other family farm and rural organizations. This proposal is predicated on the belief that all countries, including the United States, retain the right to develop farm programs that respond to the needs of their farmers and consumers. We have attached an updated draft of the Food from Family Farms Act for your review.
Page 811 PREV PAGE TOP OF DOC Segment 5 Of 5
As the New York Times recent article on the fading away of Moreland, KS aptly illustrates the conditions facing thousands of towns across rural America, we urge this Committee to develop a comprehensive farm bill that will help to quickly reverse this situation. We know that the state of the rural economy is largely driven by the local incomes derived from the land, earned by farmers and ranchers.
The U.S. rural economy, and that of towns like Moreland KS, is in a decades-long tailspin due in large part to one central fact: low farm prices—market prices well below the farmers' cost of production. Independent farmers, the base of rural American towns, are being pushed off their land because farm receipts will not cover expenses. Grain prices adjusted for inflation are at their lowest level in over three decades. The root of this crisis is clear: a failed Federal farm policy that has abandoned independent farmers, in favor of more and more of our food production system controlled by giant multi-national agribusiness corporations.
The issues affecting farm prices are being felt locally but the impacts are often the result of international trade policies that are negotiated without assessing or balancing the true costs and impacts on our rural economy. We strongly believe that trade agreements should respect a country's needs and traditions for food security, conservation of natural resources, and distribution of economic opportunity. We do not support a ''fast-track'' process for international trade agreements or for our Nation's farm policy. We call for a full debate and consideration of the issues that will provide a future for our Nation's farmers and consumers—not simply a continuation of a process that is designed to benefit corporate agribusiness and grain traders. Freedom to Farm is costing taxpayers over $20 billion per year. That expenditure is an indirect subsidy to corporate grain traders and agribusiness, while covering only a fraction of the income losses sustained by farmers due to lack of competition in the marketplace.
Page 812 PREV PAGE TOP OF DOC Segment 5 Of 5
This is illustrated most dramatically in recently reported annual profits of the largest agribusiness companies who are the most avid supporters of GATT/FTAA, backed Freedom to Farm in 1996, and remain the strongest advocates for the continuation of the current farm program—a plan that does little for farmers. Programs dependent upon expanding export markets as the solution, without addressing the need for fair prices for farmers, are predicated on flawed assumptions, and only foster a vicious cycle. This export dependent policy that has failed miserably over the last decade must be replaced. The proof is in the numbers and it is time for Congress to wake up and look on the ground—not at the economic projections that have for the most part been an incorrect basis for many of the policies enacted by this Congress over the past decade.
The growth of corporate factory livestock operations is an example of industrial food production with gross disregard for human, animal or environmental resources. Under-priced feed grains give an unfair competitive advantage to hog factories to the detriment of independent farmers. Contract growers no longer make management decisions, but are serfs on their own land. Contracts mean a loss of decision-making as well as a loss of control due to the inability to negotiate with the companies that buy their products.
All of these conditions are fueled by corporate control of grain prices for feed, resulting in cheap grains, often purchased far below the cost of production. Vertically integrated companies can recover their costs from consumers in the supermarket, but U.S. and foreign farmers often have no choice but to increase production to cover their fixed costs. While production levels skyrocket, the five-year average return on equity for farmers according to USDA's Economic Research Service for 1995–1999 was 2.11 percent. The five year average return on equity in the food, drink and tobacco sector ranged from 11.4 percent for Smithfield, 35.2 percent for Campbells Soup, and 24.7 percent for Philip Morris. The latest 12 month numbers for Philip Morris hit 30.9 percent undoubtedly influenced by record low fluid milk prices for Kraft Foods. Farming all available land, use of harsh chemicals and biotech seeds under the promises of increased yield and time-saving practices are harmful to the environment and natural resources and threaten food security. It is in the best interest of farmers, taxpayers, consumers and the environment that the trend toward corporate control of the food system be reversed.
