U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

30–525 PDF 2006

REVIEW OF FEDERAL FARM

POLICY

HEARINGS

BEFORE THE

COMMITTEE ON AGRICULTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

SEPTEMBER 13, 20, 2006

Serial No. 109–38

(

Printed for the use of the Committee on Agriculture

www.agriculture.house.gov
COMMITTEE ON AGRICULTURE

BOB GOODLATTE, Virginia, Chairman

RICHARD W. POMBO, California,

Vice Chairman

TERRY EVERETT, Alabama

FRANK D. LUCAS, Oklahoma

JERRY MORAN, Kansas

WILLIAM L. JENKINS, Tennessee

GIL GUTKNECHT, Minnesota

ROBIN HAYES, North Carolina

TIMOTHY V. JOHNSON, Illinois

TOM OSBORNE, Nebraska

MIKE PENCE, Indiana

SAM GRAVES, Missouri

JO BONNER, Alabama

MIKE ROGERS, Alabama

STEVE KING, Iowa

MARILYN N. MUSGRAVE, Colorado

RANDY NEUGEBAUER, Texas

CHARLES W. BOUSTANY, JR., Louisiana

JOHN J.H. ‘‘JOE’’ SCHWARZ, Michigan

JOHN R. ‘‘RANDY’’ KUHL, JR., New York

VIRGINIA FOXX, North Carolina

K. MICHAEL CONAWAY, Texas

JEFF FORTENBERRY, Nebraska

JEAN SCHMIDT, Ohio

MICHAEL E. SODREL, Indiana

COLLIN C. PETERSON, Minnesota,

Ranking Minority Member

TIM HOLDEN, Pennsylvania

MIKE MCINTYRE, North Carolina

BOB ETHERIDGE, North Carolina

JOE BACA, California

ED CASE, Hawaii

DENNIS A. CARDOZA, California

DAVID SCOTT, Georgia

JIM MARSHALL, Georgia

STEPHANIE HERSETH, South Dakota

G.K. BUTTERFIELD, North Carolina

HENRY CUELLAR, Texas

CHARLIE MELANCON, Louisiana

JIM COSTA, California

JOHN T. SALAZAR, Colorado

JOHN BARROW, Georgia

EARL POMEROY, North Dakota

LEONARD L. BOSWELL, Iowa

RICK LARSEN, Washington

LINCOLN DAVIS, Tennessee

BEN CHANDLER, Kentucky

PROFESSIONAL STAFF

WILLIAM E. O’CONNER, JR., Staff Director

KEVIN J. KRAMP, Chief Counsel

JOHN HAUGEN, Communications Director

ROBERT L. LAREW, Minority Staff Director

(II)
(III)

C O N T E N T S

Page

SEPTEMBER 13 2006

Goodlatte, Hon. Bob, a Representative in Congress from the Commonwealth

of Virginia, opening statement ............................................................................ 1

Peterson, Hon. Collin C., a Representative in Congress from the State of

Minnesota, opening statement ............................................................................ 2

Pomeroy, Hon. Earl, a Representative in Congress from the State of North

Dakota, submitted material ................................................................................ 107

WITNESSES

Clark, Sharon, vice president, Transportation, Grain, and Oilseed Division,

Perdue Farms Incorporated, Salisbury, MD, on behalf of the Alliance for

Agricultural Growth and Competitiveness ........................................................ 35

Prepared statement .......................................................................................... 68

Craig, Dennis L., executive vice president and chief operating officer, W.B.

Johnston Grain Company, Enid, OK, on behalf of the Agricultural Retailers

Association ............................................................................................................ 5

Prepared statement .......................................................................................... 47

Erickson, Audrae, president, Corn Refiners Association, Washington, DC ........ 29

Prepared statement .......................................................................................... 76

Frazee, Robert, chairman of the board, North American Equipment Dealers

Association, Cazenovia, NY ................................................................................. 4

Prepared statement .......................................................................................... 80

Answers to submitted questions ...................................................................... 83

Hensler, Fred, commercial director, Mars, Inc., Hackettstown, NJ, on behalf

of the Sweetener Users Association .................................................................... 38

Prepared statement .......................................................................................... 84

Malecha, Mike, senior vice president, US Bioenergy, Inver Grove, MN, on

behalf of the National Grain and Feed Association .......................................... 31

Prepared statement .......................................................................................... 61

McGregor, Alex, president, the McGregor Company, Colfax, WA, on behalf

of the Fertilizer Institute ..................................................................................... 9

Prepared statement .......................................................................................... 93

Palmby, Paul, executive vice president and chief operating officer, Seneca

Foods Corporation, Janesville, WI, on behalf of the Canned-Frozen Food

and Growers Coalition ......................................................................................... 37

Prepared statement .......................................................................................... 58

Schwein, Rick L., Grain Millers, Inc., Eden Prairie, MN, on behalf of the

North American Millers Association .................................................................. 33

Prepared statement .......................................................................................... 100

Vroom, Jay, president and chief executive officer, CropLife America, Washington, DC .................................................................................................................. 7

Prepared statement .......................................................................................... 52

SEPTEMBER 20, 2006

Baca, Hon. Joe, a Representative in Congress from the State of California,

prepared statement .............................................................................................. 111

Goodlatte, Hon. Bob, a Representative in Congress from the Commonwealth

of Virginia, opening statement ............................................................................ 109

Peterson, Hon. Collin C., a Representative in Congress from the State of

Minnesota, opening statement ............................................................................ 110
Page

IV

WITNESSES

Buis, Tom, president, National Farmers Union, Washington, DC ...................... 114

Prepared statement .......................................................................................... 206

Combs, Paul T., chairman, USA Rice Producers’ Group, Kennett, MO .............. 117

Prepared statement .......................................................................................... 176

Evans, Jim, chairman, USA Dry Pea and Lentil Council, Inc., Genesee, ID ..... 166

Prepared statement .......................................................................................... 192

Frischknecht, Paul R., president, American Sheep Industry Inc., Manti, UT ... 173

Prepared statement .......................................................................................... 204

Groven, Richard, vice president, National Barley Growers Association, Northwood, ND ............................................................................................................... 160

Prepared statement .......................................................................................... 209

Helms, Allen B. Jr., chairman, National Cotton Council, Clarkedale, AR ......... 115

Prepared statement .......................................................................................... 266

Hoffman, John R., first vice president, American Soybean Association, Waterloo, IA, on behalf of the American Soybean Association, the National Sunflower Association, and the U.S. Canola Association ........................................ 150

Prepared statement .......................................................................................... 186

John, Mike, president, National Cattlemen’s Beef Association, Huntsville,

MO ......................................................................................................................... 168

Prepared statement .......................................................................................... 188

Kaiser, Mark, board member, Alabama Peanut Producers Association, Seminole, AL, on behalf of the Alabama Peanut Producers Association, the

Florida Peanut Producers Association, the Georgia Peanut Commission and

the Mississippi Peanut Growers Association ..................................................... 158

Prepared statement .......................................................................................... 184

Philippi, Joy, president, National Pork Producers Council, Bruning, NE .......... 169

Prepared statement .......................................................................................... 211

Roney, Jack, director, economics and policy analysis, American Sugar Alliance, Arlington, VA .............................................................................................. 156

Prepared statement .......................................................................................... 222

Schuler, Dale, president, National Association of Wheat Growers, Carter,

MT ......................................................................................................................... 119

Prepared statement .......................................................................................... 242

Shelor, Greg, president, National Grain Sorghum Producers Association,

Minneola, KS ........................................................................................................ 152

Prepared statement .......................................................................................... 245

Stallman, Bob, president, American Farm Bureau Federation, Washington,

DC .......................................................................................................................... 112

Prepared statement .......................................................................................... 270

Truex, Ron, president and general manager, Creighton Brothers, LLC, Atwood, Indiana, on behalf of United Egg Producers ........................................... 171

Prepared statement .......................................................................................... 200

Tumbleson, Gerald, president, National Corn Growers Association, Sherburn,

MN ......................................................................................................................... 120

Prepared statement .......................................................................................... 194

Wysocki, Jim, president, National Potato Council, Bandcroft, WI, on behalf

of the Specialty Crop Farm Bill Alliance and National Potato Council .......... 154

Prepared statement .......................................................................................... 253

SUBMITTED MATERIAL

Federal Managers Association, statement ............................................................. 282

Forrest, Loren, producer, Luverne, MN, statement .............................................. 262
(1)

REVIEW OF FEDERAL FARM POLICY

(Agricultural Processors and Suppliers)

WEDNESDAY, SEPTEMBER 13, 2006

HOUSE OF REPRESENTATIVES,

COMMITTEE ON AGRICULTURE,

Washington, DC.

The committee met, pursuant to call, at 10:05 a.m., in room

1300, Longworth House Office Building, Hon. Bob Goodlatte (chairman of the committee) presiding.

Present: Representatives Pombo, Lucas, Moran, Gutknecht,

Johnson, Osborne, Bonner, King, Neugebauer, Boustany, Kuhl,

Foxx, Fortenberry, Sodrel, Peterson, Holden, Etheridge, Baca, Marshall, Herseth, Cuellar, Melancon, Costa, Pomeroy, Boswell,

Larsen, and Chandler.

Staff present: Kevin Kramp, Ben Anderson, Bryan Dierlam,

Pelham Straughn, Callista Gingrich, clerk; Christy Birdsong, Nona

Darrell, Chandler Goule, Clark Ogilvie, John Riley, and Anne Simmons.

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

OF VIRGINIA

The CHAIRMAN. Good morning. This hearing of the House Committee on Agriculture to review Federal farm policy with agricultural processors and suppliers will come to order. I would like to

thank all of you for joining us here today for the committee’s 12th

hearing albeit the first hearing convened in Washington to review

the 2002 farm bill since February, the committee has traveled to

11 States in various regions of the country to gather feedback from

producers about the future of farm policy.

We have also had a number of subcommittee hearings in other

States. As well, we have heard from 116 producers at the full committee hearings through our series of field hearings, and today we

are happy to hear from a variety of organizations that also have

a stake in our farm policy.

Today’s witnesses represent agricultural processors and suppliers

throughout the country. These processors and suppliers play an important roll in our agriculture sector, and I will look forward to

hearing what they have to say. As you know, our current farm policy is set to expire in September 2007. The new farm bill was written to cover 6 crop years and address the issues facing American

agriculture at that time. There is little doubt that the 2002 farm
2

bill has worked as it was intended and provided America’s farmer

and ranchers with a strong safety net.

However, today we find ourselves under new and different circumstances as we prepare to draft the next farm bill. In 2002, the

Government was coming off of its first surplus in decades, so

money was plentiful for agriculture as well as many other sectors.

While the budget for next year won’t be finalized until after the

Congress convenes for the 110th Congress in January, we must be

realistic in our planning and anticipate the likelihood that agriculture spending may remain the same, and it is entirely possible

that it will decrease, though I will certainly be working with all of

the members of this committee to make sure that agriculture is

treated fairly in the budget process.

In addition, we need to recognize that the number of groups with

a vested interest in those agriculture spending dollars is increasing

daily. The result is that the pie, whether it be the same size or a

bit smaller, will have to be divided up between a larger number of

players. This means that we will have to be creative in how we approach the next farm bill to ensure that all involved in America’s

agriculture are equipped with what they need to continue their operations. There are many factors that influence agriculture from

weather to trade agreements to Government regulations and input

cost.

American agriculture is a dynamic sector that is constantly

changing and evolving. Our farm policy needs to accommodate for

the changes in the influencing factors and the evolution of our agriculture sector and the feedback we gather from those working within the agriculture industry will help us determine what issues need

to be addressed and how to go about addressing them. I would like

to thank all of the Members joining me here today, as many have

over the last few months throughout our field hearing series.

