SPEAKERS CONTENTS INSERTS
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2001
70–080 DTP
107th Congress 1st Session
COMMITTEE PRINT
Print No.
107–1
FINAL REPORT OF THE COMMISSION ON 21st CENTURY PRODUCTION AGRICULTURE
A FORUM
before the
COMMITTEE ON AGRICULTURE
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
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C:\microcom\seals\congress.#13
JANUARY 31, 2001
www.agriculture.house.gov
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Mail: Stop SSOP, Washington, DC 20402–0001
COMMITTEE ON AGRICULTURE
LARRY COMBEST, Texas, Chairman
JOHN A. BOEHNER, Ohio
Vice Chairman
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
SAXBY CHAMBLISS, Georgia
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JERRY MORAN, Kansas
BOB SCHAFFER, Colorado
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana
GIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
MICHAEL K. SIMPSON, Idaho
DOUG OSE, California
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
CHARLES W. ''CHIP'' PICKERING, Mississippi
TIMOTHY V. JOHNSON, Illinois
TOM OSBORNE, Nebraska
MIKE PENCE, Indiana
DENNIS R. REHBERG, Montana
SAM GRAVES, Missouri
ADAM H. PUTNAM, Florida
MARK R. KENNEDY, Minnesota
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
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EVA M. CLAYTON, North Carolina
EARL F. HILLIARD, Alabama
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
MIKE McINTYRE, North Carolina
BOB ETHERIDGE, North Carolina
CHRISTOPHER JOHN, Louisiana
LEONARD L. BOSWELL, Iowa
DAVID D. PHELPS, Illinois
KEN LUCAS, Kentucky
MIKE THOMPSON, California
BARON P. HILL, Indiana
JOE BACA, California
——— ———
——— ———
——— ———
Professional Staff
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
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STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
(ii)
C O N T E N T S
Combest, Hon. Larry, a Representative in Congress from the State of Texas, opening statement
Bishop, Hon. Sanford D., Jr., a Representative in Congress from the State of Georgia, prepared statement
Smith, Hon. Nick, a Representative in Congress from the State of Michigan, prepared statement
Stenholm, Hon. Charles W., a Representative in Congress from the State of Texas, opening statement
Witness
Flinchbaugh, Barry L. , chairman, Commission on 21st Century Production Agriculture, Manhattan, KS,
Accompanied by:
Brumfield, Bruce J., commissioner, Inverness, MS
Campbell, John B., commissioner, Omaha, NE
Cook, Donald J., commissioner, Pendleton, OR
DuPree, James O., commissioner, Newport, AR
Howe, Matt, assistant director, Washington, DC
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Kruse, Charles E., commissioner, Dexter, MO
Northey, William, commissioner, Spirit Lake, IA
Paggie, Mechel S., executive director, Washington, DC
Paige, Ralph, commissioner, East Point, GA
Stallman, Bob, commissioner, Columbus, TX
Swenson, Leland, commissioner, Evergreen, CO
Villwock, Don, commissioner, Edwardsport, IN
FINAL REPORT OF THE COMMISSION ON 21st CENTURY PRODUCTION AGRICULTURE
WEDNESDAY, JANUARY 31, 2001
House of Representatives,
Committee on Agriculture,
Washington, DC.
The committee met, pursuant to call, at 10:04 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives Pombo, Smith, Lucas of Oklahoma, Chambliss, Moran, Thune, Jenkins, Cooksey, Gutknecht, Riley, Hayes, Fletcher, Johnson, Osborne, Pence, Rehberg, Graves, Putnam, Kennedy, Stenholm, Condit, Peterson, Dooley, Clayton, Hilliard, Bishop, Thompson of Mississippi, Baldacci, Berry, Etheridge, Boswell, Phelps, Lucas of Kentucky, Thompson of California, and Baca.
Staff present: Tom Sell, deputy staff director; Alan Mackey, senior professional staff; Jeff Harrison, associate counsel; Callista Gingrich, scheduler/clerk; Brent Gattis, Ryan Weston, Christy Cromley, Vernie Hubert, Anne Simmons, Howard Conley, and Russell Middleton.
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OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
The CHAIRMAN. Good morning. If we could have everyone find their seats, one of the things that I promised the new members is that this committee starts on time, and actually I was 15 seconds late, so we will try to make up for that.
I appreciate very much your being here, and I want to welcome everyone to the first meeting of the Committee on Agriculture for the 107th Congress.
I would like to inform Members today that the House may consider a resolution that will officially appoint the Democratic members of our committee, but until that happens, we cannot officially recognize or organize as a committee. That is why we are referring to this committee today as a forum. However, I intend to conduct our forum like a hearing so all the Members who are here today will have the controlled amount of time to ask questions of the commissioners who are with us.
Before we begin, I would like to briefly recognize the new members of the committee who are with us or hopefully will be with us. We will save the formal introductions and roasts for our committee organization meeting when we have the full complement of Republican and Democratic members. The new Agriculture Committee members on the majority side are: Chip Pickering, who is returning to the committee from the third district of Mississippi; Tim Johnson from the 15th district of Illinois; Tom Osborne, the third district of Nebraska; Mike Pence, the second district of Indiana; Dennis Rehberg is an at-large Member from Montana; Sam Graves, from the sixth district of Missouri; Adam Putnam is from the 12th district of Florida; and Mark Kennedy is from the second district of Minnesota.
Welcome to the Committee on Agriculture, gentlemen, and welcome all members. We have a tremendous amount of work to do in the 107th Congress, and I am pleased that all of you are on the team.
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The purpose of today's forum is to receive testimony from the 21st Century Commission on Production Agriculture.
This Commission was created in the 1996 farm bill, and today's report represents the final statute requirements for the Commission.
The Commission was specifically designated to do two things: First the Commission was required to do a comprehensive review regarding the current status of agriculture, taking into account economic risk, food security, trade, international competitiveness of the United States production, farmland values, producer incomes and regulatory and tax relief for farmers and ranchers. The Commission completed this review and issued an interim report in May 1999.
Second, the Commission was required to produce a final report by January 2001. The final report was to contain a comprehensive review of the future of production agriculture in the United States as well as suggestions and recommendations regarding the appropriate future role of the Federal Government in support of production agriculture. This is the report that is before us today, and all members have a copy of the report in their packets.
We all know that the agricultural sector is facing serious problems today. In addition to persistent low commodity prices, energy costs have skyrocketed, which in turn has caused fertilizer and other input costs to jump dramatically. These factors on top of the normal production risk inherent to farming are making it more and more difficult for farmers to see how they can continue on.
Cash flows are tighter than ever before, which causes further ripple effects, not just in the world of agricultural credit, but also with the input suppliers and throughout the fabric of rural America. America's farmers and ranchers will be looking to us not only to assist them in coping with the challenges that they are facing, but also to make some meaningful improvements to the farm safety net in order to bring some stability to their livelihoods. I think that the report we are reviewing today presents us with a good opportunity to begin an earnest effort in this committee to build consensus on how best to address all the challenges facing agriculture today and to craft a better farm policy for the future.
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I thank Chairman Flinchbaugh and all of the members of the Commission for being here today, for all of the effort that each of you has put into addressing this important issue.
Before I introduce the members of the Commission I would like to recognize my colleague and friend from Texas, Charlie Stenholm, for any comments that he would wish to make.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman. I associate myself with your remarks. I thank you for announcing the series of hearings to receive recommendations for what will be needed to supplement the existing AMTA payments and for what programs may be needed after the FAIR Act expires. This committee forum on the report of the 21st Century Commission on Agriculture is an excellent way to begin the process.
Mr. Chairman, this is also an excellent way to begin the process of recognizing the expectations of producers and their bankers that Congress will continue to provide annual assistance to producers for their income and crop losses on the order of that they received this past year.
This hearing process commencing today is the first step in legitimizing our de facto baseline that lies outside the formal congressional budget process. This baseline is real nonetheless because of the 3 years of escalating assistance we have provided. We will establish its legitimacy with these hearings and then ask the Budget Committee to include increased spending allocations for our committee, just as happened with the committee's crop insurance improvements efforts in 1999 and 2000.
Budget provisions for income and disaster are only part of the picture, however. Additional resources are also needed for other agriculture priorities, such as conservation, regulation, mitigation and research, as well as rural development. I am working with my colleagues in the Blue Dog Coalition to ensure that resources are available in the budget for these priorities. Together we must ensure that the final budget resolution adopted by the House includes a permanent baseline for our immediate and future income and disaster needs, along with needed investments in other areas. Without this baseline, Mr. Chairman, this committee will not have the budget resources needed to write a farm bill that provides more than $4 billion in direct payments authorized by the FAIR Act to producers after 2002.
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Thank you, Mr. Chairman.
The CHAIRMAN. Thank you, Mr. Stenholm.
If any other Member has a statement for the record, it may be included at this point.
[The prepared statements of Messrs. Smith and Bishop follow:]
PREPARED STATEMENT OF HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Thank you Mr. Chairman, for holding this forum today to review the report by the 21st Century Commission on Production Agriculture. Though it has only been 5 years since this report was commissioned as part of the 1996 Freedom to Farm Act, the challenges facing agriculture have changed significantly. I believe that this is exemplified by the fact that this commission could not all agree on the policy recommendations contained in the report.
As we begin to examine the policies that will shape the follow-up legislation to Freedom to Farm, I think it is important to realize that American agriculture is approaching an important crossroads. While net farm income has remained relatively stable, due in part to record Government support, we have now seen three straight years of substantially low prices. Further, a changing political atmosphere, tightening budgets, and international trade obligations will place increased pressures on many of our farm programs. The challenge that lies before us as Members of Congress is to help assure we keep a strong and viable agricultural industry in the United States.
I think that today's discussions will set a positive tone for our committee as we move forward with examining agricultural policy in the 107th Congress. I am looking forward to hearing the ideas of commodity and interest groups in the coming months as we prepare for writing the new farm bill. I am also hopeful that we can find strong and effective solutions that will allow our food and fiber producers to survive. I believe that the challenges are great, but I am optimistic that opportunities do exist that can provide long-term stability to our farm economy, and I look forward to working on these problems.
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STATEMENT OF HON. SANFORD D. BISHOP, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA
I would like to express my thanks to you, and to our distinguished ranking member, Congressman Stenholm, and to everyone who helped arrange today's forum on the intensive study conducted by the Commission on 21st Century Production Agriculture, under the leadership of its chairman, Dr. B. L. Flinchbaugh.
And thank you, Dr. Flinchbaugh, for joining us today.
This is an extensive study—one that covers virtually the entire scope of Federal agriculture policy, exploring many of the nuts-and-bolts issues that we will face during the upcoming term of Congress, which has the awesome responsibility of considering and enacting a new farm bill to succeed the 1996 Freedom to Farm Act.
Based on what I have read so far, there are a number of recommendations that will be welcomed by producers in my area of the country, and I am sure in other areas, as well.
At the same time, however, there are proposals that raise some questions.
For example, the report recommends the phase-out of the existing market-oriented, no-net cost Peanut Program. This is of great concern to me because farmers in my area of southwest Georgia grow more peanuts than any area of similar size in the world. Basically, our growers feel the peanut program was beneficial to them, to our agricultural economy, and to America's consumers.
We need to know much more about how the Commission's proposals for quota peanuts will impact both growers and consumers alike.
I will reserve my questions for the appropriate time, Mr. Chairman.
The CHAIRMAN. Now I would like to introduce the members of the Commission. Dr. Barry Flinchbaugh is chairman of the Commission; he is from Manhattan, KS. He is an agriculture economics professor and an extension state leader at Kansas State University.
Mr. Don Villwock is from Edwardsport, IN. He is a corn, soybean, wheat, and popcorn farmer in southwestern Indiana.
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Charles Kruse is from Dexter, MO. Mr. Kruse raises corn, soybeans, wheat and cotton on his farm near Dexter.
Leland Swenson is from Evergreen, CO. Mr. Swenson is currently the president of the National Farmers Union.
Bob Stallman is from Columbus, TX. Mr. Stallman is a third-generation rice farmer and is currently serving as the president of the American Farm Bureau Federation.
Ralph Paige is from East Point, GA. Mr. Paige has worked for the Federation of Southern Cooperatives/Land Assistance Fund in a variety of roles for 26 years, including as the executive director for the past 13.
John Campbell is from Omaha, NE. Mr. Campbell is vice-president for corporate affairs and industrial products of Ag Processing, Inc. He formerly served at USDA's Deputy Under Secretary for International Affairs and Commodity Programs from 1989 to 1991.
Donald Cook is from Pendleton, OR. Mr. Cook is recently retired from his post as general manager of the Pendleton Grain Growers. He is a native of Pendleton and raises wheat and cattle.
Jim DuPree is from Newport, AR. Mr. DuPree is a managing operator and partner of Jim DuPree Planting Company, a general Arkansas farming operation. He is also a special aide for agriculture policy to Senator Hodge and Senator Bumpers.
Bruce Brumfield is from Inverness, MS. Mr. Brumfield is a partner in the farming operation that produces corn, cotton, small grains and catfish. He has served as president of the Mississippi Cattleman's Association, the Delta Council and the National Cotton Council.
William Northey is from Spirit Lake, IA. Mr. Northey operates an 800-acre corn and soybean farm, and he also served as president of the National Corn Growers Association from 1995 to 1996.
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Also serving as staff of the Commission is Mechel Paggi, executive director, a native of Beaumont, TX; and Matt Howe is the assistant director, born and raised on a family farm outside of Manhattan, Kansas.
The way we will proceed, for the members' and guests' information, is that there will be a report given of the Commission's finding by Chairman Flinchbaugh. There are minority views that are in the reports that each of you have. There is also in your folder a seating chart, the way that the other members of the Commission are seated in the row behind the chairman. When we do come to the question period, members are free to ask questions of any of the members of the Commission, and they will come—if you would please, when asked, come to the table and use a microphone to answer those questions.
We would now invite Dr. Flinchbaugh to give us a summary of his report.
Dr. Flinchbaugh, thank you for being with us and please proceed.
STATEMENT OF BARRY L. FLINCHBAUGH, CHAIRMAN, COMMISSION ON 21st CENTURY PRODUCTION AGRICULTURE
Mr. FLINCHBAUGH. Mr. Chairman, members of committee, thank you for the invitation to appear before you today to present the report of the Commission on 21st Century Production Agriculture. In my written statement I provide an outline of the findings of the Commission with regard to the role of the Federal Government in support of production agriculture. That written statement is before you. Today I will cover as much of the statement as time allows.
The Commission relied on input from a diverse set of stakeholders, subject matter experts and background materials and analysis provided by staff to arrive at the specific findings for policy initiatives or other courses of action. I wish to thank the staff—Dr. Paggi, Matt Howe, Tim Peters—and I especially wish to acknowledge the support of the Office of the Chief Economist in USDA, Dr. Keith Collins, and Joe Glauber, and Joe is here with us this morning.