Page 813 PREV PAGE TOP OF DOC Segment 5 Of 5
Solutions that must be addressed in this farm bill require all of us to think creatively and to work in cooperation with farmers and farm organizations throughout the country and across borders. It is evident that people, the world over, look upon the family farm structure as being best suited to provide food quality and safety, social and economic opportunities, and preservation of land, water, and biodiversity. Farming is a unique and honorable profession, worthy of justice and equity for all participants in the system. Congress has a responsibility to ensure the economic, environmental and social sustainability of the food production system by enacting a farm program that provides to its people, a production system of agriculture that ensures a sustainable and adequate supply of wholesome food at affordable prices.
We appreciate this opportunity to submit our statement for inclusion in the debate on the future of the commodity title of the 2002 farm bill. The attached proposal establishes a program that would reinstate a fair price for farmers and create the structures necessary to ensure domestic and global food security. The outline briefly addresses the credit and civil rights/minority farmer issues. We look forward to working with the Committee on the range of issues that are necessary to make a difference in the future for family farmers, rural communities, and the health of the entire food system.
Food From Family Farms Act
NATIONAL FAMILY FARM COALITION
A Broad-based Consensus Proposal to Restore and Maintain Profitability on America's Family Farms and Ranches
Preface
Page 814 PREV PAGE TOP OF DOC Segment 5 Of 5
It is the obligation of Congress to establish food and farm policy that provides to its people, a production system of agriculture that ensures a sustainable and adequate supply of wholesome food at affordable prices. It is evident that people, the world over, look upon the family farm structure as being best suited to provide food quality and safety, social and economic opportunities, and preservation of land, water, and biodiversity. Passage of the ''Food from Family Farms Act'' will help accomplish these goals.
We have witnessed, and are experiencing the failure of recent farm programs that have driven farm families off the land that their parents and grandparents settled, causing rural poverty and decline of rural communities. Lack of net farm income is the fundamental reason for this on-going rural crisis.
Restoring farm income from the marketplace must be the primary focus of any new farm program. Fair prices to farmers don't exist because previous price discovery tools, including production and inventory adjustments, have been eliminated in current farm policy. Powerful lobbying activities of corporate agribusiness giants and their allies caused that to happen. Competition in the grain buying and processing sector has been lacking for some time and grows steadily worse through unrestrained consolidation.
The growth of corporate factory livestock operations is an example of industrialized food production with gross disregard for human, animal, or environmental resources. Under-priced feed grains, gives an unfair competitive advantage to hog factories, to the detriment of independent farmers. Contract growers no longer make management decisions, but are serfs on their own land. It is in the best interest of farmers, taxpayers, consumers and the environment that the trend toward corporate control of the food system be reversed.
Farming is a unique and honorable profession, worthy of justice and equity for all participants in the system. Congress must now ensure the economic, environmental and social sustainability of the food production system by enacting a farm program that includes price supports for those agricultural products that are basic to food security for ourselves and for humanitarian efforts when the need arises.
Page 815 PREV PAGE TOP OF DOC Segment 5 Of 5
The provisions crafted in the ''Food from Family Farms Act'' are predicated on the belief that all countries, including the United States, retain the right to develop farm programs that respond to the needs of their farmers and consumers. Trade agreements should respect a country's needs and traditions for food security, conservation of natural resources, and distribution of economic opportunity.
FOOD FROM FAMILY FARMS ACT
Revised April 14, 2001
Outline of Bill
1. Market Price Support.
Price support will be established through a Commodity Credit Corporation (CCC) non-recourse loan for wheat, feed-grains, soybeans, oilseeds, cotton and rice. Loan rate will be based on an ''Agricultural Equity Formula'' indexing system that reflects average gross income per acre received during the decade of the 1970's, adjusted for inflation and current higher per/acre productivity. (The 1970–79 period is widely recognized as the last generally prosperous period in modern U.S. agriculture.) Loan rates will be adjusted annually by indexing to annual inflation and a rolling average of the past 4 year national average yield. Over a 5-year phase-in period, loan rates will be adjusted upward until they equal the levels received in the 1970's.
2001 Loan rate levels:
Corn—$3.45 per bu.
Cotton—81 cents per lb.
Soybeans—$8.63 per bu.
Wheat—$5.12 per bu.
Page 816 PREV PAGE TOP OF DOC Segment 5 Of 5
2. Program Sign-up Required.
Program sign-up will be required to be eligible for the CCC loan, farmer-owned reserve, disaster relief or any other agriculture related Government benefit.
