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S. HRG. 107–715

THE NEW FEDERAL FARM BILL

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE,

NUTRITION, AND FORESTRY

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

JULY 17, 2001

Printed for the use of the

Committee on Agriculture, Nutrition, and Forestry

(

Available via the World Wide Web: http://www.agriculture.senate.gov

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

TOM HARKIN, Iowa, Chairman

PATRICK J. LEAHY, Vermont

KENT CONRAD, North Dakota

THOMAS A. DASCHLE, South Dakota

MAX BAUCUS, Montana

BLANCHE L. LINCOLN, Arkansas

ZELL MILLER, Georgia

DEBBIE A. STABENOW, Michigan

BEN NELSON, Nebraska

MARK DAYTON, Minnesota

PAUL DAVID WELLSTONE, Minnesota

RICHARD G. LUGAR, Indiana

JESSE HELMS, North Carolina

THAD COCHRAN, Mississippi

MITCH MCCONNELL, Kentucky

PAT ROBERTS, Kansas

PETER G. FITZGERALD, Illinois

CRAIG THOMAS, Wyoming

WAYNE ALLARD, Colorado

TIM HUTCHINSON, Arkansas

MICHEAL D. CRAPO, Idaho

MARK HALVERSON, Staff Director/Chief Counsel

DAVID L. JOHNSON, Chief Counsel for the Minority

ROBERT E. STURM, Chief Clerk

KEITH LUSE, Staff Director for the Minority

(II)

(III)

C O N T E N T S

Page

HEARING(S):

The New Federal Farm Bill .................................................................................... 01

Tuesday, July 17, 2001

STATEMENTS PRESENTED BY SENATORS

Harkin, Hon. Tom, a U.S. Senator from Iowa, Chairman, Committee on

Agriculture, Nutrition, and Forestry .................................................................. 01

Lugar, Hon. Richard G., a U.S. Senator from Indiana, Ranking Member,

Committee on Agriculture, Nutrition, and Forestry ......................................... 02

Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 06

Crapo, Hon. Michael D., a U.S. Senator from Idaho ............................................ 17

Lincoln, Hon. Blanche L., a U.S. Senator from Arkansas .................................... 08

Roberts, Hon. Pat, a U.S. Senator from Kansas ................................................... 03

Thomas, Hon. Craig, a U.S. Senator from Wyoming ............................................ 05

Wellstone, Hon. Paul David, a U.S. Senator from Minnesota ............................. 06

WITNESSES

PANEL I

Denison, John, Chairman, Rice Foundation, Iowa, Louisiana, accompanied

by Nolan Canon, Chairman, U.S. Rice Producers Association, Tunica,

Mississippi ............................................................................................................ 14

Echols, James, Chairman, National Cotton Council of America, Cordova, Tennessee .................................................................................................................... 09

Tallman, Dusty, President, National Association of Wheat Growers, Brandon,

Colorado ................................................................................................................ 12

PANEL II

Gamble, Wilbur, Producer and Chairman National Peanut Growers Group,

Dawson, Georgia .................................................................................................. 35

Jaeger, Art, Assistant Director, Consumer Federation of America,

Washington, DC on behalf of the Coalition for Sugar Reform ......................... 30

Morris, Armond, Chairman, Georgia Peanut Commission, Ocilla, Georgia,

accompanied by Evans J. Plowden, Jr., General Counsel, American Peanut

Shellers Association, Albany, Georgia ................................................................ 32

Roney, Jack, Director of Economic Policy and Analysis, American Sugar

Alliance, Arlington, Virginia ............................................................................... 28

APPENDIX

PREPARED STATEMENTS:

Denison, John ................................................................................................... 127

Echols, James ................................................................................................... 56

Gamble, Wilbur ................................................................................................. 204

Jaeger, Art ........................................................................................................ 182

Morris, Armond ................................................................................................ 192

Page

IV

PREPARED STATEMENTS—CONTINUED

Plowden, Evans ................................................................................................. 199

Roney, Jack ....................................................................................................... 137

Tallman, Dusty ................................................................................................. 78

DOCUMENT(S) SUBMITTED FOR THE RECORD:

AMTA & Marketing Loan Program for U.S. Peanuts, Dr. Ed Smith and

Dr. Abner Womack ....................................................................................... 210

(1)

HEARING ON THE NEW FEDERAL FARM BILL

TUESDAY, JULY 17, 2001

U.S. SENATE, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY, Washington, DC.

The Committee met, pursuant to notice, at 9:08 a.m., in room

SR–328A, Russell Senate Office Building, Hon. Tom Harkin,

[Chairman of the Committee], presiding.

Present or submitting a statement: Senators Harkin, Conrad,

Baucus, Lincoln, Miller, Wellstone, Lugar, Cochran, Roberts,

Thomas, and Crapo.

STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM

IOWA, CHAIRMAN, COMMITTEE ON AGRICULTURE,

NUTRITION, AND FORESTRY

The CHAIRMAN. The Senate Agriculture Committee will come to

order.

In today’s hearing, the committee will receive testimony from the

wheat, rice, cotton, peanut, and sugar industries. I look forward to

hearing the testimony and learning more about these commodities,

their programs and issues.

Combined with last week’s hearing, we will have heard the views

of producers of nearly all commodities involved in farm programs;

however, I hasten to add that we will be having all of the livestock

people in either next week or the week after. Then we intend to

have at least one hearing on specialty crops, which we have not

heard from in the past because they have not been all that involved

in farm programs, but we will have them also before the committee.

Starting with wheat, wheat remains the predominant crop in regions of this country where rainfall is too variable to plant

feedgrains and oilseeds. Historically, wheat is one of the top crops

in acreage in this country, but it has lost ground in recent years

due to foreign competition and more favorable prospects for some

other crops.

Cotton and rice are the other two program crops under the

AMTA program. These crops are very important in a number of

States represented on this committee. Cotton, peanuts, and sugar,

as well as certain classes of wheat, also face import competition,

which differentiates them from the feedgrains and oilseeds that we

examined last week.

These pressures are likely to play a continuing role in devising

the appropriate policies.

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In particular, we already know that the current sugar policy is

not functioning well. A combination of increased imports of both

sugar and sugar products and increased domestic production have

created an oversupply situation. This imbalance has driven down

prices and forced the forfeiture of over 800,000 tons of sugar into

Government stocks.

The peanut program faces similar challenges in responding to

import competition and increasingly global markets.

I look forward to the valuable testimony from our witnesses this

morning and now turn to my friend and distinguished ranking

member, Senator Lugar.

STATEMENT OF HON. RICHARD G. LUGAR, A U.S. SENATOR

FROM INDIANA, RANKING MEMBER, COMMITTEE ON

AGRICULTURE, NUTRITION, AND FORESTRY

Senator LUGAR. Thank you very much, Mr. Chairman.

I thank you for holding another farm bill hearing this morning.

I commend you on last week’s hearing, in which a number of commodity proposals were thoroughly considered.

In reviewing the agenda for today’s hearing, I was once again reminded of the significance of the trade promotion authority for agriculture. About 45 percent of our Nation’s rice crop is exported. It

is also interesting to note that previous key rice markets are countries against which the United States placed unilateral economic

sanctions. Rice farmers have therefore taken a double hit in the

trade area.

By congressional inaction on trade promotion authority, the message to rice and other farmers is clear—you are not a priority in

the Congress. Hopefully, we will remedy that.

Two topics on today’s agenda represent extraordinary public policy difficulties; they are the sugar and peanut programs. According

to the General Accounting Office, 40 percent of the benefits of the

sugar program go to only 1 percent of the growers.

While the Farm bill envisioned a sugar program that would operate at no cost to taxpayers, last year’s USDA purchased $54 million

worth of sugar, initiated a payment in-kind program, and now pays

$1 million a month in storage fees for surplus sugar. The sugar

program cost the taxpayers $465 million in fiscal year 2000.

The peanut program is an example of an outdated and marketcontrolled Federal farm policy. Supply is managed by an arcane national poundage quota and important restrictions. The price support feature of the program has been two tiers—one for domestic

food and one for peanuts crushed into peanut oil and meal.

The current national peanut policy is a combination of efforts to

hold onto a quota system that benefits quota-holders, not necessarily peanut producers.

More than 60 percent—60 percent—of the peanut quota is not

produced by the quota-holder. Quota rents add 12 cents per pound

to the cost of peanuts to consumers.

I am heartened by reports that some peanut growers are attempting to develop proactive peanut reform ideas, and we look forward to reviewing those proposals, especially if market-oriented.

My personal commitment to major reform in the sugar and peanut programs will be vigorously reflected as the Farm bill develops.

3

Again, Mr. Chairman, I thank you for holding today’s hearing.

The CHAIRMAN. Thank you very much, Senator Lugar.

I would like to recognize the Senators who are here for any brief

opening statements or introductions that they might want to make.

I will start with Senator Conrad.

Senator CONRAD. Thank you, Mr. Chairman.

Thank you for having this hearing. I have a lot of things I could

say, but I would like to get to the witnesses, and I know you would,

too.

The CHAIRMAN. Thank you very much, Senator Conrad.

Senator Cochran.

Senator COCHRAN. Thank you, Mr. Chairman.

I am pleased that the Deep South is well-represented here this

morning with witnesses from Louisiana, Tennessee, and Mississippi.

Rice and cotton producers in our States in the Deep South are

confronted with some very challenging problems, and I know the

witnesses will help us understand those better, and we welcome

them all here and appreciate their attendance and assistance to

our effort.

The CHAIRMAN. Thank you very much, Senator Cochran.

Senator Baucus.

Senator BAUCUS. I will pass, Mr. Chairman.

The CHAIRMAN. Thank you very much.

Senator Roberts.

STATEMENT OF HON. PAT ROBERTS, A U.S. SENATOR FROM

KANSAS

Senator ROBERTS. Well, you have to have somebody make a

statement, Mr. Chairman.

I want to thank you for holding the second hearing on a commodity title of the next Farm bill. I am very pleased that we can continue this very important discussion.

The House goes in at 10 o’clock on a markup on a draft bill, so

we are acting in commensurate fashion.

As the Senator from Kansas, I am especially pleased to welcome

the National Association of Wheat Growers. As I indicated when I

came into the hearing, I love you all, but I love Dusty in the morning.

I do not intend to give a long statement today. I have addressed

most of my concerns in the previous statements last week when

you held the hearings. I look forward to hearing from the same

groups today. I do want to say to them what I said to the others

in a more succinct fashion.

We all understand the situation that we have been facing in the

countryside, all of us who are very privileged to represent our

farmers and ranchers. We are not in very good shape with the

shape we are in.

However, I am concerned that many of the proposals that have

been brought before us have perhaps not been written with too

much consideration of our budget situation or the WTO obligations,

and many of them have simply been a rehashing of proposals and

policies from the past. That is not bad; in some ways, it is possibly

good. I have been through six farm bills now.

4

Mr. Chairman, I just came from a 30-member meeting of EU

members who are over in the Mansfield Room, talking about the

United States’ position on the WTO, where they are, and where we

are. Senator Dorgan was the host of this event, and it was an interesting exercise.

I would simply say that a farm bill is no longer a bill about just

the commodity title and how much investment we can put into it.

A farm bill is a bill for rural America, and that means we should

and must put funding into rural development and conservation programs.

Let me simply say that we have to make some difficult choices.

You have all brought your proposals before us, but again, the reality of our budget constraints and our WTO commitment says that

we may not be able to act on all of these proposals. I wish we could.

I remember when I had the duty or the cap in the House, that

we used to shut all of you up in room 1338-A and close the door

and say, ‘‘If you cannot come out with some kind of compromise,

we will see you at 5 o’clock.’’ In most cases, you came out with a

compromise.

Finally, I have a little concern. The distinguished former chairman and now ranking member made this comment before in his

comments: ‘‘If you look at all the proposals, different as they are,

I see all of them resulting in an ever-increasing capitalization of

payments into land values and cash rents.’’ We are in tough times in farm country, yet if you go to the region

of FDIC in Kansas City, you will find the land values have gone

up 7 percent. If that is not a paradox of enormous irony, I do not

know what is, and I worry that we are going to price many young

people out of the ability to enter into farming—and that is a speech

that we have often given.

Mr. Chairman, we also have hearings in the Armed Services

Committee on missile defense, and I am going to have to leave, but

I am familiar with all the comments. Most of you have been to see

me in a very fine courtesy call, as far as I am concerned.

I have four questions that I would like to submit for the record,

and if the witnesses could respond at their convenience in the nottoo-distant future, and they are these: Without the flexibility of the

1996 Farm bill, where do you think wheat production and the

wheat industry would be today? It is true we have come down 20

percent in Kansas, but we have gone to other crops, including cotton, I would inform my dear colleague and friend from Mississippi.

We have 40,000 acres of cotton now, Mr. Echols. When Stephen

Foster wrote the same about ‘‘those old cotton fields back home,’’

you did not think he was writing about Kansas, but that is true.

My second question is how important is it to your producers that

this year’s market loss assistance be at last year’s level? Mr. Chairman, we have to make that decision very quickly, and I know you

are on top of that.

No. 3, it is my understanding that the National Association of

Wheat Growers believes the AMTA-based acres should remain unchanged in this farm bill; and, Dusty, if you could please go over

that.

Finally, regarding your counter-cyclical proposal—this is to

Wheat Growers—what happens if overall crop projections, not just

5

wheat, fall due to drought or flooding, et cetera, and thus the price

would rise above the market support level—what happens to a producer in that situation?

Those are the questions that I am going to submit for the record,

and I apologize and will try to stay as long as I can, but we do have

the other hearing.

Thank you, Mr. Chairman, for your leadership.

The CHAIRMAN. Thank you very much, Senator Roberts, for those

very incisive comments and questions.

The CHAIRMAN. Senator Miller.

Senator MILLER. Thank you very much, Mr. Chairman, and

thank you for holding this hearing.

I have a short statement that I would like to submit for the

record.

The CHAIRMAN. Without objection.

Senator MILLER. You will not be surprised that it deals with cotton and with peanuts.

I would also like to thank the witnesses today, and I would like

to especially thank and recognize two gentlemen from Georgia who

will appear on the second panel—Mr. Armond Morris of Ocilla,

Georgia, and Mr. Wilbur Gamble of Dawson, Georgia. Not only are

Mr. Morris and Mr. Gamble tremendous advocates for Georgia agriculture; they are very strong leaders in their communities, and

they know first-hand the difficult times that we are having, and I

look forward to hearing from them and working with them.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Senator Miller.

The CHAIRMAN. Senator Thomas.

STATEMENT OF HON. CRAIG THOMAS, A U.S. SENATOR FROM

WYOMING

Senator THOMAS. Thank you, Mr. Chairman.

Like everyone else, I have other hearings as well, but I am particularly interested in being here today and appreciate you calling

this hearing.

As you know, Wyoming is largely livestock and agriculture; however, wheat and sugar are probably our largest crops, so we are

very much interested in that.

The sugar industry, which I want to focus on for just a moment,

is in trouble, with the lowest prices in 22 years. Some of the largest

refiners are in bankruptcy. These are critical times certainly for

producers. Last year, the sugar industry forfeited a great deal of

production, and that is not good and not an action the producers

wanted to take. We do not want to see that cycle go over again.

Obviously, the current policy in sugar is not working. Ending the

sugar program is not a viable answer. We have one of the few

things where we have value-added in Wyoming where, instead of

sending it out in first form, it goes out refined. We have plants in

three towns. It is more than just producers; it is also part of the

economy. Certainly, we have all been involved in the trade problems with the letter in Mexico and the molasses problem in Canada

and so on.

I hope that we can come up with some answers for the sugar

issue. Some people have said the price goes down, but the product

6

price goes up, and that is true. The products that use sugar go up,

but the price of sugar goes down, and that is a difficult thing to

deal with.

I will not take any more time, but I do want to tell you how important it is to us and how we are focusing. Some of our producers

are seeking to lease or buy the processing facilities and so on.

This is a major issue for us in agriculture in Wyoming, and we

look forward to working on it, and I thank you for the hearing.

The CHAIRMAN. Thank you, Senator Thomas.

Senator Wellstone.

STATEMENT OF HON. PAUL D. WELLSTONE, A U.S. SENATOR

FROM MINNESOTA

Senator WELLSTONE. Mr. Chairman, I am going to do this in a

minute so we can go forward with the panels.

I would like to thank all of you for being here. I apologize that

there is a debate on the bankruptcy bill that starts at 9 o’clock, and

I have to be down there at 9:30. I will read all of the testimony,

and I have read some of it already.

The only thing I would say, Mr. Chairman, is that the Senator

from Minnesota thanks you for the hearing. I appreciate the way

in which you are moving forward very expeditiously.

I view this committee—this will sound a little melodramatic— with a sense of history, because I think we do need to write a farm

bill, and I do not disagree with some of what I have heard. Senator

Roberts was saying that it is about commodity price, but it is also

rural economic development; I could not agree more. We had a

focus on energy yesterday, and a lot of people in rural America

think they have part of the answer to that question; I am very excited about that.

