SPEAKERS CONTENTS INSERTS
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REVIEW OF FEDERAL FARM POLICY
MONDAY, APRIL 3, 2000
House of Representatives,
Committee on Agriculture,
Kutztown, PA.
The committee met, pursuant to call, at 9:00 a.m., in the Kutztown University, Kutztown, PA, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives Ewing, Smith, Gutknecht, Stenholm, and Holden.
Also present: Representative Toomey.
Staff present: William E. O'Conner, Jr., staff director; R. Bryan Daniel, professional staff; Christopher Matthews, press secretary; Brent Gattis, legislative assistant; Pam Scott, legislative assistant and Andy Baker, minority consultant.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
The CHAIRMAN. Welcome to this, the sixth of 10 field hearings that the House Agriculture Committee is holding in different regions of the country. I want to thank everyone for coming to this important event. As you may know, we started this series of hearings in Lubbock, TX, on March 6, continued to Memphis, TN, Auburn, AL, Raleigh, NC, and West Chester, OH. At those five hearings, nearly 90 witnesses have presented testimony and well over 1,500 people have listened in, both in the audience and through the Internet. I will remind our witnesses and members and others that we carry the audio portion of these hearings live over our website and that is available.
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I think the time that we have spent in this endeavor has been very helpful to members of the committee as well as those in the audience, and we are pleased to be here today in Kutztown, and we think that our time will be well spent. We certainly hope it is for you.
I have the pleasure this morning of introducing the members who are with us, and will introduce one as well who will be joining us soon. I am Larry Combest, I represent the High Plains of Texas. On my right is my good friend and neighbor, Charles Stenholm, who is also from west Texas. Tom Ewing is from east central Illinois, Nick Smith is from south central Michigan, Gil Gutknecht represents southeastern Minnesota, Tim Holden, who is our host today, represents east central Pennsylvania. And joining the committee will be Pat Toomey, who is also from eastern Pennsylvania.
Today we will hear from 14 people who have built their lives and careers around agriculture. In selecting this panel of witnesses, we sought to bring folks together that represent the different types of agriculture that is found in this region and who could bring a variety of thoughts on the issues facing agriculture. It is my hope that everyone in the room will be able to identify with at least one of our witnesses, and I would certainly encourage anyone who is in the audience that wishes to submit testimony to please do so, and it will be made an official part of the hearing record, and it will also carry as much weight as anyone who orally testifies.
I do not want to speak too long because we are here to listen to people. I think everyone on our committee understands the fact that there are problems in agriculture today. What is more, we all fundamentally believe that it is in the best interest of this nation to maintain and foster a diverse and strong agricultural sector. And so we are here to hopefully find the answers to how do we best accomplish that goal. We want to find out what real producers think is working and what is not working in today's Federal farm policy. We will be going to all regions of the country, as we finish these hearings over the next few weeks, asking the same questions with the hope that we can find some consensus among agricultural producers for farm policy changes that are needed.
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Again, I would like to thank all of you who are here, all of my colleagues who are here and we would like to recognize Mr. Stenholm.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman, and good morning everyone. It is a known fact now that the United States of America is in its longest sustained peace-time economic expansion in the history of our country, except in agriculture. And one of the things that we are looking for in these hearings, both out in the country as well as in Washington, DC, what changes need to be made for the year 2000 and also beginning to look at the year 2002 when the current farm bill, which was supposed to have been the last farm bill, expires. And that is why we are here.
We appreciate the witnesses and everyone else that is here with us today. We look forward to hearing from you.
The CHAIRMAN. Mr. Ewing.
OPENING STATEMENT OF HON. THOMAS W. EWING, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS
Mr. EWING. Thank you, Mr. Chairman, for holding this hearing. Thank you, too, Mr. Stenholm. The way the two top people on our Agriculture Committee work together is really a credit to agriculture. All of the members, I believe today, you will find have varying agricultural backgrounds. We are here because we are interested in agriculture. Myself, I come from a corn and soybean producing area in central Illinois. It is part of my livelihood, it is part of my heritage, and we are interested in hearing about agriculture here in Pennsylvania and across the Nation because, if anything that I have learned in my years on the House Agriculture Committee is how diverse, how magnificent is American agriculture in all its different crops and different varieties.
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So we are here to hear about your problems and your suggestions for making and keeping American agriculture the best in the world. Thank you all for coming.
The CHAIRMAN. Mr. Holden.
STATEMENT OF HON. TIM HOLDEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF PENNSYLVANIA
Mr. HOLDEN. Thank you, Mr. Chairman. I have a formal statement that I will submit for the record. But I would just like to welcome you and members of the committee to Kutztown, PA.
And Mr. Chairman, I want to commend and congratulate you for your leadership, how you are traveling throughout the country to find the needs and concerns of the agricultural community. And I think that what you will find here in Pennsylvania and in the northeastern part of the country is that we are a little bit different than some of the other parts that you have visited, or you will visit in the very near future. We are very, very diversified. We could have a agricultural producer right here in Berks or Schuylkill County with a livestock operation and a Christmas tree production operation and fruit and vegetables for small markets. So it is very, very unique and, I believe, diverse.
And I just also want to commend and congratulate you for your work on crop insurance because that is one of the real problems that we have here in the northeastern part of the country, where we have about 20 percent participation in the crop insurance program compared to 69 or 70 percent nationwide. And your leadership with the legislation I believe is now pending in the Conference Committee is greatly, greatly appreciated.
So I think that what you are going to hear today, Mr. Chairman, from our producers is that we are a little bit different than other parts of the country. A lot of the farm programs of the 1930's were directed at operations of 1-crop farms. And again, we are very, very much different than that. So I want to thank you for being here and welcome everyone, and look forward to the testimony today.
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[The prepared statement of Mr. Holden follows:]
PREPARED STATEMENT OF HON. TIM HOLDEN
Mr. Chairman, It is my pleasure to welcome you and the members of the House Agriculture Committee to Kutztown University, here in my congressional district. I am very pleased that you have chosen Pennsylvania as the location to hold this very important hearing on national farm policy and its effects on the Northeast region of our country.
As I look out into the audience today, Mr. Chairman, I see many familiar faces from the local Agriculture community here in Pennsylvania. It has been my pleasure to work with these fine people on agriculture issues during my 7 1/2 years in Congress. I am anxious to hear their testimony before this committee today so I won't take up too much of the committee's time with my statement. I just have a few introductory remarks I would like to share with you and the committee.
Unlike our friends to the South and to the West, agriculture in the Northeast region of the country is very diverse. We have many crops in a very concentrated geographic area. We have dairy farms next to Christmas tree farms, which can be located down the road from a mushroom farm, which can be across the county from a hog farm or fruit and vegetable farm. Often times, several of these crops are raised on the same farm. I think you all understand my point.
When the various farm programs of the 1930's came out, many of them were directed at single crop areas, like cotton in the South and wheat in the Midwest. As many of you know, Pennsylvania's participation in the Federal Crop Insurance Program is significantly lower than other States. In 1999, only 20 percent of eligible acres in Pennsylvania were enrolled in crop insurance while the national average was 69 percent. Pennsylvania agriculture like many regions of the country, is diverse, making it difficult to find insurance for a grower's entire operation because coverage for certain crops is not yet available, cost is prohibitive and limited or there are no available underwriters.
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Participation in crop insurance will increase this year in Pennsylvania due to the requirement that farmers purchase it in order to get crop loss payments—but also Mr. Chairman, because Pennsylvania, through its Department of Agriculture, is providing additional assistance to encourage all farmers to purchase insurance.
I am encouraged by your legislation, Mr. Chairman, H.R. 2559, the Agriculture Risk Protection Act of 1999. I am proud to cosponsor this legislation which makes crop insurance a more viable option for farmers in Pennsylvania. It lowers the premiums that farmers pay for crop insurance by providing an additional $8 billion for federally subsidized crop insurance in fiscal years 2001–04. It increases Government share of the premium and it directs the Agriculture Department to study ways of expanding the program to encourage more participation by farmers and ranchers.
I was glad to see the Senate pass its version of the bill two weeks ago. I was especially pleased to see the Senate add an additional $113 million in coverage for Northeastern specialty crops. It is my hope that this additional funding will be preserved in the Conference Committee.
While I believe that the crop insurance bill is a step in the right direction, this is only the first step in the process. Much of what we can do to help Pennsylvania farmers can be addressed using existing administrative authority. With this in mind, I have been working with the Pennsylvania Governor's office, USDA's Risk Management Agency (RMA), and various farmer and insurance groups to help make crop insurance more attractive to Pennsylvania farmers. We need to have whole farm coverage Mr. Chairman, and, I vow here today to continue to work with you and the other members of our committee to get that accomplished.
Before I conclude my remarks, I would just like to take a quick moment and mention the plum pox virus outbreak that has been detected in south central Pennsylvania. As you know Mr. Chairman, this disease has been identified in a small, 2 square mile block of peach farms in Adams County, PA, in the congressional district of our colleague, Bill Goodling. Like citrus canker and Pierce's disease, fruit quality damage, reduces production, and shortens tree life. Besides peaches, it can affect all stone fruits, including peaches, cherries, almonds, apricots, plus the nursery stock from which they are grown.
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In the past few weeks I have been visited by fruit farmers from Georgia, Pennsylvania, California, and everywhere in between who are deeply concerned with the plum pox virus. If the virus is allowed to spread, its effect could be exponentially disastrous. The four farmers whose crops were affected had to push down all their trees in the infected area and cannot replant for at least 3 years. Mr. Chairman, these farmers deserve some sort of loss compensation. If they don't get it, there will be no incentive for other farmers to report if they have affected trees in their crops. We cannot let that happen.
Once again, I thank you Mr. Chairman, for holding this important hearing here today. It is my hope that we will take what we learn here today back to our colleagues in Washington, and resolve to commit the necessary resources to having an improved national farm policy. Farming is the backbone of our country. We need to work hard to preserve it.
The CHAIRMAN. Well, thank you. Again, thanks for hosting this hearing.
Mr. Smith.
OPENING STATEMENT OF HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Mr. SMITH. Thank you, Mr. Chairman, and thanks, Mr. Stenholm, and thanks to our witnesses today for coming in and spending the time, giving us your ideas.
I am a dairy, corn and soybean farmer from southern Michigan. I think agriculture is approaching a crossroads. We have always, since we started farm programs, had the pressure to have a cheap food policy in this country. Government programs have accomplished pushing a lot of small farmers out of business and have resulted in the lowest cost, highest quality food in the world, and now we are facing a situation where farmers represent about 1 percent of the population and we have got to make a policy in this country.
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With 1 percent of the population, farmers probably cannot do it without consumers understanding what the problems are, what the threats are if we become dependent on foreign supplies for our food and vegetable and fiber supplies. I think the decision is huge. We are facing Europe that has about five times the subsidy that we have in the United States helping our farmers. So the challenges are great. I look forward to your ideas.
The CHAIRMAN. Mr. Gutknecht.
OPENING STATEMENT OF HON. GIL GUTKNECHT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
Mr. GUTKNECHT. Well, thank you, Mr. Chairman. The people did not come here to listen to us, so I will be very brief.
There is a tendency, I think, to believe that Congress does not listen. The truth of the matter is, we are—particularly on this committee, are pretty good at listening. The problem is trying to gain consensus on what direction we should go in terms of agricultural policy. And I think these hearings around the country are a giant step in the direction of trying to build some consensus in terms of what kind of farm policy we should have going into the next century.
Agriculture is vital to us, even though, as Mr. Smith pointed out, a smaller number of people provide the food and fiber for us here in the United States. It still is one of the back-bone industries for our entire economy. So the kind of farm policy we create going into the next century is going to be critically important. And I think these hearings will hopefully begin to lay the foundation of what kind of policy we should have.
So I am delighted to be here in Kutztown and welcome the testimony we hear today.
The CHAIRMAN. I want to also thank Kutztown University for the use of this facility in holding this hearing today. I would like to call our first panel of witnesses to the table.
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Mr. Doug Bowersox is a corn and soybean producer from Middleburg, PA. Mr. Jay Dey is a grain producer from Ovid, NY. Mr. Joseph Matejik is a corn, soybean and wheat producer from Mechanicsville, PA. Mr. Arland Schantz is a corn and wheat producer from Zionsville, PA. Mr. Carl Shaffer is a corn, what and vegetable producer from Mifflinville, PA.
Gentlemen, we appreciate very much your attention and we will start with you, Mr. Bowersox, in the order of the introduction. Please proceed.
STATEMENT OF DOUG BOWERSOX, CORN AND SOYBEAN PRODUCER, MIDDLEBURG, PA
Mr. BOWERSOX. Good morning and welcome to central Pennsylvania. I would like to thank you for giving me the opportunity to express my opinions here.
I am a 43-year-old central Pennsylvania grain farmer. I currently operate about 1,200 tillable, all-rented acres. I grew up on a general farm that produced hay, grain, broilers, fat hogs and fat cattle. I graduated in 1977 from the Pennsylvania State University with a 4-year degree in agriculture. Upon graduation, I began my present career in grain farming.
First, I would like to look at the effect that past farm bills have had on the American farmers. The preamble to former farm bills stated that the following bill would provide an abundant and an economical supply of food to the American people. In fact, it was probably better to keep the American food supply abundant and economical every day of the year, and not just abundant and economical on average over a period of years.
Grain farmers within the United States have mostly only one chance per year to produce this nation's needs. Because of this limitation, the Government has a strong interest in buffering grain production's annual quantity swings by buffering grain price swings. It is my opinion that the farm bill, as implemented by the USDA, has done a very admirable job of fulfilling this noble goal of the preamble.
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The globalization of grain production has recently permitted the free market much more production adaptability. In essence, the present turmoil in America's grain policy is a result of this. In the past, it was necessary for the Government to dampen grain's wild production and price swings by use of the farm bill. The debate should now be, does the free market have enough production events in different locations and times throughout the world to provide the adaptability that is necessary? Do we need a farm bill to ensure this nation's food supply anymore?
At any rate, let us examine the effect that past farm bills have had on farmers. First, technology has pushed the economies of scale into bigger and bigger hands. Second, the only way this can happen is if farmers leave the occupation. Third, economic Darwinian selection in a free, wild market is very ruthless. The free, wild market would have weeded out many farmers at a much faster pace, allowing those remaining a bigger piece of the pie. In effect, past government farm policy has given many—has merely given many a long-enough rope to hang themselves over a much longer period of time, while denying the bigger piece of pie to those that are more capable.
Should the Government manage agricultural prices? I think it has been a very good deal for the consumer. I think it has caused much agony in the farm community. At any rate, I have long argued that it does not matter what the market or the Federal Government offers farmers in compensation. If we receive $10 per bushel for corn from either the market or the Government, it would not matter. Farmers would all run out and pay $1,000 per acre rent, or $20,000 per acre purchase price. Why? Because our neighbors would.
Let me back up. $10 per bushel of corn does matter to a land owner because 90 percent of that mark-up will flow to farmland valuations. Realize that if farm subsidies are reduced, farmland values will fall. If farmers do ever face the—if American farmers do ever face the furies of a free market, certainly free market economic laws must apply. Econ 101 teaches that the price of a widget will be valued at what it costs to produce the next widget at the margin. Well, land is a widget that is being produced in South America for $250 an acre.
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At any rate, I am saying that farm subsidies serve to only raise farmland valuations. They do not serve to raise a production farmers' discretionary income. I am undecided as to the value of the Government artificially inflating farmland values. One good point of this is that it helps preserve farmland for future generations. It does this by making it a bit more expensive for development to occur. But there may be other and better ways of doing this.
Additionally, I have heard no one talk about another giant threat to land prices, that being GMO's. The biotech firms are only at the ox-cart stage of development. As they develop crops capable of miracle yields, commodity prices will plummet. Where are farmers going to cut costs then? Will they have the power to reduce the price of a new tractor? Doubtful. The only places for the big bucks to come from are land prices and rental rates. Certainly, we must expect a huge transfer of wealth from cropland owners to the biotechs because their ideas would become the limiting factor in crop production, not available farmland.
I would like to change directions here. I think a tax sheltered farm IRA would benefit American agriculture. As grain farmers in the 1980's and hog farmers in the 1990's can attest, production agriculture is not a game but positive expectations each and every year. Many farmers' incomes fluctuate from greatly positive to greatly negative over a period of years. Saving in good years to cover poor years would help stabilize American agriculture. However, a farmer should not be allowed to withdraw from these savings to expand—to expand operations, but only to level out any production or price shortfalls. I know that enforcing this will be difficult.
Next I would like to address the checkoff programs. Econ 101 teaches that initiatives, such as pursued by the checkoff programs, will only serve to raise prices if one of the following exists: A fixed supply, a monopoly or a captive market. Otherwise, these initiatives will serve only to expand the market for the least-cost producer. For example, the U.S. soybean market meets none of these criteria if the hog producers in the Carolinas can and will buy soybeans from Brazil.
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I must agree that checkoff has expanded the market for Brazil. One of the intents of the checkoff was to raise prices. The last load of soybeans leaving my farm was worth less, not more, than it was 10 years ago. I say, if it walks like a failure, if it talks like a failure, it is a failure.
I would also like to address international trade issues and export subsidies. Reducing tariffs and trade barriers internationally is a worthwhile goal. After all, if the United States can produce corn cheapest, let them do it. And if Brazil can produce soybeans cheapest, let them do it. This makes best use of the world's resources to help enrich us all as consumers. However, increasing exports by either increasing USDA export subsidies or reducing trade barriers will not enrich the lives of farmers. It will enrich the lives of consumers. A farmer will give any of the value added to a commodity's price to the landlord or Monsanto in a quest to produce more. The reason he will do this is because his neighbor will do this.
Given the above arguments, it appears that there is nothing the U.S. Government do to keep all farmers in business. Therefore, I propose that a more worthwhile goal of U.S. farm policy is to concentrate on allowing U.S. farmers to become competitive with other farmers throughout the world. This can only happen by gradually stopping the seemingly endless parade of price and production shortfall bail-outs. I had thought that that was the Freedom to Farm's intent, but it has certainly not occurred.
As a friend of mine has been telling me for years, all we need to do to survive in grain farming is to do a little better job than our neighbor. After all, it is the farmer across the fence-row that is bidding up the price of land rent in our locale. It is not some farmer in South America. He is working as hard as he can to drive down the prices of land rent in our locale. He is doing this by producing more grain and therefore driving down grain prices, and eventually land rent and land valuations in the United States.
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I hope I have provided a little clarification as to what the questions should be in this great debate. Thank you for your consideration.
[The prepared statement of Mr. Bowersox appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. Mr. Dey.
STATEMENT OF JAY DEY, GRAIN PRODUCER, OVID, NY
Mr. DEY. Good morning, Mr. Chairman, members of the committee. My name is Jay Dey, I am a cash crop farmer in Seneca County, New York. My operation consists of three major crops, corn, wheat and soybeans, and I farm approximately 2,500 acres. My main customers are local grain companies and farmers. I greatly appreciate the opportunity to address you today concerning Federal agriculture policies and the issues surrounding the agricultural community.
Recent circumstances, many beyond the control of farmers, have resulted in hard times for agriculture. We are faced with low prices for most commodities, weather-related problems and increased regulatory and tax burden only serves to lower my income and efficiency to farm. Last year the House Agriculture Committee took significant strides that were meant to soften this hardship and turn the clock back on this trend to regulate agriculture out of the United States. A few examples of most importance to the Northeast are the crop insurance reform, committing $6 billion to the farm safety net and reducing the need for Congress to resort to ad hoc disaster assistance, and dairy legislation mandating the USDA implement option 1-A and extend the Northeast Dairy Compact for another 2 years. While these programs will certainly make significant short-term progress, challenges still remain regarding many farm policy issues. Even more work needs to be done concerning crop insurance reform that would better protect farmers from today's volatile markets and weather.
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Delegates to the American Farm Bureau Federation's annual meeting earlier this year adopted a resolution supporting implementation of a counter-cyclical safety net as a supplement to Agricultural Market Transition Act payments. Members took this action believing such a policy could address sharp declines in prices without relying on large financial assistance packages from Congress. I strongly believe that Congress should embrace market-based policies within a crop insurance reform package. This action would surely lead to a more thriving agricultural economy while decreasing the traditional AMTA payments that are helpful, but only in the short term.
For those advocating a projected increase in the level of income support, it is worth doing a little comparison. I received the enclosed chart, which is on my printed testimony, from the American Farm Bureau Federation which indicates that in 2002 every major commodity loan rate and market transition payment will actually exceed the safety net provided at 85 percent of the 5-year average price. Mr. Chairman, it makes little sense to spend a significant amount of Federal Government funds and to alter a program that is working as intended, and yet not make any real change in the current safety net. The market transition payments and loan rates exceed the 85 percent loan rate. This loan rate is the 5-year average price minus the high and low years.
Therefore, I would urge you to consider adopting a counter-cyclical payment measure as a supplement to AMTA payments. Congress should avoid increasing marketing loan rates and stay the course on the marketing aspects of the FAIR Act. Additionally, Farm Bureau is advocating several programs that would serve to improve farm income in 2000. USDA estimates crop receipts for 2000 at $93.3 billion, $1.7 billion below 1999 and the lowest since 1994. As a result of this fact, Congress must focus on immediate remedies to provide farmers with a level playing field with which to compete in this world market. Given the magnitude of agriculture's economic problem, emergency supplemental funding at a level at least equal to last year's assistance package is necessary.
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Increased agricultural exports is one of the solutions to improving net farm income. Even though New York State does not export much of its agricultural commodities, we do consider our markets within the State as essential to our well being. Increased export markets do serve to increase commodity prices, while providing the Empire State farmers with a rather open market within our State. Therefore, we support permanent normal trade relations with China, which is now our fourth largest trading partner. U.S. Government studies have predicted that China could account for over one-quarter of U.S. agricultural exports within the decade. Within 1 year of a session, China could be a market worth over $3 billion for our farmers. That equals all of New York State's annual cash receipts from agriculture.
In order to reap the benefit of this trading partner, I respectfully urge you to grant China permanent normal trade relation status. If this status is not granted, China will still become a member of the World Trade Organization, and shouldn't American farmers have at least the opportunity to compete with other countries in fulfilling China's commodity needs?
Another area which we need your help is the dairy price support system. We strongly favor the support program at the current level of $9.90 per hundredweight for over 2 more years. New York's dairy industry has operated in a relatively market-oriented environment with a Dairy Price Support Program providing a safety net at a price level that has not resulted in excess milk production. The price support program is one of the best tools available to U.S. dairy farmers to cope with volatile milk prices.
The Northeast Dairy Compact has proven to be an effective tool for producers to gain more income from the market. It is estimated that the compact has returned over $40 million to dairy farmers in the market in New England and parts of New York. New York State is just one of the 25 States that have passed legislation authorizing regional compacts. The New York Farm Bureau and American Farm Bureau strongly support legislation to extend the current Northeast Dairy Compact into Maryland, New Jersey, Delaware, Pennsylvania and New York, and we encourage you to continue to allow producers in the industry to work together through efforts such as the Dairy Compact to stabilize producer income.
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In addition to many income-related issues surrounding agriculture, there are several environmental issues that should be addressed this year. For example, the Natural Resource Conservation Service has been working cooperatively with the farm community for many years. Personnel provide our members with important environmental advice and best management practices. New York State, in many ways, is leading the Nation in its projects to maintain water quality through the development of locally-driven watershed plans. Many of these plans, such as the Skeneatles Lake Watershed plan and the New York City Watershed program are the models for similar programs in other parts of the country. In both cases, the drinking water supplies have been maintained without the need for costly filtration programs.
What is lacking in this process in New York, though, is the technical expertise to write best-management plans and to work with farmers. Farmers have the desire to implement BMP's and continue to be excellent stewards of the land, however there is simply not enough NRCS staff to carry out this desire. Therefore, I would like you to support increased funding to the NRCS budget that would help to create more technical assistance to farmers. The need is present, the means to meet the need are available, and, Mr. Chairman, we need to meet that need. Not only are staff people needed but also the demand for financial cost-sharing assistance is on the rise. Many of the NRCS-recommended standards are extremely high-capital cost. In order for a farmer to merely put in a nutrient storage system, it may cost him or her $100,000 or potentially more. I do not know many farm operations that can shoulder this kind of a bill and continue to farm at today's commodity prices.
Not only that, but I strongly believe that, since clean water is good for the general public, the environmental cost-sharing programs are justified. In the past, you have worked diligently to secure adequate funding for the environmental quality incentive program and part 319, non-source funding to the States, and we appreciate these efforts. I would ask you to continue your support and increase funding to these programs to ensure that the need is met.
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Thank you, again, Mr. Chairman, for this opportunity to provide you with my comments today, and I am very appreciative to be here. Thank you very much.
[The prepared statement of Mr. Dey appears at the conclusion of the hearing.]
Mr. CHAIRMAN. Thank you. Mr. Matejik.
STATEMENT OF JOSEPH F. MATEJIK, CORN, SOYBEAN, WHEAT PRODUCER, MECHANICSVILLE, PA
Mr. MATEJIK. Thank you, Mr. Chairman, and members of the committee. I thank you for the chance to express my views with you today.
I operate a 700-acre grain farm with livestock in Solebury Township, Bucks County, PA. I also sell fertilizer, seeds and crop protection chemicals to supplement my income. I consider my farm a small, middle-size farm that my wife and I operate. Since 1997, farm income from grains has been falling drastically as world-wide commodity prices have fallen. The American farmer is at a disadvantage while the farmers of the European economic community receive protection from these price drops.
My main concern to bring forward today is that the Federal Government must put into place a better way to handle natural disasters that happen to various parts of the nation. The farm programs at this point are not addressing the issue. There is payment to producers through the Freedom to Farm Act, but the larger to giant growers are favored at the expense of the smaller farms.
The summer drought of 1999 was total devastation for growers of eastern Pennsylvania. I lost 80 percent of my corn crop and 45 percent of my soybean crop. I had crop insurance, but it is not enough to offset my losses. My concern is that the Federal Government should help in these situations. Low-interest loans do not answer the problem. Many growers, including myself, do not qualify for these loans. My pet peeve about this low-interest loans is that I almost have to be at the verge of bankruptcy to receive them, or turned down by three or four people to get these.
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During 1998 and 1999, the FSA sent out marketing assistance payments. In 1998, we received an extra payment, which was welcome, but in 1999, with the drastic drop in the market prices, coupled with the yield losses due to the drought, the payment was miniscule. I would have rather not received the 1998 payment knowing that if a natural disaster occurred, I would receive help instead of promises.
The LDP is another good payment tool, but again, only if you have a crop. If you do not have a crop, the LDP payment is useless. It seems to me that the Federal Government should be able to redirect monies in aid to the areas that need the most and not just simple payments to every producer in the United States.
I received a calculated 35 percent payment towards disaster relief, and it is my understanding that possibly this might be the only money I receive from the Federal Government. There is something inherently wrong with our agricultural policy when producers with bumper crops receive double market transition payments for low prices and producers who are wiped out by natural disasters are penalized under existing programs because they have no crops. Eastern Pennsylvania growers need additional income this year to be able to put our crop in the ground. Low-interest loans would be a help, but with prime interest climbing, it is getting very costly to borrow money to put these crops in the ground.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Matejik appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. Mr. Schantz.
STATEMENT OF ARLAND SCHANTZ, CORN AND WHEAT PRODUCER, ZIONSVILLE, PA
Mr. SCHANTZ. Mr. Chairperson, members of the House Agriculture Committee, I wish to thank you for this opportunity to speak here today before you.
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I own and operate a 150-acre-plus general farm in Lower Milford Township, Lehigh County, with the help of my wife and college-age daughter. When I first saw in American Farm Bureau Newspaper a news release about the hearing today, I asked myself, what does the Agriculture Committee want in the small obscure Dutch community of Kutztown? Then as I prepared for this hearing today, it dawned on me that perhaps the committee wishes to hear the voice of the smaller, diversified family farmer who labors in the eastern region of the United States. In other words, the committee wishes to hear from the farmer who has made our great country the world leader in agriculture that it is today.
