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[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

 
          HEARING TO REVIEW THE STATE OF THE POULTRY INDUSTRY

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                     LIVESTOCK, DAIRY, AND POULTRY

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 13, 2011

                               __________

                           Serial No. 112-11

          Printed for the use of the Committee on Agriculture
                         agriculture.house.gov

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                        COMMITTEE ON AGRICULTURE

                   FRANK D. LUCAS, Oklahoma, Chairman

BOB GOODLATTE, Virginia,             COLLIN C. PETERSON, Minnesota, 
    Vice Chairman                    Ranking Minority Member
TIMOTHY V. JOHNSON, Illinois         TIM HOLDEN, Pennsylvania
STEVE KING, Iowa                     MIKE McINTYRE, North Carolina
RANDY NEUGEBAUER, Texas              LEONARD L. BOSWELL, Iowa
K. MICHAEL CONAWAY, Texas            JOE BACA, California
JEFF FORTENBERRY, Nebraska           DENNIS A. CARDOZA, California
JEAN SCHMIDT, Ohio                   DAVID SCOTT, Georgia
GLENN THOMPSON, Pennsylvania         HENRY CUELLAR, Texas
THOMAS J. ROONEY, Florida            JIM COSTA, California
MARLIN A. STUTZMAN, Indiana          TIMOTHY J. WALZ, Minnesota
BOB GIBBS, Ohio                      KURT SCHRADER, Oregon
AUSTIN SCOTT, Georgia                LARRY KISSELL, North Carolina
STEPHEN LEE FINCHER, Tennessee       WILLIAM L. OWENS, New York
SCOTT R. TIPTON, Colorado            CHELLIE PINGREE, Maine
STEVE SOUTHERLAND II, Florida        JOE COURTNEY, Connecticut
ERIC A. ``RICK'' CRAWFORD, Arkansas  PETER WELCH, Vermont
MARTHA ROBY, Alabama                 MARCIA L. FUDGE, Ohio
TIM HUELSKAMP, Kansas                GREGORIO KILILI CAMACHO SABLAN, 
SCOTT DesJARLAIS, Tennessee          Northern Mariana Islands
RENEE L. ELLMERS, North Carolina     TERRI A. SEWELL, Alabama
CHRISTOPHER P. GIBSON, New York      JAMES P. McGOVERN, Massachusetts
RANDY HULTGREN, Illinois
VICKY HARTZLER, Missouri
ROBERT T. SCHILLING, Illinois
REID J. RIBBLE, Wisconsin

                                 ______

                           Professional Staff

                      Nicole Scott, Staff Director

                     Kevin J. Kramp, Chief Counsel

                 Tamara Hinton, Communications Director

                Robert L. Larew, Minority Staff Director

                                 ______

             Subcommittee on Livestock, Dairy, and Poultry

                  THOMAS J. ROONEY, Florida, Chairman

BOB GOODLATTE, Virginia              DENNIS A. CARDOZA, California,  
STEVE KING, Iowa                     Ranking Minority Member
RANDY NEUGEBAUER, Texas              DAVID SCOTT, Georgia
K. MICHAEL CONAWAY, Texas            JOE COURTNEY, Connecticut
STEPHEN LEE FINCHER, Tennessee       TIM HOLDEN, Pennsylvania
TIM HUELSKAMP, Kansas                LEONARD L. BOSWELL, Iowa
SCOTT DesJARLAIS, Tennessee          JOE BACA, California
CHRISTOPHER P. GIBSON, New York      KURT SCHRADER, Oregon
REID J. RIBBLE, Wisconsin            WILLIAM L. OWENS, New York

              Michelle Weber, Subcommittee Staff Director

                                  (ii)

                             C O N T E N T S

                              ----------                              
                                                                   Page
Cardoza, Hon. Dennis A., a Representative in Congress from 
  California, opening statement..................................     2
Goodlatte, Hon. Bob, a Representative in Congress from Virginia, 
  opening statement..............................................     3
Rooney, Hon. Thomas J., a Representative in Congress from 
  Florida, opening statement.....................................     1
    Prepared statement...........................................     2

                               Witnesses

King, Daniel M., Owner/Operator, Zenda Poultry LLC and Zenda View 
  Farm LLC, Harrisonburg, VA; on behalf of Virginia Poultry 
  Federation.....................................................     4
    Prepared statement...........................................     5
Welch, Michael A., President and Chief Executive Officer, 
  Harrison Poultry, Inc., Bethlehem, GA; on behalf of National 
  Chicken Council................................................     8
    Prepared statement...........................................    10
Hill, Paul, Chairman of the Board, West Liberty Foods, Ellsworth, 
  IA; on behalf of National Turkey Federation....................    14
    Prepared statement...........................................    16

          HEARING TO REVIEW THE STATE OF THE POULTRY INDUSTRY

                              ----------                              

                       WEDNESDAY, APRIL 13, 2011

                  House of Representatives,
     Subcommittee on Livestock, Dairy, and Poultry,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 2:00 p.m., in 
Room 1300, Longworth House Office Building, Hon. Thomas J. 
Rooney [Chairman of the Subcommittee] presiding.
    Members present: Representatives Rooney, Goodlatte, 
Neugebauer, Huelskamp, DesJarlais, Cardoza, Scott, Courtney, 
Schrader, and Owens.
    Staff present: Patricia Barr, Tamara Hinton, John Konya, 
Debbie Smith, Pete Thomson, Michelle Weber, Nathaniel B. Fretz, 
Liz Friedlander, Mary Knigge, and Jamie Mitchell.

OPENING STATEMENT OF HON. THOMAS J. ROONEY, A REPRESENTATIVE IN 
                     CONGRESS FROM FLORIDA

    The Chairman. The hearing of the Subcommittee on Livestock, 
Dairy and Poultry to review the state of the poultry industry 
will come to order. I would like to thank my Ranking Member, 
Mr. Cardoza, for working with me in preparing for today's 
hearing. I would also like to welcome our witnesses and thank 
them for taking the time out of their busy lives to be with us 
here today and participate in this process.
    Last week's hearing was structured to provide an update on 
our nation's modern beef production sector. Today we will focus 
on poultry. Because of the nature of the poultry community, 
including the fact that we are examining production practices 
for two species, the witnesses do not fall into categories as 
neatly as our beef hearing. Nonetheless we have provided a 
range of perspectives. Today we have a fairly typical size 
chicken contract grower from the Shenandoah Valley; the 
President of a single plant chicken integrator from Georgia; 
and an individual from Iowa who is both a turkey integrator and 
grower.
    According to the latest USDA agricultural projections 
report, poultry production is projected to rise the most among 
the meats over the next decade as poultry is the most efficient 
feed-to-meat converter. I look forward to hearing from our 
witnesses about the good work they are doing to officially meet 
the growing demand for wholesome, high-quality, nutritious, 
protein products.
    Our witnesses have been asked to provide a description of 
the poultry production system from their perspective, discuss 
the economic situation, as they see it today, and list some of 
their public policy challenges. This is the second hearing in a 
series that is intended to lay the foundation for the work of 
the Livestock, Dairy, and Poultry Subcommittee during the 112th 
Congress.
    Last week's hearing naturally generated considerable 
discussion about the proposed GIPSA rule, environmental 
regulatory burdens and the effect of feed costs and 
availability issues. I want to assure my colleagues that it is 
our intent to thoroughly examine each of these important topics 
in subsequent hearings.
    As we move forward with this work, I encourage my 
colleagues and others interested in the work of this 
Subcommittee to share with me their thoughts about our agenda.
    Again, thank you to our witnesses. I look forward to their 
testimony, Members' questions and subsequent discussions.
    [The prepared statement of Mr. Rooney follows:]

   Prepared Statement of Hon. Thomas J. Rooney, a Representative in 
                         Congress from Florida

    Once again, I would like to thank my Ranking Member, Mr. Cardoza, 
for working with me in preparing for this hearing today. I would also 
like to welcome our witnesses and thank them for taking time out of 
their busy lives to participate in this process.
    Last week's hearing was structured to provide an update on our 
nation's modern beef production sector. Today we will focus on poultry. 
Because of the nature of the poultry community--including the fact we 
are examining production practices for two species--the witnesses do 
not fall into categories as neatly our beef hearing. Nonetheless, we 
have provided a range of perspectives. Today we have a fairly 
typically-sized chicken contract grower from the Shenandoah Valley, the 
president of a single plant chicken integrator from Georgia, and an 
individual from Iowa who is both a turkey integrator and a grower.
    According to the latest USDA agricultural projections report, 
poultry production is projected to rise the most among the meats over 
the next decade, as poultry is the most efficient feed-to-meat 
converter. I look forward to hearing from our witnesses about the good 
work they are doing to efficiently meet the growing demand for 
wholesome, high-quality, nutritious protein products.
    Our witnesses have been asked to provide a description of the 
poultry production system from their perspective, discuss the economic 
situation as they see it today, and list some of their public policy 
challenges. This is the second hearing in a series that is intended to 
lay the foundation for the work of the Livestock, Dairy, and Poultry 
Subcommittee during the 112th Congress. While last week's hearing 
naturally generated considerable discussion about the proposed GIPSA 
rule, environmental regulatory burdens, and the effect of feed cost and 
availability issues, I want to assure my colleagues it is our intent to 
thoroughly examine each of these important topics in subsequent 
hearings.
    As we move forward with this work, I encourage my colleagues and 
others interested in the work of this Subcommittee to share with me 
their thoughts about our agenda. Again, thank you to our witnesses. I 
look forward to their testimony, Members' questions, and subsequent 
discussion.

    The Chairman. I would now like to recognize the Ranking 
Member for his opening statement, Mr. Cardoza.

 OPENING STATEMENT OF HON. DENNIS A. CARDOZA, A REPRESENTATIVE 
                  IN CONGRESS FROM CALIFORNIA

    Mr. Cardoza. Thank you Chairman Rooney. It is a pleasure to 
be with you again today.
    And thanks to everyone who is attending this hearing and 
for the witnesses who are sharing with us their experience with 
regard to this current state of the poultry industry.
    The poultry industry is vital to the health of our country 
and to my home State of California. The California poultry 
industry alone provides jobs to over 25,000 people, not 
including the tens of thousands of jobs from affiliated 
industries. The poultry industry employees earn more than $250 
million annually and contribute significantly to our overall 
economy.
    That is why I am very happy that we are holding this 
hearing today to discuss the poultry production, its trends in 
the industry, and the problems this Committee should focus on 
as we move forward.
    Although California is twelfth in the nation in broiler 
production and sixth for turkey production, we still face a 
tremendous number of challenges; among them, feed price 
escalation, animal disease and welfare, air quality and 
environmental issues and other issues that cost more every day 
to manage.
    As a Committee, we will work to promote policies that will 
help the poultry industry grow and thrive. A strong poultry 
industry provides affordable healthy food for our nation and 
supplies thousands of jobs and decent wages to their workers. 
Nonetheless, as we work to reduce the deficit spending that we 
face as a country, we need to prioritize programs that are 
economically efficient and effective and jettison those that 
are not. We need to focus our resources on initiatives that 
best help our producers and processors as a whole, and I look 
forward to working with the Chairman to those ends.
    The Chairman. Thank you, Mr. Cardoza.
    The chair would request that other Members submit their 
opening statements for the record so that witnesses may begin 
their testimony and ensure that there is ample time for 
questions.
    I would like to welcome our panel of witnesses to the table 
and to introduce Mr. King. I would like to yield to the former 
Chairman of this Committee, Mr. Goodlatte.

 OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN 
                     CONGRESS FROM VIRGINIA

    Mr. Goodlatte. Thank you, Mr. Chairman.
    It gives me great satisfaction to welcome Mr. King as our 
witness today. This is not the first time he has testified 
before the Agriculture Committee. Dan King testified before the 
Subcommittee in Staunton, Virginia, when we had a field hearing 
prior to the writing of the last farm bill. And I know some of 
the--in fact, many of the Members of the Committee were present 
for that.
    He and his immediate family own and rent 550 acres near 
Harrisonburg, Virginia, where they raise corn, annual forages 
and grass hay. Like many growers in the Shenandoah Valley and 
in the country, I know that you are being confronted with many 
challenges, from rising feed costs to increased compliance 
costs due to regulations by the EPA. I look forward to hearing 
your testimony about these important issues. And I thank you 
for being here.
    And Mr. Chairman, I thank you for yielding to me.
    The Chairman. Thank you, Mr. Goodlatte.
    Also joining us today is Mr. Michael Welch, President and 
Chief Executive Officer of Harrison Poultry, Inc., in 
Bethlehem, Georgia; Mr. Paul Hill, Chairman of the Board of 
West Liberty Foods in Ellsworth, Iowa.
    We will now go to Mr. King for his opening statement.
    Mr. King, please begin when you are ready.

STATEMENT OF DANIEL M. KING, OWNER/OPERATOR, ZENDA POULTRY LLC 
                    AND ZENDA VIEW FARM LLC,
   HARRISONBURG, VA; ON BEHALF OF VIRGINIA POULTRY FEDERATION

    Mr. King. Good afternoon, Chairman Rooney, Congressman 
Cardoza, and Members of the Subcommittee.
    I appreciate the opportunity and the invitation to be with 
you this afternoon and look forward to a dialogue on a subject 
that is dear to my heart.
    As first-generation farmers my wife Janet and I have a lot 
at stake in the future of the poultry industry because it was 
this industry that primarily allowed us to achieve our dream of 
being farmers. I would like to state that it takes a lot of 
pride to realize that your farm, that our farm provides America 
with a safe, affordable and environmentally responsible home-
grown supply of wholesome protein.
    I have several topics I would just like to mention in my 
statement. One of those I am concerned about is the GIPSA rule 
and the changes that that would have to the contract that 
governs my farm and the settlements that we receive from our 
poultry enterprises. Philosophically, I feel like the 
government should stay out of setting financial terms of 
contracts between private parties, and I feel that there will 
be many unintended consequences as we move forward with the 
proposed changes.
    I am a strong supporter of the tournament system. The 
practice would be eliminated under the new rule, and I think 
that that would be a detriment to the efficiency and future of 
our industry. This removes incentives from producers to make 
improvements to their houses to invest the time it takes to 
provide the management necessary to be successful.
    It would also make it more difficult for new growers to pay 
for their investment of new houses because, generally, new 
investments are more efficient than old. Removing the 
tournament system would be detrimental to that new growth of 
the industry which ultimately, would have a negative impact on 
the length that this industry will be able to survive in the 
current economic situation.
    I would like to also state that I feel that it is high time 
that our country develop a comprehensive energy policy. We have 
talked a lot about that. You know, a couple years ago, we faced 
some of the challenges that we face today. Unfortunately, from 
my seat, when I look at the current situation, I don't know 
that we are more prepared for this than we were the last time. 
With many of my energy prices doubling, increasing by four-
fold, these costs are killing not only the American farmer, but 
they are strangling the entire food delivery system.
    It is critical that the government get out of the way of 
energy production and adopt a comprehensive forward-looking 
energy policy that allows U.S. companies to maximize the use of 
U.S. energy. This country's economy will never be truly strong 
again as long as we buy most of our energy abroad or burn our 
food. In 2006, when I testified before the Agriculture 
Committee, I was raising concerns then about what ethanol would 
do to grain prices because the input cost on broilers, 
basically 70 percent of that comes from feed costs. I was told 
by a Member of the Committee then that we could have all the 
ethanol we wanted and corn prices would never get above $3.50 a 
bushel. So our country pursued an ethanol policy, and yesterday 
on the Chicago Mercantile Exchange, the May contract forward 
settled at $7.52. That does not make that Congressman a liar, 
but truly we need to reevaluate the way we approach the energy 
needs of this country.
    I also would like to make a strong statement in support of 
free trade. It is essential that we have access to all the 
markets around the world because we raise a product that is 
done in such an environmentally sensitive way that it is 
important for the environment of the world that we access the 
markets that are available to us.
    And finally, I would just like to make a couple comments 
about the environment. As a farmer, I get tired of going to 
meetings where the environmentalists stand up and say we want 
the farmer on the land, we know they are the best for the land, 
and then the next 2 hours, they tell us how we can't do 
anything that we have done in the past because we are the worst 
stewards that ever existed. Let us not forget that Mother 
Nature is not baseline zero. If all agriculture would go out of 
the Chesapeake Bay, the Chesapeake Bay would not be pristine. 
As a matter of fact, the use of most land in the Chesapeake Bay 
watershed is most beneficial to the environment if it stays in 
agricultural production.
    The EPA, in my opinion, has overreached, and I would like 
to encourage you to support commonsense approaches, because 
ultimately it is our desire to be stewards of the land that 
will govern our decisions, not over heavy-handed government 
regulation. This will not be good for the Bay, and it will not 
be good for the security of our nation's food supply.
    Mr. Chairman, Congressman Cardoza, and Members of the 
Subcommittee, thanks for your interest and support. It was a 
delight to be with you here this afternoon.
    [The prepared statement of Mr. King follows:]

Prepared Statement of Daniel M. King, Owner/Operator, Zenda Poultry LLC 
    and Zenda View Farm LLC, Harrisonburg, VA; on Behalf of Virginia
                           Poultry Federation

    Good afternoon, Chairman Rooney, Congressman Cardoza, and Members 
of the Subcommittee. Chairman Rooney, thank you for the invitation and 
opportunity to share with you and the Committee my views on the state 
of the poultry industry on behalf of the more than 400 poultry growers 
that are members of the Virginia Poultry Federation. I appreciate the 
privilege to discuss with you at this important hearing a number of 
issues that are most troubling to poultry producers like me.
    My name is Dan King. My wife Janet and I are first generation 
farmers and the owners and operators of our family farm that trades as 
Zenda View Farm LLC and Zenda Poultry LLC in Rockingham County, 
Virginia. We raise crops, beef cattle, and broiler chickens. Our 
operation is typical of many diversified farming operations in the 
Shenandoah Valley of Virginia. We have three broiler houses with a 
capacity for 31,000 broilers each and average seven flocks each year. 
So our farm raises 650,000 broilers annually under contract with 
George's Foods, Inc. of Springdale, Arkansas. This may sound like a lot 
of chickens but we in reality are an average-sized operation in the 
modern U.S. poultry industry. In fact, I take pride in the fact that my 
farm produces enough chicken meat annually for 20,000 people to consume 
the 82 pounds the average American consumer partakes of in a year.
    My family farm is helping to provide Americans with a safe, 
affordable and environmentally responsible homegrown supply of 
wholesome protein and contributing to nutritional needs worldwide. This 
would not be possible without our contract with a vertically integrated 
poultry processing company, such as George's Foods, Inc. The contract 
arrangements between my family farm and George's Foods has provided a 
good, dependable income over the 24 years we have been growing 
broilers.
    Most, if not all, companies are currently suffering significant 
financial loses. The cost-price squeeze between very high feed and 
energy costs and relatively low prices received for broilers, parts, 
and products has been ongoing since the fourth quarter of last year 
and, according to a number of economists, may continue for some time 
yet. Fortunately, we have been somewhat insulated from this market risk 
and commodity price volatility. Our flock placement schedule has been 
basically unaffected, with down time only slightly increased, and our 
contract settlements have continued as prescribed in our contract.
USDA Should Not Over-Regulate Poultry Contracts
    Having been a poultry producer for the past 24 years I have 
witnessed the highs and the lows in the farm economy and the poultry 
industry in particular. The integrated production contract has provided 
us with a regular source of income while significantly shielding us 
from the adverse impact of low commodity prices in a down poultry 
market. In 2008 and again in recent months, the cost-price squeeze 
between very high feed and energy costs and relatively low prices 
received for broilers, parts, and products has caused most, if not all, 
poultry companies to operate at a loss. During these times, I have 
continued to be somewhat insulated from this market risk and commodity 
price volatility.
    I am very concerned about the proposed Grain Inspection, Packers & 
Stockyards Administration's (GIPSA) regulation on poultry contracts. 
Any regulatory measures by USDA should only seek to promote 
transparency in contracts so that parties have a mutual and clear 
understanding of the terms. The government should not set the financial 
terms of contracts between private parties.
    Unfortunately, the GIPSA regulation goes well beyond ensuring 
transparency. The proposal establishes an unprecedented level of 
government intervention in setting the financial terms of poultry 
contracts. I am concerned that this level of government regulation will 
have negative ramifications for the poultry industry in the United 
States, and actually hurt poultry growers. Specific concerns are the 
following:

   The 2008 Farm Bill required GIPSA to address five areas 
        concerning poultry contracts. The 2010 GIPSA rule far exceeds 
        what was mandated in the farm bill.

   Litigation--The rule is so vague in its terminology that it 
        will most certainly result in costly litigation.

   Tournament System--The practical effect of the rule will be 
        elimination of better pay for better results. This removes 
        incentives that reward growers based on performance. It removes 
        incentives for investments in innovation necessary for the U.S. 
        poultry industry to remain competitive in the World market.

   Greater Integration--The rule could lead to greater 
        integration of the poultry industry with a greater trend toward 
        fewer and larger contract farms and more company owned farms.

    GIPSA should reconsider this massive regulatory intervention into 
private contracts due to the harm it will cause to poultry farmers, 
processors, and the U.S. food supply.

Comprehensive Energy Policy Needed
    One of my biggest concerns as a poultry producer is the high cost 
of energy. In 2002, we were paying about 65 cents per gallon for 
propane gas, which is one of our biggest input costs. This winter it 
was about $1.80 per gallon. Our average electricity bill has gone from 
$525.00 a month to $835.00 a month. We us about 2,500 gallons of diesel 
fuel, which in the past 10 years has increased fourfold from $0.80 to 
$3.20 a gallon. The high cost of diesel impacts the cost of our 
supplies, as well. These costs are killing the American farmer and 
straining our entire food delivery system.
    In 2008 I was meeting with a group of farms from around the country 
in Nashville, Tennessee. One of our speakers was from the natural gas 
industry. We spent ninety minutes looking at U.S. energy reserves and 
the leasing and permitting process. After the presentation was over our 
facilitator ask for questions or comments. A soft spoken farmer from 
the back of the room muttered what I think was, ``We are being 
shafted.'' The facilitator asks him to speak up to which he replied, 
``We are being shafted by our own government.'' It is critical that 
government get out of the way of energy production and adopt a 
comprehensive, forward-looking energy policy that allows U.S. companies 
to maximize the use of U.S. energy. This country's economy will never 
be truly strong again as long as we buy most of our energy abroad or 
burn our food.