I would especially like to thank the witnesses who will be testifying today. The information you provide to this committee will help

us as we move forward with developing future farm policy, and I

look forward to your input.

Speaking of input, let us get down to the business of the day

which is to hear from our witnesses. I respectfully request Members to submit their opening statements for the record so we may

proceed with our first panel of witnesses. I have, of course, one exception, and I would like to not only recognize, but also thank the

ranking minority member, Collin Peterson, for his work with us on

all of the field hearings that we held around the country, which I

think were a great success and gathered a great deal of input from

America’s farmers and ranchers.

Without further adieu, the gentleman from Minnesota, Mr. Peterson.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Mr. PETERSON. Thank you, Mr. Chairman, and I want to thank

all of the witnesses for joining us, and as you have said, we have

had a busy year so far on the Agriculture Committee traveling

around the country, and I look forward to these hearings as we
3

continue here in Washington and hearing from other groups as you

say that have an interest in where we go with Federal farm policy.

I look forward to hearing from those witnesses.

A couple of things, and it is probably too late at this point, but

one of the big issues that we have in parts of my district in Minnesota, Mr. Pomeroy in North Dakota, Ms. Herseth in South Dakota and others is this disaster that is going on I would be interested in what impact that has had on your businesses in terms of

people being in dire financial straits.

We are having testimony from places that 10, 15 percent of the

producers are going to be put out of business. Concerns from bankers and so forth. So if we don’t address that today, I would like

some input from all of you about what is the impact. As you know,

we are trying to figure out a way to get this ad hoc disaster bill

through, and we will continue to work on that.

A couple of other things I am interested in going into the future.

I have been spending more and more time looking in to cellulosic

ethanol, and we are doing hopefully some significant work to try

to get some commercialization of this going here shortly. And from

everything I can tell we may be moving in a very much different

direction in 10 years where we are going to have, we could have

20, 30 percent of our crop land in switch grass or similar kinds of

crops, which are very much different than what we are doing

today, and are very much different kind of farming practices, and

not going to take near as much fertilizer and pesticides and other

inputs that we are doing now, and I am interested, if any of you

have thought about this and are looking out into the future, about

how that is going to impact the whole infrastructure we have in agriculture.

I think there is a lot of positive things there, but like anything,

there is going to be disruptions that are going to be caused if we

move in that direction.

I look forward to hearing from the witnesses today and would appreciate any input on those two items. And I will yield to Mr. Pomeroy, if that is all right, Mr. Chairman.

Mr. POMEROY. I don’t have an opening statement of any kind

that I would make. I did want to inquire of the Chair whether the

committee will have an opportunity to discuss the disaster issue.

Many of us have come through a summer where our farmers have

absolutely been devastated by drought, and I think it is going to

be important that we have an opportunity to consider what has

happened and the need for disaster response, even preliminary to

action on the farm bill.

The CHAIRMAN. I thank the gentleman for his inquiry and the

committee is working with a number of Members and looking at

this very closely, and I certainly am committed to trying to find relief, what exact form that discussion might take at this point I do

not know, but I will tell you that I have had many discussions,

both in hearings and in meetings with individual Members in

meetings of groups of members of the committee and that will continue until we find a solution.

Mr. POMEROY. I know the Chair was even involved in discussions

directly with some of the producers from North Dakota last night

that I appreciate, so you understand the urgency we feel in farm
4

country to get a disaster response. I look forward to working closely

with the Chair over the next few days on trying to pull a plan into

place. Thank you.

The CHAIRMAN. I thank the gentleman.

We would now like to welcome our first panel. Mr. Robert

Frazee, chairman of the Board of North American Equipment Dealers Association from Cazenovia, New York; Mr. Dennis Craig, executive vice president and chief operating officer of W.B. Johnston

Grain Company on behalf of the Agricultural Retailers Association

from Enid, Oklahoma; Mr. Jay Vroom, president and CEO of

CropLife America from Washington, DC; and Mr. Alex McGregor,

president of the McGregor Company on behalf of the Fertilizer Institute from Colfax, Washington.

Mr. Frazee, we will begin with you and we would remind each

witness that their entire, no matter how long it is, statement will

be made a part of the record but we ask that you limit your comment to 5 minutes and we will begin with you.

Mr. Frazee, welcome.

STATEMENT OF ROBERT FRAZEE, CHAIRMAN OF THE BOARD,

NORTH AMERICAN EQUIPMENT DEALERS ASSOCIATION

Mr. FRAZEE. Good morning, and thank you, Mr. Chairman and

members of the House Agriculture Committee.

My name is Bob Frazee, and I am president of Cazenovia Equipment Company, which is a family-owned multi-location John Deere

dealership with eight locations in central New York. Myself, my

wife and our three sons own and operate the business. We currently have over 120 employees in our business, and we just recently underwent an expansion with the addition of three of our locations within the last 15 months. Our customer mix is made up

of large dairies, small and medium size dairies, some low crop

farms, equine operation, hay growers, part-time farmers, large

property owners, landscapers and small contractors, commercial

mowing and landscaping companies, residential property owners,

golf courses, schools, and municipalities.

Approximately 50 percent of our $45 million in annual sales is

derived from our agricultural customers who are made up of almost

entirely of family owned enterprises.

I also serve as chairman of the North American Equipment Dealers Association, NAEDA, which represents nearly 5,000 retail agricultural industrial and outdoor power equipment dealers throughout the U.S. and Canada which collectively employ about a hundred thousand people. NAEDA works with 15 regional affiliate associations in the U.S. and three in Canada. And it is on behalf of

those associations and the dealers that they represent I am here

to talk about the 2007 farm bill today.

In my own business and throughout the industry, one of our

most pressing needs is finding and keeping qualified people. We

anticipate adding 8 to 10 people within our organization within the

next 6 months, and right now throughout the U.S. there is over

5,000 job openings in our industry with the likelihood of another

9 to 10,000 jobs becoming available within the next few years.
5

I would like to ask Congress to consider allocating funds in the

farm bill to help educate our youth about the opportunities in agriculture, vocational education and other job retraining programs

should also be considered and supported to train and enable individuals to work in rural areas in businesses such as my own.

I would also ask that the next farm bill support a national energy policy with realistic and achievable goals to make the U.S.

more energy efficient and less dependent on foreign energy sources.

This energy policy should promote conservation of all fuels, encourage universities and institutions to conduct research and provide

education about energy and current development of alternate fuels

renewable fuels the next generation technologies for wind biomass

and coal, and should also oppose the use of Government incentives

for any imported biofuels.

On the matter of conservation, we support balance from the

needs of conservation with the needs of land use for feed, food and

energy production. We suggest that the USDA reevaluate the criteria for re-enrolling under the conservation programs, particularly

the conservation reserve program. More emphasis needs to be

placed on authority given to each State agency to determine CRP

payment rates and acreage qualifications. Dealers throughout the

country have stated that too much land has been taken out of production at payment rates that exceed local market conditions.

When this happens, rural areas and rural businesses have suffered

because of the decline in overall economic activity.

The farm bill needs specific language in which the USDA is given

leadership to establish conservation benchmarks. Benchmarks

should be of sound science measurable and consistent with the best

message practices for each State or region of the country. If we are

to have public support and funding for conservation members, the

public needs to know that progress is being made whether they

deal with livestock, wildlife, dust, air or water quality.

Rural America depends on agriculture. And agriculture needs a

farm bill that considers and incorporates fair trade roles and level

playing field concepts if we are to expect agriculture to grow and

expand and long term prosperity for agricultural businesses.

On behalf of North American Equipment Dealers, I would like to

take this opportunity to thank you for appearing before this committee and I am confident that when this process is done, you will

be able to develop a comprehensive bill that will meet the needs

of the public, our producers agri businesses and rural America.

Thank you.

[The prepared statement of Mr. Frazee appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Mr. Frazee.

Mr. Craig, welcome.

STATEMENT OF DENNIS CRAIG, EXECUTIVE VICE PRESIDENT

AND CHIEF OPERATING OFFICER, W.B. JOHNSTON GRAIN

COMPANY, ON BEHALF OF THE AGRICULTURAL RETAILERS

ASSOCIATION

Mr. CRAIG. Chairman, Ranking Member Peterson, and other

members of the House Committee, thank you for inviting me to testify today on behalf of the Agriculture Retailers Association. I am
6

Dennis Craig, vice president and chief operating officer of W.B.

Johnston Grain Company based in Enid, Oklahoma. W.B. Johnston

is an independent family-owned business that was founded in 1893.

I am also chairman of the Agriculture Retailers Association Regulatory Policy Subcommittee and a member of the ARA board of directors. Agriculture retailers provide critical goods and services to

farmers and ranchers. ARA is also the only national trade organization that exclusively represents the interests of agriculture retailers and distributors. As Congress reviews the current farm bill

and prepares for drafting of new farm legislation in 2007, the focus

must remain on the foreign policy that maintains our growing vibrant agriculture industry and rural communities they represent.

Accordingly America’s future farm bill policy should be framed by

consideration and performance of the current farm bill. The viability of extension of the farm bill until WTO negotiations are completed and improvements to conservation environmental stewardship policies and growth opportunities for agriculture industry.

The commodity title of the farm bill is designed to provide a safety net for farmers that grow traditional crops. ARA recommends

that Congress review whether to target direct commodity payments

to farmers that remain involved actively in production agriculture

rather than focus solely on production history and landowners.

This will maximize the best use of taxpayers’ dollars and prevent

significant resources from going to landowners who do not farm

and are not involved in production agriculture.

ARA also suggests that producers with land and rural farm bill

programs should be required to consult with certified crop advisors,

pest control advisors or equivalently licensed local professionals.

Regarding a farm bill extension, ARA supports efforts in Congress

to extend the 2002 farm bill until any WTO negotiations are completed. Conservation programs have focused largely on maintaining

the productivity of cropland, as well as protecting watersheds, flood

prevention activities and reducing soil erosion and run-off.

Significant portions of the conservation or green payments are

distributed through the environmental quality incentives program,

which was originally designed to primarily assist livestock producers with confined animal feeding operations, to reduce soil, water,

air pollution and animal waste. In what appears to be ‘‘mission

creep’’ funds are now commonly being used for the construction of

both pesticides and storage facilities in environmentally sensitive

areas. According to NRCS since 1999, there have been 406 farm

sites that have received equip dollars for the construction of the existing or new agro chemical mixing and storage facilities. ARA believes that any built pesticides storage facilities funded through

this program should be inspected periodically to ensure with all

laws and regulations related to the proper storage and handling of

agriculture chemicals including proper secondary containment to

mitigate the risk of accidents or spills.

The 2002 farm bill also authorizes enrollment of up to 39.2 million acres under the conservation reserve program with almost 35

million acres enrolled in 2005, $1.6 billion in annual payment rents

have been made. CRPs major target, soil erosion, has been reduced

significantly. USDA reports CRP has erased soil erosion by 450

tons per year through 2005. However significantly down from 700
7

million reported in 1995. ARA believes that part of this results in

the millions of acres in land being rolled that is not environmentally sensitive.

Another area of concern relates to Federal and State advocator

standards which are governed by FFTA laws. ARA believes that

professional applicators as well as private applicators should be

held to the same standards.

