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

 
       FEDERAL FARM PROGRAM: UNINTENDED CONSEQUENCES OF FAV RULES
=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON REGULATORY REFORM
                             AND OVERSIGHT

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                   WASHINGTON, DC, SEPTEMBER 19, 2002

                               __________

                           Serial No. 107-69

                               __________

         Printed for the use of the Committee on Small Business

                          U.S. GOVERNMENT PRINTING OFFICE
82-505                             WASHINGTON : 2002
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512-1800  
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001

                      COMMITTEE ON SMALL BUSINESS

                  DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
ROSCOE G. BARTLETT, Maryland             California
FRANK A. LoBIONDO, New Jersey        DANNY K. DAVIS, Illinois
SUE W. KELLY, New York               BILL PASCRELL, Jr., New Jersey
STEVE. CHABOT, Ohio                  DONNA M. CHRISTENSEN, Virgin 
PATRICK J. TOOMEY, Pennsylvania          Islands
JIM DeMINT, South Carolina           ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota          TOM UDALL, New Mexico
MICHAEL PENCE, Indiana               STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California          DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri                 GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia          BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York       MARK UDALL, Colorado
TODD W. AKIN, Missouri               JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia  MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania           BRAD CARSON, Oklahoma
                                     ANIBAL ACEVEDO-VILA, Puerto Rico
                      Doug Thomas, Staff Director
                  Phil Eskeland, Deputy Staff Director
                  Michael Day, Minority Staff Director
                                 ------                                

            Subcommittee on Regulatory Reform and Oversight

                     MIKE PENCE, Indiana, Chairman
LARRY COMBEST, Texas                 ROBERT BRADY, Pennsylvania
SUE KELLY, New York                  BILL PASCRELL, Jr., New Jersey
SAM GRAVES, Missouri                 CHARLES GONZALEZ, Texas
ROSCOE BARTLETT, Maryland            DAVID D. PHELPS, Illinois
TODD AKIN, Missouri                  JAMES R. LANGEVIN, Rhode Island
PAT TOOMEY, Pennsylvania             ANIBAL ACEVEDO-VILA, Puerto Rico
                  Rosario Palmieri, Professional Staff

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 19, 2002...............................     1

                               Witnesses

Howell, Dave, President, Howell Farms, Middletown, IN............     3
Reichart, Brian, President & CEO, Red Gold, Inc., Elwood, IN.....     5
Hartung, Dan, President, Hartung Brothers, Arena, WI.............     8
Palmby, Paul, Vice President of Manufacturing, Seneca Foods 
  Corporation, Janesville, WI....................................     9

                                Appendix

Opening statement: Pence, Hon. Mike..............................    19
Prepared statements:
    Howell, Dave.................................................    22
    Reichart, Brian..............................................    26
    Hartung, Dan.................................................    31
    Palmby, Paul.................................................    33
Additional information:
    Written Testimony of J.B. Penn, U.S. Department of 
      Agriculture................................................    37
    Written Statement Ball Corporation...........................    43
    Letter to House Subcommittee on Regulatory Reform and 
      Oversight from Curtis Linge, Chiquita Processed Foods, 
      L.L.C......................................................    45
    Letter to Subcommittee Chairman Pence from Randy Mott, Tip 
      Top Canning Company........................................    47
    Letter to Subcommittee Staff Director Palmieri from William 
      Gast, The Beckman & Gast Co................................    48

       FEDERAL FARM PROGRAM: UNINTENDED CONSEQUENCES OF FAV RULES

                              ----------                              

                      THURSDAY, SEPTEMBER 19, 2002

              House of Representatives,    
               Committee on Small Business,
                  Subcommittee on Regulatory Reform
                                             and Oversight,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:05 a.m. in room 
2360, Rayburn House Office Building, Hon. Mike Pence (chairman 
of the committee) presiding.
    Chairman Pence. This hearing of the Committee on Small 
Business, Subcommittee on Regulatory Reform and Oversight 
having to do with federal farm program rules' effects on small 
growers is called to order.
    I will have a brief opening statement. We do not anticipate 
the ranking member or other members joining us. But in the 
event that other members do participate on this busy Thursday, 
we will recognize members for any opening statements. Then I 
will recognize each of the witnesses beginning, I think, from 
right to left, and we will hear five minutes of remarks from 
each of the witnesses, and thereafter have a period of 
questions and answers.
    The Farm Security in Rural Investment Act of 2002 not only 
ensures that aid reaches the right farmers, but that it reaches 
them in the right way. The law provides `Hoosier' farmers and 
farmers across America with a strong safety net, and I was 
proud to support it, and proud to help draft it as a member of 
the House Agriculture Committee.
    It increased average U.S. farm income by $4.5 billion per 
year according to independent analysis by the Food and 
Agriculture Policy Research Institute. Congress and the 
President recognized the difficulties that American farmers 
face both from unfair trade barriers in other countries and 
tough economic times here at home.
    In voting for this landmark legislation and in helping to 
draft it, I remain confident that the farm bill will provide 
the necessary resources to keep family farmers in Indiana and 
across America competitive in a global marketplace.
    Now, in stark contrast to this great achievement, we are 
here today to talk about some problems with the farm bill. Our 
hearing today addresses the unintended consequences of 
restrictions on growing fruits and vegetables. Now many of the 
64,000 farms in Indiana were pleased to hear that soybeans were 
added as a program crop since soybean farmers have been 
particularly hard hit by these tough economic times. But what 
was not immediately obvious was that by adding soybeans as a 
program crop large amounts of acreage would now be off limits 
for the planting of fruits and vegetables for processing, 
which, as we will no doubt hear today in my home state is a 
very significant industry as it is for much of the Midwest.
    After the Freedom to Farm Bill in 1996, this restriction 
did have some impact on Midwestern production of fruits and 
vegetables and the rotation of crops, but it really was not 
until this year's farm bill that the consequences of this 
prohibition would be so dramatic.
    We are still awaiting the U.S. Department of Agriculture's 
regulations on how this restriction will be implemented. The 
USDA can help to make sure that this will not be a death blow 
to fruit and vegetable production in the Midwest and well they 
should.
    But even if the USDA does all that it can to help 
Midwestern fruit and vegetable growers, there will still be 
negative consequences if we do not make legislative 
corrections.
    We have received written testimony from the Undersecretary 
for Farm and Foreign Agriculture Services, J. B. Penn, at the 
USDA. And it is submitted into the record without objection.
    We are encouraged at this point to see that their statement 
is consistent with commitments the Undersecretary has made 
informally to this subcommittee and to its Chairman. Their full 
testimony will be included in the record and available to all 
interested parties.
    My goal is to make sure that America's farmers and those in 
my home state of Indiana are able to have the degree of 
planting flexibility necessary to make a living, expand their 
business, and use an environmentally safe means of pest 
management by rotating crops.
    Agriculture accounts for 13 percent of the nation's 
economy, and 17 percent of our nation's employment.
    I might add parenthetically that the very vision of Freedom 
to Farm in 1996, a vision expanded on by the senior senator 
from Indiana, was a vision for flexibility. The idea that we 
would move American agriculture away from a top down command 
and control economy into an economy where the farmer would use 
discretion based upon the marketplace, we are not there 
perfectly, but it should remain the vision of every aspect of 
American agricultural policy.
    At a time when we have come together to help this 
enormously important sector of our economy, I want to make sure 
we are not doing more harm than good.
    I certainly look forward to the testimony of all of our 
witnesses and will reserve time at the close of the last 
presentation to ask a series of questions to each of the 
participants.
    Before beginning testimony, I want to remind everyone that 
we would like you to keep your oral testimony to five minutes. 
Some of our witnesses have been here many times before, others 
are new, know that you need not be an hurry about getting 
through your testimony. Your written statement will be added in 
its entirety to the record without objection.
    There will be a light in front of you that we grow 
accustomed to here on Capitol Hill. The green light means you 
are free to make your presentation. The yellow light does not 
mean speed up. It warns you that it is getting close to 
wrapping up. The red light does mean that you should wrap up in 
an orderly way.
    With that said, having just been notified of a vote on the 
House floor, we will go ahead and take the testimony of our 
first witness, and then the Chair will be excused for just a 
few moments while I return for what we understand to be one 
vote on the floor of the House.
    Our first witness is Dave Howell who is president of Howell 
Farms in Middletown, Indiana. He has a Bachelor of Science and 
a Master of Science in agricultural economics from Purdue 
University and serves on the advisory council of the dean of 
agriculture there, and has one of the best farms for town hall 
meetings in the central part of the United States of America. 
And we acknowledge his hospitality. And Mr. Howell, you are 
recognized for five minutes.
    [Mr. Pence's statement may be found in the appendix.]