Corn Ethanol Policy
    As you know, the Federal Government has adopted mandates, 
incentives, and trade barriers to prop up the U.S. ethanol industry, 
which now diverts some 40 percent of the U.S. corn crop away from 
traditional food uses to our gas tanks. These policies include the 
Renewable Fuels Standard (RFS), which specifies the annual amount of 
corn-based ethanol refiners must blend into gasoline; the so-called 
``blender credit'' or VEETC, which provides refiners with a 45 cents 
tax credit per gallon of ethanol used; and a 54 cents per gallon tariff 
on foreign ethanol imports into the United States
    Additionally, EPA recently approved a petition from the ethanol 
industry to increase the allowable ethanol-gasoline blend from 10 
percent to 15 percent in newer-model cars and light trucks, and the 
ethanol industry has begun to press Congress for an expansion of the 
RFS and additional new supports.
    Feed is the poultry industry's largest input cost, at roughly 70 
percent of total live costs. Industry feed costs have increased by 
billions of dollars since the RFS began to ramp up in 2006. In 2008, 
corn prices temporarily spiked to nearly $8 per bushel having been 
consistently in the $3 per bushel range for years. Deflationary 
influences of the recession caused corn prices to moderate, but they 
have remained artificially inflated above historical market prices. 
Unable immediately to pass high feed costs along to consumers due to 
free market supply-demand dynamics the meat industry lost billions of 
dollars and suffered significant job losses until production cuts 
finally led to higher prices. Now per capita meat supplies are as low 
as they have been since the 1980s and it is inevitable that consumers 
will feel the pinch of higher food prices.
    Just as the meat industry painfully adjusted to corn prices of 
nearly $4 per bushel and regained profitability, and was poised for 
growth, the October 2010 USDA crop report signified a short 2010 corn 
crop. Corn prices quickly spiked to more than $5.50 per bushel and are 
now more than $7.00. This along with the usual uncertainty about the 
new year's crop make high corn prices a near certainty for months to 
come. The ``stocks-to-use ratio''--an indicator of grain availability--
is at historically low levels.
    These higher prices, exacerbated by ethanol policy threaten the 
ongoing recovery in the meat and poultry sector. While processors must 
initially eat the higher costs, Federal policies give the ethanol 
industry an incentive to produce more ethanol when the market is 
rationing a tight corn supply. This along with speculator investment 
will inflate feed costs for the foreseeable future and jeopardize 
poultry industry profitability and jobs, not to mention the impact of 
food inflation on consumers during these difficult economic times.
    Federal ethanol supports cost taxpayers billions of dollars while 
causing economic harm to poultry and livestock industries that support 
tens of thousands of Virginia jobs. The volume of oil replaced by corn 
ethanol is low. The costs do not justify the benefits. Please support 
adopted legislation to restrict or eliminate Federal support for 
ethanol and oppose any bills that further prop up the industry through 
Federal funding or other supports.

Free Trade Agreements
    You might not think that international trade matters much to an 
individual farmer like me, but it is vitally important to my industry 
and, ultimately, to my success as a farmer. Export markets have played 
an ever larger role in U.S. poultry production. As recently as 1990 the 
U.S. exported only five percent of chicken production. Today, the U.S. 
exports close to 20 percent of our chicken production. Access to 
foreign markets is critical to the poultry industry. Let me just say 
that in order to be competitive in the world marketplace, I encourage 
Congress to take swift action on the various free trade agreements that 
have been successfully negotiated. Let's not lose the opportunities for 
prosperity that comes with trade and suffer the consequences of lost 
international market-share.

Environmental Protection Agency Needs to Take a Time-Out
    The final, but certainly not the least important, topic I'd like to 
address is the environment. It has been said that farmers are the 
original environmentalists and as a conservationist I know I care more 
about and do more for the environment than most outspoken 
environmentalists. We live where we work and we work where we live. My 
farm has operated with a nutrient management plan since 1991. Over the 
years, we have installed many conservation practices on our farm, at 
considerable expense. Like most farmers, we are motivated more by a 
natural, inborn desire to take care of our land and the streams running 
through it than by heavy-handed government regulations. My family and I 
take pride in being the best stewards we can be.
    The Chesapeake Bay is a tremendous natural resource that deserves 
our stewardship--but not in the heavy-handed regulatory manner proposed 
by EPA through the recently adopted Chesapeake Bay Total Maximum Daily 
Load (TMDL). Virginia's poultry industry has already spent millions of 
dollars on voluntary initiatives and compliance with existing 
regulations. The industry will continue to be a responsible 
environmental steward. However, more burdensome government regulations 
will be counterproductive by jeopardizing agricultural operations and 
accelerating conversion of well-managed farmland to other, less 
environmentally beneficial land uses.
    The poultry industry questions EPA's authority for its mandates; 
has concerns about the accuracy of Chesapeake Bay computerized 
pollution loading models; is concerned about the lack of cost-benefit 
and economic impact analysis; and criticized the agency for allowing 
only 45 days for public comment and not fully documenting the basis for 
the decisions made in the proposed TMDL. EPA should reconsider its 
present course and allow states to chart a path forward that balances a 
widely shared desire to improve the condition of the Bay while 
preserving state prerogatives and avoiding detriment to agriculture and 
Virginia's economy.
    Farmers are willing to do more, but we are producing food for this 
nation on thin margins and this TMDL could impose regulatory costs that 
drive farmers out of business. That's not good for the Bay and it's not 
good for the security of our nation's food supply.

Conclusion
    Mr. Chairman, your interest and support for the poultry is most 
appreciated. On behalf of the Virginia Poultry Federation, poultry 
farmers look forward to working with you, Congressman Cardoza, and the 
Members of the Subcommittee to improve the environment for poultry 
production. And, not just for land, water, and air, but also the 
economic environment.

    The Chairman. Thank you, Mr. King.
    Mr. Welch.

 STATEMENT OF MICHAEL A. WELCH, PRESIDENT AND CHIEF EXECUTIVE 
                OFFICER, HARRISON POULTRY, INC.,
          BETHLEHEM, GA; ON BEHALF OF NATIONAL CHICKEN
                            COUNCIL

    Mr. Welch. Good afternoon, Chairman Rooney, Congressman 
Cardoza, and Members of the Subcommittee.
    I also thank you, Chairman Rooney, for the opportunity to 
participate in this important and timely hearing on the issues 
impacting the state of the poultry industry. On behalf of the 
National Chicken Council, I appreciate your invitation to 
provide comments and recommendations regarding a number of 
issues and challenges confronting the chicken industry.
    U.S. chicken producer/processors will certainly need the 
Subcommittee's support if the chicken industry is to 
successfully overcome the increasingly difficult issues and 
challenge I will outline in my statement.
    My name is Michael Welch, and I am the President and Chief 
Executive Officer of Harrison Poultry in Bethlehem, Georgia. I 
have been President of Harrison Poultry since 1992. Harrison 
Poultry is a small privately-held company operating one 
slaughter plant producing a variety of products.
    More than 1,000 employees work hard every day to make 
Harrison Poultry successful. Also, over 125 family farmers 
contract to grow broilers and an additional 40 family farmers 
contract to produce hatching eggs every week for the company-
owned hatchery. Each week, Harrison Poultry produces more than 
6 million pounds of broilers on a liveweight basis.
    Some of Harrison Poultry growers have been growing broilers 
since Harrison Poultry become vertically integrated more than 
40 years ago, even though the company contract is considered a 
flock-to-flock arrangement.
    Mr. Chairman, and Committee Members, as you can appreciate, 
there are many issues impacting the state of the chicken 
industry as I speak to you today. I have however limited my 
statement to what the National Chicken Council considers its 
top priorities. Permit me to note these priorities.
    First, corn-based ethanol rules should be realigned. The 
rules of the game for corn-based ethanol must be balanced and 
the playing field should be leveled to permit chicken producers 
and other animal agricultural producers to more fairly compete 
for the limited supplies of corn this year and the next few 
years at least. For more than 30 years, the ethanol industry 
has had an opportunity to learn how to compete in the 
marketplace. It is now time, actually well beyond a reasonable 
time, for ethanol manufacturers to just say no to government 
subsidies, government mandated usage and government protection 
from foreign competition.
    Also, it is time to seriously consider a safety valve to 
adjust the Renewable Fuels Standard when there is a shortfall 
in corn supply such as the current situation. Let us pray that 
this fall's corn harvest is more than abundant.
    In addition, USDA should implement as soon as possible a 
plan to allow a reasonable number of good, productive cropland 
acres to opt out of the Conservation Reserve Program. With this 
crisis on the horizon, why must we wait until it is on our 
doorstep.
    Second, the proposed USDA GIPSA rule, the USDA Grain 
Inspection, Packers, and Stockyards Administration proposed 
rule addressing competition and contracting in the poultry and 
livestock industry should be withdrawn. Congress should insist 
that GIPSA adhere to the legislative mandates regarding the 
type, scope and intent of any rule that is re-proposed and 
implemented.
    Third, is the three pending free trade agreements. Three 
free trade agreements are pending and have been pending for far 
too long. The National Chicken Council suggests, as have other 
groups, that these agreements be called U.S. job creation 
agreements.
    Increased poultry exports, a result of implementing these 
agreements, would definitely result in more jobs in the poultry 
industry and more family farmers growing more poultry.
    In conclusion, the National Chicken Council, its members 
and the many allied industries that support poultry production, 
processing and marketing look forward to working more closely 
with the Subcommittee and others in Congress, so that poultry 
producers have a better opportunity to successfully manage the 
increasingly difficult challenges and issues.
    Improving the state of the poultry industry not only helps 
poultry companies and poultry farmers but, perhaps more 
importantly, will allow consumers of poultry to continue to 
enjoy an ongoing adequate supply of animal protein at 
reasonable prices.
    The number one issue in our industry that is creating the 
financial havoc now is the ethanol situation. Our industry has 
overcome adversity, challenges, droughts, high prices, low 
prices, foreign embargoes, avian influenza, and we have 
successfully competed at all times. We are unable to compete 
against the U.S. Government in the triple mandate of requiring 
ethanol production, subsidizing its use and protecting them 
from foreign imports. And we really ask you to seriously 
consider reviewing that.
    That being said, thank you Chairman Rooney, Congressman 
Cardoza, and Members of the Subcommittee for the opportunity to 
share the recommendations of the National Chicken Council. I 
request that both my written and oral statements be entered 
into the record of the hearing and I look forward to your 
questions.
    [The prepared statement of Mr. Welch follows:]

 Prepared Statement of Michael A. Welch, President and Chief Executive 
 Officer, Harrison Poultry, Inc., Bethlehem, GA; on Behalf of National 
                            Chicken Council

    Good afternoon, Chairman Rooney, Congressman Cardoza, and Members 
of the Subcommittee. Thank you, Chairman Rooney, for the opportunity to 
participate in this important and timely hearing on the issues 
impacting the state of the poultry industry. On behalf of the National 
Chicken Council, I appreciate your invitation to provide comments and 
recommendations regarding a number of issues and challenges confronting 
the chicken industry. U.S. chicken producer/processors will certainly 
need the Subcommittee's support if the chicken industry is to 
successfully overcome the increasingly difficult issues and challenges 
I will outline in my statement. As a point of clarification, I will use 
the word ``broiler'' and ``chicken'' interchangeably in my statement.
    My name is Michael Welch and I am President and Chief Executive 
Officer of Harrison Poultry in Bethlehem, Georgia. I have been 
President of Harrison Poultry since 1992. Harrison Poultry is a small, 
privately held company operating one slaughter plant producing a 
variety of products that are carefully and specifically tailored to our 
end-customer requirements. More than 1,000 employees work hard every 
day to make Harrison Poultry successful. Also, over 125 family farmers 
contract to grow broilers and an additional 40 family farmers contract 
to produce hatching eggs for the company-owned hatchery. Each week 
Harrison Poultry processes more than 6 million pounds of broilers on a 
liveweight basis. Some of Harrison Poultry growers have been growing 
broilers since Harrison Poultry became vertically-integrated more than 
40 years ago, even though the company contract is considered a flock-
to-flock arrangement. Harrison Poultry and other companies in the 
chicken industry provide good, steady income for family farmers across 
the United States where broilers are produced.
    Harrison Poultry is a proud member of the National Chicken Council; 
and I, as a former Chairman of the organization, am pleased to present 
this statement on behalf of the National Chicken Council. More than 95 
percent of the young meat chicken (broilers) produced and processed in 
the United States come from the Council's members.