Indeed, these are hardly the best times for agriculture, especially in this area. Therefore, I would like to thank the House Agriculture Committee for making significant strides to secure some support for the American farmer. Such as $9.3 billion in emergency funds due to a second consecutive year of unprecedented weather losses and loss value of crops and livestock market. Also crop insurance reform, designating $6 billion to the farm safety net and reducing the need for Congress to restore to future disaster assistance.
As I see it, and according to a comparison study by one approximate 200-acre farmer, the disaster payments for the eastern Pennsylvania farmer have been shortened. For example, because of calculation methods used to qualify acres, and assuming all payments will be made in full, the farmer will receive approximately $15,101. In contrast, the Midwest farmer, who grows the same acreage of corn and soybeans will receive, instead, approximately $20,885 in payments. The biggest irony with this comparison study is that while the Pennsylvania farmer suffered an almost complete crop failure, his Midwest counterpart reaped bumper crops. Clearly, that is the major reason I am truly thankful for the committee's interest in coming to Pennsylvania, to hear about our concerns and tribulations.
Incidentally, as a farmer who grows both hay and Christmas trees as agricultural commodities, I was deemed ineligible for any disaster payments on these commodities. In other words, because of the inadequate and outdated design of the disaster program, my operation losses were deemed unimportant. Only a very small acreage in corn was eligible.
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If ours were the ideal Utopia, supply and demand would take care of commodity pricing. The truth is, we must deal with the crude reality that our farming production is far greater than the domestic U.S. market, which comprises only 4 percent of the world population. Taking corn, for example, in the United States, one row of every four harvested on an average year goes for export. Also while in the European Union, tax money of approximately $324 per acre is allocated to support its farmers. Here in the United States, only a meager $34 of tax money per acre is spent on an average for the farmer. The Export Enhancement Program could go a long way to level the marketing field if the administration would honor its commitment. I understand that the Fair Act provided $1.5 billion for this program. But the administration has used only a small portion of these funds.
The USDA estimates 33 percent of the growth and export markets in the next 10 years will be in China. We have agreed to take significant steps in opening their markets to agricultural trade. China has agreed to eliminate subsidies of their farm exports and reduce import tariffs by an average of 50 percent, if we grant normal trade relation status to them on a permanent basis. The additional 2 billion annually in U.S. agriculture exports would be a big plus. Congress needs to act on this immediately.
When I see that in my farm I will have extra products such as hay or Christmas trees to sell, I undertake the endeavor to advertise my products. Likewise, I think the United States ought to become more aggressively active in promoting its agricultural products to both our own national market as well as to potential foreign buyers. It ought to be, let everyone know that the American farmer operates under strict, scientific production guidelines governing what he can or cannot do or use.
The entire food chain, from soil to consumer, undergoes several safety inspections. The world population ought to hear that the nutritious, safe and plentiful supply of food produced in America, instead of the negative propaganda disseminated through the media by those groups trying to advance their self-serving agendas.
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Thank you again for this opportunity to be here today.
The CHAIRMAN. Thank you. Mr. Shaffer.
The prepared statement of Mr. Schantz appears at the conclusion of the hearing.]
STATEMENT OF CARL T. SHAFFER, CORN, WHEAT AND VEGETABLE PRODUCER, MIFFLINVILLE, PA
Mr. SHAFFER. Thank you, Mr. Chairman. I will highlight my testimony in the interest of time so I make sure I can get it covered.
I own and operate a vegetable and crop farm in Columbia County, PA. My crops consist of approximately 700 acres of corn, 150 acres of wheat, 200 acres of green beans sold for processing and another 150 acres of green beans that are packed fresh market and sold.
I really want to congratulate the committee for the opportunity to receive input directly from producers regarding the Federal agriculture policies. Northeast producers are often frustrated and feel kind of left out because of being unable to communicate directly with agriculture policymakers regarding the unique nature of our farming operations in Pennsylvania.
Agriculture in Pennsylvania generates over $4 billion. It is the No. 1 industry and it also generates over $40 billion in related economic activity to the State. However, as it was stated many times, our industry is extremely diverse, and this diversity demands an approach that is a little bit different to provide safety nets and risk management tools for the Northeast that does not necessarily fit the programs that have been established to meet the midwestern producers.
Congressman Holden said something about the low participation in crop insurance in Pennsylvania, and that is very true. There is many reasons that can be attributed to this. Education and awareness of the products that are available are—they continue to be a problem. However, communication between USDA, crop insurance agents and producers, that seems to be the larger problem. Producers are often frustrated by conflicting information and especially the inflexibility of the Federal crop insurance programs.
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Now it appears crop insurance reforms are moving in a positive direction, which I commend everyone involved in that, because it is needed. But there can be some added flexibility built into them, I think, yet, that would suit Northeast producers. For instance, there should not be a program that would penalize them by taking advantage of crop insurance with other Federal programs, and I will give you an example of this. In my own operation with the vegetables, I farm about 23 different small farms, owned and rented farms. And I need to rotate that crop around, the vegetable crop around.
In order to qualify for AMTA payments, I need to combine those farms under one large group or I infringe on the base acres of the grain with the vegetables. If I go farm-by-farm and plant all vegetables on one farm, I would infringe on that and then I would not qualify for AMTA payments. So that works so I qualify for the AMTA payments. But then for crop insurance, I need to divide those farms up to insure them separately because for the vegetable crop, for instance, we start harvest around the 10th of July and harvest to the 10th of September. So we are moving around to different farms and you have different weather patterns through the summer, as you know. So some farms might get hit severely hard. But right now, if the average of all the farms is just above the level, then I cannot qualify to collect any premium on crop insurance.
So I really think the answer to that is, there is a section in there for section equivalence, but I think if we could be allowed to buy crop insurance instead of by farm serial numbers at the FSA office, by tract numbers, which are individual farms, this—the FSA already has this system in place and I think it would be a very easy thing to provide that option where we could report our crops by tract numbers and this would solve just this one problem.
Last year's drought brought many producers to the Farm Service Agency to apply for the Federal disaster assistance program, and farmers without proven yields got a real education on how badly outdated the assigned county average yields have become over the years. I think updating these assigned yields, especially for uninsurable crops, is essential for improving the disaster assistance program, so that we are working with real numbers on real-life situations.
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Other concerns with the Federal disaster assistance program is the elimination of means testing and also conservation compliance requirements for producers. In the means testing, the $2.5 million gross income limitation sounds like a lot, but if a small farmer deals in cattle, say, for instance, he is buying and selling cattle a lot through the year, maybe his gross income might get over that and that does not really reflect on his ability to withstand a natural disaster. It just happens to be the nature of his business.
In conservation compliance, for voluntary programs such as AMTA and all the other programs, I think is certainly in order. But voluntary participation in something that is—the circumstances are beyond a farmer's control, such as a disaster. I know when the Federal Government comes in and helps out with flood—flood, like FIMA help or something like that, there are not many things attached to that program for the general public to qualify.
As far as the maximum cap per farmer, many family farms are incorporated for tax purposes. As a matter of fact, Saturday I just attended a sale of a father and four sons who have a farm. It is five families living off the farm, and they are incorporated for tax purposes. They had a devastating loss. It put them out of business, and they only qualified because of the $80,000 limit. Because they were good managers, they incorporated, and this put them at a disadvantage. And really, we are constantly trying to promote young farmers coming into the family business, and this kind of puts those at a disadvantage.
One other quick thing, we talked about low commodity prices. And I just would like to indicate what they do. I recently signed a contract with my processor for green beans, and to my astonishment they indicated that other commodity prices were low, and I would have to take a pay cut if I wanted to sign a contract this year. So it is a broad-reaching effect. It is not just the prices we see on corn and soybeans but it affects vegetables and everything else because it has a rippling effect.
And I just wish to close by reinstating a need for a larger voice in Northeast agriculture to meet our needs. This—the time is overdue for the Northeast to become actively involved in establishing agricultural policy that can provide adequate risks for our unique needs. And a lot of times, this can be done by offering some options in policy without any detriment to the whole policy situation. And I would be happy to answer any questions. Thank you.
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[The prepared statement of Mr. Shaffer appears at the conclusion of the hearing.]
The CHAIRMAN. Well, thank you, and thank all of you for your testimony. Let me say something that generally you may not hear a lot of Members of Congress admit, but we do not have all the answers and we do not know everything. And I think that Mr. Schantz summed it up very well when he asked—whenever he saw the fact that we were coming here, he says, what does the Agriculture Committee want in a small, obscure Dutch town of Kutztown. Our whole idea in setting out on this farm tour around the country is just for that reason. We want to go listen to people that get up in the morning and go to work farming, and recognizing that most people do not have the opportunity to come to Washington and testify on farm policy, and that is what we are doing. And it has been—I think it is serving its purpose. It has been very enlightening to all of us. We recognize, the more we go, the diversity in American agriculture. And it also makes us more aware of the challenges that we have to try to make policy that fit all.
Let me just mention a couple of things on crop insurance, because we have found through these six hearings that we have had so far, this being our sixth, that we could almost be doing these on crop insurance itself. But Mr. Holden is correct in, obviously, that we are now in conference with the Senate, and hopefully we will have a bill out relatively soon. It is the first major crop insurance reform of its magnitude that I have seen in the time that I have been there. And I am hopefully that it is only the first of a number of phases, but generally the direction that we are trying to go into that. And I think it does have an impact on an area that deals more in your traditional non-program crops, which obviously this part—region of the country does, is to come up with a program that realistically looks at production agriculture and what it costs to produce it and what your yields are and how those should be based, and individualize it to the extent that we can, to try to make it fit your farm rather than simply fit a general region.
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We have a monetary incentive in the House bill to create new products that can be available to farmers that will reach out to different types of commodities that are being produced, and that we will hopefully be able to provide them with an insurance program that would be attractive and that hopefully more than 20 percent of the people would find attractive and be able to participate in it. We recognize we cannot get people into it until there is a product there. We also have, as was mentioned by one of our witnesses, a pilot program that spends about $145 million over 4 years to develop for livestock risk management, recognizing that is an area that needs to be looked at. And we do not know what that answer should be, but we are trying to find out what it should be.
There is something I wanted to ask all of you as we travel to different regions of the country, we do find the diversity. If you had an opportunity to create the definition of a family farm, what would it be? I would like to ask all of you so anybody can start.
Mr. DEY. My farm. There is my definition.
The CHAIRMAN. OK. Tell us a little bit about it.
Mr. DEY. I have a wife and three young children. We get all of our income from our farm. At the same time, I work in a partnership with another fellow, and he has a wife and three daughters. And all our income is generated, we are two families, we have—our farm entities are actually completely separate but we work together to share some cost savings through equipment sharing and working together at purchasing grain and fertilizer collectively to get better prices.
So we are two families generating our incomes, our livelihood on our farms, raising our children on our farms. I do not know of—I do not think I could put it any simpler than that.
The CHAIRMAN. Would it sort of summarize it to say that it is the size of farm that it would take in the area of the country in which you live for a family to survive?
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Mr. DEY. I have run a lot of numbers. I am 35 years old and I graduated from college. I came into farming because it was something I really wanted to do. And in order for me to cash-crop farm, the way I am right now, I have to work at least 1,000 acres. That is all there is to it. That is the only way I can get to the scale where I am able to afford the efficiencies I need to compete. If we are going to sell beans for $5, I have got to be able to produce them for less than $5. Likewise with corn and wheat. It is simple economics. We have a bottom line we have to meet. We do it in a lot of ways, but that is the economics of scale we have to meet in this particular avenue of agriculture.
The CHAIRMAN. Anyone else have a idea of how you would define a family farm?
Mr. SHAFFER. I would agree with you, the size of the farm would depend on the size of the family. Because when a father brings several sons in, if it is one or two sons compared to four or 5, you are going to need a bigger farm to generate more income to support the families. Economists tell us a lot of times, an old rule of thumb is, if you want to hire another hired person, an employee on the farm, you have to generate another $150,000 worth of income. Well, if you bring another family in, that—that is at least that, or even a little more into the operation. So I would say, it is hard to put a size on the farm, so many acres or so many dollars, because it depends on the size of the family. As the one I indicated was a father and four sons. If they are all married, that is five families. And so the size of the farm is going to have to be quite a bit bigger than a one-person family.
Mr. DEY. Mr. Combest, could I make one more comment in regard to this? I pay just under $500 a month for my family insurance policy. That absorbs pretty much all the income I can generate on 250 acres on our farm.
The CHAIRMAN. And that is one of the dilemmas that we have as we are traveling around, is that people talk about the preservation of the family farm, I think which we all want to do. And yet we are not for sure what that is because, in Texas, it is different than it is here. And in North Carolina, it is different than it is in California, because of the commodities that are raised and the number of acres it takes to raise them. And particularly as we get into the discussion of limitation on payments, or we get into the discussion of what kind of payments should go to what size of farmer.
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If it was not for the fact that we were interested in it, we would look beyond that. But I think, how that is defined and then how we develop programs that work around that are extremely important to make for sure that we do preserve a family farm in New York or Pennsylvania or New Jersey, and that we do the same thing in Texas, New Mexico or Oklahoma. And coming to that definition is something that I am searching for.
I have a couple of other thoughts and questions, I may ask them and wrap up. We will see from there. But thank you for your patience, Mr. Stenholm.
Mr. STENHOLM. Thank you, Mr. Chairman. I have got a series of questions that I have been asking each of our witnesses in all of the previous hearings. I want to ask the same of you and also would warn the audience that I will ask for a show of hands of how many of the audience disagree with the answers of the questions of the panel, just for our own edification, because sometimes we have been accused that all of the pertinent information is not being put forward at the table, at the witness tables, et cetera, and there is a disagreement there. So I would ask you to quickly respond.
And I ask of the witnesses for a yes or no. It is a pretty simple answer. And if you are undecided, well, you can editorialize a little bit. But on yes or no questions—and since several of you have already testified to this, to some of you it is pretty easy.
The first question is, how many of you believe that the United States should stop unilaterally sanctioning agricultural sales or products to other countries because of our disagreement with other countries? For example, we have sanctions now against Cuba, against Iraq, against Iran, various countries. And several of you have already testified saying that it really does not make sense, does no good whatsoever for us to unilaterally sanction, because then we give the markets to our competitors. How many of you agree Congress ought to, as soon as possible, lift sanctions?
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Mr. BOWERSOX. Yes.
Mr. DEY. Yes.
Mr. MATEJIK. Yes.
Mr. SCHANTZ. Yes.
Mr. SHAFFER. Yes.
Mr. STENHOLM. Anybody in the audience disagree with the unanimous decision of the panel? I see 1, 2, 3, 4 hands disagreeing. And the panel has unanimously agreed.
The second question is, and this is one we will be voting on very soon, again very controversial in which people on both sides of the question have sincere differences. And that is, should we pass permanent normal trade relations with China? Mr. Bowersox?
Mr. BOWERSOX. Undecided.
Mr. STENHOLM. Undecided.
Mr. DEY. Yes.
Mr. MATEJIK. Yes.
Mr. SCHANTZ. Yes.
Mr. SHAFFER. Yes.
Mr. STENHOLM. All right, 4 say yes, 1 is undecided. Anyone in the audience that disagrees with the PNTR, that we should not? 1, 2, 3, 4, 5, 6. About the same percentage.
One of the suggestions, and many of you have talked about this—and we will get into it in the second round, I will get a little more detailed on this. But the question is, how can we best provide a better safety net? It is clear that the current price structure is inadequate today. The market price that we are receiving under the current farm program is totally inadequate to meet the cost of productions, by the overwhelming majority of farmers in all areas of the country. And we—the reason I can say that is, we had a hearing in Washington last week in which we had our bankers testifying, and they testified to the fact that, yes, agricultural loans are in good shape now, but only because we have, as one of you have already mentioned today, provided an additional $22 billion last year in additional help. Without that, we would have bankrupted a large part of the family farmers, by whatever definition in whatever area in this.
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So several of the questions now that we have to resolve for this year is, do we again provide a double AMTA payment? Do we increase the AMTA and pay it to the same folks that are receiving the AMTA, even though many of you have pointed out, that is not a very good way of assisting income here because of the manner in which the program operates. I have proposed a supplemental income plan which would attempt to put the additional payment on the production of the individual producing the crop, rather than a historic average payment, which is what we do under AMTA. Try to get it—try to get the additional payment per bushel, per pound, per hundredweight to the people actually producing the crop rather than a historical.
And then we have another suggestion that is being made, and others will ask this question, about increasing the market loan rate. And the question I have asked is, how many of you believe that we ought to increase the market loan rate?
Mr. BOWERSOX. I do not.
Mr. DEY. I am not in favor of it at this point.
Mr. MATEJIK. No.
Mr. SCHANTZ. Undecided.
Mr. SHAFFER. I think we should.
Mr. STENHOLM. All right. There are 3 no's, 1 undecided and 1 yes.
In the audience, how many believe that the market loan rate ought to be increased? About 10, OK. Thank you very much. I'll yield at this time and come back with some additional—well, my green light is still on. Let me point out one thing. Mr. Bowersox, I found it interesting that you are opposed to checkoffs, very strongly opposed to checkoffs. Others of you have said that we have to continue to promote our product, both domestically and internationally. And you list the reasons why you are opposed to checkoffs. Let me suggest there is one reason, perhaps, you have not considered why checkoffs are important, other than the traditional, and I happen to believe that we have got—and you acknowledge in your testimony that we have gotten some excellent research that has increased the utilization of our commodities across the board.
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But there is another reason, and this is one that worries me, now, with the opposition of some considerably growing number of producers. If we are not willing to help ourselves in the promotion of that which we grow, how can we expect taxpayers to contribute $22 billion a year? Now you are very honest in your testimony, you say, let us quit it, let us let farmers—let us let the Freedom to Farm do just exactly what it did. You would have been opposed to the $22 billion. You would say, just let us go bankrupt and the survival of the fittest will be there.
Mr. BOWERSOX. Yes.
Mr. STENHOLM. Anybody else at the table agree with Mr. Bowersox?
Mr. DEY. Well, to a point, because I think the checkoff is very important when you are getting a return on the checkoff. And I think one of the things—one of the reasons that the checkoffs have come into question is that we have not necessarily seen the market development or price increase that the checkoffs are intended for.
Mr. STENHOLM. But, Mr. Dey, I would point out that the $22 billion that you were shaking your head on was very important, is a return because it—by the fact that we are showing that we are willing to help ourselves, we in the Congress are able to go to our urban colleagues and say, we have go to help us help ourselves. So I would argue there is a return.
Mr. DEY. That is why I shook my head, yes. I am trying to answer the question of why—why this has come up as an issue. And I noticed in the last issue of Farm Journal, there is a lot of soybean producers in the country that want to eliminate the soybean checkoff. And the reason is, they are questioning whether or not there has been a significant return on that checkoff. That is—I guess that is as straightforward as I can be on the issue.
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Mr. SCHANTZ. Representative Stenholm, I serve on the Pennsylvania Vegetable Marketing and Research Board, which is also a checkoff. So I guess I have to listen to a lot of the same things from our vegetable growers who do not think that they should be paying into it. But from seeing it from the side of how it works and how it promotes the industry, what you have all probably heard over the last couple months, they want a reduction in fuel taxes because the price is high, and now the price is low, so I think that is why you are—this elimination of checkoffs is probably being proposed, as just a—some way to graft—to try to recover a little more out of the market at a time when we are going through a very, very bad market share. But even in the vegetable program, which we run ourselves, we—I get some pretty nasty letters from growers commenting on the checkoff. They feel they are being forced to do it. But really the truth be known, they probably would not do it voluntarily anyway. So—but I think it is for the betterment of the industries.
Mr. STENHOLM. And I certainly understand your point. When you are hurting as bad as we are in prices, anything that comes out of your check is hard to justify at the short-term. Thank you.
The CHAIRMAN. Mr. Ewing.
Mr. EWING. Thank you, Mr. Chairman, and to all the witnesses, I appreciated your testimony. It was very good.
There was some comments on the CPR program. Do we have a consensus here that CRP is good, bad?
Mr. SHAFFER. I would say both, like every other issue.
Mr. EWING. Are you running for office? [Laughter]
Mr. SHAFFER. No.
Mr. EWING. You can't have our lines. You have got to give it to us straight. [Laughter.]
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Mr. SHAFFER. The good part about it is, it does take some land out of production, I think, and it is good for the environment. But the bad part about it is, it was mentioned about—in Pennsylvania, we cash rent a lot of land. And when an attractive CRP price comes about, it basically a lot of times puts—our landlords become aware of it, and they see that as something we need to match as producers. That kind of gets to be the bad side of it.
Mr. EWING. , Mr. Dey.
Mr. DEY. I would have to agree on the notion of it being good and bad. The good side of the issue is that when we are in a time where commodity prices are so low, some of this land may not be productive enough to have us farm it, simply. And it may be the best place for it. And when it goes there, it does encourage wildlife development and it does improve the environment. But at the same time, every acre that we do not farm in this country, when soybeans approach that $5 to $6 mark, turns into another acre of developed land in South America. And that was stated by Mr. Bowersox in his testimony. A recent survey from—I think it was an interview with Mr. Maggie, who was a 250,000-acre soybean producer in Brazil, and he said, at $4, bulldozers set, at $5 they warm up, at $6 they clear acres as fast as they possibly can. I guess that is where we lie on the CRP issue.
Mr. EWING. The Chairman talked about the family farm. Do you think one of the problems today in agriculture is that our family farms—or those that are out there trying to survive on the family farm are too small or too inefficient, that we have not had enough consolidation?
Mr. BOWERSOX. Well, I think that was pretty much the point of my whole argument. I think that is definitely true. It is really—and I am speaking about grain, primarily soybeans. It is really tough to compete with what is coming against us from South America. I mean, it is productive ground, it is cheap, labor is cheap, taxes are cheap. The really big problem with us competing with South America is taxes overall. I mean, the tax burden here is immense compared to what it is to a farmer in South America.
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Mr. EWING. Well, the regulatory burden, and a number of other things.
Mr. BOWERSOX. Also the same thing.
Mr. EWING. Well, one of the real problems we have is, if we want to help the family farm, at what level and at what size unit should we really be helping? Are we going to lock into place an inefficient farming system like I believe they have in Europe, or how do we get to that family farm? And would any of you say that it is not a family farm if one of the spouses chooses to work off the farm?
Mr. DEY. No.
Mr. EWING. You say it is not or it is?
Mr. DEY. It is absolutely a family farm.
Mr. EWING. I mean, you gave your definition, where both you and your wife, your partner and his wife all work in the operation, no one brings home a paycheck from off-farm?
Mr. DEY. But I don't want to—I don't want to seem like I am excluding the farms that derive a certain amount of their disposable income from off-farm jobs. Half of the people that are farmers in this country have net gross incomes of less than $50,000, if you take a look at statistics. And there are not very many farmers that survive on a gross income of $50,000.
Mr. EWING. Well, another point, and I think you made it, it took 250 acres or 225 acres or something to pay for your health insurance?
Mr. DEY. Just my family health insurance. So that is off the top of every other operating expense I have.
Mr. EWING. So if your wife worked in town and had health insurance for the family, that would be a real positive?
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Mr. DEY. It would be, but at the same time I would have to hire a full-time daycare person for three children. So I would have to offset that cost.
Mr. EWING. But you understand the point I am making?
Mr. DEY. Absolutely, I do.
Mr. EWING. I have just one other quick question, kind of, I am getting onto Mr. Stenholm's track here. Do you believe that the United States government ought to enter into negotiations with countries like Brazil on production control? Secretary Glickman has very—I think very honestly said that production controls will not work if only the United States is involved in those production controls. If all the producing countries—not all but the major producing countries would say, our goal is so many million bushels of soybeans, and this is your allocation, do you think we ought to get into that type of negotiation?
Mr. BOWERSOX. Well, I think if that is your purpose, that the only way to approach it is to do that, to make any of these programs actually—if your goal was to keep us all in business, that is the only way you are going to do it. Now the question becomes is that an ethical thing to do? Now we look at OPEC and we say, those are bad people. Now what we are proposing here is pretty much the same thing.
Mr. EWING. That is what I'm asking.
Mr. DEY. I would like to reaffirm his position and say are we willing to use food as leverage to increase our income?
Mr. MATEJIK. I agree with it, I think we should.
Mr. EWING. You believe we should use food?
Mr. MATEJIK. Yes.
Mr. EWING. We should negotiate for control?
Mr. MATEJIK. Right.
Mr. SCHANTZ. I do not think that is going to work, because——
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Mr. EWING. No, but I did not ask you if it is going to work. We do not know if it is going to work because we have not tried it. But I mean, do you think that that is a policy that we maybe should investigate?
Mr. SCHANTZ. I have some reservations on that because what makes us—I mean, we want to be in control of things, but what makes us think we know the best way of doing things? I spent many—quite a few years in Brazil, and they might be just thinking the opposite. We should do something to the United States. We should control the United States. Why should the U.S. tell Brazil what to do?
Mr. EWING. No, it would have to be a mutual thing between the producing countries. It would not be us telling others what to do because we have no ability to do that.
Mr. Shaffer?
Mr. SHAFFER. Our problem is no great mystery. It is an over-production, too much supply for the demand. Anything that might bring that back into place worldwide would be a positive, if, on paper, that could work. I question the—we can't resolve some of the problems we already have with artificial trade barriers and countries already not adhering to simple trade policies, that something like this might be very, very difficult.
Mr. EWING. Thank you all very much.
The CHAIRMAN. Mr. Holden.
Mr. HOLDEN. Thank you, Mr. Chairman. I want to thank the witnesses for their testimony, and Carl, I want to tell you, I did try to call you back over the weekend, but you must not have had your cell phone on.
A few of the witnesses were right on the money when we talked about last year's disaster relief. Congressman Baldacci from Maine and myself were very frustrated at the final product and I believe two of the witnesses stated what the problem was, where we had a record-setting drought here in the Northeast and we were ineligible for the LDP program, and we had other parts of the country with bumper crops receiving double payments. So we need to do better. The chairman has been very responsive, and Mr. Stenholm when we talked about that situation last year. And we are going to continue to work on that.
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I have two or three questions for the entire panel. I am just curious of each witness. How available is crop insurance for your operation?
Mr. BOWERSOX. There is crop insurance available for three crops.
Mr. DEY. Same here. There is crop insurance available for corn, soybeans and wheat, but at the same time, I produce a significant number of acres of hay, alfalfa and Timothy hay and also pumpkins and squash, which the best we could do on the pumpkins and squash was a private carrier for an insurance program.
Mr. MATEJIK. For my operation with corn, wheat and soybeans, insurance is available.
Mr. SCHANTZ. In my case, hay and Christmas trees, it is very, very limited as to what is available. The small portion of grain I produce, it is available there but that is only a minor portion of the farming operation.
Mr. SHAFFER. Corn and wheat is available. Processing green beans is available, fresh market green beans is not available. And we—I went with a different insurance carrier hoping that they would know more about the different programs, as I have indicated, and found out—I am still going through the same frustration as far as trying to use sectional equivalents, things like that. The interpretation from USDA until it gets to the insurance company, until it gets to the producer, changes a couple times.
And also I wrote a letter, under their guidelines, because I do have a non-insurable crop. We applied to find out in other States what the—what the price is and the yield to try to get that established. And whatever they come back with figured out to be about a third of my production cost. So I do not know where the mistake is, but there is one someplace. So that makes it unavailable to me. I cannot afford to buy insurance that would not even cover a third of my production cost.
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Mr. HOLDEN. And where it is available, do you participate in the program?
Mr. DEY. No, I do not.
Mr. MATEJIK. Yes, I do.
Mr. SCHANTZ. Yes, in the grain.
Mr. HOLDEN. How is the EQIP program working, in your neck of the woods, so to speak? I know there is a problem in Pennsylvania, and I believe there is a next witness in the next panel or the third panel that is going to address it in more detail. But I am curious how it is working in your area.
Mr. BOWERSOX. Part of the problem with that is, in Pennsylvania here, because much of the farmland on the east coast—well, around the coast, around the Nation is becoming owned by doctors, lawyers, et cetera, et cetera. In the close vicinity of the coast, I think probably a lot of the farmland is being rented and not owned. When you go—and those landlords do not understand the importance of maybe conservation and this type of thing. In fact, they really do not care because their intentions are at some point of developing it for—in some way, shape or form. And any of these programs that require like a certain amount of time period of compliance, many years, many of the landlords are not—they are not interested in that. They do not want to be beholden in any way, shape or form to the Government. So it is difficult to try to talk your landlords into trying to cooperate with these.