       STATEMENT OF DAVID W. HOWELL, OWNER, HOWELL FARMS

    Mr. Howell. Good morning, Mr. Chairman and members of the 
committee. I am David Howell, a farmer from Middletown, 
Indiana. I am please to have the opportunity to share my 
thoughts and observations regarding potential negative 
consequences of the provision restrictingthe planting of fruits 
and vegetables, which is a part of the new farm bill.
    My family and I grow a few thousand acres of traditional 
corn and soybeans as well as several hundred acres of fruits 
and vegetables for fresh market and for processing. Our 
business is made up of three separate sole proprietorships; 
one, my wife and I; two, our son Adam; and three, our son 
Aaron--doing business under the umbrella of Howell Farms.
    We are still a small family farm operating at the level 
required to provide modest income for the three entitles. Adam 
is a graduate of Princeton University with a degree in 
economics. I am happy to say that he made the decision to make 
agriculture his full-time career after completing his studies.
    Aaron, who is with me today, cutting classes, graduated 
from Texas A&M University last year, and is pursuing a master's 
degree in agricultural economics at Purdue. He currently farms 
300 acres and plans to return to farming full time after 
graduate school.
    They are both growth, efficiency and profitability oriented 
and understand well the need to expand our business. We derive 
approximately 50 percent of our gross revenue and an even 
larger percentage of the profits from fruit and vegetable 
production.
    Unfortunately, the unintended consequences are frequently 
generated in geometric proportion to well-intended government 
regulations. Whether it is the FSA, the DOT, the EPA, the DNR, 
or the QPG, I cannot get out of bed in the morning without 
breaking someone's rules.
    Last week we had $150,000 worth of tomato harvesting 
equipment impounded at a highway scale house for over 24 hours. 
We had the necessary permits, but two zealous DOT officers 
decided to measure our height, not from the top of the machine, 
but rather to the top of the removable wire, radio antenna, and 
then proceeded to argue that we voided our permit.
    The last DNR employee I met clearly knew how to run his 
siren and red flashing lights but he was in hot pursuit of some 
burning grass. He had no clue how to pronounce carcinogen.
    Barney Fife lives; he works for the government; and there 
are not enough Sheriff Taylors to keep him straight.
    I understand at least partially the near-sighted 
protectionist attitude and the regional politics that brought 
about this major change in the FAV or fruit and vegetable rules 
which become part of the new bill. I truly believe, however, 
that the unintended consequences were not understood by most 
legislators when the act passed.
    This act limits the entry of young farmers into business 
and threatens the success and possible expansion of existing 
producers. As it stands, I am being protected from my sons. 
They cannot enter FAV production. Adam will have only a small 
history of fruits and vegetables from the year 1996 to 2001, 
and Aaron has no history because he had no tomato contract and 
has only grown corn and soybeans.
    To take the problem a step further, you may say, ``Why 
don't I rent my ground to Adam or Aaron and let them use the 
farm history?'' Well, this is only partially possible, but I am 
already competing with them for suitable rented land because my 
current land base has been intensively used for fruits and 
vegetables and needs to be rotated to other crops.
    The only alternative is to not rotate, and thus be required 
to use higher and higher rates of insecticides, fungicides, 
bactericides, and still only achieve less than potential 
production.
    You may also say, ``Why don't we incorporate and then could 
share in the corporate operation?'' Well, there are a number of 
reasons why this would not work, but the one relevant here is 
that with the new farm bill Adam and I both would lose our 
histories because--and the corporation would have no producer 
history at that point.
    The act restricts diversification of exiting farms. Mary 
and I did not always raise fruits and vegetables. In the 
beginning, it was only the traditional Midwest corn, soybeans 
and hogs. In the early eighties, we found ourselves sucked into 
the mismanagement and near collapse of the Farm Credit System 
and nearly lost the farm. Had it not been for our ability to 
diversify and start producing fresh fruits and vegetables with 
the help of our children and selling our production with the 
help of their friends and multiple retail markets, I would not 
be here today in this role.
    With the farm bill as it now stands, if that were to have 
happened today, we could not work ourselves out of our own 
problem. We could not go into FAV without losing our income 
from government subsidy.
    Since the early eighties, diversification has been touted 
as the key to survival for the family farm and I would 
completely agree. That, however, is not what the new farm bill 
says. It says plant contract crops, corn, beans and wheat, or 
we will not support you. In fact, we will fine you for 
diversifying into other crops, and we will diminish the value 
of the land you farm by reducing revenue-generating crop bases 
on the land for your future years.
    The act damages and limits the ability of older farmers to 
pass on their life's work, assets and experience. No one needs 
a $100,000 used tomato harvester and any of the associated 
equipment if the new people cannot start growing tomatoes. 
Instead of possible new producers needing to learn the keys and 
secrets of producing higher value fruits and vegetables crops, 
they need to learn how to play the government game.
    Chairman Pence. Mr. Howell, I will need to interrupt you at 
that point at the risk of being rude.
    Mr. Howell. That is fine.
    Chairman Pence. About eight minutes remaining before I need 
to make it over to the House chamber, and these old bones do 
not move that quick.
    So allow me to recognize the balance of your testimony will 
be entered as written in the record.
    Mr. Howell. Fine.
    Chairman Pence. And I will also give you ample time to 
amplify any additional points in your testimony during the 
question and answer session.
    Mr. Howell. Okay.
    [Mr. Howell's statement may be found in the appendix.]
    Chairman Pence. I thank you for your testimony; very 
proactive and personal; exactly what we were hoping to add in 
the record today.
    We will recess briefly. I should return in no more than 10 
minutes, and I thank you for your indulgence.
    [Whereupon, a recess was taken.]
    Chairman Pence. This hearing of the Subcommittee on 
Regulatory Reform and Oversight, the House Committee on Small 
Business will be reconvened, with appreciation for your 
patience. I do not anticipate another interruption from the 
floor prior to the end of the hearing, so we should be able to 
move expeditiously through both testimony and question and 
answers.
    But having heard from the president of Howell Farms in 
Middletown, Indiana, the subcommittee will now hear from Brian 
Reichart, another ``Hoosier'' from the east central Indiana 
district that I have the privilege of serving. He is the 
president and CEO of Red Gold, Incorporated, which is a tomato 
processing company headquartered in Indiana.
    Mr. Reichart has a degree in industrial management from 
Purdue University. He is past president of the Indiana Canner 
Association, and has served as a director of the National Food 
Processors Association since 1993.
    And the committee also would gratefully acknowledge Mr. 
Reichart's efforts in bringing thisissue as it affects farmers 
in our state in particular to the Chair's attention.
    With that, Mr. Reichart, you are recognized for five 
minutes.