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The results of these efforts are contained in the report entitled ''Directions for Future Farm Policy: The Role of Government in Support of Production Agriculture,'' which was provided to you in advance of this meeting. In general, it was agreed that the role of the Federal Government should be limited to the activities that involved issues that were unlikely to be solved through private sector initiatives. The Commission concluded that the proper role of the Federal Government should be to pursue policies and programs that promote the following concepts and/or accomplish the following outcomes: ensure competitive agriculture economy through monitoring of concentration, enforcement of antitrust laws and related regulatory authority, ensuring transparency of market behavior including contracting; develop policies and programs that enhance the competitiveness of U.S. agricultural products; reduce trade barriers; open markets and enhance the ability of producers to maximize value-added opportunities; base all policy on sound science and insist that foreign competitors do likewise; promote and enhance food safety and a clean environment; promote and enhance animal and plant health and safety; provide support for agricultural research and education; enhance the development and use of risk management tools; develop and fund programs that meet the special needs of small and limited-resource farmers; and finally, provide an effective and adequate income safety net for farmers with minimal market distortion.
To guide us in our deliberations, the Commission has relied on input provided in a series of six public listening sessions held throughout the country. At these meetings the commissioners heard testimony from 200 witnesses from 30 States. To aid the Commissioners in their understanding of the critical issues, a series of informational meetings was held. Over the course of the Commission's tenure there were 14 such meetings with over 60 expert witnesses providing input of the various aspects of each major issue.
Within the guidelines established and given the limitation of time and resources, issue priorities were set. Issue number one: income safety net. The persistence of very low commodity prices has rendered existing farm program support inadequate to address the level of stress experienced over the last few years. As a result, the Congress has had to rely on emergency measures to provide additional support to the sector. The Commission has established a set of policies it believes will prevent the need for continued reliance on emergency measures, provide the flexibility necessary to address unforeseen changes in future market conditions while continuing to provide a solid foundation of support for production agriculture.
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The Commission recommends a continuation of a fixed AMTA payment, in accordance with the existing baseline budget allocations, in addition to a countercyclical income support program. The Commission specifically recommends a program referred to in our report as Supplemental Income Support, or the SIS program. The SIS program, along with the extension of the fixed AMTA payment, would provide a flexible income safety net for agriculture producers in times of depressed farm income.
The Commission also recommends as part of the income safety net that the loan deficiency payments and marketing loan be retained, however, adjusting the marketing loan rates to reflect the balance between the historical market value of individual crops. In addition, the Commission recommends that the limitation on Government payments to producers be removed.
The Food and Agriculture Policy Research Institute, known as FAPRI, provided an assessment of the Commission's SIS countercyclical income support program. Their analysis concluded that SIS, using a 5-year moving average program crop gross income at the income trigger level, would have an estimated countercyclical payment of approximately $2.8 billion in 2003. The payments are estimated to decline due to increased yields in stronger prices to $318 million by 2005.
This countercyclical approach would be decoupled from current prices and production and be distributed in a similar manner as the current production flexibility contracts. The decoupled nature of the SIS payments, along with the aggregate eight program crop gross income trigger, yields a program that would likely be categorized as ''green box'' under the WTO aggregate measure of support.
The SIS program is envisioned to provide countercyclical income support for eight major program crops—wheat, corn, sorghum, upland cotton, soybeans, rice, barley and oats. Producers of nonprogram crops would not receive direct benefits from this program. However, nonprogram crops could be added to the aggregate. Planting flexibility as it currently exists would be maintained under the proposal.
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Number two: risk management. The Commission recommends that the possibility of creating an actuarially sound insurance program with coverage provided by private companies be studied. An actuarially sound insurance program is defined as one where the Government does not underwrite a portion of the insurance company's risk, but rather provides farmers with a voucher to offset the cost of insurance premiums.
The Commission also recommends the implementation of a farm account without a time restriction on how long money may be left in the account, thereby allowing the account to serve as both a cash reserve for low-income years as well as an alternative retirement fund for the producer.
Number three: conservation and the environment. The Commission recommends continuation of the conservation reserve program and suggests that any possible increase in the acreage of the program be dedicated towards buffer strips, filler strips, wetlands, grass waterways and partial field enrollments. The Commission recommends a continuation of the EQIP program at funding levels initially proposed in the 1996 FAIR Act and for providing adequate support for NRCS staff to administer the EQIP program.
The Commission recommends that research be conducted that focuses on the following conservation and environmental issues:
Providing voluntary incentive programs to enhance agriculture's positive contribution to air and water quality;
A means to provide compensation to producers who establish environmentally beneficial practices with funding from a separate environmental program;
Establishing a baseline measure of agriculture's positive contributions to air and water quality;
Priority areas including, but not limited to, carbon sequestration, control of greenhouse gas emissions, manure management and alternative fuels.
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Number four: The Commission endorses the comprehensive U.S. position on trade as it was tabled at the WTO in June 2000. In addition, the Commission stresses the need for agriculture negotiations to be part of a comprehensive negotiation conducted in a single undertaking approach.
The Commission also recommends that Congress grant the President negotiating authority for the new round of trade talks.
Lastly, it is the view of the Commission that the negotiations on trade reform within the WTO are not the appropriate forum for negotiation of environmental and labor issues.
And finally, No. 5: individual commodity policies. Dairy, sugar, peanuts and tobacco are commodities that have evolved into specific and unique agricultural programs over the years. In reviewing each of these commodities programs in detail, the Commission has identified areas of concern that will have an impact on the economic well-being of the producers of each of these commodities. In an effort to provide direction for inquiry, the Commission has outlined a set of policy options for each commodity it feels should be reviewed and urges those within each industry to work together to develop solutions that will provide for a prosperous future for each of these respective commodities.
Dairy: Decisions regarding the course of future dairy policy must address at least four issues—Federal marketing order reform, extension of the dairy compacts, Federal price support and international market opportunities and challenges.
Peanuts: The Commission recommends that the following options be examined: The phased reduction of the quota system with compensation to existing quota holders, allowing for transfer of quota across State boundaries, subsidies to manufacturers to stimulate purchase of domestically grown peanuts, a marketing loan for peanuts, a direct payment type program for producers of quota peanuts and greater incentives for increased industry competition to reduce concentration.
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Sugar: The Commission believes that there needs to be serious consideration given to developing an alternative to the current sugar program. It is the view of the Commission that the following program options, individually or in combination, be evaluated: a marketing loan for sugar, domestic marketing controls, domestic production controls and some form of direct payment to sugar producers.
And finally, tobacco: The options to the existing program the Commission feels should be examined include increasing transferability of quota across county lines and/or State lines, a buyout program designed to phase out the quota program, and a marketing loan for tobacco with a view to increased export competitiveness.
And finally, number six: The Commission on 21st Century Production Agriculture recognizes the importance and value of the small family farm in production agriculture and rural communities.
The Commission further recognizes the significant impact Government policy has on the economic condition of small family farms. We acknowledge the work of the National Commission on Small Farms. This work continues in the activities of USDA's Advisory Committee on Small Farms. The Commission believes that the USDA Advisory Committee on Small Farms should be the lead group in this area and that it is the role of the Government to develop and fund programs that meet the special needs of small and limited resource farmers. According to the Commission, it recommends that the work of the small farms advisory committee be formalized as part of the United States Department of Agriculture by congressional authority, providing appropriate staff and funding.
Commissioners Paige, Brumfield, DuPree and Swenson wish to endorse the report of the National Commission on Small Farms in its entirety.
Mr. Chairman, that concludes a summary of the majority report. I have before me a summary of the minority views. If you wish me to do those, I will or if you wish the writers of those to respond, that is up to you, sir.
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[The prepared statement of Mr. Flinchbaugh appears at the conclusion of the hearing:]
The CHAIRMAN. Thank you. What I would prefer that we do, all of the members have had for some time now the report and the minority views. We take those minority views, certainly, seriously. I think as we get into questions and discussions we would certainly encourage the participants who do not agree with the particular answer to be sure to voice that. We certainly want to hear from everyone.
If I could ask the clerk, could you cycle the clock for the new members, just to show these clocks down there and the timers down in the front to the new members. And a reminder to the old members: When the green light is on, you start with 5 minutes. It will turn to amber when there is 1 minute remaining, and it will turn to red when time is up.
And I do ask members to try to work as closely as possible in maintaining that time frame so that we give every member an opportunity, and we will certainly have multiple rounds of questioning.
Mr. Chairman, thank you for your report. Thank you for your testimony today.
Obviously one of the things that this committee is struggling with is, where do we go. And we know that we are embarking on—and actually you are the first to appear before the committee as we will have farm groups and commodity groups to come in, and we have asked them to be very specific with us if they have recommendations about where changes in the programs should come. We are asking that they be extremely specific.
We will hopefully have by the end of the day—whenever that day is, March or April or whenever we have completed our hearings, we will have an idea about some of the diversity. As having filed reports there from 11 members, minority reports, it becomes obvious that there is not an easy answer. If there was, we would have done this a long time ago.
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But a couple questions that I have that I wanted to begin with first was, in your discussions on payment limitations, your recommendation or the Commission's recommendation was to remove payment limitations across the board, loan programs, any of the supplemental payment programs, whatever, and for whatever commodity. Is that correct?
Mr. FLINCHBAUGH. That is correct.
The CHAIRMAN. Let's take that to the next step. If for example there is an imposition of payment limitation, how would that change the dynamics of what it is that the commission is reporting and is suggesting?
Mr. FLINCHBAUGH. Well, Mr. Chairman, of course it would depend where that payment limitation came down, what the dollar amount was. We had lengthy suggestions on this subject, and we finally concluded that the payment limitations will be ineffective.
It doesn't take a lot of creativity to figure out how to wire around them. They assume that size guarantees profitability, and we know that isn't always the case. They don't save the Government any money to speak of. They penalize efficiency. And I think the proof in the pudding there is that if you look at our history, as we put in new programs or change things, the Congress repeatedly increases the payment limitations. So we finally concluded that the paperwork, the administrative costs and so forth for the small impact this has, that we would recommend that they be eliminated.
So with that small impact in mind, we don't view that there will be a significant change to what we have recommended, if you all came in with a payment limitation. Of course that depends what level it would be at.
The CHAIRMAN. The level is important, and of course it is an issue we deal with often. I personally have never made any bones about the fact that I would prefer there was no limitation either. I think it allows the programs to work better, and I don't think it penalizes the smaller farmer versus the larger farmer although that is another argument in and of itself. So I agree with that.
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But one of the dilemmas we have if we are trying to implement a program under the assumption of a level one area is, how much does that level have to change before what we are proposing becomes ineffective.
On your supplemental program in which there would be no limitations either, it is my understanding, and correct me if I am wrong, what you would do is base this—and another one of challenges is which of the boxes that these various payments go into and whether it is commodity specific or crop specific or whether it is based on revenue. But in basing it on revenue, you are basing it on annual revenue nationally of agriculture. If you had an area, let's say in the Midwest, that had an extremely bad year—corn and whatever else, just a terrible year—but you had an extremely good year in Texas—cotton, rice, others—and that overall when you did a national comparison you did not have a reduction in net farm revenue, it is my understanding that those people that are farming in that area that had an extremely bad year would not be eligible for any payments under the supplemental program. Is that correct?
Mr. FLINCHBAUGH. That is correct, if the pool was national.
The CHAIRMAN. Your recommendation is not for a national pool? Isn't that what you are recommending?
Mr. FLINCHBAUGH. In general, yes, but in the report we talk about the possibilities of doing this on a regional basis.
The CHAIRMAN. How would you define it regionally?
Mr. FLINCHBAUGH. We didn't get specific.
The CHAIRMAN. Mr. Stenholm.
Thank you very much.
Mr. STENHOLM. Welcome, Mr. Flinchbaugh. We are glad to have you before the committee. I too commend the Commission for the hard work that went into this report today.
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While the Commission does not provide formal budget estimates for all of your proposals, it does cite expenditures in various years for different provisions: $2.8 to $5.4 billion for SIS in 2003; $4.3 billion for rebalanced loan rates in 2001; $2.8 billion for farm accounts in 1994. If these expenditures were to occur in the same year, as they well could if all the provisions were implemented in the same year, the cost could total as much as $12.5 billion in that year. This is if no other commodities are included and does not include additional cost of other programs such as dairy, peanuts and tobacco. And each of your nonspecific recommendations in those areas do imply significant cost if we took any of the choices that you outlined for us.
My question is, did the Commission have any budget objective in mind?
Mr. FLINCHBAUGH. No.
Mr. STENHOLM. The Commission recommends an actuarially sound crop insurance program with vouchers to offset the cost of insurance premiums.
Did the Commission intend to use reductions in Federal crop insurance expenditures to offset increases in its other proposals?
Mr. FLINCHBAUGH. Congressman Stenholm, the Commission's recommendation on the voucher system is simply to study it. Given what you all did this summer with the Agriculture Risk Protection Act, we felt we ought to let that work, that this wasn't the time to recommend another overhaul of the insurance system.
But we really think that we thought to take a hard look at an insurance system with some market discipline; and so we recommended that we do a study that basically puts that market discipline in the insurance system, and the Government's role is to come in with a voucher to pay part of the cost of the premium.
That is an explanation. I am tempted to answer your question yes, although we did not get that specific.
Mr. STENHOLM. Along the lines of the chairman's questioning, the SIS program that you have recommended—and I understand and appreciate the desire of moving it to the right box, but I guess a further question, is it the opinion of the majority of the Commission that it is better to have unlimited amounts of assistance even if that assistance does not come at a time when it is needed and go to the producers that actually are demonstrating the need of the assistance?
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Mr. FLINCHBAUGH. Well, we have to balance that problem along with many others. We felt that we ought to provide a mechanism that would provide a safety net under farm income so that we did not have to come in year in and year out for ad hoc measures and so forth.
We also felt that we tried to get that in the ''green box.'' that is a very subjective question, whether or not it is. We think that we have a crack at getting this in the ''green box.'' .
So to meet all of these wonderful objectives, we came up with this aggregate measure that is decoupled from production and is decoupled from the current price of a specific commodity. And therefore in the long run, in the aggregate, you meet these multiple objectives.
I would also remind you that we recommend a farm account, we recommend studying the voucher system for insurance, we recommend the continuation of the marketing loan. So we feel those four broad areas, together, plug most of the holes. But we would not argue that the SIS program, standing alone, plugs every hole and helps every farmer at the exact right time.
Mr. STENHOLM. I think you have certainly proposed an interesting concept, one of which—I am personally very interested in a similar-type program. And I think, as you have stated, there are probably more questions yet to be answered than you as yet have been able to find a consensus on, but you have certainly given the committee something to look at as we try to accomplish the purpose of what you have recommended.
Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Jenkins.
Mr. JENKINS. I don't have any questions.
The CHAIRMAN. Mr. Cooksey.