Mr. DEY. I personally believe that an incentive-based program like this is the only way that a small dairy farm is going to survive in the northeast of this country. Without it, they are all done. I live in the heart of the Finger Lakes, Seneca County is only about 8 miles wide between the two largest Finger Lakes, and there is not a dairy farm in the county that does not have to have a significant investment to get up with environmental quality control. Without an incentive program, you are never going to make it.
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Mr. HOLDEN. Anyone else?
Mr. SHAFFER. I will tell you, it does not work. The problem with it is, the last time I checked, in Pennsylvania, probably around 75, 80 percent of the total EQIP budget for Pennsylvania is targeted to less than 7 percent of the acreage. So the rest of the State, money is usually not available for conservation programs that are needed. And these programs can change as you rent new land. Like I indicated, the number of cash-rented farms, when you rent a new farm that was not taking part of conservation compliance or anything like that, you might want to fix it up as the operator, but then you find out there is no money available. Then the farm is out of compliance, then you are not eligible for some Federal programs, too.
I think it worked better the way it was, where the money was distributed across the State. And another reason, in the east here, a lot of times, we feel like we live under a glass bowl because we have such a great population looking and focusing on every little thing we do. So I think it is more urgent that this money be available on an as-needed basis, not—maybe try to apply for a priority area in a couple of years.
Mr. HOLDEN. Mr. Chairman, I know my red light is on, but I wonder if I could just ask one question of Mr. Matejik.
The CHAIRMAN. Sure.
Mr. HOLDEN. He is the only producer that I believe is southeast of here and closer to Philadelphia and its suburbs.
Bucks County, sir, is your home county, right?
Mr. MATEJIK. Yes.
Mr. HOLDEN. There must be tremendous developmental pressure to stay in the family farm business in Bucks County. I know that Berks County does a great job in farmland protection, and Schuylkill County is coming along with a pretty good program. But I would think developmental pressures in Bucks County would be tremendous. I am just wondering, how is the farmland protection going in Bucks County? Do you participate in it or what is the lay of the land?
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Mr. MATEJIK. It is going on pretty strongly now but I am not participating in it yet. They are asking the farmer too much to sacrifice yet, with not saving—I have no cutback in real estate taxes and you locking yourself in. I intend to preserve the farm myself, as long as I can, until finally I do sell my development rights.
Mr. HOLDEN. Do you know of acreage that has participated in Bucks County, by any chance? I think Berks is up to over 10,000 acres, I think.
Mr. MATEJIK. I believe there is 2,000 or 3,000 acres, that I know of, at least that much.
Mr. HOLDEN. OK. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Smith.
Mr. SMITH. Let me follow-up a little bit on Tim's question. What is land values around here? What are we talking about in terms of tillable, improved agriculture land? What does it sell for and are farmers expanding?
Mr. BOWERSOX. Well, in my area, that is a hard figure to put a number on because they are—generally, most of the farms in my area are highly improved with livestock facilities. I would think that bare farmland would maybe be 3,000, 4,000, maybe 5,000. I do not know.
Mr. DEY. Fairly good, open, tillable acres with no buildings or infrastructure development on it varies a little bit with location, but in our area, probably between $900 and $1,500 an acre.
Mr. SMITH. As Mr. Matejik said, yours is pretty valuable. Mr. Schantz, Mr. Shaffer?
Mr. SCHANTZ. I have not looked into it recently, but I assume it is in the area of $3,000, $4,000, $5,000 an acre. But it is a little artificial because really nobody is looking for land for that purpose.
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Mr. SHAFFER. I agree with Mr. Schantz. The price of land in my area is not set by one farmer trying to buy a farm to farm. As a matter of fact, that is more of an isolated incident in the county than the norm.
Mr. SMITH. It is isolated when a farmer buys another farm?
Mr. SCHANTZ. Right.
Mr. SMITH. It goes into development?
Mr. SCHANTZ. Because development sets the price and that is who we have to compete against to purchase a farm in a lot of cases.
Mr. SMITH. How about for these farmers that are the owners that are holding the land looking for an increased price value? How does the CRP rental rate compare with what farmers are paying for land rent?
Mr. SHAFFER. Well, now it is getting pretty close to the same. But it was ironic—as I stated before, it is funny, you go to our county FSA office and find that your county average yields are lower than your actual yields. And then also the county CRP rental rate is higher than what most other farmers are paying for rent. So it has brought that up, and right now in the county, that pretty set the price. And so the rental rates have gone up to match that.
Mr. SMITH. Do you find the same thing, Mr. Bowersox?
Mr. BOWERSOX. Well, the CRP rates in my area are about double the going land rental rates. And I am of the opinion that the land rental rates do not justify what we can earn on it already.
Mr. SMITH. Well, it is interesting because technically in the law, there is supposed to be a not-to-exceed local agricultural rental rates. But in our area, the same is true as the agriculture rates, the FSA rates are higher than what normally a farmer is going to pay for land rent.
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How about other areas that you see that Congress might deal with that would help agriculture? You take what you can sell a crop for minus your costs. How about taxes? Did income averaging with the drought in your areas—was income averaging of any value that we put into law a couple of years ago?
Mr. BOWERSOX. Yes, I think that is of great value because of what I alluded to earlier. My income varies usually from year to year, sometimes quite positive, many times quite negative.
Mr. SMITH. Let me just expand that question so everybody might give their reaction. Any other Tax Code changes that you see that we should push down there that would help maintain a stable agriculture industry?
Mr. SHAFFER. I think the farm accounts that have been talked about, where you can set aside, on a good year, so much money and then have 5 years to take that back out and pay the tax on it. Also, we talked about transferring land, father to son, family farms. This capital gains, estate taxes, things like that, are all a detriment to try to do that. My father just passed away this past summer, and fortunately I did some tax planning with him ahead of time, which helped me at the Federal level. But our State individual inheritance tax starts at dollar zero, and there is no exemption. So it becomes a burden.
Mr. SMITH. Jay, with your expertise at mathematics, do you do your own taxes?
Mr. DEY. Actually, no. I am not an expert in taxes. It is way too complicated for me.
Mr. SMITH. What do you see as where we should make some improvements?
Mr. DEY. I think capital gains tax and estate taxes are probably the two biggest areas for us. In New York State, we had a real successful program for farmers in the STAR program, the School Tax Assistance program. That has been real positive for agriculture in New York. But I think at the Federal level, the capital gains and estate taxes are high priority.
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Mr. SMITH. Jay, and then Mr. Schantz.
Mr. SCHANTZ. One of our problems or my problems is local taxes. I know it is not a direct effect of the Federal Government——
Mr. SMITH. Property taxes?
Mr. SCHANTZ. Property taxes, yes. And the State does have a program involved in trying to reduce that. But it is just sort of like in limbo and really nothing is proceeding as far as relief from property taxes.
Mr. SMITH. Mr. Matejik.
Mr. MATEJIK. I agree.
Mr. SMITH. Let me ask, Mr. Chairman, one last question to everybody in the audience, plus the panel again. Those of you that are farmers that produce crops that are eligible for crop insurance, how many carry crop insurance?
[Show of hands.]
And how many of you that have that—crops that are eligible for crop insurance do not carry crop insurance?
[Show of hands.]
Mr. DEY. If I could just make a comment on crop insurance. One of the biggest problems we have in the Northeast is the number of acres of crops that are not eligible. The apple growers, vineyards, grapes, onions. That is the biggest problem in terms of crop insurance.
For me, the reason I do not enter in the insurance program is I really have not had enough of a variation in yields, with the exception of this past year, to ever get any money back out of it. So it really has not been functional for me.
Mr. SMITH. Thank you, very much.
The CHAIRMAN. Mr. Gutknecht.
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Mr. GUTKNECHT. Thank you, Mr. Chairman. I was struck listening to the testimony, there are regional differences. But when you talk about the crops that are grown in this area, believe it or not, Mr. Schantz, we grow Christmas trees in Minnesota. And we grow corn, bean, wheat, oats. We produce an awful lot of milk. Some of the questions I was going to ask have already been asked. But I did want to make a comment. As long as I am the only—well actually, Nick, to a certain degree, too, represents the upper Midwest in terms of dairy, because I think it is important, because as we talked about opening markets to China and around the rest of the world, I happen to really believe that in the long run, that is probably the best thing we can do for American agriculture is open up market opportunities for agriculture, both internationally and domestically. I think there is more things that we can convert what we grow here in the United States, particularly in the bio-fuels area. I think bio-diesel represents an enormous opportunity for our soybean growers.
But I do want to talk just a little bit about, as long as we are entertaining the notion of opening up markets to China with NTR and so forth, that those of us in the upper Midwest have labored under a milk marketing order system for a very, very long time. In fact, about 67 years, I believe. And the system, most people in the Northeast may not quite understand it, but our dairy farmers really do understand it. And what it really works out to is that milk is priced based on how far away the dairy farmer is from Eau Claire, Wisconsin. And as a result, the dairy farmers in the upper Midwest have received less for their milk for almost 70 years.
And on top of that, when we talk about opening up markets to China, we have the North American Free Trade Agreement with Canada and Mexico now, but our dairy farmers are in many respects limited with their ability to ship milk into the compact States. And so expanding compacts—I mean, there is sort of an inconsistency there when we say we want to open up markets to China, but by the way, we want to close off markets to the Northeast. And so I hope you understand that when we get into some of these regional disputes, that there are several sides to the story. And to their credit, the legislators who represent you folks in the Congress have done a very effective job in preserving both the milk marketing order system as well as the Northeast Dairy Compact.
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Mr. SMITH. If the gentleman will yield? Do you want NTR on dairy products into the Northeast?
Mr. GUTKNECHT. We would like open markets in the United States. We want open markets not only to China and Japan, we want open markets to Philadelphia. At the end of the day, I think Mr. Bowersox—I admire your courage because I think in some respects, as we have talked about listening to the farmers, perhaps sometimes we listen too much and we should allow the markets to function. And it would mean, for example, in some areas, you might see milk production go down. In other areas, you might see it go up. But it would go to the most efficient producers. And in some respects, that is the way markets work. They tend to reward the most efficient.
The other thing that is interesting, and this is not so much a question as just a comment, if any of you want to respond, that at the end of the day, many times what we are doing with the payment systems that we have created over the years, in sort of the patchwork, is we are driving up land costs. It is interesting to hear the differences in land prices. It is happening in my area as well. In fact, it is happening in spite of relatively low commodity prices right now. We are seeing land prices holding their own, if not going up. And even where it is farmer-to-farmer, you have got big farmers buying out smaller farmers, and land prices, as far as I am concerned cannot be sustained. You cannot buy the land at today's price. Even assuming you get a good crop and a decent price, you cannot cash flow the land.
So I guess there is not a question there as much as a comment. I hope you will understand that from the upper Midwest's perspective, we want open markets to China, we want open markets to the rest of the world, we want open markets to Europe. Because long term, I do believe that American farmers can compete in the world marketplace. We would just like the opportunity to compete with the Northeast in terms of milk. Thank you.
The CHAIRMAN. Thank you, Mr. Gutknecht.
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We appreciate Mr. Toomey's joining us today, and please proceed.
Mr. TOOMEY. Thank you, Mr. Chairman. And I would like to thank you also for having this hearing in eastern Pennsylvania, and also for inviting me to participate, despite the fact that I do not serve on the Agriculture Committee. As you know, I do have a keen interest in the agricultural economy of Pennsylvania and our Nation in general, so thank you for that.
Also I want to thank the producers who have testified today, particularly Mr. Schantz, a constituent of mine who has come. And Mr. Chairman, I would like to point out that another constituent of mine, Brian Fulmer is present today, and he has prepared written testimony, and I would like to ask unanimous consent that his testimony be included.
The CHAIRMAN. Yes, all testimony by any individual will be accepted by the committee and welcomed. Thank you.
Mr. TOOMEY. Thank you very much.
[The prepared statement of Mr. Fulmer appears at the conclusion of the hearing.]
Mr. TOOMEY. Just a couple of quick questions and thoughts, one on the question of permanent normal trade relations with China. I noted with interest that there was one gentleman was undecided and all four of the remaining four support permanent normal trade relations for China. I believe it is a great opportunity for American farmers, if we were to adopt that, in that Chinese imports of American agricultural products would increase dramatically.
Could any of you comment on this question, if a farmer does not personally export to Asia but nevertheless there were to be an increase in the exports of the crops that he grows to Asia, do you believe that such a farmer would, nevertheless, benefit from that expanding export opportunity? Anybody care to comment on that?
Mr. DEY. I would love to address that. Any corn produced in the Midwest in this country that does not go down the Mississippi or on rail to the west coast, to China or Japan, Malaysia, comes east. And the more corn that comes east, the worse my basis is. I do not know if you understand what a basis price is, the difference between the Chicago board price and our local price. Our basis has deteriorated significantly in the Northeast. Six years ago, we got about a zero basis in the fall and plus 20 in the spring. This year, soybeans were 50 under in the fall. And as of last week, when I tried to price some more, they were 40 under. And that is all the result of a limited amount of export, and a majority of that product coming east and competing directly with us.
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Mr. BOWERSOX. Well, I think my testimony was—addressed this specifically. I am not arguing that it will not raise prices, but I am very doubtful it will raise any of our standard of livings of the people sitting here at this table, and I told you why. All that will happen will be is that it will be factored into land prices. That is the whole crux of the problem.
Mr. TOOMEY. Could that not be said about anything that increases the price of agricultural commodities?
Mr. BOWERSOX. Absolutely. I mean, it is fine if we decided, yes, we want to increase the price of farmland in the United States fine, but let us talk about what we are talking about.
Mr. TOOMEY. Yes, sir.
Mr. SHAFFER. A couple of weeks ago I was in Washington and had a great opportunity to visit the Chinese Embassy and visit with one of their ambassadors. And we were talking about trade as far as what they are interested in and quality standards, things like that. And he sort of apologized to me for being from Pennsylvania, because he said the wheat they are interested in would come from the State of Washington. And the point I said to him, I said, you have got to understand, any bushel of wheat you take out of the United States makes room for a bushel of my wheat from Pennsylvania.
Mr. DEY. Could I make one more comment on this? The Northeast apple producers were literally crushed by the dumping of Chinese juice concentrate on the market. And the only way that we are ever going to be—ever going to have any kind of control over that is if we are face-to-face at a bargaining table as trade partners. If we are enemies, the products are going to come in the country, they are going to come in via Brazil, Venezuela, Argentina, but they are going to come in here.
Mr. TOOMEY. Thank you. If I could shift the topic for one final question, and that is, certainly last summer here in the Lehigh Valley and this part of Pennsylvania generally, farmers faced a disastrous drought. And it seemed to some of us that there was perhaps some unfairness, unintended perhaps, but some unfairness in the Federal policies when producers of bumper crops in other parts of the country got double the Freedom to Farm payments while farmers in this part of the country, suffering from a disastrous drought, got very little in relative terms.
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My question for you gentlemen is, do you believe that there is anything structurally wrong with this program? Is the formula unfair? And if so, what should we do about it?
Mr. SHAFFER. One of the problems I referred to in my testimony—I have purchased farms, and I bought my father out in 1972. I have been involved in Government programs, any one I could take advantage of, since then. And the majority of the programs have been based on these county average yields like I have talked about. And even AMTA payments, everything revolves around that. And in Pennsylvania, we have artificially low, for one reason or another, low county average yields that does not allow us to get the same benefit out of the Government program as maybe some other States. And it is just mind-boggling, the amount of money that revolves just around the county average yields. If they would have been brought up to a realistic level all through my history on the farm, it would have made a great deal of difference. And I think this is some of the problem, that a lot of producers are not participating or it does not make that much difference if they do participate.
Mr. DEY. Along the same lines, I think that as we look at it right now the solution to a lot of these problems is the development of a better risk management plan for all farms, all agricultural commodities, not just corn and wheat. And I think a better developed, better program could help offset some of these emergency payments and so on.
And a good example of that is the LDP issue. If you are familiar with how the LDP program works, loan deficiency payment. I kind of like it because it is a marketing tool that works better with my free market program, the way I market my crops. The problem was, on a year like this past year, we had about half a crop of soybeans. Well, because the deficiency payment is calculated on your yield, I also had, have of my potential deficiency payment. I would like to see us get farther away from having programs directly revolving around yields and have it revolving more around financial inputs and input costs, maybe. I think maybe it would be a more accurate way, to determine potential income and potential losses.
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Mr. TOOMEY. Thank you. Thank you, Mr. Chairman.
The CHAIRMAN. Thank you, Mr. Toomey. I appreciate very much the witnesses, again, giving testimony. If there is additional information that you would like to submit, please feel free to do so. It would be readily accepted.
I would invite our next panel to the witness table. Ms. Marion Bowlan, a meat and vegetable producer from Manheim, PA; Mr. Larry Breech, livestock producer from Bloomsburg, PA; Mr. Donald Fretts, a livestock, corn and soybean producer from Scottsdale, PA; Mr. James Michael, a cattle grain producer from Berkeley Springs, WV, and Mr. Joseph Vogel, a sheep and grain producer from Kempton, PA.
Ms. Bowlan, we will begin with you and go in the order of the way the witnesses were introduced. Please begin.
STATEMENT OF MARION BOWLAN, MEAT, VEGETABLE PRODUCER, MANHEIM, PA
Ms. BOWLAN. Thank you, Mr. Chairman and members of the committee. My name is Marion Long Bowlan, I am a third-generation farmer from Lancaster County, PA. I am also the director of a non-profit organization called Pennsylvania Farm Link, and I served on the National Commission for Small Farms and am a current member of the Advisory Committee on Small Farms. My testimony will be primarily on the issues of beginning and retiring farmers, with a few on market issues and tax issues.
We have a crisis in the making. Pennsylvania agriculture has twice as many farm operators over the age of 70 as under the age of 35. And Pennsylvania is reflective of the national problem. Who will be our next generation of farmers? Potential replacement farmers under age 35 make up only 8 percent of our total number of farm operators, according to the 1997 census. And minority farmers account for only 2.5 percent of the total farm operators in Pennsylvania. Are we prepared for retiring farmers to sell off their land to housing or industrial development due to the lack of well-trained, business-oriented younger farmers? Noted author Wendell Berry said that, so few young people are going into farming is one of the most critical problems of American culture. It is implicitly a huge economic problem.
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The organization I represent, Pennsylvania Farm Link, identified three major problems that are contributing to the decline in potential young farmers. They are the need for earlier succession planning with farm families, the need for start-up training assistance and hands-on experience for potential farm entrance, and the increased entrepreneurial skills required to generate higher profit margins. Farm Link's programs aggressively address these problems and provide some training and assistance to beginning farmers. I have limited the rest of my testimony to some recommendations.
Loans. Under loans, Congress should authorize the Farm Service Agency to guarantee tax-exempt, first-time farmer bonds used to make loans to beginning farmers and ranchers.
Under transfer assistance, transfer from one generation to the next and beginning farmer training. One, provide assistance to retiring farmers to facilitate the transfer of farms to the next generation. This is something that our program does in Pennsylvania, and there are other linking programs across the country that work with this as well. Matching Federal funds could be provided to organizations such as ours to strengthen this effort.
Two, provide programs that encourage and strengthen beginning farmers' marketing and entrepreneurial skills. Part of our new generation's need to get in—ability to get into farming will depend on their entrepreneurial ability, and we need to encourage that.
Three, develop mentoring programs for those individuals who are not from farm backgrounds and provide financial support to these programs and individuals.
Four, provide one-on-one technical assistance to beginning and retiring farmers on resources available for farm transfers. This resource locator work could be done also by farm linking programs.
And five, include farm succession planning in the points system for determining who will receive farmland preservation money. When an owner retires and there is no successor, that is the time when the farm is the most vulnerable for sale to developers.
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Now on tax issues, I have a couple of recommendations as well. One, provide income tax credit on the first $20,000 of gross income for active farmers renting agriculture assets to a beginning farmer.
Two, provide income tax credit for a beginning farmer on the first $20,000 of gross annual income from a farm operation.
Three, provide an income tax credit for the seller on the first $10,000 of income from the sale of a farm.
And four, change the limit on family-owned business deductions to an amount equal to the Federal and gift tax unified credit amount and have it cover both transfers at death and transfers during lifetime.
Now speaking as a small farm operator and a member of the Committee on Small Farms, I think we need to develop an interagency beginning farmer initiative that researches capital investment—I mean, low capital investment, optimal use of labor and high value production and marketing methods.
Two, we need to support the expansion and development of local and regional markets where beginning farmers and small farmers can compete. I know that has been a particular problem with our farm. We are operating on a local market, and that has largely dried up. Reverse the concentration in markets in order to develop more opportunities for beginning and small farmers. Thank you.
[The prepared statement of Ms. Bowlan appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, very much. Mr. Breech.
STATEMENT OF LARRY B. BREECH, LIFESTOCK PRODUCER, BLOOMSBURG, PA
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Mr. BREECH. I thank you for the opportunity to appear before the House Agriculture Committee. My name is Larry Breech. My wife, Debbie, and I and our three small children operate a grain and livestock farm in the rolling hills of central Pennsylvania. I want to share with you my feelings on the effects of the current farm policy. I am not here to whine. I will tell you gentlemen how to solve the farm crisis.
First, you must establish a paradigm for progress. This is absent. We need to learn when to make the changes, when to cut from that which is proven incorrect. What I am saying is, take all the resources and all the valuable assets that we have, and combine them with our knowledge and our wisdom and make the best decision possible today, but be fully prepared tomorrow to completely reverse direction should the facts of the matter prove this is not correct.
A good example on this is called, what we determine to be raw material economics. There is a history in this country, and the German philosopher Hagle counseled us that what experience and history teach is this, that people and governments never have learned anything from history, and acted on the principles deduced from it. What I am saying is, gentlemen, we had a decade of unparalleled agricultural prosperity that fueled the greatest economic growth this country has ever seen in real terms for 10 years. Suddenly, we turned our back on a proven formula of success and went down and somehow seemed to indulge in a doctrine of debt.
I am concerned on this because what I give you is, agriculture as the engine for the whole economy for creating earned income. Our trade deficit right now, if we were to pay our foreign creditors, all we would need to do is give them all 940 million acres of farmland twice. We need to earn our income, and this can only happen by having a basic understanding of raw material economics. Each spring we are given a new flush of wealth coming from the farm.
I know this is not on my testimony, I apologize if this shocks you, but I feel that you must know this, and I am at your service if you need to know further on this. Back into my testimony, as I have presented before you.
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My old pappy once said, a mistake is just a success in the making. Open the farm bill. To do nothing is to do something badly. Make changes to address a shortcoming. If this farm act is so good, why has American become the largest importer of food in the world? Adopt an inventory control plan and include a market-driven veritable loan system. Couple this with a short-term flexible conservation reserve program. Authorize a farmer-owned reserve. Provide a buffer supply for low production years. Provide for a strategic energy reserve via excess grain production. Provide for a supply for humanitarian purposes. Provide the opportunity for extending crop loan length. Provide a cushion for unfair foreign trade practices and their effects. Provide farmers the opportunity for orderly marketing. Provide a reserve to prevent erratic price swings caused by unforeseen changes in foreign demand and production.
Focus on domestic demand and supply. We cannot export our way to prosperity following our past practices. The United States does not need to export one bushel of grain to improve the price received by her farmers. This statement does not mean that we should not export, but rather concentrate our efforts where they will do the most good. Reward and encourage sustainable agricultural practices. Sustainable agriculture has not been USDA's goal. It must be. Adjust loan rates to more accurately reflect production and conservation costs, to provide adequate protection to the livestock and dairy producers. This would relate to the grain reserve, as well as a system of price supports and import control.
Target program support to family farm operations, the backbone of our rural economy. These are the people that weave the fabric of our culture and provide the moral compass our society needs. These are the citizens that will provide you with the best value for the dollar. Address unfair trade practices here, as well as abroad. Have the courage to do the right thing for the right reason. Develop international cooperation in addressing these issues globally. Apply anti-trust regulations where needed.
Fix crop insurance. If you want us to use it, make it usable. There is a reason why only 20 percent of Pennsylvania's farmers have it. Again, I thank the committee for providing me the opportunity to testify on the FAIR Act. I will conclude my testimony with one final comment. America's economic future and well-being will be defined by her agriculture today.
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[The prepared statement of Mr. Breech appears at the conclusion of the hearing.]
The CHAIRMAN. Mr. Fretts.
STATEMENT OF DONALD C. FRETTS, LIVESTOCK, CORN AND SOYBEAN PRODUCER, SCOTTSDALE, PA
Mr. FRETTS. Thank you, Mr. Chairman, for the opportunity to appear before the subcommittee. I am Don Fretts, a livestock and crops producer from southwestern Pennsylvania, and I am also representing the Board of Directors of AgChoice Farm Credit.
AgChoice encompasses most of Pennsylvania, excluding the southeast corner of the State. AgChoice has over 6,000 borrower-owners, including full-time and part-time farmers, plus rural home owners. AgChoice provides credit for about 57 percent of production agriculture housed within its territory and currently is managing a portfolio of about $545 million.
Today my testimony will focus on some risk management challenges facing both established and aspiring producers within the AgChoice territory. While the balance sheet of the association is healthy and loan quality has been improving over the past several years, the drought of 1999 weighs heavily on the economic health of many producers in the area. Due to the critical losses of crops due to the drought, the expected fallout on farms will become more evident in the months and year ahead. The financial aid provided by the Federal and State governments has been helpful, but it is not adequate to overcome the economic losses suffered by producers.
With respect to crop insurance, as many comments have been related this morning, one of the goals of Congress is to increase farmer participation in the crop insurance program. As a participant, the one suggestion that I have is to make it simpler and more affordable to all commodity producers. To begin, if a farmer does not have accurate yield records, then FSA county yields are used until producers can develop 3 to 5 years of yield data. This is an immediate financial penalty to the newly insured, because FSA average yield data is obsolete, it is early–1970's based. In most of Pennsylvania and even the northeastern United States, livestock or dairy farmers feed the majority of the crops raised and therefore do not regularly weight crop yields. As a result of improved technology and better management, average county yields have increased significantly since the 1970's. FSA yield averages must be able to reflect this, even for CAT insurance to be relevant.
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With respect to taxation, the preservation of the family farm is threatened on a number of fronts. Regulatory, the need to expand to a sustainable economy of scale, affordable, dependable and technically capable labor, et cetera. In addition, a very serious problem is taxation. Crippling taxes such as capital gains and estate or death taxes many times are insurmountable, and force the liquidation of assets in order to pass a farm on to a succeeding generation. If maintaining an economically viable production agriculture is desirable, then these penalty taxes must be reduced or eliminated.
With respect to new and beginning farmers, one of the critical issues being addressed by AgChoice is the new and beginning farmer program. As mentioned to the committee by Jay Penick, President of the Northeast Farm Credit Council on March 29, borrowers' loan applications, and I quote, ''Must be evaluated based on their financial projections and estimates of whether they will cash flow. And then we have to make a determination as to whether we can adequately secure a loan,'' unquote.
With new and beginning farmers, the lack of managerial experience also must be evaluated by the lender and a decision made relative to the additional risk association members must bear. Existing borrowers do not want to significantly risk their investment in the cooperative to unproven operators. Yet AgChoice recognizes that to survive, the association must and should offer credit to the next generation. Currently the FSA guarantee loan program is used in some instances to refinance new and beginning farms, but is that enough? Interest rates for new farmers are the same as for established farms. Perhaps some additional Congressional consideration could be given to FSA writing down some of the interest costs for new and beginning farmers for only several years. This could significantly help new borrowers and also help the farm credit associations provide or viable opportunities for new farmers to establish some managerial history and experience. The critical part of this option rests with the Congress, and that is to be sure that enough funds are allocated to States to facilitate these opportunities.
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Cooperative development. Cooperatives such as Farm Credit, Agway, Southern States, Genex, et cetera, have proven their ability to sustain production agriculture in this country. Today the formation of new generation cooperatives, many of them defined as value added, are a tool that is allowing farmers to compete. In years past, at least nine regional cooperative development centers have been established to facilitate the formation of new agricultural cooperatives and have been supported by the Congress.