Chicken Production and Increasing Feed Costs
    Over the past 5 decades, broiler production has only decreased on 
an annual basis three times: 2 years in the mid-1970s and in 2009. With 
the very steady track-record of increasing production, the industry's 
growth has offered increased opportunities for growers to expand their 
operations and build their net worth. That strong track record of 
growth is in very serious jeopardy because an over abundance of corn is 
being diverted to fuel production and thus squeezing-out corn that 
should be available for feed.
    In 2010 almost 50 billion pounds, liveweight, of chickens were 
produced using more than 55 million tons of feed for broilers and the 
broiler breeder flocks that provide the fertile eggs for hatching. Of 
the 55 million tons of feed, over 36 million tons or about 1.3 billion 
bushels of corn or corn products were mixed into the finished feed. The 
average cost of chicken feed before the corn price began to rapidly 
escalate in mid-October 2006 was $139.20 per ton. Last month (March 
2011) the same ton of feed cost over $300 per ton, a more than doubling 
of cost. The vast majority of the run-up in feed costs was the result 
of corn more than tripling in price since 2006. Last year the chicken 
industry's feed bill was almost $13.0 billion compared with total feed 
costs in 2006 of less than $7.0 billion. On a cumulative basis with the 
higher feed costs, the chicken industry has had to pay over $23 billion 
more for feed since October 2006.
    Many years ago then Secretary of Agriculture Earl Butz referred to 
chickens as ``condensed corn.'' When Secretary Butz was in office in 
the early 1970s it took more than 2.25 pounds of feed to produce a 
pound of liveweight chicken. Today the feed conversion is better than 
1.9 to 1.0, with many companies having conversion ratios of better than 
1.8 to 1.0. Except for farm-raised catfish, no farm-raised animal is a 
better converter of feed to food than chicken. Nonetheless, even very 
efficient feed conversion cannot mitigate the high corn prices and the 
significant impact on the cost of producing chicken. Based on commodity 
futures prices that reflect essentially only a pipeline quantity of 
corn available as carryover stocks at the end of this current crop, it 
appears there will be further escalation in the corn price. Therefore, 
even higher feed costs are most likely for the rest of this year and 
beyond. Also, not only will corn prices most likely be higher, the 
volatility in corn prices will be much greater.

Why the Future Is Different Than the Past
    Certain analysts have suggested that ``we have been here before.'' 
That is, animal agriculture, including the broiler industry, has 
weathered high prices for feedgrains/oilseeds in years past and, for 
the most part, has survived. It is true that there have been high feed 
costs before now and, at certain times, the quick run-up in prices have 
come upon the market unexpectedly. In the past, the problem has been a 
1 year or so supply problem. But now, however, the situation is not 
only supply-driven but also demand driven. U.S. animal agriculture has 
not been here before. For example, a number of econometric models both 
at universities and private analytical firms that analyze the animal 
agriculture sector and forecast how the sector interrelates with the 
feed complex have been reworked and have been significantly adjusted 
because the previous models simply could not handle the new dynamics of 
current and future scenarios. Government policy for corn-based ethanol 
that subsidizes, mandates, and protects it from competition has changed 
how ethanol reacts to normal market forces. This biofuel is a 
relatively new dynamic that changes these econometric models. Corn used 
for ethanol for the 2005/06 crop year was 1.6 billion bushels or 14 
percent of total usage. For 2010/11 USDA is estimating almost 5 billion 
bushels or about 37 percent of total corn usage. The increase in the 
usage of corn for ethanol over these 5 years has tripled. Also, the 
international demand for U.S. agricultural commodities must now take 
into account the China factor. Chinese Government trade policy is often 
difficult to predict. Nonetheless, China's rapidly growing need for 
more agricultural imports seems somewhat evident. Many, if not most 
agricultural commodity analysts, believe China is poised to become a 
large net importer of corn on a consistent going-forward basis.
    Increasing demand for corn is being placed on a limited supply. 
USDA is predicting ending corn stocks for 2010/11 at 675 million 
bushels which most analysts consider to be less than minimum pipeline 
requirements. There is no cushion, no extra bushels in inventory to 
carry the needs of the users of corn through the next crop year in the 
event of a shortfall in this Fall's corn harvest. To assume an adequate 
number of acres will be planted to corn this year and the next few 
years and to further assume favorable weather conditions for crops this 
year and the next few years are not assumptions the U.S. chicken 
industry is prepared to make, nor should prudent U.S. Government 
policymakers be willing to make.

Contingency Plan for Shortfall of Corn Long Over-Due
    Since October 2008 when corn prices escalated to record high 
levels, it has become more and more clear that the national policy 
regarding corn-based ethanol has been heavily tilted toward using corn 
for fuel rather than for food/feed. The need to re-balance the policy 
is long overdue. Picking one market for corn to be the winner at the 
expense of the loser should not be the function of government. 
Mandating the use of ethanol, subsidizing its cost, and protecting 
ethanol from competition is triple over-kill. Greater energy 
independence is a worthy goal for the United States, but the negative 
and unintended consequences of moving too far too fast with corn-based 
ethanol have become overly evident. For the chicken industry, like 
other animal agriculture producers, fewer pounds of product have been 
produced and will not be produced in the foreseeable years. Consumers 
who have sufficient income to devote to cover the higher costs of food 
will reach deeper into their pocketbooks and pay the higher food 
prices. Consumers in this country and around the world who cannot 
continue to afford animal protein in their diets will have to shift to 
other foods. However, with land being a limiting factor in the 
production of food, it is most likely all foods will be higher in 
price, whether of animal origin or not.
    Foremost is the need for a credible, equitable, and workable plan-
of-action in the event of significant shortfall in the corn crop. I 
suggest the United States is now experiencing a significant shortfall 
in corn supplies. Unless there are perfect crop conditions this year to 
plant, grow, and harvest a record quantity of corn, animal agriculture 
will experience major disruptions while ethanol producers will continue 
to outbid non-subsidized buyers of corn. The National Chicken Council 
recommends a plan be implemented that would reduce the Renewable Fuels 
Standard when the stocks-to-use ratio for corn drops to low levels, 
like is now the situation.
    With the weakened U.S. dollar, overseas buyers of U.S. commodities, 
like corn, see these commodities as being relatively more affordable 
than domestic buyers. Thus, it can reasonably be argued that U.S. 
animal agriculture is the most vulnerable corn buyer with the shortfall 
in corn. It is highly unlikely the current shortfall crisis will be a 1 
year problem. The essentially non-existent stocks of corn means more 
and more acres of corn will be required as will higher and higher corn 
yields for the next 3 years or more. In addition to a contingency plan 
that uses the ratio of corn-stocks-to-use as a trigger mechanism for 
the Renewable Fuels Standard, the National Chicken Council also 
recommends that USDA be required to implement a plan to permit non-
environmentally sensitive acres to be released from the Conservation 
Reserve Program without penalty. More acres are needed, not just for 
corn, but also for soybeans, wheat, cotton, and other crops that 
compete with corn for acreage.

Ethanol Debacle
    As I have noted chicken companies are increasingly being severely 
impacted by the growing diversion of corn into government-subsidized 
ethanol programs. This year's farm gate corn price will likely be three 
times higher than the comparable price in 2005/06, the year prior to 
implementation of the Renewable Fuels Standard (RFS) mandate. 
Government policy requires that a fixed amount of corn-derived ethanol 
be used in motor fuel every year. Taxpayers subsidize the program by 
45 cents per gallon through the Volumetric Ethanol Excise Tax Credit 
(VEETC) paid to fuel blenders. This credit will cost the Treasury over 
$5.67 billion in lost revenue this year. Ethanol manufacturers are also 
protected from foreign competition by an import tariff of 54 cents per 
gallon plus another two percent ad valorem duty. The tariff sharply 
limits the amount of ethanol imported from Brazil and Caribbean 
counties, where it is normally produced more economically from sugar. 
The ethanol industry has been subsidized for more than thirty years and 
has a large guaranteed market through the biofuel mandate set by the 
Energy Independence and Security Act (EISA) of 2007. Fuel blenders are 
required to use 12.6 billion gallons of corn-derived ethanol in motor 
fuel this year and 15 billion gallons by the year 2015. Yet, all this 
ethanol is doing little to improve U.S. energy security, which is what 
Congress intended to do with the 2007 Energy Act. Ethanol made from 
corn is the only product that receives government subsidies, has a 
mandate for usage, and is protected from foreign competition. Enough is 
enough.

Proposed GIPSA Rule
    In the 2008 Farm Bill Congress directed the U.S. Department of 
Agriculture [USDA/Grain Inspection, Packers and Stockyards 
Administration (GIPSA)] to develop criteria in five areas of poultry 
and swine contracts. The five areas are:

   Undue or unreasonable contractual preferences/advantages to/
        for particular contracting parties.

   Whether a live poultry dealer or swine contractor has 
        provided reasonable notice to a poultry grower or hog farmer of 
        any suspension of delivery of birds or hogs.

   Reasonable requirements for additional capital investments 
        over the life of a contract.

   Provide reasonable period of time for a poultry/swine grower 
        to remedy a breach of contract.

   Reasonable terms for arbitration in poultry and swine 
        contracts.

    When USDA published the proposed rule in the Federal Register on 
June 22, 2010, interested parties were given 60 days to comment on the 
rule. The very short comment period provided an insufficient time for a 
serious and thorough analysis of the rule. Further, there was no 
credible, adequate economic impact analysis accompanying the proposed 
rule. Most egregious, the proposed rule went far beyond what Congress 
had instructed USDA to consider. After significant debate, USDA 
extended the comment period an additional 90 days.
    Six areas in the proposed rule where GIPSA went beyond what 
Congress instructed are as follows:

   Onerous record-keeping requirements.

   Redefines ``competitive injury'' requirements.

   Redefines the term ``fairness''.

   Additional capital investment requirement for grower to 
        recoup 80% of costs.

   Modification in the payment system to growers.

   Disclosure and online publication of contracts.

    The rule, as proposed, would cost the broiler industry over $1 
billion during the first 5 years, and further, would change the way 
companies and growers do business that has been successfully conducted 
for more than 5 decades. The vertically-integrated industry structure 
with growout contracts with family farmers is a system that has been 
successful and has made the U.S. chicken industry the most efficient 
and economically-viable in the world. The rule would put the U.S. 
chicken industry at a global disadvantage, as other countries would not 
have to face these onerous requirements. The rule would create 
uncertainty and cause unnecessary and costly regulatory and legal 
burdens in the marketplace by making it much more difficult for 
companies and contract growers to get competitive financing. In 
addition, companies would not have the incentive to use capital to 
improve and expand operations; rather there would be more of a 
financial incentive to restructure their businesses to include their 
own growout operations. USDA needs to withdraw the proposed rule and 
start over with a proposed rule that reflects the Congressional mandate 
and simple, logical common sense.