Mr. COOKSEY. I appreciate your testimony. I have a couple of questions. The chairman caught me eating some Texas peanuts.
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The CHAIRMAN. We have more too.
Mr. COOKSEY. Good.
On the insurance program, you have alluded to what is the difference between the insurance subsidy that we are getting now and a voucher. Who pays for the voucher? Do the taxpayers pay for the voucher too?
Mr. FLINCHBAUGH. Yes.
Mr. COOKSEY. So why do a voucher instead of a subsidy?
Mr. FLINCHBAUGH. One of the reasons to do the voucher is, if you look at what the Government does now, it sets the rates, it reimburses for costs, it shares the risk. And the majority of the Commissioners at least believe the system needs market discipline, needs competition; and frankly the way to get the benefit of both worlds, at least partially, is to turn this over to the marketplace. But we know those premiums are going to be above what production agriculture is going to carry, so you come in with a voucher.
Mr. COOKSEY. That said, you said you want to have market discipline, competition, market forces. I agree with that. I think a lot of the taxpayers would like that too. Why not go to cost-of-production insurance? I have been asked that for 2 years, and I still have not gotten a good answer, because I think it would be a much better program than what we have now. Or do you agree that a cost of production would be better than what we have had?
Mr. FLINCHBAUGH. The Commission did not make a recommendation on a cost-of-production program.
Mr. COOKSEY. What is your opinion of your cost-of-production insurance?
Mr. FLINCHBAUGH. My personal opinion or the Commission's opinion?
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Mr. COOKSEY. Your opinion.
Mr. FLINCHBAUGH. The problem I have with anything that is based on cost of production is, how do you fairly and accurately figure it. Whose cost of production? It is a very subjective process; that makes it very difficult.
It is just like the SIS proposal. You know, we talked at length about basing it on net rather than gross. When you move from gross to net, you open up a huge box that is very subjective.
Mr. COOKSEY. Well, I feel like there is some problem with the existing system too. We still haven't figured out all of the programs with fraud and abuse. And someone on the staff last year, we were having these long gut-wrenching hearings about insurance. I said, where does most of the fraud occur? Apparently he has now departed from the committee and from the Congress, a Member from Illinois, but it appears that most of the problems that suck money out of the system are in North Dakota and in Texas. Now, I didn't say that.
Now, that prompted a very heated debate between a Member from North Dakota and a Member from Texas and neither one of them is here today. Then I asked a staffer, where does most of the fraud and abuse occur? Some of it occurs in my State of Louisiana and Texas and some other places around that area.
For the life of me, I still cannot understand why we do not go to that type of cost-of-production system.
Now let me just ask you this; let me give you another scenario. Let's say we are going to have a zero increase in the budget this year, and we have had three members that have just left to go to a Budget Committee meeting, and we have another member of the Budget Committee here with us. And let's say I have a hint that we are going to have no increase in the budget and maybe 1 percent or 2 percent.
What should I tell my farmers we are going to be able to do for them in terms of a safety net? Where do you want to make the cuts? Because if there is a zero percent increase in the budget, we are not going to be able to come up with another $32 billion this year. So where should we place those resources and how?
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Mr. FLINCHBAUGH. Well, that is the very reason we have looked at a countercyclical-type program, so that we can react by formula to the situation that is actually occurring, and you can fund 50 percent of the formula, 70 percent of the formula, 90 percent of the formula depending on the budget constraints. So that is the beauty of that mechanism.
So I would simply use that mechanism and match it with the budget that is available.
Mr. COOKSEY. Thank you, Mr. Chairman.
The CHAIRMAN. I thank the gentleman.
In recognizing Mr. Peterson, I would just want to put in a point here from the gentleman that H.R. 2959, which was the risk management bill that became law, provides for a cost-of-production policy. Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman.
I want to zero in on a couple of what I think you have listed here as ''individual commodity policies.'' the dairy area you list that we should address market order reform, compacts, basically you list the four things we have been working on for the past 4 years, and we are worse off right now than we have ever been. So, you know, as someone who voted to get rid of the program altogether, I think we have either got to do that, or we have got to go to some kind of inventory management or supply management to give the industry the tools to manage this situation.
I don't believe that—you know, we beat oil reform to death and some of this other stuff. So I guess what I was wondering was, was there a discussion amongst your group on whether we should look at supply management or dairy—and what was it?
Or maybe it is in the minority views, and I did not look there. Leland says it is.
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Mr. FLINCHBAUGH. Yes, there was a discussion, and yes, we couldn't come to a consensus, and yes, it is in the minority views. We also come down on dairy and also peanuts and sugar and tobacco, that with those specific commodities and given the resources of the Commission, those industries—a blunt way to put it—have to get their act together and what is it they want. We couldn't find that out; and I think there is a good reason why we couldn't find that out, because they do not know. And so you can accuse of us punting, but we finally concluded if they did not know, we shouldn't know.
Mr. PETERSON. I guess that is a reasonable answer, having worked on this for a while, because I don't know either. I have got some farmers in my district that think they know.
Mr. FLINCHBAUGH. I am sure there are some in Kansas that they think know too.
Mr. PETERSON. The second area is sugar. You know, that is probably the only commodity left in my district that has been profitable, and now that is in question. You know, we have got serious problems going on there as well. And here again, maybe it is in the minority report or whatever, but I guess you have listed here as one of the options marketing controls or production controls.
And again we used to have—whatever they called them, that I think the Department had the authority to do market allocations or whatever, so that if things got out of line, they would go to the industry and require them to cut back production so it got back in line with the demand. And I think that was eliminated in the 1996 farm bill, if I am right.
So the question is, in reading your recommendations here, were you talking about reinstituting market allocation like we used to have, or just exactly what were you are talking about when you are talking about domestic marketing controls or production controls?
Mr. FLINCHBAUGH. Well, the answer to your question is, yes, that would be one of the options that needs to be looked at. We handled this the same as we handled the other three commodities. Although, if you read the report, you will notice a sentence that says that the Commission believes that a serious effort should be taken to look at an alternative for the current program. You all know, as I do, that the seriousness of the problems in the sugar industry at the present time. So, again, we felt that we needed to turn to that industry and they have needed to come up with some answers.
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Mr. PETERSON. Did you discuss at all—and I have not read through your trade stuff, but if we had not increased the amount of import in the dairy industry, I think we had to go from 3 to 5 percent. And then we have MPC coming in around the quotas, and all this, if we did not have this coming in, we would have $11 milk.
The sugar guys, although they have increased production, they also point to Mexico, 250,000 tons and so forth. Did you have a discussion about the fact that these imports that are coming in are a lot of, I mean, in my view, are a lot of the reason why we are in trouble with these commodities. Did you have those discussions?
Mr. FLINCHBAUGH. Yes, we had that discussion. We discussed all of these four specific commodities thoroughly. We had expert witnesses come in and so forth; and when we had hearings across the country, these four commodities especially sugar was very well represented. They came out and testified.
Mr. PETERSON. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Lucas.
Mr. LUCAS OF Oklahoma. Thank you, Mr. Chairman. One of the concepts of the 1996 farm bill was by allowing producers to the AMTA payment program that we would permit resources to flow in their more natural direction. When the Commission looked at the effects of the 1996 farm bill, was that indeed the case where we have seen shifts in crop patterns, shifts in how resources were being allocated across the country.
Mr. FLINCHBAUGH. Yes, that was indeed the case. The statistics that are in the report, weed acreage down about 16 percent, feed grain acreage up slightly, oilseed acreage up about 46 percent, cotton acreage up about 6. As we held those hearings across the country, if there was any consensus that came out of that, it was do not mess with planting flexibility. And as I travel the country, I constantly hear that. So that basic principle in the 1996 farm bill has basically worked.
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Mr. LUCAS of Oklahoma. And that was essentially the response in all of your hearings across the country?
Mr. FLINCHBAUGH. Yes, with minor exceptions.
Mr. LUCAS of Oklahoma. In the section of your report dealing with conservation EQIP, what kinds of insights did you come up with from those hearings on that, and the conservation area in general, I should say?
Mr. FLINCHBAUGH. Interestingly enough, except for administrative problems and so forth in specific cases where it did not work as it was supposed to, there was strong support for the EQIP program, but the problem was that it is not extensive enough as the old conservation program was. More people want in it which requires more money, but especially from the livestock industry where 50 percent of those funds were dedicated to livestock and 50 percent to crop agriculture. But the only, I don't know if ''criticism'' is the right word, but there really was strong support there, the only question was how, could we do more. Where, the old conservation program, there was more funds and it was broader; and this one is more targeted. Certainly more people want in it.
Mr. LUCAS OF Oklahoma. The changes within production agriculture, the number of farms, the size of farms in 1995–1996 as we worked on the farm bill, we looked at reams of historic paper about the changes that had gone on between the first comprehensive farm bill in 1933 and 1996 and some pretty dramatic changes—some, technology; some, productivity; some, the effects of both, intentional and unintentional, of previous farm bills, in the Commission's review of what has gone on since 1996 as you were conducting it, did the 1996 farm bill—and I am asking this in a sort of broad-brush kind of way—has it accelerated the rate of change, increased it or decreased it or essentially had no effect?
Mr. FLINCHBAUGH. Well, I think there is a different answer for the first 2 years and the last 3, because in the last 3 of course we have added the supplemental. We have added the various disaster programs, et cetera. So reduction of paperwork, et cetera, administrative costs and so forth, I think you would get a different answer for 1996 and 1997 than you would for 1998, 1999 and 2000, because we have distinctly changed things in the middle.
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Mr. LUCAS of Oklahoma. Thank you, Doctor.
Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Dooley.
Mr. DOOLEY. Thank you. And I want to compliment the Commission on all the good work they did.
I was kind of interested in how you would respond, as our charge here as policy makers is basically to prioritize our programs, and also within the context of our budget allocations that we have available. And I was interested in is that you call for a continuation of the AMTA payments as well as institution of the countercyclical payment program. I guess my question to you is, why do you advocate a continuation of the AMTA payments?
Mr. FLINCHBAUGH. That is a good question. Frankly, when we looked at the overall package that we came up with, which included the insurance, the farm savings account, the marketing loan, et cetera, we tried to come up with a package that plugged as many holes as possible to keep people from falling through the holes, and we felt that baseline—and we were working with the 4 billion that is currently in the baseline—would basically complete that process. So we built the countercyclical on top of that baseline.
Mr. DOOLEY. The AMTA payments are based on basically historic planting and yields. And if you have $4 billion, I guess I am struggling with, why would we say the appropriate policy is the continued putting out $4 billion in AMTA payments to producers based on acreage and yields from 5 years ago. And if you are in fact going to try to create a safety net, why don't you create a more comprehensive safety net, looking forward, that benefits current producers with a countercyclical program?
I don't understand why your commission is saying we have been putting out these direct payments for the last 5 years, and we think $4 billion, that we ought to basically restrain Congress in this committee by continuing those $4 billion in payments for an indefinite period of time.
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Mr. FLINCHBAUGH. Well, number one, again I go back to that total package.
Mr. DOOLEY. I guess, though, the total package is, you are advocating an insurance reform that can give us somewhat of a risk management tool. Why is not a countercyclical payment or program as you have identified, one that is going to provide the safety net that also at the same time will advocate $4 billion in direct payments that is not based on current yields, current production, current, you know, commodity prices. It has absolutely no relevance to current market conditions or who is even farming. Why do we continue that. You have the other programs that kind of fill up, I think your other program plug the holes.
Mr. FLINCHBAUGH. We had a debate about how we would distribute the SIS payment. We had a debate on, do we update the current formula, on how AMTA payments are distributed; and we did not arrive at a consensus. So we left it open. And that is in terms of the Commission, that is the best answer I can give. Perhaps some of the Commissioners would like to bail me out, frankly. You notice none of them are responding.
Mr. DOOLEY. The only reason we—actually, when we did the 1996 farm bill, we appointed this commission that hopefully we would come up with some answers that would not necessarily be predicated on political solutions. And one of the toughest things that we are going to have to deal with going forward is making some tough choices that are not going to be as politically popular; and one of those will be reducing the AMTA payments, because in some ways it is tough to justify that policy.
In that regard, I am a little concerned with the Commission's recommendations because, you know, it is almost like you succumb to some of the same political pressures that we are oftentimes succumbing to, and that is my concern. On your SIS program, you are aggregating the gross income of all eight commodities and then making a payment based on the decline of all of the aggregate totals there?
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Mr. FLINCHBAUGH. That is correct.
Mr. DOOLEY. One of the things we are concerned with in California, where we have a lot of specialty crops, is, we do not want to see payments going to producers who are changing production into specialty crops. And being basically financed, in part, by the SIS program payments that would be out there, that would distort the market signals and the equity in terms of some of our specialty crop producers; and I don't know if you gave any consideration to that issue.
Mr. FLINCHBAUGH. We had a lengthy discussion about specialty crops. And we had a hearing in Fresno and we designed this mechanism so they could be added if that is their choice and if it is politically possible, but we did not make a recommendation on that.
Mr. DOOLEY. Thank you.
The CHAIRMAN. Mr. Hayes.
Mr. HAYES. Thank you, Mr. Chairman. And I think—Mr. DuPree, didn't you have your hand up to make a comment on the AMTA payment situation? I will give the Chairman a short break here.
Mr. FLINCHBAUGH. Thank you.
Mr. DUPREE. I was one of the ones that signed the so-called ''minority view.'' it wasn't a minority, but it was an alternative. We thought, as a farmer—and that is what I have been for 50 years; my farmers are more concerned with the division that has to do with the safety net than any of the other things contained in the report. While we do not disagree that it is not a good approach that the majority did this as a comprehensive—if you want to try to include a number of different things; and surely the AMS problem was facing us.
In other words, we did not feel we could enter this thing without a violation right off the front.
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But some of us have been advocates that the main tool could easily be the market loan. It is purely countercyclical, it is purely coupled in need. It doesn't come into play unless there is need, and need measured by low prices and that sort of thing, and some much more effective, much more appropriate tool. And if you could take perhaps some costing numbers that we had, depending on how high you want to set those values—I'm sorry—how high you want to set those values would determine the cost of thing. But our estimates were somewhere in the range of $10 or $12 billion.
You could provide an effective safety net market loan for all of the major crops that would meet those requirements that we think an adequate safety net should have, which is that it should be countercyclical. We can't justify to taxpayers this money being paid out when farmers do not need it. Quite frankly, that is the problem that Mr. Dooley pointed out about the AMTA thing. It is based on historical payouts made in 1995.
There are people drawing it, I am sure, that are not even in agriculture today. It wasn't designed to be such a thing, and we are spending $4 billion on that sort of thing. And the SIS program, for all its good, when it was examined particularly at Texas A&M, they could never work out the fact that there were large holes left in that thing.
Corn, if you figure that into the aggregate, is such an 800-pound gorilla that you can have a good corn situation, good prices and good incomes, and the rest of the commodities be almost in the doldrums and not trigger a payment. So we thought the holes were so significant that a better safety net could be designed than that.