In the past couple of years, Pennsylvania has been struggling to develop its own one-stop-shop for new producers, commodity groups or rural communities interested in developing new businesses or service cooperatives in stressed rural areas of Pennsylvania. Applications for Federal monies have been stifled by a system of grant approvals that do not consider favorably the formation of new centers. Additional Federal monies are needed to support these centers, but also there needs to be a system that will allow new initiatives to get started. AgChoice has been financially supportive of this initiative, and encourages Congress to amend some evaluation procedures that would allow additional centers to get started.
With respect to trade, these are only a few of the issues that face agriculture in this new millennium, but I would like to conclude simply by stating that U.S. agriculture is expected to compete worldwide. I believe that Pennsylvania farmers can deal with that, but only if the playing field is level. Normalizing trade with China and eliminating sanctions of food to any country around the world, plus being sure that imported food products are similarly regulated, as is U.S.-produced food, should be a no-brainer.
Developing third-world countries should experience in time the same economic growth the more developed countries have. This means that they will have more money to spend. We must be able to trade with them fairly and under similar regulation in order to sustain our production agricultural industry.
Thank you, Mr. Chairman, for the opportunity to be here today.
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[The prepared statement of Mr. Fretts appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. Mr. Michael.
STATEMENT OF JAMES R. MICHAEL, CATTLE, GRAIN PRODUCER, BERKELEY SPRINGS, WV
Mr. MICHAEL. Ladies and gentlemen, I am James Michael from Berkeley Springs, Morgan County, West Virginia. It is a great deal of honor and pleasure that I present these recommendations for our future farm policy. I certain applaud Chairman Combest and the Agriculture Committee for the foresight in conducting these hearings, and their genuine interest here today.
I own and operate a 300-acre beef cattle farm, and hay grain farm in West Virginia, and rent an additional 200 acres. It is a third generation farm, and I have worked through the family process in various types of agriculture. I am also a member of Farm Bureau and the chairman of the Eastern Panhandle Soil Conservation District.
I think it is very important, as we look at our agricultural program, to look at the land. Around 70 percent of the land in this country is private land, and it is land that agriculture operates on a substantial amount of this. It is essential that we plan our future programs maintaining healthy and productive land as well as water and water resources bases. We must manage our soil and water, and we need the local-led voluntary incentive-based programs. We must strengthen our local government leadership, the State leadership, as well as the Federal programs, with continuous input from the people. That is why I like this session today, it is people input to you.
And let me say, I am real appreciative to be in the great Keystone State today, where you have selected for this. We think a lot of the State of Pennsylvania, the Keystone State, and I have chosen to make some keystone points in my presentation. Our policy in the future, the farm policy, must increase private, local, State and Federal investment in soil and water conservation, develop and improve programs that reward good stewardship and provide for economic stability. We must have economic stability to secure these future agricultural programs.
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Also USDA, along with State and local conservation districts, must be the farmers' source of technical and financial assistance to protect and improve the water quality of our nation. Appropriate funding to support science-based conservation improvements, water quality improvement on private lands must be provided.
I know particularly in the Northeast, we are very concerned about our water quality. In fact, there is other watchdogs that make sure we are concerned. And I think agriculture and this committee on agriculture has to keep water quality high on its list of considerations. When we look to future programs, one I have seen is in the administration's 2001 proposal for agriculture. And they title it the Conservation Security Program. I know it is new, off the shelf, it is not in the farm bill, it may be down the road. But I think it is an approach that we need to look at, because we have had AMTA and other programs that have the soil bank and other things. But this, I think, Conservation Security Program might be a program that could strengthen the conservation efforts on private plan and also provide a farm safety net.
A crucial part of the farm safety net is providing assistance to farmers and ranchers who practice good land stewardship which yields benefits to all Americans. This program should be structured to provide economic support for wide diversity of agricultural enterprises. From crop production to nut production, grasslands to hog production, organic farmers to modern production farms. The program must be broad and respond to variable needs in all 50 States. That is a real challenge for you on this committee, to have a program that is workable in the entire United States, because so much of our program in the past, where it is primarily farm States. The new voluntary program, which will be the Conservation Security Program, an important foundation of this program is that it builds upon existing technical assistance and infrastructure components of the USDA programs.
Some of the programs I would like to next address would be the environmental quality incentives program. I am an active participant in that program, having one of the first contracts in the State of West Virginia on one farm, and have completed that and have contracts on another farm. This program, I think, there has been a lack of commitment of the Federal Government to fund the program, is the first problem. Yes, it has problems, but a lack of funding has been the biggest problem. My association with National Conservation Districts, we look at this program with National Survey, and basically it is a funding problem and we need to make some adjustments in the way it is administered. And that is a given. And some of that comes back at State. But again, make it local.
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Next I would like to point out that we need to continue the other support for production-type programs. I think in the Northeast, farmland protection is a must for preservation. The Federal Government is supporting other entities of development of land and economic improvements, and farmland just protects the farm and agriculture. In summary, I would like to recommend that the committee and Congress take a strong Congressional stand to retain and strengthen the unique and effective USDA delivery system. We must maintain the individual agencies to be responsible for specific programs, keeping financial and technical assistance programs separately managed, yet coordinated for sustainable resource base and the future of our economy.
I appreciate this opportunity to speak to this committee. Thank you, very much.
[The prepared statement of Mr. Michael appears at the conclusion of the hearing.]
Mr. EWING [presiding]. Thank you, Mr. Michael. Mr. Vogel.
STATEMENT OF JOSEPH R. VOGEL, SHEEP, GRAIN PRODUCER, KEMPTON, PA
Mr. VOGEL. We, too, want to thank you for coming to good old Pennsylvania to see what is going on and hear what is going on. But I first want to lighten up a little bit here and tell you gentlemen, the Congressmen from States other than Pennsylvania, that in this particular congressional district, we keep our Congressman pretty darn busy. And I sometimes wonder whether he gets a chance to go home and go to bed. But I would just like you to know, too, though, that Congressman Holden is, I think, generally very well respected in this district, and I trust that is so throughout your committee. I am sure it is, Tim.
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In preparing my presentation, I decided that although my interest is primarily sheep and lamb production, I will not dwell on the many areas of concern that your committee discussed at the Lubbock, Texas hearing. Incidentally, the folks down there sent me a total report on what was discussed. So I am sure they, however, went into all of the national legislative and requests and what not that are in need by the sheep industry in the United States.
Therefore, I would rather deal with the agricultural diversity that exists here in Pennsylvania and the Northeast. For example, most of our sheep are a second commodity to many other farms, such as dairy farms, hog producers and beef. And so therefore, sheep are considered a minor industry. However, dealing with sheep production, therefore, I would just like a little history. In 1930, there were 10 million sheep in Pennsylvania. Today there are 57,000 brood ewes. 40 percent of lamb consumption in the United States is in the Northeast. Why? There are 14 million Muslims and various other ethnic groups in the United States. Sixty percent of these groups live in the Northeast. Lamb and goat are the primary meat that the above groups consume. Their religion dictates that all animals must be slaughtered according to Halal procedures. There are a limited number of slaughter facilities certified in this procedure in the Northeast.
Pennsylvania and surrounding States do not have the sheep numbers to satisfy this market; therefore, live animals must be shipped in. Presently there is much discussion concerning interstate shipment of inspected meat. Most Pennsylvania and Northeast producers believe inspection should be necessary, not only to protect the consumer, but to help assure a uniform product. Perhaps a marketing co-op in this region would help to resolve the marketing problem. I think this is an area in which USDA could be constructively helpful.
Number 2, the scrapie program. We would recommend a continued voluntary program and expanded efforts to research and develop a live animal test. Experimentation is presently going on out west, I think it is in the State of Washington, to do just that. Hopefully something will gel and be confirmed by the end of this year. Incidentally, Pennsylvania has more flocks on test than any other State in this country. We are very proud of that. Live animal shipment for breeding purposes necessitates greater emphasis on a scrapiecontrol program.
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Number 3, concerning wildlife damage control. Yes, Pennsylvania has coyotes, bears and you name it. It is destroying not only lambs, sheep and calves but also hogs and fish. In the sheep industry, some 25 to 28 percent of sheep and lambs in the United States are killed annually. In Pennsylvania, losses are in the 8 to 10 percent level. For example, a Pennsylvania sheep producer lost 37 sheep and lambs in September 1999 to coyotes. This, out of a flock of 340 ewes. How can a farmer or rancher stand that degree of loss and stay in business? Therefore, predator control must be supported continually and/or expanded, or we will outnumbered and out of business.
I would like to give you a reference on the animal damage control officer in Pennsylvania. Tom does not know that I am using his name, but I will anyhow. His name is Tom Tomsa, T-o-m-s-a. He is a tremendous asset to Pennsylvania in the area of wildlife damage control. Not only is he an expert on coyote control, but many other areas. The problem, Tom is all by himself. He got one student assistant last September who has since left to go on to greener pastures. But Tom not only deals with coyotes and so forth, but keep in mind the goose population up and down the Susquehanna River. They go over every green that is out there and every golf course, pooping all over the place, and everybody is complaining about it. However, that is Tom's problem. How do you get rid of several thousand geese and keep them under control? However, Tom works very diligently at his job and never turns down a request. So therefore, the natural recommendation for you all is to expand the efforts of animal damage control. And in our case, in Pennsylvania, give Tom some help. He direly needs it.
Number 4, an area of policy and discussion that I believe should be considered by the USDA is the matter of human waste or sludge disposal and use. This may sound foreign from what you have heard in other areas. In Pennsylvania, all municipalities with sewer systems spend millions of dollars disposing of the waste, mostly in landfills which supposedly are buried ad infinitum. Hundreds of trucks daily cross Pennsylvania, speeding across our roads and causing endless problems enroute to points unknown. I know some of them go down to West Virginia, Mr. Michael.
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Many Pennsylvania crop producers attempt to spread analyzed sludge as an organic addition to their soils. The estimate of fertilizer savings, if permitted to be used, would be $40 to $50 per acre on cropland. It seems to me that the producer of the sludge in agriculture, USDA, and the farm community should pool their resources to research and develop the use of sludge so that it will be acceptable to the public and to agriculture. As you can guess, the biggest single problem are the odors. Now National Farm Bureau has appropriated some $50,000 to this same type of effort down in the southeast sector of the United States, where perhaps similar projects to that could be established here in the Northeast. We think it would be a good thing to do.
Number 5, In a recent market seminar, the session ended in a discussion concerning international sanctions that the United States places on a foreign country for political purposes. I am sure that everyone here in this room realizes there are many areas of problems and questions in this world. Agriculture in the United States, however, should not be handicapped by unnecessary regulations and international politics. This affects the potential market for U.S. Agriculture products and directly enhances the potential for our competitors. As a U.S. policy, food should not be a part of any U.S. sanction. The people who need the food are, for the most part, the victims of events caused by politicians. Therefore, I wish to express my appreciation to you, Mr. Chairman, and the committee, for the opportunity you have given us to express our areas of concern. I trust that our presentations will be helpful to you. Thank you, very much.
[The prepared statement of Mr. Vogel appears at the conclusion of the hearing.]
The CHAIRMAN [presiding]. I want to thank you and all of the witnesses.
Ms. Bowlan, tell me a little bit about Pennsylvania Farm Link. I am not familiar with Pennsylvania Farm Link.
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Ms. BOWLAN. OK. We are a non-profit organization and we work in the whole State of Pennsylvania. We work primarily with beginning and retiring farmers. We have started out with a database linking service that matched people who did not have a farm family to go to with people who were retiring and did not have an heir to their farm. We have since expanded the service to include what we call Passing On The Farm workshops, and these are designed to help families figure out how to pass their farm from one generation to the next, whether it is an heir or whether it is a non-heir. We do beginning farmer workshops to talk about how people can get started in farming, different strategies they use, and this year we are starting an apprentice program in production agriculture.
The CHAIRMAN. Do you have a marketing seminar where you help with various forms of marketing?
Ms. BOWLAN. Yes, we do some marketing work with beginning farmers, primarily.
The CHAIRMAN. Primarily with beginning farmers?
Ms. BOWLAN. Yes, we target those people.
The CHAIRMAN. Mr. Fretts, putting on your credit hat for a moment, do you at least provide opportunities for farmers to go to learn more about marketing risk management through better marketing tools?
Mr. FRETTS. AgChoice Farm Credit Association does sponsor producers to attend such functions. AgChoice also individually sponsors basically what is called an executive producer leadership conference every year, primarily targeted toward dairymen who are interested in expanding their operations as to how to go about evaluating and planning proactively for that expansion, so that it does not detrimentally influence their farm or their family's income.
Also Farm Credit works and supports some cooperative extension efforts throughout the Commonwealth with the aid of a computer lab to help producers in farm management classes and so forth, yes.
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The CHAIRMAN. I will have to say, Mr. Vogel, I was not aware of the fact that you had a coyote problem in Pennsylvania. We certainly do in Texas, but I did not realize that you had that here.
In your discussions, primarily in regards to the sheep industry or lamb industry, wool industry, most of the production of the lambs in this area for consumption or for wool or both?
Mr. VOGEL. Well, basically lamb and wool. Like in our own case, about 40 percent of our lambs are sold for market.
The CHAIRMAN. Are sold for what? I am sorry.
Mr. VOGEL. For market.
The CHAIRMAN. For market, thank you.
Mr. VOGEL. Right. And the other 40 percent are basically sold as breeding stock. There are a lot of very excellent seed stock farms in Pennsylvania for sheep. And therefore, we do export a lot of sheep interstate for that function. In our case, the other 20 percent would be for flock expansion, and whatever, whatever the market calls for, quite frankly. And for example, this past year, with the drought situation, we only got about a 10 percent hay crop in, we live 12 miles from here. And so therefore, it was a problem, how the dickens are we going to feed these critters, and so forth. We were out of hay by the 1st of August. Our pastures were absolutely bone dry by the third week in June. So they were in the barn is what it amounts to, and that is what hurt us the most. So we had to cut down, and frankly we did. We started off by cutting two-thirds of our herd. And most of that, however, was sold for meat in the open market, and/or for breeding stock to other breeders, and I am happy to say in other States, quite frankly. So it helped us in that regard.
The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. Thank you.
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Several of you mentioned it in your testimony, but I want to ask each of you, do you believe that we should lift all unilaterally-imposed sanctions on other countries as it pertains to food and medicine?
Ms. BOWLAN. No, I do not.
Mr. STENHOLM. Should not?
Ms. BOWLAN. Should not.
Mr. BREECH. Yes, I do.
Mr. FRETTS. Yes.
Mr. MICHAEL. Yes.
Mr. VOGEL. Yes.
Mr. STENHOLM. Normal trade relations with China, how many believe that we, the Congress, should approve normal trade relations with China?
Ms. BOWLAN. Yes, I do.
Mr. BREECH. I am ambivalent, but leaning against.
Mr. FRETTS. Yes, in favor.
Mr. MICHAEL. Yes.
Mr. VOGEL. Yes, I do. But may I comment, Congressman Stenholm?
Mr. STENHOLM. Sure.
Mr. VOGEL. I spent quite a bit of time in China during the second war, and came away with many impressions. As a kid, this is, what, some 50 years ago now, I thought, holy smokes, the pirates originated in China. But I have come to learn that is not necessarily so. However, I think this, there have been much negotiations and much said about the World Trade Organization, most favored nation and so forth to China. I wonder if we are not moving too fast, and I wonder if all of the agreements, I think it was Ms. Barshefsky, when she negotiated with China over there, I wonder if it is really a balanced agreement. For example, I understand they agreed to cut tariffs on imported products 50 percent, or whatever the figures are. I wonder if China is treating all of the other potential agriculture product suppliers the same way or whether they are going to bargain this back and forth. And I say this mostly because I was a salesman for 38 years of my life, and I know in sales, you do a lot of bargaining. And I wonder how firm those factors, those tariff factors are between China and this country.
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Mr. STENHOLM. I would make a little comment to that, I hope that everyone will carefully examine the agreement. And when you say, are we going too fast, if we should vote it down and not approve normal trade relations with China, it seems to me the answer to that question will be very abrupt, because our friends and neighbors and competitors will then seek to gain that market, and we will only have to wait and see whether we are going too fast or not.
Let me ask you another question. Several of the previously panel also talked about the unfairness of the yields in this area, and that they have not kept up, that you do not have the yields that are comparable to the crops being produced today. One of the reasons for that is that in the current farm bill, we were no longer supposed to keep yields. In fact, under the law, it was instructed that these not be kept in FSA offices. We have to keep in mind that sometimes we in production agriculture kind of choose to overlook the facts. The facts are, the current farm program was designed to be the last one, and therefore keeping yields was unimportant. Now we are finding out that they are very important, and therefore, if, in fact, we are going to have updated yields for regionalization, then we do have to have a manner in which we can gain that information. And that is something that I am very interested in doing.
Also, when we talk about crop insurance, and this is a personal opinion and for, hopefully, your own thought processes, but I do not believe it is going to be possible to insure both price and yield with the same product. I think that is what is getting us in trouble. And just like, I think there are a lot of folks that have redefined LDPs. LDPs were not designed to be a disaster assistance program. LDPs were designed in order to allow us to compete in the international marketplace, to sell our commodity below the market loan in order that we might be competitive and sell more into the international marketplace. Interestingly that is not working, either. And that is one of the questions that we are posing to a lot of other folks right now in the economic world, and in the foreign market world, why are we not increasing the amount of our exports?
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When you look at the last 25 years, we did not sell in 1999 any more wheat, any more corn, any more soybeans, any more cotton than we did in 1974; therefore, if we are truly competitive, why are we not regaining market share? And that is something that we are looking at in this context.
Final question to you. Mr. Michael, you stated we must maintain individual USDA agencies. In 1994, we attempted to begin the reorganization of USDA and a question that I ask every farm group that we speak to today, what is it that we want USDA to do for us, with us and to us? And then how can we most efficiently deliver that service?
And the concept that we started looking at in 1994 was one-stop shopping, that we would have one place that producers could go and that we would efficiently deliver the services, and that we would have more money for EQIP. I happen to agree, we need more money in the conservation area. That is something we are grossly short-changing. But I have a difficult time with the fact that even here now, after having spent hundreds of millions of dollars in the area of computers and technology alone, we still are fighting between the NRCS and the FSA and rural development on agreeing to what kind of computer we will use to deliver services. That is utterly ridiculous. But yet, that is still what is happening because of this desire to maintain separate agencies. Would you comment?
Mr. MICHAEL. Well, I see two major areas there. I see the person providing the livestock farmer with technical assistance and crop farmer, and I see them not being the financial agent. And that is where I see the FSA, as being the financial agent. And I think there is danger there in trying to have one person do both.
I realize that it is difficult to downsize or economize across this country. The service center concept is good. We just need to be careful. You take in a lot of States, the local government and the State government is putting as much staff in the conservation program as the Federals. It is a complex thing when you get some of that concern in forming these service centers, is which one to close, which one to keep open and servicing the landowners.
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Mr. STENHOLM. And that is a decision for local people to make. But if local people choose not to make it, then you are going to continue to have the problem you so eloquently testified to, we are not going to get the resources to deal with the EQIP problems, with the conservation problems, because the money will not be coming. We are wasting and have wasted hundreds of millions of dollars at the Federal level by the inability of the Federal leadership of these programs to deal with the problem. And at the local level, you keep putting so much emphasis on local. That is why I asked. I am for that. But if you do not have a realistic approach to it, we are not going to be able to get the money into the services that we need. And it is not saying that FSA is going to run NRCS. Far from it. What we are talking about is team USDA. And why do we keep having this fight between folks that are working for us? I do not understand that, and we are paying dearly for it.
The CHAIRMAN. Mr. Ewing.
Mr. EWING. Thank you, Mr. Chairman.
Mr. Vogel, is wool a cash crop for people in the sheep industry today or is there much value in the wool?
Mr. VOGEL. Well, I think there is a great possibility for cash crop in sheep.
Mr. EWING. No, in the wool?
Mr. VOGEL. In the wool? Well, the wool market the last couple years has been in the pits. Australia has got more in storage than they have sold in the last 5 years, and so forth. I am not an expert in material goods and stuff like that, but when I look at the synthetics that are on the market and the fact that these European countries were fabricating stuff, except for sewing it together and shipping it to Africa, and then Africa was exporting it to this country, tariff-free, because they were a third-world nation and so forth, how can you compete with that?
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Mr. EWING. But, I guess the answer is no, it is not much of a cash crop. My understanding in the Midwest, you almost have to pay to have them take the wool.
Mr. VOGEL. OK. Well, the problem is, you need people. Seriously, and with us, quite frankly, and historically for the last 15 years anyhow, we have processed 90 percent of our wool. We have it scoured and so forth. We ship it to a mill up in Maine and they spin it, they dye it and it comes back to us in 4-ounce skeins. And we peddle that. And that is a cash crop.
Mr. EWING. I want to move on. Just one suggestion to Mr. Tomsa, we have found in the Midwest that if you get some Border Collies, you put them on the course, they will take care of the geese. Now they may go someplace else, but they will not be on the greens. And they do not ever catch them, but they do keep them in flight. So you might give him that, if he does not know that. Most of our golf courses have a Border Collie and he rides around on a nice little golf with one of the greens keepers, and every time he sees those birds, he takes after them.
Mr. VOGEL. Well, there is no end of the things that have been tried, believe me.
Mr. EWING. Well, try that one, it works. It really does.
Mr. VOGEL. Well, we like Great Pyranese in our place.
Mr. EWING. Mr. Breech, your testimony, you feel the current farm policy is the reason that profitability has left American agriculture?
Mr. BREECH. It is a major factor, yes, because it seems to be predicated upon false and erroneous assumptions.
Mr. EWING. Well, even if we had set-asides, production in America and around the world, Brazil, would probably exceed demand, would you agree?
Mr. BREECH. No, sir, I would not. I respectfully offer an alternative view, and we do not have excess supply of grain in this country because of overproduction, we have excess supply in this country because of low prices. You see, my paradigm is just a bit different. Perhaps I could offer an example.
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Mr. EWING. I want to understand it.
Mr. BREECH. OK. If the temperature were zero degrees Centigrade, and we were to double the temperature, what would the temperature be?
Mr. EWING. Zero.
Mr. BREECH. And it provides a very interesting point. What I am saying is, my reference point apparently is quite different over that on the accepted reference points we have today, which makes me either the lonely onion in the petunia patch or a shining star in a dark sky. It depends on which side of the fence you are on.
But as we study it, as I have mentioned, raw material economics, and monetizing our raw materials and our production, it carries back through in the whole economy. And if we look at what has happened as the value of agricultural production has decreased—I am going to mention my wool, because my wool a year ago, I got minus 45 cents a pound for, not counting the fact that my wife and I each had two days in to prepare the wool to sale. This year I only got minus 30 cents for it because I put it in my garbage bags. We have a problem. The only wool mill we had here in the east that our wool pool was available to—and at one time, our county had the largest wool pool in Pennsylvania—closed up the week after our wool pool because they no longer could compete with cheap foreign imports.
Those workers went out of business and that carry-through affect all went down out of business, and my wool, I am sitting here debating, if I get some 201 funding to help me restore some of my facilities and stuff, and my breeding, I will keep sheep. If I do not have it in the next 3 to 4 months, my sheep are all gone. I just cannot afford to continue on this.
But back on the other, if we look at a premise, I believe National Farmers Union offered an alternative farm bill in 1995, 1996 that was entitled, the Family Farm Empowerment Act. And as we did the analysis on it, we found it would be basically revenue-neutral for the United States government, but would provide a base level of economic safety net, of a baseline of security that is offered to all producers. In that case, if you wish to be big, then you are big because you are good. But as a family-size producer, I cannot afford that $130,000 combine or that $80,000 tractor. I am having a real hard time on 10-bushel corn justifying $135 a bushel or bag for a bag of GMO seed that, when I am all done, I have a net loss on planting that kind of crop.
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So what I am trying to get back to is, an earlier panel you asked, should we go with Brazil and cooperate with Brazil? Yes, it is to their benefit also. Price times production equals income. If I produce a 10 billion bushel corn crop for $1.40 a bushel, I only have $14 billion worth of corn income to put out into the countryside to support my rural economies. If I were to produce an 8 billion bushel corn crop at $2.50, I think you can see, sir, that we have a lot more money to go back, not only to the farmers, but with a 7-to–1 multiplication factor, this is world economic development at the grassroots level.
Mr. EWING. My time is up. Thank you.
The CHAIRMAN. Mr. Holden.
Mr. HOLDEN. Thank you, Mr. Chairman.
I know that we are primarily concerned with production agriculture here this morning, but, Mr. Vogel, you raised a very interesting point in your testimony with waste disposal. We have a situation in this congressional district where we have many municipalities without sewage system treatment facilities, many municipalities with sewage system treatment facilities that are aged and inadequate. So I think that is one good thing that the USDA has been doing in the rural development programs. We have been able to fund, at reasonable prices, sewage system treatment facilities for many municipalities. And I just want the members of the committee to be aware that the rural development aspect of USDA is very important and we need to be concerned about it if we want to take care of the Susquehanna and Delaware watersheds.
Several of the witnesses spoke about elimination of the estate tax. I remember a few years ago in a debate in the Congress, we were putting a tax package together and we were trying to decide how we were going to pay for it, and capital gains, we reduced the capital gains tax from 28 percent to 18 percent. And the estate tax went from $600,000, I believe, to $1.2 million over a phase-in period of time. And I remember the Farm Bureau being engaged very heavily in that debate. And I believe the statistics were that if we would have raised it to $1.2 million, that would basically cover about 98 percent of the farms in Pennsylvania. And since people are still mentioning this in their testimony, I am just curious, is that information accurate or inaccurate?
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Ms. BOWLAN. From my perspective, I think the estate tax will affect the value of the farms because of the increasing limit. But one of the things that it does affect is farms in areas where there is a lot of development pressure and there is a lot of value with the farm, which is one of the reasons why I recommended the change in the family-owned business deduction, right now it is at $750,000. Some farms may be worth more than that. And it all should be included for transfers during life as well as death. We would like to see more farms transferred during lifetime and not just waiting until the death for the farm transfer. Because of other reasons, not necessarily economic reasons but other reasons, it would be more beneficial to have the next generation get onto the farm.
Mr. HOLDEN. Anyone else have any comment?
Mr. BREECH. I am concerned about estate tax but it is not a high priority because as long as I keep farming, I am going to have to tell my children, there will not be any estate to pass on to them.
Mr. FRETTS. Mr. Congressman, I think the estate tax issue is dynamic, it is not static. It is never the same. And as farmers—as family farms—and Mr. Stenholm I will attempt to answer, give you a definition—but as family farms grow to compete with today's economy, exceeding $1 million in assets is not difficult to do, over the life, over the career of a farmer. And he need not even own a lot of land to capture that. So it is a dynamic issue. And if we are to be able to pass farms on to family members, the estate tax issue will always be an issue until it is eliminated.
Mr. HOLDEN. Any other comments?
Mr. VOGEL. That is basically what Farm Bureau was advocating, of course, is to protect the family farm and the ability to pass it on to your son or daughter, or whomever within the family.
Mr. HOLDEN. OK. The same question I asked the last panel, is crop insurance available to your operations, and if so, do you participate in it?
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Ms. BOWLAN. It is not available to us. We raise antibiotic and hormone-free cattle and sell it directly to consumers. So no, it is not available.
Mr. BREECH. It was available to my operation, we had it. And with 11.7 bushel soybeans yields, my loss was not enough to collect anything under crop insurance. But at 29.8 bushel of corn, I did get a few dollars.
Mr. FRETTS. Yes, I have participated for the last 3 years.
Mr. MICHAEL. Yes, I had participated, but I did not the last couple years. I think for the reasons that were previously stated here today, that uneven amounts of farms and land, where it is usually not applicable when you do not have enough loss. On the other hand, it may be the way the program was set up.
Mr. VOGEL. Well, we have a very active insurance agent, and her recommendations was always, insure, if you can afford it 100 percent. Otherwise, it is not worth it.
Mr. HOLDEN. And finally, Ms. Bowlan, we are pretty proud to say in Berks County that we are the third leading agricultural producing county in the Commonwealth, so I guess that must concede Lancaster County is either No. 2 or No. 1, I forget which. But I also know that Lancaster County is growing just like Berks County, tremendously, and I am just wondering how much developmental pressure there is in Lancaster County and what is the farmland preservation program in Lancaster County achieving?