That you deserve a tremendous amount of credit for focusing on

the environment. This could very well be a farm bill that is connected to environmental land stewardship and also connected to

family farm structure of agriculture. God knows, I have a passion

for that.

Finally, I just want to mention my very strong interest in trying

to put a little bit—I will say to my Republican colleagues that I am

actually becoming more conservative now, and I think my battle

cry—and I saw Zell Miller’s head just switch over this way—my

battle cry for the committee is going to be to put more of free enterprise into the food industry. I would like to see more competition.

I would like to see us focus on how our producers are at such a

disadvantage vis-a-vis all the mergers and acquisitions here and

there. I am very interested in talking about how we can have more

competition.

Thank you.

The CHAIRMAN. Thank you very much, Senator Wellstone.

Senator WELLSTONE. I am a free enterprise guy, Pat.

The CHAIRMAN. Senator Baucus.

STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM

MONTANA

Senator BAUCUS. Very briefly, Mr. Chairman, thank you very

much.

7

Mr. Chairman, I have a few points, and I will submit my statement. One, sugar—it is a problem. I cannot tell you how important

beets are to a large part of our State’s economy, and I know this

committee is going to work to be sure that we have a very strong

sugar industry. That is very important to me, Mr. Chairman.

With respect to the other commodities, and in my State of Montana, particularly wheat and barley and a few specialty crops, I

have got to tell you it is tough. It is as tough as I have seen it.

I have been talking to farmers during the last break, and there are

several reasons. One is drought. There are spots in my State where

there are absolutely no crops. There are not going to be custom cutters around for, in one area, at least 100 square miles. They are

not going to be there; they are not going to cut. It is that dry.

On top of that is the continual drumbeat of low, low prices with

higher, higher costs. It is finally reaching a breaking point. As a

consequence, some of the good news is that groups are now starting

to come together a little more, and I applaud that. It is critical, and

it is necessary, whether it is grain growers, Farm Bureau, Farm

Union, all of them.

I am doing what I can to help make that happen. I am inviting

them to come and meet in my office all together at the same time— same date, same place, same time—because in my judgment, when

we start to finally work together better in agriculture, it is more

likely that we are going to get some results. Often, it takes a real

crisis to get people to finally come together on all the issues—trade,

literally a large component, safety net, risk management—there

are lots of issues here.

On conservation, I might say, Mr. Chairman, that in my State,

conservation has lots of different cross-eddies. We are one of the

largest CRP States in the Nation—some of the counties have met

or passed the 25 percent—and the best farm land, the most productive land, is in CRP, and some of the marginal stuff as well. It is

perverse. It is creating a situation where a lot of farmers put their

place in CRP and then go south. It adds to the stress on the smaller towns where there are no implement dealers, seed, fertilizer distributors. It probably makes sense, frankly—and these are farmers

for conservation; they are not at all, in any way, complaining about

conservation needs and conservation measures, but they are just

getting hurt perversely in a way that was unintended when CRP

was first put together.

I am thinking and they are thinking, Mr. Chairman, that when

we get to the Farm bill, we have to modify some of the conservation

provisions and maybe make CRP more regional so it is not so much

nationwide. Maybe the payment structure needs to be changed so

the most productive land put in CRP gets a disincentive or something—pretty low—and the least productive land gets higher payment as encouragement to put the less productive land in the CRP,

as a thought.

That is what I hear over and over and over again. It is universal

among Montana farmers—again, partly because the situation is so

dire, it is so difficult.

I urge all of us, too, not just the groups, to come together and

try to work better together, all of us on the committee as well. I

know you will, and I will not take any more time, Mr. Chairman.

8

I just want to thank you so much for holding an early hearing on

this subject. It is needed.

The CHAIRMAN. I appreciate that, Senator Baucus. Many areas

of the country are facing the CRP problem that you have talked

about, and it is hurting our small towns and communities, too, because there is not much economic activity going on there when people lock up all the land.

Senator BAUCUS. Yes. A lot of small towns are losing population

as a consequence of a weak agriculture policy.

Senator CONRAD. Mr. Chairman.

The CHAIRMAN. Yes, Senator Conrad.

Senator CONRAD. Might I just associate myself with the remarks

of the Senator from Montana? He has described the situation that

we face in a way that I agree with every word that he said.

Senator BAUCUS. Thank you.

The CHAIRMAN. I recognize that problem to be one of the things

that we are really going to have to work out in this bill coming up.

I note the arrival of Senator Lincoln. We are just getting ready

to go on to the panel, but if you have an opening statement, I

would be more than happy to recognize you for that at this time,

Senator.

STATEMENT OF HON. BLANCHE L. LINCOLN, A U.S. SENATOR

FROM ARKANSAS

Senator LINCOLN. Thank you, Mr. Chairman, and I will try to be

very brief so we can get to the witnesses.

I want to thank you first of all for your leadership and for holding this hearing, setting our committee on a path to complete a

new farm bill, which I think is absolutely essential to our growers.

I am excited that we have begun this series of hearings because

we have a lot to cover and a lot of problems to resolve, and I know

that the gentleman who appear before us today will assist in that.

We owe it to our farmers and certainly to our rural communities

to confront these problems as soon as we possibly can.

I certainly know from personal experience as well as from my

visits back to Arkansas that our farmers are facing some very critical pressures right now as they have been over the past several

years—our terribly low prices, our dismal markets overseas, and an

economic outlook that really does not offer much hope in the near

term.

Some of the problems are beyond the reach of a farm bill, trade

being one. We are certainly working with Senator Baucus as chairman of the Finance Committee to look at ways that we can improve on that on behalf of agriculture and on behalf of our farmers,

and I hope that we will continue to do that.

As for the near term, we have talked a lot—and I hope it has

been discussed some—about the need for an emergency relief package that can lift our farmers in rural communities out of their

short-term misery. At this point, we will be looking at that.

As for the Farm bill, we need to craft a policy that will work for

all farmers and all rural communities. I know we have our differences due to demographics across this great Nation, but without

a doubt, I have confidence that with the leadership of Chairman

Harkin and those of us working toward the same end, we can rise

9

above any of those differences and come up with a complete farm

bill that will be productive for this country.

I appreciate Senator Lugar’s leadership as well and his hard

work on this issue.

It is not going to be an easy task that is before us. I am looking

forward to today’s hearing as well as many of the others that we

will be holding in order to gain the knowledge that we need to

produce the package that is ultimately going to benefit the agricultural producers of this country.

Mr. Chairman, thank you again for your leadership. I look forward to the testimony today and certainly to working with all of

these gentlemen, several of whom I am very familiar with and have

worked with in the past.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Senator Lincoln.

The CHAIRMAN. We will now turn to our first panel today and

welcome Mr. James Echols, Chairman of the Board of the National

Cotton Council, from Cordova, Tennessee; Mr. Dusty Tallman,

President of the National Association of Wheat Growers, from

Brandon, Colorado; and Mr. John Denison, Chairman of the Rice

Foundation, from Iowa, Louisiana, which has got to be a wonderful

place, and he is accompanied by Mr. Nolan Canon, Chairman of the

U.S. Rice Producers Association, of Tunica, Mississippi.

We will proceed in that order. All of your statements will be

made a part of the record in their entirety. Most of them I have

read over in the last day. We will ask if you could highlight it, tell

us the most important things you want us to absorb here today so

we can get into questions, and if you could try to keep it to about

seven minutes or so, I would appreciate it.

We will begin with Mr. Echols. Welcome to the committee again.

STATEMENT OF JAMES ECHOLS, CHAIRMAN, NATIONAL

COTTON COUNCIL OF AMERICA, CORDOVA, TENNESSEE

Mr. ECHOLS. Thank you.

Mr. Chairman, on behalf of the seven segments of the U.S. cotton

industry, I want to commend you first for holding these hearings

on farm programs and express our appreciation for this opportunity

to testify.

I want to focus this testimony on the next Farm bill, but I cannot

discuss long-term policy without emphasizing how important it is

for the committee to provide additional assistance for 2001.

The supplemental income support provided by Congress in the

last three years has been crucial, and it is no less important this

year. I know this committee is working to develop an assistance

package for 2001, and we appreciate your efforts.

We recommend supplementing existing AMTA payments with

additional market loss assistance payments at the highest rates

possible, or at least the 1999 AMTA rate; allowing producers to receive these supplemental payments on the higher of existing crop

basis or an average of recent planting history, provided adequate

funds are available; and continuing financial assistance to help offset the adverse impact of low cottonseed prices.

We know that the needs of the agricultural community strain the

budget authority provided for 2001. We want to work with this

10

committee to ensure a 2001 assistance package is sufficient to

make a difference for cotton producers this year and help them survive until 2002.

Turning to our work on the next Farm bill, I think the next approach is to be brief and straightforward. The cotton industry is

undergoing serious economic stress from the producer through to

the textile manufacturer. Depressed prices, increased costs, and

slack demand are threatening to shrink our infrastructure and dramatically transform our industry.

No farm program for cotton will be complete without an effective

marketing loan program, with redemption provisions keyed to the

world market price. This aspect of our program is especially important given the low prices we have been enduring for the past three

years.

We believe the next Farm bill must have improved income support. Therefore, we have proposed that new farm policy rely on a

combination of fixed and counter-cyclical payments. Our goal is income support from programs and the market that will provide cotton producers with a return equivalent to what they have received

in recent years from all sources, including emergency assistance.

With the objective of complying with our WTO commitment, we

encourage as much reliance on decoupled, AMTA-like payments as

feasible. Additionally, we recommend some type of counter-cyclical

income support that is as coupled and as commodity-specific as

practical given our budget considerations and our commitments

within the World Trade Organization.

Our members prefer crop-specific payments that are triggered

when the price of a covered commodity falls below a specified

threshold, similar to the target price concept in 1990 farm law.

Our members can support crop-specific payments triggered when

revenue for a covered commodity falls below a specified threshold.

All of these counter-cyclical programs share the important common advantages of cost-effectiveness and predictability. Our producers want the new program to retain as much cropping flexibility

as possible. We support base acreage provisions that offer farmers

the choice of keeping their current payment base or opting for updated payment base. We also urge continuation of assistance to offset low cottonseed prices.

The National Cotton Council has consistently been opposed to

payment limitations. We believe limits on marketing loan gains are

particularly counterproductive as they impair producers’ utilization

of the marketing loan when they need it the most—namely, when

prices are very low.

Mr. Chairman, our internal discussions have not led the industry

to a consensus on loan rates. Our producer members favor a somewhat higher loan than the capped 51.92 cent level under current

law. Other segments of our industry have reservations about raising the loan rate. Our leadership continues to discuss this matter,

and we believe that we will be able to provide a timely recommendation with respect to loan formulas and/or rates during the

course of the new farm bill discussions.

Mr. Chairman, extra-long staple crop producers in Texas, New

Mexico, Arizona, and California have not been isolated from the

difficult economic circumstances facing the cotton industry. These

11

extra-long stable producers need improvements in their program as

well. We support continuation of the ELS Non-Recourse Loan Program, frozen at the current level, and continuation of the ELS competitiveness provisions. We also support the establishment of some

form of counter-cyclical payments for extra-long staple cotton commensurate with those that may be established for upland cotton.

The U.S. continues to need a strong export assistance program

and an aggressive trade agenda. We urge the reauthorization and

improvement of the Export Credit Guarantee Program, the Foreign

Market Development Program, and the Market Access Program.

We support funding for FMD of $43.25 million and for MAP of

$200 million.

We are concerned with the decision to classify market loss assistance payments as amber box. Because of this decision, we need

clarification from the administration concerning their negotiating

goals in the WTO.

We are also very concerned about the OECD negotiations involving the Export Credit Guarantee Program. This is a very valuable

program for our industry. We believe these negotiations will undermine its effectiveness.

The Council supports the continuation and enhancement of the

existing conservation programs such as EQUIP, the conservation

reserve and the wetlands reserve programs.

We are also supportive of incentive-based programs that encourage and reward conservation practices and environmental enhancements to agricultural land in production.

We are concerned that the current spending authority Congress

has provided while developing a new farm bill may be inadequate

to provide the necessary level of support. We cannot help but take

a ‘‘first things first’’ approach to this debate. Without an adequate

farm program, our producers will not be able to continue in business.

There is another serious issue confronting the U.S. cotton industry. Our sector is especially vulnerable to the effects of an appreciating dollar because of its impact on imports of cotton textile and

apparel products. The strong appreciation of the dollar has significantly lowered the price of foreign-produced textiles and apparel in

the U.S. market, causing dramatic increases in textile imports.

During the first half of 2001 alone, 45 textile mills have closed,

and almost 15,000 jobs have been lost. As a result, domestic mill

use of cotton is expected to fall by 3 million bales this year.

We need to offset the adverse consequences of a strong dollar

with new farm policy. One adjustment we can recommend is elimination of the one and one-quarter cent threshold currently used in

the calculation of our Step 2 payment rates. This adjustment would

reduce the cost of raw cotton to domestic textile manufacturers and

would enable merchants and shippers to price U.S. cotton more aggressively in the export market.

Beyond this, we are continuing to explore other options that

could help avert the devastating exchange rate impact on our industry.

Again, Mr. Chairman, thank you for the opportunity to testify.

I would be pleased to respond to any questions the panel may have.

12

[The prepared statement of Mr. Echols can be found in the appendix on page 56.]

The CHAIRMAN. Mr. Echols, thank you very much for a very fine

statement.

Now we will turn to Mr. Dusty Tallman, President of the National Association of Wheat Growers.

STATEMENT OF DUSTY TALLMAN, PRESIDENT, NATIONAL

ASSOCIATION OF WHEAT GROWERS, BRANDON, COLORADO

Mr. TALLMAN. Let me begin by thanking you, Mr. Chairman,

ranking member Lugar, and the rest of the committee for the invitation to appear before you today.

My name is Dusty Tallman. I am from Brandon, Colorado, where

my family and I operate a wheat farm. It is an honor for me to

present testimony on behalf of the National Association of Wheat

Growers, or NAWG.

NAWG is a grassroots organization of 23 member State associations representing American producers of all classes of wheat from

all over the Nation.

In the brief time I have here today, I would like to share

NAWG’s views on the key elements of the next Farm bill. My prepared testimony is much more detailed and covers numerous proposals, many of which I will only summarize today.

We believe there are nine titles in the Farm bill for a very good

reason. Farming in today’s world economy requires a comprehensive approach to production that relies on free markets, innovative

research, advanced technologies, and an ecologically sound and productive environment.

A top priority of the committee should be agricultural trade, beginning with the immediate passage of trade promotion authority.

NAWG also strongly advocates the renewal of P&TR, the Export

Enhancement Program, FMD, MAP, and other market promotion

programs.

We cannot ask our producers to compete in a world market without an aggressive national trade agenda.

Our Nation’s research infrastructure also plays a vital role in agriculture. We need to maintain and improve our research infrastructure in order to develop a viable, value-added market for the

wheat industry and for wheat gluten, to improve grain yield and

quality, and to combat pests such as scab.

A tragic irony of the current crop year is that many producers’

budgets are being squeezed by escalating input costs, driven primarily by higher fuel and energy prices. The answer to fuel costs

lies in farm and in the products we harvest. We need to further develop our farm-based resources of renewable energy, including biomass, biodiesel, and ethanol.

We have heard many say that this will be the ‘‘greenest farm bill

yet,’’ and we have heard some very intriguing proposals from carbon credits to conservation incentive payments like those proposed

by this committee’s chairman. NAWG agrees that conservation initiatives should play a significant role in development of the Farm

bill.

Wheat growers have never shied from their responsibility to the

Nation’s wildlife and to the environment.

13

Many other issues deserve our attention, from risk management

to rural development. All of these discussions are meaningless if we

fail to keep our farmers on the land. Keeping producers on the land

should be our first priority. As such, NAWG has the following recommendations for the commodity title of the next Farm bill.

Despite economic hardships that have befallen rural America

over the last three years, NAWG remains confident that the path

outlined in the 1996 FAIR Act continues to serve the Nation’s

farmers well. In the case of wheat, lower prices can be directly

traced to economic troubles in major importing nations, good

weather, record levels of production across the globe for 5 straight

years, as well as the unfair trading practices of our major competitors.

Indeed, without the freedom-to-farm elements of the FAIR Act,

conditions of the Nation’s wheat producers would be much worse.

NAWG’s first recommendation is to maintain the flexibility afforded to farmers by the current Farm bill.

NAWG’s second recommendation is to maintain a guaranteed

and decoupled fixed payment based on current AMTA contracts.

These payments should be frozen at at least the 1999 level to ensure adequate support. Fixed payments have become an important

financial tool for wheat producers, offering some financial security

to our business operations.

The third recommendation of the NAWG plan is a commodity

marketing loan program that maintains the current loan formula.