Mr. HAYES. Thank you, sir. As Mr. Peterson said, there were problems going on for more than one session here. Who was the main spokesman within your group or the most interested person on the tobacco issue?
Mr. FLINCHBAUGH. It wasn't the chairman.
Mr. HAYES. Any tobacco candidates? Anyone?
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Mr. FLINCHBAUGH. I think Mr. Swenson was the someone that convinced us we should say something about tobacco. Is that correct, Leland?
Mr. HAYES. Mr. Swenson, would you comment for our benefit on what we are going to do for our tobacco farmers that have been somewhat under fire along with other areas?
Mr. SWENSON. Well, first of all, I worked very closely with a number of the groups representing producers of tobacco, and as you will see in the Commission report, it lists a whole series of considerations that should be given to the debate.
But the main point that I heard from the tobacco producers is, number one, they are very concerned about the level of imports that are now coming in to displace the demand for domestic tobacco. That has increased dramatically. And that has decreased the demand for domestic product and then forced the reductions in quotas. That if a program is going to be public, in place of which just to depend upon imported tobacco for our product, there should be a transition payment made to assist producers in moving out of tobacco and trying to find some other commodity of which to be viable.
Mr. HAYES. Thank you.
Mr. Paige.
Mr. PAIGE. I am with the Federation of Southern Cooperative Assistance Fund. We work with African American farmers primarily. Many of those farmers still depend upon tobacco as a main income. And the concern there is what Lee has said, and I am a signer on the minority report, is that the quota, that be limited production, and the amount of tobacco that they can grow with recent tobacco settlements and so forth, they have not received any of this.
Now, historically, black farmers have lost quota. Over the years they have been denied quota. They have lost it, and some of the times they couldn't even make it during droughts and so forth, systematically taken away with it. So that plus what is happening now has been devastating on them. And I think somehow it needs to be addressed historically and now because they are suffering. We see farmers in North Carolina, Georgia and other places, South Carolina, that has really totally been put out of business. And this is a cash income. This is cash for those critical farmers. And that has been a concern, ongoing concern, for years. And it has just come up now with the whole tobacco settlement and so forth when other farmers are being put out of business the same way they have historically been. So that is an ongoing problem.
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Mr. HAYES. Thank you for raising that point, Mr. Paige. That has been across the board a tremendous hit to all farmers.
Thank you all for your work.
Thank you, Mr. Chairman.
Mr. PAIGE. The same thing applies for peanuts. You asked a question a few minutes ago, many of the farmers in south Georgia would not like to see a change. That was a reduction in peanuts, the quota payments and so forth. I think it will be devastating for farmers if during the debate on moving across State lines and making major exchanges on it, it would not only hurt farmers, but it would put a tremendous amount—I think a statement is in the report that acknowledged the hardship on small farmers. I think it would be a hardship not only on the communities if you move across State lines, the industry, I know there are some incentives built in on this, but it will not lessen the impact on these communities and on the farmers there. Thank you.
The CHAIRMAN. Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Chairman.
I also appreciate the work this Commission has done. I think already we are recognizing we have a ways to go. When we had our hearings across the country last year that Chairman Combest took us on and the several stops that I was at, producers would approach me, and probably others, too, but talking about raising the loan rate on the farm storage. And as the panels responded, they were not in favor of that. The question was put to the audiences that were in attendance; a sea of hands went up.
So what is the current thought from your studies from the farm groups, from anybody, about raising the loan rate and on the farm storage? And if we have time, I would like to talk about transportation a little bit. Could you address that or have somebody do it?
Mr. FLINCHBAUGH. First of all, I will respond quickly for the majority, and then the minority may wish to respond.
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We experienced something similar, I would say, to what you did, and we have had long discussions, and we concluded that the serious problem with the loan rate today is the imbalance and the fact that what has on planning decisions, et cetera. And so we recommended that we achieve a balance vis-a-vis historical relationships between the various commodities. We did not recommend an increase in the overall level. And, therefore, there were minority reports, and, Mr. Swenson, do you want to, or, Mr. DuPree, do you want to comment on that?
Mr. SWENSON. Thank you. I will try to make it very brief. If you do get a chance to look at the minority report, it addresses the very issue. Mr. DuPree pointed out concerns we had with the SIS Program and the AMTA payment. What the minority report did was take a look at what Congressman Stenholm had mentioned; that was the dollars that have been spent the last number of years. We took into consideration how does that reflect into adjusting loan rates in relation to where costs of production are, because that is what affects a producer out there immediately. And what we came to the discovery of is that you could adjust loan rates to approximately 80 percent of the cost of production and equalize loan rates and not affect where soybeans are today.
Now, a couple things come into play as the question was raised earlier. Planning flexibility, it is contained in the minority report. Planning flexibility has been impacted by a couple things: One is where was the support price for soybeans in relation to feed grains and wheat. That had some impact on feed grains being switched over to soybeans. We now see the reports of what energy costs are and discussions of farmers now switching over to soybeans because of the cost of nitrogen, so planning flexibility allows that. But what is impacting producers' decisions is what is the structure of the support program in relation to what kind of returns they can get to the cost outlays that they have. .
So we have taken in the minority report and said that we would urge that the loan rate, the marketing loan, maintaining that, be set at a percentage of cost of production. And we also do, different than the majority report, continue to advocate payment limitations. I take exception. I think payment limitations have impacted the structure of agriculture.
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Let's just take a look back to even the 1996 farm program, the 1990 farm program, where we set payments based on 85 percent of the yield. We went to historic basis. We froze yields, I should say, and then we made payments. We put payment limitations within the structure of the program that came back to impact the budget outlays that were going to producers. We did that by the structure of the program. The sole payment limitation wasn't just the amount of money that was allocated to go out in relation to how much loan could you take out, or what was the total maximum payments you could receive under AMTA. We have done a number of things of payment limitations, and many of them have had a direct impact on producers across this country.
We just think that if you tie the loan rate, it goes to what producers' yields are getting today, what they are deciding to plant today, and it has been widely supported by producers all across this country.
Mr. BOSWELL. Appreciate that.
Did you have any discussion, Mr. Chairman, or anybody, Mr. Swenson, about on-farm storage?
Mr. FLINCHBAUGH. Yes.
Mr. BOSWELL. The reason I am concerned about that is I got into a pretty healthy argument with the railroad industry here a few months ago. I said, what do you expect us to do? Do you expect us to have thousands of cars sitting on the siding until—you know, until it is convenient, or what do you expect us to do with our investment? And anyway, did you have a discussion about that?
Mr. FLINCHBAUGH. Yes, we had a discussion, and the majority concluded that we would not recommend going back to a farmer-owned reserve. Again, there was a minority view. The majority view simply was that it is in our best interest to move supply out, to get it distributed rather than having it in storage hanging over the market and paying the cost of storage. So of course we didn't preclude that an individual farmer would store his own grain, but there was clearly a minority view to that, which Mr. Swenson may want to represent.
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Mr. SWENSON. Again, thank you, Congressman.
In the minority report, two things take place. One is when you raise the loan rates, do you provide a better opportunity for farmers who make their own decision to store their own grain to look for marketing opportunities? Number one.
Number two, we do advocate the authority granted for a limited—and I want to stress the word limited—farmer-owned reserve. It would be a percentage of production. So it wouldn't have the normal grainery that everybody likes to go out and bring out of the closet and rattle the skeletons. What we are talking about is a very limited farmer-owned reserve.
We would like consideration of the committee to consider within that a release mechanism that if a farmer suffers a crop loss within the next year, that they could tap out of that farm reserve commodities of which to protect that first 25 to 30 percent loss. Even with the tremendous improvements that this committee made in the Crop Insurance Program from beginning in 2001 and 2002, they lowered the premium, but the farmers are left bearing that first 25 to 30 percent loss.
We did a great job of insuring the insurance companies and the banks, but we have done very little in protecting the economic welfare of that producer on that first 25 percent. A limited farmer-owned reserve, a farmer voluntarily choosing to participate, with that mechanism would allow them at a very limited cost to the Government to really protect themselves on that first 25 to 30 percent loss.
I would hope that you might give that concept some consideration, because, again, you made some improvements last year of authorizing some on-farm storage facility loan funds of which to help farmers create their own storage facilities. Why not continue to improve that type of a program? So that is in there.
Second thing is using some of that for an energy reserve program. Right now we need a greater expansion of renewable fuels in this country. It would be a commitment to be able to do that.
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So, again, I encourage you to look at the minority report because a number of those things are in there. That would reduce the cost of outlays through deficiency payments, but yet help bring better prices in the market where farmers really want to get their income.
Mr. BOSWELL. Thank you, Mr. Chairman. And thank you, panel. My time has been way over, so I am probably in trouble with the Chair right now.
The CHAIRMAN. Mr. Osborne.
Mr. OSBORNE. Thank you.
I would like to focus a little bit on environmental issues. As I go around and talk to people in my district, we are finding that many farmers and ranchers feel that they are getting back progressively into a corner. There are more and more regulations; they are expected to do more. The regulations sometimes are vague, TMDLs and so on. And you addressed some of these issues here, and so what I guess I would like to have you expand a little bit on is the idea that—of tying the payments for environmental issues to be a little bit more realistic to reducing the cost, because it seems like so many people are—CRP, for instance, is hardly sometimes worth doing. So I just wondered what your thoughts were.
Also I see that you had talked a little bit about paying environmental issues out of a separate account, and I guess I didn't quite understand where that money was coming from or what the proposal was.
Mr. FLINCHBAUGH. Well, I would refer you to the page in the report, if I can find it, where we had a list of programs that we thought ought to be researched. It is under the conservation part. Someone—Mickey, you want to help me and what page it is, because I have a different system, different copy. We got so many different copies that I will find it in a minute.
It is on page 8 and 9. And I think we addressed that on both of those pages. Clearly we recognize the cost of these environmental regulations. And if you notice, in one of those sentences we said, and if necessary, structuring a regulatory environment that allows farmers to prosper, and then the separate account. And I think that is key, or a separate fund. We don't view—at least the majority doesn't view this as we will come up with all these environmental programs, and we will pay farmers to carry out these environmental practices, and that will be the farm program. We would suggest that ought to be separate, that it be funded as an environmental program and charged, frankly, to that issue or to that area rather than charged to farm income, for example. I think that is the key point.
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Yesterday in the Senate, as many of you know, Senator Harkin has a proposal that comes close to the third item in that list. We would say study it, but fund it as a separate program. It is not the farm program.
Mr. OSBORNE. If you are going to fund it as a separate program, then how do you administer it? There is still tax dollars, right? And how do you separate it out in a meaningful way?
Mr. FLINCHBAUGH. Frankly, we didn't get into that. We will leave that up to the Congress. That is the only answer I can give you.
Mr. OSBORNE. You just punted, didn't you?
Mr. FLINCHBAUGH. We came up with the concept, and then we punted, yes.
Mr. SWENSON. If I can, because I signed both the majority report on conservation, plus in the minority report on the farm safety net, there are additional conservation initiatives that I think need to be done. We have a structure in place that is well qualified to enhance and deliver good environmental programs and to help producers implement them. One is the National Conservation Research Service, NCRS, and then the Farm Service Agency. I think there needs to be better cooperation between those two agencies. But one has the strength of technical assistance. We have conservation districts out there that have a lot of technical assistance, that are able to apply them and work with farmers in their implementation to fit their particular operation, because one size doesn't fit all. One particular program has to be adopted to fit the land type, the terrain of the individual farmer. So I think we have the system, we just need to make sure we have got solid programs and the dollars with which to do it.
Mr. OSBORNE. Thank you. I believe my time is up here.
The CHAIRMAN. Thank you, Mr. Osborne. That is correct.
Mr. Paige, did you—we didn't want to cut anybody off. We want to expedite this as much as possible. If you have a comment?
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Mr. PAIGE. Just a brief comment.
You know, many limited resource farmers and small farmers don't participate in many of the environmental programs and conservationist programs because of the way they are structured, you know, cost-sharing. We need to look at that. The ability for them to advance money out first when they can, then they have to get reimbursed later, those are hindrances that keep many small farmers from participating. Those kind of adjustments need to be made in this farm bill that will waive many of those, and that would be an encouragement for black farmers to participate.
There is a piece that we have in the minority report, in the Small Farm Report, period, in the Federal Register that would be a volunteer registry of black farmers or all minority farmers where they will volunteer, and they will give special assistance when they are in trouble and give incentives like this of waiving those particular things for participation. We think that would increase conservation. It would be increased participation in all these programs, everything there. And I think it would be an addition if we look at that very seriously in the next farm bill, waiving those items, and making more useful for all farmers.
The CHAIRMAN. Mr. Etheridge.
Mr. ETHERIDGE. Thank you, Mr. Chairman. And let me also echo the comments of previous Members in thanking the Commission for the report. Given my limited time, I am going to have to be very specific in the questions I ask because this is such an extensive report. I am going to deal with the specialty crops specific to my State really, and some of it—some of questions I would like to ask I won't have time no matter how many rounds there are, because really North Carolina is one of the most diverse agriculture States in the country, and there is a reason for that.
You have talked about tobacco, and I am going to come back to that, and peanuts, and the issue of small farmers is directly related to those two issues. The reason for that is they have had a cash flow over the years as a result of those commodities. And they have diversified into poultry and pork and all the other commodities we have, but the point, that still is the base.
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And my question is this: You have made some recommendations, but I must confess as I read it, I come up short on where the money comes from. I come up short on how we get there from here. And if I read the report literally, it really does talk about, if you follow it literally, doing away with small farms, because if you are going to do away with the quotas, you are going to transfer across lines, you are going to do some of the recommendations, it works against very issue you are talking about in protecting small farms.
So I hope someone can help me with that, because I think as we grapple with those issues here, the import is the third portion of it, as we look at the imports is that is another anchor that is going to drag the ship down as relates to small farmers. Whether they be minority farmers or otherwise, we are forcing them into large operations.
The final point I want to talk to you talk about is that many of our small farmers are doing it on a part-time basis working somewhere else. If all these were implemented, they won't be on the farm anymore. So I hope you can help me with that.
Mr. FLINCHBAUGH. First of all, Congressman, on the section on speciality crops and dairy, those are not recommendations. They are simply a list of options for further study. They are not recommendations. Obviously it would have been inconsistent for the Commission to make the recommendations you are talking about and then come back in the last section and support small farms.
If you go back and look at the statute of what we are charged to do, and you interpret that at least the way we interpret it, we were to come up with, first of all, what is the role of Government, and we said clearly the role of Government was in support of small farms. That is in the list. Very prominent.
Second, what we have done as a starting point, the jumping-off place, a map. We didn't have the resources, the time, et cetera. It was not our function to write the farm bill. And so I know if you view it from this context, all that is is a list of alternatives that will get debated. So, therefore, I don't think it is inconsistent with the support for small farms.