The farm bill farm policy, future farm policy must work to foster

increased financial opportunities for U.S. agriculture. The war on

terror, uncertainty in the Middle East, and increased fuel energy

prices has increased prompted interest in development of homegrown renewable energy. ARA encourages Congress to support ethanol and bioproduction facilities for the benefit of rural communities in our Nation’s farmers. ARA is part of the 25 x ’25 Agriculture Energy Coalition, and we support the goal of 25 percent of

the energy being produced from renewable sources such as biofuels,

wind and solar by the year 2025.

Thank you for considering ARA’s views and for the opportunity

to testify on this important issue.

[The prepared statement of Mr. Craig appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Mr. Craig.

Jay Vroom, welcome. Glad to have you back.

STATEMENT OF JAY VROOM, PRESIDENT AND CEO, CROPLIFE

AMERICA

Mr. VROOM. Thank you, Mr. Chairman. And thank you for the

opportunity to be here. My name is Jay Vroom. I am president of

CropLife America, which is the trade association that represents

the agricultural chemicals industry here in the United States. We

appreciate your accepting our advance written testimony and including it in the record, and I will summarize quickly here.

We appreciate the invitation to provide input to the committee

as you frame the 2007 farm bill. It is a credit to you, Mr. Chairman

and of the committee, that you are reaching out to all segments of

U.S. agriculture including agro business and gathering input for

what is surely the most challenging and important farm bill ever.

The integral role of technology and specifically our CropLife

members technology and the productivity of the American farmer

and the added contributions that our technology makes to a wide

range of conservation endeavors is our main theme for today’s

hearing. As most listening today have a working knowledge of the

agriculture contributions of pesticides, I would like to focus more

on the conservation contributions, but ask if you would consider including executive summaries of two reports that our CropLife foundation have done in the last year and a half on the value of herbicides and the value of fungicides for the production of crop reduction, and I will provide those to the clerk.

We understand that an agriculture subcommittee hearing will be

scheduled for later this month to focus on a pesticide forum for specific pesticides regulatory topics. I will save comments and remarks

for those critical issues for later.
8

To begin, our conservation technology story would be inappropriate without first noting the past farm bills, particularly the last

three, have provided such as enormous environmental benefits to

our country through the leadership of the House and Senate Agriculture Committees by making use of Federal foreign policy to encourage and require conservation.

It is under that policy umbrella that my industry’s contribution

to conservation has literally flourished. Working cooperatively with

our farm customers, the Federal Government and a wide variety of

other partners or stakeholders like Ducks Unlimited, for example.

Some examples of the integral role of crop protection technology

and agriculture conservation accomplishments are in four broad

areas. Number 1, the impact and contribution of herbicides to soil

and water conservation. That is widely known and very much written into the fabric of the current farm bill and previous farm bills.

We are proud of the contribution that herbicides really have made

by use of our farm customers and enabling soil conservation to advance beyond the targets and requirements of current farm policy,

and also the subsequent conservation elements of water conservation and water quality that have been achieved through of incredible penetration of reduced tillage and no tillage practices by American farmers, again, on the critical hinge point of the use of herbicides.

Herbicides have also contributed to energy conservation in American agriculture in a variety of ways. Again, back to soil conservation, the less trips that a farmer has to make over a field, the less

diesel fuel and other fossil fuels that are required for tillage, hence,

considerable improvements in energy conservation that are resulting. Also the use of modern pesticides technology contributing to

the productivity gains of the American farmer have also allowed for

greater availability of crops to be used in biofuels. Ethanol and biodiesel as examples.

Third category is labor conservation. One of the facts that is

brought out by our herbicide study that our foundation has developed is the fact that without herbicides, if we had to rely on hand

weeding it would probably require a labor equivalent of the available time of every teenager in the United States. We have yet to

get a letter of thanks from the teenagers of America from saving

them from that labor drudgery of weeding fields, but I expect one

any moment.

The last category is in the area of wildlife conservation that I

wanted to mention, Mr. Chairman. We think that it is significant

that we have been able to demonstrate through Ducks Unlimited

partnership with our member companies that indeed, the control of

invasive species that make it difficult for wildlife to flourish by

using herbicides to control those species is a really great example,

among many, about the contribution of pesticides to wildlife conservation.

Trade is also an important issue which you are focused on, and

we appreciate the delicate balance that you are faced with with regard to the sensation of progress in the Doha Round. We recognize

the importance of trade for a wide variety of reasons, but going forward, we think it is so critical that America stay at the trade table

because we need not only new trade agreements to expand our ag-
9

ricultural exports benefiting our farm customers, but also to enforce those rules that are on the books, like the protection of intellectual property. Simply stated, it is not fair for American farmers

to operate in the United States where IP laws are enforced and

their competitors in countries like Argentina and Brazil are literally allowed to steal technology while their governments look the

other way.

Mr. Chairman, we appreciate the opportunity to be before you

today. We look forward to entertaining questions from you and the

other members of the committee and continuing to work with you

as you frame and develop the 2007 farm bill with the objective of

keeping the American farmer productive, profitable, competitive in

an ever more challenging global market. Thank you.

[The prepared statement of Mr. Vroom appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Mr. Vroom.

Mr. McGregor, welcome.

STATEMENT OF ALEX McGREGOR, PRESIDENT, THE

McGREGOR COMPANY, ON BEHALF OF THE FERTILIZER INSTITUTE

Mr. MCGREGOR. Mr. Chairman, committee members. I am president of a family business that provides crop inputs, agronomic advice and equipment for farm families who raise wheat, legumes and

other crops in the inland Pacific Northwest. We have raised wheat

and livestock ourselves for 125 years. My thanks to you, Mr. Chairman, for coming last fall to the Pacific Northwest to hear from

farm families. My 350 McGregor colleagues and I serve growers in

43 farm communities. Businesses such as ours, schools and the future of rural towns all depend upon the survival of family farms.

We hear of hardships faced by family farmers everyday. Cautious

bankers reluctant to provide operating lines. Growers who have

had to let go farm help, who have had to sell equipment or land

to raise cash or who have decided to leave their farms. A grower

told me that he has farmed here since 1952, and this is the worse

emergency we have known in this lifetime. We truly need assistance and we need it now. Another spoke of his family having

farmed for over 125 years, but over a century of sweat and hard

work will be in vain without some form of immediate help.

Secretary Johann’s comments last month, the wheat growers

have really had a rather challenging time of it. You don’t collect

LDP in counter-cyclical payments with this current farm bill. There

has been an unanticipated shock in the farm economy. Fuel prices

have increased 113 percent and fertilizer costs 70 percent since

2002.

With the cost of natural gas increasing from the $3 range earlier to as high as $15 late last fall, farm families in the fertilizer industry have been crippled. We have lost 35 percent of domestic ammonia production. We urge you to pass consensus energy legislation

before the recess. No other action could give us a better chance to

provide affordable plant food for the American farmer for the next

several years. We urge your support for energy disaster assistance,

including relief from a brutal upward spiral in energy prices which
10

growers could not pass along to their customers. By acting now, we

will be able to assure farm families and their bankers that there

is reason for hope. Maintaining full funding for agricultural programs is a tall order indeed, but necessary if farm families and

communities are to persevere. Placing more emphasis on direct

payments would provide the most reliable cash flow of all program

components for us as growers and would greatly help us secure operating credit.

A target price more aligned to today’s market conditions or a

counter-cyclical payment based on revenue rates other than price

alone would shore up some of the missing fibers in today’s safety

net. We support conservation programs, but if they are to reward

the best and motivate the rest, they must be fully funded and efficiently administered.

Where our certified crop advisors can be of help and where growers wish us to, we can assist this technical service providers in providing practical guidance in meeting the objectives of conservation

programs. Soil conservation requires adequate organic matter

which can only come from decent yields and from the available nutrients available to produce them. Offering incentives for input reduction is a step backwards in these efforts. As any grower will tell

you, fertilizers are plenty expensive. They aren’t about to use any

more than necessary. And what is needed in one area has little

bearing on another.

We are committed to helping them develop site-specific nutrient

management plan needed to produce good yields, adequate soil organic matter and improved water quality. As a grower wrote me

last week, I have three farmers around me who hung it up this fall.

Others are on the verge. If there was ever a time for a safety net,

this is it. Without some help, it has been estimated regionally that

more family farms will fail in the next 2 years than in the aggregate of the past 15. As one of my customers wrote Congress, we

have had a severe economic storm hit us and we are running out

of hope. We seek your help as house Agriculture Committee members in framing a new farm bill that fine tunes what we have with

functioning safety net provisions.

I believe Homeland Security must encompass the ability to

produce home grown fields that meet exacting regulatory standards. The ability to produce nutrients domestically, to nourish

those crops and the use of the extraordinary human and technology

resources we have that allow us to very efficiently field fellow

Americans of people around the globe. We need to be able to offer

some hope for young people for farm families and for the agricultural communities surrounded by amber waves of grain. Never has

there been a more important time for us to be able to go home and

tell our farm neighbors yes, there is hope for the future.

Thank you, Mr. Chairman.

[The prepared statement of Mr. McGregor appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, very much. I am going to begin the

questioning with you and it will relate to amber waves of grain. I

am aware that my colleague and friend from Washington, Congresswoman McMorris is planning to introduce a bill this week

that would establish counter-cyclical payments for wheat by class.
11

Wheat counter-cyclical rates would be established consistent with

the way wheat loan rates are established by wheat class. I would

like to know what your views of this legislation are, and if it would

improve safety need for producers in your area.

Mr. MCGREGOR. The safety net has been set inadvertently so is

low to the ground so if wheat growers qualify, they are likely to

have suffered in the process reversible financial concussions from

impact with the turf. The loan rate for Soft White wheat for instance, is far below production cost. The counter-cyclical calculation

and average of all class is far beyond their reach. Proposed legislation action led by Congresswoman McMorris will help by allowing

the Secretary discretionary authority to address counter-cyclical

payments when severe imbalances occur among market prices of

different classes of grain. We agree beyond that with the Secretary.

Wheat growers across the Nation haven’t been able to make use of

safety net help when they have needed it.

The CHAIRMAN. Let me ask you another question. You suggest in

your testimony that we place more emphasis on the direct payment

program. Some would argue this has created incentives for landlords to no longer have farmers farm their lands, since payments

are decoupled from production we can’t require specific crops to be

grown to collect the payment. Are you concerned that this problem

would occur in wheat if we raised the direct payment to a level

that landlords no longer need tenants because a direct payment

has been increased?

Mr. MCGREGOR. Well, I understand those concerns. I am concerned from day-to-day interaction with agricultural bankers who

view something like DCP payment as a portion of the farmers’

budget that can be counted upon and who view other variable assistance as something that doesn’t carry as much weight. So one

of the strong benefits is it provides something else to help bankers

make positive designs about providing operating lines.

The CHAIRMAN. Mr. Craig, let me follow up with you because you

said in your testimony direct payment should go directly to the

farmers and not be based on production or landowner history. I am

wondering, do you know what effect that would have on crop share

renters and would this separate landowners from the risk of the

crop in favor of cash rent to the disadvantage of renters?

Mr. CRAIG. That becomes a problem because it is an interaction

between the landowner and the person that is actually farming the

ground. And somehow or another, I am not going to suggest that

we get in the middle of making up those contracts between the two.

But it is a very touchy situation. And our view, I think we would

be much better served that the person that is actually farming the

ground be entitled to those payments. But that has got to be a contractual arrangement between the landowner and the person that

is farming it, and when you get into cash rent payments, those are

contracts on one hand.

The other hand, you have crop share input share arrangements.

It is a tough question to really get into, to really delve right down

into how it would affect the whole country, because I think it is

going to obviously be different in different parts of the country.