In an effort to meet budget limits, caps were established on each

commodity marketing loan, including a $2.58 cap for wheat. NAWG

believes that the next Farm bill must establish more equitable

caps. A proposed schedule appears on page 15 of the prepared testimony.

In addition to the caps, many marketing loans currently have a

floor. No floor was established for the wheat marketing loan.

Wheat producers continue to view this inequity as unfair and believe that all formulas should be reestablished to include a minimum guaranteed amount to better protect in years of low prices.

Accordingly, NAWG has calculated the new floors and believes

the schedule contained on page 16 of the prepared testimony provides equitable market support across all commodities.

Our fourth recommendation is the creation of counter-cyclical

payments that would be made only when prices fall so low as to

create real need across the agricultural economy. NAWG does not

seek the establishment of a safety net so expensive and complex

that it would guarantee the success of each producer across the

country. NAWG seeks only modest support which would only meet

producers’ most pressing needs.

The NAWG plan for the counter-cyclical payment is based on the

establishment of commodity-specific market support levels for each

eligible crop. A schedule of these support levels is on page 21 in

the prepared testimony. Each was calculated by taking the average

total gross income and program support for each commodity as calculated by FAPRI and dividing it by the average production for

each commodity over the same 1995-to–1999 period.

Under the NAWG plan, a counter-cyclical payment would be calculated by subtracting the fixed payment and the higher of either

14

the national average cash price or the national average marketing

loan rate from the market support level on a commodity-by-commodity basis.

NAWG is aware that other organizations and individuals have

provided testimony to the committee regarding support for the creation of a counter-cyclical program based on whole-farm income or

other non-commodity-specific criteria. NAWG opposes these efforts.

We learned in 1997 and 1998 that forces in the wheat market do

not always follow those that impact other commodities. In addition,

the domestic wheat market does not always react the same from

region to region. Income-based triggers may present real inequities

across the country.

Finally, on the issues of base and yield, NAWG believes that the

existing historic bases for current program crops should remain in

place throughout the term of the next Farm bill.

In conclusion, I would like to comment on the agricultural economic assistance package for this year. NAWG firmly believes that

in the face of declining PFC payments, low commodity prices, escalating fuel and fertilizer costs, anything less than a market loss

payment at the 1999 level, which is 64 cents for wheat, would fail

to offer sufficient income support to our producers.

We urge the committee to take up the assistance package as soon

as possible. On behalf of the Nation’s wheat producers, I wish to

express our sincere appreciation for this committee’s efforts. We

know that if not for your hard work and that of your staff, many

more of us would no longer be farming.

It has been a great honor for me to appear before you today.

NAWG and its 23 State Wheat Grower Associations stand ready to

provide further assistance.

Thank you.

[The prepared statement of Mr. Tallman can be found in the appendix on page 78.]

The CHAIRMAN. Thank you very much, Mr. Tallman.

Next we go to Mr. John Denison, Chairman of the Rice Foundation.

STATEMENT OF JOHN DENISON, CHAIRMAN, RICE

FOUNDATION, IOWA, LOUISIANA

ACCOMPANIED BY NOLAN CANON, CHAIRMAN, U.S. RICE PRODUCERS

ASSOCIATION, TUNICA, MISSISSIPPI

Mr. DENISON. Good morning, Mr. Chairman and members of this

distinguished committee.

My name is John Denison, and I am a rice, soybean, and cattle

producer from southwest Louisiana, in Iowa, Louisiana. I am currently Chairman of the Rice Foundation and our National Research

Board and past Chairman of the U.S. Rice Federation.

I am accompanied today by Mr. Nolan Canon, a rice and soybean

farmer from Tunica, Mississippi. Mr. Canon also currently serves

as Chairman of the U.S. Rice Producers Association.

I am pleased to appear before this committee today on behalf of

all of the rice industry that has voted to support the testimony that

we are presenting on the commodity segment of the Farm bill. Gentlemen and ladies, we are united as an industry on this part of the

Farm bill.

15

I am also pleased to thank this committee for your support in increasing the agriculture budget baseline to provide additional economic assistance for crop years 2001 and beyond.

I also urge you to act as soon as possible with regard to authorizing the supplemental AMTA payments to the current crop year. It

is absolutely necessary that producers across the rice industry get

this in order to satisfy their loan obligations with financial institutions.

U.S. agriculture in general and rice producers in particular are

facing continued low prices and declining income. Prices for energyrelated products, including fuel, natural gas, and fertilizer, have increased substantially, placing many rice producers in a further

cost-price squeeze. This is occurring while aggregate rice exports

remain stagnant, and farmers face growing costs due to increased

environmental and pesticide use regulations.

Our economic analysis indicates that rice is the only major commodity for which net market returns after variable costs for the

2001 crop will be negative if Government payments are excluded.

That is a terrible situation, and we are not proud of it.

Mr. Chairman, this additional financial assistance is critical to

help rice farmers through this very, very difficult economic period.

Before I go on, Mr. Chairman, I would like to strongly urge Congress to give President Bush Trade Promotion Authority, because

we export, as Senator Lugar pointed out earlier, 45 percent of our

crop. Our industry’s economic health absolutely depends on access

to foreign markets, and increased market access will only come

from further multilateral and trade negotiations under the authority of the President.

Mr. Chairman, we appreciate the opportunity to recommend specific changes in our farm programs that will allow our growers to

earn a reasonable return on their efforts, to contribute to the economic success not only of their own operations, but to rural communities, and provide critical habitat to hundreds of wildlife species in addition. In the rice industry, we are very proud that we

make a major contribution, probably the largest contribution of any

crop, toward migratory birds with our water flooding of rice fields.

We are pleased to provide your committee with a detailed analysis of various issues associated with counter-cyclical payment—it is

included in our formal testimony—which has been completed by

Texas A & M University faculty, members of the Food Agriculture

and Food Policy Center.

We recommend specific changes as my cohorts here have. Overall

and most important, we wish to recommend that you maintain the

planting flexibility provisions in the 1996 FAIR Act.

We continue to support marketing loan and loan deficiency payments, the LDP structure, as currently administered under the

1996 FAIR Act.

We continue to want you to establish loan rates at no less than

$60.50 per hundredweight. If loan rates for other basic commodities

are realigned upward to what the loan rate for soybeans, currently

at $5.26, then rice rates should be looked at and upwardly adjusted.

We continue to want that basic commodity programs are not contingent on mandatory idle acreage programs of the past.

16

We ask you to continue to provide decoupled PFC-type payments.

We would like to see these production flexibility payments for rice

in the next Farm bill at an average over the last 7-year period.

We would like to ask you to provide a more effective income safety net for producers through a counter-cyclical program that everyone on the Hill here is talking about, particularly to support our

farmers when we have low price periods so we do not have to depend on you each and every year to provide these additional supplemental payments.

As we know, the current program is providing inadequate income

supports in periods of very low prices, and that is where this

counter-cyclical program could supplement. We recommend that it

be established with a base period of the Olympic average of 1994

through 1998 receipts and a payment trigger of 100 percent. If

there have to be any budget adjustments, then we would recommend that you just lower the amount that this formula provides.

We encourage you to eliminate the payment limitations for income support and marketing loan deficiency payment limits.

We ask you to compensate producers for current and future conservation and environmental practices that will enhance water and

soil quality and wildlife habitat.

Mr. Chairman, we have reviewed the provisions of the Conservation Security Act, and we commend you for your leadership, because we believe that the rice industry is one of the foremost leaders in this area already, and we support your efforts in moving toward a better program.

In conclusion, Mr. Chairman, the Nation’s rice producers collectively urge Congress to move rapidly to enact a new farm bill that

addresses the fundamental issues of an enforced and improved

safety net through a combination of a fixed PFC-type payment, extension of the current marketing loan mechanisms, and a countercyclical income support payment.

Equally important, the new Farm bill should maintain the 1996

FAIR Act’s planting flexibility and refrain from any return to annual supply controls.

The bill should also provide for incentive payments for wildlife

habitat and other environmental benefits voluntarily provided by

rice producers.

It is also important for Congress to develop a new long-term farm

bill that targets payments to those who have actually produced or

shared in the risk of producing the crop while maintaining consistency with our domestic support obligations under the WTO. We

think it is possible to do both.

Thank you, Mr. Chairman. Nolan and I will be very happy to answer any specific questions you may have.

The CHAIRMAN. Thank you, Mr. Denison.

I will just say that in your testimony where you talked about—

and a couple of the other witnesses have already referred to—the

fact that any conservation payments or green payments should be

in addition to and not a substitute for others, I agree with that.

That is our thrust in that. Also, the most important point you

made there—that payments should be made available not only to

producers who begin to invest in such habitat production but also

those who have already implemented important wildlife protection.

17

Mr. DENISON. Yes indeed.

The CHAIRMAN. That is most important.

Mr. DENISON. Thank you, sir.

[The prepared statement of Mr. Denison can be found in the appendix on page 127.]

The CHAIRMAN. Now let us turn to Mr. Nolan Canon, Chairman

of the U.S. Rice Producers Association, Tunica, Mississippi.

Mr. CANON. We are jointly providing this testimony, Mr. Chairman. We drew straws to see who would testify before each body,

and Mr. Denison won.

The CHAIRMAN. All right.

Mr. DENISON. He will testify before the House tomorrow.

The CHAIRMAN. All right.

The CHAIRMAN. Thank you all very much for your testimony.

I note the arrival of Mr. Crapo from Idaho, and I do not know

if you want to make any opening statement before we get into the

questions, Mike, but I would recognize you for that purpose.

STATEMENT OF HON. MIKE CRAPO, A U.S. SENATOR FROM

IDAHO

Senator CRAPO. Thank you very much, Mr. Chairman. I will be

very brief.

I know the hard work that we have put into pulling this hearing

together, and I appreciate your efforts as well as the time that everybody has put in to come before us today and testify.

It is my hope that we will be able to work quickly and in a bipartisan manner to develop a strong bill that will serve as a national

domestic food policy.

There is an immediate need in farm country, and I hope that we

can provide the safety net that our producers deserve. Most pressing right now is the need to pass an economic assistance package,

Mr. Chairman. There is much need in my State, as there was last

year, and the need is becoming increasingly severe. From water

loss to power interests to droughts to persistent low prices and rising input costs, Idaho farmers need help.

I look forward to working with you and the committee to pass a

fair and reasonable bill as soon as we can possibly take action.

Thank you very much.

The CHAIRMAN. Thank you very much, Senator Crapo.

I thank you all for being here and for excellent testimonies and

for excellent summations of some very lengthy testimonies which

you gave.

I particularly want to thank Mr. Tallman. The way you presented your paper I thought was very concise in terms of your summations and recommendations and tabulations; I thought it was

very well-done.

Mr. TALLMAN. Thank you.

The CHAIRMAN. I have a question for all of you. It is a question

that I asked a couple of weeks ago when we started this series of

hearings, picking up where Senator Lugar left off in his hearings.

The question is this. The broader question is why do we do what

we do. The subset of that question is should we continue to support

every bushel and every bale produced in this country—actually, I

should add ‘‘pound’’ also—every bushel, bale, or pound. Should we

18

continue to support every one produced, because if we do, does that

not send signals to producers that they can produce more than the

market can bear?

However, I recognize at the same time that farmers are in dire

straights financially. How do we weave through this and find some

kind of a rational policy that also enables farmers to remain in

business?

That is the essence of my question. Should we continue to support every bushel, bale, and pound that is produced, or is there

some other rational way of doing this that helps our farmers, keeps

them in business, and tries to get more money from the consumer?

My feeling is simply this. The AMTA payments and supplemental AMTA payments, you are right, have kept us afloat. They

sure have—and I can speak about that for Iowa. I can tell you that.

God help us, that cannot be our policy for the future. We just cannot go on like that. I do not know if the Congress will let us go

on like that—I do not think the Budget Committee will let us go

on like that—in fact, I know they will not; I have seen the budget

we have to work with here.

Somehow, when you look at the situation right now, the farmers’ share of the consumer dollar is at the lowest point ever in our history. We have got to find some way to get more of the consumer

dollar back down to the farmer.

That is why I have proposed an energy title. Maybe we have had

blinders on, looking at it only from the standpoint of food and fiber.

Maybe there is a way of getting some of that consumer dollar on

the energy end of the spectrum and shifting some of our production

into that energy area. The other way, of course, is through conservation—not just taking more land out of production, but to actually start paying farmers who are already being good practitioners

on their own land.

I ask that question. Should we continue to support every bushel,

bale, and pound that is produced?

I would welcome any response from any of you—Mr. Echols, Mr.

Tallman, Mr. Denison.

Mr. ECHOLS. From a cotton perspective, certainly I would not

want to turn my back on any farmer and say we need not support

any pound or bale of cotton that is produced, but I think one of the

most serious problems that has really impacted us in the last couple of years is the appreciating dollar. When you look at a Pakistan

textile mill that can produce, because of their currency being so

weak, at about 60 percent cheaper because they can bring it in

here and sell it for good, old hard currency U.S. dollars, it has impacted us tremendously, and I think that is one of the real challenges that we have. We know that we are not going to have a lot

of impact on the Treasury Department or the Administration in

trying to weaken the dollar, and that is not necessarily in our longterm benefit. We need to look for some way that we can mitigate

the impact because that not only effects urban areas but it also

goes to rural America, because most of these textile mills where we

have lost thousands and thousands of workers are in rural areas.

The value of the dollar impacts a broad spectrum, across our industry, and I think that is one of the real key challenges that we have.

How do we compete with the strong dollar? We have made one recVerDate 11-MAY-2000 14:40 Nov 07, 2002 Jkt 082205 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 82205.TXT SAG1 PsN: SAG1
19

ommendation of eliminating the 1.25 threshold from our competitiveness provisions, but that is not going to be nearly enough, and

there are some other considerations being given as far as indexing

currencies to try and mitigate the impact in some way. The strong

dollar is impacting rural America as well as our cotton farmers and

our textile mills and our entire industry.

The CHAIRMAN. Thank you.

Mr. Tallman, the question being should we continue to support

every—in your case bushel produced.

Mr. TALLMAN. All of the other programs you mentioned, from

conservation to energy, everything else is extremely important to

the wheat industry. Wheat has not been one of the crops that has

done a lot of research in the last 20 or 30 years. We have gotten

some of that started in the last 4 or 5 years, and I think there are

chances for that to be important, and also try to get, again, some

of those consumer dollars going directly to producers instead of in

between.

We are faced right now with 5 years of very low prices, 5 years

of enormous crops. We have to find a way to get the guys and ladies to the next 2 or 3 years, and at that point, I think we can

work a little harder at developing different styles of programs.

The CHAIRMAN. Senator Roberts raised a really good point. I

watch this all the time, too—prices are going down and land values

are going up, and something is just not connecting there.

Mr. TALLMAN. Yes, sir. That has been the way it has been in

Eastern Colorado and Western Kansas—well, throughout the

Wheat Belt.

The CHAIRMAN. Again, I wonder if the fact that we are still in

the position of supporting every bushel, bale and pound has something to do with that.

Mr. Denison.

Mr. DENISON. Senator Harkin, in response to your question

should we support all of agriculture, I would start by responding

that currently, Congress is not supporting 100 percent of agricultural poundage, bales, and bushels, because the AMTA and the

market loan assistance payments are based upon 85 percent of a

base back in 1975 to 1980 and yields that were established in that

period.

You are supporting 100 percent of the production on the LDP,

and should you continue that practice, I would answer the question

this way. It depends upon how much you want the consumers to

depend on foreign supply food, because I can promise you, as has

been said here today, that all parts of agriculture are having extreme financial difficulties except for perhaps portions of the livestock industry. I can assure you that if you start cutting back on

any kind of income safety net, you are going to reduce the size of

the domestic production sector in my opinion. You will not have a

shortage of food, but it will simply do the same as oil—it will come

in from foreign countries.

It just depends upon where you want to rely upon for your food

sources and let that guide you on budget exposure, just like you do

on defense. You determine how important is defense to the national

policy and move accordingly. That would be my answer to you. It

just depends on how much you want to have a secure domestic proVerDate 11-MAY-2000 14:40 Nov 07, 2002 Jkt 082205 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 82205.TXT SAG1 PsN: SAG1
20

duction of food and fiber—because I can assure you I do not know

of many people who are making much money, and I do not know

of many young people in my area who are wanting to come into agriculture.

The CHAIRMAN. I am not talking about cutting back.

Mr. DENISON. No—I understand.

The CHAIRMAN. I am talking about is there a different way of

doing it out there that does not pay every bushel, bale, and pound,

but gets the support out in a different way. That is what I am talking about. I am not talking about cutting back on the support.

Mr. DENISON. Oh, I see. That as long as the money stream continues into production agriculture, that is what is important, how

it is delivered; we depend upon you go guide us on that.

The CHAIRMAN. We depend upon you to help inform us, too.

