U.S. GOVERNMENT PRINTING OFFICE

70–997 DTP WASHINGTON : 2001

DEPARTMENT OF AGRICULTURE FISCAL YEAR

2002 BUDGET PRIORITIES

HEARING

BEFORE THE

COMMITTEE ON THE BUDGET

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

HEARING HELD IN WASHINGTON, DC, MARCH 14, 2001

Serial No. 107–9

Printed for the use of the Committee on the Budget

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(II)

COMMITTEE ON THE BUDGET

JIM NUSSLE, Iowa, Chairman

JOHN E. SUNUNU, New Hampshire

Vice Chairman

PETER HOEKSTRA, Michigan

Vice Chairman

CHARLES F. BASS, New Hampshire

GIL GUTKNECHT, Minnesota

VAN HILLEARY, Tennessee

MAC THORNBERRY, Texas

JIM RYUN, Kansas

MAC COLLINS, Georgia

ERNIE FLETCHER, Kentucky

GARY G. MILLER, California

PAT TOOMEY, Pennsylvania

WES WATKINS, Oklahoma

DOC HASTINGS, Washington

JOHN T. DOOLITTLE, California

ROB PORTMAN, Ohio

RAY LAHOOD, Illinois

KAY GRANGER, Texas

EDWARD SCHROCK, Virginia

JOHN CULBERSON, Texas

HENRY E. BROWN, Jr., South Carolina

ANDER CRENSHAW, Florida

ADAM PUTNAM, Florida

MARK KIRK, Illinois

JOHN M. SPRATT, Jr., South Carolina,

Ranking Minority Member

JIM MCDERMOTT, Washington

BENNIE G. THOMPSON, Mississippi

KEN BENTSEN, Texas

JIM DAVIS, Florida

EVA M. CLAYTON, North Carolina

DAVID E. PRICE, North Carolina

GERALD D. KLECZKA, Wisconsin

BOB CLEMENT, Tennessee

JAMES P. MORAN, Virginia

DARLENE HOOLEY, Oregon

TAMMY BALDWIN, Wisconsin

CAROLYN MCCARTHY, New York

DENNIS MOORE, Kansas

MICHAEL E. CAPUANO, Massachusetts

MICHAEL M. HONDA, California

JOSEPH M. HOEFFEL III, Pennsylvania

RUSH D. HOLT, New Jersey

JIM MATHESON, Utah

PROFESSIONAL STAFF

RICH MEADE, Chief of Staff

THOMAS S. KAHN, Minority Staff Director and Chief Counsel

(III)

C O N T E N T S

Page

Hearing held in Washington, DC, March 14, 2001 ............................................... 1

Statement of:

Hon. Ann M. Veneman, Secretary, U.S. Department of Agriculture ........... 3

Hon. Charles W. Stenholm, a Representative in Congress from the State

of Texas .......................................................................................................... 28

Bruce L. Gardner, chairman, Department of Agriculture and Resource

Economics, University of Maryland ............................................................. 36

Prepared statement of:

Secretary Veneman .......................................................................................... 6

Representative Stenholm ................................................................................. 30

Mr. Gardner ...................................................................................................... 40

(1)

DEPARTMENT OF AGRICULTURE FISCAL

YEAR 2002 BUDGET PRIORITIES

WEDNESDAY, MARCH 14, 2001

HOUSE OF REPRESENTATIVES,

COMMITTEE ON THE BUDGET,

Washington, DC.

The committee met, pursuant to notice, at 1 p.m. in room 210,

Cannon House Office Building, Hon. Jim Nussle (chairman of the

committee) presiding.

Members present: Representatives Nussle, Hastings, LaHood,

Schrock, Gutknecht, Thornberry, Brown, Fletcher, Watkins, Collins, Bass, Culberson, Spratt, Moore, Hooley, Clayton, Putnam,

McDermott, and Matheson.

Chairman NUSSLE. I call the full Committee hearing of the Budget Committee to order.

Today we have the opportunity to continue our exploration of the

President’s fiscal year 2002 budget with an examination of the Department of Agriculture budget priorities. Today we are honored to

have with us the 27th Secretary of Agriculture, the Honorable Ann

Veneman from California, who is the Secretary of Agriculture.

We’re so happy that you are with us today to visit with us about

not only the President’s priorities, but your priorities as you return

to the Department of Agriculture in a new role. We were just reminiscing about a former colleague, Ed Madigan, who was not only

a colleague of ours, and a dear friend of mine when I first came

to Congress, but then of course went to the Department of Agriculture and whom you served for for that period of time. So we welcome you back to your role in the Department of Agriculture.

As the markets continue to fluctuate out there, we particularly

from farm country, coming from Iowa, the markets that we watch

of course more closely maybe than any others are those that affect

us in agriculture. Those markets have been down, maybe not as

newsworthy to most, to the general public as they are to farmers

and to ranchers across this country. But they’ve been fluctuating

down for many years now.

We have a real challenge out there in farm country. Bad news

with regard to the economy is not news to those of us that come

from rural areas and farm country. One of the great challenges, I

think, that you have and the Administration has, together with us

as partners, is to work at trying to do what we can in order to restore not only faith but to restore confidence, restore safety and security back into our food and that important resource that all of

us take for granted.

2

We all pick up the gallon of milk at the store and sometimes we

forget that it comes from our farmers, or we buy that loaf of bread

and those corn flakes and we forget about all the hard work that

goes into it. We hear the stories about the box costing more than

the ingredients these days.

There are people out there that are in need of attention from the

administration and from us as we work through this budget. I see

a couple of challenges, and I’ll mention them briefly to you. Firstly,

with the emergencies we’ve been having in the farm program over

the last couple of years in particular, I’m not sure that we can wait

until next year for reauthorization of the full Farm Bill.

We may want to look at a portion of that Farm bill being authorized even as early as this year, possibly by the end of this year,

looking at the commodity programs to look at some changes, so

that it takes effect as quickly as possible and we don’t have this

constant dipping into emergency funding to deal with our farmers.

They don’t want it. It’s not what they want. They certainly need

it, and we gladly provide it. But that’s not the farm program they

want, one that is based on emergency checks that go out from

Washington, D.C.

The second challenge that I would just report to you is one that

involves the Department of Agriculture as a whole. I hear unfortunately some complaints about the way that constituents are being

served through the different agencies, getting their responses attended to. You have a lot of great people that work down at the

Department of Agriculture. But sometimes those great people

working in poor systems don’t always get to do the kind of work

that we all want them to do.

I would just encourage you, similar to what the President has

suggested in the Department of Defense, that we consider a top to

bottom review of the Department of Agriculture. It’s not just that

which affects farmers. We held hearings last year on the Food

Stamp Program and on trafficking of food stamps that continues to

go on, using it as a currency in some neighborhoods of our country,

not using the technology and the good, new technological practices

that are available, such as ATM cards, electronic transfers.

So there are some challenges out there that we’re hoping can be

addressed by your administration as well as by the budget. We look

forward to your testimony and the chance to ask you some questions about that.

Welcome, and we look forward to working with you on these very

important programs.

I’d now like to recognize the Ranking Member, John Spratt, from

South Carolina.

Mr. SPRATT. I’d also like to extend a warm welcome to you. We

appreciate very much your coming. We’ll have questions about the

program later, but let me simply say we look forward to working

with you.

Chairman NUSSLE. Madam Secretary, your entire testimony will

be made part of the record, and without objection, all members will

be allowed to put a statement into the record at this point.

You may summarize testimony or proceed as you would like. We

welcome you and we look forward to your testimony.

3

STATEMENT OF HON. ANN M. VENEMAN, SECRETARY, U.S.

DEPARTMENT OF AGRICULTURE

Secretary VENEMAN. Thank you, Mr. Chairman, and members of

the committee. It is an honor for me to be here today. I appreciate

the initiative you have shown in calling this hearing, because the

issues that are affecting farmers, consumers and other constituents

of the Department’s programs are, as you pointed out, very important.

As you know, the administration recently issued a blueprint document outlining its budget priorities for fiscal year 2002. While the

detailed budget will not be submitted to the Congress until the first

part of April, I want to give you the best possible overview of our

priorities.

There are three overarching considerations that shape the administration’s approach to developing the budget for 2002. These

include, first, slowing down the growth of Federal spending and

funding urgent national priorities; second, achieving historic levels

of debt reduction; and third, providing tax relief.

Farmers and other beneficiaries of USDA programs all have a

stake in these objectives and will benefit from the President’s initiatives, particularly tax relief. Farmers especially will benefit from

the elimination of the estate tax and from the proposed establishment of tax deferred risk management accounts.

Restraint of Federal spending is important, since it has grown

substantially in recent years. Left unchecked, this growth would

cause spending to far exceed the Budget Enforcement Act baseline

over the next 10 years. USDA has contributed to this accelerating

growth of Federal spending. Over a 10 year period, USDA outlays increased by about $24 bil- lion, from $46 billion in 1990 to nearly $70 billion in 2001. In recent years, USDA outlays have been highly variable, largely reflecting emergency spending to address natural and economic disasters in the agricultural and rural economy. Substantial growth

occurred in both mandatory and discretionary spending.

I’m sure this committee is aware that the Department of Agriculture has one of the most diverse sets of discretionary programs

in the Government. In 2001 our discretionary budget will exceed

$19 billion. The largest discretionary program that we administer

is the Special Supplemental Nutrition Program for Women, Infants

and Children, commonly referred to as WIC. This provides nutrition assistance to some of the most vulnerable and needy people in

our society.

The discretionary budget also provides funding for other crucial

responsibilities, such as pest and disease control, domestic and

international marketing assistance programs, conservation, rural

development, research, food safety and the U.S. Forest Service. Developing a discretionary budget for the Department always involves

difficult questions of finding the appropriate balance between all of

these programs within a reasonable budget figure.

Mandatory spending accounts for over three quarters of the De- partment’s spending and will amount to $53.5 billion in 2001. The

primary components of our mandatory budget are the Food Stamp

Program, the child nutrition programs, farm support programs, and

a number of conservation programs. Many of these programs are

4

entitlements and their funding requirements are largely dictated

by economic conditions.

USDA’s discretionary budget for 2001 reflects a 13 percent increase over the 2000 level, which in our view is unsustainable over

the longer term. For 2002, the budget includes a more realistic

level of $17.9 billion, which is about 5 percent over the 2000 level,

largely reflecting the rate of inflation over the 2 years.

To achieve what we believe is the appropriate level of growth in

spending, the 2002 budget proposes to eliminate approximately

$1.1 billion in one-time spending provided for 2001, most of which

is emergency funding. In addition, the budget saves about $150

million by eliminating approximately 300 earmarked projects that

were not subject to the merit based selection process.

The budget also proposes saving taxpayers an additional $200

million by reducing or eliminating programs that are not immediate priorities or need to be better targeted.

The budget does fund a number of very important top priorities

in USDA that are part of the President’s agenda. First, it carries

out the President’s commitment to expanding overseas markets for

American agricultural products by strengthening USDA’s marketing intelligence capabilities and the Department’s expertise for resolving technical trade issues with foreign trading partners. It also

expands and strengthens our analytical capabilities in a number of

USDA agencies that have trade related programs.

Second, it redirects USDA research to provide new emphasis in

key areas such as improving protection against emerging exotic

plant and animal diseases and pests of crops and animals, biotechnology and the development of new uses for agricultural products. It maintains funding for priority activities in the Forest Service’s wildland fire management plan, including hazardous fuels reduction. In addition, the budget proposes a reserve for unforeseen

national emergency disaster needs.

It also funds 7,600 meat and poultry inspectors without reliance

on user fees, in addition to fully supporting other USDA food safety

and inspection activities. The budget maintains average monthly

participation in the WIC program at 7.25 million individuals,

which is the year end level for 2000 and the participation level projected for 2001. It supports 60,000 low to moderate income rural

families in their acquisition of decent, safe, affordable housing and

provides access to clear, safe drinking water for 1.4 million poor

rural residents.

It provides conservation assistance to 650,000 landowners, farmers and ranchers. It funds continuing actions to combat pest and

disease infestations through direct appropriations rather than

through emergency funding transfers. Emergency funding would be

considered for unforeseen infestations.

On the mandatory side, the largest component of spending is for

the food assistance programs, and that is followed by the farm support programs. Mandatory spending in the food assistance area

covers both food stamps and child nutrition. The 2002 budget proposes no major changes for either of these programs. The current

services outlay estimate for 2002 is $20.9 billion for food stamps

and $10.3 billion for child nutrition programs. These estimates are

5

driven by the cost of the food benefit and the number of anticipated

participants in the program.

Farm support spending carried out through the Commodity Credit Corporation, commonly referred to as the CCC, is estimated

under current law at $13 billion for 2002, down from $20 billion

estimated for 2001 and $32 billion in 2000. The reduction in 2002

primarily reflects the effect of emergency supplemental appropriations that added an average of over $8 billion per year to CCC outlays for the last 3 years. Out year estimates also decline as market

conditions are projected to improve and reduce the assistance provided by ongoing safety net provisions like marketing assistance

loans and loan deficiency payments.

Since emergency appropriations are not part of the ongoing mandatory program, they have not been projected in future years. However, I would stress that spending on farm support programs is

highly variable and difficult to predict, since it is so dependent on

market conditions and weather. In fact, the President’s budget proposes the establishment of a contingency fund of nearly $1 trillion

for use in dealing with unexpected and difficult to predict needs or

necessary programmatic reforms which may emerge in the future

and for which adequate resources cannot readily be found by reforming other activities. Assistance to farmers will be one of the

many potential uses for this contingency reserve.

In conjunction with support to farmers provided by CCC, crop insurance reforms enacted in ARPA meet the administration’s objective for improving the crop insurance program. These reforms

should help reduce the need for natural disaster related crop loss

assistance in 2002 and beyond. In addition, as I indicated, the administration will propose legislation to allow farmers and ranchers

to reserve a substantial percentage of their net farm income in tax

deferred accounts known as Federal Farm and Ranch Management

Accounts that could be drawn upon during the times of financial

stress.

With respect to other aspects of the farm safety net, I recognize

that there are ongoing weaknesses in the farm economy. We are

closely monitoring the situation, but we need to wait and see how

crop and market conditions develop over the coming months. We

are aware of concerns about farm financial conditions which may

require additional assistance if uncertain market conditions worsen

or do not improve soon.

That’s one of the many reasons the administration proposed

budget reforms to include an explicit contingency reserve. We will

work with Congress to assess further needs for farm assistance and

will take other appropriate measures, such as pursuing an aggressive trade policy and improving the effectiveness of our current programs to move the sector toward greater reliance on the market

based economy.

There is currently a wide range of ideas being discussed for policy reforms over the longer term. We are reviewing the report from

the Commission on 21st Century Production Agriculture and House

Committee Chairman Combest has taken an important step toward

establishing a framework that encourages commodity groups to

work together to develop proposals for the future.

6

We look forward to working with the Congress and other representatives of the farm sector on these important issues. Thank

you very much.