 STATEMENT OF BRIAN REICHART, PRESIDENT AND CEO, RED GOLD, INC.

    Mr. Reichart. Thank you, Mr. Chairman, for hosting this 
hearing today on these agricultural issues that affect many 
small businesses.
    It is a great honor to represent my company and these 
growers behind me. We have come to lend our support in the 
midst of our harvest, to speak before you and bring attention 
to the unintended consequences of the 2002 Farm Bill as they 
relate to the fruit and vegetable processing business.
    Well, my name is Brian Reichart, and I am president and CEO 
of Red Gold. I am proud to represent the third generation of my 
family in the tomato business. Red Gold is a full-time tomato 
manufacturing company with three processing plants, all of 
which are located in Indiana. We employ 1,200 full-time 
employees and 600 seasonal. Sixty traditional family farms 
throughout Indiana, western Ohio and southern Michigan grow Red 
Gold tomatoes in a favorable climate and soil, enabling us to 
grow a high quality food product.
    With the passage of the Freedom to Farm Bill in 1996, our 
growers' ability to supply tomatoes was unimpeded because 
adequate acreage was available for fruits and vegetable 
production. With the rewriting of the new farm bill, it came to 
our attention that a severe problem for Midwest fruit and 
vegetable growers was at hand. The new farm bill added soybeans 
as a subsidized program crop. In states like Indiana where corn 
and soybeans are grown on nearly 100 percent of tillable acres, 
the majority of production land is entered into the federal 
program. Because of this prohibition in the law for planting 
fruits and vegetables, nearly all land becomes legislatively 
unavailable, unless a grower or landlord would choose to 
withdraw from the federal program permanently.
    The new law and proposed USDA regulations provides avenues 
for growing fruits and vegetables on farms with a history or 
for growers with a specific crop history without penalty. Now, 
however, a critical, unintentional consequence occurred when no 
mechanism was included for us to replace growers due to natural 
attrition, to bring in new farms for rotational purposes, or 
for a way to allow new generations of family farms into the 
fruit and vegetable business.
    Now, at Red Gold, 75 percent of our growers have farms 
representing two or more generations, and they have been 
supplying us tomatoes for up to 20 years or more. This cultural 
tradition could very well come to an end.
    The canning industry must be agile and free to respond to 
demand-driven markets and to adjust supplies on an annual 
basis. We must also have availability to allow growers to be 
good stewards of the land and employ good integrated pest 
management practices, such as land rotation.
    At Red Gold, we encourage our growers to raise only one 
crop of tomatoes on the same field every four to five years. We 
also need to be free to diversify growing regions to reduce 
production risk associated with drought or flood, even though 
it adds to the cost of higher freight.
    Now, those who oppose our efforts to relieve restrictions 
for growing fruits and vegetables in the Midwest say they fear 
competition, fear subsidized competition. A point with which to 
make clear, we would like to make clear today is that we do not 
advocate growing fruits and vegetables on acres that receive a 
government payment. We advocate a reduction in federal payments 
on an acre-for-acre basis planted to fruits and vegetables.
    The processed food industry is responsible for hundreds of 
thousands of jobs in America. Within our coalition of can and 
frozen food processors in the Midwest, there are 20,000 direct 
full-time jobs, plus 10,000 seasonal jobs, and 10,000 growers. 
Losing established fruit and vegetable food processing 
companies out of the Midwest due to needless regulation will 
have a devastating impact to families and communities.
    Restricting growers from entering into a profitable cash 
crop as an alternate to corn and soybeans is nothing more than 
protectionism at its worst. If growers are prohibited from 
growing fruits and vegetables, the void in supply would be 
filled by imports. Other countries are ready and eager to flood 
our markets with their fruits and vegetables.
    The processed fruit and vegetable sector has adapted to 
these marketing challenges by reinvesting, keeping our costs 
low and becoming efficient. When left to our own abilities 
without undue government regulation such as these planting 
regulations, we are able to compete within the domestic market.
    Diverse geographical regions are a necessary link in the 
food chain for safety, security and supply. Food terrorism 
risks increase as growing regions become more concentrated. The 
consequence of restricting production of fruits and vegetables 
in the Midwest will cause supply fluctuations and unacceptable 
food production risks as reminded by this year's drought-
devastated areas.
    In closing, I would like to reiterate that with this issue, 
what is good for growers is good for the food processing 
industry. Conversely, what is bad for growers is bad for the 
processing industry, and this restriction is bad for growers.
    Planting restrictions in the new farm bill is unwarranted 
protectionism, severely harming a food processing business that 
has a long, traditional history of free enterprise in the 
central regions of our nation.
    This situation could be relieved if the law were changed. 
Allow access to use base acreage for fruits and vegetables for 
processing on an acre-per-acre reduction in this program.
    With your action, everyone will win by reducing government 
payments and ensuring a safe and affordable supply of 
nutritious food to the citizens and taxpayers of this great 
country. Growers and processors would then be free to use their 
talents in an atmosphere of efficiency, cooperation and true 
freedom to farm.
    Thank you very much, Mr. Chairman.
    [Mr. Reichart's statement may be found in the appendix.]
    Chairman Pence. Thank you. And the witness's entire 
statement, which I know you passed over sections to accommodate 
the time, will be added to the record without objection.
    Next, the subcommittee will hear from Dan Hartung, I hope I 
am pronouncing that right, Dan.
    Mr. Hartung. Yes, you did.
    Chairman Pence. Who is president of Hartung Brothers, 
Incorporated. He is a vegetable grower as well, and hails from 
the great State of Wisconsin.
    And Mr. Hartung is recognized for five minutes.