Mr. DENISON. We are happy to be here, Mr. Chairman.

The CHAIRMAN. I have a few more questions of a general nature

that I want to ask, but I will yield now to my distinguished ranking member.

Senator LUGAR. Thank you very much, Mr. Chairman.

I have many of the same questions that chairman has raised,

and I suspect these are the same questions we are going to be raising with each of our hearings.

I do not think there is a good way that we as a committee can

mitigate the effect of a strong dollar, and I think you recognize

that, and you are suggesting, however, that that is another problem, as it is for manufacturing, steel, automobiles, our whole economy.

In the past, when times were not so good in this country, things

picked up abroad. The great danger that many of you would point

out as economists is that things are doing so poorly abroad that

this country is about the last hope of this side, and as a result, we

are a large consumer nation because we are picking up the gap for

what otherwise might be a devastating international spiral downward. That is not helpful to many of you who are testifying today

or to any of us who are farmers, but nevertheless that is a very

big problem from which we pray that somehow or other, the world

will recover and we will recover and have good policy to do that.

I pick up your point, Mr. Tallman, because you are correct, there

have been 5 years of low prices for many commodities including

wheat and most commodities represented here today and the ones

we will be hearing from. Some would point out that this is to be

expected in large part because our policies have been ones of attempting to keep every farmer in business.

In that respect, we are promoting supply in this country, and as

farmers stay in business, some produce more and learn how to do

it better and utilize resource. The rest of the world has had pretty

good weather. Some periods of 5 years have not been as good as

this one.

The dilemma here, I suppose, is one in which you ask the unmentionable question—should the policy of the country be to keep

every farmer in business. This is the only industry in the country

in which that is the policy. There is no safety net for people in retail stores at the county square or for people in dot-com business

and so forth. Unhappily, people fail all the time, lots of them.

21

This is a unique situation in which, as a matter of national policy, we hope that we will keep everybody in business. To do that,

maybe our policies have been correct, and the chairman is astute

in asking how we are distributing the money. Essentially, we have

distributed it in ways which should not be surprising that land values go up. Many economists have come before this committee and

pointed out that we are capitalizing these payments into land values. The land values for my farm have gone straight up throughout

the nineties, and I have enjoyed that, and we have gotten a pretty

good assessment every year that details precisely how the wealth

effect is occurring. The net worth of the farm increases every year.

Some have pointed out that that is OK if you own your land and

even better if you have no debt, but if you are a young farmer or

a young farmer who has debt, this is not so good. The policy clearly

works in favor of those of us who own the land and have no debt.

Should it? The chairman is raising the question obliquely in this

way. If we were to follow the same policies we have presently, the

AMTA, the LDP, and the other situations are likely to increase the

situation indirectly the way we now have it, and yet each of you

have testified that we should not mitigate that, as I understand it.

There has not been an original suggestion today as to how you revamp the sites or shake up the batting order. These are questions

which we hope you will continue to think about with us, because

they are serious ones.

Finally, how important is it that we have a secure domestic production of food and fiber? Of course, it is absolutely essential. I do

not know of anybody who reasonably anticipates that we will not

have an adequate supply of food and fiber.

The interesting question is should some of it come from abroad.

We take the position with regard to other countries that it certainly should—namely, American wheat or American rice or American cotton ought to be a part of their economies, largely because

it will benefit their consumers. People will have a higher standard

of living and perhaps better quality, as a matter of fact.

It is difficult to argue against that in the reverse process as we

get into serious trade negotiations. To suggest, for example, as I

suspect will hear from some, that even if American consumers

should pay more—after all, it is American grain or American sugar

or what-have-you—it seems to me to stretch credibility, which consumers mostly think of. By and large, they have not thought of it

a lot. Essentially, we have low food cost and we have a higher

standard of living because that is the case, and many of us are trying to figure out how more of the food dollar goes to farmers. Most

of us would not be in favor of increasing food costs for all Americans and diminishing the consumer benefits.

The reason I raise these questions is that in your testimony

today, I would not say that it is predictable, but nevertheless it is

predictable—it tries to do the best you can for the clients that you

have—but it does not really address these questions or at least

these thoughts that I think are important if we are to fashion a

farm policy that is good for agricultural America and good for the

rest of the country.

I do not ask all of you to comment about this, but if you could

not revise your testimony but additionally think through some of

22

these questions, I think it will be at the heart of what we finally

decide, at least in the Senate. Our House colleagues are now working on an outline, a draft concept, and maybe some of these questions will introduce likewise into their thinking. If you can in due

course give us the benefit of additional wisdom on this, I would appreciate it.

With that, Mr. Chairman, I yield the floor.

The CHAIRMAN. Please do not pay any attention to the timer.

Senator LUGAR. That is all right. I simply wanted to just raise

these issues rather than ask for responses. I would like more preparation of the witnesses for that.

The CHAIRMAN. I appreciate that. Thank you very much, Senator

Lugar.

Senator Miller.

Senator MILLER. First, I would like to thank all the witnesses,

and I would especially like to thank Mr. Echols for what he had

to say about the exchange rates and how that relates to the textile

industry which, as we know, is in so much trouble. I thank you for

bringing that to our attention in a good and forceful way.

As you know, the 1996 Farm bill gave certain planting flexibility,

and also, there are economic factors that drive planting decisions.

Because of both of those, many farmers have made significant

changes in their planting histories from the way that they used to

do.

My question to you is how does the National Cotton Council feel

about allowing farmers to update or modify their base history to reflect more recent planting history?

Mr. ECHOLS. We certainly support the ability of farmers to update or maintain. We think producers should not be penalized by

exercising the freedom-to-farm options that were given to them or

to punish them in any way for their planting decision. We strongly

support the options to update or maintain base.

Also, I would like to comment, I realize that I did not answer the

chairman’s previous question directly, but one thing that can mitigate having to continually subsidize agriculture is if we can increase consumption and off take to levels that will raise commodity

prices. That is one of my concerns with our domestic textile industry and the reason exchange rate comments I made—not to try to

dodge the question but to find a way that we can mitigate those

problems and raise the price so that we will not have to come to

Congress every year.

Senator LUGAR [presiding]. In the absence of the chairman, I will

recognize Senator Crapo.

Senator CRAPO. Thank you very much.

I will focus my questions on you, Mr. Tallman, since we do not

have cotton or rice in Idaho, but we do have a lot of wheat and

grain.

You are aware, I am sure, of the administration’s recent decision

to classify supplemental AMTA payments in the amber box. In

light of that decision by the administration, could you expand a little bit on your proposal for a counter-cyclical proposal and whether

you believe that it would be classified as an amber or green box

proposal?

23

Mr. TALLMAN. We were very disappointed when those were classified as amber, because we had fairly well been assured all along

that they were assumed to be green box.

We have looked at all the counter-cyclicles that everybody has

proposed. We have been told that none of them is green box, some

of them are green box. We feel that even though ours is driven off

of price, it is driven off of 85 percent of acres, it is a guaranteed

fixed decoupled payment. That was the main test for the AMTA to

be green box.

What we would like to see the Senate and the House do is tell

the administration that this is something we need to fight for, that

we need to fight to prove to the WTO that these are green box or

that they are at least not amber.

Like I said, we heard the other day that all of them were going

to be classified amber from different people, so I guess it is just

going to come down to that we are going to have to implement one

of them and see what kind of test comes out of it.

Senator CRAPO. You have anticipated my second question here,

and in fact, I will ask each member of the panel to respond to the

second question. I agree with the point—I was disappointed in the

determination that these proposals were amber box proposals. As

I said, I disagree with that determination and hope we can find

some way to resolve it better so that we can move forward with

these types of proposals which I support and not find ourselves violating WTO requirements.

The question comes down, however—and it may be a tough question that this Congress has to address in crafting this farm bill— if it turns out that we are not able to win that war, and either the

administration or, on a broader scale, the entire determination

under WTO is that these counter-cyclical proposals are amber box

proposals—and this is what I would like each of you to give me

your thoughts on—should this Congress proceed with counter-cyclical proposals that support our producers, or should we proceed in

crafting proposals that we know are WTO-compliant?

Mr. TALLMAN. Well, to the degree that we have to stay within

our amber box commitments, there is quite a great deal of leeway,

$19 billion or so that we can put within amber box every year. We

need to maximize that allowability to use our amber box commitment, and one of the advantages of a counter-cyclical program, to

answer Senator Lugar’s concerns, is that if you tie it back to current production to farmers, it rewards those farmers who are the

most productive and penalizes those who are least productive, and

also when prices return to a normal level, that level of support

would be diminished.

Senator CRAPO. Are there any other thoughts on the panel?

Yes.

Mr. DENISON. The first thing that I would like to say is that we

have got to go back to the trade round and recognize that Europe

and Japan and the major protectionist countries gave up far less

than we did. That is the first thing we have to realize when we

talk about domestic support.

The second thing we need to recognize—and I served on the

APAC Committee to the last U.S. Trade Representative and the

last Secretary of Agriculture—if we were able to base domestic supVerDate 11-MAY-2000 14:40 Nov 07, 2002 Jkt 082205 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 82205.TXT SAG1 PsN: SAG1
24

ports on a straight percentage of our gross domestic product value

of agriculture in each country, then, basically, everybody else would

have to come down substantially just to meet where we are.

The third point I want to make is that there is another blue box

in the current trade-negotiated pie that fits only Europe, and I

think that if the House version gets any momentum—and I am not

necessarily declaring whether we are totally in support or whatever—but if that gains momentum, and you go back to a target

price system, it is possible that you might be able, with some ingenuity of our trade lawyers, to utilize that blue box in whatever domestic support Congress chooses to come forth with.

We do need to persevere in our trade negotiations, because for

the rice industry, we are probably the most discriminated commodity in world trade. Japan as a 1,000 percent tariff on our products;

Europe, 150 percent; many of the Southern Hemisphere countries,

as much as 45 to 50 percent. If we are going to transfer our income

from the Treasury to the marketplace, we absolutely in the rice industry, as Senator Lugar pointed out so well and Chairman Harkin, have got to have more trade access. Cuba, with 350,000 tons

annually, 90 miles away from the rice country, we totally have no

access to.

That is the first place where Congress can go if you want to redirect the income coming into farming. I know that I am preaching

to the choir.

Senator CRAPO. Mr. Tallman.

Mr. TALLMAN. We will attempt to stay under WTO limitations.

We think it is more important to keep growers in the field, on the

farm. every one may not, but we have got to try to protect as many

of them as we can. I agree with a lot of what he said, that if we

do not pass a strong agricultural policy, we go to the WTO negotiations with nothing to negotiate, because we have already given

much too much of it away, in our opinion.

Senator CRAPO. Thank you.

Mr. ECHOLS. I would agree exactly with Mr. Tallman.

Senator CRAPO. Thank you very much.

The CHAIRMAN. Thank you, Senator Crapo.

Let me pick up on the trade issue. I have supported all the trade

bills that have come before Congress and believe in the

globalization of trade as long as it is fair. As Senator Conrad has

pointed out many, many times with his charts, I think that if you

lock in a trade agreement where you have huge imbalances between what Europe is doing for its farmers and what we have

done, and you lock those into a trade organization, then we are always at a disadvantage.

I do not necessarily worship at the altar of this World Trade Organization. It is OK, and I know that we have got to proceed down

that path, but not blindly and not just agreeing to keep in these

distortions that we have had in the past, especially with Europe

and a few of our other trading partners and especially when they

have been so hard on accepting any of our new biotech crops that

we are producing in this country, and they have no scientific basis

for that whatsoever. They are purely dragging their feet on it and

causing us a lot of consternation because we can grow more effectively and efficiently using biotech, yet they will not accept it.

25

Again on the trade aspect, we have two programs that many of

you spoke about in your testimony—the Foreign Market Development Program, the cooperator program, and the Market Assistance

Program, both about which I feel strongly and hopefully, this committee will look upon favorably as we develop the farm bill and try

to increase the level of support for those two programs.

Let me ask a question about some more pertinent things to what

we are talking about in terms of crop commodity programs. If I am

not mistaken, Mr. Tallman, you basically argue to maintain our

historical bases; Mr. Denison, you talked about updating our bases.

I do not know what you said at all, Mr. Echols.

Mr. ECHOLS. We need the flexibility to either update or maintain

base.

The CHAIRMAN. I want to ask you a question about these bases,

because if we maintain, Mr. Tallman, the historical bases, you are

locking in planting processes and patterns that are almost 25 years

old, and that has no relevance to what people are doing today.

I hear more and more from my farmers in the Midwest that we

need to update our base acreage, because it is just not relevant to

what is happening today.

I will just throw that out again for any comments that you have,

because I want to know why there is this discrepancy. More than

anything, I hear from farmers that we have to update our bases to

reflect what we are doing today.

Mr. TALLMAN. Part of our concern when we ask to remain with

the historical basis is because we feel that over the last 4 or 5

years, both crop insurance and the loan rate have influenced planting decisions. We think that some of the wheat ground that has

been switched to oilseeds has come about because of loan rates, and

also crop insurance is very favorable to some crops as opposed to

others.

Our biggest concern with updating them was that if we just use

the last 5 years—we have 30 to 40 years of history that are good

planting history—if we just update them to the last 4 or 5 years,

or I guess it is 5 or 6 years now, that is a very short snapshot of

planting decisions by producers. We at least think that if we are

going to update them, it ought to be a weighted average taking into

account some of those past years.

The CHAIRMAN. Other thoughts or comments?

Mr. Canon.

Mr. CANON. We agree with Mr. Tallman that you should not be

penalized for operating under a system over the last Farm bill that

allows you to have flexibility and then, at this date, penalizes a

man for exercising that flexibility.

Senator HARKIN. I agree with that. That is a good observation.

I have just a couple of last things for all of you. Do you believe

that marketing assistance loans and LDPs have had a price-depressing effect in your commodity market? I have heard a lot about

that. In other words, if you have a good position in the market, the

lower the prices go, the bigger the LDP you get, and if you get that

big LDP, you can market your grain leaders. It has a price-depressing effect. I have heard that from many, many producers.

Again, Mr. Echols, Mr. Tallman.

26

Mr. DENISON. Mr. Chairman, I will react to that. Unfortunately,

I think many of our farmers still do not understand the mechanism

of the marketplace. For the rice industry, particularly in the last

two years, we have worked very closely with USDA, and we believe

that that lower market price that is being set accurately reflects

the world market price out there. Had it not been for the lowering

of the world market price and the increasing of the LDP, we would

have had a lot more rice going into commodity credit and further

depressing prices to the farmer.

Yes, you are right, some farmers believe that, but no, the market

reality is I do not believe that it does. It accomplishes the original

goal that Senator Cochran and some of the earlier leaders had— generally, it makes us competitive with the world, and I think it

is an important tool for the rice industry. We strongly support it.

Mr. TALLMAN. I do not think it has been price-depressing in

wheat. We still feel that just good wheat years has been price-depressing in wheat. We have grown an awful lot of wheat worldwide. It has probably actually made most producers a little more

acquainted with the market; it gives them something else to watch.

A lot of people do not market with an awful lot of strategy. They

get to play a little game at the local elevator of who can get the

highest LDP, not just who can get the highest price.

It has helped clear the market; it has put a floor under the market basically at the loan rate, so I do not think it has been depressing to the price.

Mr. ECHOLS. I agree. I do not think it has been depressing on

price, especially not this year. For most of the producers this year,

the LDP was very small in cotton earlier—it was something like 2

cents—and then, after our domestic industry fell apart, it has gone

to 20 cents, but they did not benefit at all, and that was not the

reason why that happened.

The CHAIRMAN. Again, Mr. Echols, there was an article in The

New York Times just yesterday about cotton—maybe you saw it— but it is buzzing around. It quotes a farmer who says, ‘‘’God, I

hated growing soybeans, hated it with a passion,’ said Vern Pruitt,

who farms 3,000 acres of rich loam here in Mississippi’s Delta region, ’but I love growing cotton.’ This year, the numbers finally

clicked back into position, and for the first time in 37 years, there

are more acres of cotton planted in Mississippi than soybeans.’’ Then, it says ‘‘But there is little pride in farmers’ voices as they

explain why they collectively gave up on beans and sowed cotton

this year. As much as they love growing cotton, farmers are almost

ashamed to admit the reason for their choice is that soybean prices

have plunged because of foreign competition, while cotton prices,

though just as low, are being propped up by Federal farm subsidies.’’ ‘‘Cotton prices in fact have sunk to a 15-year low of about 38

cents a pound, a bit more than half of what it costs to grow.’’ Yet

we have more acres planted to cotton. This bedevils us.

Mr. ECHOLS. That bedevils all of us. We need to examine the insurance program; There are some potential problems there. Granted, cotton does have a program that is a little more favorable than

perhaps beans were, but I think I am as bedeviled as the writer

of that article as to why this has happened.