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Mr. ETHERIDGE. Well, I hope some others will speak to this, because one of the concerns I have as we continue to be more and more integrated, and we are doing that, what we are doing is putting some of our supply lines more at risk, and we have to be very careful of that. We never had that problem. So I hope someone can speak to that. I assume someone covered that.
Mr. NORTHEY. Certainly one of the reasons that we talked about farm accounts was to be able to include more folks in being able to manage some of their own risks, and farm accounts are very important to be able to do that. We spend quite a bit of time talking about small farms and the things that the Small Farm Commission has done, the recommendations that are on the Advisory Committee on Small Farms that is in the Department. We think there is some real value in that.
I also want to address your question as far as where the money would come from. Our view point of the marketing loan is it would stay significantly like it is right now. Maybe there are adjustments in rates as to address some of the concerns that others have had, but it would stay very similar to what it is right now.
The AMTA payment would stay the same as what the baseline would be at the end of this current farm bill, and that the SIS Program would be able to use a baseline that could be established, that we will all wait and see what it is, that would represent the additional AMTA payments that have been made that have been there, that have been supported by the Congress because of these tough times that we have had these last few years.
And so each of those dollars came from someplace, and as we looked at what the income to agriculture has been over the last few years and tried to say whatever the future conditions are, how do we ensure the best—the best level possible in relation to that, these are the programs that we put together as a package to be able to address that.
The CHAIRMAN. Mr. Putnam.
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Mr. VILLWOCK. I would like quickly to respond because we heard this the other day. We have heard this question of speciality crops, and I wish Mr. Dooley was here, too, because in California we heard this as well. A lot of rhetoric we hear in the press is about speciality crops being included in farm program payments. I guess I always try to make the point there is no such thing as a big niche market. I think some of these specialty crop people come to us and testify to that very point that, do not throw me into this Pandora's box of Government program payments, because others—once you take the risk away, everyone wants to get in.
I think it is a detriment or accelerates the demise of small farmers that have the ability to take that risk on a small basis to raise some of these crops that if you take that risk away, large farmers or those that can go to the bank now and ensure that risk or get a program payment will get into those markets and drive the small producers out quicker.
The CHAIRMAN. Mr. Putnam.
Mr. PUTNAM. Thank you, Mr. Chairman. I apologize for missing the earlier parts. I had a Budget Committee meeting, but I did want to address the issue of fruits and vegetables to the chairman. Understandably not largely being subsidized, it is an often overlooked portion of the agriculture economy. But what consideration did the Commission give to the fruit and vegetable portion of the agriculture industry, and what potential areas in trade and environment did the Commission review that could have an impact, a positive impact, on the fruit and vegetable industry?
Mr. FLINCHBAUGH. Well, if you look at the sections that are in the report, starting with the income safety net, risk management conservation trade, et cetera, fruits and vegetables are in there to various degrees. For example, the income safety net, we have left the door open that other commodities could be added to the aggregate. The conservation measures all would apply. The risk management measures, a voucher system could apply to fruits and vegetables, certainly EQIP, the various research areas that we listed.
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So we didn't single out a specific program for fruits and vegetables, but we think the package that we have come forth with is all-inclusive, and there is a place in there for fruits and vegetables.
Mr. PUTNAM. Was there a consideration in your discussions of other non-farm-specific policies that the Congress could impact that would enhance the competitiveness, profitability or success of the American agriculture?
Mr. FLINCHBAUGH. We did not get into macropolicy, for example, interest rates, taxation, in terms of the overall question, but we certainly recognize that impact. We viewed that as beyond our function, given the statute, but you don't build a farm program without taking into consideration macropolicies. Trade, we talked about a single undertaking in trade negotiations that agriculture be included.
So, in answer to that question, we looked at that from a comprehensive standpoint, but we did not make any specific recommendations.
Mr. PUTNAM. Thank you, Mr. Chairman.
The CHAIRMAN. Yes, sir.
Mr. Paige, did you have a comment that you needed to make?
Mr. PAIGE. Yes, I do. Thank you.
Representative Etheridge, I believe, I wanted to go back to that, and this would be also from Congressman Putnam, would be a comment regarding that. And the Small Farm Report, I think it speaks to a lot of those issues on small farmers that were 146 recommendations in there. And it goes a little bit beyond reason. We ask that you use this or in the minority report and give it congressional authority, because there was 146 reports that deal with things that we think that are very important to small and limited-resource farmers. Some of those things included market access for small farmers, which could be cooperative development. Send up those special things outside of the box, if you will, that would offer opportunities for small vegetable farmers and this type of thing, and market assets, speciality crops and other markets, and make it more competitive. Market development is another one; research and extension. It has been biased towards large farmers, and it says so in this report.
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I ask you to please make this a part of it and ask that you look at that report because I think it says a lot and offers some things that would really, really go a long ways. Credit, too. The fact that getting young and beginning farmers credit, you know, direct loans, these are the things that are important. Civil rights, you know, a whole—discriminatory things that have happened historically to keep minority farmers out of the main place, and that was out of this. That was a report done that looked at USDA had—by and large didn't do too well on any of these issues.
So that is what we want to ask you, to make this a part of it, give it some congressional authority and funding to keep it going as a main advisory piece.
And I would also like to say that out of all the payments in the 1990's, the last farm bill, the FAIR Act, it just wasn't so fair to very small farmers. Black farmers did not receive very limited amount of AMTA payments because—for several reasons. First of all, they were too small. Second of all, they could not establish for several reasons an historic average. So they were left out of it.
I think as we debate this thing, we need to feel a little bit level, and I am advocating some way to include that in there and to include small and limited-resource farmers.
I think the 146 recommendations would certainly go a long ways in this farm bill. And maybe there might even need to be a special section in the farm bill on small and limited-resource farmers that would address all of these issues, which I think are very important for the survival. Thank you very much.
The CHAIRMAN. Mr. Bishop.
Mr. BISHOP. Thank you, Mr. Chairman, and let me thank the Commission for its hard work.
I have a number of questions, but some of them have already been covered, but let me just thank Mr. Paige for his comments. Along with Mr. Etheridge I have similar concerns particularly about tobacco and the impact that tobacco has as a cash payment for small farmers. And I do think that it is important that we emphasize the small and limited-resource farmers in terms of resources as we move into the farm bill and look at farm policies, because one of the four main thrusts for the Commission's work was strengthening—making sure that we have a family farm system in this country. I think that as a national policy that is a good one, but in order to do that, we want to make sure that we include all of the family farmers, particularly those small and limited-resource farmers.
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Specifically dealing with—of course, I come from an area where we have a lot of peanuts, some tobacco, a lot of cotton. I think cotton is pretty well addressed in your report. And I am interested in the move toward a Step 2 Program for peanuts similar to cotton, which is very interesting. But I would like to know how much money you would allocate for a peanuts Step 2 Program. I would like to know what the level would be for your setting the marketing loans for peanuts, and how the Direct Payment Program for producers would work, and whether or not that would be in addition to the marketing loan payment and the payment to the quota holders as you would retire the quotas.
Also, I have a lot of concerns that are raised about the inadequacies of the past farm bill relative to pecans. So I am interested also in the fruit and vegetable growers as well as in pecans. We have a lot of pecan orchards, and they are experiencing a great deal of stress right now. And I would like to get some reaction to that issue, if you would.
Mr. FLINCHBAUGH. I am simply going to have to respond you that we do not go any further on those issues than are in the report. We simply listed these as options. So I can't give you specific answers to your questions. We feel very strongly that in these speciality areas, that we needed to hear from those industries, and they are having difficulty coming up with answers, and we weren't going to be presumptuous enough to preclude them.
I know that doesn't answer your question, but that is the best that we can do as a group. Some of the individual members of the Commission may wish to comment.
Mr. BISHOP. Well, it does give me some impetus to go back to some of those affected groups and to sort of leverage them to try to come up with some consensus ideas on how to handle these issues.
Mr. FLINCHBAUGH. That is specifically what we would hope would happen. That is why we responded the way we did.
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Mr. BISHOP. And hearing it from you gives me ammunition to say that, that we need to all be singing from the same sheet of music, and we need to be reading from the same page. So I appreciate that. But I do want to emphasize the small and limited-resource farmers. I want to emphasize the civil rights issues and how they are impacted.
I notice that you deferred to the Commission on Small Farms for much of your discussion of rural development, but we learned 10 years ago that the farmers and the family farms were basically those where there was all farm income. So the rural economic development—so in rural communities we can produce, process and export from the same community seems to be something that would be very, very pertinent to what your Commission was doing in terms of making recommendations for a strong agriculture production system. And you sort of punted on that, in a sense, to the Small Farm Commission, which seems to me they are very much intertwined.
Mr. FLINCHBAUGH. We made the strong recommendation that the USDA Advisory Commission on Small Farms, or Advisory Committee on Small Farms which was created by USDA, be made permanent, be granted status through congressional action, be funded, et cetera, to respond to these types of questions and come up with policies for small and low-income farmers.
Mr. VILLWOCK. Congressman, I would like to respond a little bit to your question and Congressman Putnam's question earlier on speciality crops, fruit and vegetables, what we allude today in the report. I think one of the things that Mr. Northey alluded to a little bit that we overlooked is the farm and risk management account that the Commission highly recommends that we adopt. You in your wisdom have passed those before. To some degree we did modify that, taking a time limit off, because of the cyclical nature of agriculture, and I think the fruit and vegetable and specialty crop areas even see more cycles maybe so than we do in program crop areas, and livestock producers as well. I think the pork industry would have been well served in their recent crisis if those producers during those high-income years would have had the opportunity to sequester some of that money in one of these farm and risk management accounts and then be able to bring it out. I think it would serve those speciality industries extremely well.
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And then, too, we also talked about income averaging is still a good tool. One of the things that has happened as a useful tool is when they use the alternative minimum tax as it applies to income averaging probably negates 60 to 80 percent of the advantage of that. If we don't or you don't have the opportunity to remove that, income averaging is not the useful tool that we hold it up to be in agriculture to solve some of our problems. Thank you.
The CHAIRMAN. Mr. Chambliss, we need to be on the floor in 10 minutes for the vote. Would you like to ask now or come back? We will be coming back.
Mr. CHAMBLISS. I will try to do it very quickly.
The CHAIRMAN. If the panel will excuse us. We have to have you at least as long as the Senate committee had you. So we have three votes in a row. As soon as we finish those, we will be back for Mr. Chambliss. We will let him recess the committee.
Mr. CHAMBLISS. Gentlemen, I want to strike at what I think is the heart from the Southeastern perspective, particularly with respect to peanuts and tobacco. Your recommendation includes the payment to farmers for peanuts, tobacco and sugar, phasing out essentially of those three programs as we currently know them, and the Peanut Program you even talked about making direct payments to manufacturers, which certainly in the peanut industry is a very novel idea.
First of all, are you talking about using resources from general revenue funds to make those payments?
Mr. FLINCHBAUGH. We did not get that specific. These are simply a list of options to be explored, and we did not explore sources of funding, et cetera. We are simply throwing that out to the industry to come up with answers and throwing it out to the Congress. We did not go any further than what is in the report.
Mr. CHAMBLISS. OK. Going a little bit towards what Mr. Etheridge was saying with respect to small farmers and a lack of emphasis on promoting small farmers, now I just have to tell you that in the peanut farming industry, the average peanut-growing farm is less than 200 acres. The average tobacco farmer grows, I would guess, in the range of 15 to 20 acres. So we are talking about small farmers. And yet your recommendation is to phase out quota systems on both of those programs. We are talking about phasing out small farmers in essence when you do that, folks, because there is no way that a tobacco farmer who grows 15 acres of tobacco can generate the income growing anything else that he generates from growing 15 acres of tobacco, and the same with respect to peanuts.
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I am also a little bit disappointed that you fail to recognize that in these tough 3 years that we have had in agriculture all across the country with respect to every commodity, the only three programs that have generated somewhat of an income for our farmers for these 3 years have been peanuts, sugar and tobacco. Those are the only three quota programs that we have got left. I don't know what that says about the quota system. We got away from it in the 1996 farm bill. Frankly, I thought it was the right thing to do with other crops.
But that issue just stares us right in the face, and it is just a red flag waving at us that we may have made a mistake back then, and we have got to look at whether or not we need to reinstitute the quota system or base system with respect to other crops, and we need to continue these programs in at least somewhat the current form that they are in, because there is some guarantee of income to our farmers with those types of programs, and they are no-net-cost programs and don't cost the taxpayer a dime with the exception of inspection fees and whatnot.
The other thing I want to ask is whether or not when you are talking about continuing the AMTA payments in their current form, current form, I assume you would be talking about using the current formula that we used in the 1996 farm bill to make AMTA payments, determine what they are going to be?
Mr. FLINCHBAUGH. Yes.
Mr. CHAMBLISS. I have a problem with that. We in the Southeast were in a transition period back in the 1980's and early 1990's, and I know you don't have Mr. DuPree there from Mississippi on your committee from the Southeast, but Mississippi is a pretty classic example. We have gone from growing—primarily growing peanuts, cotton and tobacco to growing some soybeans, getting away from cotton; some produce, getting away from cotton; or going to cotton, not growing soybeans, not growing corn. We grow very little corn in the Southeast anymore. We grow a lot more cotton.
And the result has been that the way the formula is now used, the way the payments are now calculated, we have large cotton farmers who are receiving very, very minimal payments, and you have some farmers who grow no cotton and in other parts of the Southeast who are getting significant payments. So we have got to change that formula somehow to make it equitable.
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I have only got 3 minutes left, so I have to run. The last thing I would say is I wish you had given some thought to the fact that we got to figure out a way with these payments if we are going to continue them. I agree we have got to continue payments in some form, but we have been working forwards to getting those payments to the producer, and we are not getting the payments to the producer like it has got to happen. And I know everybody agrees with that, but we are not saying it enough. And unless folks like you all say that and tell us that it is just mandatory that we get those payments to the producers, then the land owner is going to wind up getting the majority of those payments either directly or in the form of rent. We can't let that happen.
Thank you all very much for the work that you did. We appreciate your input. We look forward to dialoguing with you as we go through this process in rewriting the farm bill. We will be in recess until the chairman returns.
[Recess.]
The CHAIRMAN. The committee will resume. I appreciate the patience of the Commission. That should be the last delay we have. Maybe a few more Members coming back. They have got other committees they are dealing with as well.
Having once been a farmer and once worked in the old ASCS where these programs and things are distributed through, how would it work in trying to determine if I as a farmer in Lubbock, TX, how much I could anticipate under a supplemental income proposal as you have proposed and how that would work on a national level in determining how much I as an individual farmer—whether it is going to be based on yield—is it going to be based on program history? If so, for how long a period of time? What happens if I start making changes in what I am producing? How do I know where I fit in the level of assistance?