[The prepared statement of Ann Veneman follows:]

PREPARED STATEMENT OF HON. ANN M. VENEMAN, SECRETARY, U.S. DEPARTMENT OF

AGRICULTURE

Mr. Chairman, members of the committee, it is an honor for me to appear before

you to discuss the Administration’s programs and budget priorities for fiscal year

(FY) 2002.

The administration has recently issued a blueprint document outlining its budget

priorities for 2002. The detailed budget is to be submitted during the first part of

April. However, today I want to give you a broad overview of our priorities.

There are three over-arching considerations that shaped the administration’s approach to developing the budget for 2002. These are:

• Slowing the growth of Federal spending and funding urgent national priorities.

• Achieving historic levels of debt reduction.

• Providing tax relief.

Farmers and other beneficiaries of USDA programs all have a stake in these objectives and will benefit from the President’s initiatives, particularly tax relief.

Farmers especially will benefit from the elimination of the estate tax and from the

proposed establishment of tax-deferred risk management accounts.

Restraint of Federal spending is important, since it has grown substantially in recent years. Left unchecked, this rate of growth would cause spending to far exceed

the Budget Enforcement Act baseline over the next 10 years. USDA has contributed

to this accelerating growth of Federal spending.

Over a 10-year period, USDA outlays increased by about $26 billion, from $46 billion in 1990 to nearly $73 billion in 2001. In recent years, USDA outlays have been

highly variable, largely reflecting emergency spending to address natural and economic disasters in the agriculture and rural economy. Substantial growth occurred

in both mandatory as well as discretionary spending.

USDA discretionary spending amounted to over $19 billion in 2001 and accounted

for about a quarter of total USDA spending. The Department’s discretionary programs are wide ranging and include the Special Supplemental Nutrition Program

for Women, Infants and Children (WIC), the largest single discretionary program,

domestic and international marketing assistance programs, conservation technical

assistance, rural development, research, food safety and Forest Service programs.

Mandatory spending makes up over three-quarters of USDA spending or $53.5 billion in 2001 and includes funding for most domestic nutrition assistance programs

other than WIC, farm support programs and a number of conservation programs.

USDA’s discretionary budget for 2001 reflects a 13 percent increase over the 2000

level which, in our view, is unsustainable over the longer term. For 2002, the budget

includes a more realistic level of $17.9 billion, which is about 5 percent over the

2000 level, largely reflecting the rate of inflation over the 2 years. To achieve what

we believe is an appropriate level of growth in spending, the 2002 budget proposes

to eliminate approximately $1.1 billion in one-time spending during 2001, most of

which is emergency funding. In addition, it saves about $150 million by eliminating

approximately 300 earmarked projects that were not subject to a merit-based selection process. The budget also proposes saving taxpayers an additional $200 million

by reducing or eliminating programs that are not immediate priorities or need to

be better targeted.

The budget does fund a number of very important priorities in USDA that are

part of the President’s agenda. Specifically, the budget:

• Carries out the President’s commitment to expanding overseas markets for

American agricultural products by strengthening USDA’s market intelligence capabilities and the Department’s expertise for resolving technical trade issues with foreign trading partners. It also expands and strengthens our analytical capabilities in

a number of USDA agencies that have trade related programs.

• Redirects USDA research to provide new emphasis in key areas such as improving protection against emerging exotic plant and animal diseases and pests of crops

and animals, biotechnology, and the development of new agricultural products.

• Maintains funding for priority activities in the Forest Service’s wildland fire

management plan, including hazardous fuels reduction. In addition, the budget proposes a reserve for unforeseen national emergency disaster needs.

• Funds 7,600 meat and poultry inspectors without reliance on user fees, in addition to fully supporting other USDA food safety and inspection activities.

7

• Maintains average monthly participation in the WIC program at 7.25 million

individuals, which is the year end level for 2000 and the participation level projected for 2001.

• Supports 60,000 low to moderate income rural families’ acquisition of decent,

safe, and affordable housing; and provides access to clear, safe drinking water to 1.4

million poor, rural residents.

• Provides conservation assistance to 650,000 landowners, farmers, and ranchers.

• Funds continuing actions to combat pest and disease infestations through direct

appropriations rather than through emergency funding transfers. Emergency funding would be considered for unforeseen infestations.

On the mandatory side, the largest component of spending is for the food assistance programs followed by the farm support programs.

Mandatory spending in the food assistance area covers both Food Stamps and

Child Nutrition. The 2002 budget proposes no major changes for either of these programs. The current services outlay estimate for 2002 is $20.9 billion for Food

Stamps and $10.3 billion for the child nutrition programs. These estimates are driven by the cost of the food benefit and the number of anticipated participants in the

programs.

Farm support spending carried out through the Commodity Credit Corporation

(CCC) is estimated under current law at $13 billion for 2002, down from $20 billion

estimated for 2001 and $32 billion in 2000. The reduction in 2002 primarily reflects

the effect of emergency supplemental appropriations that added an average of over

$8 billion per year to CCC outlays over the past 3 years. Outyear estimates also

decline as market conditions are projected to improve and reduce the assistance provided by ongoing safety net provisions like marketing assistance loans and loan deficiency payments.

Since emergency appropriations are not part of the ongoing mandatory program

they have not been projected in future years. However, I would stress that spending

on farm support programs is highly variable and difficult to predict since it is so

dependent on market conditions and weather. In fact, the President’s budget proposes the establishment of a contingency fund of nearly a trillion dollars for use in

dealing with unexpected and difficult to predict needs or necessary programmatic

reforms which may emerge in the future and for which adequate resources cannot

be readily found by reforming other activities. Assistance to farmers will be one of

many potential uses for this contingency reserve.

Along with the contingency provision for which it is too early to determine precise

needs for any additional farm assistance, estimated CCC farm assistance under current law is projected based on the following assumptions:

• Major provisions of the 1996 Federal Agriculture Improvement and Reform Act

of 1996 (FAIR Act) are assumed to extend beyond 2002 in accordance with conventional budget rules. Supply/use conditions as of October 2000 are used for estimation purposes and normal weather is assumed.

• Production flexibility contract payments would be reduced, as provided by the

FAIR Act, by $1 billion from FY 2000 to $4 billion per year for FY 2001 and FY

2002 and beyond.

• Marketing assistance loan rates are frozen at their maximum rates for the 2001

crop but are assumed to be adjusted per formula provisions for the 2002 crop and

beyond.

• Emergency and disaster assistance provided by the Agriculture Risk Protection

Act of 2000 (ARPA) and the FY 2001 Agriculture Appropriations Act are assumed

to apply only for 2001.

• Dairy price support is extended until the end of calendar year 2001 and then

is replaced by a recourse loan program.

• The Conservation Reserve Program’s 36.4 million acre cap is assumed to extend

through the outyears.

• The Department’s major export promotion and market development activities

are continued at or slightly above their 2001 levels. These include CCC export credit

guarantees, the Cooperator and Market Access programs, and the Export Enhancement and Dairy Export Incentive programs.

In conjunction with support to farmers provided by CCC, crop insurance reforms

enacted in ARPA meet the administration’s objectives for improving the crop insurance program. These reforms should help reduce the need for natural disaster related crop loss assistance in 2002 and beyond. In addition, as I indicated, the administration will propose legislation to allow farmers and ranchers to reserve a substantial percentage of their net farm income in tax deferred accounts, known as Federal

Farm and Ranch Risk Management (FFARRM) accounts, that could be drawn upon

during time of financial stress.

8

With respect to other aspects of the farm safety net, I recognize that there are

ongoing weaknesses in the farm economy. We are closely monitoring the situation,

but we need to wait and see how crop and market conditions develop over the coming months. We are aware of concerns about farm financial conditions which may

require additional assistance if uncertain market conditions worsen or do not improve soon. That is one of many reasons the administration proposed budget reforms

are to include an explicit contingency reserve. We will work with Congress to assess

further needs for farm assistance and will take other appropriate measures, such

as pursuing an aggressive trade policy and improving the effectiveness of our current programs, to move the sector toward greater reliance on the market based

economy.

There is currently a wide range of ideas being discussed for policy reforms over

the longer term. We are reviewing the report from the Commission on 21st Century

Production Agriculture, and House Agriculture Committee Chairman Combest has

taken an important step toward establishing a framework that encourages commodity groups to work together to develop proposals for the future. We look forward to

working with the Congress and other representatives of the farm sector on these

important issues.

Chairman NUSSLE. Thank you, Madam Secretary.

First off, before you have the opportunity to leave, there’s been

some concern from producers about the way that the USDA has

handled responses to concerns or complaints to specific key studies.

I will give you what my staff has put together, just random issues

that constituents have asked about. Really, they have not felt like

the Department has given them the kind of response that they

need.

I don’t get that from so many of the other departments. That’s

why I want to raise it to you now while we have the opportunity

to take a new look at the Department. Also another one that quite

honestly my calls are running very heavily right now is on the

issue of the pork checkoff and the decision that was made. It’s another one of those areas, particularly in Iowa, that has been very

concerning.

So I throw those out to you not because you necessarily handle

them yourself, but because you inherited them. And I want you to

be aware of them, because I think it’s important, as you begin to

restructure the Department and look at some of the reforms.

As you look at the reforms, let me just ask you a question that

farmers ask me back home. That is, did Freedom to Farm fail? Did

it fail, if it did fail, is it because it was not properly implemented,

or with a full partnership on behalf of the former administration?

Is it because the markets overseas just were too difficult and collapsed under the weight of the currency collapses that we saw in

the Far East in particular? Was it our failure with regard to expanding our trade, tax, regulatory changes that were part of the

promise of Freedom to Farm?

As we go in, as we’re sitting on the threshold of this debate of

farm policy and the whole safety net, what is your take, as someone who has obviously carefully watched this from a number of perspectives over the last 10 plus years, just watching the last three

Farm bills in particular, what is your take on what has happened

with our current safety net program?

Secretary VENEMAN. Well, Mr. Chairman, I don’t believe that

Freedom to Farm has failed. But I do believe that many of the factors that you mentioned were, at the time Freedom to Farm came

into effect, anticipated to be part of the overall package that would

assist the farm sector. As you mentioned, it was anticipated that

9

we would be opening up markets, but we have not been able to

make significant progress in furthering the next WTO round. We

haven’t been able to get trade negotiating authority in the last few

years.

We continue to have a number of trade disputes with various

countries. We have some promise of opening up China’s market

once we get the accession agreements completed with China to

move them into the WTO. You mentioned taxes. I think all of the

tax initiatives that the President has proposed would be of assistance, and they were talked about during the discussion of the 1996

Farm bill as well, whether it’s the farm accounts that I discussed

in my opening testimony, or estate tax relief.

And clearly, income tax relief, marriage penalty relief, child care

deductions, all of those things help agriculture as much as they

help anyone else.

You also mentioned regulatory relief. Farmers are under tremendous pressure with more and more regulation impacting the way

they do business. We have to take a reasonable approach, a common sense approach to regulations, and they must be based on

sound science. And we have to have programs that work in partnership with producer groups and with scientists that help farmers

understand the best management and the best farming practices.

I want to go back to a couple of the things that you said in the

beginning with regard to the complaints of delivery of services. You

referred to the time I served with Secretary Madigan. During the

time I was Deputy Secretary, he asked me and Congressman Stenholm and then Congressman Roberts to conduct a review of the

way services were delivered to USDA constituent groups, to look at

our office structure to determine how we could more efficiently and

effectively deliver those services.

Much of what that study contained then became the basis for

what was used to determine the reorganization that was done early

in the Clinton administration, while Secretary Espy was there. I

still believe that there are a number of things that we still need

to do to make sure that delivery of services is being done in the

most effective and efficient way possible, whether it’s making sure

that our agencies are working together in the field, computer systems and technology, or the e-filing of forms. All of these things

need to be looked at with, as you say, a top to bottom review to

make sure that we are effectively delivering programs to our various constituent groups. We intend to make that a priority of this

administration.

Chairman NUSSLE. So some type of top to bottom review, similar

to what we’ve heard from the Defense Department, certainly it’s a

little bit different type of national security interest. But certainly,

no less important.

That would not be out of the question as far as you’re concerned,

as you begin your tenure?

Secretary VENEMAN. No, it would not. And as I mentioned, it’s

something I was very much involved with in the Madigan administration of the USDA.

Chairman NUSSLE. Thank you. Let me ask you, too, I also have

had the opportunity to talk to senators and representatives, our

chairmen of the Ag Committees. There is some both public and priVerDate 11-MAY-2000 17:25 Aug 31, 2001 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 H:\DOCS\HEARINGS\107-9\HBU073.000 HBUDGET1 PsN: HBUDGET1
10

vate support for and interest in moving possibly a portion of the

Farm bill reauthorization and reform as early as this year. Senator

Lugar and Senator Combest both have indicated that all or part of

the Farm bill debate could possibly occur and maybe even conclude

this year.

What would be your position on that, and would the administration be willing to assist us if we can expedite that debate? Part of

the context I want you to have for this is that the emergency format that we have been under over the last 3 or 4 years is, it just

can’t be sustained. We can’t continue to do this. Our farmers don’t

want it this way. And the kind of political bidding war that I can

describe for you and that we can all describe that we had to go

through over the last couple of years has been, I think, fiscally irresponsible.

So to try and figure out a framework that is not only responsible

to all taxpayers and allows them to understand the importance of

agriculture in their daily lives, but also is more predictable to our

farmers and our ranchers and our producers out there is something

that I hope we look toward achieving. Because the current method

of just putting this off and allowing the emergency or the supplemental fund, the contingency fund to work this out, I’ve got to tell

you, there is more, and I’ve had the conversations, there are more

requests for the contingency funds than there is money in the contingency funds. And it starts with everything from agriculture to

defense to more tax cuts to you name it. And they’re all worthy to

consider.

But in an era of surpluses, we have a mentality around here that

we’re going to have to come to grips with. And I would just encourage anything that can be done to push up the reforms to get our

arms around this. Otherwise, the feeding frenzy that’s been occurring will not be quenched by yet one more emergency supplemental. I just ask your opinion on that strategy and what the administration might be willing to do to help.

Secretary VENEMAN. Well, certainly we’re always going to be

willing to assist the Congress with the legislative packages that

they’re working on. I have been saying that while I thought a considerable amount of work would be done this year on the Farm bill,

I did not anticipate that it would get done until next year. Now,

if the Congress decides that they want to move that up, certainly,

as I said, we would be willing to assist. But the administration has

not taken a specific position on the timing for the Farm bill.

I understand, very much, the need for the farmers to have some

certainty. Regarding the 1996 Farm bill, the first couple of years

worked very well and I think farmers were very happy. They remain very happy, at least from what I have heard, with the ability

to have flexibility in planting decisions. That’s one thing that farmers seem to be very happy about.

But I think this issue of certainty and predictability as we’ve

gone through emergency bill after emergency bill after emergency

bill, has become something that is a difficult issue for farmers, because they don’t know how much Federal assistance they’re ultimately going to receive.