27

The CHAIRMAN. I just raise this because—and I do not swear by

it just because it is in The New York Times, I want you to know

that—but things do tend to bounce around here a lot.

That is really all that I wanted to bring up. Senator Lugar, do

you have anything else?

Senator LUGAR. Just a quick comment. I appreciate your mention

of the cotton article. I would just say, not in behalf of cotton, but

that the bean loan rate in Indiana is $5.46. The market price for

beans has not come close to that for ions. I know that on my farm,

every bushel of beans that I can produce this year is going to get

$5.46. That is quite an incentive.

I would just say that our whole structure of these payments is

bedeviled by these anomalies in which people are obviously making

choices, usually for beans as opposed to corn in Indiana, because

LDP is $1.89. Even there, and following up on the chairman’s question, there is a good number of corn farmers in Indiana who are

very good farmers, and they have the right kind of soil and so

forth. In terms of their marginal cost for each additional bushel, it

is an incentive for them to produce a lot more just to get their

$1.89. Others are lamenting that this is a floor and a very sad situation. Some who are very good at it are saying this is an incentive.

However you look at it, the Crop Insurance Program—and I supported that as did the chairman—we think is a very important

safety net for American agriculture. As one of you pointed out, a

good number of our farmers are still just discovering the crop insurance business. They cannot find agents, I suppose, or people

who can explain it to them, but it is amazing the percentages of

farmers in America who might have that benefit of a highly federally subsidized insurance who are not signed up for it, or if they

were signed up, presumably, the subsidy would be even higher— it may be at $3 billion as it stands this year. To say the least, a

lot of marginal land in various parts of our country is being planted

with the thought that if it fails, they are a pretty good safety net

for it even at 85 percent of anticipated revenue.

How we work all of this through, I do not know, but we need

your expertise in trying to think through it, because very clearly,

we are seeing the capitalization, as has been pointed out, of payments into land; we are seeing more problems for young farmers;

the elderly farm population is retiring, not failing, but retiring, and

the young farmers are trying to rent this land essentially from people who have estates who are leaving the land. These are serious

human problems in addition to the ones of price that we have been

talking about.

If you can, as I said, give us a second effort, we would appreciate

it, because these anomalies are not going to go away; either that,

or the Congress in sort of broad brush strokes will simply send the

money. It will have ricochets in each of your industries without sophistication as to why people choose and why overproduction might

occur which depresses prices, and if they have been depressed for

5 years, they will be depressed for 5 more if we do the wrong

things—encourage overproduction even when we are trying to save

every farmer.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator Lugar.

28

Senator Miller, did you have any followup?

Senator MILLER. No, Mr. Chairman.

The CHAIRMAN. How about set-asides? Do you any of you have

any thoughts on set-asides as a condition for program acceptance,

entrance, set-asides?

Mr. TALLMAN. Yes, Senator. The National Association of Wheat

Growers is opposed to a mandatory set-aside. We have had some

discussions among the States of different types of voluntary setasides.

Supply management has not worked the best in the past. We

seem to have exported wheat acres to other countries rather than

exporting wheat when we have reduced our acreage here in this

country. That would be something else that I guess could be discussed.

The CHAIRMAN. I want to thank you all very much for your excellent testimony. As you can see, we do have a bit of a problem to

work through with the budget that is facing us and with world

trade, so we ask for your continued involvement and your continued observations of what we are doing and your continued suggestions and advice. We appreciate it very much.

Thank you all.

The CHAIRMAN. I now call forward our second panel.

Mr. Jack Roney is Director of Economic Analysis for the American Sugar Alliance.

Mr. Art Jaeger is Assistant Director of the Consumer Federation

of America, on behalf of the Coalition for Sugar Reform.

Mr. Armond Morris is Chairman of the Georgia Peanut Committee, and he is accompanied by Evans Plowden, Jr., General Counsel

of the American Peanut Shellers, from Albany, Georgia.

Mr. Wilbur Gamble is a producer and Chairman of the National

Peanut Growers Group.

We welcome all of you to our continuing hearings on the development of the next Farm bill and, as I said with the other panel, your

statements will be made a part of the record in your entirety.

I will ask that you try to keep your testimony to 7 minutes, and

we will start with Mr. Roney, with the American Sugar Alliance.

STATEMENT OF JACK RONEY, DIRECTOR OF ECONOMIC

POLICY AND ANALYSIS, AMERICAN SUGAR ALLIANCE,

ARLINGTON, VIRGINIA

Mr. RONEY. Mr. Chairman, Senator Lugar, members of the committee, thank you for the opportunity to testify here today. I am

Jack Roney, Director of Economics and Policy Analysis for the

American Sugar Alliance. I am proud to speak on behalf of American Growers, Processors and Refiners of sugarbeets and sugarcane—172,000 farmers, workers, and their families, in 27 States,

employed directly and indirectly by the U.S. sugar-producing industry.

I would like to describe to you the current plight of American

sugar farmers, the financial and policy crises we are facing, and

the legislative remedy that will work best for American sugar farmers, consumers, and taxpayers.

Producer prices for sugar began to decline four years ago and

plummeted in the past two. Wholesale refined sugar prices have

29

been running at 22-year lows. Since 1996, 17 beet and can processing mills have closed or announced their closure. Other mills

threaten closure. The Nation’s largest seller of refined sugar is in

bankruptcy.

As a result of these low prices, last year for the first time in

nearly two decades, sugar producers forfeited a significant amount

of sugar to the Government. The forfeited sugar is overhanging the

domestic market. Additional forfeitures are likely this summer, unless prices recover.

American consumers have received no benefit from the disastrously low producer prices for sugar. In fact, grocers and food

manufacturers have continued to raise retail prices for sugar and

sweetened products. I am sure the consumer representative on this

panel will address the issue of grocers and food manufacturers converting lower producer prices for sugar entirely into higher profits

for themselves rather than into any savings for consumers.

Trade policy problems are at the core of our oversupply problem.

The Government is no longer able to limit sugar imports sufficiently to support prices and avoid sugar loan forfeitures.

International trade commitments—the WTO and the NAFTA—

require the United States to import as much as 1.5 million tons of

sugar per year, essentially duty-free. That is about 15 percent of

our consumption. We must import this foreign sugar whether we

need it or not. Mexico wants more—Mexico is disputing NAFTA

sugar provisions and demanding unlimited duty-free access to the

U.S.

To make matters worse, U.S. borders no longer effectively control

the entry into the U.S. market of subsidized foreign sugar outside

the quota. These non-quota imports are rising and are out of control.

There are two main problems. First, a sugar syrup called stuffed

molasses, concocted solely to circumvent our import quota, continues to enter through Canada and from other countries despite a

U.S. Customs Service ruling to stop it. Second, the NAFTA reduces

the so-called second-tier tariff on Mexican sugar and Mexican sugar

only to zero by 2008. Second-tier entries from Mexico have occurred

and virtually unlimited amounts are possible.

We ask the committee members to support legislation to resolve

the stuffed molasses circumvention—the Breaux-Craig bill, S.

753—and to support administration efforts to negotiate a workable

solution with Mexico.

The policy path we are recommending can be effective only if the

United States regains control of its borders through resolution of

the stuffed molasses and Mexican access problems.

The policy that we recommend has four basic elements: No. 1,

continue the non-recourse loan program; No. 2, retain the Secretary’s authority to limit imports under the tariff rate quota system, consistent with WTO and NAFTA import obligations; No. 3,

operate the program at little or preferably no cost to the Government; No. 4, resume and improve the permanent-law sugar inventory management mechanism. Such a mechanism would balance

domestic sugar marketings with domestic demand and import requirements, would provide stable market prices at a level sufficient

30

to avoid sugar loan forfeitures, and can be administered by the

Government at little or no budgetary cost.

Since the Government requires us to reserve such a large share

of our market for foreign producers and is currently unable to limit

overall sugar and syrup imports, and because American sugar

farmers remain committed to earning their revenues from the marketplace rather than from Government payments, it is essential

that the Government regain control of our borders and resume potential limits on our sugar marketings.

An inventory management mechanism for sugar can be designed

in a manner that does retain planting and production flexibility for

farmers and processors; that does not provide producers an incentive to increase marketings to maximize market shares should the

control measures be imposed; and that does ensure that only producers who expand marketings in excess of the rate of growth in

domestic demand would be required to curtail marketings when the

program is in effect.

The sugar industry is working diligently with the Congress and

the administration to solve the immediate sugar policy threats— stuffed molasses and Mexico—and to address the current surplus

sugar situation.

We are eager to work with Congress and the administration on

the basic changes to U.S. sugar policy that will restore long-term

economic viability to American sugar farmers with ample benefit

for our consumers and at little or no cost to American taxpayers.

We thank you again for the opportunity to testify.

The CHAIRMAN. Mr. Roney, thank you very much for your testimony.

[The prepared statement of Mr. Roney can be found in the appendix on page 137.]

STATEMENT OF ART JAEGER, ASSISTANT DIRECTOR,

CONSUMER FEDERATION OF AMERICA, WASHINGTON, DC,

ON BEHALF OF THE COALITION FOR SUGAR REFORM

Mr. JAEGER. Thank you very much, Mr. Chairman.

I am pleased to be here today on behalf of both the Consumer

Federation of America and the Coalition for Sugar Reform. CFA is

a nonprofit association of approximately 285 pro-consumer organizations nationwide. The Coalition for Sugar Reform includes trade

associations representing food companies and cane sugar refiners.

In addition, it includes taxpayer advocacy groups, consumer organizations like CFA, and environmental groups.

Our coalition opposes the Federal sugar program and has for

many years, for reasons that have been detailed before this committee many times. We do not oppose sugar producers. The distinction is important at this point, because today’s sugar program, as

we have heard from Mr. Roney, is not just overcharging consumers

and food companies; it is not serving the growers well, either.

Much has changed since Congress last addressed the sugar program in a farm bill—that was 1996. As we heave heard this morning, domestic sugar production is up almost 25 percent—or, we

have heard that it is up—it will be up 15 percent this year. Meanwhile, imports have fallen by 40 percent. Growers’ comments to the

contrary, imports are not the problem here. The problem is our

31

high sugar price support which has led to an unmanageable surplus of sugar.

In 1996, the Government owned no sugar. Last year, USDA acquired more than a million tons of sugar. It purchased sugar in the

spring and then acquired much more through forfeitures later in

the year.

As we have heard, today the Government is spending more than

$1 million a month—that is $1 million a month—simply to store

this surplus sugar. In 1996, there had been no recent forfeitures,

and there was little likelihood of forfeitures. Today forfeitures are

a given—fewer this year than last, probably, but still a substantial

cost to taxpayers. In 1996, the sugar program resulted in no direct

outlays of taxpayers’ dollars; last year, taxpayers spent $465 million, almost half a billion dollars, on the sugar program.

Finally, in 1996, the sugar program’s effect on employment was

not as evident as it is today. In the past year, the cane sugar refining industry, again as we have heard, has been devastated by the

collapse of refining margins. In addition, Chicago’s candy industry

has been threatened by plant closings that are partly the result of

the high Federal support price.

In the face of these developments, supporters of the sugar program, I think somewhat incredibly, suggest increasing the price

support, both directly and indirectly. There has been a suggestion

for rebalancing of the sugar loan rate and a suggestion that we get

rid of the one-cent per pound forfeitures penalty. The forfeiture

penalty reduces Government costs by reducing the price at which

a rational processor would forfeit his sugar. Abolishing the forfeiture penalty will increase the support price by one cent.

The Coalition for Sugar Reform has to ask how can the solution

be a higher price support that will only trigger more sugar production. The problem that we have already is too much sugar. Despite

lower than normal prices—and the prices are down—sugarcane

acres are forecast to rise 3 to 5 percent this year. What will happen

if supports are even higher?

Growers and processors also propose marketing allotments. Congress repealed allotments in 1996 along with production controls

for almost all other commodities. Allotments too will only make

things worse by widening the spread between the U.S. and the

world price.

The Coalition for Sugar Reform strongly supports H.R. 2081, the

so-called Miller-Miller bill, which would phaseout the sugar price

support and expand the tariff rate quota. H.R. 2081 was introduced

by 53 House Members representing a range of regions and

ideologies.

This bill does not exhaust the possibilities for reform. Our Coalition has four principles that it would suggest for any changes in

sugar policy this year. First, policy should allow the market to operate in a manner that supplies are adequately balanced. Shorting

the market through production controls should be off the table.

Second, our markets need to be more open to world supplies. Imports are important to meeting our trade obligations and encouraging expanded markets for our agricultural exports, as we have

heard this morning.

32

Third, our policies should not provide incentives for overproduction. The current support system clearly has encouraged too much

sugar production. That needs to change.

Finally, market prices must be better able to fluctuate with supply and demand. Too often in the past, the price movements have

been the result of Government policy changes, not the marketplace.

That too must change.

Thank you very much, Mr. Chairman. I will be happy to answer

questions at the appropriate time.

[The prepared statement of Mr. Jaeger can be found in the appendix on page 182.]

The CHAIRMAN. Thank you very much, Mr. Jaeger.

Now we turn to Mr. Armond Morris, Chairman of the Georgia

Peanut Commission, from Ocilla, Georgia.

Welcome.

STATEMENT OF ARMOND MORRIS, CHAIRMAN, GEORGIA

PEANUT COMMISSION, OCILLA, GEORGIA,

ACCOMPANIED BY EVANS J. PLOWDEN, JR., GENERAL COUNSEL,

AMERICAN PEANUT SHELLERS ASSOCIATION, ALBANY,

GEORGIA.

Mr. MORRIS. Thank you, Mr. Chairman.

Mr. Chairman, members of the committee, I am Armond Morris,

Chairman of the Georgia Peanut Commission, from Ocilla, Georgia.

Today I am representing a coalition of State peanut organizations

from across the country: The Georgia Peanut Commission, the

Georgia Peanut Producers Association, the Florida Peanut Producers Association, and the Panhandle Peanut Grower Association, the

Western Peanut Growers Association, and the North Carolina Peanut Growers Association—approximately two-thirds of the peanuts

produced in the United States. Thank you for allowing us to testify

before your committee on our plan for the future of the peanut program.

In 1993 and 1994, the passage of the NAFTA and the GATT

trade agreements, respectively, changed the way peanut growers

have conducted business. Minimum access for other peanut-exporting countries caused reductions in our poundage quotas. The export

market for U.S. growers is virtually nonexistent. Export and domestic marketing promotion moneys are the right strategy for the

peanut industry but have little chance for success with our current

pricing structure.

This is just the beginning of the problem. As tariffs decline under

NAFTA and with the very real prospect of a Free Trade Area of

the Americas Agreement by 2005, we will see a continued increase

in access to our markets by foreign-produced peanuts. The current

peanut program’s effectiveness will continue in its current downward spiral. This spiral must be stopped.

Evidence of this downward trend occurred in the last few appropriation cycles. Peanut growers came to Congress for help to offset

peanut program costs for our ‘‘no net cost’’ program. If the no net

cost program remains in its current form, growers will have to

come back to Congress to ask for help. The losses will increase year

after year due to increased imports. This die has been cast. Our coalition of the largest peanut growing areas of the country, producVerDate 11-MAY-2000 14:40 Nov 07, 2002 Jkt 082205 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 82205.TXT SAG1 PsN: SAG1
33

ing the majority of U.S. peanuts, wants to break this trend. To save

the peanut industry in the United States, we have to develop a

peanut program that responds to the marketplace. The Congress

made sweeping changes to farm programs in 1996, but the peanut

program remained structurally intact.

Now it is time to transform our program to meet the variables

of the future. Are these trade agreements to be reversed? Will Congress reject the Free Trade Area of the Americas initiative? I think

not.

We believe that we have a plan that keeps American producers

competitive in America and the world marketplace. Let us compete.

Let us reverse a trend that does not allow our sons and daughters

to come back to the farm that breeds depression among growers

and prevents any form of long-term business planning. Our proposal is a plan for the future.

On transition payments, the first part of our plan is to establish

transition payments based on the historical quota. The quota would

be suspended just as bases were in the last Farm bill. Payments

would be made to the quota-holder for the life of the Farm bill, not

less than 5 years, at a level of 14 cents per pound. Peanut quotas

have been capitalized into farm values, and in many cases, producers carry debt based on the purchase of these quotas. These quotaholder payments need to be made exclusive of payment limits. The

14-cent annual payment is an approximate average peanut lease

rate in the State of Georgia, the largest peanut-producing State.

For our cost estimate, we used the 2001 quota level of 1.28 million tons of farmer stock peanuts. This results in a projected annual Government cost of approximately $358,400,000 per year.

Since these payments would be decoupled from production, they

would not be subject to any WTO constraints. For purposes of this

transition payment, the quota should be held at the 2001 level for

the life of the Farm bill.