Mr. FLINCHBAUGH. Well, the very simple answer to that question is the way the report was written, we assumed they would be distributed the same as the current AMTA payments are distributed, same as the market loss payments were distributed. Now, we didn't recommend that. We just made that assumption.
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The CHAIRMAN. There has to be some formula. Now, we know how AMTA payments are decided, but how would that formula be made based on what is happening in other parts of the country? What is my basis as a farmer for determining that? If it is a revenue-based program, is it how much I have received in farm income over a history of a period of time on any commodity that I am producing?
Mr. FLINCHBAUGH. The answer to the question is yes, it is history based over time, but it is those eight program crops that are in the aggregate as we designed it. Now, other crops could be added to it, but as we have it in the report, and as we had FAPRI look at it and score it, it was those eight program crops.
The CHAIRMAN. So it is based on the eight program crops.
Would the income I have received on a nonprogram crop not figure into my gross revenue for determination of whether or not I was above or below the average?
Mr. FLINCHBAUGH. No.
The CHAIRMAN. It would not.
Mr. FLINCHBAUGH. No.
The CHAIRMAN. So a farmer who had done very well in a nonprogram crop might be eligible for assistance if the program crop that they were producing was on the national level below their average farm income?
Mr. FLINCHBAUGH. That is correct under the assumptions we use to evaluate the proposal and come up with a budget impact.
The CHAIRMAN. Would the basic determination of what those levels would be be at the same formula that is used today as the basis for AMTA payments?
Mr. FLINCHBAUGH. Yes.
The CHAIRMAN. Livestock income, that wouldn't matter; it is basically—it is based not on revenue that agriculture receives, it is revenue that they receive off the basic program crops?
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Mr. FLINCHBAUGH. Right.
The CHAIRMAN. At what point in time would you recommend that—if there is a point in time—that you recommend that we might get away from using the formulas that by that point could be several years old?
Mr. FLINCHBAUGH. We did not make that recommendation, Congressman. We discussed it and debated it. And that is obviously a very contentious issue. Do we update the history?
The CHAIRMAN. One of the concerns that has been expressed, and I agree, I think, rightfully so, in the past, that we have been basing the assistance programs for the last 3 years on increased AMTA. It is not actually double AMTA, in some cases it was actually more than would have been double. But one of the questions was people may not even be producing those crops anymore, which is true. But what we found out when we started looking at all the decisions we had to make in regards to timeliness of getting those payments out, it was very easy to go with an AMTA payment. All those calculations were already in the computers, could be done in a timely basis at a time that generally payments are made, which is around harvest time, making for certain that we didn't artificially raise the price through strictly a loan because of the impact it would have on the users of those products, livestock and others, trying to do it in a manner that dealt with both people who had low prices, as pretty much all commodities had, as well as those who had crop losses. It doesn't matter what the price is if you didn't make a crop.
So it was just determined that, given all of those weights into it, while there may be other ways to do that, it was pretty much, I think, determined that that was the most equitable, certainly the fastest way to do that.
But a lot of concern has been expressed, and I think rightfully so, that you should be dealing with an individual based on—an assistance program that is based on what it is they are producing today rather than what some history has gone and created on that farm.
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Then you also have the problem to deal with about a person encouraging a person to come into farming that didn't have a history. Does that history go with the land, or does that history go with the farm, or exactly how is that discussed?
It just points out these things that we have been discussing here for some time and the difficulty of coming up with what is maybe viewed as being equitable or fair, and not everybody has the same definition of that. And I just wanted to, in my own mind, make sure that I understood what your proposals were in that regard, and I think I do.
Mr. Stenholm.
Mr. STENHOLM. On the proposed rebalancing and increased loan rate, the Commission has carefully constructed the SIS to take that out of the amber box and put it in the green box. But it seems to me that by increasing loan rates, and rebalancing, the Commission would have added $4.3 billion in 2000 and $2.6 billion in 2001.
What is the reasoning or rationale between that seemingly little inconsistency in your recommendation?
Mr. FLINCHBAUGH. Well, Congressman, you certainly could view that as inconsistent. And you need to understand when you read the report that those estimates that were made were based on that assumption. But the Commission simply recommended a balance. We didn't say bring every other commodity up to soybeans, or bring soybeans down to every other commodity.
We would note that in our calculations on the SIS Program, we brought oilseeds in under that program, and one of the rationales in 1996 for a higher bean loan over the others was that they weren't part of AMTA where we bring them into the SIS Program. So one would make the argument that the Commission did not recommend this. Again, to use Coach Osborne's term, we punted. But you could develop that rationale that because beans were brought in under SIS, that loan could be partially adjusted downward and the others partially adjusted upward. But the 4 billion that you are talking about brings them all up to the historical relationship or the actual market relationship between the various commodities.
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Mr. CAMPBELL. Mr. Stenholm, one of the reasons that I wrote minority comments was the assumption that these SIS payments are green box. I think that is highly speculative. We know that the administration, the previous administration, did not declare the supplemental AMTA payments, although they stated publicly that their intention was to declare them as amber box. Because of the politics involved in that, they simply didn't declare them at all. But they must be declared here pretty soon. There is ample legal reason to believe that those payments were amber box, and if those payments were amber box, then these payments are even more coupled and therefore more likely to be amber box.
Now, having said that, there is $19.8 billion under the amber box to spend. So this program could be accommodated and still be within the WTO commitments. However, the other reason I couldn't sign on this report is because when you take 1996 and 1997 and make that the standard against which you are now going to have to pay, as far as income is concerned, and you rebalance commodity loans and add $6 billion over 2 years, you can't fit it all in. There is just too much money there.
So I would be careful about assuming that these pseudo-decoupled payments are green box.
Mr. STENHOLM. Do you have a brief comment?
Mr. KRUSE. Yes, sir. I think the majority of the Commission, as you all know, do believe that these SIS payments would be green box, and others outside the Commission have indicated a belief that that would be the case as well.
I think, Congressman Stenholm, back to your point about the logic of adjusting the loan rates, I think one of the thoughts that many of us had on the Commission was right now if you look at the soybean loan rate, of course, compared to other loan rates, I think it could be argued that at least there is some persuasion for farmers to plant soybeans because of that disparity. So there is some logic, I think, to adjust those to be equitable to soybeans so that a loan rate doesn't encourage decision-making.
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And I would just say, too, one quick comment that kind of goes back to some of the points that both Chairman Combest and you, Congressman Stenholm, have made, and others on the committee. I think one of the things we have really struggled with on this Commission is try and figure out how we can provide some help in a meaningful way to farmers when it is needed. It is difficult to do. I think we have to keep in mind, you know, some people talk about just substantially raising loan rates. There is no question which box those dollars are going to fit into.
And so I think we have to be very sensitive to on the one hand making sure we do have some help provided. That is why we ended up recommending a SIS-type payment and a continuation, quite frankly, of some AMTA-type payment so it will plug some of those holes that will be there when you look at the aggregate payment with the SIS payment. But we have to do that in making sure we don't blow the cap off the amber box, because I think the Europeans would absolutely be delighted if we would ignore our parameters, whether we like them or not, as they relate to the amber box.
Mr. STENHOLM. I could not agree more with you. And I fully agree with the concept of rebalancing for the reasons that you have amplified it. But all due respect, my first question on the budget, if you add up all of the recommendations that you have made in somewhat firm recommendations, and then all of the peanut and tobacco and sugar and other recommendations, you busted the hounds out of the green box, amber box, blue box and the budget of the United States of America. You all did that. And I don't blame you, because you are pointing out real needs.
I guess one final comment, Mr. Chairman, if I might just abuse the record in saying you all had a difficult task. This committee is going to have the same task you did, only we are going to have to come to conclusions. If there is one message from today—you know, if you weren't the Commission, I don't think the Chairman would have allowed you to testify today. It would not have met the criteria that he asked for of everybody else. But because you are the Commission, you have been allowed to testify and to kind of set the parameters.
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That is helpful. I say this respectfully. That is helpful, because you will be back with your own organizations. You better come with specifics, and you better be prepared to defend them. And I wish there were more of our committee that would spend a little bit more time listening. And I am going to give every Member the benefit of the doubt that they are going to read your report because there is a lot of good stuff in it that we need to take into consideration.
But we got a difficult task ahead of us. You have laid a foundation for us. We can say whether it is on sand or on rock. That is everybody's individual opinion.
I am going to give you the benefit of the doubt and say that you have given us the impetus to start from and to work from, and to each of those areas—quite frankly, the minority reports came a little closer to meeting the standards than the majority report, and I understand why, and you all have expressed that. You try to get regional agreements. You heard Mr. Peterson talk about dairy, for example. It is going to be fish-or-cut-bait time.
All the field hearings that the chairman and I attended last year, we had 200 witnesses, only one of whom testified saying the reason Freedom to Farm doesn't work is because you have pumped too much money into it. Therefore, all of the value of these dollars has been capitalized into land, et cetera. Every one of you understands that had we not pumped that money back in we would have had a depression in farm country.
But now the question is, can we reasonably expect to continue that? The question the chairman is asking AMTA, that is a political question we have got to address. I can't for a moment see the wisdom of continuing to pay checks under the current AMTA formula. But that is for us to decide. If not that, then you have said some other—you have recommended that that system kind of be followed.
Anyway, I appreciate the hard work that you have put in. I look forward to working individually with you on the specifics of this so that we might do what all of you want us to do.
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The CHAIRMAN. Mr. Moran.
Mr. MORAN. Mr. Chairman, thank you. I appreciate you and Mr. Stenholm asking the Commission to be with us today, and I would like to take a moment to thank the Commission members for their service to American farmers and ranchers, and I would like to thank Kansas's own Dr. Flinchbaugh for his efforts in regard to helping us find solutions. I know Dr. Flinchbaugh is familiar with the tobacco program. So I spent $4.50 today, sir, so your reward is near. I don't know a good cigar from a bad cigar.
Mr. FLINCHBAUGH. $4.50 is sufficient.
Mr. MORAN. $4.50 is all I could afford.
Doctor, I know something about agriculture because your students are people who work for me and work for Kansans on behalf of farmers and ranchers. Just a couple questions, a couple of specifics and a couple broad-based questions.
Earlier, I guess last year now, the Clinton administration suggested that we ought to have agricultural programs in support of all agriculture commodities, that we need to bring in all of the agriculture instead of just the so-called program crops. Did your Commission address the issue of how broad the farm program ought to be in regard to the commodities that are produced in this country?
Mr. FLINCHBAUGH. Yes, we did; and we developed a mechanism called the SIS program that would allow the Congress to bring in additional commodities. We based our analysis on the eight program crops, but that mechanism is clearly in place in that program to bring in the additional commodities that the Congress would wish to bring in. We recommended that we have a study of a voucher system for insurance which could bring in additional commodities. So we think we have come up with a mechanism that would allow you to expand it or detract from it, but we did not make recommendations on what commodities should be added or subtracted.
Mr. MORAN. I assume—and, again, the 1996 farm bill was put in place before my arrival in Congress, but it was my understanding that there was a belief, at least on the part of some, that this farm bill was the beginning of reducing the role that the Federal Government played in the production of agriculture. Yet we are still here with you all grappling with the question about how do we increase farm income. We have that issue before us every day.
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Is it possible to reduce the financial role that the Federal Government plays in supporting production agriculture or are there reasons, justifications, economic reasons as compared to societal reasons, that it is necessary for us to continue with a farm program that puts dollars in farmers' pockets? And if your answer to that is yes, are there factors in the world that will change that necessity over time; and, if so, how do we get there?
Mr. FLINCHBAUGH. Well, I think the answer is, at least in terms of the Commission report, yes, obviously. I don't expect to see a time period in my lifetime when there will be no need for farm programs. And those who thought that the 1996 farm bill would be the end of farm programs I think probably believed in the Easter bunny.
Some argue that the 1996 farm bill was poorly timed and was never allowed to work because the Asian crisis hit roughly the third year and we came in with AMTA plus. And as an economist, you know, I can certainly make the case just let the marketplace work. I hear all the time the word surplus in the marketplace. There is no surplus. The market will clear. There is a surplus at politically acceptable prices, and that is why we are here.
So we attempted to come up with a mechanism that would allow us to put a safety net under farm income—and I stress the word income. We did not say a safety net under price. We said a safety net under income—that would minimally distort the market. We think we have done that, at least the majority thinks we have done that. And I can't foresee a time period when from both an economic standpoint and a political standpoint that that will not occur.
Mr. MORAN. Are there factors in the world that will change that, make that less likely? In other words, are there things that we as policymakers should focus on to make the role of Government less? I assume that the justification economically that we can provide for providing assistance is generally related to our competitors in the so-called, proverbial level playing field.
Mr. FLINCHBAUGH. Sure. And one way we could—and I'm getting into deep waters to a degree here—we could eliminate all farm programs by providing a voucher to all the hungry people in the world, and that would solve the problem. We wouldn't need a farm program if every belly had the dollars to feed itself. And I suppose that is the ultimate goal. So this is a temporary measure to move us in that direction.
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Mr. MORAN. Am I living by the clock, Mr. Chairman?
The CHAIRMAN. You are.
Mr. MORAN. Thank you, Mr. Chairman. I had a few other questions.
The CHAIRMAN. Or dying by the clock.
Mr. FLINCHBAUGH. You need to buy the chairman a cigar, too, and maybe that would work.
Mr. MORAN. I am eating Texas peanuts. I would compliment the chairman again.
It is admirable the Commission was able to come up with, for the most part, recommendations that were generally agreed on by the Commission members; and I would attribute that to Dr. Flinchbaugh's very amiable personality. I am sure without his good graces that would never have happened. Thank you.
The CHAIRMAN. Mr. Berry.
Mr. STENHOLM. Do we want to vote on that? I guess not.
Mr. BERRY. Thank you, Mr. Chairman. I do want to thank you and the ranking member for beginning these hearings on an issue that is near and dear to our heart and to many Americans and certainly to our farm community.
I want to express my appreciation to the entire Commission on 21st Century Agriculture. I think you have done wonderful work here, and we appreciate what you have done.
And I would like to take this opportunity—Mr. Chairman, I didn't bring any cigars, but I would like to take this opportunity for the record to recognize Jim DuPree. It said in the opening statement that he was from Newport, AR. He is actually from Tupelo. He says Newport because nobody knows where Tupelo is. I would like to thank Mr. DuPree for the tremendous work he has done for Arkansas and American agriculture over the years. He is a very thoughtful and dedicated farmer, and we appreciate everything he has done and the influence he has had in this committee.
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Thank you all.
The CHAIRMAN. The record will be shown to be corrected, Mr. Berry. Thank you.
Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman.
Mr. Flinchbaugh and the Commission, thank you for your work. I think it is going to give us a foundation that we can build upon. A lot of excellent effort here has been put forward, and we realize there is not an agreement on every point. That is always the case. There is not very often agreement on this committee on many of these issues. It is very complex.