Time for Free Trade Agreements
    President Obama in his 2010 State of the Union speech called for a 
doubling of U.S. exports within 5 years. An important part of his 
effort is to have Congress approve three pending trade agreements: 
Colombia (signed in November 2006), Korea (signed in June 2007), and 
Panama (signed in June 2007). The White House's primary argument for 
passage of the free trade agreements (FTA) is that several hundred 
thousand jobs would be created and the U.S. economy will be stimulated.
    Under the Andean Trade Preference Act, Colombia faces no tariff 
barriers on its agricultural exports to the United States. Approval of 
the agreement would not change that situation but it would add almost 
$1 billion of new U.S. agricultural exports to Colombia on an annual 
basis. In 2010 U.S. poultry exports to Colombia were $21.3 million 
compared with a 5 year (2005-2009) average of $13.2 million. When the 
agreement is fully implemented, poultry exports are expected to 
increase four-fold from the 5 year average to reach about $55 million.
    For Korea almost $2 billion additional U.S. agricultural exports 
will flow annually under the agreement. In 2010, U.S. poultry exports 
to Korea were $91.9 million compared with the 5 year average (2005-
2009) being $51.0 million. Under the agreement, U.S. poultry exports 
are forecast to triple compared with the 5 year average to reach over 
$150 million.
    U.S. agricultural exports to Panama are expected on an annual basis 
to increase $200 million or more upon full implementation of the 
agreement. Panamanian agricultural exports to the United States enter 
with zero import tariffs under U.S. preference programs. U.S. poultry 
exports to Panama in 2010 were $14.4 million compared with the 5 year 
(2005-2009) average of $9.6 million. U.S. poultry exports are forecast 
to more than double the 5 year average and reach about $20 million 
sometime well before full implementation of the agreement.
    Taken together these three markets could add over $150 million to 
U.S. poultry exports, more than double the combined 5 year average. 
That is, U.S. poultry exports are forecast to exceed $225 million 
compared with $74 million for the 5 year average for the combined total 
of these three countries.
    With the United States two largest poultry export markets, Russia 
and China, severely disrupted and curtailed from previous trade levels, 
it is more important than ever to expand poultry sales to other world 
markets. Further, Congressional approval of these FTAs will encourage 
the U.S. Trade Representative to seek out and secure new trade 
agreements with several interested countries. Passage of these trade 
agreements would cost taxpayers essentially nothing but would create 
several hundred thousand jobs in the United States while providing for 
a more robust general economy. The White House stated it will bring the 
trade agreements to Congress ``at an appropriate time.'' It is 
difficult to think of a more appropriate time than now, especially if 
more jobs and an improved economy are a top national priority.

Conclusion
    While there are many issues impacting the state of the chicken 
industry, I have limited my statement to what the National Chicken 
Council considers to be top priorities. To summarize those priorities, 
I note the following:

   The rules of the game must be balanced and the playing field 
        should be leveled to permit chicken producers and other animal 
        agriculture producers to more fairly compete for the limited 
        supplies of corn in the next few years. Included in this effort 
        must be a safety-valve to adjust the Renewable Fuels Standard 
        when there is a shortfall in corn supplies. In addition, a plan 
        should be implemented to allow a reasonable number of good, 
        productive cropland to opt out of the Conservation Reserve 
        Program. This provision must be acted upon as soon as possible.

   With respect to the USDA/Grain Inspection, Packers and 
        Stockyards Administration's proposed rule addressing 
        competition and contracting in the poultry and livestock 
        industries, USDA should withdraw its proposed rule and Congress 
        should insist that GIPSA adhere to the legislative mandate 
        regarding the type, scope, and intent of any rule that is 
        implemented.

   Regarding the pending three free trade agreements, the 
        National Chicken Council suggests, as have other groups, that 
        these agreements be called U.S. job-creation agreements. 
        Increased poultry exports as the result of implementing these 
        agreements would definitely result in more jobs in the poultry 
        industry and more family farmers growing poultry.

    The National Chicken Council, its members, and the many allied 
industry companies that support poultry production, processing and 
marketing look forward to working more closely with the Subcommittee 
and others in Congress so that poultry producers have a better 
opportunity to successfully manage the increasingly difficult 
challenges and issues. Improving the state of the poultry industry not 
only helps poultry companies and poultry farmers but, perhaps, more 
importantly will allow consumers of poultry products to continue to 
enjoy an ongoing, adequate supply of animal protein at reasonable 
prices.
    Thank you, Chairman Rooney, Congressman Cardoza, and Members of the 
Subcommittee, for the opportunity to share the thoughts, comments, and 
recommendations of the National Chicken Council. I request that my 
statement be entered into the record of the hearing and I look forward 
to your questions.

    The Chairman. Thank you, Mr. Welch.
    We will move on to Mr. Hill.
    Mr. Hill.

  STATEMENT OF PAUL HILL, CHAIRMAN OF THE BOARD, WEST LIBERTY 
 FOODS, ELLSWORTH, IA; ON BEHALF OF NATIONAL TURKEY FEDERATION

    Mr. Hill. Good afternoon, Chairman Rooney, Congressman 
Cardoza, and Members of the Subcommittee.
    My name is Paul Hill, and I am Chairman of the Board of 
West Liberty Foods in Iowa and a past Chairman of the National 
Turkey Federation. Thank you for inviting me.
    I have spent my entire life as a turkey farmer, raising 
800,000 birds per year on my farm near Ellsworth, Iowa. And I 
also am a corn farmer raising about 1,800 acres. For the last 
15 years, I have been the Chairman of West Liberty Foods, a 
meat and poultry processing co-op founded in 1996 by 47 family 
farmers. West Liberty Foods now processes more than 200 million 
pounds annually at our facility in West Liberty, and further 
processes more than 240 million pounds at plants in Mount 
Pleasant, Iowa and Tremonton, Utah. We employ more than 1,850 
people and our company supplies more than 75 percent of all 
turkey products sold in the Subway restaurant chain.
    The industry utilizes several vertical integration models. 
About 80 percent of the turkeys are raised on traditional 
production contracts where processors provide turkeys, feed and 
medication to growers and growers provide housing and expertise 
and are compensated on a variety of factors. Roughly ten 
percent of the turkeys are raised on marketing contracts where 
the grower owns the turkeys and provides the feed, medicine and 
housing before selling the turkeys to the processor at a 
contracted price. And another ten percent are raised on 
company-owned farms.
    Three factors are key to producing healthy products 
profitably: input costs, production discipline and consumer 
demand. When all three are out of kilter, the results are 
disastrous. This was the case when West Liberty was founded and 
again during 2008 and 2009, and believe you me, it remains a 
threat today.
    Feed accounts for 70 percent of the cost of raising a 
turkey and corn accounts for roughly 70 percent of the feed 
ration. When feed costs increase dramatically and oversupply or 
a general recession prevents us from passing increased costs 
along, the industry loses money rapidly. This happened in 2008 
when corn prices nearly quadrupled and feed costs reached a 
point where cost increases had to be passed along.
    With the onset of the recession, sales of high-value 
products dropped significantly. It takes at least 6 months to 
alter production plans and the oversupply situation kept 
building. By late 2008, West Liberty Foods cut production 50 
percent. Another cooperative shut its doors for 3 months, and a 
cooperative in Nebraska closed completely. Industry production 
dropped by 11 percent in 2 years, and it still took a $60 
million bonus purchase by USDA to buy time for those cuts to be 
felt in the market.
    Turkey prices have increased, but no one expects major 
production growth in 2011 and contraction will probably happen 
this year. Feed costs are driving this situation; corn prices 
have nearly doubled in the last year. Economists give 
conflicting reasons why. But as a turkey grower and a corn 
farmer, commonsense tells me it is ethanol policy.
    When the Renewable Fuels Standard was implemented, corn 
prices jumped from $2.50 per bushel to $8. Several good 
harvests settled corn prices for a time, but ethanol mandates 
force us to have record harvests every year. We just harvested 
the third largest corn crop ever, and the stocks-to-use ratio 
is near a record low.
    Ethanol's share of the corn crop is almost 40 percent 
today. Increased corn prices cost the turkey industry more than 
$1 billion in 2007 and 2008, and the current situation is 
almost as bad. We must quit pretending that ethanol isn't 
hurting farmers, ranchers and consumers. Ethanol is dividing 
rural America.
    The corn farmer in me likes the prices, but the turkey 
farmer in me sees the real damage. Ethanol policy needs 
significant reform.
    The blenders credit should go, and now is not the time for 
new investment in ethanol infrastructure. But what we are 
seeking is a safety net that reduces volatility. This isn't 
about cheap feed. High prices hurt, but volatility hurts a lot 
more and will prevent expansion in livestock and in poultry 
production, but we can find common ground.
    A second challenge is the proposed GIPSA marketing rule, 
which creates long-term dangers for many family farmers. Three 
issues are key: the competitive injury proposal, the provision 
that requires processors to guarantee recovery of capital 
investment, and the provision that discourages competing 
contracts. Together they create significant new legal and 
regulatory risk for the turkey processors who have production 
contracts with family farmers. These contracts will become less 
competitive. Exceptional growers will feel cheated as the new 
regulation forces everyone to a lower common denominator.
    Processors could reduce the number of farms on which they 
raise turkeys or they could raise more turkeys on company-owned 
farms. The USDA proposed this rule without conducting an 
adequate economic assessment. Numerous private studies have 
found a significant economic impact. The department now has 
agreed to conduct an assessment but appears unwilling to submit 
the study for public comment prior to publishing the final 
rule.
    Before closing, I must mention EPA's aggressive actions 
against poultry and livestock farming. The agency seeks to 
impose new requirements on farms in the Chesapeake Bay's 
watershed, yet it is using outdated models. Nutrient loadings 
in the Bay from ag lands decreased between 1985 and 2005, while 
loadings from developed lands increased 16 percent. Funding for 
EQIP in the next farm bill could help farmers further reduce 
nutrient loadings. Meanwhile, EPA has been so stubborn on this 
that NTF recently joined numerous other farm organizations in 
suing over the initiative.
    I have gone a bit over, but I thank you very much for 
listening to me, and I would be happy to answer any questions.
    [The prepared statement of Mr. Hill follows:]

 Prepared Statement of Paul Hill, Chairman of the Board, West Liberty 
     Foods, Ellsworth, IA; on Behalf of National Turkey Federation

    Good afternoon, Chairman Rooney, Ranking Member Cardoza, and 
Members of the Subcommittee. My name is Paul Hill, and I am Chairman of 
West Liberty Foods in West Liberty, Iowa, and a past Chairman of the 
National Turkey Federation. I want to thank the Subcommittee for 
inviting me to discuss the state of the U.S. turkey industry today and 
the challenges we will face in the years ahead.
    I am excited to be offering this testimony on behalf of my company 
and the National Turkey Federation because I have had the opportunity 
to watch the development of the modern turkey industry from several 
different perspectives. I was raised on a turkey farm, and I have been 
a turkey grower my entire adult life. I also am a corn farmer, raising 
about 1,500 acres of corn each year. And, since 1996, I have been the 
Chairman of a meat and poultry processing cooperative called West 
Liberty Foods.
    West Liberty Foods was created that year when 43 family turkey 
farmers joined together to purchase the Oscar Mayer/Louis Rich turkey 
plant in West Liberty from Kraft Foods, which had announced the plant's 
closing earlier that year. It took an enormous leap of faith for those 
43 families to join together to purchase the plant. The turkey industry 
was in terrible economic shape back then. By the time we officially 
opened our doors in early 1997, the industry was mired in one of its 
worst slumps ever.
    Over-production had depressed turkey prices. Grain supplies were 
extremely tight, forcing feed prices to levels that seemed shockingly 
high at the time. Not long after we began operating, the European Union 
closed its borders to American turkey products, depriving us of the 
number-one export market for turkey breast meat and further depressing 
turkey prices already hovering near record lows.
    It took the industry--and our company--nearly 18 months to pull out 
of that slump. In the years that followed, West Liberty Foods was able 
to grow and prosper. Today, we process more than 60 million pounds 
annually at our facility in West Liberty, Iowa, and further process 200 
millions pounds of product at the Mount Pleasant, Iowa, plant. We have 
built a second further processing plant in Tremonton, Utah, where we 
further process 165 million pounds of product. We employ more than 
1,850 associates at the three plants. And, we're very proud to say our 
company now supplies a majority of all the turkey products sold in 
Subway restaurants.
    We take considerable satisfaction in our success at West Liberty 
Foods, and we remain committed to helping the turkey industry as a 
whole grow and prosper. At the same time, we never let the lessons of 
those first difficult months stray from our thoughts, because the 
industry has suffered even deeper recessions during the last 15 years 
and, because even in a period of relative prosperity, the threat of 
economic hardship remains very real.
    To help understand why the industry's economic situation remains so 
tenuous, I need to discuss briefly the structure of the industry, how 
it works and the fundamental conditions necessary for economic success.