The second component of our plan is to establish a marketing

loan program for peanuts, the same structure developed by this

committee for other commodities. After grower meetings in counties

across the country, we suggest a $500 loan rate. We feel, based on

a Texas A & M study, that this is a reasonable level in comparison

to other commodity program prices. This level of support providers

growers with a safety net while allowing growers to compete in the

market with foreign imported peanuts.

Payments resulting from the marketing loan should not be subject to payment limitations. Farmers have to get larger to survive.

Still, these farms are family farms that need some form of safety

net on all the commodities they produce. The current payment

limit structure inhibits farmers from obtaining adequate financing

at local banks in many cases. If the elimination of payment limits

cannot be accomplished in this farm bill, we propose that the payments would be in the form of generic certificates that allow the

grower marketing options to manage the payment limits.

Because we are significantly reducing our support rate, we request that the committee consider an annual escalator based on the

increase or decrease in the cost of production that would be applied

to the marketing loan rate. This would be tied to the Consumer

34

Price Index with a maximum increase or decrease of two percent

per year of the total loan rate.

We have included a chart with the potential Government exposure using data from the University of Georgia and the U.S. Department of Agriculture. In developing these cost estimates, production figures from each peanut-producing State have been based

on that State’s maximum annual production during the period 1978

to 2000. The total U.S. production based on these figures amounts

to 2.7 million tons, which reflects a 50 percent increase in production over the current production level.

The peanut production of many States today is significantly

below the maximum it attained in the past that has been used in

our cost estimates. The estimated cost of our proposed marketing

loan program should be approximately $350 million per year. The

repayment price would be based on the world market price using

Rotterdam as the reference point. This does not reflect any increase

in the marketing loan rate over the life of the legislation.

We understand that in making this transition to a more marketoriented program, there are some questions that will not be answered until the new program is in place. For that reason, we are

suggesting a safeguard against excessive Government costs.

Currently, we are charged with $347 million for our level of support under the Uruguay Round of the GATT. We suggest that if

loan deficiency payments exceed $350 million, the Secretary of Agriculture is given the authority to limit loan eligibility based on

prior production history. This would involve structuring an incentive based, proven recent production history, that only becomes active in the event the Secretary determines that it is necessary for

the U.S. to stay within its GATT commitments.

Mr. Chairman, as peanut leaders, this has been a difficult road

in determining the best program proposal for the future of the peanut industry. We believe that we are on the right track in developing a program that works for growers.

We recognize the investments in quota over the years, and we

have sought a remedy to protect those investors. Our highest priority is the future of the industry. We will gain back the consumption

lost to imports and at the same time will be more competitive in

the export market. This program will put money back into our

rural communities as our growers prosper.

Again, I appreciate you allowing us to present our testimony this

morning. We are glad to answer any questions at the appropriate

time.

Thank you.

The CHAIRMAN. Mr. Morris, thank you very much for your testimony.

[The prepared statements of Mr. Morris and Mr. Plowden can be

found in the appendix on page 192 & 199.]

The CHAIRMAN. We will now turn to Mr. Wilbur Gamble, producer and Chairman of the National Peanut Growers Group, from

Dawson, Georgia.

35

STATEMENT OF WILBUR GAMBLE, PRODUCER, AND

CHAIRMAN, NATIONAL PEANUT GROWERS GROUP, DAWSON,

GEORGIA

Mr. GAMBLE. Thank you, Mr. Chairman, for this opportunity to

discuss options for a new farm bill. Peanut producers want and

need your support.

My name is Wilbur Gamble. I am a farmer from Dawson, Georgia. I will summarize my written comments.

I am here today representing the National Peanut Growers

Group, and my purpose is to help sustain thousands of active farm

families in peanut production. Our organization is the only national

peanut producer organization and represents all of the Nation’s

peanut-producing families. All growing areas are represented on

the NPGG.

The peanut program is absolutely necessary to peanut producers.

U.S. producers are dependent on this program. Additionally, consumers and manufacturers are dependent upon a program that

provides a safe and economical supply of peanuts.

We are told that about 80 percent of all U.S. peanuts are sold

to only two processing companies. One of these companies is owned

by one of the Nation’s largest agribusiness processors. What marketing ability does a small family farmer have in this situation?

The clear answer is very little without the peanut program.

As compared with the program before the current law, peanut

producers have lost 10 percent of the peanut support price, resulting in a loss in income of millions of dollars to peanut producers.

Growers also lost the escalator provision in this current program.

Thus, the peanut support price and thus, farm income from peanuts, have been frozen since 1996.

There has been essentially no benefit to the housewife from these

losses to producers. Consumer peanuts and peanut butter price are

higher today than they were in 1955.

Mr. Chairman, we have two recommendations for this committee,

short-term and long-term.

Short-term, peanut producers must receive market loss payments

as have been made available the last two years. Again, we are

deeply appreciative to you and to this committee for helping to

make those payments available to peanut producers.

In the long term, Mr. Chairman, despite the value of the peanut

program, peanut producers realize the political realities in Washington involving budgets, trade agreements, and anti-program proponents. The National Peanut Growers Group has voted on various

options for consideration as a new farm bill begins and present to

you today a description of the option we feel is best for the taxpayer, consumers, processors, manufacturers and, most important,

the farmers.

In reviewing the options to make producers competitive with imports and at the same time offering the consumer a product with

no domestic price disadvantage, the Step 2 concept/market competitiveness option, similar to cotton, is viewed as the most viable option by the National Peanut Growers Group.

Under this option, producers are offered a price support level

that will allow them to keep up with the cost of production. Additionally, the processor will be afforded a peanut that is priced comVerDate 11-MAY-2000 14:40 Nov 07, 2002 Jkt 082205 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 82205.TXT SAG1 PsN: SAG1
36

petitively to imports. This will also answer consumer advocacy organizations that wrongly contend that U.S. peanuts artificially

drive up retail prices, although we believe that this is not the case.

Finally, we believe the cost associated with this option will be

below the current WTO support levels attributed to peanuts. This

option would allow the domestic poundage to be bought at a price

competitive with other origins.

The quality of U.S.-produced peanuts continues to be generally

superior to imported peanuts. A domestic competitiveness option

for peanuts would be helpful to processors and would ensure that

U.S. consumers continue to have high-quality peanuts available.

The processor would be buying based upon quality and delivery.

The marketing option for any production above the domestic consumer level then could be enhanced by an increased lower level for

additional or export production.

As is mentioned in the written testimony, this is the only proposal that keeps total cost under control, estimated well below the

attributed AMS level of $347 million.

The competitive revision is also a cost-containment provision. By

limiting domestic supply to domestic average consumption, the cost

of this option is limited through supply management. This is based

upon the only official measurement of support. In a USDA referendum, 94.8 percent of all peanut producers supported a supply management program. Also, about 85 percent of producers oppose the

marketing loan concept according to responses to a recent peanut

growers’ magazine poll.

In addition to providing the producer a cost-of-production adjusted support rate, the processor is buying on quality and delivery.

Therefore, there would be no price incentive to purchase foreign

peanuts, and it would reduce the need for tariffs that are currently

being reduced under trade agreements. At the same time, this

would not be considered trade distortion, because there is only leveling of the market and not undercutting the market.

We feel that the best containment tool is the use of a supply

management mechanism. This is not to control the amount of peanuts grown, but to control the amount eligible for domestic support.

There would be no planting restrictions.

We also believe that the Federal-State Inspection Service is a

pivotal part of delivering quality peanuts to the processor.

The NPGG supports a farmer stock price support adjusted for inflation.

Additionally, we support a cost of production adjustment provision that would be adjusted annually at a rate of not less than 2

percent, using the Consumer Price Index. We recommend that peanuts grown for export be allowed to move into the domestic market

if a shortage occurred.

The market competitiveness Step 2 option brings about a condition enabling the producer to stay viable and keep up with the cost

of production. This option also creates minimal Government outlays with positive returns for the producer, the processor, the manufacturer, and the consumer.

Mr. Chairman, on behalf of the National Peanut Growers Group,

we thank you for this opportunity and would be happy to try to answer any questions that might be asked.

37

Thank you.

[The prepared statement of Mr. Gamble can be found in the appendix on page 204.]

The CHAIRMAN. Thank you very much, Mr. Gamble. I appreciate

your testimony. I am trying to weave through it and figure out

what you are proposing. I am going to start with you because I just

want to know a little more about your proposal.

You say there would be no planting restrictions, and that only

an amount of peanuts equal to domestic consumption would be eligible for the domestic support rate. How does the quota fit into

that?

Mr. GAMBLE. You could move the quota system to a base system

similar to other crops, and you would have your base, and that

would be the same as what the quota is, and the farmer would receive a price that could be set, I would suggestion somewhere

around $6.80. If it were set at $6.80, and the lower price were

$500, that price between the two prices would be the cost to the

Government. If you had 1,280,000 tons at $180 ton, you would have

approximately $230 million, and that would be the total cost. There

would not be any other cost incurred. That would enable the manufacturer to buy peanuts at grower price, so there should not be any

reason for them to want to buy an excessive amount of foreign peanuts, which we should gain back part of the market we have already lost; plus, to us, it would be a far cheaper program than any

other program that we could come up with.

On the national board, we had a vote between the marketing

loan and this concept, and the vote was 12 to 4 in favor of this concept, and it would have been 13 to 4 had the chairman voted. That

is what it is in a nutshell.

The CHAIRMAN. You move off a quota to a base, and then, someone who raised more peanuts than were allowed under the domestic support price, how would they market those peanuts?

Mr. GAMBLE. There would be a marketing loan, but it would set

prices similar to what additional peanuts are now, which should

be—you would have to set it somewhere in the neighborhood of

what oil is to be assured there would be no cost to the Government.

Then, those peanuts could also be moved in the domestic market

if need be.

The CHAIRMAN. Mr. Morris, let me ask you now about peanuts.

You suggest that a 14 cent annual payment would be the transition

payment level. How did you come up with 14 cents? Is that for all

sizes of peanut producers in all States? Is that what you are suggesting?

Mr. MORRIS. Yes. That is for the base or the quota that the farmers have now and a lot of those people—if you go back to the years

that they were developed, back in the forties, I reckon, the World

War II years, peanuts was basically an oil as well as a staple for

our soldiers abroad, and that was back when you had the allotment

system, and that is when it was a developed acreage system. Then,

it transitioned in around 1977 into a quota system.

If you go back to the family farmers and those who have developed the quota and peanut basis and those who have bought peanut bases, and this would be a decoupling or a buyout-type program because of the moneys that are loaned to these peanut farms

38

and these farmers who have loans on their farms, and this would

be a transition to help them recover the costs because of the fact

that they had to buy this peanut quota or they developed it

through their family farm.

The CHAIRMAN. On the sugar side, Mr. Jaeger says that imports

have fallen 40 percent, yet, Mr. Roney, I was under the impression

that imports from Mexico and stuffed molasses were increasing in

this country. How am I going to square these two testimonies?

Mr. RONEY. Mr. Chairman, had we been able to reduce imports

adequately to rebalance our market, we would not be in the crisis

that we are in now. Our imports have fallen from about 2.25 million tons just as recently as four years ago to the WTO minimum.

What would have balanced our market would have been to reduce

our imports further to about three-quarters of a million tons. Our

imports have varied over the last 20 years from 3 million tons to

about three-quarters of a million tons, with variations in domestic

production and consumption. What we are up against now is the

problem that WTO and NAFTA commitments force us to import

one and one-quarter to one and a half million tons each year

whether we need that sugar or not.

The drop in imports that you mentioned has been related to some

unusually large production during the 1998–1999 crop and the crop

before that.

I would note an error in Mr. Jaeger’s remarks. He said that production is up 15 percent this year. In fact, production this year is

down 7 percent and is expected to be flat for the coming year. Sugarbeet acreage is off 13 percent because of the closure of sugar

mills in California. It is possible that our imports will be rising

again above the minimum because of this further shakeout in domestic production with more of our producers going out of business.

The CHAIRMAN. You said that the wholesale refined sugar price

has plummeted nearly 30 percent since 1996, and yet you point out

that consumers have not benefited from this.

Mr. RONEY. Yes, Senator. In fact, Mr. Jaeger’s presentation includes a chart that shows the widening gap between the wholesale

refined sugar price, which is the blue line in his chart, and the retail price, the red line.

What we are seeing is a dramatic drop in our producer prices but

absolutely no passthrough to consumers. The retail sugar price has

risen 1.5 percent during the same period that the producer price—

that is the wholesale price that grocers and food manufacturers are

paying for their sugar—has dropped by nearly 30 percent. Mr. Jaeger referred to the desire to see more fluctuation in sugar prices.

What we have seen since the import quota was first put into place

in 1982 is fluctuation in domestic sugar prices only down, as far

as producers are concerned, because every time there would be the

prospect that we might have a short crop and market prices for

producers might begin to rise, we have simply imported more. We

have continually had a ceiling. Traditionally, we had a floor until

we got into the problem in the last two years of not being able to

reduce imports adequately to compensate for larger production. We

have had the price fall through the floor, but we have always had

an effective ceiling on it. Unfortunately, consumers have not seen

any benefit in passthrough from the lower wholesale prices, but

39

they have, however, enjoyed retail sugar prices that are essentially

unchanged for 10 years. That one percent increase that I mentioned is pretty modest, and that holds for a 10-year period.

In addition, our retail consumer prices are 20 percent below the

developed country average. In terms of minutes of work to buy a

pound of sugar, our sugar is about the most affordable in the

world; only two countries have lower minutes of work to buy a

pound of sugar—Switzerland and Singapore.

The CHAIRMAN. Thank you very much.

Mr. Jaeger, I have a couple of questions, but my time has run

out, so I will come back on my second round.

I yield now to Senator Lugar.

Senator LUGAR. Thank you very much, Mr. Chairman.

Mr. Chairman, I have wrestled with questions regarding these

two programs during the entirety of the time I have served on this

committee, and the dilemma—and I hesitate to mention this, because my colleagues, Senator Miller and Senator Thomas have constituents, and they have to do the best they can for them—but the

problem is, with both sugar and peanuts, the cost of production

around the world in many countries is substantially lower than in

our own.

Leaving aside all the formulas that we have today, the fact is

that the American people as consumers of sugar and peanuts as a

whole, the 250 million of us, would be better off in fact if we were

paying the lower prices for sugar and peanuts that would result

from the worldwide competition if it were allowed to occur.

There are all sorts of arguments as to why the price of sugar

worldwide is roughly one-half what we are paying sugar producers

in the United States, and some have said in fact that if we did not

support our local industry, and someone abroad were to jack up the

price and have a sugar OPEC or some cartel of that variety that

did offer peanuts, the differentiation has never been as great. As

we have heard today, the difference between 500 and 680 is sizable, and that remains to be the case.

Throughout the 24 years I have served on the committee, I have

had one success in the early eighties in the Farm bill with regard

to peanuts. There was modest reform—it was so long ago, I can

hardly remember what the argument was about, because these reforms come along so seldom. With regard to sugar, we have had

zero throughout the entire 24 years and attempt to reform each

time without visible success.

In large part, I appreciate that the dynamics of this committee

are that coalitions of support would gather among groups that felt

threatened and circle the wagons to protect what was left. The public as a whole has never quite understood any of the formulas of

the programs or the public interest, at least as I see it.

Now, having said all that, there are real problems for human

beings involved in these occupations. The quota business and the

peanut thing is serious in the same way as when we were discussing tobacco reform a while back, and some of us suggested a buyout

of quota-holders, many people who are no longer producing tobacco

but who do have need for pensions or money for their children’s

schooling or what-have-you. It was really an attempt to bring closure to a chapter of American life in that respect.

40

It might have worked except that the tobacco bill failed. It cost

a lot of money to buy people out, even though there was some equity in doing that. A good number of States are now attempting

that. Kentucky, near us in Indiana, is actively seeing if they can

get money to these people who are in need, and somehow divorce

the production situation from the history of quotas that were offered in the 1930’s and remain in our farm programs.

I do not know what we can do in this bill with regard to that.

I am interested in your testimony, Mr. Morris, because you have

made an earnest attempt with the growers to wrestle through this.

What I would hope you would try to do more of is figure out how

we get the differential between the world price and the domestic

price closer so there is not what I perceive to be an economic loss

to the United States as a whole.

I suppose the fact is in the sugar situation there have been the

additional environmental issues that we are wrestling with in a different field, and that is trying to provide money for restoration of

the everglades. Now, this is not entirely a sugar cultivation problem, but that has been a large contributor to it. On the one hand,

we have tried to boost the production of sugar in Florida, and there

has been an environmental cost to that that is very substantial. It

is now recognized as a large issue in Florida in their referendum

just a few years ago.

It offers still another reason for being thoughtful as to how much

we want to promote, at least under those conditions.

I am hopeful that the committee and the Congress as a whole

will come to at least some movement toward the overall good of the

country and consumers as a whole in addition to trying to protect

the individual farmers, the quote-holders and what-have-you who

are involved, and that is a serious political problem.