Historical price ratios between crops (such as corn/soybean price ratio of 1 to 2.5) will be considered when establishing loan rates.
Loan period will be 9 months. At the end of 9 months, producers will have the option of redeeming the loan, entry into the Farmer Owned Reserve (FOR) if open, or forfeiture to a CCC Food Security Reserve.
A maximum level of production will be eligible for the loan program.
No price subsidy payments or loan deficiency payments (LDP) will be made.
3. Farmer Owned Reserve.
A multi-year farmer-owned reserve will be established for all storable commodities to ensure food security and livestock feed supplies. These reserve stocks will be held off the market in times of adequate supply by establishing national average price levels below which reserve stocks cannot enter the market.
The reserve will be open to farmers any time ending stocks-to-use ratios exceed 5 percent.
Storage will be paid annually in advance, at commercial rates.
The minimum reserve levels shall be 10 percent of total use.
Release levels shall be at least 125 percent of the CCC loan rate.
Eligible grain will be allowed to be rotated to maintain grain quality.
A low interest loan program for construction of on-farm storage facilities will be established.
4. Planting Flexibility with Inventory Management.
Page 817 PREV PAGE TOP OF DOC Segment 5 Of 5
The Secretary shall establish a short-term inventory management program for storable commodities to balance production with demand. Acreage bases will be defined as Tillable Crop Acres (TCA) giving farmers planting flexibility on TCA subject only to the production adjustments by the Secretary of Agriculture based on ending stocks. Land shall be considered TCA whose production is eligible for non-recourse loan only if, for the last 3 of the 5 preceding crops, the land was planted or considered planted.
The Secretary shall target specific crops for reduced planting only if carryover stocks of that crop exceed 15 percent of total use. The Secretary will then announce a Conservation Percentage (CP) for such crops, and a producer will be required to enter into a conservation incentive program approved by the local Soil Conservation Service for those acres. After meeting that requirement, the producer/operator will determine which crops and what crop mix to plant under this section.
5.Disaster Relief.
In times of natural disaster, there must be an effective response in the form of disaster assistance.
Disaster payments will be made to qualified producers who lose 30 percent or more of their established yield. The disaster payment will be made at the rate of 50 percent of crop losses between 30 percent and 70 percent. Losses of crops between 70 percent and 100 percent will be compensated at the rate of 100 percent.
A loss of 90 percent shall be considered a total loss and the producers shall have the right to salvage any remaining crop for whatever purpose they choose with no loss of disaster benefits.
Insurance coverage beyond established disaster payments would be at the producers' cost, but will not be required in order to qualify for disaster payments.
Receiving crop insurance benefits will not disqualify a producer from receiving full disaster benefits under the disaster program.
Page 818 PREV PAGE TOP OF DOC Segment 5 Of 5
6. Targeting.
Amounts of commodities eligible for non-recourse loans will be established based on farm income levels with an incentive toward promoting maximum stewardship principles and actual optimum efficiency. In any crop year, the following amounts of crop production shall be eligible for non-recourse loan:
Wheat—65,000 bushels Sunflower Seed
Corn—125,000 bushels Rapeseed
Grain Sorghum Canola
Barley Safflower
Soybeans 35,000 bushels Flaxseed
Oilseeds Mustard seed
Upland Cotton 1,000,000 pounds Oilseeds
Extra long staple cotton Sugar
Rice—65,000 hundredweight
DAIRY
New dairy policy must set the minimum price of milk at a level that allows dairy farmers to recover their cost of production plus a profit.
Imports must be limited to a level that does not distort the domestic market including derivatives not listed as dairy products.
Ban all imports of dairy products from countries with confirmed BSE (mad cow disease) until adequate research can be done to ensure public safety.
Eliminate block voting by dairy cooperatives.
Referendum vote on mandatory check-off every 5 years.