Structure of the Turkey Industry
    Most people would characterize the turkey industry as vertically 
integrated and while the assessment is relatively accurate, it fails to 
capture the diversity of operations that make up today's industry.
    The industry is vertically integrated in the sense that the 
individual processors make the decision about how many turkeys will be 
raised and marketed, and growers raise birds in accordance with those 
production plans. In many cases, the vertical integration follows the 
classical model: the processor, or integrator, owns the turkeys 
throughout their lifespan. The processor provides turkeys to a grower 
and also supplies the feed and medication necessary to raise the bird 
to a mature market weight. The grower in turn provides the housing and 
his or her expertise in raising turkeys and is compensated by the 
processor based on a variety of factors, including weight gain, 
efficient use of feed and low mortality rates.
    In other instances, turkeys are raised on a marketing contract. In 
this situation, the grower owns the turkeys throughout their life cycle 
and provides the feed and medicine, as well as the housing and 
production expertise. The processor then purchases the turkeys at a 
previously contracted price. Certain premiums may be paid based on 
factors outlined in the contract.
    Finally, some turkeys are raised on company-owned farms. In this 
model, the company not only owns the turkeys throughout their life 
cycle and provides feed and medicine; it also provides the housing and 
employs growers to oversee the production.
    Some companies exclusively use one model or another. At West 
Liberty, we offer identical marketing contracts to all our growers, 
regardless of whether they have an equity share in the cooperative or 
not. But, it also is common for companies to use multiple production 
models. Some will raise birds on production and marketing contracts 
while others will utilize a mixture of production contracts and 
company-owned farms.

Industry Profitability
    Multiple factors affect the turkey industry's ability to sell 
wholesome, nutritious, high-quality turkey products profitably at a 
reasonable price to consumers, but three stand out: input costs, 
production discipline and consumer demand. When all three are in line, 
the industry can enjoy significant profitability. When at least two of 
these factors are in place--production discipline and consumer demand--
as is the case today, the industry will experience at least some degree 
of profitability. If two of the three are out of line, profitability 
begins to suffer. When all three factors are askew, the economic 
results are disastrous. This was the case when West Liberty Foods was 
founded in 1996, and we experienced an even greater downturn in 2008 
and 2009. And, it could be the case again within the next 12 months. 
Let me explain why:
    Input Costs. The road to profitability begins with production 
costs. Feed is the most expensive of these inputs, accounting for 70 
percent of the cost of raising a turkey. Turkeys are fed a mix of corn 
and soybean meal, with corn accounting for roughly 70 percent of the 
ration. When feed costs increase dramatically, the industry's profit 
margins shrink accordingly. If there is an oversupply of turkey or all 
meat proteins, or if the general economy cannot support passing the 
increased feed costs to customers, then the industry begins to lose 
money rapidly.
    This certainly was the case in 2008 and 2009. Corn prices and the 
resulting feed costs nearly quadrupled in a span of barely 2 years. 
Smart hedging strategies kept feed costs manageable for much of 2007, 
but by the end of that year production costs had reached a point where 
virtually everyone in the turkey industry--and everyone else who 
produced meat and poultry products--had to pass cost increases along. 
It was at just this moment that the other two factors both came into 
play.
    Production Discipline. Economists are fond of saying about the meat 
and poultry industry that ``nothing cures high prices like high 
prices.'' By this they mean that when prices rise to a certain point, 
livestock and poultry producers begin to increase production to take 
advantage of the strong prices. This increased production eventually 
reaches a point where the market has too much meat protein available, 
or too much of a certain meat protein, and prices begin to fall. This 
was the case in the mid-1990s when West Liberty Foods joined the turkey 
industry. Feed costs were high then, too, but those high costs were the 
result of specific global weather events and were relatively short 
lived. It took the turkey industry, the pork industry and, to a lesser 
extent, the beef and chicken industry longer to work through the 
oversupply issue.
    The situation in 2008 was different. The industry did not lose its 
discipline. Real consumer demand for turkey and all meat proteins had 
been rising for several years. There was no reason to believe that 
consumers would not support another year of production increases, so 
most companies made plans to grow more birds. The year began with most 
industry observers anticipating an overall production increase of five 
percent or more. It was at that moment that our final factor came into 
play.
    Consumer Demand. As the general economy slid into recession in 
2008, it was dear by spring that the market was softening. We saw 
turkey breast purchases at our largest customer, Subway, begin to 
decline, and the reason was pretty straightforward. Turkey for years 
had been one of Subway's biggest sellers, so the company understandably 
had not felt the need to boost turkey sales further with special 
promotions. Other products went on Subway's ``$5 Menu,'' and turkey 
sales began to lag. Customer decisions in the collapsing economy were 
being driven almost entirely by price.
    One of our competitors summed up the situation best when he said, 
``I'm putting all my breast meat in storage, and my turkey dogs are 
flying off the shelves.''
    Our most valuable product was not selling at the exact moment when 
our feed costs were reaching record highs. It was the perfect storm.
    By the time the economy went into complete meltdown that fall, 
turkey companies already had begun changing their production plans. 
But, turning the production ship around is a lengthy process. It takes 
more than 4 months to raise a newly hatched poult into a full-grown 
turkey ready for processing. If you add in the lead time to set the 
eggs and hatch the poults, it takes a minimum of 6 months to fully 
alter a company's production plans. During those 6 months of 2008, the 
oversupply situation--especially for breast meat and whole turkeys--
just kept building.
    The only bright spot during this period was exports, which consumed 
more than ten percent of all turkey produced in the United States and 
remained strong through most of 2008. Because Mexico, by far our 
largest customer, continued to buy large quantities of thigh and 
drumstick meat, dark meat prices were relatively healthy during this 
period. Unfortunately, that cushioned the overall blow only slightly, 
and by 2009 the global recession had begun to reduce our overseas sales 
as well. In 2008, turkey exports were valued at $481.9 million and by 
the end of 2009 the value was significantly reduced to $394.6 million.
    Once production plans were altered in the second half of 2008, the 
change was dramatic. At West Liberty Foods, we cut production 50 
(that's five-zero) percent. Another cooperative, with whom we had a 
marketing agreement at the time, shut its doors for 3 full months at 
the beginning of 2009. A cooperative in Nebraska closed completely. We 
were able to take on some of those growers at West Liberty Foods, and a 
few found other processors to work with, but many families who had been 
raising turkeys for generations had to quit the business entirely.
    Initially, the production cutbacks did nothing to stop collapsing 
breast meat prices, which according to USDA had fallen more than ten 
percent, from $1.17 in 2006 to $1.05 by the end of 2009. It took a $60 
million bonus purchase of turkey breast meat by USDA's Agricultural 
Marketing Service to slow the bleeding and to buy the industry enough 
time for the production cuts to be fully felt in the marketplace. This 
bipartisan effort was begun at the end of the previous Administration 
and completed by the current Agriculture Secretary, and it enjoyed 
considerable support in Congress. All of us in the turkey industry are 
grateful for this important effort during such a critical time.
    Overall, the industry cut production by about nine percent in 2009 
and by another two percent in 2010. Some individual companies may begin 
to increase production slightly this year, but overall no one in our 
industry expects any significant growth in 2011. In fact, further 
contraction remains an equally likely possibility.