That is going to be my quest as we get into these particular titles. I am going to do the best I can to offer what I think are constructive ideas in this respect, but they will be at variance with the

testimony you have given today, and that is why, up front, I want

to indicate that, that there is some history of study of this and

maybe a different point of view.

At the end of the day, you could argue—and you may, or Senators may argue in your behalf—that after all, a lot of money is

going to wheat farmers in this country, corn farmers, soybean

farmers. We have never gotten into too much money for livestock

producers, but even that may come along, specialty crops; in the

last year, we had money for a whole list of people. You could ask,

why be so fastidious about this. After all, we are farmers, too.

Granted, we have a troubled history of how these programs came

about, and we are always trying to reform them, but what is in it

for us?

I understand that. If there is a big pot of money here, the equities of how it goes out State by State, crop by cop, are difficult to

fathom, leaving aside the economics of this.

I do not know how much money there is. I am not sure how

much the taxpayers of the country want to spend on farm programs

as opposed to Social Security reform or prescription drugs for the

elderly or various other things that come in this budget picture

from the same emergency box as we take a look at it. That, only

41

the political system can finally decide. We are dipping into that,

clearly, with the farm programs that we have now and the ones

that are being suggested.

I will try to keep equity for peanuts and sugar in mind as we

take a look at the equity for other groups. I appreciate, Mr. Chairman, this opportunity simply to make a comment, because I think

the proposals and the sophistication of what has been presented

are very fine and helpful to our understanding of the programs, but

I wanted to offer a different view.

The CHAIRMAN. Thank you very much, Senator Lugar.

Senator Miller.

Senator MILLER. I welcome my friends from Georgia. It is good

to see you, and I appreciate your testimony.

You all are not exactly together on this thing, are you?

[Laughter.]

Senator MILLER. When I sit here at this committee table and get

into a situation like this, I always kind of glance up there over my

shoulder at Herman Talmadge and wonder what he would do in a

situation like this. I was thinking a while ago about that story they

used to tell about Herman, when they asked him his position on

a very difficult issue, and he said, ‘‘Well, some of my friends are

for it, and some of my friends are against it, and I am for my

friends.’’

You all have given me—if you do not mind my using this analogy

in the Agriculture Committee—a tough row to hoe. I mean, how am

I, a freshman Senator, with some wonderful people on this committee whom I respect and have affection for, but to tell you the truth,

whenever I bring up peanuts, they begin to groan—how am I supposed to come up with what I am supposed to do for the industry

when you all cannot come up with how best to advise me on what

to do for the industry?

Do you appreciate my position?

Let me ask you this, Armond. I have read all of your testimony—

in fact, I have read it twice. I am not sure that I understand exactly—it is a complicated program; I knew it was, and it is. If I

were to meet up with you down the street in Ocilla—about where

Charlie Harris’ department store is, God rest his soul—and I said,

‘‘Armond, you all are trying to take the peanut program in a new

direction. Why are you doing that?’’ How would you answer that,

just you and me talking there on the streets of Ocilla? Why this

new direction?

Mr. MORRIS. Why the new direction?

Senator MILLER. Why the new direction—so I can understand it.

Mr. MORRIS. The new direction being, I believe, that whenever

the last bill was implemented and the trade agreements and looking at the future and where we are going and the tariffs being

taken off of the imports coming in, I feel that it is going to take

my peanut program with it; that my quota will continue to be reduced at whatever the level might be priced—if it is 16 or 550 or

500 or whatever. It might be that if there is no mechanism to be

able to put my peanuts in the domestic market that they will continue to import those peanuts, those cheaper peanuts, and take my

market.

42

Senator MILLER. Let me ask you this, Mr. Gamble. If the current

quota peanut program does remain throughout the next Farm bill,

and peanut imports do move in the U.S. markets as forecasted and

as we think they are going to during those years, what options will

the producers have if the quota poundage is continually reduced?

Mr. GAMBLE. The program I just outlined should stop that. If you

brought that price down to the manufacturer so that he could buy

the peanuts at a lower price, there would be no incentive for him

to buy them from an export market, and it would certainly be

much, much cheaper than the marketing loan concept if you had

a price set at, say, let us just use $680, but you could use a different figure—the lower the figure, the less the cost—but if it is

$680 against $500, you would have $180 per ton, and you would

have the same protection you have now in additional peanuts, and

that would keep us in the business of competing, and it should help

all parties.

I just cannot believe that Congress is going to be ready to support this program, a marketing loan program that would be adequate to give us a proper peanut program at a cost of three-quarters of a billion dollars a year. That is about what it would cost,

and this other program would be around one-quarter billion or less.

It just seems to me that we have a program that has worked so

well for so many people for so long, and the people that I talk to

throughout Georgia and other States in the national growers group,

they are happy with it. If we could keep it, I think everybody would

be happy. I would just hate to see us with a marketing loan program, and all of a sudden, we find ourselves not with a 14-centsa-pound bite but a 2-cents-a-pound bite, and not with a $500 support price but with a $250 support price. Where I live, we would

be out of business.

When you get to the cost figures, it is going to be very clear. I

believe it would work. I would think that the manufacturers should

support it, because they would be able to buy the peanuts at the

world price, and it would help a lot of our communities. When this

money ripples through these communities where I live, we live in

the lowest income-producing area in the whole United States in

Southwest Georgia, and it looks like peanuts follow the poorest

areas of this Nation. I just wish you all would give it a thorough

review and look at it, and I think you will not find it unacceptable.

Senator MILLER. Evans, you are sitting there in the middle, and

I am sitting here in the middle. Do you have anything to say on

it?

Mr. PLOWDEN. Our folks are always in the middle, Senator, but

everybody has recognized that the trade agreements have put enormous pressure—both the agreements and the world trade—there

are a lot of peanut-containing products that come into this country

that the trade agreements have not really affected. They increase

manufacturing with peanuts of other origins.

The trade agreements are driving this concern. Our people support the marketing loan concept. We think it supports our competing with other origins. In addition, it will open up production somewhat to younger farmers and give them an opportunity to get into

this business, and it will be a less regulated environment.

43

Senator Lugar has alluded to the complications involved in the

current program and perhaps in any farm program, but the peanut

program has developed a fairly byzantine set of regulations, perhaps necessary under the old program, but those things are costly,

and they prevent innovation.

We believe that a marketing loan concept would allow growers

and shellers to solve problems that exist in a free market environment and would eliminate costly and inefficient and sometimes

counterproductive regulations. We think the marketing loan will

solve the import problem and will solve a lot of other problems as

well.

Senator MILLER. My time is about up. This place is not exactly

overflowing with people who are advocates of the peanut program

any way you describe it. You all really need to get together before

this thing goes much further. It is a difficult enough problem as it

is, but to have people back in your home State in the industry, and

one wants to go in one direction and one wants to go in the other,

and I am up here like the ‘‘Lone Ranger’’ on this committee for peanuts, I really wish you could get together and give me a little bit

better idea of what you all want to do.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Senator Miller.

Senator Crapo.

Senator CRAPO. Mr. Chairman, I would defer to Senator Thomas,

since he has a time problem.

The CHAIRMAN. Senator Thomas.

Senator THOMAS. Thank you. I have a little something going on

over in my new committee today. I appreciate it.

I wanted to question just a little bit on the sugar program. I listened to the ranking member’s comments and need to have a little

further discussion about it.

The sugar program has been in effect for a good long time, and

the last year has been one of the most difficult ones. How much

involvement has this molasses thing and the letter in Mexico had

in terms of the overall activity and program?

Mr. RONEY. Senator Thomas, the amounts of sugar entering— and I believe Senator Harkin was asking about this as well—the

amounts of sugar entering from Mexico so far are not that great,

but what we are concerned about there is that the amounts could

increase very dramatically over the next several years, and that is

why we are looking at renegotiation with Mexico on the provisions

of the NAFTA for their sugar access to the U.S. There is the potential that we could be swamped with subsidized Mexican sugar unless we have some successful resolution of those negotiations.

The quantity of stuffed molasses coming in from Canada, the

greatest year so far has been 125,000 tons. Again, that is not an

enormous amount, but we are seeing evidence that mimicked products are being created as stuffed molasses was, for the sole purpose

of circumventing the quota. We are getting evidence that mimicked

products are coming in from Mexico and Brazil. We fear that unless the Breaux-Craig bill passes, manufacturers who see the opportunity to exploit this loophole will continue to grow.

Senator THOMAS. Well, if those were relatively insignificant numbers, how did we end up with 800,000 tons of excess sugar?

44

Mr. RONEY. The problem, Senator Thomas, is that we could not

really adjust our import quota adequately to compensate for increased production. The increased production that has been alluded

to as a result of support prices that are too high is a far too simplistic way to look at the increase in production that we have had.

Our support price had been the same from 1985 until the 1996

Farm bill, which reduced it effectively with the forfeiture penalty,

and was the only commodity to have a support price reduction.

Many producers dropped out of business. We had enormous contraction in the industry. Hawaiian production, for example,

dropped by two-thirds and California by one-half.

The producers who stayed in business did so by increasing their

efficiency, enormous investment in technology to improve their

yields, to improve the efficiency with which they remove sugar from

cane and beets, and those technology improvements began to kick

in.

We also had a shift in acreage from other program crops to beet

and cane, because those other crop producers under freedom-tofarm were given flexibility to plant any crop they wanted.

Senator THOMAS. As you know, I am a great fan of this program

and want to continue it. If that is the case, and the production goes

up, and there is a support price that encourages production, how

do you begin to manage production with demand?

Mr. RONEY. Well, that is exactly what our proposal is, Senator

Thomas, and that is to return to the inventory management program that is a permanent part of U.S. law. It was not repealed, as

Mr. Jaeger said, but rather suspended in the 1996 Farm bill. What

that will do is restore to the Secretary a tool that had been taken

away, and that was to limit domestic marketings to balance the

market.

Senator THOMAS. What is your analysis of the efficiency comparison, domestic versus foreign?

Mr. RONEY. Thank you for raising that, and Senator Lugar alluded to it, and I would be very happy to comment on that. Senator

Lugar is absolutely right—there are some countries that can

produce sugar at a lower cost than we can. However, those are in

the minority. There are about 130 countries that produce sugar. A

study was done on the 102 biggest producers. I have the results of

that finding at Figure 8 in my full testimony, which shows that we

are the 28th lowest cost out of 102 producers. Senator Lugar is

right; there are 27 countries that are lower cost. I would just note

two things. One is that most of the sugar produced in the world

is produced at a higher cost than in the United States. Further, I

would note that the vast majority of these countries are developing

countries with extremely low labor and environmental standards.

Mr. Jaeger referred to candy operations going to Mexico. That is

the factor there. Mexican sugar prices are higher than here, but

their labor costs are about one-tenth of ours.

Senator THOMAS. The world price, then, is not necessarily a

world price based on production; it is a world price on dumping, if

you please.

Mr. RONEY. Yes, sir. Those 130 countries all intervene in their

sugar markets in some way, and classically, what they want to do

is maintain domestic supplies, and they tend to overproduce. The

45

surpluses are then dumped on the world market for whatever price

it would bring. Figure 9 shows how low that dump market price

has been—little more than half the world average cost of producing

sugar.

Senator THOMAS. I am not sure I know how to pronounce your

name, sir.

Mr. JAEGER. Jaeger.

Senator THOMAS. With a ‘‘J’’.

Mr. JAEGER. Correct. It is German.

Senator THOMAS. You indicated that you are not against sugar

farmers, but your proposal would basically put them out of business. How do you justify that view?

Mr. JAEGER. Well, I do not think that what we would propose

would put all sugar farmers out of business, although that comment is often made by the other side.

You have identified in your comments earlier and in the exchange with Mr. Roney the relevant issues here. We have a program that is not working anymore. It has not worked for consumers for years. It raises food prices—and I am happy to get into that

with Mr. Roney in a minute——

Senator THOMAS. You are going to get into it with me, too, because I do not think that that is true. The difference between the

final product and the sugar cost that goes in does not reflect——

Mr. JAEGER. I will be happy to address that in a minute.

Senator THOMAS. Do not go too long, please.

Mr. JAEGER. This program is not helping the farmer at this

point, either. That clearly, something has to change. Our solution,

of course, is a phaseout of the sugar program. I am aware of two

studies that have looked at what would happen if we scaled back

or completely eliminated the sugar program. One was done by

FAPRI in the last Farm bill cycle. It projected that if you did away

with both ends of the sugar program, both the support price and

the import restrictions, the U.S. price would float down not to the

world level but to about 15 cents a pound. That would generate in

our view substantial savings for consumers and users in the range

of what the General Accounting Office has projected for many

years. At the same time, it only projected modest decreases in production—I think it was 11 to 12——

Senator THOMAS. Try not to give your whole statement again,

please. I have a few more questions that I would like to ask.

Mr. JAEGER. —11 to 12 percent over 10 years. More recently, an

ERS analysis just out looked at what would happen with a 50 percent increase in imports. It said the loan rate again would float

down to about 14 cents, or the loan rate would have to float down

to 14 cents to accommodate that increase. At the same time, production would decline only 10 to 15 percent over 10 years.

This does not sound like destruction of an entire industry to

those on this side of this issue.

Senator THOMAS. Now I have forgotten what I was going to ask

you.

Mr. JAEGER. Would you like me to——

Senator THOMAS. No. You have indicted that you do not like the

corn program or the soybean program or the other programs. Why

46

do you focus on sugar as being inappropriate—if you were going to

just let things go at the market cost.

Mr. JAEGER. I am sorry?

Senator THOMAS. If you are dedicated to the market cost, how

can you promote and support corn and ethanol and soybeans and

the other programs?

Mr. JAEGER. My organization has concerns about all these farm

programs. We are particularly concerned about the sugar program

and the dairy program because those costs are, instead of taxpayer

costs, costs paid by the consumer through the marketplace. They

are basically, in our view, a subsidy paid at the supermarket checkout counter.

Senator THOMAS. I see. Well, I disagree with you, but thank you

so much.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you.

Senator Crapo.

Senator CRAPO. Thank you, Mr. Chairman.

Mr. Roney and Mr. Jaeger, I also have some questions on the

sugar program. Mr. Jaeger, you just referenced the GAO study that

assumes there would be a significant passthrough of savings to the

consumer. Do you know what percentage of passthrough to the consumer the GAO study assumed?

Mr. JAEGER. It assumed a 100 percent passthrough.

Senator CRAPO. We have had some experience in this last little

while of significantly reduced sugar prices—I think it was a 28 percent or so reduction in sugar prices. Could you tell me what passthrough to the consumer has actually occurred?

Mr. JAEGER. Well, it is important to look at this in a broader perspective, and I would draw your attention to the line graph that

is attached to my testimony. It shows the raw cane sugar price versus the retail price going back as far as 1977, and I think a couple

of things are evident from this.

First, I think that over time, in general, the retail price does rise

and fall with the raw price. You do see also over time—well, several things are evident here. First, as Mr. Roney said, the raw

price is basically flat going back many years. The retail price does

slowly creep up. There is a slow widening of the gap between the

two prices. This is easily explained. While the wholesale price is

flat—and here, we are looking at refined sugar, basically, a 5-

pound bag of sugar—the sugar price is basically flat over time, but

everything else that goes into producing that 5-pound bag of sugar

is subject to an inflationary factor—the cost of the bag that the

sugar goes in, the cost of the ink that goes on the bag, the cost of

labor for the person who runs the machine that puts the sugar in

that bag—— Senator CRAPO. Electricity.

Mr. JAEGER [continuing]. Right—the cost of energy for the truck

that delivers that bag to the supermarket.

It is understandable that over time, that gap will slowly widen

even though the wholesale price is flat.

Senator CRAPO. You are saying that the sweetener industry actually did pass through the reduction in cost of sugar to the consumers—is that your testimony here today?

47

Mr. JAEGER. I am saying that if, over time, that happens, and

if this program were eliminated, we are convinced that consumers

would see a definite benefit from it.

Senator CRAPO. Mr. Roney, did you have a comment on that

issue?

Mr. RONEY. Well, Senator Crapo, I believe that Mr. Jaeger’s own

charts indicate just the opposite—that there is no passthrough and

that over time, there is no passthrough; that the reason why the

grocers and food manufacturers oppose U.S. sugar policy is not

from any altruistic sense of passing some benefit along to consumers, although they would contend that that is their reason, but

rather to create a profit opportunity for them. As businessmen, I

suppose they are entitled to do that. To reduce their input costs

and raise the price they charge for their product, that is a terrific

opportunity for profits.

What we chafe at is the cynicism of that approach, that they are

willing to put efficient American sugar farmers out of business to

get access to subsidized foreign sugar as a way to increase their

profits, with absolutely no evidence of any passthrough to consumers whatsoever.

When they talk about the $1.8 billion consumer cost of U.S.

sugar policy, as you pointed out, Senator, and as Mr. Jaeger acknowledged, that assumes a 100 percent passthrough, when in fact

all of our history shows that there is no passthrough whatsoever,

which makes that figure from the GAO completely bogus.