The CHAIRMAN. Thank you. Let me flip another question in to

Mr. Frazee. The 2003 tax bill enhanced section 179 expensing pro-
12

visions for equipment purposes, and I would like you to tell us

what impact section 179 expensing has had on your business and

that on your customers. Did many farmers and ranchers take advantage of that?

Mr. FRAZEE. Yes, without doubt, it has had a big positive impact

on our business and most of our agricultural producer operations.

By being able to defer taxes as a result of the accelerated depreciation. It has brought forward purchases which have been beneficial

and more than the obvious ways of increasing agribusiness activity.

It also has had conservation and energy benefits, because the more

rapidly we can replace aging machinery with more modern machinery that takes advantage of modern technology and is more productive, it is more energy efficient. It is cleaner burning. And technology also has enabled us to increase productivity further resulting in conserving more fuel by such new technologies as GPS, assisted steering, yield monitoring and yield management information systems which enable us to vary inputs in the crops based on

the soils productivity capabilities.

So all we say the faster we can replace some of these aging

equipment with more technically advanced products, there is huge

benefits for us. So I would strongly support making that a permanent extension.

And I also would, with appreciation, currently there is a bill underway, H.R. 4236, which would also establish a 5-year depreciation cycle for agricultural equipment now as opposed to the current

seven, and I think it would be that would also have a positive impact on our industry, and I would certainly encourage all of the

members of this committee. I know several of you have cosponsored

this bill, but I would certainly like to see that become enacted

upon.

The CHAIRMAN. Thank you, Mr. Frazee. One last question, Mr.

Vroom. In your testimony, you discussed the positive conservation

role played by products manufactured by your members’ companies. Are there any statutory or regulatory barriers to using your

company’s products when tackling conservation problems on both

public and private lands?

Mr. VROOM. Yes.

The CHAIRMAN. Do you want to elaborate briefly?

Mr. VROOM. Certainly. In regard to the Endangered Species Act,

I would think would be the No. 1 obstacle in that intersection between the use of our technologies and the ability to continue to advance and protect wildlife and wildlife habitat. Mr. Pombo, of

course, has given great success on this side of the Hill to moving

legislation that would make a lot of progress towards right aligning

of the Endangered Species Act and reauthorizing it in a way that

would modernize it to allow a lot of those problems to be dealt with

in a more scientific and logical way.

We have concerns with regard to what we think is a mistake by

the courts in enforcing the Clean Water Act with regard to regulation of pesticides and putting the users of pesticides in double jeopardy in regard to requiring pesticides. Some of these court decisions to be regulated as a point source pollutants when they always

have been regulated at the point of use under FIFRA, and as nonpoints or water quality potential contaminants.
13

So that is another area again where there is legislation introduced in both the House and intended to address that. We would

hope also that the administration would make final some regulations that would also seek to address this intersection of the Clean

Water Act and FIFRA.

The CHAIRMAN. Thank you.

The gentleman from Minnesota is recognized.

Mr. PETERSON. Thank you, Mr. Chairman. And Mr. McGregor. I

agree with you we need to do something about these wheat, the

wheat situation or we are going to be in the same shape we are

with oats and barley. We are not going to grow it in this country.

That is where we are heading. So hopefully we with can work

something out. Are you folks familiar with this study that was

done, I think last week, or came out last week a number of brought

up the CRP, and this study done by the Agriculture Policy Analysis

Center at the University of Tennessee on the economic impacts on

the agriculture sector elimination of the CRP, and apparently what

they are looking at is allowing the CRP to kind of terminate as it

goes along, so there would be maybe over the next number of years.

But, according to this study, if we allowed that to happen, crop market returns would decrease by $22 billion, net income would decrease by $9 billion. Government payments would increase by $31

billion, and if we allow the CRP to go back to 45 million acres,

which it was originally, it would actually increase farm income by

$10.6 billion and decrease Government payments by $12.7 billion.

So I just am asking, I guess, have you seen this study? What do

you think about it? I think, bottom line, and I haven’t had a lot

of time to analyze this, but I would guess that what is driving a

lot of these numbers is the fact that we are in the export market

selling at below the cost of production with all commodities and we

have been for some time, and it is going to be interesting to see

what happens out there because my folks especially, the folks who

grow corn have a different attitude. They are no longer very much

interested in exporting corn. They are interested in putting it into

ethanol because it is worth more money.

So there is going to be some interesting things happening here

just because of the economics of what is going on with fuel and the

interest in this country to get more energy independent.

Those of you who know anything about this, could you comment

on what you think about this, starting with Mr. Frazee.

Mr. FRAZEE. Well, I am not at all familiar with the study that

you just referred to. The CRP payment program, I think, needs to

put more into the controls of the state farm service agencies, because they seem to have a better grip on what the local market

conditions are, and I think they would be better served in a better

position to keep the payments for land that is put into the program

in line with local market conditions. How that impacts what the results of this study. I am not for obliterating the program, but I

think if they had local control through the States then we would

have better effectiveness.

Mr. PETERSON. Anybody else want to comment?

Mr. MCGREGOR. I have not seen that study. However, I have

seen people in the Pacific Northwest make the painful decision to

put their whole farm into CRP for lack of any other way they can
14

maintain any financial integrity as a family. I have had people tell

me I hate to put the place into CRP, but is there any hope? And

I look at the No. 1 and No. 2 wheat producing counties in the

United States, Whitman and Lincoln Counties, Washington, and

the fact that there was such aggressive, even desperate move for

people to sign up in CRP there, and worried that indeed something

is amiss when our most productive areas have that kind of pressure. It is my hope that there can be more emphasis upon funding

for continuous CRP for buffers and filter areas which would have

environmental benefits and also would hopefully not lead those pioneer family farms in the position where the only way out is to put

the whole place in the CRP.

Mr. PETERSON. Mr. Craig.

Mr. CRAIG. I am not familiar with the study. However, I do know

that in our area, there has been a lot of acres go into CRP that

basically has driven up land values in certain parts and certain

parts of the State. We have had customers that have decided, retired people that have actually decided to sell their land. That people are interested in actually purchasing the land have gone to

them and asked them to enroll those acres in CRP before actually

sell the land.

I do agree with you that it is going to be very interesting down

the road to see how energy policies, how ethanol and biofuels, what

kind of effect they actually have on acres shifted from one crop to

another. We feel that we will see corn acres buying acres away

from CRP. We also think they will be buying them away from

wheat and beans to a certain extent. So it is going to be interesting

to see the shift. There are acres that definitely do need to stay in

the CRP programs which relate to highly sensitive areas, those sort

of things that Mr. McGregor just touched on.

Mr. PETERSON. Well, I would ask each of you to take a look at

this study, and if you could get back to me after you have looked

at it and tell me what you think. But I would have to say and I

have people in my area that have put land in CRP because that

was the only way they could survive and save the farm. They are getting $50, $60 an acre. And that number is what is

saving the farm. Now I wouldn’t blame the CRP program for overpaying. I would blame the market place and the Government payments for underpaying because at 60 bucks an acre, nobody is getting rich. And I think that says something about the overall profitability of agriculture as opposed to criticizing CRP which has provided all kinds of other benefits. So I would appreciate you looking

at the study and let me know what you think.

Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman.

The gentleman from Nebraska is recognized.

Mr. OSBORNE. Thank you, Mr. Chairman. And thank you all of

you for being here today. And I would like to start with Mr.

McGregor. You indicated that you thought the safety net was inadequate, and I realize a lot of your comments have revolved around

production of wheat, and I understand that concern. But I wondered if you could flush that out a little bit more as to exactly what

you would like to see different in the farm bill if you want to enhance the safety net, how would you go about doing this.
15

Mr. MCGREGOR. I will be pleased to comment on that additionally. As indicated before, and as I mentioned in passing, more emphasis upon the direct payment the DCP will provide the most reliable cash flow of all the program components for farmers, will help

them secure operating credit, will help us comply with international trade obligations and will put more of a safety net in place

than we have had in the past.

I also think a higher target price or counter-cyclical payment

based upon revenue would really help. The factory organization has

done studies of target revenue scenarios looking at county level

revenue targets per acre based on historical prices, yields, payments under current programs and then would make payments

when actual per acre county revenues fell below a targeted level.

The hopeful we can build upon, the 2002 farm bill, and provide

some safety net provisions that really will work as was intended

before.

We had so many circumstances come upon us that were unforeseen in 2002. Certainly, the run up in energy cost to the degree

that it occurred was unanticipated, at least by me, and I think by

very many others. So the need for a safety net with a stronger

DCP, I would suggest personally that moving from 52 cents to $1

with wheat would be significant enough so that would provide a

valuable tool for a grower in securing operating credit. Tweaking

the target price. Some things can be done like that that build on

the strength of the current farm bill, and I would hope we would

do that.

Mr. OSBORNE. Well, thank you very much. I appreciate your comments. I think the European Union is at least claiming that they

are beefing up their direct payments and kind of patting themselves on the back as to how compliant they are now with world

trade which would be a little bit suspect in many of our minds.

One thought that I have had. I think you have alluded to it at

least briefly is the idea of revenue insurance. I think all of us sometimes cringe a little bit about base acres and how that gets people

locked in to certain crops and decided to just throw it out to the

panel in general. Let us say you had 500 acres, and you can show

a revenue history of X number of dollars over the last 5 years. Providing a safety net maybe 90 percent of that, 85, it gets into insurance. We have some products out there like that now. Can any of

you see the farm bill moving in that direction, or realize we have

some concerns maybe with WTO compliance but that would be

more compliant with LD pass and countercyclicals at the present

time. So any thoughts you might have on that issue? Anybody.

Mr. MCGREGOR. Of course, the devil is in the details, the devil

is in the details on any revenue insurance program and they can

become extraordinarily complex. But for me, as a farmer, to be able

to receive some protection against wild swings in revenue would be

a very good thing if we could figure out how to do that and make

it workable across the broad geography and very different crops of

the United States. That will be a tall order. But revenue protection

conceptually would be an important plus.

Mr. OSBORNE. My time is up. I yield back.

The CHAIRMAN. The gentleman from North Carolina, Mr.

Etheridge, is recognized.
16

Mr. ETHERIDGE. Thank you, Mr. Chairman. Mr. McGregor, in

your testimony, you suggested payments to farmers for economic

loss, due to high energy costs, and as these costs have tremendous

impacts not only on fertilizer, but on really everything a farmer

uses, particularly fuel costs, and right now at harvest time, that is

a big issue, even though we are saying a little mitigation for those

who use diesel fuel hasn’t come down much. During August, I

heard a lot from our farmers because in my part of the State, and

really in the southeast, there is an awful lot of tobacco grown and

they use a substantial amount of propane for curing and diesel fuel

for moving it, and the same is true for those who wanted to harvest

a little corner of the bins.

I think they will have second thoughts this year. But my question to you, and I would like to hear you elaborate on it because

of the parts of the country and how it is divided it up and you realize how complicated it is, as we think about that, how could we implement it in a way that would be fair nationwide, considering the

variety as I would appreciate here for that. Let me add one more

piece while I am at it.

Because it is more than just natural gas, fertilizer because all of

those are tied to agriculture particularly in a huge cost. It also

adds all of the transportation chemicals upon the users and I have

had a lot of farmers say to me some this year, this is my last year.

I am out of here. Because every penny I make, I laid out my plan

in the spring and now I am going to lose money and I can’t keep

doing this. I would be interested in that, because I think this is a

critical piece maybe dealing with energy policy, but it is about a

food policy and the security of this country.