I guess I would be curious to know—and if this has been asked in my absence forgive me for asking it again—the whole question that came up earlier about AMTA payments and whether or not—why we would continue down that road. If the argument has been that this is not an equitable way of distributing income support and if we can build in to the formula somehow, and you have attempted to do that, countercyclical formula payments, that income support continuing to use the AMTA as a mechanism would seem to me at least to be sort of misguided.
It seems like if we are going to try to get to where we are actually using some kind of a program that reimburses farmers at some level, cost of production or whatever, and that we would begin to move away from the AMTA payments we have been making in the last few years—and granted the last few years they have been through the emergency process doubled, so-called super AMTAs—I am curious as to this SIS program that you have proposed as a countercyclical crop payment program, and I think you have at least touched on this but could you explain to me again, sir, exactly how that would work?
Mr. FLINCHBAUGH. Well, first of all, we try to come up with a package. We want a safety net that keeps as few as possible from falling through. So we put the $4 million baseline AMTA in there to do just that. It is the catch-all. It covers the cost of regulation that the American farmer obviously has to bear. A whole multitude of areas could be covered through that four million basic AMTA.
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Then we build on top of that, and we would take the gross revenue of the eight program crops in the aggregate, and we would set a base—for example, a 5-year moving average of the gross review in the aggregate from those eight program crops—and would make up the difference between actually what had happened and what that base is. And our estimate for 2003 is that difference would be $2.8 billion. That would go in the package with the four million AMTA, with the marketing loan, with the farm savings account, with perhaps a voucher system for crop and revenue insurance. So it is the package that needs to be viewed in its entirety to make a judgment of who and how many would fall through the holes in the safety net.
Mr. THUNE. Did you debate the whole question of whether or not, though—whether or not AMTA is an equitable way of doing that?
Mr. FLINCHBAUGH. Yes, we did at length and the majority concluded that, in the absence of a better way, that the majority would agree to—we would keep the distribution formula that is now in place. We did our analysis based on that assumption.
Mr. THUNE. When you raised the marketing loans to 80 percent of the cost of the production in most of the grains anyway, I noticed that you concluded here that you would retain the current sort of LDP structure. But in effect you would eliminate the LDP, wouldn't you, based on what we are seeing here today?
Mr. FLINCHBAUGH. No, we did not make that assumption. We made the assumption that we would keep the current program but that we would adjust the loan rates to get a balance between oilseeds and feed grains, for example, that mirrored the balance in the marketplace. But that is the only change that we suggest in the marketing loan program.
Mr. THUNE. And that was to equalize with oilseeds, the disparity?
Mr. FLINCHBAUGH. That was to remove that disparity. And of course we could get into a lengthy discussion just what kind of impact that disparity has. We basically agree it has some. I suspect that has been overrated when you look at the real numbers, but we try to eliminate that disparity.
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Mr. THUNE. And you had determined the cost of production on an aggregate basis.
Mr. FLINCHBAUGH. When you get into the cost of the production as the basis of the loan rate you are getting into the minority report, and Mr. Swenson may want to reply to that.
Mr. SWENSON. Thank you, Congressman.
I want to touch very quickly. We used cost of production as calculated by USDA in our recommendation of which to set the loan rate. We are opposed in the minority report to continuing the AMTA payment. It is not reflective of the planning flexibility that the farm program has given us and that we have seen take place. It is not reflective of the yields.
Going back to the point raised by Congressman Moran, are we going to see changes? Absolutely. We have seen productivity changes occur in the past. We will continue to see productivity changes in the future, not only domestically but globally.
And how is our farm program going to be able to deal with those changes? The Asian crisis has really been touted as what was the result of what happened in 1997, 1998, 1999, 2000. We have had a global economic crisis about every decade I can remember. It has been the Asian crisis, there is a Russian crisis, a Japanese crisis, you name it.
That is one of the factors, but it is more the structure of farm policy that reflects some of the ebb and flow of what happens in domestic prices. So I want to say that one of the issues that we feel accompanies very closely the structure of farm policy is what we do in international trade. And, Mr. Chairman, one of the issues that is critical, fruits and vegetable producers, issues have been raised, is the value of the currency and the impact it has on what happens to trade.
I would just share that that is one of the items of the minority report on trade that we have offered for your consideration, debate and dialogue because we have seen a tremendous impact.
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I received last Friday, and I would submit, Mr. Chairman, a copy for you to distribute to the members of the committee, a study done at the University of North Dakota that points out the variance between Canada and the United States on the value of the dollar has tremendous impact on agricultural trade. If you multiply that by what happens to Mexico and the United States and other currencies around the world, that is an issue we have to come to grips with; and I think that complements what else we do in the structure of our farm policy.
Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Kennedy.
Mr. THUNE. Am I through?
The CHAIRMAN. You are.
Mr. KENNEDY. Thank you, Mr. Chairman; and thank you, the committee, for putting this report forward. I did read it and very much enjoyed it.
I don't qualify as a farmer, but like all farmers I qualify as a businessman. And in my past life whenever I have been faced with prices that are too low, my main focus is how do we increase demand. I was wondering, as I went through the sections you report, what kind of consideration did you do about how do we grow demand? I applaud the efforts on trade and pushing open trade as a way of increasing demand, but with the high gas prices that we face with our heavy reliance on imports and with MTB being phased out, are there significant opportunities for us, for example, in corn to expand ethynyl which is good for the environment, good for the communities and good for the demand for corn, or soybeans, with bio-diesel? And are there research opportunities where we can have significant increase in the global demand for some of our economies that can help solve some of these issues without ever having to worry about Government programs?
Mr. FLINCHBAUGH. The chairman will defer to Commissioner Campbell.
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Mr. CAMPBELL. Mr. Kennedy, that is one of the glaring omissions that I am guilty of. I take responsibility for not hammering it more in this report. But we kind of get into our boxes and that is some other committee's box and that is some other jurisdiction. But the fact of the matter is, as I am responsible for 50 million gallons of ethynol marketing and a soy diesel plant in Iowa, never before has the needs of our energy sector and the needs of our agricultural sector been so closely assigned.
We are short energy, and we are long commodities. We did some research both through the USDA and through FAPRI on the impact of a renewable fuel standard. If the renewable fuel standard were, for example, three percent, which is about a doubling of current contribution of renewables to the gasoline pool, it would result in the average increase of corn prices of about 15 cents. That was save about $1.5 billion. And if you were to reimburse the Highway Trust Fund for the excised tax revenue lost, it would cost about half a billion dollars. So you would be ahead a billion dollars and would have provided a billion and a half dollars worth of increased revenue to American agriculture.
The same thing is true on soy diesel. We have a surplus of soy oil because protein demand is good, but oil demand is poor. And we are building storage tanks as fast as we can. About a half a billion pounds is the difference between surplus and shortage. A half a billion pounds would cost about $70 million to move into the diesel fuel market but would provide roughly half a billion dollars in increased revenue. So hopefully the committee will look at something like the renewable fuel standard as part of a farm package regardless of the committee jurisdiction issues. It does have impact on CCC outlays, it does increase rural income, and it does address in a small way our energy needs.
Mr. KENNEDY. Go ahead.
Mr. PAIGE. I would like to make a basic comment on that. In the Commission report we have a discussion of the Small Home Commission; and out of those 146 recommendations, they talk about market access, market development for specialty markets that would address these alternative markets and opportunity, value added, cooperative development, technical assistance that would provide resources for small farmers to diversify and do that. I think by accepting this—and work on this during the coming farming bill, we would have the opportunity to debate a lot of this and include alternative things to do that that would address what you are talking about.
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In addition, there was a section in here on our technical assistance which we call 2501 that was in the last farm bill has never been funded. It needed to be funded because it provides the technical assistance for small farmers to actually get into cooperatives to do market development, to take added value opportunities and other kinds of things like that. And I would hope that this would be included and that type of funding would be addressed where we can directly address what you are talking about.
Thank you.
Mr. KENNEDY. I thank you both for your comments. I know we have had good success in this in Minnesota with requiring an ethynol blend, and it is those types of things that I think can really help us increase our demand for our products and drive the price up that way which will save a lot, as was mentioned, in Government payments. So, thank you.
The CHAIRMAN. I thank the gentleman.
I would like to invite the members of the Commission to make any additional written comments about any of the discussion today so that we are certain that we have a full record of each of your views without just making that assumption as a part of this overall record. And I would also invite you as we will invite everyone as we proceed in trying to come up with a solution to what is a very major problem for your input. We cannot have too much input from people who have agriculture as a concern in this country.
I believe that the general public, who is not as aware of what is going on in agriculture as people who are directly involved in it, do not understand the severity of the problem that we have economically, how fragile this agriculture economy is. And part of that is due I think to the fact that the assistance that has been provided for the past 3 years has worked well. People are not seeing what they expect to be seeing when an industry is in crisis because they are not seeing the forced sales, the auctions, the people going out of business at the rate that they would anticipate.
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But I think that we are in much worse shape this year than we were last year. And it is coming now that the end of the year is here and people are looking at financing for the next year we are hearing from a lot of people in agricultural finance about how small the number of people that are customers of their particular banks or whatever they may be are going to be able to have a cash flow this year. That is a dramatic move from where we were this time last year.
So I think the fragility of this is very real, and it is something that we also have to show and convince our colleagues that don't come from farming areas or rural areas that once they help us to pass an assistance package, which they have been very generous with over the past 3 years, they assume the problem has gone away, but it has not. It is very real. It is critical. That is why we are embarking on what we are doing.
So again I would invite you as we move forward to submit individually; or if the Commission dissolves, having spent all this time on this particular problem that you have spent, we would certainly welcome your wisdom and your suggestions. And we keep waiting for that answer when somebody finally figures out how to solve this problem in a politically feasible way, we will do it. We will continue to try to do what we can to help us through this problem.
I thank you for your work that you spent on the Commission, the time that you spent and the time you spent here today. We look forward to hearing from you in the future.
This forum is adjourned.
[Whereupon, at 12:55 p.m., the committee was adjourned, subject to the call of the Chair.]
Statement of B.L. Flinchbaugh
Mr. Chairman and members of the committee, thank you for the invitation to appear before you today to present the report of the Commission on 21st Century Production Agriculture. In my statement, I will provide an outline of the recommendations of the Commission with regard to the role of the Federal Government in support of production agriculture in the future. While the majority of the recommendations contained in the report are endorsed by all of the Commissioners, there are minority views on specific issues. These views are contained in the body of the full report.
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The work of the Commission progressed in a number of steps. First the Commission identified a set of overall goals that agricultural policy should be designed to support. Next the Commission, as charged by statue, defined the appropriate role the Federal Government should play in providing support to production. The Commission then set forth to identify the issue areas that need to be addressed given the problems facing production agriculture now and in the future. Having identified a wide range of issues, the Commission then prioritized those issues into a manageable set of areas for in-depth review. The Commission relied on input from a diverse set of stakeholders, subject matter experts and background materials and analysis provided by staff to arrive at the specific recommendations for policy initiatives or other courses of action. The results of these efforts are contained in the report entitled ''Directions for Future Farm Policy: The Role of Government in Support of Production Agriculture'', provided to you in advance of this hearing.
The goals for American agricultural policy have not changed much over time. A historical review of declarations of agricultural policy converged to a common set of guiding principals. After due consideration the Commission adopted a set of four goals as summarized by the distinguished agricultural economist, Willard Cochrane. In this view appropriate agricultural policy should be that which enhances and supports the:
Production of an abundant supply of high quality agricultural products at reasonable prices
Maintenance of a prosperous and productive economic climate for the farmer producers
Maintenance of the family-farm type organization as part of the production system
Realization of a high quality of life for all individuals living in rural areas.
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The recommendations and directions supported by the work of the Commission have been developed with a view toward consistency with these broad goals.
The Commission debated the appropriate function of the Federal Government in its role of providing support to production agriculture as charged by the statute which created the Commission. In general it was agreed that the role of the Federal Government should be limited to activities that involved issues that were unlikely to be solved through private sector initiatives. The Commission concluded that the proper role of the Federal Government should be to pursue policies and programs that promote the following concepts and/or accomplish the following outcomes:
Ensure a competitive agricultural economy through monitoring of concentration, enforcement of antitrust laws and related regulatory authority, ensuring transparency of market behavior, including contracting
Develop policies and programs that enhance the competitiveness of U.S. agricultural products, reduce trade barriers, open markets, and enhance the ability of producers to maximize value-added opportunities
Base all policy on sound science and insist that foreign competitors do likewise
Promote and enhance food safety and a clean environment
Promote and enhance animal and plant heath and safety
Provide support for agricultural research and education
Enhance the development and use of risk management tools
Develop and fund programs that meet the special needs of small and limited resource farmers
Provide an effective and adequate income safety net for farmers with minimal market distortion.
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Having established the guidelines for the general goals for farm policy and the appropriate functions for Federal Government involvement, the Commission then defined a set of issues that needed to be addressed by future farm policy initiatives. To guide us in identifying the areas for consideration the Commission relied on input provided in a series of six public meetings held throughout the country in August and September of 1999. Public listening sessions were held in Fresno, California; Spokane, Washington; Denver, Colorado; Montgomery, Alabama; Chicago, Illinois; and Scranton, Pennsylvania. At these meetings the Commissioners heard testimony from 200 witnesses from 30 states and comments from speakers during the open microphone sessions.
Additional input was provided by public comments submitted directly to the Commissioners and via e-mail to the Commission's web site. Combined with the views of the individual Commissioners and aided by their interaction with other producers a set of 15 issues for review was established. The initial list of topics for review included: Trade, Risk Management, Income Safety Net, Tax Policy, Conservation, Research & Education, Dairy, Peanuts, Sugar, Tobacco, Regulatory Policy, Industry Concentration, Small Farms Issues, Animal and Plant Health and Safety and Food Safety.
To aid the Commissioners in their understanding of the critical a series of informational meetings was held. Over the course of the Commission's tenure there were 14 meetings with over 60 expert witnesses providing input on the various aspects of each major issue. In addition, staff developed policy briefing papers, quantitative analysis of policy options and policy decision matrices to provide additional reference background and tools for analysis for the Commissioners.
Within the guidelines established and given the limitation of time and resources, issue priorities were set. The recommendations begin with income safety net followed by risk management, conservation and the environment, agricultural trade, the individual commodity policies; dairy, peanuts, sugar and tobacco and conclude with the issue of small and limited resource farms.
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I. INCOME SAFETY NET
The persistence of very low commodity prices has rendered existing farm program support inadequate to address the level of distress experienced over the last few years. As a result the Congress has had to rely on emergency measures to provide additional support to the sector. The Commission has established a set of policies it believes will prevent the need for continued reliance on emergency measures, provide the flexibility necessary to address unforeseen changes in future market conditions while continuing to provide a solid foundation of support for production agriculture.