Chairman NUSSLE. Well, with both chairmen of the Ag committees, and with now the chairman of the Budget Committee and

11

many other members, I think with our interest in this, I would

hope that the administration would at least consider, as it sounds

like you will, expediting that and doing whatever you can to assist

in that, and maybe moving your strategy up slightly as well. Because we just, this is an issue that is not going to go away just by

one budget cycle passing us by.

Mr. Spratt.

Mr. SPRATT. Thank you, Mr. Chairman.

Secretary Veneman, let me explain to you what we’re struggling

with. We don’t have before us, in your budget, the Department of

Education’s budget, enough detail yet to really pass analytical judgment on the adequacy of this request. All we have are the aggregate numbers. In agriculture, the aggregate numbers are like this:

for this year, the current budget year, 2001, U.S. Department of

Agriculture was appropriated $19.4 billion for appropriated programs. The Bush budget, the one we have before us, requests $17.9 bil- lion. That is a cut of $1.5 billion before you count for inflation. If

you count for inflation, if you try to keep the amount appropriated

constant in purchasing power, then the Department, according to

CBO, needs about $19.6 billion.

You’re 8.6 percent below that level. And number one, we don’t

know where those cuts are coming from. I really doubt that the Ag

Committee or the Appropriations Subcommittee is likely to make

cuts of that magnitude. And number two, we’re concerned that if

they can indeed make those cuts, we’ll see our budget beginning to

edge upwards and miss the targets that we set in the budget resolution.

Here’s a chart that explains part of our problem. If you look

backwards to recent history, it’s what the Commodity Credit Corporation has paid for various program payments, loan payments

and deficiency payments and flex contracts. It was a substantial

amount of money, around $30 billion, as recently as the year 2000,

less than that this year. And in the out years, all of the out years

that are the focus of your budget, it is substantially below recent

history.

How do we get there, or indeed, can we get there from here without major revision in the program?

Secretary VENEMAN. Congressman, your question really has two

parts. One is about the discretionary side of the budget and one is

about the mandatory side. On the discretionary side, as I mentioned in my testimony, this budget is down from the year 2001.

But most of that additional money in 2001 that is not included in

the 2002 budget is from emergencies and was provided in supplemental appropriations last year. The money was for specific things

such as extraordinary fire fighting costs.

The FY 2002 budget is about 5 percent above the year 2000

budget, which is about in line with inflation. So if you look at a

chart, and I don’t have one with me to show you, but if you look

at a chart, fiscal year 2001 was an unusual situation because of all

this additional emergency money that was included.

With regard to the mandatory side or the CCC outlay side that

you have displayed on the chart there, the prior years up to 2001

all include additional mandatory funding payments, CCC outlays,

12

for farm programs that were added as emergencies. As we were

just discussing with the Chairman——

Mr. SPRATT. These were valid and bona fide emergencies.

Weren’t people struggling in farm country? Wasn’t this kind of a

salvation for them?

Secretary VENEMAN. I’m not saying whether they’re valid or not.

They were valid emergencies. But the issue here is that the budget

assumptions at this point do not assume emergency money. Rather,

the emergency situation or potential is being dealt with in this

nearly trillion dollar fund. So the projections for the outlays shown

on your chart don’t take into account what may be appropriate for

emergencies that may arise from this crop year.

Mr. SPRATT. Our concern is that the emergency money didn’t

come just last year, but over the last 3 years, it’s been close to $9

billion each year, $27 billion for 3 years. And it’s sort of strange

credulity to think that all of a sudden, we’re going to drop from an

$8 billion a year emergency assistance to farmers to nothing at all

except for the contingency fund.

So when the Chairman asked you about Freedom to Farm, I

think we’d ask the same question, did we cut so deeply in Freedom

to Farm that we had to come back and provide these emergency

payments for whatever reason, just to help farmers make ends

meet in a particular crop year? It looks to me like that’s what happened. I don’t think we’ve corrected the underlying problems.

So it would seem to me that these payments are likely to be recurring, unless something dramatically improves with commodity

prices.

Secretary VENEMAN. I believe that we will have the opportunity

with the next Farm bill, the 2002 Farm bill, to look at all of these

issues. It’s a fact that under the 1996 Farm bill, a large amount

of additional emergency money had to be appropriated. So I think

that is why the Chairman is suggesting that we need to look carefully at timing for all of this.

But the fact of the matter is that virtually everyone who’s talking about the next Farm bill is looking at ways that will avoid the

need to deal with emergencies year after year after year.

Mr. SPRATT. Let me just comment on the contingency fund, because even if you go to 2002, if the changes in the law require more

money, it’s not really provided for in this budget in the out years.

And you mentioned the contingency fund a minute ago as containing almost $1 trillion.

On page 186 of the blueprint of the budget, there’s a contingency

fund of $842 billion. Last week, as we probed the derivation of that

contingency fund, we found that it included $526 billion in the

Medicare trust fund, the surplus net trust fund. Consequently, the

real balance in that fund, if we indeed resolve not to spend the

Medicare surplus, is $316 billion.

Out of that you’ve got to provide for a probable plus-up in defense, prescription drugs under Medicare, substantial plus-up in

education, as the Chairman said, there are more requests for those

funds than there are funds available. So that’s a concern of ours,

too, that you’re kind of pushing this problem forward to the future

with the revision of the law, but when you get there, you’ll probVerDate 11-MAY-2000 17:25 Aug 31, 2001 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 H:\DOCS\HEARINGS\107-9\HBU073.000 HBUDGET1 PsN: HBUDGET1
13

ably need the extra funding, and it’s not there. It’s not there in the

contingency fund.

In the other reserve fund that the administration has set up, the National Emergency Reserve Fund, it’s $5.6 billion provided in

2002, but this falls well short of the historic average that we’ve

spent on emergencies over the last 10 years.

Now, granted, some of that money for emergencies was not really

an emergency. We called it that to get around budget strictures.

But nevertheless, the average is pretty high. We’ve appropriated

substantially more than that.

So that’s our concern, that you’ve got a very, very thinly funded

program here, and if it turns out that farm needs are greater or

commodity prices are less, the revision in the Farm bill costs more,

the budget is out of whack. Would you agree with that?

Secretary VENEMAN. I’m not prepared today to really get into the

Governmentwide calculations that have been made. I hope that you

would have that conversation with Mr. Daniels.

I think it’s also——

Mr. SPRATT. I heard that as an appeal for help.

Secretary VENEMAN. No, I’m not arguing that at all. I’m just simply saying that I’m not prepared to discuss the Governmentwide

assumptions that were made in this budget today. I also would like

to point out that what was released a couple of weeks ago is a blueprint. It does not provide at this point the specific budget details.

The target date for releasing the more detailed budget is around

the first week in April.

Mr. SPRATT. I understand that. The problem is, we are scheduled

to mark up on March 21st. So we’ve got to make the most with the

details we’ve got. I think from our discussion, you can understand

our reservations about this particular request.

Thank you very much.

Chairman NUSSLE. Mr. Thornberry.

Mr. THORNBERRY. Thank you, Mr. Chairman.

Madam Secretary, congratulations on your post. Thank you for

being here. I hope you’re still glad to have the job, after having to

undergo what you have to sort through over the next several

months.

Certainly no one, I don’t believe, can be satisfied at where we

have been in recent years with farm policy. From the farmers’

standpoint, they are very dependent upon Government payments.

I think I saw recently that more than half of farm income came

from Government payments last year. They would, as the Chairman said, certainly much rather make their money from the market. They and their bankers cannot make decisions while they wait

to see what we do each year.

The other side of it, from this committee, it’s costing a lot of

money to make these payments, and we’re not solving the problem.

The money that we’re paying out is just keeping people alive from

year to year. But it is not going to really solve a problem, make

it better, I don’t believe, over the long run. I mean, it’s better that

they’re staying in business, but it is not getting at some of the fundamental problems.

And then, particularly in recent months, as farmers have had to

cope, as much of the country has, with higher energy prices, I think

14

a lot of farmers are starting to doubt whether there is any chance

in the foreseeable future of making a living off of the market. And

rather than looking at the payment side from the Government, as

Mr. Spratt was just doing, I wonder if we’ve got some even bigger

fundamental changes going on, where the world market. Because

technology has improved production here, technology has improved

production in all these other countries. They have lower input costs

in other countries, so their prices are going to be low.

You know, if can we make a living off the market is a much more

fundamental question that maybe we have to think about.

I hope you can make me feel better. But things do not look particularly promising for the foreseeable future, it seems to me, do

you agree?

Secretary VENEMAN. I would absolutely agree that it’s been a difficult time in the sense that prices have been down, and as you indicate the cost of inputs, particularly energy, has been rising, with

a significant impact on agriculture. We’re seeing particularly the

impacts of higher fertilizer costs due to natural gas prices increasing so much. When I was in Wisconsin last week, they were talking

about the difficulty in their greenhouse industry with the gas

prices. Certainly the difficulties in California with the energy

shortage will have a significant impact on agriculture, whether it’s

irrigation, electricity, cold storage, processing capacity, whatever.

So I would agree that there are a number of issues that are larger issues that we’re facing in this country that are having specific

impacts on agriculture. I think a lot of people don’t think about

this aspect of the energy problem.

I think it’s also important that we continue to try to open up

markets. Ninety-six percent of the world’s population lives outside

the United States. We have some of the most productive agriculture in the world in this country. We want to make sure we

have the opportunity to export and have access to as many markets

as we can around the world.

Mr. THORNBERRY. Well, I just want to join with the Chairman.

I think if we can look at rewriting the Farm bill in a way this year

that can help us break out of this cycle that we’ve gotten ourselves

into, I think we ought to take advantage of it.

Let me ask just about one other area. As someone who is personally involved in the cattle business, obviously food safety is a key

interest, not just for those of us involved in agriculture, but obviously, everyone who consumes agricultural products as well. Can

you talk a little bit about where we are with some of the food safety concerns that are going on, the ban on imported meat that we’ve

seen recently, and is the Department’s budget adequate to ensure

that American consumers and American industry have a safe supply of food?

Secretary VENEMAN. I appreciate very much that question. Food

safety is a very, very important question and issue in our Department, and we work closely with HHS and the Food and Drug Administration. We want to continue to work closely with them to

make sure that our policies are very closely coordinated, because

we do have one of the best food safety systems in the world in this

country. And we want to maintain it.

15

As far as what has been happening recently, I think it’s important to point out the issue that has been in the news in the last

2 days, our temporarily banning the import of live animals and

meat products from the European Union, is related to a disease

called foot and mouth disease. It is not a food safety issue. It is an

animal disease issue, but a very, very serious one. We have not had

foot and mouth disease in this country since 1929.

It can be devastating to livestock herds. It spreads very quickly,

and it’s a very, very serious animal disease. We want to make sure

that we take every measure to ensure that it does not come into

this country.

In addition to the 20 veterinarians we already sent to assist Europe in combatting this disease, we’re sending another 20, for a

total of 40. We are beefing up our inspection at the airports and

the ports to ensure that we do not have any breaches of the security. Because this can be carried on clothes of people that have

been on farms or particularly their shoes, we are increasing public

awareness about this problem. We’re working with the airlines to

make sure they will have information on airplanes, so that travelers will understand what the issue is all about, that it’s a risk to

our livestock and not a risk to human health.

That raises, I think, another issue in addition to food safety,

which is how important our animal and plant health inspection

systems are in this country. We have continued to maintain levels

of funding that will ensure that we can fight pest and disease programs for any kind of threats or any kind of infestations that we

have. That’s been a big issue.

We’ve also heard a lot of discussion about BSE, another animal

disease that has impacted Europe quite substantially, which is also

a human health issue. Both on the food safety side and on the animal and plant health inspection side, we have increased our surveillance. We have increased our testing, and we are working very

closely with our research organizations to ensure that we don’t get

BSE in this country as well.

There are a number of other food safety issues that we continue

to work on, but both of these issues, both the food safety side and

the animal and plant health inspection, the prevention and eradication programs are extremely important in the mission of the

USDA.

Mr. THORNBERRY. Thank you.

Chairman NUSSLE. Mr. Moore.

Mr. MOORE. Thank you, Mr. Chairman.

Madam Secretary, I appreciate your being here to testify today

before this committee. I’m from Kansas, which is out in the center.

On September 27th, 2000, the Farmers Cooperative Association,

which is the largest agricultural cooperative in the State of Kansas,

filed for bankruptcy. This action left 875 farmers facing considerable losses, farmers who had placed their product in these elevators.

We discovered that in 1984, Congress authorized a limited priority in bankruptcy proceedings for grain producers, and under the

provision, unsecured creditors are conferred fifth priority for priority claims, capped at $4,300 per producers. For claims exceeding

16

that amount, the farmers have a general unsecured claim and most

likely would suffer a loss.

This is the worst case scenario, and is what happened to most

of the farmers in our State that delivered the grain to the elevators

and have not yet been paid. These farmers again, in excess of the

$4,300 cap, are totally unsecured. This is a problem I believe Congress should address.

The situation has improved since the buyout plan to FCA that

at this time includes payment to the Kansas farmers. But it will

likely take several months for that to happen. In the meantime, the

farmers are kind of left hanging out. They are operating under extremely tight budgets due to low commodity prices and soaring

costs for energy and fertilizer. I think everybody is aware of the

plight of farmers in this country. They need help now. They need

funds now in order to meet their cash flow needs.

On February 27th of this year, Representative Jerry Moran of

western Kansas and I wrote a letter to you and the Department,

seeking assistance and emergency loans for seed producers program, funds or other loans that will be vital to help these farmers

remain in production.

Madam Secretary, I just was now handed by my staff a note that

we got a call from USDA today, I believe, and according to the

Farm Service Agency, our farmers are not eligible for the ELSPP

loans. There are not specifics that are known to us at this time,

and the person who gave us that information did not say why

they’re not eligible.

I wondered if you would be willing to check, or people at the

agency to check, to see if there might be other interest-free or other

loans available to help the farmers who really are in a desperate

situation in Kansas. I would ask that you look into that for us.

Secretary VENEMAN. I am not familiar with the particular situation in Kansas, but we will certainly do anything we can to assist

in trying to determine what programs might be available for these

farmers. Although I don’t know about this issue, I do know about

the farmers that are experiencing a very similar thing in California

with the bankruptcy of the TriValley Cooperative. So this is an

issue, I think, where farmers really face a lot of hardship when this

happens. I’ve talked to a lot of farmers in California personally

about some of the hardships that they’re facing.

Mr. MOORE. Thank you very much.

Thank you, Mr. Chairman.

Chairman NUSSLE. Thank you.

Mr. Hastings.

Mr. HASTINGS. Thank you, Mr. Chairman.

Madam Secretary, welcome to what I hope will be a very fruitful

time for you as Secretary.

I want to start right off by thanking your Department, if the indication of the way you started with a particular concern that I had

is any indication of how you’ll govern in the next 4 to 8 years,

you’re going to be very successful. I’m talking about the apple Market Loss Program that unfortunately was not even started with the

last administration. By the time you got on board, your Department moved extremely fast to get this program put into place. That

17

was very important to the growers in my district, and I want to

thank you publicly for that as this process moves through.