Mr. MCGREGOR. Indeed that concern that growers have been

sharing with you is one we hear 1,500 miles away. Very fearful

people about what lies ahead. Part of this solution we hope is in

addressing the energy bill with some legislation that will open up

known reserves of natural gas that can be brought on line in less

than a year where pipelines already exist in Lease Sale 181 area

in the gulf. Hopefully, that will be of value. But it is a scary time

for people when the price of hydrogen has improved somewhat and

it will stay where it is until the next hurricane or calamity and

that is not very firm footing.

I would hope that an energy component in a farm bill could provide assistance should average farm energy costs as calculated by

national agricultural statistic service or USDA spike beyond 10

percent in a crop year that would require as you indicated information that would vary by crop and by region, but I think through our

national agricultural statistic service resource, we could get there.

Mr. ETHERIDGE. Thank you, sir. Mr. Craig, in your testimony,

you indicated that Congress shouldn’t look at production history

when directing commodity payments. However, given the WTO

rules requiring us to right our commodity title programs to start

basis period, or else we will wind up being sued. What do you suggest as an alternative, I guess is my question as we get ready to

write a few farm bill.

Mr. CRAIG. What I was referring to, sir, was when we look at

production history for example in Oklahoma because of the
17

drought, we have 14 country elevators in west Elvina that did not

originate what one of those elevators did a year ago.

And we have got a lot of folks out there who are in a lot of trouble. So low-yield histories, this year compared to previous years,

obviously has resulted in higher prices for wheat, and the countercyclical payments and LDP payments are triggered by price, so

higher prices; even though we had higher prices, our yields were

so low, and that is what I was referring to.

Mr. ETHERIDGE. In effect, what you are saying is, you need to expand the number of years you are using as your basis. If you have

several years of disasters, that will reduce a yield?

Mr. CRAIG. That, or possibly we should look at another direct

payment or a higher direct payment, versus counter-cyclical payments and LD yield that are tied to price.

Mr. ETHERIDGE. I see. Thank you.

Thank you, Mr. Chairman. I yield back.

The CHAIRMAN. Thank the gentleman.

Gentleman from Texas, Mr. Neugebauer, is recognized.

Mr. NEUGEBAUER. Thank you, Mr. Chairman.

First of all, Mr. Vroom, were you there in 1964 and 1965 when

I was hoeing as a high school student in the summertime?

Mr. VROOM. I was out there in a different field, same time.

Mr. NEUGEBAUER. Mr. McGregor, we hear a lot about, obviously,

the impact of high natural gas prices on the fertilizer industry; and

one of the things I hear is that we have lost a lot of fertilizer plants

to other countries because of our natural gas prices and the volatility in the United States.

Can you elaborate a little bit on how many we have lost and the

impact that that has had on your industry?

Mr. MCGREGOR. We have lost 24 nitrogen plants in the United

States, plants that produce anhydrous ammonia which is, as you

are aware, not only an important nitrogen product itself, but the

feedstock for the other nitrogen products from which it is formulated.

In all, we have lost 35 percent of our ammonia production between 1999 and 2006; and I am fearful that that trend will continue if we don’t take a more responsible position in finding the

natural gas feedstocks needed to produce that nitrogen to replenish

the soil.

Every time I see buses in Washington, DC that say fueled with

clean natural gas, I think of the 3 percent of natural gas used for

agriculture for drying corn and other crops and for producing nitrogen, and I think, what could be more valuable than us using that

to produce foodstuffs for Americans and people overseas?

So I hope that we open the door some to allow us access to

enough domestic natural gas so that that industry can endure and

not go into a free fall, which would be harmful for all.

Mr. NEUGEBAUER. Thank you.

Mr. Frazee, I noticed the chairman mentioned 179 depreciation,

bonus depreciation. There are some folks who think we ought to

implement that throughout the industry and just go to the year

that you make a capital expenditure, that you just deduct it and

do away with depreciation schedules.
18

I know that you talked about moving from 7 years to 5 years for

farm equipment. What would be the impact, do you think, on the

industry if we went to a policy of when you buy it, you expense it?

Mr. FRAZEE. So, in all, what are currently capital expenditures

would be expensed out the year purchased?

Mr. NEUGEBAUER. That’s correct. So if I buy a John Deere tractor this year and it is $150,000, I just expense it. If I buy two of them,

I expense $300,000 and that is the year. Now what that does is,

there is no depreciation schedule obviously down the road, and so

you may have a low-income year in the sense that you had a heavy

capital expenditure year, and then the next year you don’t have the

depreciation expense.

Mr. FRAZEE. It would certainly give businesses the opportunity

to adjust their purchases in relation to their income, and it would

probably enable them to minimize their taxes to a greater extent

than they would now. However, I would be little concerned about

how the Government would run.

Looking at it from a small business, medium-size business of

most of those that are involved in agribusiness and the producers,

I can’t see but what they would be able to take advantage of that

to the point where they would reduce their tax liabilities to virtually zero every year.

Mr. NEUGEBAUER. It depends on when they bought it. In other

words, some of those are expensing that over a 5-year period of

time, or 7, depending. Obviously, giving the Government less

money to spend is not necessarily a bad thing, but what I am

afraid of with some of the current policy we are looking at, you say,

well, this year you get the bonus, next year you might not get the

bonus.

Sometimes I think we artificially stimulate the market in making people make tax decisions rather than business decisions; and

I am for consistent policy in this country where we would make

people make business decisions rather than tax decisions. And just

going to a policy of the year that you buy it, because I am afraid

the guy might buy two tractors this year because he is thinking—

obviously, it doesn’t cover the two tractors.

Do two things this year and do none next year, I would think for

your business or some of the people you represent that is a difficult

thing for them to plan around.

Mr. FRAZEE. Well, it is a difficult thing for them to plan around,

and I think I would agree with you 100 percent, if we had a consistency in our policies long term, so that we weren’t either moving

purchases forward or postponing them just for tax purposes, then

we could get back to making capital expenditure decisions based on

sound business practices instead of on tax implications.

That would be a big benefit.

Mr. NEUGEBAUER. Think about that.

Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman.

Gentleman from North Dakota, Mr. Pomeroy, is recognized.

Mr. POMEROY. I am having staff distribute to Members a couple

of charts that would be basically a predicate for the comments and

the questions that I will offer. They reflect the devastating dimensions of the drought that has plagued this production cycle.
19

You will note that the drought monitor, which is the one that has

this coloration, reflects a broad-spread drought of extreme severity.

This isn’t going to be news to many of you because many of you,

Republican or Democrat, represent some of the really torched areas

reflected on this chart.

I will tell you that in North Dakota is our third-worst drought

in recorded drought history, and it was truly sickening to walk

around on pasture grass that literally snapped under your feet because it didn’t have a speck of precipitation, to stand on ground

that was utterly brown in early July, to see the impact on the harvest.

The second one shows here that this is a drought that continues.

This is the drought severity index, and again many of you will not

be surprised to see that this is a problem that isn’t over. Indeed,

it is projected to continue.

Mr. McGregor, I thought that you captured very effectively some

of the emotion you are seeing in your customers as they are pushed

right to the wall with this kind of devastating disaster loss.

Mr. Chairman, I appreciate the discussion we are having on the

farm bill. I appreciate the efforts you have made to get all over the

country, hearing directly from folks, but I think that we need to

focus right now on the need for disaster response in agriculture

and the need to do it in September before we break for the November elections.

Mr. McGregor, do you feel that you are on the brink of losing

some customers?

Mr. MCGREGOR. Last year, we lost three to four customers in

each one of the 43 farm communities we serve; this year, the pace

is likely to be faster than that. I am very concerned that this is a

watershed time where action must be taken if we are to preserve

the family farm communities in anything resembling their current

shape.

Evolution is an inevitable part of agriculture, but I hate to see

conditions become so severe that it seems as if there is no choice

but to race for the exit. I think action now on a disaster bill would

make a huge difference for those who have suffered the calamity

of drought, hail, all sorts of catastrophic circumstances that have

hit around the country and for growers who have also suffered

from the sudden onslaught of energy prices catapulting up, which

of course—as you are well aware, they cannot pass along the cost

increases, only receive the surcharges themselves.

Now is a crucial time and we hope that Congress will act.

Mr. POMEROY. I think you make an interesting point. It is vital

to get the assistance out to those who need it, and it is vital to send

hope that there is going to be some help on the way.

I think the message the Secretary of Agriculture was trying to

send when he came to South Dakota and announced there was

going to be a response, $800 million response, that is far short of

what we need, but it is something. But upon inspection, it looked

like $700 million of that package was simply advancing counter-cyclical payments and the commodities who are getting those are

peanuts and cotton.

They don’t grow peanuts and cotton in South Dakota. It isn’t responsive to the hurt that we are seeing right in the heart of it. I
20

don’t mean to say that in any way critical of the Secretary. He acknowledged the problem, but now we need to work together to get

a more meaningful solution.

Mr. Craig, those elevators you are talking about aren’t getting

any bushels hauled in. Does that also reflect in your part of the

country a need for disaster response?

Mr. CRAIG. Yes. Yes, sir. Those elevators were our companyowned elevators. Our company, we have a very difficult time looking to the future trying to project budgets forward for this year. We

are extremely concerned if this drought continues in our part of the

country, we are extremely concerned about the health of agriculture as a whole and communities, rural communities, in those

areas. We are talking about schools, hospitals, implement dealers,

equipment dealers, the whole rural community itself.

The last couple of years we have lost customers. We are seeing

herds liquidated because of not only pasture, but also because of

no water.

People are changing cropping practices; they are trying something different. But it is very, very difficult to go into the banker

and get the extended financing. There are fewer and fewer banks

that are taking on larger agriculture portfolios today. That is decreasing.

Mr. POMEROY. I know my time is up.

Those are tough visits when you have higher input costs, higher

fuel costs, uncertain production circumstances, and you are carrying service on debt because you just lost hundreds of thousands of

dollars in the prior two crop years in the case of many North Dakota producers. We need to act.

There is an old saying—I will paraphrase it—‘‘When you are up

on your fanny in alligators, it is hard to remember you came to

drain the swamp.’’ now it is time for us to talk about the farm bill,

but we have something even more urgent and imperative. We need

to get a disaster response. And I call on my Members in this committee to join together and forge a bipartisan push. It has to come

out of the House Agriculture Committee, a bipartisan push to get

this disaster response and get it done in September.

I thank the chairman and I yield back.

The CHAIRMAN. I thank the gentleman for his comments, and as

I said to him earlier, I am committed to continue to work with him

and other members of the committee trying to address this problem, including working with the gentleman from Kansas, who is

now recognized for 5 minutes.

Mr. POMEROY. May I have this added to the record. I guess I

should formally request it.

The CHAIRMAN. It will be in.

Mr. MORAN. Mr. Chairman, thank you; and thank you for your

offer to work with me and other Members of Congress. There is no

question but what the urgent need in agriculture, at least on the

High Plains and, I have discovered, in many places in the country

is assistance related to weather-related losses.

I think there is a belief, a false belief in Congress, when we pass

a farm bill, that takes care of farmers; or we have crop insurance,

that takes care of farmers. And yet in both instances the farm bill

is designed to help us meet the needs of farmers when there are
21

economic problems due to price, to provide a safety net. Crop insurance serves its intended purpose in some fashions, but doesn’t meet

the needs of particularly farmers who raise crops not covered by

crop insurance and by farmers and stockmen who raise cattle not

covered by crop insurance.

And it doesn’t work well when there are multiyear disasters as

we have experienced on the High Plains year after year, the result

being that premiums go up, coverage goes down and crop insurance

fails to provide the necessary financial resources to keep farmers

farming.

And so if we don’t do something about disaster assistance in the

near future, what we will be dealing with is fewer farmers and

probably larger farmers, when we begin working on the farm bill

again in the spring.