  STATEMENT OF DAN HARTUNG, PRESIDENT, HARTUNG BROTHERS, INC.

    Mr. Hartung. Thank you. Thank you, Mr. Chairman.
    My name is Dan Hartung, and I am the president of Hartung 
Brothers, Incorporated. Hartung Brothers is a raw product 
supplier for food processors located throughout the United 
States. We producer over 25,000 acres of snap beans, sweet 
corn, cucumbers for pickling, and carrots. We produce the above 
fruits and vegetables in Wisconsin, Illinois, and Texas, and 
all of ourproduction is for processing--canning, freezing or 
brining. We do not do any fresh market sales.
    I am here today to discuss the negative impact the 2002 
farm bill will have on my business.
    The previous farm bill, the Freedom to Farm Act, placed a 
restriction on planting fruits and vegetables on base acres. 
Under the act, soybeans were not program acres so the impact 
was more of an inconvenience to some of our land owners and 
growers, but for the most part did not affect our ability to 
get acreage for fruit and vegetable production.
    Under the 200 farm bill soybeans are added as a program 
crop, and this will take away a large block of acres that is 
critical to us.
    A large portion of our operation is producing early 
production for our processor customers ahead of their local 
crops. We do this by going to non-traditional fruit and 
vegetable production areas in central and southern Illinois, 
and produce crops two to three weeks earlier than our 
processors can do in their location production in Wisconsin, 
Michigan and Minnesota.
    This acreage has traditionally gone on land that would have 
been planed to soybeans. Because of the penalties and 
restrictions on planting fruit and vegetables on program acres 
in the 2002 farm bill, it will in all likelihood wipe this 
portion of our business out or reduce it to a level that it 
would not be economical to operate.
    Another ramification of adding soybeans as a program crop 
to the 2002 farm bill is attracting new acres for crop 
rotation. Snap beans and cucumbers are very sensitive to root 
disease and without the ability to attract new acres for 
rotation, we will be forced to apply more pesticide, thus 
raising production costs and increasing the potential to reduce 
the efficacy of the pesticides due to continuous applications.
    I also see no way for a new landlord or grower to get into 
the business of growing fruits and vegetables. The penalties 
are just too great. This leaves us without any means of 
replacing retiring and/or poor producers.
    I have no problem competing monetarily for acres with all 
the commodities. I can compete with the returns landlords and 
growers can receive including their government subsidies for 
program crops. What I can't compete with is the rules that put 
such a large penalty for growing fruits and vegetables on base 
acres.
    I believe that an unintended consequence of the 2002 farm 
bill will be to increase soybean acres at the expense of 
processed fruits and vegetables. This will increase the cost to 
taxpayers for both program payments as well as increased costs 
for processed government.
    Adding soybeans as a program crop will have a substantial 
negative impact on our business as well as many of our 
processing customers and the consumers who will ultimately foot 
the bill.
    Thank you for your consideration.
    [Mr. Hartung's statement may be found in the appendix.]
    Chairman Pence. Thank you, Mr. Hartung.
    And finally, the subcommittee will hear from Paul Palmby, 
who is vice president of operations and agriculture for Seneca 
Foods Corporation.
    Mr. Palmby has degrees in agricultural business and 
economics from Iowa State University, and we are grateful for 
your participation, and anxious for your remarks. You are 
recognized for five minutes.