I was also very pleased to hear you emphasize on several occasions in your statement but also in response to members’ inquiries

regarding the need for expanded trade, the growers in my area,

and I might add, my district is in Central Washington, I dare say

it has probably as diverse an agricultural mix as the Central Valley

in California. We say that very proudly. We’ll never catch up with

you with premium wine grapes, but when I say premium, we’re

right there.

Nevertheless, all the growers in my district, they’re non-program

products. But they’re hurting, and they’re trying to find other avenues to try to take the pressure off. Obviously, one of them is

trade. Once you talk about trade, that’s generic in nature, but you

get down to specifics, and we have one specific one that is probably

an example that a lot of them face, and that’s with apples in South

Korea.

Specifically, they have the phytosanitary arguments that we

can’t get our product in there, yet we allow them unfettered access

to our markets. Even if they were to raise or eliminate the

phytosanitary arguments, you’d still be facing a barrier of about 48

percent of tariffs. I mean, this is a very unlevel playing field.

So I want to commend you for keeping the pressure on as far as

expanding markets. I would invite you to look at a bill that I’ve introduced, Market Access Program. It’s H.R. 98, it expands that program with more funding, which has been very successful, especially

with a smaller crop.

Finally, I just want to talk, again going back to these specialty

crops, and some of the different needs that arise that aren’t covered

in a broad sense within USDA. One of them is, as I mentioned, apples. Apples are hurting. I have one particular county in my district where they anticipate over a third of the acreage in apples

will be pulled out.

Now, they’re being pulled out because obviously the grower can’t

make any money. If they can’t dispose of those trees that are

pulled out or if they’re left abandoned, then those trees become

agents for pests that will invade other healthy orchards. The counties obviously can’t pick up the tab on that. And we’ve been exploring ways that maybe, you mentioned in your testimony some programs to help in areas like that.

I would just ask you if you’d be willing to pursue something like

that. Because this is a huge, huge cost to not only the local governments there, but to the growers that obviously can’t pull out their

orchard. Would you care to comment on that?

Secretary VENEMAN. I was not familiar that that amount of acreage was being pulled.

Mr. HASTINGS. It’s one county. I don’t want to say it’s a whole—

just in one county.

Secretary VENEMAN. Oh, one county.

Mr. HASTINGS. Just one county. I don’t want to say it’s the whole

industry.

Secretary VENEMAN. Obviously people don’t recognize that when

you pull permanent crops, it does have an economic impact. I know,

I just heard 2 or 3 months ago that the pear growers in California

18

are undergoing a similar program. I believe, I’m not certain this is

exactly the way it’s working, but I believe that they’re putting together a pool of money from all the pear growers to assist in the

payment for the tree pull and disposal of these trees. Obviously

that’s a self-help way to do it.

I am not familiar with specific Government programs that would

assist the local governments in dealing with this disposal program,

but we’d be happy to explore what may be available.

Mr. HASTINGS. OK, good. Well, obviously, this is something that

I haven’t experienced and I daresay many counties in my area have

not experienced either, because you don’t want to see an industry

leave.

Finally, one way to alleviate the pressure of specialty crops is to

purchase excess commodities. Do you anticipate, within the Department, of purchasing any excess commodities for food relief in other

areas that would take some of the pressure off? Is that being

planned?

Secretary VENEMAN. Well, certainly the AMS has traditionally

purchased more of the specialty products and processed foods for

the school lunch program, and those programs are continuing to operate. I don’t anticipate change in those programs. So I would say

those programs will continue to purchase excess commodities.

Mr. HASTINGS. OK, good. Well, thank you very much. You certainly have a challenge ahead of you. I am one that again, represents a rural area where people involved in agriculture, all they

want is a level playing field. And I am doing everything I can. That

is long-term. It’s the short-term problems that we have to address.

So I certainly look forward to working with you, if we can resolve

some of those problems. Thank you.

Thank you, Mr. Chairman.

Chairman NUSSLE. Thank you.

Before I recognize Ms. Hooley, let me welcome our newest Budget Committee member, Mr. Matheson from Utah. We welcome you.

We are now at full strength on the ice, as they say. So we appreciate your service, look forward to working with you. Welcome.

Ms. Hooley.

Ms. HOOLEY. Thank you, Mr. Chairman.

Madam Secretary, welcome. I look forward to working with you.

I too come from a rural community, Mid-Willamette Valley in Oregon, some of the best farming land in the entire world. It seems

like every year, we have a new crisis of one sort of another. And

I looked at this budget, and knowing how much we have spent on

emergency funds in the last 3 years, the last couple of years it’s

been almost $20 million.

My question is, before you get to reauthorization, what was the

thinking of not including additional money in the agriculture budget, not including that emergency fund that’s been ongoing? I mean,

it may be one emergency 1 year, the next year it’s another emergency. At least in my district, anything from grass seed growers to

this time where you now have some of the food processing plants

that have gone out of business unexpectedly. Particularly for those

farmers that have the soft berries, the small fruits, strawberries,

raspberries, blackberries. I mean, this just kills them.

19

There’s no way you can safely ship, I mean, you can blueberries,

but you can’t ship those small berries. So again, we have another

dilemma on our hands.

And you look at the almost depression-like prices for all of the

commodities. I am really surprised that they didn’t fold that emergency money into the budget. And do you expect to be submitting

some kind of supplemental budget to this Congress shortly?

Secretary VENEMAN. Well, again, the more detailed budget will

be released in early April. However, on emergencies, it is difficult

to predict them. I think the Congress has generally acted on the

emergency legislation in the late summer, they’ve begun to look at

that to see what the emergencies are, what’s going to be necessary.

I might also add that, as I mentioned, there is money included

in this contingency fund, this nearly trillion dollars, and it is anticipated that for ag emergencies of the type I think you’re discussing, that would be addressed by that fund.

The other kinds of emergencies that often affect specialty crops,

of course, are some of the things that I talked about in response

to my previous question, which is pest and disease prevention and

eradication. And we have fully funded the ongoing situations that

we have, whether it’s citrus canker or medflies or so forth in the

budget itself. We also have the ability to take money from the CCC

on a temporary basis for true emergencies that may come up in

that regard as well.

Ms. HOOLEY. And I guess the real question, one of the things I just puzzle over is, when it’s been consistently running around $9

billion a year, and the last couple of years I think it’s been $10 billion a year, that’s been consistent. And I guess what I have a problem with is why we haven’t looked at some of those issues and built

that into the budget.

Secretary VENEMAN. I understand what you’re saying. As I discussed before, it is difficult to anticipate a disaster this early.

Therefore it was not built into the budget at this point in time.

I might also add, regarding some of the kinds of crops that you’re

talking about, that this budget does anticipate the full funding of

crop insurance reform. Some of the types of products you’re talking

about would be eligible for some of the crop insurance provisions

under the reforms.

Ms. HOOLEY. So you don’t see President Bush intending to

change the crop insurance program?

Secretary VENEMAN. The budget includes the crop insurance reforms that were passed last year, and fully funds them.

Ms. HOOLEY. OK. Couple other just quick questions. Our USDA,

our county offices, you talk about reforming those. One of the problems has been that, right now, there are not enough people in those

offices to do the job.

And again, as each issue and problem comes up, they have a

larger, larger workload and less and less people. As you look at reforms, what are you talking about that would help that situation?

And are there going to be further cuts, so that you have fewer people to deliver the services to farmers?

Secretary VENEMAN. I do understand that we have had, in the

last few budgets, more and more disaster type programs, which require signups, require additional workload on FSA employees. And

20

we know that there has been tremendous pressure on those employees, and we certainly appreciate all the hard work that they’ve

had to put in.

There has been provision allowed for temporary work force to

help with some of these emergencies. But some of the reforms that

we’re talking about extend beyond just looking at the FSA, but also

looking at how our programs integrate in the field. Do we have

NRCS programs and Farm Service Agency programs that are integrating, and are people working together in the delivery of those

services, and risk management programs as well?

We also want to look at ways that we can use technology to more

efficiently deliver our programs, whether it’s online forms and

signups and use of the computer systems. But I think there’s great

opportunities there that would help with the workload that you’re

talking about in some of our county offices.

Ms. HOOLEY. I look at some of our farming communities and the

workload that they have, and there’s one person in the office and

then some temporary help. I mean, even if you’ve got the best technology in the world, you still have to have people in the office willing to talk to people and using the technology. I just worry, as you

look at streamlining these, I don’t know how you can cut any more

people from some of these offices. And again, that’s a concern of

mine.

Thank you.

Chairman NUSSLE. Mr. Gutknecht.

Mr. GUTKNECHT. Thank you, Mr. Chairman.

I want to come back to a couple of points that have been made.

I do like this chart over here and I think it’s very accurate. Mine

isn’t as big, but I do want to call attention to the fact that essentially that chart is correct. But if you went back just a few years

pervious to that, I’m told, and I thought I was correct in this and

I confirmed it with Dr. Collins, Dr. Keith Collins, Chief Economist

for USDA, who is here, in 1995, the total CCC outlays dropped to

as low as $4.5 billion.

Frankly, if you look at that chart, Madam Secretary, and this is

why, I don’t know, the more I’ve learned about agricultural policy,

the more confusing it becomes. The one thing that comes through

crystal clear is that the great farm economist Johnny Cash was

correct. He said, everything changes as well it should, the bad ain’t

forever the good ain’t for good.

And it does strike me that long term, what we really need to do

is come up with a farm program that is counter-cyclical, that will

take some of those bumps out, which is why I’ve come to the conclusion, about the only thing you can really do long term that

makes sense, at least to me, now, I’m just an amateur here, but

it seems to me, we’ve got to come up with some kind of a revenue

insurance program, where the farmers participate, the Federal

Government participates. Because we can all sit around and say,

well, the farm program failed, the farm program failed, and we’ve

had all these, since 1934 we’ve had something like 17 different

Farm bills. All of them worked well for a couple of years and all

of them, the market figured out a way to beat them.

But it does strike me that, there’s got to be a better way to come

up with a more predictable program in terms of the overall cost to

21

the taxpayers of having a farm program that guarantees that we

have an adequate supply of food at reasonable prices, and that also

allows farmers, the efficient and the productive ones, the ones who

deserve to make a good profit at it, should have a right and an opportunity to make.

I agree with Mac earlier, he said that the problem with our farm

program right now is we’re hanging on by the fingernails, an awful

lot of our producers. We ought to have a farm program long-term

that allows people to thrive. It’s not enough. And a strategy that’s

built around just having a survival mentality, it seems to me, it’s

not a good one.

So I mean, I agree with Mr. Spratt’s chart and I hope that we

can come up with a better plan. I guess my real question for you

would be, in the last administration, I don’t mean this be partisan

or political, but as we talked about the Farm bill, the administration was really more like passive observers to discussion rather

than helping to lead the debate. My question for you is, do you intend to be an active participant in developing the next Farm bill,

or do you intend to react to what the Congress presents?

Secretary VENEMAN. I was in the administration and worked on

the 1990 Farm bill. The administration was a very active participant in the discussions around that Farm bill. And I would hope

that we could do that again.

But certainly, I agree that we need to look at various kinds of

opportunities to make farm policy that makes sense for the future,

that takes into account a changing structure of agriculture in this

country, that takes into account all of the different kinds of issues

that we are now dealing with, whether it’s animal diseases or food

safety. These are not new issues but they’ve come to the forefront

much more. We hear a lot more about the environmental issues

and the regulations.

I think as we debate farm policy, we just can’t look at it in the

context of the budget for farm programs, but in the whole context.

We need to look at what we’re going to do about opening up markets and trade, and how the trade programs interact with all of

this.

So I think that the debate on all of this needs to include a discussion of all of the issues and not just the farm programs in and of

themselves.

The other thing that I think we need to recognize, and I talked

a little bit about this in my outlook speech this year, is the fact

that we have traditionally, as people in Government, whether it’s

the administration or the Congress, had various interests coming

to us and saying, we want this, we want this, we want this. I encouraged in that speech that the food chain ought to be working

more closely together to come up with comprehensive policies that

are in the best long term interest of our food and agriculture systems in this country.

So I’ve sort of challenged people, both in the food processing sectors and the retailing sectors as well as in agriculture, to try to

work together to look at some of the farm policy issues. I say this

with examples such as livestock price reporting last year, where

the producers and the processors got together and came out with

a compromise that was acceptable to both. Or biotechnology, where

22

you’ve seen the whole food chain working together on these issues.

Or the group that got together that included most of the producer

groups and the processors and a variety of other groups, input

groups on the position they wanted agriculture to take prior to the

Seattle meeting that took place in December 1999.

So I think there’s great opportunity in this regard. I would hope

that we can all encourage the so-called food chain to come together

and really look at these farm policy issue, it’s something that impacts everyone, and find solutions that are those that will be the

most beneficial for the future.

Mr. GUTKNECHT. Mr. Chairman and Madam Secretary, my yellow light is already on, and I want to at least publicly welcome,

we’ve got a group from Minnesota, the Minnesota Agricultural

Rural Leadership Program is here today. On behalf of particularly

some of those younger dairy farmers back in Minnesota, we strongly support opening markets. But one of the real thorny subjects

we’re going to have to resolve here in the next year is the idea of

opening markets to places like Vermont. [Laughter.]

The notion of dairy compacts, and my friend from New Hampshire here takes a somewhat different view.

But it seems to me if we’re going to really be serious about opening markets, and I think we have to, because ultimately, America’s

farmers can compete with anybody in the world. But we’ve got to

be honest with the way we deal with markets here in the United

States as well.

I do believe we as a Federal Government have a responsibility

to open new markets, both internationally as well as domestically,

and that’s also part of research. So we want to work with you. We

want to come up with a plan that levels out those bumps for those

of us in the Budget Committee. I think it can be done if we will

look outside of the box a bit. Thank you very much.

Chairman NUSSLE. Thank you, Mr. Gutknecht.

Let me just report to members that the Secretary has asked, and

I have tried to do this with others as well, to leave here in about

15 minutes. She has a plane to catch, she has business to attend

to. We have a number of members that would like to inquire. What

I would just ask is that you do the best you can to keep within not

only the 5 minutes, but even if you could do less than that so members can ask questions.

Mrs. Clayton. I always do this right when it comes to you, and

I apologize.

Mrs. CLAYTON. Yes, it’s good you recognize that. I’ll keep in time.

But thank you, Mr. Chairman. I appreciate the time.

Welcome, Secretary Veneman. I am delighted to have you before

the Budget Committee. I must say, as a woman, I’m delighted to

see you there. It is evidence that women are indeed in agriculture.

Sometimes we don’t think of women in agriculture.

And as someone said earlier, I think you will like your job as

well as you like it now after a year or two from now.

Agriculture is indeed demanding, and appreciated, but it’s also

complex. I believe some of the background you are hearing is that

the appreciation from those of us who are on the Agriculture Committee, as I am, also, those who are from rural communities, as

others may be, have an appreciation for the Farm bill, which I

23

think people look too much to this is true because it sometimes is

not the planning document that it could be or should be. Nevertheless, it is a tradition. As a tradition, the farm community will look

toward that as the kind of bible or guide. So hopefully, we can put

some things in perspective. That is so critical.