So, Mr. Pomeroy, I would tell you that I asked a number of Members of Congress to join me in my office, particularly Republican

Members, before the August recess to talk about this issue. We

look forward to working with you even later this week as we try

to bring farm organizations and commodity groups together to demonstrate the need for assistance. And I appreciate the chairman’s

interest in this topic as well.

Just a couple of thoughts: I am interested from the—particularly

the equipment side maybe—and maybe it is also true of the chemical side of agriculture—what do we see in the world economy? Are

we selling more and more equipment abroad? Are we losing the

growth of agriculture to foreign competitors? How is your market

and what you sell; is it the domestic versus international?

Mr. FRAZEE. Well, in our case, it is. It has become a real worldwide market for farm equipment. As I stated earlier, we are a John

Deere dealer. John Deere has worldwide production facilities and

manufacturing facilities, and the products move back and forth;

some of our product lines are built at Deere factories overseas,

some of the domestic production of Deere and other manufacturers

based in the U.S. is shipped overseas.

I am not on the manufacturing side of it, so I am not going to

try to begin to tie that. I can explain why that has happened, but

a lot of it has to do with the—as the company, as Deere wanted

to become worldwide, a lot of countries had domestic requirements.

Mr. MORAN. What about the sale of agriculture equipment? Do

you have a sense of whether a larger portion of what Deere is selling is sold abroad as compared to domestically?

Mr. FRAZEE. I don’t have a sense for that, to be honest with you,

except for certain product categories. I do know, for example, that

self-propelled forage harvesters, there are a lot more of those products sold in Europe than there are in North America.

Combines, it is just reverse; there are a lot more combines sold

in North America than there are in Europe, for example. But in

total number of units or dollars I couldn’t give you any percentages.

Mr. MORAN. Mr. Vroom, in the chemical world?

Mr. VROOM. Substantial shift toward agricultural chemical and

manufacturing for export in China, as well as India. And some of

the rules of the World Trade Organization, particularly with China’s ascension into the WTO, are helping make sure that some of
22

the intellectual property requirements are respected. But some

were not.

The other thing, of course, when you are dealing with a country

like China, 1,600 pesticide manufacturers hardly a one of those

doesn’t have some state ownership. That is an issue, but it is a factor that I think our industry is coping with.

And, frankly, the manufacturing quality in places like China and

India has increased substantially and it has shifted the marketplace in the United States. A substantial amount of the crop protection products American farmers use today are coming from overseas. We still are net exporters of these products, but margin has

narrowed.

Mr. MORAN. Mr. Craig, my time has expired, but perhaps you

can answer this question in writing later.

I am interested in hearing your perspective about transportation,

rail and truck in particular, short-line class 1 carriers. In our elevator world, transportation is a huge component of our ability to

compete in the world. And I know that we have a significant difficult time in our rail, in particular, meeting our transportation

needs.

So I would be glad to hear from you if that is something you

would like to express on the record.

Mr. CRAIG. Well, I think transportation issues today are critical

throughout the U.S., whether it be rail, roads, trucks, bridges, or

water.

Today, when you go to the railroad and ask for their help, they

are going to ask, What can you do for me? Railroads, along with

all forms of transportation, are searching for efficiencies and at the

same time trying to meet their customers’ needs. They don’t have

enough equipment. They don’t have enough power. They are not interested today in serving a short-line shipper. They want unit

trains; they want 110-car unit trains, and they want that train to

run both ways. And they want you to manage that train for them

for a certain part of the year. That has been our experience, and

that is where we have received our best rates. Today, we don’t have

any retail locations or grain facilities that are not unit train operators.

The short lines have gone out, and those facilities are operated

by truck; and that puts a tremendous burden on the infrastructure

as a whole.

Mr. MORAN. Thank you, Mr. Craig.

In addition to moving commodities, one of the things we try to

bring to the rail industry is awareness and recognition that with

biodiesel and ethanol plants, there is a whole new world of transportation needs in agriculture that are desperately going to need

to be met.

Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman.

The gentleman from Georgia, Mr. Marshall, is recognized.

Mr. MARSHALL. Thank you, Mr. Chairman.

I would like to associate myself with the remarks of both Mr.

Pomeroy and Mr. Moran with regard to drought and disaster payments. I do think we need to address the long-term problem associated with the uncertainty associated with disaster payments.
23

I have got a number of farmers who have CRP lands and would

like to gather pine straw. They contend that gathering pine straw

does nothing that is contrary to the CRP program, and yet they

can’t do it because it is commercial activity; and if they were permitted to do it, they say that then they would be willing to take

less money to put their lands in CRP.

It seems to me that with competition for land that will ushered

in as a result of using a bunch of our crops for energy, it is going

to become more and more expensive for us to maintain our CRP

programs, and that those designing those programs in USDA and

on this committee need to be thinking a lot about how do we design

those programs in a way that furthers the conservation interests,

at the same time permits some commercial use of the properties

that is consistent with conservation interests, and so we will put

some dollars behind—frankly, I think it is going to get too expensive for our CRP program to just put land aside and let it be totally

useless commercially.

I would be delighted to have some comments from you all about

how we might redesign our CRP program so that we can actually

encourage conservation in critical places and, at the same time,

permit commercial uses, which extends our dollars and gets more

lands used for conservation purposes.

Mr. Craig, you talked about this in your written testimony. You

might want to comment first.

Mr. CRAIG. I feel that class 3, class 4 land that is highly erodible

today, I don’t know that those acres will actually come out of CRP.

They shouldn’t, and we need to do what we need to do to make

sure that they don’t. Those are acres that shouldn’t have been broken out in the first place.

That is a tough question to answer. Those acres need to stay in

CRP, and they need to be used as filter strips and buffers.

Mr. MARSHALL. You do agree that as the competition for land not

only to feed folks but to produce energy goes up, we are going to

have to pay more? If we are going to pay market rates, we are

going to have to pay more money to keep those class 3, class 4

lands in conservation reserve because people are going to want to

use them?

Mr. CRAIG. That is exactly correct.

Mr. MARSHALL. So how can we introduce some value that the

landowner can get out of that property and yet keep it in some sort

of sort of conservation state so we are not eroding lands wildly?

That is the question.

Mr. CRAIG. I totally understand the question. It is basically going

to come down to economics, I think. I don’t know. A landowner is

going to look at what is the best economic value for the acre.

Mr. MARSHALL. I am not a farmer. But let’s say we could get in

particular lands the same kind of soil retention and restoration

from switch grass that when it is cut is only cut off at two-foot high

or something like that. Those are the sorts of things we need to be

thinking about and encouraging. And I think you all are going to

have to take the lead, because we are going to have a fair bureaucracy here that simply defends the conservation program.

‘‘Let’s keep it Eden-like and not have anything occur on that land

that is at all commercial’’ is sort of where our mind-set is right
24

now. Someone is going to have to bust through that mind-set if we

are going to have a practical conservation reserve program, and

you guys have to take the lead.

So any thoughts you have on that subject.

Mr. VROOM. Mr. Marshall, I think Congressman Peterson addressed this in his opening remarks that market opportunity for

biofuels, coupled with the evolution of technological advancement

for switch grass and maybe other crops that we haven’t even heard

about yet, will change these equations.

And I think you are exactly right that this committee and others

that influence policy going forward, around how CRP can be maybe

dual-use, both for conservation and renewable energy, is something

critical to our ability to then capitalize on those kinds of opportunities.

And I think you are exactly right that being able to get an economic crop and still maintain the conservation objectives of CRP

land ought to be something that is entirely doable and could enormously benefit our farm economy.

Mr. MARSHALL. I see my time is up, Mr. Chairman. I encourage

the chairman in guiding staff here to get us thinking along those

lines.

The CHAIRMAN. I thank the gentleman.

The gentleman from Oklahoma, Mr. Lucas is recognized.

Mr. LUCAS. Thank you, Mr. Chairman. I apologize for being away

for a minute. When you have 20 members of the Oklahoma Farmers Union, attention has to be focused on them always.

Mr. Frazee, let’s talk about CRP. You mentioned in your opening

comments about how you indicated in certain situations in New

York, perhaps that CRP rates were too high.

Is that a fair assessment of what you said? And if so, how does

that impact agriculture and conservation in New York State?

Mr. FRAZEE. Yes, there are cases where CRP payments are higher than alternative land uses for agriculture. And when that has

happened in any great degree, it has taken that land out of production. So that whole series of the revenue that we would be getting

out of that land is turned over three or four times in the economy

so that the agriculture business in the whole rural infrastructure

is harmed. As a result of that land being put into a CRP program,

that payment is higher than market rates.

Mr. LUCAS. So if we get the rates too high, then we change the

fiber of the community, we move it from production agriculture,

perhaps a tendency towards absentee land ownership at this point,

and we disrupt the community and we disrupt the agriculture and

the local community.

That is a very good point about what happens when the rates are

too high.

Mr. Craig, you mentioned in your testimony, if I understood you

correctly, the importance perhaps in the 2007 farm bill of making

sure that nonfarmers do not benefit from some of these payments.

And there have been a number of newspaper stories about land in

parts of the country that were once in production, that qualified for

the annual payments, that now because of different land uses have

become housing developments or whatever; yet those payments

come along.
25

Is that the kind of thing you were getting at when you were talking about making sure that money doesn’t go to nonfarmers?

Mr. CRAIG. Along those lines, yes, sir; and also the fact that

there is much acres today being used for recreational purposes, i.e.,

hunting, fishing, just to get out, a way just to get out of the city.

We see a tremendous amount of influx today from nonagriculture

use, nonagriculture producers driving land prices up for recreational usage.

I don’t know that that is all a bad thing, necessarily. But those

payments—when those agriculture lands are in the programs, and

those payments—we need to make sure we send the payments to

people that are actively involved in agriculture.

Mr. LUCAS. Along those lines, there have been discussions here

about alternative energy uses and how that would affect CRP in a

roundabout way in commodity prices.

You are very close to producers because they are making their

decisions and buying your products and using your services. Is it

fair to say that with the continued trends that we see in rural energy production, Oklahoma now having announced two 55-milliongallon ethanol plants in two different communities in the State, for

example; do you think that if the renewable energy industry continues to take off—and we have a 7.5-billion-gallon requirement for

ethanol, passed into law in the energy bill last year. Do you see the

potential for some of this better land perhaps being pulled out of

CRP and put back into production if the economics are there?

Mr. CRAIG. Definitely that will happen. We will see energy buy

acres out of CRP. I think we will see energy buy land shifted from

other crops. We will see a shift. There will be land taken out of

CRP and put into growing production crops, that’s correct, whether

it be corn, wheat, beans, canola.

Mr. LUCAS. So farmers are like any other good economists; they

respond to market conditions and adjust their decisions.

Mr. CRAIG. They are going to adjust to decisions based on contracts.

I think in a new farm bill we need to look at these CRP contracts. Maybe we should tighten them up a little bit, shorten up

the years, give them opportunities to be more flexible.

Mr. LUCAS. Flexibility, of course, is a big component of the 1996

and the 2002 farm bill and hopefully something that will be, once

again in a prominent way, in the 2007 farm bill.

Do you see those acres shifting in Oklahoma? Have there been

adjustments in how much wheat is planted? Have you seen farmers

responding to the market signals?

Mr. CRAIG. In north central Oklahoma, north of that corridor

around the I–35 corridor, up to the Kansas border, that area seems

to receive a little more moisture historically. Those acres are shifting acres from wheat, traditional wheat, into corn and some beans.

Western Oklahoma, some of the better ground, the irrigated

ground, they are growing corn. And we see that continuing and we

see those acres of corn increasing.