Ms. BOWLAN. Lancaster County is No. 1, and yes, there is tremendous development pressure. There was a recent study by Penn State put out that of all the agricultural land sold in the Southeast region, only 23 percent remained in agriculture. There is a very active farmland preservation program. We have been on their waiting list for 7 years. That is the average wait, 7 to 10 years farmers are waiting to sell their development rights. And yet, we also have the most active farmland preservation program in the State.
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Mr. HOLDEN. Thank you, Mr. Chairman.
Mr. MICHAEL. West Virginia legislature just recently passed a farmland preservation law, so it even reaches us over in the mountains and it is very significant on the east coast.
Mr. HOLDEN. Thank you.
Mr. FRETTS. If I may, Mr. Chairman, from Westmoreland County, I am chairman of the farmland preservation board. We have been in operation for 9 years. We have about 3500 acres preserved and our biggest problem is lack of money.
The CHAIRMAN. Mr. Smith.
Mr. SMITH. Should Federal farm policy take into consideration and develop laws that encourage a greater number of farmers as opposed to the concentration that tends to be taking place? We have set payment limits, as you are familiar with, Ms. Bowlan, for—LDPs are $75,000; AMTA, $40,000; CRP, I think, is $50,000; disaster payments, $80,000.
Right now, as far as the loan deficiency payments, that has been sort of an end run, goes around those limits simply because you can put any amount under a non-recourse loan which becomes an option after you hit the maximum on LDPs. So part of the question is, do we still, as a Federal part of the Federal policy discourage more of the money going to the larger farm operations? And I do not know, you talk about family farms, a family can run 100,000 acres. But is it reasonable to figure 5,000 or 10,000 as some kind of a goal where we will try to discourage additional payments going to those larger farm operations and a greater, higher percentage going to the lower farm? And I say that because there is only so much money in Washington.
Yes, Ms. Bowlan?
Ms. BOWLAN. I would like to speak to that since I was on the Small Farm Commission and currently on the Small Farm Committee.
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What we used as a definition for a small farm—I am sorry, I should not say definition because we were very careful to call it a description rather than a definition—was 200—those farms that gross $250,000 or less per year and contribute most of the major labor and management decisions on the farm. And it is significant in that 94 percent of the farm in the country meet that description.
So I think if you are looking at serving the most number of farms in the country, perhaps that might be a reasonable kind of figure to look at. And we do find that small farms do contribute to the rural economy, they are places for people to live, they do produce products, they contribute to their neighborhoods, they turn the money around in the neighborhood much more than a larger farm.
The other thing that the Small Farm Commission found was that, in fact, most of the payments, the Federal payments do go by and large to the larger farms.
Mr. SMITH. Yes, Mr. Breech?
Mr. BREECH. Thank you. I would like to address that a little bit. I have no problem with targeting programs to the small or what we call family-size farms. And I would like to cite a survey that come out of the Communication for Agriculture, out of Minnesota. And they said, the American consumer believes that his and her needs are best served by the family farm system, and that they support spending tax dollars to put a firmer foundation under the farm economy. The results of the survey suggest the consumers believe that family farmers are the best available to serve them with lower food prices, better food safety, and that they demonstrate more concern for the environment and protecting natural resources. Seventy percent of the respondents to the survey said the farmer was not responsible for the recent increases in food costs, and an overwhelming 83 percent believe farmers protect their land and the environment.
The support for family farmers was manifested by a willingness expressed by most of the consumers to increase the price of their groceries, via a 1 percent tax provided that they could be assured that the money was going directly to family-based agriculture and not into another bureaucratic pocket. In other words, the American consumer recognizes the importance of the small family farm, the individual and the family that provide the labor and the management and the inputs that go into that. And $30,000 or 40,000 of a supplemental or a counter-cyclical income maintains a stream. If we work to walk off the farm, then we can. But we do like to keep our sizes that we, ourselves, can manage.
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Mr. SMITH. Mr. Fretts, maybe on down, if you could keep your comments sort of short so I have time for one more question on concentration.
Mr. FRETTS. Thank you, Mr. Smith, I will do that.
Idealistically, as a farmer and producer, I would like not to have to depend on any government payments.
Mr. SMITH. Sure.
Mr. MICHAEL. It is hard to define precisely a family farm, and you have the tough job up on that committee. But we need to have a program in various commodities that will assist a small farm. And I believe it is the land that we ought to be looking at, more so than the corn or the wheat or the soybeans. I believe it is the land that we need to work on.
Mr. SMITH. Mr. Vogel.
Mr. VOGEL. Oh, I am afraid I come from a family where my father and grandfather, they would not go and buy a new plowshare until they had the money in their pocket.
Mr. SMITH. Let me ask a question we will start with you, Mr. Vogel and come down. On concentration, are you troubled as you see a greater concentration, not only in those entities that buy the farm products, but also those entities that sell the inputs to farmers, whether it is machinery, whether it is the new partnerships of seed and chemicals in terms of sales to farmers, versus the concentration of a limited number of slaughtering facilities or grain facilities? Any suggestions on the concentration at those input and output areas?
Mr. VOGEL. I am not too much in favor of them, myself. But because a lot of them are offering a great deal of credit to the farmer to deal with them. And I am not so sure that is a good thing, competitively speaking.
Mr. SMITH. Mr. Michael.
Mr. MICHAEL. I have some problem, I sell cattle, and just the marketing process. I think what one of your question is, large organizations basically control it all. And I do not know how we solve that, but the large seed company, large cattle processor begins to control it all. It is a concern.
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Mr. SMITH. The mergers are bordering on monopoly, and some of us have, of course, written the Attorney General to look into that. And now there is a special effort to do that.
Mr. Fretts.
Mr. FRETTS. I think the problem is not just specific to agriculture because it is the nature of our business economy nationwide and worldwide. I would refer back again to my testimony relative to cooperatives. This is one way that small producers can join together and develop an economy of scale as a marketing or a service cooperative, in order to be able to compete with some of the larger conglomerates, even if only at a local, and define local however you choose, level.
Mr. SMITH. And I appreciated your testimony. Maybe in your thoughtful moments, if you could give specifics on how we might better accommodate that cooperative effort to make sure we have competition. I would appreciate any specific suggestions you might have as far as law changes.
Mr. Breech.
Mr. BREECH. I view the concentration in agriculture as a serious threat to the viability of the family farm system. And to further explain that, I would refer you to Professor Hafferman's report out of the University of Missouri. And I do not know if the members have, if not, let me know and I will——
Mr. SMITH. Yes, we have.
Mr. BREECH. I think Professor Hafferman really outlines that very well.
Mr. SMITH. Ms. Bowlan.
Ms. BOWLAN. I think also that the concentration is a serious problem. I know it has affected our farm directly. Initially we sold our cattle at cash market and auction, and we decided that there was no way that we could continue to do that and stay in business, which is why we went into the marketing effort. And we are still struggling because there are not a lot of local markets for the kind of cattle that we have. And cooperative efforts in that regard would be very helpful, as well as more stimulation in just every way in the local market sector.
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Mr. SMITH. Well, in our history in this country, competition has served us very well and possibly one appropriate role of Federal Government would be to help assure that the competition is still there, both on who you buy from and who you sell to. And maybe co-ops are one possibility.
Mr. Chairman, thank you.
The CHAIRMAN. Mr. Gutknecht.
Mr. GUTKNECHT. Thank you, Mr. Chairman. Mr. Breech, you raised a couple of very interesting points in your presentation. And you mentioned, for example, that there was one decade when things were extremely good for American agriculture. I wonder if you could expand on that, which decade are we talking about and, more importantly, what we were doing right then and what did the Congress or Federal policy do to change?
Mr. BREECH. We were engaged in that time in what could best be described as par agriculture or parity. And the time that I am mentioning is about 1939 through 1949, when we financed World War II with our earned income. At that time, we had just come out of the Depression and, in late 1929 the farm income, the real earned farm income was at such a level that it supported the taxing structure and the availability of capital that was there for the rest of the economy to prosper.
Soon after we opened up our markets to a flood of cheap imports, the price, the real earned income went down, people no longer had money to purchase the product. An example of this would be Henry Ford's philosophy when he started his Ford Motor Plant. He wanted to pay his workers a good wage so that they could afford to buy his car. And in a short time, the best of both worlds happened. His workers purchased his car and the price came down. Everybody prospered because of the real earned income.
There was an economist by the name of Carl Wilkin who was probably one of the most frequent testifiers before Congress on his economic policies. Now Mr. Wilkin did not deal with theory. He dealt with reality, and what he did was add, subtract, multiply and divide, and come out and said, these are the numbers. If we attain these base numbers in rural economy, and it is the rural economy that drives all the rest of our economic factors in this country, if they were prosperous, if they had a fair income, an income base not above the other parts of society, but on an equal level, in other words, encourage equality of worth of value to the auto worker, to the steel worker, to the coal miner, to the doctor, the lawyers, and what they had is, we had unprecedented economic growth, in real terms.
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When we slipped out of that mindset and went from a 90 percent parity number, we went declining into somewhere, some of my products, I am now receiving 25 and 30 percent parity. Granted my productivity has increased, but not enough to compensate for the loss of value that I am receiving in real terms for my commodity. Therefore, the way I do it is, I consume my capital, I live off depreciation. What this means is, in the very near future, I will no longer have any equipment to go to the field to work with because I have not made enough capital to replace it and I cannot borrow any more money.
Have I answered your question or not ?
Mr. GUTKNECHT. I think you have. But it is interesting that you use the example of Henry Ford. I mean, his goal was to drive the price of that car down. What Henry Ford did was, he drove the price of cars, relative to his competitors down to a level where more and more Americans could afford them. The same is true with Andrew Carnegie. I mean, he drove here in Pennsylvania, particularly over in the western part of the State, drove the price of steel rails down from $100 to $16. I mean, the point is that markets reward the most efficient. I do not see the comparison. Does that not happen in agriculture too?
Mr. BREECH. No, sir, it does not. And what happens is, down the road, you have to have money to buy something. You have to have real income. If you do not have real income, and you buysomething, you do it with unearned income or borrowed money. It is why we have the enormous amount of capital debt and private consumer debt. And our balance of trade deficits is $1.6 trillion. We have not earned the money. We have displaced real earned income and real wealth with borrowed capital. And someday it will come back to haunt us. And that is what I hope—I am not an expert on it. I know people who are, but that is not my purpose, to be an expert. I just need to present what I feel is true and factual to you and do all I can to help you understand it as I see it.
Mr. GUTKNECHT. OK.
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Mr. BREECH. I know it is a confusion, but what happened is, when Henry Ford increased the wages paid, those people had more money with which to buy his cars. He was able to increase his productivity, his efficiency, drive the price down and you have then the example of what we call efficiency of competition and efficiency of the marketplace. But if there is not that base level of income, that event cannot take place.
Mr. GUTKNECHT. Ms. Bowlan, you said that you are moving into niche markets, if you will, of raising beef?
Ms. BOWLAN. Yes.
Mr. GUTKNECHT. That is hormone-free?
Ms. BOWLAN. Right.
Mr. GUTKNECHT. Right now, if there is any group in America that seems to be doing better than other people in agriculture, it is people who raise cattle, fat cattle especially. How are you doing relative to the people who are in, what you might call the traditional feed lot methodology?
Ms. BOWLAN. Well, I guess I would say that we are doing as well as they are. There definitely is a market out there for hormone and antibiotic-free cattle.
Mr. GUTKNECHT. But do you get paid a premium for it? I mean, how much of a premium would you get?
Ms. BOWLAN. Well, we are definitely affected by the price of beef in the store. When it is 99 cents in the store, although people talk a good game about, they want to take this out of—hormones and antibiotics out of their food supply, many people still are reluctant to pay us a premium. So we try to moderate our price somewhere in the middle, between organic production and what people buy in the supermarket on sale.
Mr. GUTKNECHT. But what do you get, relatively speaking? When is the last time you sold cattle?
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Ms. BOWLAN. Just last week.
Mr. GUTKNECHT. What did you get for them?
Ms. BOWLAN. Well, we are getting $1.85 for hanging weight, per pound.
Mr. GUTKNECHT. All right, thank you. Well, my time has expired, Mr. Chairman, thank you.
The CHAIRMAN. Let me just ask you one question, Mr. Breech. I have been involved around agriculture, personally involved for over 40 years myself. We have always heard discussion of parity, we still hear the discussion of parity. We all understand what parity is. My question to you is, how do you propose that we achieve it?
Mr. BREECH. First of all, we must recognize the fact that it must be earned. The AMTA payments do not allow this to be earned. By having an increase in loan rate, we have to physically produce that property to get that support.
I believe the number that we looked at was about $2.60, as a loan support on corn, and then cap that total amount that would go to the individual farm operation, so that you did not have someone mining the program.
The CHAIRMAN. So you would set the loan at a level that equaled parity?
Mr. BREECH. No, sir. I think, as Mr. Wilkins found with his numbers, about 90 percent of support of parity does a very good job of equating this into real wealth.
The CHAIRMAN. Right. But it would be through the loan that you would achieve that? You would set the loan at a rate that would be 90 percent of parity?
Mr. BREECH. That would be one option to look at.
The CHAIRMAN. A non-recourse loan, in which the Government would assume it if it did not move in the market, or a recourse loan that——
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Mr. BREECH. If we had a recourse loan—one thing about having perhaps the consideration of a farmer-owned reserve is the farmer maintains control and supply of that product.
The CHAIRMAN. Until what?
Mr. BREECH. Until he has to market it or will have the opportunity to market, or there is an alternative use. We do not have enough gasoline, so to speak, in this country, and there is an alternative to have an energy reserve. The concern now is sugar. We were supporting sugar. I submit to you we do not have enough sugar in this country. I know of a 2 billion pound market for sugar overnight, and yet it is not being utilized.
The CHAIRMAN. OK. I just want to make sure I understand. What you are suggesting is that you would establish a loan rate that would be at 90 percent of parity, correct?
Mr. BREECH. We could look at developing a support system that would enable the farmer or the producer to achieve, for his base commodities, about 90 percent of parity.
The CHAIRMAN. OK. So if there is——
Mr. BREECH. We want to be sure that the parity formula is figured correctly, also.
The CHAIRMAN. If we are doing it based on 90 percent, which was the number you used, and then if you are using it in terms of a loan rate, so the farmer goes and takes his product and he gets the loan for it. Then if the market does not rise enough that a farmer can redeem that loan, then the Government would assume it?
Mr. BREECH. It would be an alternative that could be considered. You talked on LDPs of market-clearing loans. Would that mechanism still be figured in on the loan system?
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The CHAIRMAN. I do not know. I am asking you.
Mr. BREECH. Well, it is not an easy one. As I said before, I am not the expert.
The CHAIRMAN. Yes, and again, I keep hearing about parity. Parity is just simply an analysis of price comparisons over a period of time. The question we have got to come up with, if that is a person's objective, is how do we get it?
Mr. BREECH. Well, the parity is based on relative value.
The CHAIRMAN. No, I understand what parity is. But getting it has been the problem because the marketplace is not providing it, and I am presuming the people who are suggesting using parity as the measure are suggesting that government guarantee parity, or 90 percent or whatever. That is what I am trying to find out, is how do people then propose that we have government guarantee that?
Mr. BREECH. I would say the Stiegel Act did a very good job of this. There was an experience from the House Agriculture and the Senate Agriculture Committee where they come to consensus. And I think perhaps we should maybe pull that one out and review it and see what is in there that we can apply to our farm situation and our economy today, and what is not. And adapt it to meet the goals. And we have been there, we have done that.
The CHAIRMAN. So back to production controls, or back to acreage controls or back to——
Mr. BREECH. Well, we have to ascertain that we need a certain level of base income out in the rural community. And producing 10 billion bushel of corn for $14 billion worth of income does not give us enough to pay the fertilizer dealer, the seed dealer, the machinery dealer, our property taxes and have a living wage. I mean, USDA's own figures for this year says the average farmer in this country is going to make less than $3,000 a year.
The CHAIRMAN. Yes, we look at all those numbers. And again, I am just trying to figure out, how do we do it? I still am waiting for someone to tell us what their proposal is on how we achieve parity.
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Mr. BREECH. I could work on that, I know people that would be glad to help and pull it out that are experienced in it.
The CHAIRMAN. I would be thrilled if there is additional information, if you would like to send that.
Mr. BREECH. There is, and right now I could say the gentleman who is probably most knowledgeable on this is a gentleman by name of Charles Walters.
The CHAIRMAN. Well, I really would be interested in taking a look at it, because again, I am still trying to find out how people are presuming we get there.
Mr. BREECH. It is not an easy journey, is it?
The CHAIRMAN. Oh, if it was easy, we would not be here today. [Laughter.]
Mr. Stenholm I think has a follow-up.
Mr. STENHOLM. Yes. Ms. Bowlan a moment ago, when we were talking about interagency cooperation, I believe you had a statement that you wanted to make at that time?
Ms. BOWLAN. Well, you were talking about what could USDA do that would help the farmers most. And I think that your question went on to talk about interagency, working together. But I think the thing that would help the most for the farmers is the whole issue of markets. If we can expand our markets, both nationally and also again recreate our local markets. I mean, from my perspective, we have destroyed a lot of our local markets because of the concentration in the marketplace. And we have forced a lot of the small farms out, again because of the concentration in the marketplace. I think we need to really level the playing field as far as markets, and I think that will go a long way toward making farmers more profitable.
Mr. STENHOLM. Did I understand you to say, in your work on the Small Farm Commission, that the 250,000 and less gross income, and the farmer doing the majority of the work, would cover 85 percent?
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Ms. BOWLAN. Ninety-four percent in this country.
Mr. STENHOLM. One observation here is, the other 6 percent of the farmers are probably producing about 80 percent of everything that is produced, and that is what complicates the previous question of the Chairman and Mr. Breech, as to how we deal with this in the real world. It gets a little bit more complicated. But it that is a good number. And that is something, when you are talking about marketing, and this is an area that I personally am very interested in in the cooperative marketing, both in the traditional, the old—everybody understands co-op, I used to manage one, a rural electric cooperative, and we understand it. But also in a non-traditional sense now in which we reach out to some of this consolidated agriculture and have them be as interested in passing back to the producer some of the consumer dollars as they are passing it forward to advertising and marketing costs, for example. And that is why, in the farm bill, we had a fund for rural America set up which has not been very popular because it keeps getting cut. It has gotten cut again this year's budget, it gets cut out. And that is where I would hope we could start looking a little bit more at providing some seed capital and investment capital for our cooperative effort for—because I think that is where the future for a lot of these family farm entities that we are talking about are going to survive.
And Mr. Vogel, I was glad to hear you are doing some cooperative marketing here. You have had some problems, both you and Mr. Breech. In Texas, all of us, everyone in the wool and mohair business, it has been a struggle for survival. I mean, those that advocate getting government out, that is about the best example I know of what happens. And now we have got about a 3-year window of opportunity with the section 201 which is going to allow us to develop some markets, or we are not going to be in the business. And that is going to be true for every other agricultural entity.
One final comment, Mr. Fretts, and this goes to everyone that has talked about the crop insurance. There is a concept being discussed now that I personally am very interested in, and it is going to be possible for us over the next year or two to develop this as we do this year's conference on crop insurance, to look and see if we can insure cost of production. Not in the traditional sense, but in what it actually costs you to make your crop, whether it is Christmas trees or whether it is vegetables or fruits or whatever, that we can put together an insurance entity that will let you insure what you borrow to make your crop or what you spend to make your crop.
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And what I am talking about, the way I can make it understood is home ownership. If you own your own home or got a mortgage, you have to insure. There is no voluntariness about that. If you are going to get a mortgage, you have got to insure it, and you insure it for the value. You are living in $100,000 home but you believe it is worth $150,000, that will not cut it. But if you spend, whatever the crop is and whatever size your operation is, if we could come up with a policy that would allow you to insure what you spend, or the proposal has actually come saying, 90 percent of what you spend, to get around folks farming the program, which is what we have got with the current insurance situation, in which it is clearly to your advantage to collect insurance rather than harvest a crop at these ridiculously low prices. And that is why I say, we have got to start thinking, I believe, and separating yield and got to separate that.
But I hope you and I know Farm Credit is developing this, and I hope that Pennsylvania and all of our farm credit system, and as far as that goes, our financial system, including rural development, will look at whether this is feasible or not. And that is something I hope we will continue to look at.
The CHAIRMAN. Mr. Smith has a follow-up.
Mr. SMITH. Well, just in terms of looking at the complications that the closer we come to some kind of a parity support price, or the higher your loan deficiency payment or the higher your loan rate, the more production and the lower the ultimate market price is going to have to be to clear that product through the market. And the lower that price, the more advantage it is for the bigger livestock feeding operations to buy that corn or that feed below the cost of production, and the bigger the concentration is going to be with that livestock farmer or that poultry operation, if they can buy that product below the cost of production, then it gives the advantage to the non-traditional family farm, where you grow the feed and feed it to your dairy or livestock or poultry.
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And so just the complication of the concentration of bigger and bigger livestock units, simply because of the fact that we have a farm program that allows them to buy that product below the cost of production, and gives them a greater advantage to be bigger and bigger and force out the smaller farmers. So I am just saying, it is complicated.
The CHAIRMAN. I thank this panel very much for your thoughtfulness and for your intriguing ideas and your time.
I would call our third panel now. Mr. Guy Donaldson who is a fruit producer from Camp Hill, PA; Mr. Barron Hetherington, a fruit and vegetable producer from Ringtown, PA; Mr. Leonard Pollara is a vegetable and beef producer from Montague, New Jersey, Mr. James Younker is a producer from Fleetwood, PA. Thank you very much for coming today.
We will begin with you, Mr. Donaldson and go down the list as you were introduced. Thank you, very much.
STATEMENT OF GUY DONALDSON, FRUIT PRODUCER, CAMP HILL, PA
Mr. DONALDSON. Mr. Chairman, distinguished members of the committee, there are two areas that I would like to zero in on.
First of all, let me tell you a little bit about myself. I am a fruit grower from Adams County, PA. And if you do not know where that is at, there is a little town down there by the name of Gettysburg, it might refresh your memory. I am in partnership with my two sons and daughter and we farm about 500 acres of apples, tart cherries and peaches. I am also president of Pennsylvania Farm Bureau, with a membership of over 27,000 farm family members.
Agriculture in Pennsylvania is very diverse, as you have heard other presenters talk about, and we have dairy, poultry, livestock and fruits and vegetables and other commodities, forestry products as well. So what I would like to do here is to talk about two areas—well, maybe three. I want to make one brief comment on the China situation.
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There are 1.3 billion people in the country of China. And if we ignore that number in not having normal trading relations with China, I think we do agriculture a very disservice in this country. And so for that reason, if no other reason alone, we need to trade with that country. We need to bring China into the trading agreements that we have because it opens up markets for this overproduction that we have in the United States. It provides for us a market that we can use. And I had an opportunity, as Mr. Shaffer testified early on, I had an opportunity to be in the Chinese Embassy in Washington several weeks ago, and their Minister told us, we want this, we want to trade with the United States. But if you are not willing to do that, we will trade with your partners. And that only makes us shoot ourselves in the foot when we take that sort of an attitude. So I hope that the Congress will address this permanent normal trading relations and pass that.
There are two areas that I do want to cover that no one else has talked about up to this point, and one of them is the Food Quality Protection Act. Being a fruit grower, it is very important to me, it is important to many of our members in the Pennsylvania Farm Bureau who are fruit and vegetable producers. In 1996, the DeLaney clause was done away with in favor of Food Quality Protection Act. We felt that that was a better way to look at the regulation and the observation of the chemicals that we used in our production.
What we found out was that, as we moved along, FQPA was even more restrictive than the DeLaney clause was, and the reason for that was organophosphates and carbamates, which there are about 9,000 of these products on the market, had to be reviewed and tested in a period of 10 years, which is almost an impossibility. And though we have concerns about how EPA is handling, I think you will agree that to handle that many chemicals in that short a time is very fortunate for them. And the problem that we are running into is they are not using the best, sound science available or the most pertinent data that they have to look at these chemicals to make a determination.
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And so we are asking that, as you consider this, there is a bill out there that would encourage the Congress to have EPA spend a little bit more time in reviewing these products, because if the housewife is willing to have a product that she goes to the market and buys that has a wormhole in it, has scab on the side or has some sort of blemish, she is willing to buy that, that would be great because that means I can reduce my production cost by probably 30 to 40 percent. But the American housewife does not accept that. She does not want that. She wants the very best that she can buy, which I do not blame her. But if you take these products away from us, we cannot provide that to her.
We had an opportunity this past year where the Chinese concentrate issue came up. And we we filed an anti-dumping suit against that. We were successful in that. And what that does is put us on a level playing field in that arena. That was necessary, and we appreciate that. We will trade with them, I will trade with anyone and our farmers will trade with anyone if we are all playing on a level playing field, if we are all playing by the same rules. But that is not necessarily true in today's situation.
We talked about bigger is better. Well, you can argue that point, I guess, on both sides as far as agriculture is concerned, but keep in mind that the banking industry is merging, the automobile industry is merging, and why can agriculture not get bigger? What is a family farm? I cannot answer that. I have a dairy farm in my county that is milking 2,600 cows right now with another 1,000 to go on line. It is a family, it is one family. So that is a family farm, in my opinion. I have producers down there that may have—and all over the State of Pennsylvania, that may only have 150 acre. That is a family farm. So how you define that is very difficult to do. Do not ask me, I cannot do it. Maybe you, as a committee, can. I cannot.
The other issue that I want to cover very quickly, and I see the light is on here, is an issue that has just surfaced in my county in the last year, and that is the plum pox. Now that is not some kind of a terrible disease, but that is a virus that attacks stone fruits, basically peaches, plums, apricots, nectarines. We do not know where it came from, it is a European virus. It came into our county in a small area. The only cure is eradication, which means you push it out and burn it.
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There is monies available from the State of Pennsylvania, the General Assembly appropriated $2 million. The Federal Government, USDA, has also put some money there for the eradication side. That is fine, as far as getting the trees out of the ground, and destroying the trees. But the growers will lose income from that process for a period of 10 to 15 years, and I do not think it is fair to ask those growers to stand the entire cost of that. We fiddled around in Florida with the citrus canker down there and we did not eradicate that when we could, and now we are spending hundreds of millions of dollars in order to address that. I think that $6 million in this particular area that I am talking about with plum pox would preserve those farms, would also preserve the nurseries that are going to be involved in this. It is a very sad situation, I think, and the problem is, or the problem that you, as a committee will have to think about, is that if it breaks out of Pennsylvania, it can then go to New Jersey, New York, Maryland, West Virginia, Virginia, the whole way down the coast. And anyone from California will be concerned because the stone fruit industry in California and the nut industry in California is also susceptible to this and can be a disaster if it gets out there.
I will now stop. I thank you very much for the opportunity to be here and present testimony to you. And as I said, my written testimony goes into much detail. Thank you.
[The prepared statement of Mr. Donaldson appears at the conclusion of the hearing.]
The CHAIRMAN. Mr. Hetherington.
STATEMENT OF BARRON L. HETHERINGTON, FRUIT AND VEGETABLE PRODUCER, RINGTOWN, PA
Mr. HETHERINGTON. Good morning, my name is Barron Hetherington. I live in the Ringtown Valley which is in the northern part of Schuylkill County. I am a constituent of Congressman Holden and as you see by my tie, I graduated from Penn State in 1975 in agricultural engineering. I left the family farming operation for a couple of years to work at Procter & Gamble.
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I returned in 1980 to farming, with my wife Robin, we operate B&R Farms, she is the R, I am the B. We farm 500 acres of cropland. We rent 420 and own 80. We have a 12-acre pick-your-own-strawberry operation, which I pretty much raise the berries and Robin markets. She also operates a retail greenhouse that sells spring flowers and bedding plants. I might want to say that Robin also graduated from Penn State and for those of you in agriculture, she was an FFA member in high school and one of the first women in Pennsylvania to achieve the Keystone Farmer award.