Income Support. The Commission recommends a continuation of a fixed AMTA payment in accordance with the existing baseline budget allocations in addition to a counter-cyclical income support program. The Commission specifically recommends a program referred to in our report as Supplemental Income Support or the SIS program. The SIS program along with the extension of the fixed AMTA payment would provide a flexible income safety net for agricultural producers in times of depressed market conditions and/or adverse weather events.
Marketing Loan Assistance Program. The Commission also recommends as part of the income safety net that the loan deficiency payments and marketing loan be retained, however adjusting the marketing loan rates to reflect a balance between the historical market value of individual crops. In addition the Commission recommends that the limitation on Government payments to producers be removed.
Budget Implications of SIS Program. The Food and Agricultural Policy Research Institute (FAPRI) provided an assessment of the Commission's SIS counter-cyclical income support program.. See Appendix I. for complete analysis: FAPRI. Preliminary Assessment of Counter-Cyclical Payment (CCP) Options, November 2000.
FAPRI's analysis concluded that SIS, using a 5-year moving average program crop gross income (PCGI), as the income trigger level would have an estimated average counter-cyclical payment of approximately $2.8 billion in 2003. The average payments are estimated to decline due to increased yields and stronger prices to $318 million by 2009.
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Trade Impacts of SIS Program. This counter-cyclical approach would be de-coupled from current prices and production and be distributed in a similar manner as the current Production Flexibility Contracts (PFCs). The de-coupled nature of the SIS payments along with the aggregate eight program crop gross income trigger yields a program that should be consistent with the U.S. commitment to international trade obligations namely the World Trade Organization's (WTO) Aggregate Measure of Support (AMS) in which the SIS would likely be categorized as a ''green-box'' or minimally distorting subsidy.
Impacts of SIS Program on Other Producers. The SIS program is envisioned to provide counter-cyclical income support for eight major program crops: wheat, corn, sorghum, upland cotton, soybeans, rice, barley and oats. Producers of non-program crops would not receive direct benefits from this program, however, non-program crops could be added to the aggregate. Planting flexibility as it currently exists would be maintained under this proposal.
Budget Implications of Marketing Loan Rate Adjustment. Aligning the marketing loan rates to market prices (5-year simple average of crop prices) for the eight principal crops relative to the soybean loan rate set at the maximum level, $5.26, and allowing for an acreage response due to changes in Loan Deficiency Payments (LDP) payments, net an estimated increase in projected Government outlays of approximately $2.6 billion for 2001.. See Appendix II for complete analysis: Preliminary Assessment of Realignment of Commodity Marketing Loan Rates, Office of the Chief Economist - USDA, November 2000.
Trade Impacts of Marketing Loan Rate. The adjustment to the marketing loan rates will not affect the trade implications of the program any differently than the current program. LDPs will continue to be classified as amber-box payments under the WTO classification scheme.
Impacts of Marketing Loan Rate Adjustment on Other Producers. Producers of non-program crops would not receive direct benefit from the proposed readjustment in the marketing loan rate for the eight program crops.
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II. RISK MANAGEMENT
Producers have an array of tools at their disposal with which to manage risk. The Commission considered two categories of programs to enhance producers' ability to manage their business risks: insurance programs and savings account programs.
The Commission recommends that the possibility of creating an actuarially sound insurance program with coverage provided by private companies be studied. An actuarially sound insurance program is defined as one where the Government does not underwrite a portion of the insurance companies risk but rather provides farmers with a voucher to offset the cost of insurance premiums.
The Commission also recommends the implementation of a FARRM account without a time restriction on how long money may be left in the account, thereby allowing the account to serve as both a cash reserve for low-income years as well as an alternative retirement fund for the producer. Further, the Commission supports a viable income averaging system for producers that is not negated by the effects of the Alternative Minimum Tax.
Budget Implications of FAARM Account. The Farm and Ranch Risk Management (FARRM) account allows producers to save money during years of higher net farm income to be drawn out in years with lower net farm income. The taxes on money in the account are deferred until they are withdrawn. The primary cost with such a program is the decrease in Government revenue associated with tax deferral, estimated by USDA's Economic Research Service (ERS) at approximately $2.8 billion dollars in 1994. This account may increase the financial stability for farmers and reduce the need for emergency Government payments to producers.
Trade Impacts of FARRM Account. The use of the FARRM Account as a risk management tool would not likely be considered a trade-distorting program.
Impact of FARRM Account on Other Producers. Farmers who do not have a Federal income tax liability or report a farm loss are not eligible to contribute.
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III. CONSERVATION AND THE ENVIRONMENT
The Commission considered two categories of programs to enhance producers' ability to undertake conservation and environmentally beneficial practices in an economically viable manner: conservation reserve programs and conservation cost-share programs. Additionally, the Commission addressed other conservation and environmental issues affecting production agriculture citing the need for research in those areas.
The Commission recommends continuation of the Conservation Reserve Program and suggests that any possible increase in the acreage of the program be dedicated towards buffer strips, filter strips, wetlands, grass waterways and partial field enrollments.
The Commission recommends continuation of the EQIP program at funding levels initially proposed in the 1996 FAIR Act and for providing adequate support for NRCS staff to administer the EQIP program.
The Commission recommends that research be conducted that focus on the following conservation and environmental issues:
Providing voluntary incentive-based programs to enhance agriculture's positive contribution to air and water quality and if necessary structuring a regulatory environment that allows farmers to prosper
A means to provide compensation to producers who establish environmentally beneficial practices, with funding from a separate environmental program
Establishing a baseline measure of agriculture's positive contribution to air and water quality
Priority areas including, but not be limited to, carbon sequestration, control of greenhouse gases emissions, manure management and alternative fuels.
IV. AGRICULTURAL TRADE
U.S. producers face challenges and opportunities in agricultural trade. A unified approach during international trade negotiations provides U.S. agriculture with the strongest position to achieve increased market opportunities for producers and favorable resolution to trade conflicts.
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The Commission on 21st Century Production Agriculture endorses the comprehensive U.S. position on trade as it was tabled at the WTO in June 2000. In addition, the Commission stresses the need for agriculture negotiations to be part of a comprehensive negotiation conducted in a single undertaking approach. The Commission also recommends that Congress grant the President negotiating authority for the new round of trade talks. Lastly, it is the view of the Commission that negotiations on trade reform within the World Trade Organization are not the appropriate forum for negotiation of environmental and labor issues.
V. INDIVIDUAL COMMODITY POLICIES
Dairy, sugar, peanuts and tobacco are commodities that have evolved into specific and unique agricultural programs over the years. In reviewing each of these commodities' programs in detail, the Commission has identified areas of concern that will have an impact on the economic well being of the producers of each of these commodities. In an effort to provide direction for inquiry, the Commission has outlined a set of policy options for each commodity it feels should be reviewed and urges those within each industry to work together to develop solutions that will provide for a prosperous future for each of their respective commodities.
Dairy. Decisions regarding the course of future dairy policy must address at least four issues: Federal marketing order reform, extension of dairy compacts, Federal price support and international market opportunities and challenges.
Peanuts. The Commission recommends that the following options be examined: a phased reduction of the quota system with compensation to existing quota holders, allowing for transfer of quota across state boundaries, subsidies to manufacturers to stimulate purchase of domestically grown peanuts (similar to the Cotton Step 2 program), a marketing loan for peanuts, a direct payment type program for producers of quota peanuts, and greater incentives for increased industry competition to reduce concentration.
Sugar. The Commission believes that there needs to be serious consideration given to developing an alternative to the current sugar program. It is the view of the Commission that the following program options, individually or in combination, be evaluated: a marketing loan for sugar, domestic marketing controls, domestic production controls and some form of direct payment to sugar producers.
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Tobacco. The options to the existing program the Commission feels should be examined include the following or some combination thereof: increasing transferability of quota across county lines and/or state lines, a buyout program designed to phase out the quota program, and a marketing loan for tobacco with a view to increased export competitiveness.
VI. SMALL AND LIMITED RESOURCE FARMS
The Commission on 21st Century Production Agriculture recognizes the importance and value of the small family farm in production agriculture and rural communities. The Commission further recognizes the significant impact Government policy has on the economic condition of small family farms.
The Commission on 21st Century Production Agriculture acknowledges the work of the National Commission on Small Farms. The National Commission on Small Farms was created in 1997 by order of USDA regulation to ''gather and analyze information regarding small U.S. farms and ranches and recommend to the Secretary of Agriculture a national strategy to ensure their continued viability in U.S. agriculture.'' Their work continues in the activities of USDA's Advisory Committee on Small Farms.
The Commission believes that the USDA Advisory Committee on Small Farms is well positioned to advise lawmakers on policy matters and should be the lead group in this issue area. The Commission also believes that it is the role of Government to develop and fund programs that meet the special needs of small and limited resource farmers. Accordingly the Commission recommends that several specific areas warrant consideration by the Small Farms Advisory Committee as well as by legislators and policy makers.
The Commission recommends that the work of the Small Farms Advisory Committee be formalized as part of the U.S. Department of Agriculture by congressional authority, providing appropriate staff and funding. Commissioners Paige, Brumfield, DuPree, and Swenson wish to endorse the report of the National Commission on Small Farms in its entirety.
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Minority View: Farm Income Safety Net
Leland Swenson
Endorsed by: Leland Swenson, Jim DuPree, Ralph Paige
An alternative set of policy recommendations for an Income Safety Net has been provided by Commissioner Swenson.. See Appendix III for Supporting Materials for Minority View of Leland Swenson
Commissioner Swenson's recommendations are based on the fundamental belief that the assumptions underlying the support for the passage of the Federal Agricultural Improvement and Reform Act of 1996 (FAIR Act) have proven not to be valid, nor will they likely have merit in the future. Commissioner Swenson maintains that: (1) The optimistic forecasts for expanded agricultural trade have been wrong; (2) Risk management programs have failed to adequately address price and production losses; (3) Reduced regulation has not improved production efficiency or reduced costs; (4) The farm program has reduced economic security for producers; and (5) Competition for export markets has increased due to the rational behavior of individual producers in response to declining prices and incomes.
Commissioner Swenson's Income Safety Net program combines a set of policies that involve changes to current provisions of the FAIR Act, reauthorization of authority for programs that were suspended and new initiatives in the areas of targeting and conservation. A fundamental part of Commissioner Swenson's program is a change in the calculations of existing commodity marketing loan rates. Commodity marketing loan rates for each commodity would be established utilizing a uniform methodology such as some minimum percentage of the 3-year moving average of USDA's full economic cost of production including dairy.
The program proposed by Commissioner Swenson would also include implementation of an inventory management program. The elements of the inventory management program would include efforts to expand demand for, and the use of, agricultural products; incentives for management of existing inventories through farmer owned reserves program, and producer-stored reserves dedicated to renewable energy production and humanitarian food assistance; and a voluntary acreage set aside program where participants would benefit from increased marketing loans for the balance of program crops produced. The voluntary set aside would also provide authority for the reduction of marketing loan rates for non-participants if stocks-to-use ratios exceed specific levels.
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The program as envisioned would also include mechanisms to provide for targeting of benefits, such as a limitation on the level of gross benefits from marketing loan receipts. Lastly the program would provide a set of incentives that encourage the application of long-term stewardship practices including authority to create and implement a multi-year land and soil rehabilitation program.
Minority View: Income Safety Net
John Campbell
An alternative set of policy recommendations was also provided by Commissioner Campbell. The views of Commissioner Campbell are a reflection, in part, of his belief that the recommendations of the Commission formalize, through the Supplemental Income Support (SIS) payment, increased support levels that have been provided by Congressional emergency assistance over the past three years. In Commissioner Campbell's view the SIS payment would prevent adjustment in land prices and land rents attributable in large part to the recent Congressional emergency assistance payments. As a result, in Commissioner Campbell's view: larger producers are able to optimize production at lower variable costs; are at an advantage over smaller operations; and are increasing the rate at which these smaller operations are absorbed by the larger operators. The policy alternatives proposed by Commissioner Campbell are made in large part with a view to remove Government incentives for farming operations to increase in size.
In addition, Commissioner Campbell emphasizes that while the farm economy has changed significantly over time, agricultural programs and policies have not. Commodity marketing loans, income support de-coupled from production and planting flexibility have been policy improvements. The difficulty is finding a non-distortive direct income support mechanism.
It is the view of Commissioner Campbell that three types of programs can be economically and socially justified in the future: (1) safety net programs for commercial producers that protect against catastrophic markets or weather situations, including market oriented marketing loans and a market oriented risk management program; (2) social and/or credit programs that help farmers on the edge transition to larger commercial operations, smaller specialty operations or to off-farm employment; and (3) environmental stewardship programs.
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Minority View: Trade
Leland Swenson
Endorsed by Leland Swenson and Jim DuPree
An alternative viewpoint on agricultural trade issues was also provided by Commissioner Swenson. Commissioner Swenson's position on trade is guided by the belief that advocates of free trade in agriculture often overstate the benefits, ignoring the size and stable growth in domestic markets as well as the rapid growth in imports of competitive agricultural products. Further, Commissioner Swenson suggests that the farm-gate benefits resulting from trade negotiations are likely to be mixed or inconsequential.
Specific recommendations provided by Commissioner Swenson include: a call for some mechanism to allow a nation whose agricultural producers suffer injury due to changes in relative currency values to offset those effects through border and export measures as well as domestic programs; elimination of the use of direct and indirect export subsidies; international harmonization of environmental, labor, intellectual property and competition polices and regulations; elimination of non-tariff barriers not based on scientific principles; increased transparency in reporting of support to agriculture, prices and industry concentration; international cooperation in economic development and inventory management; and a streamlined and expedited dispute settlement mechanism.
Minority View: Anti-Trust and Industry Concentration
Leland Swenson
Endorsed by Leland Swenson, Jim DuPree
While the Commission clearly stated that it is the role of the Federal Government to ensure a competitive agricultural economy, Commissioner Swenson provided additional views on these issues. Principal among Commissioners Swenson's views are that increased concentration in all sectors of the agriculture industrial complex have substantially reduced competition to the disadvantage of independent producers and the consumers of food and food products. Increasingly, in his view, the costs associated with excessive vertical and/or horizontal integration within the agriculture sector are being imposed on those upstream participants with the least amount of market power—agricultural producers.
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Commissioner Swenson provides several suggestions to revitalize the U.S. effort to ensure and maintain that the level of market and sector concentration promotes open, competitive efficiency throughout the system and encourages market and transactional transparency. Specifics are provided in the full report. However, the main thrust of these recommendations are to: increase the review and enforcement capacity of agencies charged with antitrust responsibilities; provide for an on-going review process of both past and present mergers; and to provide additional authority to ensure that anti-competitive practices that fall outside current or traditional antitrust regulations and enforcement are continuously reviewed and appropriate avenues for redress provided.
Mr. Chairman, members of the committee, on behalf of the Commission, I would like to extend you our appreciation for allowing us to present you with our report. This concludes my testimony and I would be pleased to respond to any questions.