Mr. LUCAS. Thank you.

Mr. KING [presiding]. The Chair recognizes the gentleman from

Minnesota, Mr. Gutknecht.
26

Mr. GUTKNECHT. Thank you, Mr. Chairman. And first of all, let

me apologize to our witnesses. This is a very busy day here in

Washington. We have lots of groups come in to see us, and it is not

that this is not an important meeting. The attendance isn’t as good

as it really should be, and I have been in and out myself, because

I have people who are coming to Washington to meet with me. Let

me apologize for that.

I have caught part of your testimony and part of the questions.

I don’t have so much a question, but more of a comment and perhaps you will want to respond to it.

I have a gentleman who lives in my district who is now the president of the National Corn Growers Association; his name is Gerald

Tumbleson. And Gerald Tumbleson made this observation; and I

have spent a lot of time just thinking about this, and I would like

to have you think about it, and if you care to respond, you can. But

he says, there are only two things the world needs more of: One

is energy and the other is protein. And I think as we begin to look

long term at farm policy here in the United States, I think we have

to have that almost as an underpinning.

As we look forward, as we sort of look over the horizon, we have

to ask ourselves, how is it we can shape farm policy here in the

United States so that we cannot only take advantage of what I

think is that fact, but become the market leaders.

And, again, I don’t expect you to have any brilliant answers to

that question or that comment right now. But I would hope, on the

plane on the way home you would think a little about bit about

that, and how do we craft the next farm bill so that we are in a

position that we become the world leaders in being a provider of

both energy and of protein.

And so, with that, if you care to respond to it, you are more than

welcome to. If you just want to take it home with you and think

about it, because I think in the next several months we have to

begin to think visionary in terms of, what kind of a agricultural

program are we going to have in the United States that will encourage our producers to be the world’s best in those two categories?

I yield. If you want to respond, you can.

Mr. VROOM. I think you have raised a very good point. And Mr.

Tumbleson is correct in focusing on these two high priorities. If you

think about another competitive country in contrast to the United

States, from an agricultural production standpoint, think of Brazil

and think of the expansion that they have enjoyed with regard to

soybean production. But at what cost in how they achieve that?

Have they actually done everything according to WTO rules in

expanding their soybean production or not? And are they playing

fair with regard to the way they allow their farmers to pay their

bills and the like?

Anothe big image that Brazil has is being so progressive with regard to the dependence on ethanol and the growth of their ethanol

industry. But if you look at the facts, we already exceed Brazil in

ethanol production in the United States. We just happen to burn

a lot more gasoline than Brazil does. And if you add to that the

number of ethanol plants that have already been announced for
27

construction in the United States, Brazil will never catch us with

regard to ethanol production.

So we need to protect what we have, make sure everybody is

playing by the same rules and try to continue to advance with regard to trade as well as our domestic policy.

Mr. MCGREGOR. I would hope that we could continue to look at

energy produced by agriculture in a broader way, as well as beyond

foreign and ethanol. In the Pacific Northwest, we have opportunities, we think, to be able to produce biodiesel with canola. We cannot grow corn there in dry land agriculture, but canola has potential. The challenge is it is the old chicken or egg conundrum, if you

will, a crushing plant would be put in if there were enough acres

to make the crushing plant viable. Growers would put in enough

acres if there was a viable market that would come from a crushing

plant.

I think there are some things that can be done, and I hope you

will consider.

We have focused upon canola research in our land grant universities on shoestring budgets; and more assistance to help us develop varieties suited to the growing conditions of our region would

be very valuable.

Also, it is such a huge risk at such a perilous time for growers

to move into a rotational crop like canola; with a 7 percent loan

rate, that could mean failure. A stronger loan rate might give people an ability to take some risk.

We would like to have other rotational crops and be able to

produce energy and hope you can help us.

Mr. KING. Gentleman yields back and the Chair would recognize

himself for 5 minutes and direct his first question to Mr. Craig.

We are looking at a corn crop this year. I don’t know if your testimony has stated. Are we going to be in the area of perhaps 11

billion bushels?

Mr. CRAIG. I don’t recall. I don’t recall actually saying that in my

testimony.

Mr. KING. I am asking if you think that is in the area. Would

you agree that we will raise perhaps 11 billion bushels of corn this

year, just as a matter of judgment call from what we know?

Mr. CRAIG. Yes, sir. Yes, sir. I don’t think that is out of the question at all.

Mr. KING. And we are looking to the potential to be able to raise

perhaps 15 billion of bushels of corn.

And where I am going with this question—and I am watching

you nod your head to that number—as we produce more and more

ethanol, and the corn, the demand for more and more corn is going

to take a higher and higher percentage of our corn production for

ethanol, we think we can expand that production. But in the end,

if we take this thing out by, say, the year 2015, if we raise 15 billion bushels of corn, and we commit perhaps a third of that to ethanol production, a lot of us hope that will be 15 billion gallons of

ethanol.

Then what do we say to the feed grain consumers out there, particularly the swine industry and poultry industry? How do we meet

that demand as we watch the demand grow for energy production

out of our corn product, for example?
28

Mr. CRAIG. Well, the numbers that you quoted, I think they are

definitely within reason; and I think that the possibility exists,

through genetic technology, that corn yield number could even be

higher, depending on the demand.

I do think that we are going to see a replacement from feed

grains, i.e., corn and feeding operations, that some of that will be

replaced with BDGs which will be a byproduct of an ethanol plant.

I think it could also be replaced with canola meal, for example, out

of a crusher or soybean meal out of a bean crusher. So there will

be some trade-offs.

It is going to be extremely interesting to see what happens down

the road, there is no doubt about that. Our hope, the agriculture

industry’s hope, is to see there will be some acres coming out of

CRP, obviously for soybean production where there is water available.

I think, too, genetics, as I said, will see increases. And so hopefully we can fill that void and fill that demand.

Mr. KING. Let me submit that the same equation—I appreciate

your response to the question—also exists for the soybean industry,

and so where I am really going with this question is, then do you

see our grain exports go up or down in the next 5 to 10 years?

Mr. CRAIG. They probably will not increase because of the demand at home. But a lot of that is going to depend on genetics,

what kind of weather conditions we have foreign policy.

Mr. KING. In other words, you say if you anticipate a strong domestic market that might keep more of that grain at home, or be

likely to?

Mr. CRAIG. Yes. Obviously when we ramp up our energy product,

energy production, i.e., ethanol plants, more ethanol plants, more

demand, that will hurt export demand until we catch up with genetics and land shift uses.

Mr. KING. Thank you, Mr. Craig.

And directing my next question then to Mr. McGregor, I listened

to your response in one of our earlier questions with regard to nitrogen fertilizer industry. I’m not sure my ear was tuned accurately

enough, but if I remember correctly, you said 25 nitrogen plants

have been shut down since 1995 and perhaps 30—was that 39 percent of the production?

Mr. MCGREGOR. Thirty-five.

Mr. KING. Thirty-five percent of the production.

So then I would ask you, can you characterize for the committee

what the nitrogen production fertilizer industry in America looks

like today? How many plants have we left? And how long do you

expect them to hang on at these current natural gas prices that we

have?

Mr. MCGREGOR. There are still a few U.S.-based manufacturers

of nitrogen. We certainly hope they will continue.

We have gone from being a nitrogen-exporting country to a country that imports close to 50 percent of its needs. New production

plants are going on line in countries of the Caribbean, in countries

around the Red Sea. We are not seeing new production plants

going on line in the United States.

I do think, with the availability of pipelines and infrastructure

already in place, out in a portion of the Gulf of Mexico that there
29

could be a chance to provide a major boost for what remains of the

domestic nitrogen industry by providing us access to affordably

priced natural gas. And I hope that occurs.

Mr. KING. And Mr. McGregor, I asked the question because my

reaction earlier was that as essential as this is to our food production in America, as essential as I know you know it is, it seems to

me that your response was just a bit tepid given the urgency of

this.

And so I wanted to emphasize this point: That the numbers that

I hear out of the industry are that there are perhaps 406 trillion

cubic feet of natural gas on the Outer Continental shelf. Why

would we not want to open that whole thing up and immediately,

in one fell swoop, save the natural gas and fertilizer industry in

America?

Mr. MCGREGOR. I will replace my tepid comment with a passionate one.

We need to protect and enhance what remains of our ability to

produce nutrients needed to grow foodstuffs for Americans and people overseas. There could be little else that would be as urgent as

that. We need help and we need it soon.

Mr. KING. The Chair thanks the gentleman for his passion and

all the witnesses for their testimony. We appreciate the record that

you have helped build here today and your contribution to this future policy that we will be developing out of this Agriculture Committee.

And, again, I thank you and dismiss you and ask the next set

of panelists to please step forward and be seated.

Thank you, gentlemen.

Now that the second panel is seated, I welcome you as witnesses

before this committee and make the introductions of the witnesses.

First, Ms. Audrae Erickson, who is president of the Corn Refiners Association from Washington, DC; Mr. Mike Malecha, senior

vice president of US Bioenergy on behalf of the National Grain and

Feed Association from Inver Grove, Minnesota; Mr. Rick Schwein,

senior vice president of Grain Millers, Inc., on behalf of the North

American Millers Association from Eden Prairie, Minnesota; Ms.

Sharon Clark, vice president of the transportation, Grain, and Oilseed Division of Perdue Farms, Incorporated, on behalf of the Alliance for Agricultural Growth and Competitiveness, from Salisbury,

Maryland; Mr. Paul Palmby, executive vice president and chief operating officer of Seneca Foods Corporation, on behalf of the

Canned-Frozen Food and Growers Coalition, from Janesville, Wisconsin; and Mr. Fred Hensler, commercial director of Mars, Inc., on

behalf of the Sweetener Users Association, from Hackettstown,

New Jersey.

Initially, I would recognize Ms. Erickson and please begin when

you are ready, Ms. Erickson.

STATEMENT OF AUDRAE ERICKSON, PRESIDENT, CORN

REFINERS ASSOCIATION

Ms. ERICKSON. Thank you, Mr. Chairman and members of the

committee. Thank you for the opportunity to share the views of the

Corn Refiners Association.
30

The Corn Refiners Association, or CRA, represents the corn wet

milling industry and has done so since 1913. Our members produce

a number of products for food use—highly specialized corn starches, corn oil, corn sweeteners, to name a few, among others—as well

as animal feed products like corn gluten feed and corn glutenmeal

and a number of products for industrial use such as ethanol and

bioplastics. We process up to 17 percent of the annual corn crop for

nonethanol products alone each year.

Our industry has formulated a position for the 2007 farm bill, a

position that stems largely from being a victim of a long-standing

trade dispute that has cost our industry more than $4 billion over

the past 10 years. In specifics, the CRA has no higher priority than

the long-term, permanent resolution of the decade-long high fructose corn dispute with Mexico; and the permanent resolution of this

issue is linked to the operation of the U.S. Sugar Program, an issue

of key consideration for the next farm bill.

Specifically, the long-term resolution of the dispute rests on twoway free trade in sweeteners between the United States and Mexico, as envisioned by the NAFTA, effective January 1, 2008. How

the U.S. Sugar Program is structured under the next farm bill is

crucial to ensuring that the free trade promise under the NAFTA

is realized in 2008 not only for our industry, but many others as

well.

If any element of the Sugar Program restricts or otherwise negates free trade in sugar between the United States and Mexico,

then corn sweeteners will be taken hostage yet again. Mexico will

simply stop imports of our high-quality sweetener at cost and loss

of jobs to our industry.