We also have 20 acres of our operation designated for vegetable production. We raise wholesale vegetables: cucumbers, tomatoes and peppers, and we do it without migrant labor. We are the single biggest employer of high school and college students in our whole county. The balance of our crops are corn, soybeans and alfalfa. When I use one word to describe our operation, it is diverse. We have everything but livestock on our farm. My daughters are the 7th generation to occupy the farmhouse, it has been in the same family for 158 years, and we are proud to say we are the first farm in Schuylkill County to be in Pennsylvania's preservation program.
My talk today is going to hit on some key issues. Once again, I am thankful for this opportunity to be in front of you gentlemen and to be able to give testimony.
I have kind of divided into two areas, things that work and things that need adjustment, like that combine or hay baler that operates real well, it is fun to be with, but once in a while things get out of whack and you have got to make some timely adjustments.
The first thing I want to talk about is the legislation of last year. I want to say thank you for the CDP program. We do raise vegetables and our pepper crop did not make it. We irrigate but the heat stress was too much and our pepper crop went down. So I benefited directly from that program, and I want to thank you.
Things that worked in the CDP program, in my mind, the timely payments. I know the Congress and the administration, also Secretary Glickman, all had a desire to get that money out quickly. In our case, we had benefits in 9 days. We were in early February and signed up, we had payments in our checking account in 9 calendar days. Our FSA staff hustled. We have a full-time CD, two full-time employees and one part-timer. And those folks got $630,000 distributed in a very short period of time.
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As far as adjustments to the program, Christmas trees got passed over. Our county is the second-largest producer of Christmas trees in all of Pennsylvania. There is 3,000 acres raised there and there is about $3.5 million a year in annual sales. Christmas trees do not quite fit the annual crop situation, where most of our farmers are written for it. When you plant seedlings for Christmas trees, you set them out this year, you harvest a Christmas tree 10 years from now. So that if you lost every seedling last year in the drought, you lost 10 percent of your crop and you did not meet the threshold for the CDP program. In our county, there is $658,000 worth of Christmas tree losses that were not part of the disaster benefits.
As far as the gross income restrictions, as you all know, there is an $80,000 limit for farming operation for payments, which I wholeheartedly believe in. I do not think we should give much more money than that to any one individual. However, there is also a $2.5 million gross limitation cap, and I understand the theory behind that is because you do not want to fund factory farms or mega farms or corporate farms, however, if you take a grain farmer in the Midwest at today's current corn price and today's yields, it takes about 10,000 acres of operation to meet that payment limitation. OK, that would be, in my mind, a mega farm or a corporate farm.
However, in the eastern part of Pennsylvania, where we have high-value crops, that does not quite fit. We had four producers out of 200 that did not qualify in our county for the disaster payments because of gross income limitation. You might say, well, geez, Boots, that is not a bad average. We have got 90 percent of the guys covered, right? However, those four people, or 2 percent would have been 15 percent more in losses because of high-value crops. And the worst part about it was, Pennsylvania also passed a assistance loss program for drought, but they do not have a vehicle available to be able to take applications and disburse money, so they utilized the Federal program. And because these four individuals did not qualify for the Federal program, lo and behold, they were not part of the State program.
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To make it one step even worse was, Pennsylvania allocated $5.6 million in monies to help offset the cost of crop insurance, which will be somewhere around 10 or 12 percent premium reduction. And once again, these four individuals in my county who did not qualify for the Federal and State program also will not qualify for any help with crop insurance. So at a time when we are trying to get crop insurance participation, we sent the wrong message with this situation.
As far as crop insurance itself, that area, I want to say thanks to Congress and also recognize that PDA did a lot of work with that area. Secretary Hayes and his staff made that a priority issue. As Congressman Holden said, only about 1 in 5 Pennsylvania farmers used it last year, and we want to see better participation.
Things that are going to work, I went out and I listened to a seminar in early January, came right back home and called my agent and said, buy me up, get me out of catastrophic, get me the buy-up coverage, get me revenue coverage, it is just going to work. I was also happy to see there is more non-program crops. In my case, like I say, I lost my pepper crop last year. We are hooking up with a program in Lee County, Florida to insure peppers. As you know, this year, if you can crops insurance, anywhere in the United States, your agent is allowed to hook you up with that program. So for about $100 an acre, we are going to get $3,000 in protection for our pepper crop. To a grain farmer, that sounds ludicrous, that kind of money being spent.
But in my case, when we set transplants out, we put 15,000 plants per acre at 10 cents apiece, so right away, we have $1,500 in transplant costs. We do weekly cultivations because we have very few chemicals for weed control. We also spray once a week for fungicides and also insects. So before we pick one piece of fruit in the fall, we easily have $3,000 per acre tied up in that crop. And you might say to yourself, well, geez, Boots, $100 an acre, you could put that money in your back pocket. This is a once in a lifetime deal, this drought in Pennsylvania will never happen again. It is a 1 in a 100-year recurring storm.
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And my response to that comment is, when I left college and went to Proctor & Gamble in 1975, that plant that makes Charmin toilet paper is in the Wilkes Barre area, Wyoming Valley. And they had a flood named Agnes in 1972, and it pretty much flooded the whole valley and ruined part of the plant. And the guys all talked about this being a once-in-a-lifetime situation, this would never happen again, we would never see this. Lo and behold, in 1975 Eloise came through and the same thing happened over again. So my point is, these things can happen, they do happen and they will happen. I will not get caught again without protection for my investments.
As far as things to adjust your crop insurance, I would like to see more non-program crops included. My understanding is, apparently, a pilot program for pumpkins in Pennsylvania, which if it works they will be rolled out. Also, a look at some squash programs. In my case, fresh market sweet corn is insurable, however the price paid per dozen is so low that no one is going to participate, except for the catastrophic level. So we have made improvements with crop insurance, but we need some more adjustments.
And as far as what I think are the keys to success in farming in the future, it is going to be risk management and marketing. And as far as risk management, I already talked about crop insurance. We have the buy-up coverage, we also have our peppers protected. There is something my wife and I did in the last 2 years, we bought options. Now I am not a futures guy, I am not a stock market trader. My stomach and my heart and my head will not handle that. However, what we have done is we bought options through an option broker. I have a futures position open, we at no time have a hedge open. What we do is we know our cost of production is about $2 a bushel, we buy put options at $2.20 on December puts, figure in the 15 cent cost of buying the option, gives us about $2 of protection. So that is if the Midwest has a bumper crop of corn and the price goes to heck, we will be protected. If our trading partners decide to cancel on their buying and the world market backs up, we are protected. And like I said, at no point, are we going to have any futures contracts because we have friends in the potato business that did that years ago and I saw them get ruined as far as their finances. So options only.
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And my point, I guess, there is that both crop insurance and options, you do not want to make money out of those deals. You want to buy them and pray to God that you never have to use them. They are only there in case the unexpected happens.
As far as marketing, I have attended several seminars in the last 3 years' time, if you are listening to Mr. Slaughterback who writes for Farm Journal, if you listen to Mr. Brock from Lafayette, they all say the same thing, that 90 percent of all producer grain that is sold is sold at the lower half of the annual market. We do a great job of raising crops, we do a lousy job of selling it and getting that income.
What I try to do to be not part of that 90 percent is a couple of things. First of all, commodity loans. In December of last year, my supplies approached me with the idea that, we can give you some attractive discounts on your chemicals and on your fertilizer and seed, but you must buy before and pay for it before the end of the year. Well, as you know, we had horribly depressed prices for corn and soybeans in December last year. Plus the fact that we had a lousy year, did not have much cash on hand. I really did not want to sell my little bit grain at a depressed price to do that, so I used the commodity loan to buy the inputs. This allowed me to be a low-cost producer for next year.
When it came time to pay the loan back when we sold the beans, we actually used the market loan gain program, or LDP to pay back at cheaper bushels, so both those two helped us. And finally, our current grain storage was the result of a facility loan that we got back in the late 1970's. And up until that point, we used to raise corn and we would haul it to the mill in the fall. We took the price that they offered and we took the terms. And by having a facility, we now can have timely harvests, we could not harvest on weekends. We also do our own drying now. We do it for substantially less than what we were being charged. And we also dry at low temperature and pre-clean the grain, so we have a higher test weight, higher quality products.
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And finally, timing is everything, as far as being in the market. We currently have some end producers that use our corn. And by being able to hold the grain until they want it, we are currently right now delivering corn to an egg producer right now and on through the month of April. And he gives a premium, first of all, for the higher quality grain that is dried with low-temperature air, and a second premium for storing it for him. So I understand there may be some potential of facility loans in the future and it certainly has helped me in the past.
And finally, I want to hit one thing, is public policy. And this is a story that I saw in one of my farm magazines. It is a reprint from the Agriculture Journal from Billings, MT. And the story is that there was a national FFA award took place, and the recipient was talking to some officials after the program was over, and the question was proposed, what are your future plans? And this young man said, well, I want to be in production agriculture. And the response was, well, is that really a good place to be, because after all, it is being shipped out to the third world countries. And a person of your abilities and your skills would be better off in another career.
And I guess, gentlemen, my point is that I am kind of disappointed in that. We are sitting here right now in the middle of an energy crisis where we have a third-world country who decided they did not like their amount of income from oil, so they just shut the pipeline and doubled the price. Do we really want to push soybeans to Brazil? Do we really want to push our tomato production to Mexico? I do not think. In my mind, food is liberty, food is security. Let us not have our food policy be in the same shape our energy policy is right now.
Finally in summary, I want to say thanks again for the opportunity, thanks for last year's CDP program that helped myself and a lot of friends, thanks for the crop insurance reforms, let us keep making them go. If we do have another CD program, CDP program, let us not forget the tree growers, and let us take a look at this gross income cap. In fact, if we fine-tune crop insurance and make it more available to all participants, we will not have to worry about CDP programs. They will be a moot point. And as far as our marketing tools, commodity loans, the LDPs, the grain loans, they are good tools for our toolbox. Thank you. And I would like to see some more facility loans in the future which have helped me, and the possibility of using options as a way to protect price floor.
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Thank you.
[The prepared statement of Mr. Hetherington appears at the conclusion of the hearing.]
The CHAIRMAN. Mr. Pollara.
STATEMENT OF LEONARD POLLARA, BEGETABLE AND BEEF PRODUCER, MONTAGUE, NJ
Mr. POLLARA. I am going to excerpt from my written testimony in the interest of time.
I am honored to accept your invitation to appear before the committee today. I operate a 202-acre certified organic family farm. My principal crops are hay, vegetables and small grains, and I raise chickens for shell eggs and broilers in addition to beef and dairy replacement stock. The Northeast Organic Farming Association of New Jersey certifies my farm organic and I am proud to have served for the past 3 years as president of that organization.
After a 10-year wait, it now appears that the USDA is prepared to implement the Organic Food Production Act of 1990. The proposed rule released in March is in the ballpark, and we are expecting a final rule requiring mandatory certification of organic farms, such as mine, before the end of the year. For the process to work as intended, the USDA's national organic program must be fully funded, now and in the future.
Organic agriculture is a dynamic practice, which spans the entire spectrum of agricultural products. The basis of organic farming is an ecological approach to whole farm planning with an emphasis on using natural materials and methods, including livestock systems that respect the full range of physiological needs of the animals. We would benefit directly from an expansion of conservation incentives and are especially impressed with the proposed conservation security program. The conservation security program appears to be the first agricultural program in many years that would provide meaningful assistance to a diversified family farm such as mine. A program based on a comprehensive farm perspective rather than single commodity acreage is well-suited to the traditional cropping practices and farm types in the Northeast, and would be a significant contributor to the sustainability of New Jersey farms, both conventional and organic.
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A similar approach to the eligibility criteria for crop insurance and other risk management tools is essential if those programs are to provide any help to smaller, diversified operations. There need to be recognition of the real market value of crops when applications for disaster aid or crop insurance are reviewed.
Another place where Federal programs do not come close is research relevant to organic growing. A shining exception has been the SARE program. Funding for SARE should be made mandatory and additional research programs relevant to sustainable and organic agriculture should receive high priority. While retail prices for organic material are dropping slightly at the farm gate, wholesale prices have dropped dramatically, even as wholesalers and distributors rush to fill the 25 percent annual rise in demand for organic material. This should sound familiar.
In New Jersey, we see an expansion of farm stand sales and other near-retail marketing strategies. As a consumer, I would prefer to shop locally from someone I know. Long-term direct relationships between grower and consumer are the most profound and rewarding way of ensuring financial stability. We need to continue to support alternative marketing arrangements to keep more of the consumer food dollar on the farm.
In New Jersey, there has been consistent support for the preservation of open spaces and land resources through State and local preservation programs. I would very much like to see meaningful funding for cost share on farmland protection. New Jersey is the most densely populated State in the Nation and is not a proportionate beneficiary in this area.
As an awareness of the value of organic agriculture takes hold, I anticipate that more farmers will begin to farm organically. There is no provision for a transitional organic label in the Organic Food Production Act. This results in a 3-year lag during which the grower must adhere to organic practices without being eligible for the market premiums associated with organic crops. The financial strain of transition would be eased by a whole-farm conservation initiative such as CSP. A refinanced, reconfigured regional dairy compact that includes New Jersey would also ease this transition. At the same time, regional organic milk processors already paying as much as $21 per hundredweight to producers, should be relieved of their responsibility to contribute to compact over-assessment, a cost which is invariably passed on to organic milk consumers and benefits very few organic milk producers.
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In all of this, I have been asking for some type of Federal program to support the financial sustainability of farms. We need to maintain flexibility in their construction, giving us true freedom to farm in a manner that suits our local climatic soil and market conditions. A diverse operation is just that. From crop to crop, season to season and year to year, a small farm grower is constantly exploring ways to improve product quality and thereby attain a premium price. True freedom to farm will only come when programs demonstrating farmer-based decision making within a conservation-based framework can evolve.
New Jersey has a overpopulation of certain wildlife which thrive on our farms and in the surrounding suburban communities. Deer and goose damage on our farms reaches well into the millions. Expanding hunting seasons have been offset by a reduced number of hunters and additional control measures are necessary. We need more comprehensive Federal wildlife control programs that recognize the effects of wildlife on the economic viability of our farms. Local wildlife control offices need to be enlarged, not reduced. Reducing funding for wildlife control means we feed the wildlife first and the people second at the expense of both farmer and consumer.
I have many farmer friends who are punished by paying estate taxes which threaten their livelihood at the same time they have lost a beloved parent. Death comes when it will. I can sympathize. New Jersey has the highest-priced agricultural land in the Nation and prices are driven by development, not production. Frankly, the current Federal estate tax structure can, in one generation, negate years of cooperative stewardship and drive the farmer off the land. And I ask, does that make any sense?
Thank you.
[The prepared statement of Mr. Pollara appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you. Mr. Younker.
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STATEMENT OF JAMES M. YOUNKER, PRODUCER, FLEETWOOD PA
Mr. YOUNKER. Mr. Chairman, I am pleased to appear before the committee to testify on my farming practices and how these programs affect me personally. My name is James Younker, my wife and I live 5 minutes west of Kutztown just off Route 222. We own and operate Kirbyville Holsteins and have been farming since 1995. Prior to farming on my own, I helped at my parents' dairy farm while working as an artificial insemination technician. We farm 85 acres and rent an additional 50. The rental acres are decreasing yearly due to development pressures.
We are also involved in embryo transfer work, and export approximately 150 embryos to countries including Brazil, England, France, Ireland, Hungary, Poland and Japan. We have also exported some live bulls to some of these countries, also.
My five basic topics today are the AMTA program, Agricultural Marketing Transition Act, EQIP and Environmental Quality Incentives Program, drought, farmland preservation and export.
AMTA. If there is a revision of the 1996 farm bill, I would recommend it be opened up to young and new farmers. Since the start of 1996 farm bill, on my small 85-acre farm, at current payment rates in the last 5 years, we could have obtained $7,778, or an average of $1,555 per year. Unfortunately I was unable to participate in this program. Prior to purchasing my farm, my farm did not have a crop base.
EQIP. In order to keep agriculture in southeast Pennsylvania, funds must be distributed more evenly. Today, approximately 90 percent of Pennsylvania's money is going to only 6 percent of Pennsylvania's area. Also local farmers have no say, they are just a number. We have participated in this program for a manure storage pond, so that would make us able to comply with our nutrient management program.
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Drought. My father who has been farming all his life has told me many times in the past year, this is the worst drought he can ever remember. In Berks County, approximately 905 applications were filed for disaster relief. Only three employees of the 7 in the office are processing these 905 applications. Consequently, turnaround is very slow. I feel outdated yield information was used on these applications because, in the past, only one-third of farmers reported their crop yields.
Even though the drought, many people believe farmers did get some value from their crop as silage. But corn silage was very poor quality and had relatively no feed value when fed and tested. Some farmers even required testing of corn silage before they would offer a price per ton when they were buying it.
Farmland preservation. If agriculture is to stay the No. 1 industry in Pennsylvania, farmland must be preserved. I myself have participated in this program. This was the only way we could afford to purchase our farm. Approximately 198 farms in Berks County are on a waiting list to be preserved with the farmland preservation program. Funding available is not nearly enough to purchase these easements. Berks County alone is spending $10 million in farmland preservation in the year 2000. In 1998, Federal money granted was only $180,000. This money only helped purchase two tracts of land of the 7 that were submitted that year.
Export. Currently on our farm, we have 20 embryos waiting to be exported. It is a plan of USDA to increase user fees in the future to cover all export-related APHIS, Animal, Plant and Health Inspection Service costs in the field, plus pro-rated administration costs to the highest level. With the growing decrease in prices that farmers are receiving in the United States, we must look for an extra source of income to make a living. To do this, we must be able to be competitive with the subsidized Europeans. The countries with the most interest in U.S. genetics are developing countries where prices are going to be very competitive to obtain their business. Unfortunately, this means $25 per embryo may lose the sale.
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It is also important for the total U.S. economy to keep balance of trade in check. We are one of the greatest agricultural nations in the world. The U.S. Government should be doing all it can to promote and enhance exports instead of installing fees to do just the opposite. The fees act as a double taxation. The exports generate taxable income, create jobs generating more taxes. Yet we have to pay every time we export something. I feel the Government would generate much more tax income by pushing and promoting agricultural exports. We have no choice, because the USDA is the governing body in agriculture, the other countries want a guarantee from our government that we are exporting a safe product. We must pay whatever USDA charges. I would not mind paying a fee to be certified, it is the charge for every health paper that kills me.
In closing remarks, I would like to thank you for the opportunity to speak to you today. I would personally like to invite each of you to visit our farm at any time. Thank you.
[The prepared statement of Mr. Younker appears at the conclusion of this hearing.]
The CHAIRMAN. Thank you very much, all of you.
Mr. Donaldson, is Bill Goodling your Congressman?
Mr. DONALDSON. Yes.
The CHAIRMAN. Well, I am going to tell you, he is doing a good job on that fruit tree problem, because we spend a great deal of time talking about that. He is obviously very knowledgable about it, and he has also been talking a great deal about it.
Mr. Hetherington, let me just say that I noticed in your—and I heard you call yourself that, I noticed in your resume that Boots is your nickname. You would fit in real well down in Texas, I think. After Bubba, I think Boots is the biggest nickname of a Texan.
I want to play a devil's advocate with you just for a minute because this is part of our dilemma. You had mentioned in your testimony, when you were talking about the $80,000 cap.
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Mr. HETHERINGTON. Yes, sir.
The CHAIRMAN. And you mentioned a 10,000 acre farm, that you would consider that a corporate farm or whatever. And I presume you would do that because of the size of it. And that is part of the dilemma we have, because somewhere else in the country, I mean, 10,000 acres obviously is a lot of farm land. But in some parts of the country, that may be what it takes, basically, to support the same size of a family operation that you have. And so that is why it is so difficult for us to come up with a definition or some kind of a criteria that establishes a family farm. Your input costs per acre in some of the areas you are talking about are significantly more, and probably your input per acre is significantly higher than it is in a lot of other parts. And so how we balance that, based upon farming operations and conditions in various parts of the country, is a challenge. Because obviously, we want to try to be fair to everyone.
You also mentioned, when you were talking about energy policy, Mr. Stenholm and I, in addition to representing huge agrarian districts down in Texas also have huge oil and gas production in our districts. And I have communities down there that when the price of oil was $9 a barrel were suffering tremendously, and people out of work and people tremendously hurting. And America looked at that pretty positively, they were buying the cheapest gasoline, they have had—or diesel fuel or whatever, that they have had to pay for in years, and certainly we have not seen that to be the case over the last few months.
But it does, I think, bring us to an opportunity. We have talked about, in the production of natural resources, whether it is agriculture or energy, you do not go to the market and say, I want X amount for my corn or my cattle or whatever, you take what the market is bearing. And the same thing holds true in energy, and I think it shows us that when someone else has control over a majority of a product we use in this country, that it puts us at a real detriment. Not only is it economically concerning, it is nationally security concerning. And it has happened to us in energy. It could happen to us in agriculture. And I think it would be very frightening if we were dependent on foreign producers to feed us or clothe us, and I am hopeful that we can learn some lessons from some past bad energy policy, not only to correct and create a better energy policy, that you have got some stability in which you can anticipate paying for fuel costs, but as well, that it could transfer into agriculture.
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Mr. Younker, you brought up a subject which we have not heard a lot about in our hearings, but I hear quite a bit about talking to farmers. I have a group of what I would define as very successful young farmers in my district, and they all got into farming after the farm bill passed, and consequently they are not eligible for any AMTA payments, they are not eligible for any LDPs, and basically the way they look at it is, is that those programs—and it was mentioned earlier in some testimony today—that some of the programs that we have are actually making it more difficult for them to succeed somewhat independently of government because it is providing competitive pricing and land values of farms that they would like to be renting.
And in some very specific examples of some they have given me were farms that they thought that they had, and following the payments, other farmers came in and got those. It is a Catch–22. But it is something that over the years, as I have visited with them, that I have promised to try to address as we look at potential changes. But it is a Catch–22 that I believe affects a lot more people than we probably recognize, particularly at a time, if we are trying to encourage people to get into agriculture, if you do not do it on a farm that has a base, then it makes it very, very difficult to do so, and it does put you at an extremely difficult competitive advantage, or disadvantage.
Mr. Stenholm.
Mr. STENHOLM. I have got to ask you if you mean that we ought to lift all unilaterally imposed sanctions and avoid putting them on in the future, unilaterally.
Mr. DONALDSON. Yes.
Mr. STENHOLM. Yes?
Mr. HETHERINGTON. I agree, if I could just quickly elaborate. Our church gets involved with a thing called Operation Shoebox where we send Christmas gifts to needy countries. And one of our friends has gone one step further and gone to Haiti to help distribute it. In no way should food or medicine be taken away, because that only hurts the poor people. The leaders of the country that you are trying to punish, he gets all the medical attention he needs and all the food he wants, so you only hurt the innocent people involved. So do not take food and medicine away.
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Mr. POLLARA. I agree.
Mr. YOUNKER. I would agree also.
Mr. STENHOLM. Regarding normal trade relations with China, should Congress vote to approve permanent normal trade relations with China?
Mr. YOUNKER. Yes, sir.
Mr. POLLARA. Not at this time.
Mr. HETHERINGTON. Yes, they should.
Mr. STENHOLM. For everybody's information, this being the sixth hearing we are now completing, over 95 percent of all the witnesses have said that we ought to lift sanctions. The few that oppose it have some conditions, but not unilaterally. As far as permanent normal trade relations with China, about 95 percent of the witnesses have said that we should. And when I ask the audience, we are running about 10 percent of the audience disagrees with the panel, 90 percent of the audience agrees with the panel regarding these two issues, which will be before the Congress, hopefully, sooner than later.
The current farm bill is supposed to have made it possible to compete in the international marketplace. I find it interesting that some folks that say we ought to lift the sanctions—and I guess maybe, Mr. Pollara, I ought to ask you this question, since you are one of those that says we ought to lift the sanctions, but not grant normal trade relations to China. It seems to me that is a little inconsistent because that is sanctioning, that is basically saying to United States farmers, including you in the organic area, that you should not be able to participate in the Chinese market under the terms of this. On the one hand, you say let us eliminate all sanctions; on the other hand, except let us put them onto China.
Mr. POLLARA. And I can elaborate on that for a very different reason, I would imagine, than most people.
Wherever it is appropriate for humanitarian aid, for technological advice, for technological support, technical support and such, I think that we have a moral obligation to our fellow man to contribute as best we can, where that individual is not in direct contention with us for some position in the world.
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I also personally feel though that one of the misfortunes of our agricultural structure is the fact that we take things which are basic, fundamental commodities and ship them globally. I have no significant objection with shipping things that cannot be produced regionally, but I have a very firm belief in a regionally-based food supply. And I do not know, given that perspective, that China needs our food.
I also would extend the comment a little further in saying that frankly it has to be very close to 100 percent of the items that I see which are manufactured in China, I find to be, although inexpensive, of rather poor quality and I find that they are perhaps exponentially contributing to filling our landfills and other solid waste facilities, which we have difficulty contending with ourselves. And I do not think that is the kind of two-way street that we want to promote.
So that is why I said not at this time. I think that trade with everyone should be a global position; however, I think that the commodities and the market structures have to be completely revisited.
Mr. STENHOLM. I would not quarrel with your latter statement, but I would at least observe, to my own thinking, that that is immaterial as to whether we have normal trade relations. If in fact the Chinese are not a market, then they are not going to buy from us or anybody else, with or without a trade agreement. But if it turns out that they are a market, then if we do not approve normal trade relations, they will buy from somebody else. And that is why I have a hard time understanding, with all due respect, your line of thinking.
I will keep thinking about what you said, if you will think about what I am saying.
Mr. POLLARA. Certainly. I do not normally have the benefit of your perspective.
Mr. STENHOLM. Well, sometimes that is not too bad either. [Laughter.]
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Mr. SMITH. We on the committee do on a regular basis.
Mr. STENHOLM. Thank you.
The CHAIRMAN. Mr. Ewing.
Mr. EWING. Thank you.
Mr. Pollara, you are in organic farming and you are a certified organic farm.
Mr. POLLARA. That is correct.
Mr. EWING. Where does most of your product go? I mean do you——
Mr. POLLARA. I am just trying to formulate a cogent answer. Most of my product is sold off-farm retail and the balance of it is sold locally wholesale.
Mr. EWING. And your products are? You probably said, but——
Mr. POLLARA. I have anywhere up to 47 different varieties of vegetables, beef, I have raised finished pork, I do raise broilers, I raise shell eggs. Actually I raise the chickens and they raise the shell eggs, and I have small grains and hay, forest products, and believe it or not, fieldstone.
Mr. EWING. On an organic farm, and I am talking now not with chickens or with eggs, is there a rule of thumb as to what you need to turn as a profit per acre to make that profitable? In the Midwest, we talk about in corn and soybeans we need to turn about $200 an acre profit for corn and soybeans.
Mr. POLLARA. I am going to extend myself a little bit in leaping intuitively into what your question is other than the exact words, and that is that I think that there is a considerably greater balance between the cultural inputs in conventional agriculture and organic agriculture, financially. However, I think the discrepancy is in the manifestation and while it would be nice to give you a dollar figure, I would say to you that if you had a well-working organic farm, you would still have that same threshold; however, you could conceivably achieve it with a smaller acreage.
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Mr. EWING. Your costs would be less and possibly the income per acre might be greater, but the amount of acres you could cover would probably be restricted too.
Mr. POLLARA. Let me just modify that a little bit. The costs would be very similar, the income would be considerably greater and the capacity—I once sat down, I happen to have the good fortune to live adjacent to the Delaware Water Gap National Recreation Area, and unfortunately at the time of the acquisition there were thousands of acres of arable land that were vacated and so one of my extended dreams is to get my hooks into some of that river bottom—and I sat down and figured it out, I figured that two men with appropriate equipment could reasonably and expectedly handle 1,200 acres in an organic system.
Mr. EWING. There are a number—and I do not know that anybody has mentioned it on any of the panels—of producers in America who feel that the pricing of inputs here and abroad is not even and equal. I mean, that you can buy Roundup Ready soybeans in Brazil considerably cheaper than you can here in the States and possibly other inputs. Do any of you have any comments on that and what you think we as a government or committee should do to rectify that situation?