LIVESTOCK
By establishing direct floor prices under the storable commodities with the non-recourse loan, the Food from Family Farms Act will indirectly establish a floor under livestock prices. If we continue with a program that allows market prices of feedstuffs like grains and oilseeds to be below their cost of production, then we can expect livestock and dairy prices to remain low and livestock production to concentrate in factory farms that rely on purchased feedstuffs. This intensive livestock production becomes part of a vertically integrated livestock sector denying fair markets to diversified family farms that use environmentally sound crop rotations and responsible nutrient management. We intend for the majority of livestock production to again originate on diversified family farms. We also support the following measures:
Page 819 PREV PAGE TOP OF DOC Segment 5 Of 5
Prohibition on ownership, feeding, or control of livestock by packers.
Country of origin labeling.
Technical corrections to the price reporting law.
Require that USDA grade and approval methods are extended only to meat and dairy products produced in the U.S. and derived from livestock and dairy animals born, raised, fed and slaughtered in the U.S.
Require that all government procurement of agricultural commodities, processed and manufactured food is obtained through open, well-publicized bidding. The process should require that all reasonable efforts be made to ensure that a portion of purchased food comes from producers within the local region of the consuming entity.
Require an immediate and thereafter, periodic referendum on all mandatory check-off programs.
Bargaining protection legislation and strengthening enforcement of the Packers and Stockyards Act's poultry provisions.
Prohibition against price discrimination.
CREDIT
Passing the family farm to a new generation.
A family farm system of production agriculture that encourages farm families to own the land they farm is the best assurance of good land stewardship and vibrant rural communities in the years to come. Today, many retired farmers and descendents of family farmers own farm land that they would like to pass on to the next generation without contributing to the concentration of land ownership. They would rather not sell their land to those who would ''add field to field'' or outside investors. Our farm bill will, first of all, make sure that family farmers get a reasonable income from the marketplace. Secondly, we propose to make capital available through the Farm Services Administration by:
Page 820 PREV PAGE TOP OF DOC Segment 5 Of 5
Significantly expanding the direct loan and guaranteed loan programs with special emphasis on minority, beginning, and limited resource farmers. Process should include simplified application with 30 day time limit for decisions. Terms should include lower interest rates, longer payback terms, one year of experience required, debt forgiveness for three consecutive disaster years.
Loans could be coupled with grants that would encourage sustainable farming methods and local efforts at land-based economic development and cooperative ownership of value-added enterprises.
Minority, beginning and limited resource farmers should be given priority to purchase land in USDA inventory.
Reinstate lease buyback program.
Modify current election system to be more reflective of the county's diverse population.
Make minority advisors voting members of the committee.
MARKET CONCENTRATION
Moratorium on Large Agribusiness Mergers.
No dealer, processor, commission merchant, agricultural input supplier, broker, retailer, or operator of a warehouse of agricultural commodities with annual net sales or total assets of more than $100,000,000 shall merge with, or acquire, directly or indirectly, any voting securities or assets of, any other dealer, processor, commission merchant, agricultural input supplier, broker, retailer, or operator of a warehouse of agricultural commodities with annual net sales or total assets of more than $10,000,000; and (2) no dealer, processor, commission merchant, agricultural input supplier, broker, retailer, or operator of a warehouse of agricultural commodities with annual net sales or total assets of more than $100,000,000 shall merge if the acquiring person would hold 15 percent or more of the voting securities or assets of the acquired person.
Page 821 PREV PAGE TOP OF DOC Segment 5 Of 5
GLOBAL FOOD SECURITY
International negotiations.
Global food security depends on the establishment of a new international economic framework that encourages the sensible use of land and water resources and shared responsibility of international food reserves. Currently, developing nations are pressed to destroy natural ecosystems, such as the Cerrado in Brazil, so that they can export more soybeans at lower and lower prices. United States farmers are told that if we decrease production, farmers in Brazil will undercut their prices by expanding production. The preservation of grasslands and forests in developing nations and the restoring of damaged farmlands in developed countries can store vast amounts of carbon that otherwise will end up in our atmosphere adding to global warming. We call for a Global Agricultural Summit aimed at cooperation in establishing:
An international system of shared food reserves.
Equitable shares of the world export market at price levels that stabilize the agricultural economy.
International conservation programs to preserve and restore natural ecosystems that would otherwise be used unwisely in agricultural production, which includes an international system of production cuts when world grain stocks become excessive.