  STATEMENT OF PAUL PALMBY, VICE PRESIDENT OF OPERATIONS AND 
             AGRICULTURE, SENECA FOODS CORPORATION

    Mr. Palmby. Thank you, Mr. Chairman.
    I would like to sincerely thank you for the opportunity to 
be here today to speak on behalf of the Canned, Frozen Food and 
Grower Coalition and Seneca Foods about the impacts of the farm 
bill on our processing industry and its growers.
    Seneca, with the majority of its plans in the Midwest, 
Wisconsin and Minnesota, contracts vegetable crops with 
approximately 2,000 growers in the Midwest, and those growers 
are essential to our success.
    The Canned, Frozen Food and Grower Coalition represents 
virtually all of the processed vegetable production in the 
Midwest and has a sizeable contingent outside of the Midwest. 
The coalition represents a diverse segment of food industry 
from small farms and family-owned processing companies to 
multinational companies. In fact, the vast majority of canned 
vegetables sold in this country are represented by this 
coalition.
    The late addition of soybeans as a program crop in the 2002 
bill and the further establishment of bases for soybeans has 
dramatically changed the dynamics of fruit and vegetable 
production in the Midwest. Maintaining the penalties and 
restrictions on planting FAVs on program acreage established in 
the previous bill has and will continue to assure that program 
acreage cannot be planted to FAVs.
    Prudently, Congress preserved in the statute significant 
discretion for USDA in implementation of the sign-up and 
penalty provisions of the programs. Although the department has 
not published final implementing regulations, our coalition is 
hopeful that it will follow through on prior indications to 
address some of the issues.
    A number of concerns have been raised that flexible 
implementation by USDA would put the fresh fruit and vegetable 
industry at a competitive disadvantage. That simply will not 
happen. Fruits and vegetables grown for processing are to a 
large degree not suitable for fresh consumption. A processing 
tomato, for example, would not be considered desirable to 
consume as part of your dinner salad.
    The attributes of processing sweet corn varieties are 
significantly different than those sold on the fresh market. 
Growers of vegetable for processing by contract must sell the 
vegetables to the processor to be run in one of many of the 
plants located mostly in rural communities throughout the 
Midwest and processing crops are not diverted to fresh markets. 
Actually, the opposite is true.
    Varieties are bred to maximize attributes that are 
desirable for processing and not fresh consumption. Sieve size, 
field yield, plant recovery, color, disease, and pest 
resistance are important attributes for processing.
    These processing crops are simply alternatives for growers 
of more traditional corn and soybeans that dominate the 
Midwest. Generally speaking, the processor provides some of the 
inputs like seed as well as harvesting and hauling of the crop. 
This can be attractive for the young grower trying to become 
established with limited working capital as well as the 
established grower simply looking to diversify and defer a 
portion of his workload.
    The problems: We see no plausible way for a new grower to 
begin growing FAVs under restrictions of the current bill. In 
addition, growers who have already made the decision to 
diversify in 2002 may be restricted--and who do not have 
previous farmer/producer history may be restricted from--to 
continue growing in 2003 without prohibitive economic impact. 
Out of our nearly 2,000 Minnesota, Wisconsin and Illinois 
growers, there are 92 such individuals.
    Also, crops like sweet peas, green beans, and pumpkin 
require strict rotation to combat disease, the introduction of 
the new ground is essential to maintaining yield and minimizing 
increasedneeds for chemical applications. A question of new 
ground with new growers becomes all but impossible.
    One example that I would like to share as a part of the 
testimony is a small group of growers in Scandia, Kansas that 
formed a co-op in July, partially from funds supplied by USDA, 
to start a small sweet corn processing plant. Many of these 
individuals now find themselves in the situation where they are 
100 percent based and may not be able to continue to grow the 
vegetables for which they grew in 2002.
    Farm policy has created negative implications to growing 
FAVs. The capitalized value of the government program itself 
has increased land cost for those acres having high bases. For 
those loyal processing fruit and vegetable growers who took 
advantage of the opportunity to diversify, reducing subsidized 
production, they now face reduced land value due to minimal 
bases and landlords who have realized the value of the farm 
program.
    In conclusion, the unintended consequences of the addition 
of soybeans combined with already in place restrictions on 
growing FAVs presents a serious issue for Midwest growers and 
processors. USDA has announced that improvements to the 
original language of the farm bill are expected to be 
implemented as a result of our coalition's efforts to bring 
these issues to the department's attention.
    Regrettably, there is only so much the department can do, 
and some of the yet unresolved fundamental issues that affect 
the growing of FAVs require congressional action. Our industry 
provides both vitally important and safe food as well as 
significant economic stability in the mostly rural areas that 
we operate. We ask for your help in resolving these issues and 
request your assistance in removing this threat.
    Thank you.
    [Mr. Palmby's statement may be found in the appendix.]
    Chairman Pence. Thank you, and thank you to all of the 
witnesses for some very provocative testimony.
    I have a couple of questions that I want to see if we can 
flesh out. It seems that there is a great deal of agreement on 
the panel about the impact that moving soybeans into the 
program crop status and the whole anticipated trouble, damages 
the structure will have. But I want to see if you can flush out 
that in a little more plain English, and particularly we will 
begin with Mr. Howell.
    I know that when I reviewed your written testimony last 
night, you reflected on your farm in Brazil, and you made some 
fairly blunt assertions in your testimony about if the issue 
before this subcommittee is not addressed in the new USDA sign-
up and penalty regulations that you could anticipate as someone 
who engages in farming in South America . . . you would 
anticipate that that market may well become more attractive to 
food processors and find itself more active in fruit and 
vegetables.
    I guess my question would simply be to ask you, Mr. Howell, 
to elaborate on that. What would you see to be the time-line of 
that if everything remains status quo? And to what extent do we 
already face competition from those markets in FAVs?
    Mr. Howell. Well, Mr. Chairman, I--maybe I am blunt by 
nature, I did not mean it as a threat certainly, and always 
will be proud to be an American, but economics simply work. And 
the fact that this happened in many of our other industries in 
this country, and agriculture is no different than those. It is 
not a black and white thing. It is not going to happen 
immediately. But I think this may very well be a watershed 
decision that brings about the start of a ball rolling or 
rolling a little faster.
    And I think that not only this but for other reasons, it is 
inevitable that that will happen. As economies mature, I have a 