I have written to you on the subject, and you should not be surprised, that I will be talking to you about it, the black farmers. African-American farmers have not traditionally benefitted well in

the loans and programs that the Agriculture Department has administered. It is the department that was considered to be the people’s department. That’s what President Lincoln said of it. Yet, it

is found that we’re denying black farmers.

The issue I bring before you is certainly not of your making. But,

it is one that you are inheriting. It’s called Pigtord v. Glickman, I

guess it if goes back in court it will be Pigtord v. Veneman. But,

it is an issue that will continue. It has both policy issues and budgetary issues.

Would you comment as to how you plan to resolve this issue and

assist those who still have legitimate complaints? I’m getting mail

from people who are being foreclosed on as of now, put out of their

homes, have $250,000 in loans that they have to pay back, with the

promise of, almost 5 months ago, that they would have gotten their

supplement. Now, they are having to live with their relatives.

What are the plans for funding USDA’s Office of Civil Rights.

Would you comment on that, please?

Secretary VENEMAN. Civil rights in the Department is a very difficult issue, and as you say, it’s something I came into and inherited, and certainly it is not an easy issue.

We want to get all of the complaints in the Department resolved

as quickly as possible. One of the things that I hope we can do is

accelerate the process under which these things are looked at. I

know we have a number of people on temporary assignment, complying with the agreement in the case you mentioned in an attempt

to get all these cases resolved. It is a huge undertaking.

But I do want to assure you that we will not tolerate discrimination in the Department of Agriculture. We are making that clear.

We intend to pursue the resolution of the cases that exist as quickly as possible.

Mrs. CLAYTON. Thank you. I do have a couple of other questions.

However, I’m going to follow my Chairman’s lead and do it very

quickly.

The other concern is about food stamps. As you indicated, the nutrition part is the mandatory part as it relates to food stamps. In

1994, in reference to food stamp participation, we had 27 million

households. In the year 2000, we have just over 17 million. Part

of that obviously, is because we’ve had a good economy and we are

thankful and celebrate that.

But clearly, the drop in the food stamp participation outpaced

the drop in poverty rate as the census has reported it. For instance,

only 59 percent of the eligible Americans are receiving food stamps.

Those who are eligible, not 59 percent of people, but 59 percent of

the eligible are not receiving it.

Then when you look at those who are eligible and are working

families, then it gets to be that additional safety net of that mother

24

who’s working and has two or three children. Of that, the percentage is even less, and that’s 47 percent of working families receiving

food stamps.

Can you comment on what you will outreach to people who so

desperately need food for sustenance that they would know about

it in terms of the eligibility, in terms of the administration? Let me

put on one other part, real quickly so you can answer both of those.

The difficulty we have imposed upon poor people to get pittance

from our Government food, we should be ashamed. Not you, but we

should be ashamed of it. When we consider this is just the applications process, in terms of how much they have to fill out to get $40

and in some instances, $50 or $100.

In comparison, take the Federal home mortgage application. If

I’m trying to get a home from the Federal home mortgage, I have

to do one-fourth of the paperwork that I would have to do if I was

trying to get food stamps. If I’m trying to get a $250,000 home, it

takes four pages at best.

On the other side, we can get to that information very quickly.

Now, the Chairman and I co-chaired trafficking, in terms of food

stamps. We were trying to determine how to monitor that. So we’re

on record saying we want to find ways where those who don’t need

it shouldn’t get it. We wrote your predecessor a letter asking if he

would put it in annual review rather than every 3 years now.

Every 5 years.

First, I want to know how we can make it simple. How indeed

can we instruct the States on an annual basis to reduce the trafficking and not put artificial barriers for poor people getting food

assistance, when we say we want to help.

Secretary VENEMAN. Congresswoman, I don’t have good answers

to either of your questions today, because I simply haven’t had the

chance to get deeply into these issues. I’ve only been there less

than 60 days, but I have heard this issue about the participation

rates. I’ve seen it in the media stories, I’ve read it in the letters

and so forth. Certainly we will look at that.

I was not aware of this issue with the applications, and we’ll

take a look at that as well.

I might add that the food stamp budget has increased in this

budget. In the detailed budget that will be out in the next couple

of weeks, you will see that there is an increase in the food stamp

budget.

Mrs. CLAYTON. So we have something to look forward to.

Chairman NUSSLE. Thank you.

Mr. LaHood.

Mr. LAHOOD. Thank you for only taking 6 minutes, Eva. We appreciate it very much. [Laughter.]

I’d be happy to give you my 5 minutes if you need it, you know

that.

Madam Secretary, I don’t think there’s anybody that’s come to

the job that you have that has the broad breadth of experiencing,

having served in one of the most diverse States, California, and

then having served in our own Government. So we have high hopes

for you and what you’ll be able to do.

I’m going to be very brief, because I know you’ll be coming before

the Ag Committees, both Authorization and Appropriations. I hope

25

that if, I guess let me put it this way. If I had your job, I would

get up every day and figure out we can improve trade. You can talk

all you want about the faults with Freedom to Farm, the ag economy has been in recession for 3 or 4 years. In my opinion, the answer is trade. We need to open up markets, we need to pass Fast

Track, which our previous administration never would do, we need

to lift sanctions against countries, we need to start looking at countries where we’ve never traded before, particularly food and medicine.

Trade is the ultimate answer. And I voted for all these additional

payments. And I’ve had so many farmers tell me, I don’t want to

receive them, but I wouldn’t be here today if we didn’t get them.

Trade is the key. And I hope you’ll push this administration.

When I was down to the White House with a group that talked

to the President, he talked about Fast Track. And I know he knows

the importance of trade. I don’t think he would have made his first

trip to Mexico if he didn’t believe in trade. And I know you believe

in it, too, coming from a State like California and having worked

in the previous administration.

I hope that from time to time, when you think about what we

need to do, you’ll think about trade.

I yield back.

Chairman NUSSLE. Thank you.

Mr. Brown.

Mr. BROWN. Thank you, Mr. Chairman.

Madam Secretary, glad to have you here before the committee.

I’m just going to ask you a couple of basic questions, I know our

time is about to expire. But how many employees are totally in the

Agriculture Department?

Secretary VENEMAN. I think we have roughly about 100,000—we

have 106,000 including the county office employees, I’m told.

Mr. BROWN. And how many of those reside here in Washington?

Secretary VENEMAN. Nine thousand five hundred.

Mr. BROWN. And how many farms do we have?

Secretary VENEMAN. We have about 1.9 million farmers, according to the 1997 census of agriculture. I understand where you’re

going with this, and I might just add that about 35,000 of the employees are in the U.S. Forest Service, which really doesn’t have

much to do with the production agriculture side.

Mr. BROWN. I see. Thanks for sharing that.

I know you mentioned briefly in your opening remarks, and I

would just ask you, if you would, to expand a little on your

thoughts about a market driven agriculture economy versus price

support.

Secretary VENEMAN. Well, as I talked about earlier, I think that

clearly, the goal is to get a more market oriented and market driven policy in agriculture. The 1996 Farm bill went a considerable

way in doing that, by decoupling the payments, the AMTA payments, as they’re called, and allowing planting flexibility. I think

farmers have responded well to those concepts. The question is,

how do you address some of the other issues that have come along

with it.

I certainly think tax reform is an important component. Trade is

an important component. Common sense regulation is an imporVerDate 11-MAY-2000 17:25 Aug 31, 2001 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6602 H:\DOCS\HEARINGS\107-9\HBU073.000 HBUDGET1 PsN: HBUDGET1
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tant component. So I think it’s a combination of policies, it’s not

just farm policies looked at in a vacuum. It is a combination of policies that we need to look at to move agriculture in a market oriented direction.

Mr. BROWN. One final question, if I might. I know in South Carolina a lot of the farming economy is based on tobacco. I know that’s

sort of a diminishing return. I’ve listened to some of the other

members question about apples, whatever else, some of those commodities. Trying to find alternative crop replacements, is that sort

of a high priority under this administration?

Secretary VENEMAN. I think alternative crop replacements are an

important issue. I think that certainly, we want to find ways to assist farmers making transitions in the marketplace through rural

development programs, extension programs, other kinds of assistance programs that we have. That may be alternative crops, it may

be better business planning practices that we can assist farmers

with. It may be assistance with ways to wire rural America, so that

they aren’t left behind in this new technology age.

But I think all of those concepts must be considered as we move

forward and look at rural policy for the future.

Mr. BROWN. Thank you.

Chairman NUSSLE. Thank you.

Mr. Putnam.

Mr. PUTNAM. Thank you, Mr. Chairman.

Madam Secretary, I welcome you and I want you to know how

much we’re all looking forward to working with you for the betterment of all American agriculture. I’m particularly excited that

you’re from California and had some experience in the fruits and

vegetables business. Hopefully we can address some issues that I

think in the past have been neglected in that particular aspect of

American agriculture.

To follow up somewhat on what the Chairman’s remarks were

about in terms of a comprehensive review of the Department’s role

and responsibilities, when you really look through the list of things

that your department does, from home loans to school lunches, to

animal and plant health, to ecotourism in our national forests, research, nutrition, farm support, trade, it’s all over the map. Has

anyone in the past ever conducted a strategic review, or do you intend to conduct a strategic review to really look at what the core

mission of the U.S. Department of Agriculture is, and whether or

not there are some programs that this body has added to that mission that may or may not be relevant or timely in 2001?

Secretary VENEMAN. Well, Congressman, I think that’s a very

good question. I have certainly been involved, in my previous position in California, with a hard look at strategic direction of the

California Department of Agriculture. I think that as we go forward we need to continually, in any organization, look at strategic

direction.

I believe, and again, I’ve only been here less than 60 days, but

I believe that a lot of our agencies within the U.S. Department of

Agriculture have been involved in strategic planning and looking at

how to best administer their programs for the future. That is a priority of mine, to make sure that we continue to look very strategically at what we do.

27

You do point out something. I think we are one of the most diverse departments in all of Government in terms of mission. People

are shocked when I tell them that the Department of Agriculture

runs the food stamp program, or the national forests and that

Smokey Bear works for us. But the fact of the matter is, it is a very

diverse department with multiple missions.

And it sometimes makes a complete strategic look a little more

difficult in terms of a single mission. Because I do think we have

multiple missions, many of which are very interconnected.

One of the things that I want to make sure that we do is to recognize that many of our programs have been operated in a stovepipe type of structure. Yet many of our programs really have overlapping responsibilities, whether it’s research, with almost every

area of the Department, or it’s the working together of rural development programs with other programs that assist in rural America, or it’s NRCS and FSA and risk management. All of these

things are interconnected.

As I’ve talked with people who may potentially come to work in

our Department, I’ve had discussions about the importance of

teamwork, working together and finding better ways to administer

programs in a way that makes them more integrated and consumer

or constituent friendly.

Mr. PUTNAM. I appreciate that, and I just want to draw one line

of distinction, that there is a difference between a strategic review

of doing what you do better and reviewing things to determine if

some of the things that you do, and probably do very well, may not

be best done by your Department, and there may be other appropriate folks.

Secretary VENEMAN. I understand that.

Mr. PUTNAM. With that I’ll close, Mr. Chairman, and just say, I

appreciate, on a personal note, all the support the Department has

been to Florida on the citrus canker issue. Thank you.

Chairman NUSSLE. Thank you.

Madam Secretary, I did the best I could. I came within about 4

minutes. That’s not bad. Hopefully your plane’s on time and everything will work out fine.

We appreciate your testimony and your time here today, and we

look forward to working with you on some of the issues that we

just discussed.

Secretary VENEMAN. Thank you, Mr. Chairman. I appreciate the

opportunity and I do appreciate your adhering to my rather tight

time schedule today. Thank you all very much.

Chairman NUSSLE. Thank you.

We’ll recess for about a minute here while we’re changing the

witness table.

[Recess.]

Chairman NUSSLE. This is the resumption of the Budget Committee hearing on the Department of Agricultural Fiscal Year 2002

Budget Priorities. We are fortunate to have today Representative

Charlie Stenholm of Texas and Bruce Gardner of the Department

of Agricultural and Resource Economics of the University of Maryland.

Mr. Gardner has been involved in a number of different endeavors throughout his career. I was just reviewing your resume, curVerDate 11-MAY-2000 17:25 Aug 31, 2001 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6602 H:\DOCS\HEARINGS\107-9\HBU073.000 HBUDGET1 PsN: HBUDGET1
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riculum vitae, and you have been involved with the Department of

Agriculture, you’ve been a professor at Texas A&M, you grew up

on a dairy farm in Illinois, which is maybe even more important

to the discussion here today.

We welcome you to the Budget Committee and look forward to

your testimony.

But first off today is the very distinguished ranking member of

the Agriculture Committee and a good friend of this committee,

former member of this Committee, as I understand, and someone

who is very well known, not only on budget issues but also on agriculture issues throughout this Congress, and is well respected. We

really appreciate the fact that you would take some time, we understand the Ag Committee is organizing today and you have to

leave here shortly. So we’ll let you go first. Your entire statement

will be part of the record, and you may summarize as you see fit.

The gentleman from Texas.

STATEMENT OF HON. CHARLES W. STENHOLM, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. STENHOLM. Thank you, Mr. Chairman.

I appreciate very much your kind remarks and I appreciate this

opportunity to testify before this Committee. Mr. Chairman, Mr.

Spratt, I am delighted to be here.

I think it is very fitting that agriculture continues to be the focal

point in our budget discussion. The current farm recession is now

entering its fourth year and ranks among the deepest since 1915.

This includes the agricultural recessions the Nation experienced

during the Great Depression, World War II and the 1980’s farm financial crisis.

I know that many of you are familiar with these figures. Net

cash income over the last 3 years fell in real dollars to the lowest

point since the Great Depression. Put another way, last year’s

prices were a 27-year low for soybeans, a 25-year low for cotton, a

14-year low for wheat and corn, and an 8-year low for rice. With

essentially no improvement in commodity prices over last year,

farmers are left with tighter cash flows and serious questions about

how they are going to make ends meet.

Farm debt this year will surpass $180 billion for the first time

in 16 years. Farm production costs are expected to increase $1.5

billion. The impact of the skyrocketing costs of natural gas is now

rippling through the farm sector in the form of higher costs for fertilizer and irrigation. Repercussions are still being felt from the

Asian economic crisis.

In addition, 3 years of good weather worldwide have created

bumper crops all around the globe. This has driven down prices

and cut into potential markets for U.S. producers. Compounding

this situation for American producers is the strength of the U.S.

dollar, which has contributed to a substantial increase in relative

costs of U.S. commodities. Despite some progress in lowering trade

barriers through the World Trade Organization, the fact remains

that the average tariff on U.S. farm products in other countries is

62 percent, while the average U.S. tariff on goods coming into the

United States is around 12 percent. Additionally, the European

29

Union continues to outspend the Untied States on agriculture, having spent $47 billion last year alone.

It is precisely these conditions that have led Congress to provide $18.1 billion in emergency income assistance over the last 3 years.