Mr. DONALDSON. I am not sure I have an answer to that, but I think that it depends on the market system that works throughout the world. And I am not sure that you can dictate to Brazil what they are going to have to pay for Roundup Ready beans or anything else. If my competitors in the fruit business were paying the same input costs that I have to pay around over the world, that is what I am saying, we I could compete with any of them. But when I have one arm tied behind me and one leg in a sling, it is kind of tough to do that.
But how you arrive at that, I am not sure I have an answer to that. It is not an easy one.
Mr. HETHERINGTON. I will quickly add to what Guy said. A couple of years back, we were in the pesticide amnesty program in Pennsylvania—if you had materials that were no longer usable, you could turn them back and in they would be disposed of. The gentleman came to our farm and picked them up, there was a bag of DDT and they were packaging it to ship it and I said where is that going, and he said oh, that is going to Mexico.
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So as long as we have different rules of production, we are going to have a problem with having this ability to compete. We cannot use certain materials, they can, so our southern producers have an advantage over us in that particular case.
Mr. POLLARA. I would like to offer an observation and that is that aside from the inputs themselves, we have restrictions in disposing of the packaging of those inputs and the transportation of those input requirements which increase the expense of handling in this country.
Mr. YOUNKER. Yes, I will go along with that. As long as there is so much fluctuation, it is too hard to come to a common ground.
Mr. EWING. It would not be incorrect then though to say that there is consensus that we would be much more competitive if the rules were the same, with whomever we are trading and wherever we are producing in the world?
Mr. HETHERINGTON. Rules and regulations.
Mr. YOUNKER. Yes.
Mr. EWING. Thank you.
Mr. HOLDEN. Thank you, Mr. Chairman.
Jimmy, I apologize, I was in the back room and missed part of your testimony, but in reviewing it, you touched on the EQIP program. And I have been hearing for years what a great program it is, but unfortunately it is just not working in Pennsylvania. I heard different figures, 65 percent of the funds go to 6 percent of the land. I even heard as high as 90 percent of the funds go to 6 percent of the land.
I wonder if you, Jimmy, Guy or Boots could maybe elaborate for the committee here so we can understand what the real problem is, because again, I have been hearing that it is a good program, but it just is not working in Pennsylvania.
Mr. YOUNKER. I think what I have gathered from it, 90 percent they said is going to 6 percent of the area, but there are restrictions on major watersheds and priority areas, where they are allotting so much money, and not enough is going to some of the others.
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Mr. HOLDEN. Susquehanna watershed, I am sure.
Mr. HETHERINGTON. In my case, Congressman Holden, back in the early 1990's, we signed up with what used to be the ACP program and there was money for each county and there was 75 percent cost-sharing available. And in my case, my farms are all owned by widows, their husbands have passed on, they have kept them out of development and they do not have a lot of money to invest in stuff. So what we used to do is we would sign them all up for ACP work, we have got some long-term agreements on these farms, and we would get a project each year done on all of our 7 farms. And we got enough money from the ACP to pay for the excavation work and I would stand the cost of the seed and the fertilizer and the pile drains and some of the minor stuff, and we got a lot of work done.
But when EQIP came along, ke-bang, the whole thing stopped. We have not done a project since that came around. We have been totally left out of the system. We have four or five on the books, but there has been no funding since that started up.
Mr. HOLDEN. What area is included? What watershed particularly where the majority of the funds are being utilized?
Mr. DONALDSON. Are being utilized?
Mr. HOLDEN. Where.
Mr. DONALDSON. I do not know.
Mr. HETHERINGTON. I am not sure, but it is not in Schuylkill County.
Mr. DONALDSON. We are not using many down in Adams County, to the best of my knowledge. Mr. Shaffer testified early on here and I did not quite catch all of his——
Mr. YOUNKER. I have been hearing an awful lot about it, I am just trying to see where the money is going.
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Mr. HETHERINGTON. Like I said, we had annual projects every year, but since that came, it is all gone.
Mr. YOUNKER. There is nothing in Berks County at all that is taking place right now.
Mr. HOLDEN. And the same question I asked the other panels, crop insurance. Is it readily available and do you participate?
Mr. HETHERINGTON. I did not catch the first part.
Mr. HOLDEN. Crop insurance, I am just curious, percentage of participation and how accessible is it.
Mr. DONALDSON. Let me answer it this way, Congressman, we had CAT coverage last year and with that CAT coverage, if you do not have total loss, you just do not get anything. So I am done with CAT coverage.
But I am interested in revenue assurance and also crop insurance so we can look at whether we are insuring for a disaster, a drought disaster, or whether I want to cover loss of revenue. If they are affordable, we will participate in that, but CAT coverage, we had a disastrous crop as far as size is concerned, but we had one of the biggest crops we ever had. And the price of apples is based on juice price, and when you have dry weather, you have small apples. And juice apples, you will starve to death growing juice apples. So from my standpoint as a fruit producer, I am interested in crop insurance, but it has to be affordable enough that it does not put me out of business just buying the insurance.
Mr. HETHERINGTON. In my case, we have only ever used catastrophic on our grain crops. This year we did the buy-up coverage plus the revenue. We have coverage on peppers, we cannot get it for tomatoes or cucumbers yet. And as far as strawberries, the hail insurance is unaffordable.
Mr. POLLARA. Yes and no.
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Mr. HOLDEN. Yes and no?
Mr. POLLARA. Yes, in certain cases, I have been eligible; and no, I have never applied because when I did the numbers, it was not worth it.
Mr. HOLDEN. OK. Jim.
Mr. YOUNKER. I have not applied in the past, we will this year with getting some disaster funding. Everyone says the CAT program was not the program to do, so we are going to go with the step-up program.
Mr. HOLDEN. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Smith.
Mr. SMITH. Thank you, Mr. Chairman.
Mr. Younker, the step-up to be up above 65 percent?
Mr. YOUNKER. We are going to go to 65, yes.
Mr. SMITH. In terms now, the crop insurance program, the Federal help, subsidy, for that crop insurance program, my perception was that getting the program started, getting it going, getting it where there was some experience out there so rates would be reasonable in terms of risk, but we have now a program that is subsidized someplace between 50 and 65 percent, depending on which program you are participating in.
So here is the Government paying 50 to 65 percent of the cost and still in a lot of areas, it is not worth it because you do not have a disaster that often. I suppose you folks will be more inclined to look at it seriously in the future.
But in terms of the long-term future of that program, it seems to me that there is some benefit to move towards revenue assurance, which is a combination. But the question I want to ask you, is your participation or maybe to the extent you understand the average participation in your area—of using the market with forward contracting, with hedging, how much of that is accomplished by the farmers as you perceive them in your area?
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Mr. DONALDSON. Forward pricing?
Mr. SMITH. Forward pricing, hedging, any other of the market contracting systems that you might contract on the assurance of a basis. Is the normal farmer producing a crop that is on the Chicago Board of Trade, are they forward contracting, hedging?
Mr. DONALDSON. Well Boots spoke a little about what he was doing, but to the best of my knowledge, that is not big in Pennsylvania. I do not think there is a lot of that being done. We do not do it in the fruit business. I do not know how you would do it.
Mr. SMITH. As a corn and soybean farmer, it seems to me that was the advantage I saw in crop insurance, because you could go ahead and forward contract, if the contract ended up being above the cost of production, and still have the assurance that if you got part of your crop wiped out, you still could accommodate the contract.
Mr. DONALDSON. What we would look at would be the revenue side of it. We know what our cost of production is. What you would do would be to buy up to cover that cost of production, so that if you had a disaster or for whatever reason you could not make go, at least you had that cost of production covered. And I think that is how most fruit growers would look at it.
Mr. SMITH. Can you give me any guidance in the commodities, why more of that type of marketing is not used? Any feelings? Of course the prices this last couple of years has been low enough there is no sense contracting below the cost of production.
Mr. DONALDSON. My experience here in Pennsylvania is most of our producers that produce grain, beans, corn, what-have-you, are going to feed it through livestock and market it that way.
Mr. HETHERINGTON. To answer your question, most of the folks that are not feeding livestock, I have been attending seminars and what we found is that farmers tend to sell grain when they have to as opposed to having a plan. We have done some work with marketing clubs in different counties through Extension Service with the idea of trying to make a plan, to not be part of that 90 percent of the producers that sell at the low half of the market. Typically farmers do not have a good plan, that is the problem. In our case, we are using options to protect our low end and I would like to do some work with forward pricing and some of that kind of stuff, but I am not comfortable with it yet to this point.
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Mr. SMITH. Mr. Pollara, do organic farmers——
Mr. POLLARA. Yes, in New Jersey, I am also involved in the Board of Agriculture, so I have some general knowledge statewide. In north and central New Jersey, there is almost no forward pricing. In south Jersey, where we do have some large grain farmers, there is, to some extent. And I think I am rather fully well aware that there are no organic farmers who avail themselves of that opportunity.
And New Jersey, I would just like to put in a plug, is right now looking very seriously at the possibility of constructing an ethanol plant to contribute to some local solutions to the leveling out the market.
Mr. SMITH. Mr. Younker, how about the Fleetwood group?
Mr. YOUNKER. There is not a lot right in my area I think that do much forward contracting and that there. Myself, everything I grow, I feed through my cattle. I buy more than I sell anything, I really do not sell much other than milk.
Mr. SMITH. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Gutknecht.
Mr. GUTKNECHT. Thank you, Mr. Chairman.
Mr. Younker, you said you feed it through to your cattle. You raise dairy cattle. How many cows do you have?
Mr. YOUNKER. Sixty-five that we milk. We have about 130 head total on the farm, with some bulls that are there waiting to go back into active AI service and that will be exported.
Mr. GUTKNECHT. Where do you sell your milk?
Mr. YOUNKER. Clover Farms, to a local dairy.
Mr. GUTKNECHT. Is it a co-op?
Mr. YOUNKER. No, independent.
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Mr. GUTKNECHT. So you cannot forward contract with them?
Mr. YOUNKER. No.
Mr. GUTKNECHT. If you could forward contract, would you consider it?
Mr. YOUNKER. Possibility some. I am real green in that, I just do not know enough about that, have not followed it because we were never really able to do it. Maybe I would consider doing some.
Mr. GUTKNECHT. Well, let me ask you this, do you know roughly per hundredweight what your milk check was last month?
Mr. YOUNKER. Yes, $12.60.
Mr. GUTKNECHT. And what was it 10 months ago?
Mr. YOUNKER. Ten months ago——
Mr. GUTKNECHT. Well, at its peak—14 months ago.
Mr. SMITH. Back when it was $17–$18.
Mr. YOUNKER. Yes.
Mr. GUTKNECHT. At that time, I tried to get a lot of my producers, who do market through co-ops, to either forward contract—and more and more the co-ops are trying to get people to do that—or at least use a program that we created called the Dairy Options Pilot Program, to get people to use options, which we at the Federal level are picking up about 75 or 80 percent of the cost of that option, to try and take some of those bumps out of the market.
I have been extremely disappointed in my area because the county agents, we had a very aggressive marketing effort, we had an educational effort, we did everything we could to get our dairy producers to look at that and the attitude was well, why would we want to do it now, why would we want to fix the roof right now because it is not raining. And now that it is raining, everybody says man, I cannot afford to buy.
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Mr. YOUNKER. When they were putting that program into effect, we could not do it until the price was already south. They were talking about it until all the paperwork and everything got done here and they had the local meetings around here, the price had already headed south and it was too late to get on board. Every broker you talked to at that time said I believe I would just sit tight because there just is not much you can do right at this moment. You should have been in 6 weeks ago.
Mr. GUTKNECHT. I want to thank all of you, and all the people that have testified, Mr. Chairman, this has really been an interesting perspective and I continue to come back to my own feeling that we do need to come up with some kind of a counter-cyclical program, whether you are an organic farmer or whether you raise dairy cattle or whatever business you are in, because when you look at all that we spend at the Federal level on various farm programs, it just seems to me we ought to be able to come up with a simpler system built around some kind of revenue insurance. And at the end, I think over the long term, that would be a counter-cyclical program and I think it would be fairer and simpler, would encourage us to move towards more market-oriented agriculture long term and I just think that is the direction we have to go.
In terms of NTR though, I do want to come back and just restate my point that I strongly support opening markets, whether it is with the North American Free Trade Agreement with Canada and Mexico or with China, or whomever. But I hope you will at least understand why we want to open up markets for midwestern dairy farmers to the Northeast.
Mr. DONALDSON. Could I ask you a question?
Mr. GUTKNECHT. Sure.
Mr. DONALDSON. Where is that excess production coming from in dairy? It is not coming from the Northeast and it is not coming from your area.
Mr. GUTKNECHT. It is largely coming from the west, Idaho, California. California is increasing production dramatically.
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Mr. DONALDSON. Where are they shipping their milk?
Mr. GUTKNECHT. The honest answer to that question is I do not know. If you have a better answer than I do——
Mr. SMITH. They are sending their powder all over the country.
Mr. GUTKNECHT. And all over the world, right.
Mr. DONALDSON. My comment is that we are trying—and I know there are differences because I know the Farm Bureau President in both Minnesota and Wisconsin, they are trying to bring the milk east, which we understand. Milk is going to flow across lines just like apple juice does.
Mr. GUTKNECHT. That is where the biggest market is.
Mr. DONALDSON. You cannot stop that. But we want to get our money out of the marketplace, and the best way we can do that I think is with the compact. Now, you and I can differ on that and we probably will, but our people in Pennsylvania are in support of the compact and there is also a southern compact being discussed, which would include almost everything east of the Mississippi.
Mr. GUTKNECHT. Well, we would be happy with compacts if we could get in one.
Mr. DONALDSON. If you could get in one, OK. [Laughter.]
Mr. GUTKNECHT. I yield back.
Mr. DONALDSON. Would you like to be in the Northeast Compact?
Mr. GUTKNECHT. Absolutely. In fact, that may be an amendment we will offer to one of the bills, is to allow us in.
Mr. SMITH. Allow Minnesota in.
Mr. GUTKNECHT. Thank you.
The CHAIRMAN. I want to thank our witnesses again, this panel and the other two panels, and all the people who have come today and shared your time with us. These are very helpful to us. We are finding out a great deal, meeting a lot of very nice people along the way.
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Without objection, the record of today's hearing will remain open for 30 days to receive additional material and supplementary written responses from witnesses to any questions posed by members of the panel.
This hearing is adjourned.
Mr. HOLDEN. Mr. Chairman, before you adjourn, please.
The CHAIRMAN. Yes.
Mr. HOLDEN. Mr. Chairman, I want to thank you and all the members of the committee for coming to Pennsylvania to hear our concerns about the future of agriculture and as a token of my appreciation, I would like to present you and every member of the committee two of our fine agricultural products, Berks County pretzels and Yuengling Beer from Pottsville. [Laughter.]
The CHAIRMAN. We thank the gentleman very much for his hospitality. The hearing is adjourned.
[Whereupon, at 1:16 p.m., the committee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of James M. Younker
Mr. Chairman, I am pleased to appear before this committee to testify on my farming practices and how these programs affect me personally.
My name is James Younker. My wife and I live five minutes west of Kutztown just off of Route 222. We own and operate Kirbyville Holsteins and have been farming since 1995. Prior to farming on my own, I helped on my parent's dairy farm while working as an artificial insemination technician. We farm 85 acres and rent an additional 50 acres. The rental acres are decreasing yearly due to development pressure. We are involved in embryo transfer work and have exported approximately 150 embryos to countries including Brazil, England, France, Ireland, Hungary, Poland and Japan. We have also exported live bulls to some of these countries.
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FIVE BASIC TOPICS
AMTA (Agricultural Marketing Transition Act); EQIP (Environmental Quality Incentives Program); Drought; Farmland Preservation; and Export.
AMTA. If revision of 1996 farm bill, I would recommend it be opened up to young or new farmers. Since the start of the 1996 farm bill, on my small 85-acre farm, at current payment rates in the past 5 years we could have obtained $7,778, an average of $1,555 per year. Unfortunately, I was not able to participate in this program because my farm did not have a crop base.
EQIP. In order to keep agricultural in southeast Pennsylvania, funds must be distributed more evenly. Today, approximately 90 percent of Pennsylvania money is going to only 6 percent of Pennsylvania's area. Also, local farmers have no say, they are just a number. We have participated in this program for a manure storage pond so that we are able to comply with our nutrient management plan.
Drought. My father, who has been farming all of his life, has told me many times this past year that this was the worst drought he can remember. In Berks County, approximately 905 applications were filed for disaster relief. Only three employees of seven in the office are processing these 905 applications. Consequently, turnaround is very slow. I feel outdated yield information was used for these applications because in the past only one-third of the farmers reported their crop yields. Even through the drought, many people believe that the farmers did get some value from their crops as silage, but the silage was very poor quality and had relatively no feed value when it was tested. Some farmers even required testing of the corn silage before they would offer a price for it per ton.
Farmland Preservation. If agricultural is to stay the number one industry in Pennsylvania, farmland must be preserved. I myself have participated in this program. This was the only way that we could afford to purchase our farm. Approximately 198 farms in Berks County are on a waiting list for the Farmland Preservation Program. The funding available is not nearly enough to purchase these easements. Berks County is spending $10 million in Farmland Preservation in the year 2000. In 1998, Federal money granted was only $180,000. This money only helped to purchase two tracts of land from the seven that were submitted that year.
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Export. Currently, on our farm we have 20 embryos waiting to be exported. It is the plan of the USDA to increase the User Fees in the future to cover all exported related APHIS (Animal Plant Health Inspection Service) costs in the field plus prorated administrative costs to the highest levels.
With the growing decrease in prices that farmers are receiving in the U.S., we must look to a source of extra income to make a living. To do this, we must be able to be competitive with the subsidized Europeans. The countries with the most interest in U.S. Genetics are developing countries where prices are going to be very competitive to obtain their business. Unfortunately this means the difference of $25.00 per embryo may lose a sale. It is the important for the total U.S. economy to keep a balance of trade in check. We are one of the greatest agricultural nations in the world. The U.S. government should be doing all it can to promote and enhance its exports instead of installing fees to do just the opposite.
The fees also act as a double taxation. The exports generate taxable income, create jobs generating more taxes. Yet we have to pay every time we export something. I feel the government would generate much more tax income by pushing and promoting agricultural export.
We also have NO choice, because the USDA is a governing body of agriculture. The other countries want a guarantee from our government that we are exporting a safe product. We have to pay whatever the USDA charges us.
I wouldn't mind paying a fee to be certified, it is the charge for every health paper that kills me.
I would like to thank all of you for allowing me the opportunity to speak to you today. I would like to personally invite each of you to visit our farm any time. Are there any questions?
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Statement of Marion Bowlan
The next generation of farmers?
We have a crisis in the making. Pennsylvania agriculture has twice as many farm operators over the age of 70 as under the age of 35 and Pennsylvania is reflective of the national problem. Who will be our next generation of farmers? Potential replacement farmers, under age 35 make up only 8 percent of our total number of farm operator, according to the 1997 Census. Minority farm operators account for only 2.5 percent of the total farm operators in Pennsylvania in 1997. Are we prepared for retiring farmers to sell off their properties for housing or industrial development, due to the lack of well-trained, business-oriented younger farmers?
''That so few young people are going into farming is one of the most critical problems of American culture. It is implicitly a huge economic problem''—Wendell Berry
The Problem: The organization I represent, Pennsylvania Farm Link, identified three major problems contributing to the decline in potential young farmers. They are:
The need for earlier farm succession planning,
The need for start-up training assistance and hands-on experience for potential farm entrants
The increasing entrepreneurial skills required to generate higher profit margins.
Farm Link's programs aggressively address these needs by helping farmers develop better succession strategies and providing job training assistance to beginning farmers.
Recommendations:While our program addresses some of these needs other measures need to be taken at the national level that would complement and strengthen our efforts.
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They are:
Loans: Congress should authorize the Farm Service Agency to guarantee tax-exempt First Time Farmer Bonds used to make loans to beginning farmers and ranchers.
Transfer assistance and beginning farmer training: Provide assistance to retiring farmers to facilitate the transfer of farms to the next generation. Matching Federal fund should be provided to Pennsylvania Farm Link and other linking programs who are doing this work to strengthen the effort.
Provide programs that encourage and strengthen beginning farmers marketing and entrepreneurial skills, such as programs provided by Pennsylvania Farm Link
Develop apprentice/mentoring programs for those individuals who are not from farm backgrounds and provide financial support to these programs/individuals.
Provide one-one one technical assistance to beginning and retiring farmers on resources available for farm transfers. This resource locator work being done by PA Farm Link and other linking programs across the country should be recognized and supported.
Include farm succession planning in the point system for determining who will receive farmland preservation money. When an owner retires and there is no successor, the farm is at it most vulnerable time for sale to developers.
Tax issues: Provide income tax credit on the first $20,000 of gross income for active farmers renting agricultural assets to a beginning farmer.
Provide income tax credit for a beginning farmers first $20,000 of gross annual income from a farm operation.
Provide an income tax credit for the seller on the first $10,000 of income from the sale of a farm.
Change the limit on family-owned business deduction to an amount equal to the Federal and Gift Tax unified credit amount and have it cover both transfers at death and transfers during lifetime.
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Overall efforts: Support and fund a USDA interagency beginning farmer initiative that researches, develops, disseminates and supports farm management models that emphasize low capital investment, optimal use of labor, and high-value production and marketing methods.
Support the expansion and development of local/regional markets where beginning farmers can compete.
Reverse the concentration in markets in order to develop more opportunities for beginning and small farmers.
Statement of James R. Michael
It is with a great deal of honor and pleasure that I present general recommendations concerning future farm policy for our great country.
I applaud Chairman Combest and the House Agriculture Committee for the foresight to conduct Field Hearings throughout the country to receive local input and recommendations for future Agriculture Programs.
First, let me give you a little information about me. I own and operate a 300-acre beef cattle, grain and timothy hay family farm in West Virginia. I also rent an additional 200 acres of land. My farm has been in the family for three generations and we pride ourselves as good stewards of the land, water, and natural things entrusted to us. I worked as a youth in my families' tomato canning factory, milked cows in our dairy, and worked the crop fields throughout my life. I graduated from West Virginia College of Agriculture in 1957 and am a member and leader with the local Farm Bureau as well as serve as an Eastern Panhandle Soil Conservation District Supervisor. I have participated in USDA programs such as the Agricultural Market Transition Program, Highly Erodibile Land Conservation Program, the Environmental Quality Incentive Program, the Emergency Conservation Program, and I have made extensive use of the Conservation Technical Assistance program through the Natural Resources Conservation Service. My farming experience like most of my neighbors is one of operating a truly family farm, where every penny counts, conservation is a part of our ethic, and often additional off farm income helps to stabilize our income and keeps us on the farm. I guess you can say I have a lifelong commitment to farming and the farm lifestyle and I have knowledge of farm program policy through participation in the various USDA Programs.
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Planning for our national agriculture policy is essential to our future as a nation in this global economy. Hearing from farmers who work the land is critical to crafting an effective national policy and I applaud the committee for reaching out to us. Our land and people who live on and work the land are the farmers for which this national policy should be crafted. Roughly 70 per cent of our nations land and natural resource base is privately owned. It is essential that we plan future programs that maintain healthy and productive land and water resource bases. We must manage our soil and water with locally led voluntary incentive-based programs. We must strengthen our local government leadership for coordination and management of state and Federal programs with continuous input from people who are on the land.
Let me get directly to what I see are needed as KEYSTONES that will make our future agriculture policy strong and effective for our family farms. (I couldn't resist one reference to our beautiful host state Pennsylvania):
Our future farm policy must: Increase private, local, state and Federal investment in soil and water conservation. Develop and improve programs that reward good stewardship and provide for economic stability.
Invest in private land conservation to conserve soil and water resources through incentive based and science based conservation plans rather than invest in punitive, costly, regulatory approaches.
Utilize the unique local, state, and Federal financial and technical assistance delivery system which is accessible at the county level to farmers.
Include program elements to conserve or restore wetlands and wildlife habit and preserve land in farms.
USDA along with state and local soil conservation districts, must be the farmers source of technical and financial assistance to protect and improve water quality of our nation. Appropriate funding to support science based conservation planning and water quality improvement on private lands must be provided and the role of costly (legally, financially, and politically) regulatory and permitting programs be used only in the few, severe situations.
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In light of these keystones I have shared with you, I would like to provide some more specifics. I would encourage the committee to take a strong serious look at the administrations FY2001 budget proposal for agriculture, and in particular take a strong look at the Conservation Security Program which is intended to strengthen conservation efforts on private land and improve the farm safety net. A crucial part of the farm safety net is providing assistance to farmers and ranchers who practice good land stewardship, which yields benefits to all Americans. Also, this program should be structured to provide economic support for the wide diversity of agricultural enterprises, from crop production to nut production, grasslands farming to hog production, and organic farmers to intensive modern production farms. The program must be broad to respond to the variable needs in all 50 states and among all types of agriculture especially the family farm operation.
Recently, Secretary of Agriculture Dan Glickman said,''As we prepare for the new century, we need to deepen our commitment to the conservation of America's Private lands. We have been paying farmers for decades to grow commodities and, in some cases, not to grow commodities. Now we must start thinking of the land itself as our most valuable commodity.''
This statement reveals the commitment to a new voluntary conservation program proposal, the Conservation Security Program (CSP). An important foundation of this proposed program is that it builds upon our existing conservation technical infrastructure and complements other USDA programs. Direct payments would be made to farmers to recognize their good land stewardship that produces the environmental benefits which we all enjoy-clean air and water, improved wildlife habitat, and a sustainable soil resource. I believe a significant Federal financial investment in this program would be appropriate.
The Environmental Quality Incentives Program, a comprehensive conservation program where long term contracts are developed with a farmer to conserve on farm resources and provide financial cost sharing is an important piece of the farm policy. We need to increase funding to this program to at least $300 million annually, to truly make it available to farmers with resource conservation concerns. This program could be a livestock farmer's dream, to carry out plans that protects or improves water quality through nutrient management and manure management, while improving the quantities and sustainability of forages on the farm for livestock feed.
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Another important USDA program that merits continuation is the Conservation Reserve Program and the Conservation Reserve Enhancement Program which are II believe are approaching statutory ceilings which should be elevated significantly.
Many farming communities are feeling the nudge of urban land conversions, which are permanent, and remove many of our more productive agricultural soils from our farmland base. The Federal Farmland Protection Program, in concert with state, local, and privately funded farmland protection programs is a good way to help communities preserve their farmlands as farms. A wise man once said that if you want to preserve farmlands, you have to preserve farmers. There must be an economic incentive to keep the lands in farms. This program provides the funding to purchase, on a voluntary basis, the development rights to the land from the farmer, thus allowing him or her to have the benefit of the money and keep farming the land themselves or for their children. There have to be financial incentives to preserve farmland and compete with permanent conversion. West Virginia just passed its own Voluntary Farmland Protection Program enabling legislation to allow us access to the Federal funds, local, and private funds to set up our own program and will soon be ready to utilize available Federal funds to preserve farmland.
In summary, I would recommend that the committee and Congress take a ''Strong Congressional Stand'' to retain and strengthen the unique and effective local USDA delivery systems. We must maintain individual USDA Agencies to be responsible for specific programs, keeping financial and technical assistance programs separately managed yet coordinated for a sustainable resource base and a stable farm economy through local input and coordination.
I appreciate the opportunity to speak to this committee field hearing on future farm policy. I trust and pray that you understand that although these are my concerns they also are the concern of my neighbors and farm families that I have known throughout the country. We are the quiet backbone of this country and are proud to continue to help sustain and nourish our citizens and protect our resources. Please craft a policy that supports the family farm.
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Testimony of Donald C. Fretts
Thank you for the opportunity to appear before the Subcommittee, Mr. Chairman. I am Don Fretts, a livestock and crops producer from western Pennsylvania representing the Board of Directors of AgChoice Farm Credit.
AgChoice encompasses all of Pennsylvania, excluding the SE area of the state. AgChoice has over 6000 borrower owners, including full time and part time farmers plus rural home owners.
AgChoice provides credit for about 57 percent of production agriculture housed within its territory and currently is managing a portfolio of $545 million.