theory that I cannot back up with my formal training at this 
point, but as you look at the countries of the world and their 
economies, you go from the European countries that are very 
mature to ours in the middle that has done very well, and to 
the developing countries, there is an evolution of agriculture.
    From subsistence it became--in Europe, it has become 
essentially entertainment and aesthetics, and all controlled. 
We are working that way. And in the process the real hard 
production oftentimes goes to the less developed and more free 
enterprise areas, and I think this may very well happen.
    Chairman Pence. Maybe I can ask that of Mr. Palmby. From 
your perspective at Seneca, what is the nature right now of the 
fruits and vegetables industry in The Americas and how much 
competition, how ready would our trading partners be to fill in 
any gaps that could ensue through this unintended consequence?
    Mr. Palmby. Mr. Chairman, in the--we currently already have 
significant competition in South America on, for example, 
processed asparagus. Asparagus can be brought in this country 
from South America as cheaply or more so than it can be 
produced in the Midwest. Thailand is a significant factor in 
the corn market. Canned corn can be brought in from Thailand. 
And Canada is another area where we can bring peas and green 
beans competitively to the Midwest, and as costs continue to 
escalate as a result of these programs, that will only continue 
to become more and more.
    Chairman Pence. Mr. Reichart, in your testimony you 
describe among the Coalition of Can and Frozen Food Processors 
in the Midwest that there are 20,000 full-time jobs, 10,000 
seasonal jobs, and 10,000 growers.
    What do you expect the can and frozen food processor 
industry to look like in ten years from an employment and job's 
base if we stay on the track that we are on without some 
regulatory or legislative change?
    Mr. Reichart. In my testimony, I explained that we were 
competitive, but we were competitive just within the United 
States. We feel that it is like the government is tying one arm 
behind our backs. We need to have good rotation practices to 
have good crops, maximizing yield, and quality. That is what 
the American people want.
    We want to be able to make sure that we have new growers 
coming up. We want to be able to stay efficient, both on the 
farm and in the factory. Where else in the world can you get 
five cans of tomatoes or corn for a dollar? You know, bottled 
water is $1.25 in this town. We have done a good job.
    In fact, I do not know of any other business in the United 
States that has done any better than the canned vegetable 
processing.
    If this happens, I can just see that gradually a lot of our 
little advantages will be taken away from us. Right now, Italy 
can send tomatoes into the United States and back, all up and 
down the coast. They are a very big competitor of ours. Greece 
and China, right now, is in the process of building up their 
tomato industry.
    We have not come to ask for help. We have come to ask to 
take the restrictions away. Let us do what we do well. We are 
Americans, and we believe in a free enterprise, and you have 
got farmers who, you know, there is no question of their 
abilities and their dedication, as well as the processors. We 
need your help.
    Thank you very much.
    Chairman Pence. Mr. Hartung, you farm, I think, 25,000 
acres I remember from the testimony with the Hartung Brothers, 
Incorporated.
    And I am working from a conceptual model here to just ask 
you all to be thinking about what if nothing happens, and we 
will remain optimistic about outcomes, and I want to talk to 
you all about recommendations.
    But what is the net effect if nothing changes for Hartung 
Brothers? Do you look to diversify overseas both with regard to 
planting, and would you anticipate processing facilities to 
move overseas as well?
    Mr. Hartung. I think we will see some of that. I think 
there is really three issues. If nothing happens at all, there 
is going to be three really people that are going to be 
dramatically affected.
    There is going to be the farmer that has never grown fruits 
and vegetables, and under this current situation he never will. 
I mean, the penalties are just too great. There is the guy, the 
grower that had previous history that he will be allowed to 
grow fruits and vegetables by giving up a partial payment. He 
is going to have to weigh the value of the payments then 
against the value of what the vegetable contract is.
    And then you have, which is really maybe the most important 
person here, is the landlord. The lion's share of our growers 
farm land that they do not know, and landlords right now are 
getting very active in the fact that they do not want to see 
their base, if it is a corn base, or now we are going to have a 
soybean base or whatever, they do not want to see that eroded. 
That in their mind brings value to that farmland. And by 
allowing their tenant to grow a fruit or vegetable that by some 
future farm bill would eliminate or reduce their base, a lot of 
them are just writing in their contracts you cannot do it. Even 
if they are ``legal'' to do it under the farm bill, the 
landlords, most of them are--a lot of them are elderly and so 
on, they just do not want to take any risk, and they are not 
going to take the exposure, and say ``No, don't do it.''
    So we are going to have a number of our growers that are 
going to be restricted. It is not going to be a government 
restriction, it is going to be the landlord restriction to say, 
``I am not going to take the chance of my farm going down in 
value because you wanted to grow something today, and five 
years from now somebody picks a different set of years, and I 
am out base.'' That is where I see the real problem to be.
    Moving a lot of this industry overseas or south into South 
America, that is going go to take a lot of time. I look at the 
immediate ramifications of how are we going to fill the needs 
for next year, and that is where I see the real problem.
    Chairman Pence. Let us follow up to understand you 
correctly. Even though if we do not repair the current penalty 
structure, even though certainly there would be the freedom to 
diversify, it may well be that in the context of the lease 
agreement many of the people you rely on for product----
    Mr. Hartung. Absolutely.
    Chairman Pence [continuing]. No longer have the freedom 
within their own lease agreement to diversity in that way.
    Mr. Hartung. That is correct.
    Chairman Pence. That is very insightful and very helpful to 
the record.
    Mr. Howell, I will ask you this question. Not being in 
farming, and not having a background in farming, I think the 
initial reaction to the average citizen might be, well, why do 
you not just stay with the same average that you have in fruits 
and vegetables. And you brought up and several of the other 
witnesses brought up the importance and the criticality of 
rotation. The rotation thereby then exposing the farm to 
potential damages.
    Maybe you would speak for the record to why is rotation 
critical, and why should it be addressed in the sign-up and 
penalty regulation?
    Mr. Howell. Well, rotation is--we are all wanting to be 
good stewards of the land and the environment, and at the same 
time we are trying to make a living off the land. And as you 
repeat cropping, the same crop year after year, or closer than 
prescribed yields go down. Pest populations go up. Diseases go 
up. And the only way to control or attempt to control that, is 