This assistance was clearly needed, and there was no question

about whether or not Congress would act. That is why the Agriculture Committee has begun the process of developing legislation

to provide multi-year additional income assistance. The Agriculture

Committee is currently holding hearings during which commodity

and producer groups make specific recommendations on what Congress can do to bolster the farm safety net. These hearings are laying the groundwork for future farm policy and will help us as we

write the next Farm bill.

Given our experience, however, over the last 3 years, it is my

view, Mr. Chairman, that the budget allocation for agriculture

should be permanently increased, rather than providing additional

assistance on an emergency, ad hoc basis. The reasons for doing so

are two-fold. The first rests on the need for certainty in farming,

and the second on budget discipline.

Ad hoc assistance is by its very nature unpredictable. Producers

and lenders alike are understandably nervous about including any

dollar figure for ad hoc assistance as they prepare cash flow calculations. The current unpredictability of assistance affects not

only producers and lenders, but ripples throughout the rest of the

agricultural sector. When farmers and ranchers are unsure about

income, they don’t spend money with retailers, input suppliers,

equipment manufacturers, or anyone else.

Everyone who has testified before the Agriculture Committee

thus far has requested additional amounts for agricultural spending. I am working with Chairman Combest, and I am hoping that

we will eventually be able to introduce legislation that will ease the

crisis. This is dependent, however, upon the provision of additional

resources for agriculture. Many of you have seen the letter from

the commodity and farm groups requesting $9 billion for 2002 and

$12 billion for each year thereafter in the baseline.

Let me pose a question, Mr. Chairman, to members of the Budget Committee who also represent agricultural interests. Do you believe that we will provide additional spending this year for agriculture? If your answer is in the affirmative, then now is the time

to budget for it.

The second reason for increasing the allocation for agriculture is

the recognition of a need for a more predictable and disciplined approach to budgeting. The past 3 years have shown that Congress

has the will to provide necessary assistance when existing programs are inadequate. But emergency waivers of the Budget Act

have led to greater spending than might otherwise have been necessary.

For example, when included in the fiscal year 2001 budget resolution, the Committee on Agriculture spent $7.1 billion in 2000. In

subsequent years, funding was provided by resolution. That was

not the case 6 months later, however, when another $8.9 billion

was spent under emergency declaration.

I see two major deficiencies with the administration’s fiscal year

2002 budget for agriculture. One, it fails to provide a realistic

30

budget for agriculture, given the additional ad hoc spending Congress has provided during the last 3 years. And two, the budget relies upon an overall contingency fund that includes agriculture

when the amounts in the fund are already oversubscribed.

Mr. Chairman, members of the committee, I would ask you to

sincerely look at not only what I have just mentioned, but to realize that once you have allocated all of the projected $5.6 billion in

so-called projected surpluses over the next 10 years, once you have

allocated them, there will be no way under any circumstances that

there can be emergency spending without dipping into the Social

Security and Medicare trust funds.

Therefore, I appeal to you to seriously consider what all of the

farm organizations, and I mean from the Farm Bureau up and

down, Farmers Union up and down, have said recognizing, as I’m

sure you’ll hear from Dr. Gardner and others who have testified before the Committee, that the outlook for farm prices is not good.

Therefore, it is predictable.

Therefore, it makes a lot of sense for us, not only in this particular area, but in the conservation programs, the wetland preserve

programs, the Environmental Quality Incentives Program, as you

heard Mrs. Clayton talking about the food stamp program, rural

development and all of these areas, it is clear that rural America

is not benefiting from the boom that the rest of America has participated in for the last 10 years.

Therefore, the administration has stated, we may need to increase spending for our farmers and maintains that a portion of the

contingency fund could be used to help farmers. But claims again

on the contingency fund may exceed the money available. Those of

us who insisted Congress act on a budget resolution before acting

on tax or spending legislation are not arguing about process or arcane budget rules. This argument is about acting responsibly to

balance priorities important to our constituents.

Just as the American people deserve to know what impact the

tax cut will have on the priorities that are important to them,

America’s farmers and ranchers must be able to predict with some

degree of certainty what their income assistance will be, so that

they can work with their bankers to make plans for the next 5

years. The producers of our Nation’s food and fiber should not have

to scramble for a piece of an over-tapped contingency fund at a

time when they are at their greatest need.

Thank you, Mr. Chairman.

[The prepared statement of Charles Stenholm follows:]

PREPARED STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF TEXAS

Mr. Chairman, thank you for this opportunity to testify today as the Committee

on the Budget considers USDA’s budget for FY 2002.

It is fitting that agriculture continues to be a focal point in our budget discussions. The current farm recession is now entering its fourth year and ranks among

the deepest since 1915. This includes the agriculture recessions the nation experienced during the Great Depression, World War II, and the 1980’s farm financial crisis.

I know that many of you are familiar with the figures. Net cash income over the

last 3 years fell, in real dollars, to its lowest point since the Great Depression. Put

another way, last year’s prices were a 27-year low for soybeans, a 25-year low for

cotton, a 14-year low for wheat and corn, and an 8-year low for rice.

31

With essentially no improvement in commodity prices over last year, farmers are

left with tighter cash flows and serious questions about how they are going to make

ends meet.

Farm debt this year will surpass $180 billion for the first time in 16 years, and farm production costs are expected to increase $1.5 billion. The impact of the skyrocketing cost of natural gas is now rippling throughout the farm sector in the form

of higher costs for nitrogen fertilizer and irrigation.

Repercussions are still being felt from the Asian economic crisis that began 3

years ago. In addition, 3 years of good weather worldwide have created bumper

crops all around the globe. This has driven down prices and cut into potential markets for US producers.

Compounding this situation for American producers is the strength of the US dollar, which has contributed to a substantial increase in the relative cost of US commodities.

Despite some progress in lowering trade barriers through the World Trade Organization, the fact remains that the average tariff on US farm products in other

countries is 62 percent, while the average US tariff on goods coming into the US

is around 12 percent. Additionally, the European Union continues to outspend the

US on agriculture, having spent $47 billion last year alone. It is precisely these conditions that have led Congress to provide $18.1 billion in

emergency income assistance over the last 3 years. This assistance was clearly needed and there was no question about whether or not Congress would act. This is why

the Agriculture Committee has begun the process of developing legislation to provide multi-year additional income assistance.

The Agriculture Committee is currently holding hearings during which commodity

and producer groups make specific recommendations on what Congress can do to

bolster the farm safety net. These hearings are laying the groundwork for future

farm policy and will help us as we write the next farm bill.

Given our experience over the past 3 years, it is my view that the budget allocation for agriculture should be permanently increased, rather than providing additional assistance on an emergency, ad hoc basis. The reasons for doing so are twofold: the first rests on the need for certainty in farming, and the second on budget

discipline.

Ad hoc assistance is, by its very nature, unpredictable. Producers and lenders

alike are understandably nervous about including any dollar figure for ad hoc assistance as they prepare cash flow calculations for producer financing. The current unpredictability of assistance affects not only producers and lenders, but ripples

throughout the rest of the agricultural sector. When farmers and ranchers are unsure about income, they don’t spend money with retailers, input suppliers, equipment manufacturers, or anyone else.

Everyone who has testified before the Agriculture Committee thus far has requested additional amounts for agricultural spending.

I am working with the Chairman and I am hopeful that we will eventually be

able to introduce legislation that will ease the crisis. This is dependent, however,

upon the provision of additional resources for agriculture.

Many of you have seen the letter from the commodity and farm groups requesting

$9B for 2002 and $12B for each year thereafter. Let me pose a question to the members of the Budget Committee who also represent agricultural interests: Do you believe that we will provide additional spending this year for agriculture? If your answer is in the affirmative, then now is the time to budget for it.

The second reason for increasing the allocation for agriculture is the recognition

of the need for a more predictable and disciplined approach to budgeting. The past

3 years have shown that Congress has the will to provide necessary assistance when

existing programs are inadequate, but emergency waivers of the Budget Act have

led to greater spending than might otherwise have occurred.

For example, when included in the FY 2001 Budget Resolution, the Committee

on Agriculture spent the $7.1 billion that the resolution provided. That was not the

case 6 months later, however, when another $8.9 billion was spent under emergency

declaration.

I see two major deficiencies with the administration’s FY 2002 budget for agriculture:

(1) It fails to provide a realistic budget for agriculture, given the additional ad

hoc spending Congress has provided during the last 3 years.

(2) The budget relies upon an overall contingency fund that includes agriculture,

when the amounts in the fund are already oversubscribed.

The reliance upon ad hoc spending for agriculture is simply unacceptable. As I

indicated earlier, producers can’t reliably set a budget, and bankers don’t like the

uncertainty. In addition, undisciplined budgeting results in deficit spending or dipVerDate 11-MAY-2000 17:25 Aug 31, 2001 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 H:\DOCS\HEARINGS\107-9\HBU073.000 HBUDGET1 PsN: HBUDGET1
32

ping into the Social Security or Medicare trust funds; funds which we are all

pledged to protect. It also creates additional pressure on other important programs.

For example, conservation programs have greatly decreased soil erosion from wind

and water. These programs are not a one-time investment; they are influenced by

the weather and must be maintained year after year. We spend far less today on

conservation programs than we did 50 years ago. Consider these unmet conservation

needs:

The Wetlands Reserve Program has 3,153 applications pending to enroll another

562,000 acres; this is nearly 60 percent more than is currently enrolled.

The Environmental Quality Incentives Program (EQIP) has 197,000 applications

to enroll an additional 66.6 million acres. The net cost to meet this demand would

be over $1 billion.

The Wildlife Habitat Incentives Program has 3,017 applications pending to improve an additional 564,000 acres over the current 1.4 million acres.

These programs deliver services and benefits that the private sector cannot provide. While the private sector would realize few benefits by carrying out these programs, the public benefits are enormous. The question then becomes whether such

benefits are best gained through incentive-based programs or through government

regulation. Without public expenditure, however, there could be enormous public

and private costs.

Rural development spending is another example of well-considered public spending in one area that forestalls greater spending in another. The strong economy that

our nation has enjoyed these past several years has created improved employment

in rural areas, as well as in cities and suburbs. The opportunity for off-farm income

is helping many smaller farm families survive, when they might not otherwise do

so.

Survey data from 1999 shows that farm households where the primary occupation

was farming, but where sales were less than $250,000, comprise about 30percent

of all farms. Off-farm income provided 85 percent of total average household income

for farms with sales less than $100,000. Off-farm income provided 37 percent of

total average household income for farms with sales from $100,000 to $250,000.

In spite of the $18.1 billion that was spent in emergency income assistance during

the past 3 years, President Bush’s budget fails to provide additional money for income assistance for farmers, and leaves the baseline for agriculture unchanged. The

administration has stated that ‘‘we may need to increase spending for our farmers’’

and maintains that a portion of the contingency fund could be used to help farmers.

Claims on the contingency fund, however, may exceed the money available.

Those of us who insist that Congress act on a budget resolution before voting on

tax or spending legislation are not arguing about process or arcane budget rules.

This argument is about acting responsibly to balance priorities important to our constituents. While we all support enacting the largest tax cut we can afford, we have

a responsibility to consider what impact the tax cut will have on our ability to meet

agriculture’s needs before we enact a tax cut.

Just as the American people deserve to know what impact the tax cut will have

on the priorities that are important to them, America’s farmers and ranchers must

be able to predict with some degree of certainty what their income assistance will

be so that they can work with their bankers to make plans for the next 5 years.

An over-tapped contingency fund provides no certainty for our producers. At the

time when they are in the greatest need, producers of our nation’s food and fiber

should not have to concern themselves with the adequacy of contingency fund monies, with competing needs of other programs, or with points of order against the use

of Social Security or Medicare trust fund monies. There is no other fiscally prudent

or rational alternative than to provide permanent authority to address agriculture’s

needs in the budget resolution.

Chairman NUSSLE. Thank you, Mr. Stenholm.

Let me ask you, are you as optimistic as I am that we might be

able to come up with a reauthorization of the Farm bill this year?

Is that something you believe is an attainable goal, and not wait

until next year, when the reauthorization comes due, but actually

complete consideration this year, so that whatever reforms we can

come up with, you from the Ag Committee and we in the Congress,

together with the administration can be put into effect as quickly

as possible, from a policy standpoint, even before we talk about

money for one moment?

33

Is that a reasonable time frame for your committee and for the

Congress to be on, in your judgment?

Mr. STENHOLM. I wish I could say yes. Because I share your desire and the importance of accomplishing that goal. I think certainly Chairman Combest has established a very optimistic and

progressive and ambitious hearing process to do just that.

But I think practically speaking, given the difficulty of the task

that you have outlined for us, it will be very difficult to complete

work this year. We’ll try. I agree we should try. But I think more

probably early next year will be more likely.

And I would also say, and I say this in deference to the administration, as you heard Secretary Veneman a moment ago. She’s only

been on board for 60 days. She doesn’t have her full team in place,

as yet. It’s not realistic to expect the kind of guidance and the

input that I believe she will be providing in a very active role as

Secretary for us in time to do it this year also. But we’re going to

try.

Chairman NUSSLE. Let me put it a different way. You know the

rules as well or better than I do when it comes to the budget.

Would an instruction, a reconciliation instruction, assist us in this

regard, some type of an instruction that can help expedite this

process? Would that be a consideration that you would advise?

Mr. STENHOLM. Without much time to think on that question, I

guess my first answer would be, I do not believe that that would

be the kind of process that would be the most helpful to us for this

year. But certainly, whatever this committee would choose to do,

we will do our best, as the Agriculture Committee has always done.

Whenever the Budget Committee has given instructions to us, we

have taken the amount of money that you have set and we have

done the best we could do with it.

I would encourage you to take a good, hard look and sleep on it

twice before you go down that path, unless you have a policy in

mind to accomplish that which you are suggesting with the dollars

that we’re talking about.

Chairman NUSSLE. Well, and that brings me to the second part

of my question. That is, which comes first, the chicken or the egg?

Part of my frustration with this whole discussion, and I share your

concern as you may know, about the unrealistic nature of budgets

that don’t anticipate that which we know is about to occur. I mean,

if we know it’s coming, let’s do something about it now.

But the same is also true for knowing that not only may there

be a 2001 emergency, but there very likely, based on testimony

that we’ve heard and that you’ve heard, there may be a 2002 emergency, if nothing changes and if there’s no farm policy adjustment

in the meantime.

Part of the frustration we have here is while, yes, from your

standpoint and even if you look at the administration budget you

could say, well, there’s not enough money there. But who says?

Who says there’s not enough money there? Under what policy are

we comparing it, to say there’s not enough money there?

In other words, how much money do you need from us to write

a Farm bill? And I don’t think it’s good enough to say, oh, I don’t

know, $9 billion, just because that’s what the commodity organizations are suggesting. I’ve heard their plea as well.

34

But their plea comes without underlying policy consideration to

the degree that it is necessary for us to write a Farm bill, any more

than it’s there for us to write a budget. So similar to the Defense

Department, where the President said the strategy should determine the budget, not the budget should determine the strategy, I

would suggest that the same holds true here.