Today my testimony will focus on some risk management challenges facing both established and aspiring producers within the AgChoice territory. While the balance sheet of the association is healthy and loan quality has been improving the past several years, the drought of 1999 weighs heavily on the economic health of many producers in the area. Due to critical losses of crops due to the drought, the expected fallout on farms will become more evident in the months and year ahead. The financial aide provided by the Federal and state governments is helpful, but not adequate to overcome the economic losses suffered by producers.
Crop Insurance. One of the goals of the congress is to increase farmer participation in the crop insurance program. As a participant, the one suggestion I have is to make it simpler and more affordable to all commodity producers. To begin, if a farmer doesn't have accurate yield records, then FSA county yields are used until producers can develop 3- or 5-year yield data. This is an immediate financial penalty to the newly insured because FSA average yield data is obsolete, early 70's based. In most of Pennsylvania and maybe even most of the northeast, livestock or dairy farmers feed the majority of the crops raised and therefore don't regularly weigh crop yields.
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As a result of improved technology and better management, average county yields have increased significantly since the early 70's. FSA yield averages must be able to reflect this even for CAT insurance to be relevant.
Taxation. The preservation of the family farm is threatened on a number of fronts, regulatory, expanding to a sustainable economy of scale, affordable labor, etc. An additional very serious problem is taxation. Crippling taxes such as capital gains and estate or ''death'' taxes many times are insurmountable and force the liquidation of assets in order to pass a farm on to a succeeding generation. If maintaining an economically viable production agriculture industry is desirable, then these penalty taxes must be reduced and/or eliminated.
New and Beginning Farmers. One of the critical issues being addressed by AgChoice is the ''New and Beginning Farmer'' program. As mentioned to the committee by Jay Penick, President of the Northeast Farm Credit Services, on March 29, 2000, borrowers loan applications ''must be evaluated based on their financial projections and estimates of whether they will cash flow and then we have to make a determination as to whether we can adequately secure a loan.'' With new and beginning farmers, the lack of managerial experience also must be evaluated and a decision made relative to the additional risk the association members must bear. Existing borrowers don't want to significantly risk their investment to unproven operators. Yet, to survive the association must and should offer credit to the next generation.
Currently, the FSA guaranteed loan program is used in some instances to finance new and beginning farms, but is that enough? Interest rates for new farms are the same as for established farms. Perhaps some additional congressional consideration could be given to FSA writing down some of the interest cost of new and beginning farmers for several years. This could significantly help the new borrowers and also help farm credit associations provide viable opportunities for new farmers to establish some managerial history and experience. The critical part of this option is to be sure enough funds are allocated to states to facilitate these opportunities.
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Cooperative Development. Cooperatives such as Farm Credit have proven their ability to sustain production agriculture in this country. Today the formation of new generation cooperatives, many of them defined as ''value added'' are a new tool that is allowing farmers to compete. In years past, at least nine cooperative development centers have been established to facilitate the formation of new agricultural cooperatives.
In the past couple of years, Pennsylvania has been struggling to develop a ''one stop'' shop for producers, commodity groups or rural communities interested in developing new business or service cooperatives in stressed rural areas of Pennsylvania. Applications for Federal monies have been stifled by a system of grant approvals that don't consider favorably the formation of ''new'' centers.
Additional Federal monies are needed to help support these centers, but also there needs to be a system that will allow new initiatives to get started. AgChoice has been financially supportive of this initiative and encourages congress to amend some evaluation procedures that would allow additional centers to get started.
Trade. These are only a few of the issues facing production agriculture in this new millennium, but I would like to conclude simply by stating that US agriculture is expected to compete world wide. I believe Pennsylvania farmers can deal with that also, but only if the playing field is level. Normalizing trade with China and eliminating sanctions of food to any country around the world, and being sure imported food products are similarly regulated as is U.S. produced food should be a no brainer. Developing third world countries should experience in time the same economic growth the more developed countries have. This means they will have more money to spend. We must be able to trade with them fairly and under similar regulation to sustain our production agricultural industry.
Thank you Mr. Chairman for the opportunity to be here today. As a humble farmer, if there are any questions, I will attempt to answer them.
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Statement of Barron L. Hetherington
I reside at 129 Strawberry Lane, Ringtown, PA. 17967. I am a constituent of Congressman Tim Holden and I'm here today representing farmers from Schuylkill County.
I graduated from Penn State University in 1975 with a degree in Agricultural Engineering and worked for the Procter & Gamble Paper Products Division for 6 years producing Charmin bathroom tissue in Tunkhannock, PA. I returned to my family's farming operation in 1980.
My wife, Robin, our three daughters, and I operate B & R Farms. The operation consists of 500 acres. We own 80 acres and rent the balance of 420 acres. The crop mix includes a greenhouse range for flower and bedding plants, 12 acres of PYO strawberries, 20 acres of wholesale vegetable, and 468 acres of agronomic crops including corn, soybeans, and alfalfa hay.
Our operation is highly diversified including all aspects of production agriculture except livestock.Our family is the seventh generation of to occupy the farm house which has been in the family for 158 years. We are extremely proud of the fact that our farm was the first farm in Schuylkill County to be enrolled in the Pennsylvania Farmland Preservation Program.
I would first like to review the recent Crop Disaster Program (CDP). Our farm benefited directly from this program. We were able to produce tomatoes and cucumbers successfully, but could not irrigate enough to save our pepper crop. The heat stress was unbearable. Both Congress and the USDA wanted to get assistance to the producers quickly. Nine days after my application was submitted, we received the initial benefits. Our local FSA office in Schuylkill County has two full-time program assistants and one part-time employee in addition to the County Director. They handled 200 producers with claims of $1.8 million and paid out $630,000 in benefits to date. This was no easy task considering the diversity of our county crop mix and the other special programs added to last year's work load. They are to be commended.
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The two problem areas in the CDP which exist in Schuylkill County are lack of tree assistance and the gross income elimination test. Schuylkill County is Pennsylvania's second largest producer of Christmas trees. Annual sales from approximately 3,000 acres total $3.5 million. Because it takes 10 years to produce a crop, a 100 percent seedling loss equates to only a 10 percent crop loss in any given year. Therefore, none of our county tree producers exceeded the 35 percent crop loss threshold of the CDP. Documented losses of 350,000 seedlings at the USDA value of $1.88/seedling resulted in $658,000 in losses for 1999.
The CDP limits payments to $80,000 to each producer. In addition, producers with $2.5 million in gross annual sales are not eligible for benefits. While this restriction was made to prevent factory farms from receiving corporate welfare, it does not translate well when applied to eastern agriculture. At average USDA yields, it would take almost 10,000 acres of corn sales to reach this limit. Our higher value crops in the east reach this threshold much quicker. Two growers in particular who raise vegetables and keep their markets year round by wholesaling, were eliminated by this restriction. Although only four producers out of 200 were eliminated (2 percent), it accounts for an additional 15 percent in county losses. In addition, Pennsylvania provided $60 million in disaster funds and $5.6 million to subsidize crop insurance purchases for 2000. But because Pennsylvania used the USDA rules of eligibility, these producers didn't qualify for the state aid or crop insurance benefits.
Concerning Crop Insurance, I would like to thank Congress and the Pennsylvania Department of Agriculture for the changes made to the crop insurance program. I have raised my participation level to 65 percent for next season and have bought revenue coverage as well. Currently, my crop insurance agent is ''latching on'' to an insurance program in Lee County, Florida to insure our peppers for this coming summer. Initial estimates are that $100 in premium will buy us about $3,000 in coverage for our input costs. This is critical because of our large establishment costs which include $1,500 per acre just for transplants. One area of concern remaining in crop insurance is the market value of $1.25 per dozen assignment of sweet corn. This value is so low that it makes only the catastrophic coverage attractive.
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I believe that our keys to success in agriculture lie in risk management and marketing. I plan to manage risk through the use of crop insurance of both production and revenue. During 1999 and 2000 I have also enlisted commodity options as a way to protect my crop input investments. I have no desire to become a speculator and have no involvement in futures trading or hedging. My participation in the market is limited to buying December corn puts in the $2.20 range to protect my crop investment against the market falling. The best advice I can give is to buy crop insurance and put options and pray to God that you never need to collect from either program. Market rewards are much greater, but I'm protected if the unexpected occurs. While listening to market analysis the past few years, one theme seems to be common . . . 90 percent of all producer grain marketed in the USA is sold at the lower half of the annual market average. All to often producers are forced to sell grain to meet cash flow demands versus marketing their crop. I have used Commodity Loans, the Market Loan Gain Program, and Facility Loans as marketing enhancement tools. Last fall, I used a commodity loan to purchase seed, chemicals and fertilizer at year end discounts without having to sell the commodity at December's depressed prices. This allows me to be a low cost producer by reducing input costs. I paid back the loan at a reduced rate using the Market Loan Gain provision further improving my bottom line on last's year's crop. During the 1970's, our farm purchased our own drying and storage bins. We used to sell at harvest and had to accept the terms and prices offered by our local elevator. We now dry our own grain at substantial savings and can command a premium price by delivering high quality to an end user based on his delivery schedule needs.
My biggest fear for the future of agriculture and the Nation as a whole is our National Ag Policy. A recent article in the Ag. Journal from Billings, Montana reports that after an FFA Award ceremony at the White House, the recipient was asked what his plans were. He hoped to have a career in production agriculture. The response was that production agriculture was being shifted outside the USA to the Third World and that a different career choice should be pursued. I share this story not to discredit anyone associated with the White House. My concern is that our leadership has this opinion. We are currently feeling the strangle hold of foreign oil dependency. Do we really want to ship vegetable production to Mexico and our soybean production to Brazil? In my opinion, food equates to liberty. God help us all if our food supply is controlled by a Third World nation that will make adjustments which will not be in our best interests.
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In summary, I would like to thank the Agriculture Committee for this opportunity to give input on National Agricultural Policy. I'd like to thank Congress for their help from last year's Crop Disaster Program and the improvements made to the Crop Insurance Program. If future disaster programs are enacted, don't pass over the Christmas tree growers and take a look at raising or eliminating the gross income cap. Keep on making adjustment to the crop insurance program and in the future, there will be no need for crop disaster legislation. Finally, keep our marketing tools that we currently have and give us a few more to add to the tool box.
Statement of Guy Donaldson
Mr. Chairman, members of the committee, I am Guy Donaldson, president of the Pennsylvania Farm Bureau. I am a fruit grower from Adams County, PA. I farm in partnership with my two sons and a daughter where we farm over 500 acres of fruit, primarily consisting of apples and peaches. The Pennsylvania Farm Bureau represents over 27,000 member families in Pennsylvania. Our members produce a great diversity of agricultural commodities from dairy, poultry, and livestock, to fruit and vegetables. Thank you for this opportunity to address you today concerning Federal agricultural policy.
I am sure the committee is very aware of the fact that these are not the best times for agriculture. We are faced not only with low prices for most commodities, but also with the drought conditions here in Pennsylvania and other areas of the Northeastern United States which have compounded the economic hardship on agricultural producers. Before I discuss the needed actions from Congress to help address our concerns as agricultural producers, I wish to acknowledge and thank the House Agriculture Committee for taking significant strides in securing the following support for America's farmers:
$9.3 billion in emergency funds due to a second consecutive year of unprecedented weather losses and lost value of crops and livestock sold at market;
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Crop insurance reform (H.R. 2559) committing $6 billion to the farm safety net and reducing the need for Congress to resort to ad hoc disaster assistance;
Mandatory livestock price reporting which will improve price transparency in marketing meat; and
Dairy legislation mandating that USDA implement Option 1-A and extend the Northeast Dairy Compact for another 2 years.
Despite the much needed actions that were taken in 1999, challenges still remain regarding U.S. farm policy. Economic projections for farm prices this year are grim. The potential for additional market loss assistance in crop year 2000 seems inevitable.
The 1996 farm bill known as Freedom to Farm is often pointed to as the culprit for the state of the agricultural economy today. There is no disputing the fact that Freedom to Farm brought a much greater dependency on the marketplace to provide adequate returns to producers. Strong production worldwide and a strong US dollar has hindered our ability to expand export markets in recent years. These conditions have accentuated the need for better risk management tools and safety-nets for agricultural producers than currently exist. Let us not lose sight of the fact that many commitments were made in regards to expanding markets, creating risk management tools, and decreasing regulation when Freedom to Farm was passed and those commitments remain unfulfilled.
Expand Markets. With only four percent of the world's population to feed living in our country, agriculture's future success will depend heavily on its ability to sell its products through the international marketplace. It's time to release the shackles that keep in force antiquated trade policies. We need to grant normal trade relations status to China on a permanent basis. China has agreed to take significant steps in opening its markets to agricultural trade. They agreed to eliminate subsidies for their farm exports, and reduce import tariffs by an average of 50 percent. USDA estimates 33 percent of the growth in export markets in the next 10 years will be the China market. It's time that we are given full access to one of the most important growth markets in the world by granting China permanent normal trade relations. We need Congress to come together on this issue now.
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Also, we must take steps to lift unilateral trade sanctions against other countries. In the past 5 years, 61 such trade sanctions were imposed on 35 countries. Yes, these sanctions might hurt these countries momentarily, however, other countries quickly fill the gap left by the U.S. sanctions. Permanent damage is done to U.S. producers, because we become an unreliable supplier and we lose a potential market for our products. It's time to take agricultural food and fiber out of the equation in our effort in implement political punishment. Unilateral food sanctions should have no place in peacetime diplomacy with foreign nations.
It troubles me greatly as a producer, who's economic viability is threatened by increased production worldwide, that several foreign countries are near economic and political collapse due to the lack of basic necessities such as food. Now is an excellent time for the U.S. to donate products to these countries. Congress should support enhanced funding for the PL 480 program. Enormous opportunity exists for humanitarian and public relations benefits, in addition to an opportunity to impact market prices. These markets must be supported as they are future long-term customers for U.S. products.
The administration must live up to its commitment to use the Export Enhancement Program (EEP) to secure foreign markets for U.S. farmers. The FAIR Act provided $1.5 billion for the program, but the administration has used little of those funds.
Congress must fully fund the Market Access Program and provide necessary funding for the Foreign Market Development Program. These programs need the expertise provided by a fully supported Foreign Agricultural Service that is expanded to cover all existing and potential market posts.
REDUCE REGULATION-FOOD QUALITY PROTECTION ACT
Let's turn our attention to reducing regulation to help our producers be more competitive in the world marketplace. The Food Quality Protection Act (FQPA), passed in 1996, has set some unrealistic goals for the U.S. Environmental Protection Agency, while making agriculture vulnerable to the whims of bureaucrats. Both situations should be unacceptable to Congress, because that was not the intent of Food Quality Protection Act.
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The law changed the way pesticides are evaluated and registered for use. This change has imposed an unrealistic deadline of reassessing all 9,000-plus existing pesticide tolerances by the year 2006. It's an impossible task. EPA is trying to meet the deadline by taking shortcuts. These shortcuts could deprive farmers the use of reliable, older crop protection products. Furthermore, this action directive is delaying the approval of new replacements. In reality, EPA could take proven crop protection products off the market without any means to protect the crop.
EPA's only objective should be a continued safe and wholesome supply of food and fiber for the consumers. That was the stated reason for passing the Food Quality Protection Act. EPA needs to use actual data and scientifically sound information to modify or revoke any tolerances. It needs to publish rules for public notice and comment on any proposed changes. EPA needs to expedite production registration, emergency exemption requests or experimental use permits, if the product is an alternative to one likely to be eliminated.
We in Farm Bureau are calling for a Pesticide Advisory Committee to provide guidance to EPA and USDA. We also want Congress more involved in the process through timely reports by EPA and USDA to Congress. All of these suggested changes are contained in H.R. 1592, the Regulatory Fairness and Openness Act of 1999. We urge the committee to support this legislation to bring a halt to the potential crippling actions to our food production system that could raise our cost of production to an uncompetitive level with other countries.
Risk Management. A significant amount of work has been done to develop a more comprehensive crop insurance program that would allow farmers to better protect themselves against yield and price variations. With the increased number of producers relying on crop insurance as their primary risk management tool, Congress must complete the task begun over a year ago and utilize the $6 billion set aside for the crop insurance program in last year's budget resolution. I cannot overemphasize the need to continue to improve the flexibility of crop insurance programs to fit the unique type of agriculture we have in Pennsylvania and surrounding Northeast states.
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It appears crop insurance reforms are moving in a positive direction for producers in the northeastern United States. For too long, Pennsylvania producers' needs have been ignored when it comes to risk management protection through crop insurance. Crop insurance programs designed to meet the needs of Midwest and Southern producers, who grow a large acreage of major crops, left producers of minor crops for the most part unable to secure protection against weather- related, or price disasters.
New programs and added flexibility in existing programs are attempting to provide improvements in the risk management tools available to producers of minor crops. Currently, a pilot program has been established in six counties of Pennsylvania that provides gross income protection for the entire farm operation. Adjusted Gross Revenue insurance programs could prove to be a cornerstone of economic risk management protection for producers who grow a great variety of crops. Changes are needed to help make this whole farm protection tool available for dairy and livestock producers. The current program does not allow more than 35 percent of a producer's gross income to come from livestock.
Dairy. Dairymen in Pennsylvania are receiving the lowest price for their milk since the 1970's, which means many dairymen are not even meeting their production costs. If you couple these extremely low milk prices with record low wholesale prices for cheese and butter, there seems to be no silver lining for producer prices in the foreseeable future.
There are a number of legislative proposals facing you that would go a long way in the area of providing safety-nets for our dairy producers. We need to expand the provisions of the Northeast Interstate Dairy Compact, which has operated in six New England states since 1997. H.R. 1604, accomplishes that goal and includes Pennsylvania dairymen in the compact. This proposed legislative action would also create a Southeast Dairy Compact. The Pennsylvania General Assembly took the necessary steps to include Keystone dairymen. Expanding and extending the compact would provide an income safety net and stable prices to dairymen.
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We also support H.R. 1535 which would effectively extend the milk price support program for an additional 2 years. The milk price support program will end this year without congressional approval of H.R. 1535. With expanding dairy production particularly in western regions of the country, milk prices have been driven down to price support levels. If the price support program ended today, dairy farmer prices would drop to the world market level. Our dairymen cannot compete at those levels which are maintained in part by heavy subsidization from the European Union.
Plum Pox. I must take advantage of this opportunity to address the committee regarding a matter that threatens the future of the entire stone fruit industry in this country. Stone fruit includes peaches, apricots, plums and etc. I hope you are aware that the Plum Pox Virus was discovered in Adams County, PA, late in the growing season last year. This is the first discovery of the disease in this country. European countries have been effected by this disease for over 30 years. While this disease is not harmful to humans, it affects the appearance of the fruit and can eventually destroy the tree's ability to bear fruit. This disease is a national concern, since the disease can, and may have already spread to other areas. USDA will be doing extensive testing for spread of the disease during this growing season. Affected growers have already destroyed hundreds of acres of condemned trees.
The concern I'm raising to you is the fact that these growers have received no assurances that they will be compensated for the loss of income they have incurred by destroying these trees. I don't believe anyone wants to see this disease spread any further than may have already occurred. It is imperative that sufficient monies are found in the most expedient manner to address these producers' needs. A few million dollars spent now will help protect this country from hundreds of millions of dollars in losses in the stone fruit industry nationwide. Let's learn our lessons from Citrus Canker, and go after the Plum Pox virus like we mean to eliminate its spread. Compensation for producer's loss of income will create a much more advantageous climate for helping to identify and eliminate the spread of this disease. I urge the committee to recognize the importance of this issue to the nation's fruit industry, and support funding for the grower's income loss. Current needs are projected at approximately $6 million for loss of income to growers and local nurseries.
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Agricultural programs at the Federal level have changed dramatically. Many of the changes have been good for agriculture, while some failed to meet their stated goals. Farmers need some innovative ways to meet the economic challenges facing it. Farmers need new tools from off the farm to be able to compete in the world marketplace. It needs assurances from government that it is going to provide those opportunities for farmers to improve their economic situation. Farmers have proven beyond any doubt that they are willing to take the necessary risks to produce safe and wholesome food and fiber. However, it needs the support of Congress on these and other issues to curb the decline of a strong, viable agricultural base in Pennsylvania and the whole nation.
Thank you for your support in helping to preserve agriculture as a strong economic force in this great nation of ours. Let's not allow ourselves to become dependent on a foreign food supply as we have with our fuel supply.
Testimony of Joseph Matejik
My name is Joseph Matejick, I thank you for the chance to express my views with you today. I operate a 700 acre grain farm with livestock in Solebury Township, Bucks County, PA. I also sell fertilizer, seeds, and crop protection chemicals to supplement my income. I consider my farm a small middle-sized farm that my wife and I operate. Since 1997 farm income from grains has been falling drastically as the worldwide commodity prices have fallen. The America farmer is at a disadvantage while the farmers of the European Economic Community receive protection from these price drops.
My main concern to bring forward today is that the Federal Government must put in place a better way to handle natural disasters that happen to various parts of the nation. The farm programs at this point are not addressing the issue. There is some payment to producers through the Freedom to Farm Act, but the larger to giant growers are favored at the expense of the smaller family size farms. The payments benefit the large Midwestern growers.
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The summer drought of 1999 was a total devastation for the growers of Eastern Pennsylvania. I lost 80 percent of my corn crop and 45 percent of my soybean crop. I had crop insurance, but it is not enough to offset my losses. My concern is that the Federal Government should help in these situations. Low interest loans do not answer the problem. Many growers including myself do not qualify for these loans.
During 1998 and 1999 the FSA sent out Marketing Assistance payments. In 1998 the extra payment was very welcome, but in 1999 with the drastic drop in market prices coupled with the yield losses due to the drought, the payment was minuscule. I would rather have not received the 1998 payment, knowing that if a natural disaster occurred I would receive help instead of promises.
The LDP is another good payment tool, but again only if you had a crop. If you didn't have a crop the LDP is useless. It seems to me that the Federal Government should be able to redirect monies and aid to the areas that need them most and not just simple payments to every producer in the United States.
I received the calculated 35 percent payment toward disaster relief. It is my understanding that this 35 percent payment will be all the Federal disaster assistance we will see in Pennsylvania. There is something inherently wrong with our agricultural policy when producers with bumper crops receive doubled market transition payments for low prices and producers who are wiped-out by natural disasters are penalized under the existing programs because they have no crops.
Testimony of Carl Shaffer
Mr. Chairman, members of the committee, My name is Carl Shaffer and I own and operate a vegetable and crop farm in Columbia County, PA. I want to congratulate the committee for providing the opportunity to receive input directly from producers regarding Federal agricultural policy. Northeast producers often feel the frustration of being unable to communicate directly with agricultural policy makers regarding the unique nature of our agricultural production. It is very important that our county committees which represent the one thread we have between USDA bureaucracy and the rural communities they serve be preserved and strengthened, not diminished. Considerable workload has been added to FSA's responsibilities at the same time permanent staff have been cut. Without adequate staffing at local FSA offices, there will continue to be a breakdown between those requiring services and the bureaucracy that administers the programs.
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Agriculture is Pennsylvania's No. 1 industry, generating $4.17 billion in cash receipts and over $40 billion in economic activity. However, our number one industry is extremely diverse. This diversity demands an approach to providing safety-nets and risk management tools for Northeast growers that doesn't necessarily fit the programs that have been established to meet Midwest producers' needs.
Last year's devastating drought in Pennsylvania gave special emphasis to the need for Pennsylvania producers to have adequate risk management tools available and to utilize those that meet their needs. Only 25 percent of eligible acres were insured in Pennsylvania last year at a total cost of approximately $2.5 million to producers. It is estimated that $60 million will be paid to insured producers for 1999 losses. If Pennsylvania growers' participation in crop insurance had been at levels more reflective of the 70–80 percent participation in the Midwest, producers would have been in a much more favorable position to sustain their operations despite the drought. Poor crop insurance participation in Pennsylvania can be attributed to many reasons. Education and awareness of the products that are available continues to be an issue among producers. However, communication between USDA, crop insurance agents, and producers, seems to be a larger part of the problem. Producers are often left frustrated by conflicting information and the inflexibility of Federal crop insurance programs.
A significant amount of work has been done to develop a more comprehensive crop insurance program that would allow farmers to better protect themselves against yield and price variations. With the increased number of producers relying on crop insurance as their primary risk management tool, Congress must complete the task begun over a year ago and utilize the $6 billion set aside for the crop insurance program in last year's budget resolution. The Senate passed version of Crop Insurance Reform includes $126 million designated to provide improvements in crop insurance programs for the Northeast and funding for educational programs to increase the utilization of available crop insurance products. It is important that the Senate-passed provision be approved by the Conference Committee that will be reconciling the differences between the House and Senate legislation.
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It appears crop insurance reforms are moving in a positive direction for producers in the northeastern United States. New programs and added flexibility in existing programs are helping to provide improvements in the risk management tools available to producers of minor crops. Currently, a pilot program has been established in six counties of Pennsylvania that provides gross income protection for the entire farm operation. Adjusted Gross Revenue insurance programs could prove to be a cornerstone of economic risk management protection for producers who grow a great variety of crops. Changes are needed to help make this whole farm protection tool available for dairy and livestock producers. The current program does not allow more than 35 percent of a producer's gross income to come from livestock.
Northeast producers need flexibility in crop insurance programs that will not penalize them for their participation in other Federal safety-net programs. I'll give you a prime example of the need for more flexibility from my own operation. I grow program crops as well as vegetables. Since I cannot allow my rotation of crops to infringe upon my crop basis for the AMTA program, I am forced to consolidate my farms in order to meet the program requirements, while utilizing needed crop rotations. As a result of consolidating my land, I am unable to insure my farms separately. With the great diversity of crops grown in Pennsylvania on varying land conditions, Pennsylvania producers could be best served by allowing for sectional equivalent units to be separated by tract numbers, which are already clearly identified.
Last year's devastating drought brought many Pennsylvania producers out to their local Farm Service Agency office for the first time in their farming careers. What many producers learned was that the Federal disaster assistance program proved to be woefully inadequate for Pennsylvania producers without crop insurance protection. Farmers without proven yields received an education in how badly outdated assigned county average yields have become over the years. Uninsurable crop losses, such as hay, received little if any disaster assistance from the Federal program, since assigned county yields are far below the capabilities of a good manager. Updating assigned yields for uninsurable crops is essential for improving disaster assistance programs.
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Other concerns within the Federal Disaster Assistance Program that need to be addressed include the elimination of means testing and conservation compliance for producers to qualify for disaster assistance. The $2.5 million gross income limitation is prohibiting a growing number of family farm operations from receiving aid. Government policy is leading to a larger and more consolidated group of producers. This has outdated the $2.5 million gross income limitation. Large farms are as equally affected by natural disasters as smaller farms. Gross income is not an indication of a producers ability to withstand natural disasters.
Conservation compliance has the potential to prohibit farmers who lease much of their farmland from receiving disaster assistance, since landlords are often unwilling to invest in improvements to bring land into compliance. Conservation compliance for voluntary participation in government programs is certainly in order. However, the need for disaster assistance programs comes about not as a result of voluntary participation, but because circumstances beyond the farmers' control has left them at the mercy of public assistance to remain in business.
Another inequity within the disaster assistance program is the cap on maximum payments allowed according to the business structure of the farm operation. Many family farms are becoming incorporated for tax purposes. These incorporated operations involving many families are being held to the same maximum disaster payment limits as a single family operation, which is $80,000. Other multi-family operations that are not incorporated can receive $80,000 per family. There is at least one multi-family operation in Pennsylvania that no longer exists because their incorporated status held them to an $80,000 payment after incurring well over a $500,000 dollar loss due to last year's drought.
Low commodity prices on feed grains etc. are actually driving down prices for minor crops. My contracted price with Hanover for green beans has been lowered because more land is expected to be added for green bean production instead of growing program crops. Programs developed to address low commodity prices on these crops through Loan Deficiency Payments (LDPs) and transition payments provide no assistance to minor crop producers who are negatively impacted by lower prices. I bring this out just to highlight the need for flexible programs to better address risks to minor crop producers.
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I wish to close by restating the need for a larger voice in the Northeast regarding agricultural policy to meet our needs. Producers across the Nation are faced with more price risks than ever before. The time is overdue for the Northeast to become more actively involved establishing agricultural policy that can provide adequate risk protection for our unique needs.