through increased uses of pesticides.
    We are already under the gun, if you will, from using too 
many pesticides the way it is, and it just becomes an 
unmanageable situation. In the long run it is a food quality 
and safety and health issue.
    Chairman Pence. That is helpful.
    Let me ask, Mr. Reichart, you made a comment having 
survived 23 hours of a markup in the farm bill on the 
Agriculture Committee. There was a statement in your testimony 
that I found provocative. You said that you wish to make clear 
today that we do not advocate growing FAVs on acres that 
receive a government payment. You might be the first person I 
have seen this year that was not asking for a government 
payment for an agricultural program.
    And I know in your testimony you go on to say what you are 
advocating, and I wanted to start with you, with Mr. Reichart, 
and then I want to start with Mr. Palmby, get your specific 
recommendations.
    As we know from the testimony submitted today, the USDA is 
knee deep in this process, and with representatives here and 
who will be combing over this testimony, this is a very unique 
opportunity to express what you think from a ground level makes 
sense with regard to the sign-up and penalty regulations.
    So, Mr. Reichart, what are you advocating? What would you 
like to see happen?
    Mr. Reichart. First of all, I think there is a lot of 
misconception of what we want, what we need, and what we are 
asking for is, basically, for processed fruits and vegetables 
under contract. We are not--and those are the items that we are 
looking for. And what we are asking is just that the penalty 
will be--the crop, whatever the penalty will be whatever the 
payment, government payment would be, and that will enable us 
to rotate crops, and continue doing--like you say, doing what 
we do well, and that would be for processed fruits and 
vegetables.
    Chairman Pence. It would be an acre-by-acre basis?
    Mr. Reichart. Acre-by-acre, and the processed fruits and 
vegetables would be under contract to various canneries.
    Chairman Pence. Mr. Palmby, same question.
    Mr. Palmby. I would concur with that, and add that under 
the 1996 bill we have had available acreage to get the 
processing crops that we need. It is only the addition of 
soybeans and removing that block of acreage that restrict it.
    So the ability for us to be able to plant FAVs on program 
acres or oil seed acres, in particular, would be sufficient to 
take care of the problem. And, you know, we have an immediate 
need of the 2002 growers that have already made the decision to 
diversify and under current rules may not be able to continue.
    I would like to add one point on the rotation to Mr. 
Howell's testimony.
    Chairman Pence. Please.
    Mr. Palmby. For example, peas, you literally may only be 
able to grow four or five crops of peas on a piece of ground 
ever, and it is critical that we are able to rotate those crops 
around, and make sure that we have a four-year or five-year 
rotation between the growing of those crops from root disease 
problems and whatnot. There is not a lot of research going on 
in that area todevelop the root disease tolerance that you 
need. Peas, snap beans, pumpkins, they are all kind of in that area. 
The addition of new ground is critical.
    Thank you.
    Chairman Pence. Thank you.
    Mr. Hartung, same question.
    Mr. Hartung. I just want to add a little bit to Mr. 
Reichart's. If we could get the processed fruits and vegetables 
to be able to be raised on soybean acres, the soybean base, 
with the giving up of the--well, I just want to make it clear 
that the grower would have to give up his payment for that 
soybean acre. We can compete with that.
    But what the problem really is is that the penalty where he 
has to give up the entire gross compensation of his crop 
against his farm payment, if we can get that, I think we will 
be happy. I mean, we can--we will be back to the same standards 
we were in 1996.
    Chairman Pence. Right, right.
    Mr. Hartung. Our papers would be available.
    Chairman Pence. Mr. Howell.
    Mr. Howell. We do not want anything from the government in 
the form of money. We want to be able to go back to--we want an 
acre-for-acre reduction. Take that acre out of program crops, 
plant it in vegetables, and at the maximum that reduction in 
program payment be the penalty. And then we also need the 
recognition of several of the people, like the sweet corn 
growers in Kansas. And we need to address the dilemma of the 
2002 production history not being recognized.
    Chairman Pence. A final question for the panel. As we talk 
about the impact on farmers and processors that are well 
represented here today, I wanted to also ask how the current 
posture and current law will affect consumers. And we obviously 
have a very active marketplace in fruits and vegetables in the 
United States, and I guess I probably would best direct my 
question to Mr. Palmby and Mr. Reichart on this.
    How would--how would the status quo if we do not address 
these issues, both the 2002 issue and also the issue of the 
damages are associated with acre basis, how does that----
    Mr. Reichart. As far as the consumer is concerned?
    Chairman Pence. How does that ultimately, whether it causes 
you to rely more on imports, what does that mean to the 
consumer of Red Gold products?
    Mr. Reichart. Well, without a doubt, I think the prices of 
ground have gone up because of this bill, but we will live with 
that, and a lot of that is going to be passed on to the 
consumer. But I think what we are going to see is, if we are 
not able to farm efficiently, and if we are not able to process 
efficiently, the costs will continue to rise. You know, the 
prices in the markets--canned goods are a bargain. They have 
always been a bargain. And the beauty of a can--you know, that 
is one of the safest items in a grocery store.
    When we talk about--unfortunately, when we talk about 
terrorism or any kind of tampering issues, canned food is the 
safest product. Next time you go into the grocery store just 
look and see what can be tampered with and what cannot. It is 
pretty scary. Thank goodness for the invention of the can.
    But we will see prices move up, if our hands are tied 
behind our backs, and when prices rise high enough, foreign 
imports will definitely come in, and we pay a lot of taxes. I 
think that is going to hurt the communities.
    A lot of the factories are located in small communities. 
All three of our plants are in small towns, and all three of 
those towns are having a hard time trying to attract people. 
The towns are on either a status quo or decline. They count on 
the employees of Red Gold; the taxpayers that work at the 
plant, to, you know, provide the taxes. So, we are talking 
about major issues here, not only to the consumer, but to 
communities where these plants are and where the farmers have 
their farms.
    Thank you.
    Chairman Pence. That is a very worthy addition to the 
impact that the business has--that processors have on their 
communities, but I was especially interested in what 
inflationary impact might be.
    And with Seneca Foods, have you run any models on what the 
potential impact--I assume you have--if the regs were to go in 
the direction that we hope they do not go?
    Mr. Palmby. We have looked at it, and had many discussion 
and are trying to formulate what we think the outcome will be. 
We have definitively concluded that there is no alternative for 
us but to go greater distances to contract the crops, take less 
suitable land than what we might otherwise do, move production 
