```

[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

      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

  Available on the Internet: http://www.access.gpo.gov/congress/house/
                              house04.html

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
70-997                     WASHINGTON : 2001

_______________________________________________________________________
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                        COMMITTEE ON THE BUDGET

                       JIM NUSSLE, Iowa, Chairman
JOHN E. SUNUNU, New Hampshire        JOHN M. SPRATT, Jr., South 
  Vice Chairman                          Carolina,
PETER HOEKSTRA, Michigan               Ranking Minority Member
  Vice Chairman                      JIM McDERMOTT, Washington
CHARLES F. BASS, New Hampshire       BENNIE G. THOMPSON, Mississippi
GIL GUTKNECHT, Minnesota             KEN BENTSEN, Texas
VAN HILLEARY, Tennessee              JIM DAVIS, Florida
MAC THORNBERRY, Texas                EVA M. CLAYTON, North Carolina
JIM RYUN, Kansas                     DAVID E. PRICE, North Carolina
MAC COLLINS, Georgia                 GERALD D. KLECZKA, Wisconsin
ERNIE FLETCHER, Kentucky             BOB CLEMENT, Tennessee
GARY G. MILLER, California           JAMES P. MORAN, Virginia
PAT TOOMEY, Pennsylvania             DARLENE HOOLEY, Oregon
WES WATKINS, Oklahoma                TAMMY BALDWIN, Wisconsin
DOC HASTINGS, Washington             CAROLYN McCARTHY, New York
JOHN T. DOOLITTLE, California        DENNIS MOORE, Kansas
ROB PORTMAN, Ohio                    MICHAEL E. CAPUANO, Massachusetts
RAY LaHOOD, Illinois                 MICHAEL M. HONDA, California
KAY GRANGER, Texas                   JOSEPH M. HOEFFEL III, 
EDWARD SCHROCK, Virginia                 Pennsylvania
JOHN CULBERSON, Texas                RUSH D. HOLT, New Jersey
HENRY E. BROWN, Jr., South Carolina  JIM MATHESON, Utah
ANDER CRENSHAW, Florida
ADAM PUTNAM, Florida
MARK KIRK, Illinois

                           Professional Staff

                       Rich Meade, Chief of Staff
       Thomas S. Kahn, Minority Staff Director and Chief Counsel

                            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

 
      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.
    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.

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 
billion, 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 
Department'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 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 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.
    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.
     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.
    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 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 private 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 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 
billion. 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, 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 probably 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 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.
    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 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 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 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.
    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 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 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 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 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 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 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 
important 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.
    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, curriculum 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 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 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.
    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 dipping 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?
    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.
    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?
    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 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 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 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.
    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:]

    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 market-based 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.
---------------------------------------------------------------------------
    \1\ Figure 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.
---------------------------------------------------------------------------
    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.
    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.
---------------------------------------------------------------------------
    \2\ The 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.
---------------------------------------------------------------------------
    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 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.
---------------------------------------------------------------------------
    \3\ Details of the analysis leading to this conclusion are in 
``Agricultural Policy: Pre- and Post-FAIR Act Comparisons,'' cited in 
the preceding footnote.
---------------------------------------------------------------------------
    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).

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? 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 Congress 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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