Future Challenges
    The biggest reason the industry is not more optimistic in the face 
of strong prices is feed costs. Corn and other feed prices have begun 
to rise again, going from less than $4 per bushel for corn to more than 
$7 per bushel in barely a year. As both a turkey producer and a corn 
farmer, I will tell you there is one reason for those cost increases--
the Federal ethanol policy.
    We can find a bunch of economists to give conflicting arguments as 
to why feed costs have gone up, and I'll quote some of their statistics 
in a minute, but you really only need old-fashioned common sense to 
understand that the ethanol policy is driving these cost increases. 
When the Renewable Fuels Standard (RFS) was implemented in 2006, corn 
prices were around $2.50 per bushel. By the end of the first year of 
the RFS, prices were well above $3 per bushel and as the RFS increased, 
corn prices kept rising, ultimately topping out at $8 per bushel.
    I know the arguments that speculative funds were what drove up corn 
prices, and they played a role. But, what attracted those funds to the 
corn market in the first place? The knowledge that the Federal 
Government had created a guaranteed market for corn-based ethanol. It's 
as close to a sure thing as you can get when it comes to a commodity 
investment.
    Ultimately, farmers responded by planting more corn, and we enjoyed 
several years of very good harvests. Corn prices settled back a bit, 
though they operate at a permanently higher plateau where around $3.50 
per bushel now is the ``low end'' of the price range. But, there is a 
major problem with this new dynamic. The market can only absorb the 
ever-increasing demand for ethanol if we have ever-increasing corn 
harvests. If the harvest is off only slightly, as was the case with the 
crop just harvested, prices begin to soar. Think about it: we just 
harvested the third-largest corn crop in U.S. history, and that hasn't 
been sufficient to prevent a stocks-to-use ratio that is at or near its 
record low.
    There is one reason and one reason only for that: ethanol. As a 
percentage of the total crop, feed usage is down considerably. Exports 
and food consumption are in line with historical levels. But, ethanol's 
share of the corn crop has increased from less than ten percent at the 
beginning of the previous decade to almost 40 percent today.
    The 2006 to 2008 run up in corn prices cost the turkey industry 
more than $1 billion. See, I promised you some economist's statistics. 
The current run-up in corn prices will have a significant price tag as 
well. The ethanol debate has aroused a lot of emotion on all sides, and 
I would like to cut through that and get to the essence of the issue:
    First, we must quit pretending that ethanol hasn't had an impact on 
livestock and poultry farmers as well as end consumers. It has and it 
will continue to have one as long as our current policies are in place.
    Second, the turkey industry isn't seeking to abolish all Federal 
support for ethanol, and I think you will find the same is true for 
others in the livestock and poultry industry. Some ethanol supports 
clearly can be abolished. It's hard to understand why we need both an 
RFS and a ``blender's'' tax credit. The RFS did more for ethanol 
production in 30 days than the blender's credit did in 30 years. It's 
time to let the blenders' credit expire. I think the livestock and 
poultry industry would have grave concerns about a significant new 
Federal investment in ``infrastructure'' for ethanol. Food security is 
as important as fuel security, and our industry receives no 
infrastructure subsidy from the Federal Government. With a guaranteed 
market for their product, it would seem reasonable that the ethanol 
industry should be profitable enough to begin developing its own 
infrastructure.
    What the turkey industry is looking for is reform of the existing 
ethanol policy, a safety net that ensures that corn prices and 
availability will be less volatile in the future.
    This goes hand-in-hand with our third point. This isn't about cheap 
feed. Yes, high prices hurt us, but the volatility hurts us worse. More 
importantly, volatility hinders growth in the poultry and livestock 
industry. I heard an economist say recently that high corn prices won't 
hurt our industry as much this time around because we're better 
prepared for it. That's true--up to a point. We're better prepared 
because we've drastically cut production (even at a time when corn 
prices were dropping), and production will not ramp back up in a 
significant way as long as the specter of enormous feed cost swings 
exists.
    Finally, we have to recognize that ethanol is beginning to divide 
rural America. Each side likes to portray this as a battle of family 
farmers on their side against corporate interests on the other side. 
The reality is that it is not just pitting large food companies against 
large ethanol companies. It's pitting family farmers who raise corn 
against family farmers who raise livestock and poultry. I see it in my 
own community. I see it in my own operation. The corn farmer in me 
likes the prices I've been getting in recent years, but the turkey 
farmer in me sees the real economic damage being caused by huge 
production cutbacks. We have to drop the ``us-or-them'' mentality and 
find common ground. The turkey industry has been willing to seek 
compromise since the RFS first was being debated. We put concrete 
proposals on the table. We have never received a single proposal for 
compromise from either corn farmers or the ethanol industry.
    A second major challenge is the marketing rule proposed last summer 
by USDA's Grain Inspection, Packers and Stockyards Administration 
(GIPSA). Agency officials say the rule is designed to give family 
farmers a level playing field when negotiating production and marketing 
contracts. That may have been the intent but the rule as proposed 
creates long-term dangers for many of the family farmers who raise 
turkeys under contract.
    Many of you all are familiar with this rule, so I will not address 
it on a point-by-point basis, but I will call your attention to three 
aspects of the rule that, taken together, create enormous potential 
problems for all segments of the industry.
    The first is the competitive injury provision that will make it 
easier to sue or bring regulatory action against poultry processors. 
The second is the provision that requires processors to virtually 
guarantee growers they can recoup 80 percent of their capital 
investments. The third is a series of provisions that would discourage 
competitive contracts in which growers can receive premiums or 
deductions based on the performance of the turkeys in their care.
    Taken together these provisions create significant new legal and 
regulatory risk for the poultry processors who raise about 80 percent 
of all turkeys via a production contract with family farmers. The first 
and most obvious outcome is that contracts will be less competitive and 
compensation will become more uniform among growers. For some growers 
this might be good news, but for those who were doing an outstanding 
job and receiving premiums will justifiably feel cheated as a new 
regulation forces everyone down to a lower common denominator. As I 
mentioned earlier, West Liberty Foods is part of the ten percent of the 
industry that raises turkeys through a uniform marketing contract, but 
I spent many, many years as a contract grower, and I wanted the 
opportunity to compete with other growers and to earn premiums for top 
performance.
    The bigger impact will come in the long term, though. The rule 
creates greater economic and regulatory risk for the processors who 
raise turkeys under production contracts. These processors will have to 
find ways to minimize that risk, and since 80 percent of all turkeys 
are raised under these contracts, how that risk is managed will have an 
enormous impact on the industry. One conceivable option for processors 
could include reducing over time the number of farms on which they 
raise turkeys. It could prove safer to expand operations on those farms 
with the best track record, and that poses a threat for growers whose 
performance is far from poor but who may not meet the rigid criteria 
necessary for processors to operate in a higher-risk world. Another 
realistic option would be for more processors to raise turkeys on 
company-owned farms. Right now such farms make up only ten percent of 
turkey production, but it is easy to envision a scenario in which the 
percentage is much higher a decade from now.
    What is especially frustrating is that USDA promulgated this rule 
without conducting an adequate economic assessment of its impact. A 
study funded in part by the National Turkey Federation found an impact 
of at least $361.6 million on the turkey industry alone. Other studies 
found the impact might be even higher. Another study released by the 
National Chicken Council concluded that the rule would cost the broiler 
industry more than $1 billion over the next 5 years. Finally, a study 
conducted by John Dunham and Associates showed job losses to the meat 
and poultry industry at 104,000 and would reduce the national Gross 
Domestic Product (GDP) by $14 billion.
    USDA now has agreed to conduct an assessment, and that is a 
positive development. However, no one at the department has committed 
to submitting the study for public comment before finalizing the rule. 
This is an essential step if there is to be any level of confidence 
that the final rule truly has the interests of family farmers--as 
opposed to the interests of lawyers who might try to sue on their 
behalf--at heart.
    No summary of challenges would be complete without mentioning the 
Environmental Protection Agency's aggressive new stance against poultry 
and livestock farming. The Chesapeake Bay Initiative is a prime 
example. The Agency seeks to impose new Total Maximum Daily Load 
requirements on farms that operate in the Bay's watershed, yet they are 
doing so based on outdated and incorrect models. Put in plain language, 
EPA doesn't know what's actually happening in the watershed, but it's 
going to prescribe a solution anyway.
    A poultry industry representative earlier this year told a House 
Agriculture Subcommittee that EPA should recognize the industry's tools 
and programs that are improving water quality in the Chesapeake Bay 
watershed and across the nation. The results of the industry's action 
in this watershed are reflected in EPA's estimates that between 1985 
and 2005 nutrient loads from agriculture decreased to the Chesapeake 
Bay, while nutrient loadings from developed lands increased by 16 
percent.
    Imposing burdensome mandates based on questionable data only 
imposes more costs, paperwork and burdens on family farmers, while 
achieving few real benefits for water quality.
    EPA has proven so intransigent on this issue that NTF has recently 
joined the American Farm Bureau Federation, the National Chicken 
Council, U.S. Poultry and Egg Association, National Pork Producers 
Council, National Corn Growers Association and many others in suing the 
Agency over the initiative. This was not an easy decision for us. 
Turkey farmers and processors are committed to being good environmental 
stewards, as evidenced by our success in the Chesapeake Bay watershed 
itself. This lawsuit was necessary not just to stop the Agency's 
current action but to ensure that this wrong-headed approach is not 
exported to other watersheds across the nation.

How Government Can Help
    Though most people in the turkey industry prefer minimal government 
involvement, there are ways Congress and the Executive Branch have been 
helping and can continue to help ensure the continued economic 
viability of the turkey industry.
    A prime example would be in the work USDA's Natural Resources 
Conservation Service had done with regard to the Chesapeake Bay. Their 
research has demonstrated the significant flaws in EPA's modeling for 
the Bay and could serve as the basis for a more balanced regulatory 
approach that truly enhances the Bay.
    AMS programs like the School Lunch Program and the 2009 bonus 
purchase I referenced earlier are vital. The School Lunch Program and 
other government feeding programs help provide school children and the 
underprivileged with healthy, nutritious meals. The bonus purchase 
program provides a mechanism for the government to purchase commodities 
for those feeding programs at bargain prices while providing support 
for an industry when it is struggling economically.
    And, our partnership with the Federal Government on food safety is 
vital for consumer confidence in our food supply. While industry and 
the regulators don't always see eye-to-eye, the government's growing 
commitment to working cooperatively with processors on a science-based, 
risk-based inspection system has helped enhance the microbial profile 
of our food supply, reduce foodborne illness and maintain consumer 
confidence in what remains the world's safest food supply.
    Thank you again for the opportunity to discuss the state of the 
turkey industry. I will be happy to answer any questions you may have.