We need a policy to write this Farm bill. Otherwise, we’re putting money into a baseline that, with all due respect, and coming

from farm country as well, may not be appropriately applied under

responsible budgeting matrix, without the consideration of the policy. I’m very worried about what comes first here.

That’s why I would really encourage, and I’m encouraged by

what I’ve heard so far, but I would desperately encourage my

friends on the Ag Committee that, as fast as we can, I don’t want

to move without careful consideration, but boy, as quickly as we

can get this thing resolved in a bipartisan way, the way we used

to write Farm bills around here, the better off I think we’re all

going to be.

I don’t know what your response is to that, but that’s my concern, is putting the money before the policy.

Mr. STENHOLM. I would briefly respond, Mr. Chairman. I share

your concerns. But I would point out that my request comes under

the policy that we are operating under, under the 1995-1996 Farm

bill. If I had another hat on, if I were the chairman of the Ag Committee or if I were the Secretary of Agriculture, then I think it

would be a very pertinent question to ask me.

But I think here, I defer to my chairman and to the Secretary.

And we will be ready on our side of the aisle to work with the Secretary. And I’m certainly working with the chairman to develop

those policies.

But until we do and until we have a clear signal of the direction

we need to go, I’m here today asking the committee to provide the

resources that I believe are going to be necessary under the policy

we’re now operating under. And we will work very closely with

both sides of the aisle to develop a new set of policies that I agree

are much needed.

Chairman NUSSLE. Thank you.

Mr. Spratt.

Mr. SPRATT. Mr. Stenholm, I wanted to clarify about what you

said about $9 billion to $12 billion. Is this a request for CCC programs, for commodity programs?

Mr. STENHOLM. That’s correct.

Mr. SPRATT. And that’s an increment to what is in the budget already?

Mr. STENHOLM. Over the so-called baseline.

Mr. SPRATT. We’ve got a chart up here, CCC outlays, Commodity

Credit Corporation outlays. Have you seen this chart before?

Mr. STENHOLM. Yes, sir.

Mr. SPRATT. If you look backwards, just a few recent years, we’ve

got outlays that run up as high as $30 billion. If you look forward

from 2002 onward, we’ve got a precipitous drop and then a level

of spending that is well below the recent past. Do you think that’s

realistic?

35

Mr. STENHOLM. Not if we continue the current policy. But just

as I responded to the chairman, if we in fact change policy, then

you can make those numbers work on certain policy. But they are

not realistic to be budgeted for, based on current policy. Because

we had the experience, since 1995 and 1996, of what that has

brought to us. And we have no indication from any of the experts

who have testified before the Ag Committee as yet that it is going

to change.

Mr. SPRATT. Well, do you have any confidence that we can rewrite the farm program such that you can get it down to these levels? And if so, what would be the implications for family farmers

across America?

Mr. STENHOLM. That’s the subject of the hearings that we were

in fact having just today, 2 hours before, on the House Agriculture

Committee. It requires some changes in philosophy. I could not

agree more with Mr. LaHood’s comment, and point out that when

we start talking about embargoes, last year, the Congress voted to

lift an embargo on food and medicine. The House did, on Cuba.

Even though it was a 300 to 100 vote in the House of Representative, the leadership of the House saw fit not to implement that particular piece of legislation.

It is also fair to make the statements that Mr. LaHood made

about trade.

But again, I would be reluctant to say realistically, to put the

burden on my chairman to say that we can accomplish the kind of

in-depth agricultural policy changes this year under reconciliation

instructions. But if you decide to do it that way, if that’s the wish

of the majority, then we’ll bust a gut doing it.

But I would rather take a little bit more time and have a little

bit more discussion about it, and accept this chart and other charts

right now as being realistic and provide that additional budget. We

can always change, as you know.

What I’m suggesting in terms of budget numbers, I want to make

very clear, this fits within the so-called Blue Dog budget. And

you’re going to hear more this week about our dedication to restraint of spending. This is in the category of the 1⁄2–1⁄4–1⁄4 that

we’ve been talking about, or the 1⁄3–1⁄3–1⁄3 you’ve been talking

about regarding budget applications.

Mr. SPRATT. Thank you very much.

Chairman NUSSLE. Mr. Watkins, the gentleman from Texas has

to go organize the Ag Committee. With all the to-do list we just

gave him, he may need to go.

Mr. STENHOLM. The Agriculture Committee is formally organizing the democratic side today.

Chairman NUSSLE. I follow. But that’s an important side, too. So

Mr. Watkins, if you’ve got a question or two.

Mr. WATKINS. Mr. Chairman, I have the deepest respect for my

friend from Texas, and also Mr. Spratt. I know we can probably

work a lot of things out.

I’d just like to say that I am really concerned, Charlie. I think

you know that. You know this, I’m genuine in what I’m saying. It’s

not political. Because my background in agriculture, the love I have

for agriculture goes deep. Suffice to say that, I missed the Secretary, Mr. Chairman, because of a constituent problem out there

36

in agriculture, I went outside and all of a sudden she was finished

up.

But I don’t think, just to point out, in 1965 we had about 15 percent of our population in this country, John, that were in production agriculture. That’s about the time I was state president of the

Future Farmers of America. A few years later, we had about 12

percent, when I graduated from the college of agriculture up on the

State.

Today we have only 1.5 percent of our people in production agriculture. That shows the erosion. We’re going to have to do something to pay the price, like they’re saying in France, we’re going to

pay whatever the price to keep the farmers in Europe. And they’re

doing it in exporting, Charlie, on the supply and demand side, and

we’re not competing. I’m for trade, free and fair trade, but we don’t

have the policies in place, Mr. Chairman, to save the American

farmer. We’ve got to try to save him. But we do not have it in place

today.

So Charlie, maybe you and I will have a chance over a prayer

breakfast table or somewhere to talk some more about this. Thank

you very much, and I’ll respect the time.

Chairman NUSSLE. Thank you.

Thank you very much for coming today, Mr. Stenholm. We look

forward to working with you on this.

Mr. STENHOLM. Thank you, Mr. Chairman. We look forward to

working with you. I know of your keen interest in agriculture, and

I never speak for my chairman, but Mr. Combest and I have a serious interest in the policy changes required. We look forward to

working with you and Mr. Spratt and Mr. Watkins and other members of the committee. Thank you.

Chairman NUSSLE. Thank you very much.

Dr. Gardner, we appreciate your patience in allowing a member

to organize his committee. We would enjoy hearing your testimony

now. Your entire statement will be in the record, and you may

summarize as you would like to proceed.

STATEMENT OF BRUCE L. GARDNER, CHAIRMAN, DEPARTMENT OF AGRICULTURE AND RESOURCE ECONOMICS, UNIVERSITY OF MARYLAND

Mr. GARDNER. Thank you, Mr. Chairman.

I will just briefly summarize what I have to say in the testimony.

It’s basically trying to get at a somewhat narrower issue that does

get at this question of strategy of where it is that it would be most

promising to go with agricultural policy. Because we all, I think,

feel somewhat at sea with the situation as it is, and would like to

consider alternatives.

I want to address three areas of Federal spending on farm programs that have been important since 1996: the production flexibility contract payments, marketing loan costs, which are principally

loan deficiency payments, and the crop insurance program costs.

All three of those are in a chart, Figure 2 at the back of the testimony, show how they have all expanded over the course of the

1996 Act.

The production flexibility, or Freedom to Farm payments, are the

most costly budget item, and of course, they’re the ones that have

37

been most troubling to many observers. Some have argued that the

FAIR Act has failed, pointing especially to those payments and

what they have done and not done. But we have to recognize that

there are pros as well as cons to what the Freedom to Farm Act

has done.

The pros are first that the program has, as advertised, allowed

farmers more freedom to farm. Since 1996, we’ve seen about 10

million acres go out of wheat, and at the same time, about a 12

million acre increase in soybean acreage. This reflects in part the

end of restraints on incentives that the former programs had created.

The second pro is that the payments themselves have been largely non-distorting in the sense that whether a farmer uses more or

less inputs or switches acreage among the program crops or leaves

land fallow, these things make no difference in the amount of payments received.

The cons of the 1996 Act, are first: that the payments have not

been targeted to situation where they’re most needed, either in

terms of the most depressed commodities or the lowest priced

years. Nor have they been targeted to the farmers who are at most

economic risk. And the same is true of the market loss assistance

supplementary payments of 1998, 1999 and 2000.

The second con is that the receipt of market loss assistance payments for the last 3 years and their gradual expansion to cover additional crops has led to an expectation extending almost to a sense

of entitlement that the payments at higher levels should continue,

as we’ve already heard. Of course, the producers of the commodities

that haven’t been covered or only partially covered so far are increasingly wondering why they’re left out, leading to the problems

that you’ve described quite eloquently, Mr. Chairman.

Turning to the marketing loan program, it wasn’t created by the

FAIR Act, but the lower prices of recent years, together with the

decisions in the executive branch to maintain loan rates at the

maximum levels the 1996 Act permitted, those decisions have made

loan deficiency payments a large budget item. And the problem

here is that these payments have overridden the market signals

that were telling farmers to produce less. The market mechanism

is missing that permitted hog prices, for example, after the disastrously low prices of a couple of years ago, to recover without Government intervention in any significant way.

USDA estimates that U.S. grain output now is something like 2

to 3 percent higher than would have been the case if we wouldn’t

have had the loan deficiency payment program. So very much unlike the Freedom to Farm payments, the loan deficiency payments

do affect what farmers do.

And because the programs are encouraging over-production, I estimate that of the roughly $7 billion that the loan program is providing the farmers, $2 billion is being taken back again. That $2

billion goes to consumers or others on the grain buying side of the

market through the lower prices that this over-production generates. Such distortion of markets is a real problem, and loan rates

should be reduced to fix it.

Third is the crop insurance programs. These have been expanded

to forestall the need for ad hoc disaster assistance, as we’ve already

38

heard. What is new under the FAIR Act is the unprecedented levels of subsidy for crop insurance, not just the FAIR Act, but the

other crop insurance legislation since. And expansions of the programs to cover economic hazards as well. Some of these experiments I think are well worth looking at, such as revenue insurance. In the State of Maryland, we’re now trying the pilot program

on adjusted gross income insurance.

The problem here, though, is that even though the budgetary

costs of crop insurance are in the neighborhood of $3 billion annually, or it looks like they will be for 2001, the program still has not

attained sufficient coverage to forestall the need for ad hoc disaster

assistance. Moreover, the subsidies for those who participate are

becoming large enough to create significant incentives to grow

crops in more drought-prone areas or otherwise less favorably situated areas.

But where does that leave us with the policy options as we look

out? I think that’s what we have to be thinking about, as you’ve

been discussing. What alternatives make sense?

I’d like to consider one tempting possibility that I’m sure will

come up, although I didn’t hear anything about it today. One way

to support farm incomes and farm prices without a lot of budgetary

expenditures is returning to some kind of acreage controls or supply management program, while maintaining or even raising loan

rates. Then you attempt to generate higher market prices in that

way.

What are the pros and cons of that approach? The pros are the

higher market prices can be obtained and thereby, farm incomes

can be supported, with a smaller budget outlay. The cons are that

the cost is shifted to consumers and other buyers of commodities,

and that the total costs of consumers and taxpayers together will

be higher to support a given level of farm income. The total costs

will be higher just because in these supply management programs,

farmers have to be compensated for the cost of holding valuable

acreage idle, and that’s a cost to us as a society, as well as to the

farmers.

I have an overall estimate that the sum of gains to producers

and landowners, taking away the losses to consumers and taxpayers, under the current Freedom to Farm programs for the

grains and cotton, what is called in some of the economic literature

a deadweight loss, amounts to about $200 million a year, basically

from the overproduction that’s being generated.

But if we try to achieve the same level of farm income, that is,

an addition of about $20 million going to farmers through acreage

controls, the overall social loss or deadweight loss would be $2 billion to $3 billion a year. That’s because of the idled acreage.

Moreover, over the longer term, the supply management approach becomes less and less capable of delivering benefits to farmers. I would express the basic issue as follows. We can all see that

when there’s a bad crop year in the United States, prices rise

sharply, because demand is inelastic. So there are big gains for

farmers to be had. Therefore, it’s natural to think that if we can

create this kind of scarcity through policy, we will make our farm

community better off.

39

But the problem is that the supply and demand responses in the

longer run are larger. If you keep managing supply year after year,

and all market participants believe that the U.S. will take steps to

forestall lengthy periods of low prices, then foreign producers are

going to discount the prospect of low prices, they will produce more

than they otherwise would, and the main thing the U.S. will accomplish is to lose markets.

That’s the problem with this approach, the supply management

approach. It’s the difficulty we got into with the pre-1990 programs, and even to some extent in 1990 to 1995. I believe it’s what

we would get into again if we go down the supply management

route.

So comparing the pros and cons that I just mentioned for a supply management approach with the FAIR Act Freedom to Farm approach that we’ve had, I wouldn’t want to say that the FAIR Act

has been a sterling example of policy at its finest. But I do say it’s

an improvement over what we had before, and it would be a serious mistake to go back to those former policies.

I think overall, the preferable, forward looking approach is to

continue with the phaseout of payments that was begun under the

FAIR Act and to focus Federal spending on policies that in the past

have reaped the greatest rewards for our Nation, including both

food consumers as well as producers and all involved in the agricultural industry.

These are the policies that help make the United States the

world’s leader in agriculture and food production. These include

continuing efforts in research, technology development, technical

education. I believe it’s important to maintain these efforts, and to

continue the turn in these investments toward things like improving water quality, conservation programs, and to keep supporting

biotechnology development, including things like alternative fuels

and other alternative uses of agricultural products.

It’s especially important, as I have heard several people mention,

to make progress on international trade agreements, to reduce protectionism in agricultural trade. A key practical step in this last

area is the congressional granting of Fast Track negotiating authority to the President. And I think these policies could be supplemented with a kind of market oriented safety net policy, like a

broad based risk management approach where farmers essentially

ensure against their own losses maybe with some Government

help, but try to keep the incentives to invest in unduly risky activities down.

And also, more broad based rural development policies, that are

aimed at taking the people who really are in trouble in agriculture,

and there are a lot of them, and giving them assistance in a way

that doesn’t lock them into losing farm enterprises, but gives them

other alternatives if that’s what works best for them. That whole

scheme of things I call broad based rural development policies.

I think one reason it would take a while to think about alternatives to what we have now in the Agriculture Committee is that

a whole range of things ought to be considered as an alternative

to the kind of ad hoc payments that we’re making now.

Thank you very much.

[The prepared statement of Bruce Gardner follows:]

40

1Figure 1 shows both budget spending and payments received by farmers. The two series are

closely related but differ in that some budget spending does not result in payments to producers

(for example, CCC acquisitions of dairy products). The much higher budget outlays shown for

FY2000 are in part the result of market loss assistance outlays for both 1999 and 2000 crops

occurring in FY2000. Adjusting for this would lower the 2000 outlay value by about $5.5 billion.