to other parts of the country that are not so heavily impacted 
by corn and soybean base acres. Specifically, plants in areas 
that have high soybean and corn acreages may be impacted--will 
be impacted much greater than plants that have other free acres 
so to speak.
    You know, canned vegetables, as Mr. Reichart indicated, and 
we have looked at and tracked this. You can go back into the 
early eighties and find that the cost of canned vegetables have 
not increased over that time. Processors have been able to 
become more efficient, and offset inflationary pressure and 
have been very successful at that.
    Having said that, our industry as a whole is not a healthy 
industry. There is no one making tremendous amounts of money, 
and in fact both large and small companies in the canned food 
industry in the Midwest have gone out of business in the past 
couple of years.
    So we just feel that this will be the final death blow to 
some folks. It is a very distinct disadvantage to those growers 
that have been loyal vegetable growers, and now find themselves 
not with the kind of bases that they would have otherwise had 
had they grown vegetables, or I should say grown program crops.
    And the landlord issue and the perception that future farm 
bills will only favor program crops is a real issue. We have 
got growers that are already being told that landlords will not 
allow the production of those crops on those lands. And there 
is no other alternative but to become more efficient, or more 
inefficient.
    We also will have to do things like where we can farm 
ourselves competing with local growers for land, and not having 
it as part of the program. We do farm in a small way in central 
Wisconsin, and that would have to be increased to try and pick 
up those acreage.
    So the impact is very difficult to quantify at this point, 
but we feel strongly that it is absolutely there, and will 
incrementally get worse as time goes on and attrition occurs 
with the growers overtime.
    Thank you.
    Chairman Pence. Lastly, I wanted to give Mr. Howell and Mr. 
Hartung a chance to speak to one other issue.
    In your testimony, Mr. Howell, you made the assertion that 
the act damages and limits the ability of older farmers to pass 
on their life's worth, assets and experience, and presumably 
because of the history requirements that come with and also 
the--I would assume that would be the--as you go on to say--the 
less people that there are in fruits and vegetables the less 
the assets that any particular farming operation owns are 
worth.
    But I thought that I might simply leave that with you and 
Mr. Hartung any comments that you might make with regard to the 
negative effect of the current posture in the law relative to 
keeping the family farm vibrant and strong and something that 
will continue to be inter-generational in our communities.
    Mr. Howell.
    Mr. Howell. Mr. Chairman, the used harvest equipment 
example in the testimony is really clear cut. If there are not 
new growers coming in or young growers coming in, it has no 
value. That is not a major thing in that they can--they can get 
over it.
    I guess the things that we have heard down the line is that 
there is a big problem already over the definition of the 
family farm. But almost everything you have heard down the line 
is that this current writing of unintended consequence of the 
Farm Bill is going to force bigger and bigger, and I am not 
opposed necessarily to bigger and bigger, but it is going to 
take fruit and vegetable production, agriculture out of the 
family farm context with my boys. It presents the problems of 
how do you bring them in under any system. And so it is a--it 
is a structural change that is a watershed event.
    Chairman Pence. Thank you.
    Mr. Hartung, the same question.
    Mr. Hartung. Well, I--our corporation is--I have got six 
brothers and two sisters that are involved in the business, and 
there is 29 grandchildren, so I am not just sure how things are 
going to work out down the road. But I can see it being a 
pretty difficult situation here for people that are close to 
retirement right now, that want to try to figure out how to get 
their sons and daughters involved in their business.
    And under the example Mr. Howell put in his testimony, it 
is going to be very difficult. It is going to take a lot more 
creative thinking than I guess we have come across in the last 
two days visiting on this issue of how to do some of those 
things.
    And the other--maybe the other thing I just want to touch 
on is your consumer issue. I am a consumer and I am a taxpayer, 
and it looks like to me I am going to get it from both ends. I 
am going to have to pay the taxes to pay the soybean subsidy, 
and I am going to have to go to the grocery store and pay 
higher prices for fruits and vegetables. I am thinking that is 
going to be a bad deal all around. Nobody is going to win.
    Chairman Pence. You left out you might also have to pay the 
damages and penalties.
    Mr. Hartung. Yeah. Yeah. It is not going to be a good day.
    Chairman Pence. Yes, not a good day.
    Well, I want to compliment all of our witnesses today. This 
has been enormously helpful not only to the subcommittee, but I 
am very confident, to those that will review this record in 
great detail in other parts of the city.
    We all are still waiting for the USDA's regulations on how 
these restrictions will be implemented. And while this Chairman 
is encouraged at what seems to be the course and direction of 
those deliberations, our intention is to continue both from the 
standpoint of the subcommittee and maybe even in the form of 
legislation to aggressively seek to address this issue and to 
head off the negative consequences for consumers, for farmers, 
for important processing firms that are staples of communities, 
not just those of which I represent, but communities all over 
the heartland of America that have relied for generations on 
these great companies that provide a great quality of life for 
their employees and are important corporate citizens in their 
community.
    I would remind you that we have received written testimony 
from the Undersecretary for Farm and Foreign Agricultural 
Services, J. B. Penn at the USDA, and our witnesses can contact 
the subcommittee for copies of that testimony.
    And let me just say again that I think the most powerful 
statement that was made today from several of the witnesses was 
that here is a group of plaintiffs to the federal government, 
citizens all, who are not asking for anything but simply asking 
that the farm bill as conceived in its new form in 1996 would 
simply be preserved; that the vision of Freedom to Farm with 
regard to fruits and vegetables would be preserved, and that is 
a vision that I embrace wholeheartedly. It is a long-term 
vision of mine not only as a Chairman of a regulatory 
subcommittee on small business, and farms are small businesses 
in America, but also it is a vision that embraces as a member 
of the House Agriculture Committee.
    And your testimony today has equipped me in a very 
meaningful way to make--make this argument and to be an 
advocate from this position on behalf of this reform. So we 
will gavel this hearing to a close, believing that the right 
people are listening, and we will do so grateful for your 
testimony and your willingness to come to our nation's capitol 
and participate in the process.
    This hearing is adjourned.
    [Whereupon, at 11:21 a.m., the subcommittee was adjourned.]

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