    The Chairman. Thank you, Mr. Hill.
    I will now move into questions. We will be called to vote 
probably shortly, but we will try to get as far as we can and 
then reconvene.
    The chair would like to remind Members that they will be 
recognized for questioning in order of seniority for Members 
who were here at the start of the hearing. After that, Members 
will be recognized in order of their arrival. I appreciate 
Members' understanding.
    I will begin questioning if I could with Mr. Hill, and then 
if the other two witnesses want to weigh in, please feel free 
to do so.
    Mr. Hill, your testimony mentioned how our export markets 
drive demand for products for which domestic demand is not as 
high, such as dark meat. I understand it--as I understand it, 
overseas consumers are willing to pay a premium for a lot of 
livestock and poultry products that are not as valuable 
domestically. Could you please talk about this for a moment, 
and particularly how this situation fits with our pending trade 
agreements? Then if the other gentlemen want to talk about 
trade generally in their opinion, I would appreciate that as 
well.
    Mr. Hill. I was on a mission to Mexico with the National 
Turkey Federation, a trade mission, a number of years ago, 
about 3 years ago or so, and we sell a lot of dark meat to 
Mexico. That is what we do with a lot of our dark meat. And we 
had processors, Mexican processors in the room that were 
saying, your price is too high, your price is too high, you got 
to get it down, you got to get it down.
    One of our guys stood up and he says, the Russians will 
give me 10 cents more than you guys will.
    The next day dark meat went up and Mexico started buying.
    Now, you take Russia out of the equation, he couldn't say 
that and they could beat us over the head.
    I mean, competition, competition makes sense. The 
governments in South America, the eastern governments in Asian 
countries, they all eat more dark meat. We eat more white meat 
in this country. Europe eats more white meat. We hated it years 
ago when we lost our market in the European Union. That would 
be a lovely market.
    Are trade agreements important to us? Absolutely. And there 
is a two-way street here, and it is simply because of the 
difference in the peoples. But by the same token, white meat is 
cheaper in Mexico, and in Chile, for example, because they like 
the dark meat. So we have to figure out how to trade this stuff 
around a bit, and we have to have competition.
    The Chairman. Thank you. Any other witnesses want to weigh 
in on it?
    Mr. Welch. Yes, I would.
    As Mr. Hill said, Russia is the big dog in the equation. 
And got a lot of grief at the end of last year and early this 
year about the disagreement over the treating of microorganisms 
and their restricting chlorine, which is a perfect 
antimicrobial, and so on. But we got all through that, and many 
U.S. processors have switched to other products that perform 
well.
    I guess what got overlooked in the big picture was that 
since 2001, when the quota for U.S. product was like 900,000 
metric tons, it ended up this year a total of 350,000 metric 
tons, non-country specific as it used to be. And so with their 
attempting to enter the WTO and so forth, we should insist that 
the quotas and the free trade exist between our countries, and 
the benefit to the U.S. industry is tremendous. And as Mr. Hill 
said, with the preferences for different parts of the chicken, 
South America, because of lower labor costs, can produce 
product cheaper than the United States, but they can't sell it 
cheaper because they have no preference for white meat there. 
So, their products tend to sell similar in price regardless of 
whether it is the front half or back half of the chicken. So 
America's dark meat is extremely competitive in the worldwide 
marketplace, and we must insist on fair trade between the 
groups.
    The Chairman. Thank you.
    And now turn to the Ranking Member, Mr. Cardoza.
    Mr. Cardoza. Thank you very much, Chairman Rooney.
    I want to start by indicating my support on two positions 
that you have all indicated that are a problem, and that is the 
GIPSA rule and EPA. The committee here in full Committee a few 
weeks ago had Administrator Jackson of the EPA here. And I got 
to tell you, as I told her that day, that it was a bipartisan 
thrashing that I had never seen before in Congress because her 
agency is just in my opinion out of control. I think it was a 
unanimous feeling by all the Members of the Committee that that 
was the case. I have never seen anyone who came before a 
committee that got just absolutely uniform criticism for the 
way their agency was conducting their operations.
    I think the GIPSA rule is another example about how 
government is not working for the industry or for consumers, 
and we are going to have to take a tough look at that. And I am 
hopeful that the Agriculture Department will in fact come to 
some different conclusions as we move forward. The questions I 
have, you all have indicated, and so have my farmers at home, 
both beef and poultry, have indicated that high grain prices 
affect them adversely. I had some folks yesterday come by--and 
there is no question that it has. I am very sympathetic to 
those changes.
    I believe that there were fluctuations in the grain market, 
however, before we had ethanol, and so I want to really get to 
the root cause, and I want to ask a couple of questions that 
have been on my mind. There were some folks from an ethanol 
plant came by my office yesterday and indicated to me that most 
of their product is being used as--the grain is being used as 
byproduct for cow feed and other things. If that in fact is 
being done, do we have a shortage of corn in the country 
generally, or is it the ethanol, because if you are using the 
byproduct again in feed and you are taking the starch out, but 
you are using the by-product for the protein and other aspects, 
is it really the corn and the ethanol production?
    Mr. Hill. We can't use as much byproduct in poultry as you 
could in your beef operation because the difference in the 
stomach of the animal.
    Mr. Cardoza. Right. And I understand that.
    Mr. Hill. You understand that.
    The other thing that you have to understand is we have 
tremendous amounts of exports of the byproduct. And so the 
byproduct from a cost standpoint doesn't work any better than 
corn. In fact, right now, it is the other way, you might have 
to use corn when you look at the cost of your ration. But in 
poultry, we have to have corn. Corn is king. And you can use 
some byproduct but very little.
    Mr. Cardoza. I understand. I guess the point that I am 
trying to make, and I am just trying to elicit--I am not trying 
to make a point; I am trying to get information from you all. 
And that is you just told me something else that is very 
interesting, that the byproduct isn't all being used in feed; 
it is being exported to different countries.
    Mr. Hill. Yes, huge amounts are being exported.
    Mr. Cardoza. So is it that we are feeding the rest of the 
world, that is what is driving up corn prices, or if all the 
byproduct were used here for cattle feed, for example, would 
that offset what would otherwise be done? There is a zero-sum 
game here, is what I am trying to say. And if you are using the 
byproduct for corn feed--or for cattle feed, then you are not 
buying corn on the market for that same feed. And so I am just 
trying to understand if it is really the ethanol that is 
causing it, or if it is a convenient place to be critical?
    I personally believe that it is time to take off the 
subsidies on ethanol myself, but I am just trying to get to the 
facts of what really is happening in the real world.
    Mr. Welch. Even if all of the DDGs, it is called, dry 
distillers grain, is the byproduct, I am not in that business, 
but 100 pounds of corn, \1/3\ of the volume goes into ethanol 
and \1/3\ of it into the byproduct and \1/3\ of it flashes off 
as CO2. And so you have only--you have reduced the 
amount of volume by \2/3\ in the byproduct. And then the 
nutritional element in the byproduct, for instance, a pound of 
corn will have somewhere between 1,400 and 1,500 calories; a 
pound of DDGs will only have about 1,200 calories. So what 
happens? You have to--if you use the byproduct, you have to 
supplement it with the best source of energy: calories as fat, 
animal fat that is rendered, chicken fat or other fat. So even 
though you try to bring the price down, fat is at record prices 
high. Why? Because fat could be used as fuel also just like 
ethanol. It is pulling the price back up.
    And as Mr. Hill said, we--like in chickens, it doesn't 
formulate for us anymore, meaning that the price they are 
getting for it, because of exports, it throws it out of the 
diet, and you are better off buying outrageously priced corn. 
You are still better off.
    Mr. King. Congressman Cardoza, I just add as a beef 
producer as well, what happens with the commodity market, it is 
priced off of the distillers and the corn glutens and all of 
the byproducts are priced off of corn prices, soybean prices, 
or whatever, and so there are no bargains to be found in 
feeding any kind of livestock in today's commodity prices.
    Mr. Cardoza. There is no question in my mind, and my time 
is up. I just am still trying to figure out if it is a chicken 
or an egg kind of situation. Is it the situation that ethanol 
is driving this or that we have demand, and we are using a lot 
more corn and other products, and it is hurting you all. No 
question your industry is under a lot of pressure.
    The Chairman. Thank you, Mr. Cardoza.
    Mr. Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    I would like to follow up on the gentleman from 
California's questions about feed costs and feed availability.
    Mr. Welch, you mentioned in your testimony the possibility 
of adjusting the Renewable Fuels Standard and Conservation 
Reserve Program as options for addressing the feed availability 
challenge.
    I would like to hear the rest of the panel's thoughts on 
this subject. Mr. King, you hear a lot about that in the 
Shenandoah Valley like I do. What impact do you think these 
competing programs for your feed, or reducing the acreage 
available for feed as in the case of the Conservation Reserve 
Program, are doing to feed prices and availability.
    Mr. King. As a conservationist, there is obviously some 
ground that we don't want to go back into corn production. But 
there is some ground that could go even if it was for a 1 year 
exemption just to get the carry-over stocks back up. But as I 
look at the solution to this, most of the solution to this 
problem, other than the fact that I have a philosophical 
problem with burning food, most of the solution is going to 
come through technology. And one of the biggest concerns I 
have, and part of it is because of the location of my 
operation, is that we are seeing the environmental community 
think that building soil fertility is evil.
    And yet we have technology in corn that will give us at 
this point year over year 10 to 15 percent increase in yields. 
But when you have environmental regulations that won't allow 
you to put the nutrients on the soil to produce that crop, you 
are not going to get those yields out of thin air.
    Illinois just did a research study where they found that 
the triple stack corn that is available and most farmers are 
planting increased yields by 15 percent an acre. It takes about 
13 percent more nitrogen but 22 percent more phosphorus to get 
that yield. And yet when we continue to make it impossible to 
build our soil fertility so we can produce those kind of crops, 
it is a Catch-22 that we have to get around.
    Mr. Goodlatte. Okay. You just answered my next question.
    Mr. King. I am sorry.
    Mr. Goodlatte. That is okay.
    I was going to get to that question, too. But if you could 
comment on what your thoughts are on the incentives and the 
mandates and the tariff barriers that the government imposes 
that create a competitive advantage for the use of some of 
those grains for energy as opposed to feed.
    Mr. King. I have a hard time pitting one sector of the ag 
economy against the other.
    Mr. Goodlatte. I did not ask you to do that. I support 
ethanol, too, as long as it is on a competitive playing field.
    Mr. King. But philosophically, I think markets work better 
than government subsidies. And, as an environmentalist, I want 
the crop, the best crop going to ethanol. And quite frankly, it 
is probably cane out of Brazil instead of corn out of Iowa. And 
so I would suggest that we remove those barriers and that we 
get the best alternatives possible.
    I acknowledge that some ethanol is needed to get blends of 
gasoline and that kind of thing, but we don't need to push this 
to the level where we can't provide the world with the food and 
fiber it needs as well.
    Mr. Goodlatte. Thank you.
    Mr. Hill, do you want to comment on that.
    Mr. Hill. Oh, absolutely. What we need--we don't want to 
pit food against fuel. And I went to all of our Iowa 
Congressmen and Senators and cried wolf at the very beginning 
because I said, you people have not put a safety net around 
this. What happens if we have a super short crop, what happens 
if we don't have enough, and you are subsidizing ethanol and 
you have a mandate? Okay, so I can get along okay with the 
subsidies; I can't get along with the mandate if there isn't 
enough to go around. So I told them, I said, there is an easy 
fix, and that is when the stocks-to-use ratio or whatever gets 
below a billion bushels, you got to start cutting the ethanol 
mandate, because you get down to 550 million bushels and that 
is it, that is pipeline. So once you go below a billion, you 
got a problem. And I said, if you would do that, there would be 
none of this food-fuel stuff, because we all know we have to 
eat.
    Mr. Goodlatte. Thank you.
    Just in my few seconds remaining, Mr. King, would you want 
to comment on the situation you find yourself in right now with 
regard to the EPA's TMDL, Total Maximum Daily Load requirement 
and what impact it is having on operations like yours or will 
have in the future?
    Mr. King. I happen to have a farm that is located in the 
Smith Creek watershed, which is one of the EPA's three showcase 
watersheds for the Chesapeake Bay, and so I am getting up close 
and personal with a whole lot of what you have just been 
talking about. Quite honestly I was really struck the other day 
when we were working with information from Virginia Tech that 
did a program to try to get a handle on cost-benefit analysis.
    In the Smith Creek watershed, 75 percent agriculture, 25 
forestry is a fair breakdown. The nitrogen load that comes off 
of our forestland equals the nitrogen load that comes off of 
our hay land, which is basically equal acres. So why don't we 
put buffers around the National Forest and get off the farmers 
back? I mean, this idea that somehow agriculture is the problem 
is not backed up by reality. And I have already done a lot of 
things on my farm, and I will continue to do what makes sense.
    I think that the TMDL model is flawed to begin with. And I 
don't say that because I want it to say something else. I just 
say that because as someone that has worked in environmental 
issues and a former DEQ employee in the Commonwealth of 
Virginia, I see major problems, and no one seems to want to be 
open to it. And the final thing I would say on that is that we 
have reduced what happens in our soil to a simple chemical 
formula of NPK--Nitrogen, Phosphorous, and Potash. It is an 
ecosystem where carbon interacts with it, where micronutrients 
interact with it, and we have written regulations that will 
make it impossible for us to meet the food needs of this 
country if we don't wake up and see that there is more at play 
than just NPK in our soils.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    The Chairman. Mr. Scott.
    Mr. Scott. Yes, very quickly. We are having very solid 
debates here on the budget and cuts and so forth. I would like 
to get each of your impressions on the impact of research, your 
use of research, and the value of research from some of our 
universities. What in your estimation would be the effect of 
cuts in the USDA's research budget on your operations? How 
valuable is research from our universities to y'alls 
operations?
    Mr. Hill. Well, I can speak for the turkey industry; 
research is huge, because we do a lot of research on diseases. 
Avian influenza would be one. I mean this is paramount. We 
learned this just a few years ago with the outbreak that they 
had over in Southeast Asia and some of the stuff that has 
happened in this country. It is a big deal. We have to have 
research, and the government gives us some good stuff. The 
government is not all bad. We have to figure out how to work 
together. And the EPA, we work with, we can work with them, but 
it is an attitude that you have that what we are doing is bad 
and we aren't. We are here to save this country, and they have 
to develop a different attitude.
    Mr. Scott. Anyone else on that.
    Mr. Welch. Yes, Mr. Scott.
    We rely heavily in Georgia on the University of Georgia. 
The poultry science department is crucial to the activities of 
especially disease and research. Additionally, in Georgia, 
other Federal programs, the southeastern USDA lab in Athens and 
the PDRC, Poultry Disease Research Center, are extremely 
crucial to the science of our business. And Georgia is not just 
the only one, University of Arkansas, the Auburn University, 
are tremendous, tremendous factors in animal agriculture.
    Mr. Scott. I am very concerned about helping with the 
research and keeping that very important and kind of minimizing 
these cuts. It would be very interesting if you feel that, 
particularly with poultry, do you think it would have a 
positive or negative effect on your ability to remain 
competitive in the global market? How does our research and our 
universities assist in making sure our poultry industry remains 
top of the line in terms of competitive in the international 
market?
    Mr. Hill. We have the safest food in the world. Go through 
the plants in the European Union, go through them in Russia, go 
through them in Chile, go to them in Mexico. This is it. We are 
the safest there is. We didn't happen by accident. We do 
research, and we compete and we challenge each other, but we 
also share. Food safety is paramount with what we do in 
poultry.
    Mr. Scott. I know we have to go vote, but I want to make 
sure we have on the record that you all, each of you three feel 
very strongly that if there are any reductions or cuts in our 
university research, that it would be very, very minimum.
    Mr. King. I would just add to that, Congressman, that the 
government definitely has a role in research, but there is a 
lot of good research out there that is done in the private 
sector as well. And I would be naive to think I could sit here 
and say, don't cut what is important to me but find someone 
else to cut. As an American, I would simply say it is 
imperative that we get our budget situation under control, and 
if we are going to have to take some lumps along with everyone 
else I don't think we should cry too loud. Research is a 
wonderful thing. I am not boo-hooing over research. But we 
can't continue down the path we are going and have a 
sustainable economy.
    Mr. Scott. Thank you, sir.
    The Chairman. I want to thank the witnesses. As you may 
know, we have been called to vote, and the other Members will 
not be able to return, so we are going to adjourn. But I want 
to thank you all for participating in this discussion on the 
state of the industry for poultry. And with that, under the 
rules of the Committee, the record of today's hearing will 
remain open for 10 calendar days to receive additional material 
and supplementary written responses from the witnesses to any 
question posed by a Member.
    This hearing on the Subcommittee on Livestock, Dairy, and 
Poultry is adjourned.
    [Whereupon, at 2:45 p.m., the Subcommittee was adjourned.]

                                  
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