It should also be noted that producers get some benefits from commodity programs apart from

payments, such as higher sugar prices because of U.S. import restrictions. The budget data are

CCC budget outlays plus estimated crop insurance program costs as estimated by Jerry Skees,

‘‘The Bad Harvest,’’ mimeo, University of Kentucky, 2001. CCC outlays in recent years omit

USDA’s personnel and other costs of administering the programs which would be about $600

million annually if included.

PREPARED STATEMENT OF BRUCE L. GARDNER, CHAIRMAN, DEPARTMENT OF

AGRICULTURE AND RESOURCE ECONOMICS, UNIVERSITY OF MARYLAND

Mr. Chairman and members of the committee, I appreciate the opportunity to appear before you to address issues of Federal spending on farm policy. I am not going

to attempt to cover the whole agriculture budget, but instead will briefly address

two central issues in commodity policy: first, assessment of the FAIR Act’s ‘‘freedom

to farm’’ approach to commodity programs as they have been implemented; and second, policy options for the immediate and longer-term future.

ASSESSMENT OF THE FAIR ACT

The Agricultural Market Transition Act (AMTA) title of the 1996 FAIR Act is a

novel departure in farm policy. Its fixed payments, no acreage set-asides, and avoidance CCC commodity stockpiles provides a possible means of transition to a marketbased agriculture that would not require governmental intervention to prop up the

agricultural economy. Some now argue that the FAIR Act has failed, on the grounds

that we have spent too much, while at the same time this spending is not effectively

targeted at situations and people where help is most needed. As Figure 1 shows,

outlays on agricultural support are at near record highs.1 What should be done, in

the view of some critics, is to scrap the FAIR Act approach and replace it with a

different approach, such as going back to payments that go up or down inversely

with market prices, and annual acreage set-asides if needed to support market

prices.

In order to evaluate this argument, I want to consider three important areas of

Federal spending on farm programs since 1996: production flexibility contract payments, marketing loan costs (principally loan deficiency payments), and crop insurance program costs. Figure 2 shows these costs, along with predecessor deficiency

payment program costs, since 1992.

Production flexibility, or freedom-to-farm payments are the biggest item and the

most troubling to many observers. As Figure 2 shows, they started at a level about

equivalent to what deficiency payments had been on average in 1992-95, but have

ended up higher. As contemplated at the time, the 1996 Farm bill was being debated, freedom-to-farm payments were a mechanism to phase out a long history of

commodity programs for grains and cotton which had come to be seen as having outlived their usefulness. But as implemented they proved to cost more than the preceding deficiency payment programs would have cost during 1996-2000, and are no

longer seen as a mechanism leading to an end to traditional commodity programs

in 2002. I see the pros and cons of the FAIR Act as implemented as follows:

Pros: (1) The program has, as advertised, allowed farmers more freedom to farm,

and resulted in production choices more attuned to market conditions than the old

deficiency payment and set-aside approach had done. Since 1996 we have seen

about 10 million acres go out of wheat and, at the same time, about a 12 million

acre increase in soybean acreage, reflecting in part the end of restraints on incentives that the former programs had created. (2) The payments themselves have been

largely non-distorting, in that whether a farmer uses more or less inputs, switches

acreage among program crops, or leaves land fallow makes no difference in the

amount of payments received. That is to say, the FAIR Act has generated less deadweight loss to our economy than previous agricultural programs.

Cons: (1) The payments have not been targeted to situations where they are most

needed, either in terms of most depressed commodities or lowest-price years, nor

have they been targeted to farmers who are most at economic risk. (2) In response

to farm distress when prices fell in 1998, 1999, and 2000, market loss assistance

payments were made to supplement contracted payments, but these too were not

directed at states or farmers where problems were greatest. (3) The receipt of market loss assistance payments for the last 3 years, and their gradual expansion to

cover additional crops, has led to an expectation, extending almost to a sense of entitlement, that payments at the higher levels should continue.

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2The ERS background for the preceding estimates is in P. Westcott and M. Price ‘‘Analysis

of the U.S. Marketing Loan Program,’’ draft, August 2000; and details of the calculations are

spelled out in B. Gardner, ‘‘Agricultural Policy: Pre- and Post-FAIR Act Comparisons,’’ prepared

for a Senate Agriculture Committee staff briefing, December 2000.

The marketing loan program was not created by the FAIR Act, but the lower

prices of recent years, together with the decisions of the executive branch to maintain loan rates at the maximum levels the 1996 Act permitted, have made loan deficiency payments a large budget item and have caused economic distortions. With

loan rates set at their legislated maximum, and the administration of the loan deficiency payment program generating expected market returns to farmers that exceed

loan rates by 10 to 15 percent, the loan program is overriding market signals. The

market mechanism is thus missing that permitted the hog prices, for example, to

recover without government intervention after the extraordinarily low prices of 1998

and 1999. The exact amount by which the loan program is fostering overproduction

is difficult to estimate. Reasonable estimates are those of the Economic Research

Service that indicate 2000 output of grain was perhaps 2 to 3 percent higher than

would have been the case if producers had not received loan deficiency payments.

This means market prices of grains and oilseeds would have been about 3 percent

higher, with a bigger increase for cotton, if the loan programs were not encouraging

overproduction. Consequently, of the roughly $7 billion annually the loan program

is providing to farmers, $2 billion is being taken back again—actually given to consumers and others on the grain buying side of the market—through lower prices

caused by the program.2 Such distortion of markets is a real problem, and loan rates

should be reduced to fix it.

Crop Insurance and Disaster Assistance Programs. Attempts to forestall the need

for ad hoc disaster assistance by having farmers buy crop insurance are of course

not new with the FAIR Act. What is new since 1996 is unprecedented levels of subsidy for crop insurance and expansions to cover economic hazards as well. The problem here is that even though the budgetary costs of crop insurance are in the neighborhood of $3 billion annually as of the 2001 programs, the programs still have not

attained sufficient coverage to forestall the need for ad hoc disaster assistance.

Moreover, the subsidies for those who participate are becoming large enough to significantly affect farmers’ production decisions. In particular, there is an incentive

that cannot be ignored to grow crops in more drought-prone and otherwise less favorably situated areas.

POLICY OPTIONS FOR THE SITUATION IN 2001 AND BEYOND

What alternatives make sense to consider in formulating the Federal budget for

2002? One tempting possibility might be to save outlays by scrapping the freedom

to farm approach, and re-introducing acreage set-asides. The idea would be to drive

up commodity prices, thereby reducing loan deficiency payments. However, acreage

idling is a very wasteful use of our agricultural resources, and I believe the costs

of this option to our economy far exceed the benefits.

Another option for reducing budget outlays from levels of the last 2 years would

be simply to limit AMTA payments to the originally contracted amounts and not

supplement them with market loss payments for the 2001 crops. Although commodity prices are likely to remain low this year, the idea that the U.S. farm economy

is in a state of financial crisis that requires such payments is overdrawn. The best

evidence of this is that cropland rental rates and prices continue to rise. It is true

that some farms are in deep financial trouble. The problem with market loss assistance payments in this respect is that the vast bulk of them go to farms that are

not in financial trouble, and the sums that do go to farms in financial trouble are

generally not sufficient to restore them to solvency.

With respect to the longer term, the necessity to make changes in policy is greater

because the FAIR Act’s AMTA program expires next year. Possibilities will again

be considered of returning to acreage controls, while maintaining or raising loan

rates, and attempting to generate higher market prices through supply management. What are the pros and cons of this approach? The pros are that higher market prices can be obtained and thereby farm income can be supported for a smaller

budget outlay. The cons are that the cost is shifted to consumers and other buyers

of commodities, and that the total costs of consumers and taxpayers together will

be higher to support a given level of farm income. The total costs will be higher because farmers will have to be compensated for the costs of holding valuable acreage

idle.

My overall estimate is that the overall sum of gains and losses under current

AMTA programs for the grains and cotton is a deadweight loss of about $200 million

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3Details of the analysis leading to this conclusion are in ‘‘Agricultural Policy: Pre- and PostFAIR Act Comparisons,’’ cited in the preceding footnote.

per year. But if we tried to achieve the same level of farm income through acreage

controls, the deadweight loss would be $2 to 3 billion per year.3 Moreover, over the

longer term the supply management approach becomes less and less capable of delivering benefits to farmers. I would express the basic issue as follows: we can all

see that when there is a bad crop year in the United States, prices rise sharply.

Demand is inelastic. There are big gains for farmers to be had. So it is natural to

think that if we can create such scarcity through policy we will make our farm community better off. But the problem is that supply and demand responses in the

longer run are larger (‘‘more elastic’’). If you keep managing supply year after year,

and all market participants believe the U.S. will take steps to forestall lengthy periods of low prices, then foreign producers will discount the prospect of low market

prices, produce more than they otherwise would (as U.S. farmers would if were not

for acreage restrictions), and the main thing the United States will accomplish is

to lose markets. That is the problem. That is the difficulty we got into in pre-1990

programs, and I believe it is what we will get into again if we go down the supply

management route.

In short, while I would not say that the FAIR Act has been a sterling example

of policy at its finest, I do say that it is an improvement over what we had before,

and it would be a serious mistake to go back to former policies.

The preferable forward-looking approach in my opinion is to continue with the

phase-out of payments that was begun under the FAIR Act, and to focus Federal

spending on policies that have reaped the greatest rewards for our nation, including

food consumers as well as producers, policies which have helped make the United

States the world’s leader in agriculture and food production. These include continuing efforts in research, technology development, and technical education. I believe

it is important to maintain these efforts, and to continue to turn these investments

toward remedies for market failures, for example protecting water quality, and to

keep supporting biotechnology development. It is especially important to make

progress on international agreement to reduce protectionism in this and other areas

of agricultural trade. A key practical step in this last area is congressional granting

of fast-track negotiating authority to the President. These policies can be supplemented with market-oriented safety net policies having only modest subsidies, and

financial assistance targeted at people in trouble without locking them into losing

farm enterprises—that is, broad-based rural development policies.

Source: USDA and Skees (cited in text).

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Source: USDA and Skees (cited in text).

Chairman NUSSLE. Thank you, Doctor.

I’m interested in your last couple of comments there. You would

then therefore advocate for or at least be willing to consider some

type of a program of income assurance or insurance through, as opposed to our current program?

Mr. GARDNER. That’s something I would want to put on the table

for consideration, yes. I’m not saying I’m advocating that today. My

main point today was just to compare the supply management with

the Freedom to Farm approach.

Chairman NUSSLE. And we appreciate that. That’s what we’re

looking for right now, is alternatives.

Let me ask you this. The Farm Bureau has, together with a

number of other commodity organizations, has put a number on the

table of somewhere between $9 billion and, as Mr. Stenholm reported here, maybe as high as $12 billion over and above what

we’re talking about, $9 billion for 2002 and $12 billion annually

thereafter.

Is this advisable, in your opinion, based on your testimony? I’m

getting the impression that it may not be. Let me start with that.

What’s your impression of the increased funding request?

Mr. GARDNER. Again, the strategic point I wanted to make is

that you don’t want the policies that you put in place to create any

efficiencies, to create overproduction or to have underproduction.

The nice thing about Freedom to Farm payments is that they don’t

do that, they just go into the farmer’s pocket pretty much whatever

the farmer does.

Now, the question of the $9 billion to $12 billion is, how much

money do you want to devote to this purpose. For me as an economist, it makes a big difference how you spend that money. To me,

that’s the most important issue. The question of how much to

spend is a more political issue. And there, I’m not running for anything and I don’t have a view.

Chairman NUSSLE. We’ll put the number at $9 billion and what

would be your advice on how best we should spend that money?

44

Let’s take their number. What would be your advice on how we

should allocate that?

Mr. GARDNER. Well, first, I would say that’s a big number, to me.

Even over the kind of numbers that are in red on the chart. So you

could do a lot with that kind of money. With that kind of money,

no matter how you spend it, you’re likely to have some effects on

what farmers do, so you want to be careful about how you do it.

I think a good way is to consider some kind of revenue insurance

or some broader kind of risk management tool. I wouldn’t want actually want to limit it to revenue insurance. I actually like the

ideas that Senator Lugar was putting forth on the Senate side last

year, where you allow farmers a lot of options with what to do with

money that the Government puts up to support this kind of activity.

I definitely would not want to spend any of this money raising

loan rates. I think that would be the worst way to do it, because

it would just intensify the overproduction problems that we have.

I think that these rural development ideas that I talked about,

which I admit are extremely vague, should be looked at, but that

takes time. And in fact, I would say that you shouldn’t try to put

something through this year.

I understand it’s very difficult, all these pressures on how to

react to the demands that are put on the Congress for funds. But

I would much rather be careful about this, and if it came to spending $9 billion this year, I would rather just spend it the way it was

spent in previous years than to precipitously set up a new kind of

program that really hadn’t been tried before.

I guess I’d leave it at that, except, let me say one thing about

the market situation. I agree with all the pessimistic statements

that have been made about prices, where they are now and that

the prospects aren’t high that they’re going to improve much this

year, although I do think the likelihood is they’ll improve a little

this year.

If you look at history and how the farm commodity prices have

behaved in the past, we’ve had this pattern of long periods of very

low commodity prices, farmers are just barely getting by, and then

something unexpected happens and we have a boom. We had this

in World War II, we had it in the Korean War, we had it in the

1970’s, we had a taste of it in 1995 and 1996. And none of those

cases were predicted. When it happens again it won’t be predicted,

either.

So there’s always the possibility that something will, as Mr.

Micauber says in Dickens, something will turn up. It has happened

from time to time in the past. So in that respect, it’s worth sometimes waiting to see what’s going to happen in the next year. Because one thing to think of, stocks are not high right now. It

wouldn’t take that much of a reversal. The dollar being less strong,

a number of other things happening.

Chairman NUSSLE. I understand it’s complicated. And I’m certainly not suggesting that the entire Farm bill needs to be reauthorized by the end of this year, but the commodity portion of it

I think needs serious consideration. I’ll tell you the biggest demand

or the biggest deterrent from this, I would suggest, is not market

driven but politically driven, more than anything else. When ConVerDate 11-MAY-2000 17:25 Aug 31, 2001 Jkt 000000 PO 00000 Frm 00048 Fmt 6633 Sfmt 6602 H:\DOCS\HEARINGS\107-9\HBU073.000 HBUDGET1 PsN: HBUDGET1
45

gress wants to move, as you saw us move the tax legislation last

week, we can move pretty fast when we want to. When we don’t

have the demand or the deadline or the political demand, sometimes we can put things off, well, forever.

So I certainly understand, we don’t want to move so precipitously

that we make a mistake. All I would just observe is that hasn’t

stopped us before.

Mr. Collins, do you have any questions? Mr. Brown, do you have

anything?

Thank you very much for coming today and giving us your advice. We appreciate that and look forward to any more words of

wisdom you might have in the future.

Thank you.

If there isn’t anything else to come before the committee, we’ll

stand adjourned.

[Whereupon, at 3:19 p.m., the committee was adjourned, to reconvene at the call of the Chair.]

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