Senator CRAPO. It seems to me that the key issue here is a policy

issue that we have to determine in Congress and as a Nation which

way we want to follow. The situation in Mexico is sort of an example of that.

Mr. Roney, the sweetener concerns are very interested, as you

know, in more access to the Mexican sugar. I just want to get a

few facts out on the table. Are the Mexican sugar prices higher or

lower than American prices?

Mr. RONEY. Their wholesale price—that would be the price that

users would pay for their sugar—is running about three cents higher than ours and has been since the beginning of 2000.

Senator CRAPO. Are their producers more efficient than ours?

Mr. RONEY. We have no evidence that they are. Their industry

is in complete disarray. They are worse off than we are in many

ways, with many mills going bankrupt and enormous problems.

The government has been bailing them out with literally billions of

dollars in debt reduction to try to keep the industry afloat.

Senator CRAPO. That was my next question. Is the Mexican

sugar industry subsidized by its government?

Mr. RONEY. Yes, sir, very strongly. We have been doing a lot of

work on this, and the evidence suggests that just since the NAFTA

was passed, there has been about $2 billion in subsidy for Mexican

sugar producers just to keep them afloat.

Senator CRAPO. It seems to me that the broad question that we

have to ask ourselves with regard to what the U.S. policy on sugar

should be, which is the same question, in my opinion, that we have

to answer with regard to almost every commodity, is this: An argument can be crafted to allow subsidized commodities to be dumped

into U.S. markets that would benefit the consumer. One could

48

argue that it may or may not be a short-term benefit and that if

we drive our producers out of business, we will ultimately see

prices go up, as you do in situations in which you have monopoly

or oligopoly impacts. The argument can be crafted that we as a Nation should adopt a policy of allowing other countries to subsidize

their commodities to the detriment of our producers. It would benefit our consumers. I believe that is the argument that the groups

who are opposing the sugar program are basically making.

The responsive argument is that the United States should protect its producers against anticompetitive conduct, or subsidies,

and that means we are going to have to get engaged in some kind

of program ourselves which would protect our commodities—which

is then attacked in the United States as a subsidy.

It is an interesting dilemma, but it is a very direct question that

we have to face. In my opinion, the proper policy is for the United

States to protect its producers. Ideally, we should negotiate in our

trade negotiations and should aim in our trade policy to get to a

point where there are no tariffs and no subsidies, and we have a

truly free and fair market operating, at which point we do not have

a need for protective programs.

It seems to me that when we are not operating in a free market,

fair market climate globally, it is proper for the United States to

protect its producers.

Now I would like to ask both of you if you would like to comment

on that, and I see that I have only about a minute left, but I would

like to get your perspective from both of you on that basic issue.

Mr. RONEY. Thank you, Senator Crapo.

Just very quickly, because we are efficient by world standards,

with cost of production below the world average, we do support the

goal of genuine global free trade in sugar. We have supported that

goal since 1986 at the start of the Uruguay Round, and we do so

because we believe that in the absence of subsidies globally, the

world price would rise to reflect the cost of producing sugar, our

costs are below the world average cost of production, and we could

survive.

I agree with you completely, though, that until other countries

eliminate their subsidies, we have got to maintain some kind of a

U.S. sugar policy, some limits in the amount of subsidized sugar

coming into this country. Otherwise, our efficient producers will be

replaced by foreign producers who are not more efficient but more

heavily subsidized.

Senator CRAPO. Mr. Jaeger, your perspective?

Mr. JAEGER. Well, as Senator Lugar first mentioned and as I

think Mr. Roney acknowledged, there are countries that produce

sugar at substantially less cost than we do in this country, and

many of those countries do not heavily subsidize their producers.

I would toss out Australia as one example.

From our perspective, we want to see more foreign sugar brought

in as a benefit to consumers. There are, of course, anti-dumping

laws on the books. The best example of heavily subsidized sugar,

of course, is Europe, and we do not import sugar from Europe right

now as I understand it, and it seems to us that our anti-dumping

laws would protect us from heavily subsidized sugar in the future.

49

Senator CRAPO. Would you support an approach which would

prohibit any subsidized sugar from being brought into the United

States and only allow unsubsidized sugar to be brought into the

United States?

Mr. JAEGER. We would support vigorous enforcement of the antidumping laws, yes.

Senator CRAPO. I have no further questions.

The CHAIRMAN. Thank you very much, Senator Crapo.

Well, Mr. Jaeger, I have a lot of respect for the Consumer Federation of America. You do a good job; I think you do a good job

in representing consumers in many, many areas. There may be

reasons to examine the sugar program and maybe new approaches,

but I have got to tell you that benefit to consumers is not one of

them. There may be other reasons, but not benefit to consumers.

I looked at your chart, the one you referred to, where you have

the wholesale price and the retail price going back to 1977 and how

it closely follows. I wish I had seen a chart from the Consumer

Federation of America that showed the wholesale price of sugar

and the retail price of commodities that shoppers buy and that we

buy and that we consume that use sugar—not the retail price of

a 5-pound bag of sugar. We do not do that. You go to the store, and

sugar is cheap. You might buy a little bit of sugar for your coffee

or something else. Let us face it—most of the sugar that we eat is

in cereals, candy, cookies, baked goods, things like that. It is not

a 5-pound bag of sugar that you go to the grocery store to buy.

The more realistic comparison would have been the wholesale

price of sugar compared to the retail prices of those items that use

sugar. When you do that, you come up with Mr. Roney’s chart at

Figure 12, and you see the producer prices of raw cane and wholesale sugar down 30 percent, cereals up 25 percent, candy up 25

percent, ice cream up 29 percent, cookies up 31 percent, other bakery products 35.9 percent.

It seems to me that that is the more realistic comparison rather

than wholesale and retail prices.

Mr. JAEGER. I certainly do not dispute Mr. Roney’s numbers as

you have cited them, but in our view, the percentage of the cost in

the items you cite, cereal in particular, the percentage cost in a box

of cereal that goes for sugar is relatively small, so you are not

going to see a dip in the cost of a box of cereal when the wholesale

price of sugar dips.

What you would see in our view over time, if you reformed or

phased out the sugar program, is a lessening in future increases

in the price of that box of cereal.

The reason why we focus on a 5-pound bag of sugar is because

that is the easiest way in our view to see the direct relationship

between the wholesale price and the retail price, and there is—— The CHAIRMAN. You would agree that for the average consumer

in America, that the lowest usage of sugar is buying a bag of sugar

in the grocery store.

Mr. JAEGER. Right. We certainly buy more candybars and boxes

of cereal than we buy bags of sugar.

The CHAIRMAN. Cookies and cakes and ice cream—everything we

buy—sure—— Mr. JAEGER. Correct.

50

The CHAIRMAN [continuing]. That is where we get the bulk of our

sugar intake, not from a cube or a packet of sugar.

Mr. JAEGER. Yes. Mr. Roney’s charts do not suggest to us that

there will not be a consumer benefit if you phaseout the sugar program.

The CHAIRMAN. Say it again.

Mr. JAEGER. We argue that there will still be a consumer benefit

in the price of that box of cereal over the long haul, over the future,

if you phaseout the sugar program.

The CHAIRMAN. Wait—you just said two things, Mr. Jaeger. Just

90 seconds ago, you said there is so little sugar in the box of cereal

that, of course, you could have these big increases in prices, and

it would have nothing to do with sugar, you said, because there is

such little sugar in it. Now you are telling me that if we reduce

the wholesale price of sugar, we will see some reduction in price

in the box. You cannot have it both ways.

Mr. JAEGER. You will see a lessening of future increases.

The CHAIRMAN. Pardon.

Mr. JAEGER. You will see a lessening of future increases in the

price of that box of cereal.

The CHAIRMAN. Well, if the past is any indication, that just cannot be so, because we see the price of sugar going down, yet the

prices going up. How far does it have to go—100 percent?

What if we asked the sugar producers to give it to us free? Would

that reduce it? Would that reduce the price of that box of cereal

if we just gave it to them free?

You have a 30 percent reduction, and in cereal, you have a 24.8

or 25 percent increase in price. You are saying that if we reduce

this wholesale price even further, the rate of increase will be less

in cereal.

I am just asking you to give me some ball park figure. If we have

had a drop of 30 percent, how much lower do we have to go before

we see the price of cereal come down a little bit?

Mr. JAEGER. I cannot give you an exact figure, Senator.

The CHAIRMAN. I know you cannot; it is a rhetorical question. I

am just making my point. I have been through this sugar program

with five farm bills, and I hear the same arguments time after time

after time. A few years ago, I challenged people on how expensive

sugar was. I said go to any restaurant, and you will see packets

of free sugar sitting there. It cannot get much cheaper than that.

It is free—you just pick up a packet of sugar and put it in your

coffee or on your cereal—it cannot get much cheaper than that. You

do not pay more in a restaurant. They do not say, ‘‘We are going

to charge you for that sugar you used,’’ do they? They do not add

it onto your bill. It cannot get much cheaper than that.

As I said, there may be some reasons, and there may be valid

reasons, to look at the sugar program we benefit to the consumer— as I said, I have a lot of respect for the Consumer Federation of

America, but I think you are barking up the wrong tree on this one

on the benefit to consumers on the sugar program.

I will say a couple of other things on sugar and on trade. You

mentioned Australia. I have been to Australia, and I have looked

at the sugar production in Australia. One person’s subsidy is another country’s interest in land use and land preservation, that

51

kind of thing, so what is a subsidy and what is not? Australia has

different ways that they promote their sugar industry, and they

have for years. It is just different than how we do it. It is a subsidy

nonetheless. I have looked at it. They just do not call it that.

The third thing on this deal on sugar—I do not think that is our

biggest problem. Our biggest problem is some of the countries that

produce sugar at very low labor rates. While I am all for enhanced

trade negotiations or whatever fast-track is called these days, and

I have supported fast-track in the past, I have come to the point

in my career here where I am saying wait a minute—I am all for

enhanced trade, but if countries are using things like child labor,

which is anathema to us and to most of the civilized world, to

produce items that come in here and compete with our farmers and

our producers, I am drawing the line. Many of these countries that

produce this sugar are doing exactly that. They are using child

labor, they are keeping the kids out of school, they are working

them ungodly hours in terrible conditions, yet they are sending

that sugar here to compete with our farmers.

That is why I am saying I am drawing the line. If you want to

have fast-track, if you want to have enhanced trade negotiations,

fine, but I believe there should be some provisions in there dealing

with labor—and I would not cover all labor, because some of it gets

into gray areas, but when it comes to child labor, I think that that

should be in there. The use of child labor to make any products or

goods that come into this country should be actionable under our

trade agreements—should be actionable. Just like a CD—if you

make a CD, and you violate intellectual property, that is actionable. If you use a kid working in a sugarcane field with ungodly

working conditions and ungodly hours, and you ship that sugar in,

and that is not actionable—I am sorry, I do not buy that.

Then, environmental conditions—our sugar farmers, peanut

farmers, all of our farmers in this country, livestock producers, everyone, are asked—not asked, but told—by this Government that

they have got to adhere to strict environmental standards. That

does benefit us, but it benefits the rest of the globe as well. Yet we

are going to let other countries thumb their nose at that and say

that they can go ahead and dump things and foul the water, foul

the land, foul the atmosphere, but that is OK, and we will bring

it into this country—I do not think so.

Those are two areas where I think we have got to at least level

the playing field in terms of child labor and environmental conditions.

I have two other things on both sugar and peanuts. My knowledge on peanuts is a little bit lax here, but as you know, I am promoting the inclusion of an energy title into the Farm bill. Most people think of that as ethanol, but there are also things like diesel.

Obviously, I am from soybean-producing country, so I am talking

about soy diesel, but you can make it from peanut oil, too—as well

as from cottonseed oil, I would say to my cotton friends who are

here. I do not know what is leftover—when you take the oil out of

peanuts, there must be some protein feed left from that, and I do

not know what it is. Could you inform me—or, if you do not want

to today, at least get that information to me. I need to know what

52

happens when you extract the oil out of peanuts. I know what happens to soybeans and corn, but I do not know peanuts.

Mr. GAMBLE. Peanut meal can be used for feed purposes.

The CHAIRMAN. It has got to be good feed.

Mr. GAMBLE. Yes.

The CHAIRMAN. You must do that, right?

Mr. GAMBLE. Yes, Senator.

Mr. MORRIS. They even developed a peanut flour that was used

after the extraction of the oil.

The CHAIRMAN. I would like to take a look at that aspect, too,

if there is a possibility that we can use oil in that regard also, from

peanuts and cottonseed, too, for energy production.

Of course, sugar is great for ethanol. I know that we have taken

some of the Government stock and put it into ethanol production,

and quite frankly, I think that is a great outlet for some of our

sugar production in this country; again, it is energy production.

I am also aware that some sugar producers in some parts of the

country—not sugarbeets, but sugarcane producers—are using the

residue to burn in boilers to make electricity. What is that called?

Mr. RONEY. Bagasse. It is the fiber from the cane.

The CHAIRMAN. Yes. They are using the bagasse to make electric

energy. That seems to be a good source, a stock source, for energy

production.

Mr. RONEY. In its heyday in Hawaii, when sugar production was

still relatively high, the bagasse was used to generate as much as

12 percent of Hawaiian energy. Now, with the decline of the sugar

industry, production is down about two-thirds from a decade ago,

and they are having to rely more on imported oil. They did have

a very aggressive program for using the bagasse not only to run the

cane mills, but it generated so much surplus energy that they could

sell that to the electrical grid, and in the outer islands, it became

a critical source of energy.

The CHAIRMAN. I wonder what that means for their energy production in terms of cost of importing the oil compared to the bagasse that was used before? I do not know the answer to that; I

am sure somebody has done a study of that. I would like to find

out.

It just seems to me that, again, in both sugar and peanuts, we

ought to be thinking about other uses, other ways we can use these

products, rather than just for the food use that we have had in the

past.

I want to echo what Senator Miller said. I have been a supporter

of the peanut program for a long time. I recognize the value of peanuts. I happen to be a strong believer in peanut butter as being

a great source of protein use in our schools, our school lunch programs, our feeding program. You cannot find a better source of

good protein. I have always felt that peanuts play a very integral

part in our food supply in this country, and I am hopeful to be able

to work with you and your industries to try to figure out how we

can keep a viable peanut industry. I am talking about the whole

thing, from the farmers on through the shellers and the processors

of peanuts.

We have to keep in mind—and I would say this to you, Mr. Morris, maybe more than I would to Mr. Gamble—that the budgets are

53

not like we used to have in the past. If you do not mind—Senator

Miller was talking about Senator Talmadge—and I hope his health

is good; I hear he has been having some problems lately—but in

that day, if there was a problem, we would have just given more

to both. That was before we had a Budget Committee. Now we

have a Budget Committee that gives us our marching orders, so we

no longer have the freedom to do that.

I hope that we can work this out in a good manner.

Senator Lugar, I do not know if you have anything further.

Senator LUGAR. Let me just add one comment to supplement

your last thought, Mr. Chairman. That is, there probably is considerable promise in the energy area and the research that this committee has tried to foster at the cutting edge. This is not to negate

for a moment the nutritional value of either sugar or peanuts. That

to the extent we really get into the economics of what is in the best

interest of this country, it may very well be that alternative uses

of these products will offer some hope as they have with regard to

other products. As long as our thinking is less rigorous, and we

simply push along the same program on the basis that it is just

very difficult to change it, we will not really get into these alternative situations, but we have been forced to do that in other

areas, and I think we probably should here.

Ultimately, I do not want to get into an argument as to where

the consumer benefit lies with any of these situations, but it occurs

to me that our best bet is always to try to find the best quality,

the most efficient, low-cost producers, that our trade in this country, domestically as well as abroad, really rests on that. Now, others may violate that principle in almost every different direction,

but in essence, we usually come out best because we are the most

efficient and the most competitive, and once we begin to make excuses for our own situation, we give that latitude to all of our foreign competitors, our trade advantage is gone, and that is a mess.

Leaving that aside, we look forward to working with you and appreciate very much your testimony, as I know the chairman has.

The CHAIRMAN. Thank you very much, Senator.

I am remiss in not recognizing the great leadership of Senator

Lugar in the research bill that he has offered and we have adopted

and passed to move us in the direction of trying to get more research into how we can change some of our products and make

more energy out of our products. We are well on our way, I really

do, and I think you have been a great leader in that, and I appreciate that very much, Senator Lugar.

Senator LUGAR. Thank you.

The CHAIRMAN. Thank you all very much for your testimony.

The committee will stand adjourned until Thursday morning at

10 o’clock.

[Whereupon, at 12:10 p.m., the committee was adjourned.]

(55)

A P P E N D I X

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DOCUMENTS SUBMITTED FOR THE RECORD

JULY 17, 2001

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