It is imperative that the next farm bill not limit imports of sugar

from Mexico through marketing allotment provisions or some other

mechanism. To do so would be in strict violation of U.S. commitments under the NAFTA, an agreement that has been highly beneficial for U.S. agriculture exports including beef, pork, poultry,

dairy, corn, soybean meal, apples, dryable beans and rice.

If the U.S. does not live up to its NAFTA commitments for sugar,

we can be certain that Mexico will be under intense political pressure to nullify its NAFTA free trade commitments for these highvalue U.S. exports, because these are Mexico’s import sensitivities.

Net farm income will drop precipitously if the Mexican market, a

top export destination for many of these exports, is shut off.

As you know, the 1.532 million short-term import trigger established under the marketing allotments in the 2002 farm bill currently enables only about 276,000 short terms of imports of sugar,

and that would encompass not only imports from Mexico, but other

bilateral free trade partners as well; and that would be above and

beyond what we owe to the WTO. In short, the existing market allotment trigger for sugar imports from Mexico would be incompatible with our NAFTA obligations if continued in the next farm bill.

No sugar provision should stand in the way or act as a limit to

full implementation of two-way trade in sweeteners, as I mentioned. The CRA will not be in a position to support the U.S. Sugar

Program in the next farm bill if imports of Mexican sugar are subjected to or limited by marketing allotments or any other aspect of

the Sugar Program.
31

For further consideration by this committee, it is clear that the

Sugar Program as is currently constructed will no longer be a nonet-cost program beginning in 2008. As forecasted by the Congressional Budget Office, the program will begin to incur taxpayer costs

in 2008 with annual costs averaging $248 million from the years

2008 through 2016, and reaching $340 million annually by 2016.

These projected costs are a direct result of the anticipated imports

of sugar from Mexico.

Finally, the corn gluten milling industry is very supportive of the

efforts of the Sweetener Users Association, who will testify momentarily, to reach out to the broader sweetener industry, including

sugar growers and refiners, to formulate a sugar policy that maintains a viable sweetener economy and is beneficial for all aspects

of the sweetener industry, including the corn refiners.

We thank you for the opportunity to testify before this committee, and hope that our comments concerning the need to ensure full

implementation of U.S. commitments for free trade in sugar with

Mexico will be fully incorporated in the sugar provision of the next

farm bill.

Thank you.

[The prepared statement of Ms. Erickson appears at the conclusion of the hearing.]

Mr. KING. Thank you Ms. Erickson.

The Chair recognizes Mr. Malecha for his testimony.

STATEMENT OF MIKE MALECHA, SENIOR VICE PRESIDENT, US

BIOENERGY CORPORATION

Mr. MALECHA. Thank you, Mr. Chairman. I am Mike Malecha,

and I am senior vice president of US Bioenergy Corporation, based

in Inver Grove Heights, Minnesota. I have over 30 years’ experience in the food, feed and industrial agriculture industry. US Bioenergy is a producer-marketer of ethanol and distillers grains.

I am on the board of the NGFA, National Grain and Feed Association, and my background in both the traditional agriculture

business and the expanding ethanol business gives me a perspective on the biofuels revolution that may shape the needs and the

revision of farm policy.

The NGFA has a long history of leadership and involvement in

agricultural policy issues, a testament to the importance of these

issues that play in U.S. agricultural competitiveness and our industry’s ability to grow its economic base and serve domestic and

world markets.

To continue to have opportunities to expand in all sectors of agriculture and remain globally competitive, NGFA has identified four

major priorities for the next farm bill:

First, understanding how large and how fast the biofuels market

will grow, and to craft policies that foster production to meet this

demand to serve all grain-dependent sectors;

Second, adjusting the conservation reserve program to provide

opportunities for U.S. agricultural growth, while enhancing protection of environmentally sensitive lands;

Third, developing farm programs that provide opportunities to

take advantage of market potential and minimize further trade dis-
32

ruption brought about by litigation under the World Trade Organization; and

Fourth, minimizing Government involvement in grain stocksholding to avoid price depressing impacts on agriculture markets.

By far the single most important development that will affect

supply-demand balance sheets, commodity prices, and the pattern

of growth in various U.S. agricultural sectors in the next 5 years

will be the development rate of the biofuels industry.

For the NGFA, biofuels is not a food versus fuel issue. In fact,

we count among our membership the largest ethanol producer, the

largest biodiesel producer, the largest commercial feed manufacturers, the largest grain exporters and some of the largest poultry integrators in the United States, as well as several very large food

companies. Each may have a different focus, but they share one important priority: ensuring a sufficient supply of grains and oilseeds

to meet demand.

For the NGFA and its member companies, the biofuels issue is

a resource capacity issue, particularly with respect to the land and

to transportation. Forecasts regarding the ethanol industry’s likely

expansion rate in coming years range from USDA’s most recent estimate of 10 billion gallons of capacity achieved by 2012 to some

private estimates that forecast production will exceed 10 billion

gallons in less than 3 years.

Estimates suggest that 35 percent or more of the corn crop could

be utilized for ethanol during the life of the next 5-year farm bill.

Today, provided projected ethanol returns remain reasonably

healthy, the market has the capacity and the financial backing to

add roughly 2 billion gallons of ethanol capacity every year, representing more than 700 million bushels of new corn demand each

and every year. And the bottom line is that impacts could be huge.

To avoid supply disruptions to all users of corn, the market needs

to have the opportunity to bid more acres into corn production. Recognizing that there will be some annual improvements in yield,

there are only two substantial ways to accomplish that: one, to pull

acres now used for other crops into corn production; or implement

policies flexible enough to permit the market to bid for productive,

nonenvironmentally sensitive land expiring from CRP.

Over the life of the next farm bill, it is entirely conceivable that

the United States will require an additional 8 million to 10 million

planted acres of corn to avoid triggering sharp declines in livestock

profitability, supply interruptions and long-term export market

issues. Without some reductions to idle CRP acres, other crops

could lose substantial planted acres.

NGFA certainly recognizes the importance of conservation measures; however, there is also a need to support U.S. agricultural

growth and a healthy rural economy. As such, the NGFA supports

conservation programs that foster sound farmland conservation

and environmental stewardship practices while reducing the idling

of productive land resources.

In context, we believe several CRP policy options merit consideration, such as reducing the current statutory cap on CRP enrollments, placing a statutory limit on annualized authorized funding

levels and/or altering rental rates that are established to ensure

Government does not overpay for subsidized item programs. Gov-
33

ernment bidding for productive CRP acres in competition with the

private sector hampers efficiency and dampens U.S. agricultural

growth.

Regardless of the method, it is critical for the long-term viability

of the U.S. grain and oilseed industry to provide sufficient flexibility to bring idle cropland back into production when market conditions warrant.

Another consideration for Congress is adjusting CRP to ensure

that any acres that exist exit the program on an even footing with

other base acres with respect to farm program payment eligibility.

Unless such equity is achieved, there will be significant economic

disincentive to restore nonenvironmentally sensitive CRP acres to

production.

The NGFA believes that refinements to the CRP will be essential

to obtain the increased number of corn and soybean acres likely to

be needed to support a growing biofuels industry while meeting the

demand for corn from export, livestock and poultry markets as well

as food processors.

Hiring protective farm land runs counter to the support Congress

and the administration has shown to biofuels and creating opportunities for growth. NGFA is not alone in expressing concerns about

CRP. The message is a wide range for U.S. agriculture is clear.

Thank you.

[The prepared statement of Mr. Malecha appears at the conclusion of the hearing.]

Mr. KING. I thank the gentleman and recognize Mr. Schwein for

his testimony.

STATEMENT OF RICK L. SCHWEIN, SENIOR VICE PRESIDENT,

GRAIN MILLERS, INC., EDEN PRAIRIE, MN, ON BEHALF OF

THE NORTH AMERICAN MILLERS’ ASSOCIATION

Mr. SCHWEIN. Thank you, Mr. Chairman and other members of

the committee.

I am Rick Schwein. I am senior vice president with Grain Millers, Incorporated. We are a privately owned processor

headquartered near Minneapolis.

We employ about 350 people in our mills and packaging plants

in the United States. We operate oat mills in St. Ansgar, Iowa and

Oregon as well as a mill in Canada. We pack private label and

branded hot cereals and process and blend wheat, barley and rye

and other grains to meet the growing demand for whole grain products.

I have been in the grain and milling industry for more than 30

years and am here today representing the North American Millers’

Association. NAMA’s members produce more than 160 million

pounds of mill grain products from wheat, oat and dry meal corn

products every day, over 95 percent of the industry capacity.

The food millers of oats in the country will use about 120 million

bushels of oats this year, over 90 percent of which are imported.

Last year, in 2006, the crop was merely 107 million bushels. That

is the lowest level of oat production in the country since the USDA

has been keeping records just shortly after the Civil War when

President Lincoln created the department.
34

Over the last 20 years, we have seen planted oat acreage collapse. Mills have shut down. Hundreds of jobs have been lost in the

oat industry. And we see—as Congressman Peterson mentioned

earlier, we see the dilemma in this industry in oats today is exactly

where the wheat industry is headed if the crisis—the developing

crisis in wheat isn’t addressed. The area planted to wheat has

dropped by 18 million acres, or 24 percent, in just the last 10 years.

Not too many years ago—certainly when I got started in the industry and much more recently than that—the thought that the

Unites States would import cereal grains was simply unthinkable.

Now, however, we are all eating imported oatmeal every day and

in most years U.S. millers are importing hardwood Spring wheat

for bread and bin wheat for pasta to supplement the shortage in

the U.S. crop.

There are a lot of reasons for this precipitous decline in wheat

and oats, but today I focus on two factors: the farm program and

the conservation reserve program.

If we look at the Federal farm program, it is clearly telling our

producers around the country, Uncle Sam is saying don’t plant

wheat. Don’t plan oats. Plant corn. Plant beans. Plant other minor

crops with high support prices, but don’t plants wheat or oats.

We think what we need is to look at the situation and develop

a farm program that doesn’t discourage production of one crop but

rather supports multiple decisions by the producers.

In addition to the problems with the farm program, we have

heard it said this morning, since 1986, the CRP has idled as much

as 36 million acres of land, and that is principally concentrated in

wheat- and oat-growing regions. Now absolutely some of that land

is highly erodible, never should have been planted to crops in the

first place and should remain in some conservation program. However, a big share of that acreage could be farmed today in environmentally sustainable ways.

As we look ahead, NAMA believes that, with courageous action

in the new farm bill, Congress has an opportunity to breathe life

into this vital food-strategic industry for whatever amount of

money Congress deems appropriate to provide as a safety net for

growers. We implore you to look for mechanisms for distributing

that money in ways that do not distort or influence producer or

planting decisions. We must end up with a farm bill that allows the

markets to determine what needs to be planted. My colleagues, the

wheat and oat millers, are more than willing to compete with processors of competing crops to encourage farmers to plant more of the

grains that we need through higher prices, but we can’t compete

with the deep pockets of the U.S. Treasury.

We support retaining truly environmentally sustainable land. We

believe environmental goals can best be met by focusing conservation dollars on waterway filter strips and similar areas which provide the best return on that investment. But retiring entire wheat

farms doesn’t seem to make a lot of sense.

Another benefit or possible direction for the release of some of

these CRP acreage is to look at converting that land into organic

grain production. It is the largest growing segment in the demand

for processed grains that we have, and that acreage would be ideally situated to moving into organic production.
35

We also need to look at the CRP rules to add flexibility so growers can respond to the market signals like higher prices without extreme penalties, as currently is the case.

There should be little doubt that the U.S. is going to need these

extra acres. Mike just mentioned we are going to need over 10 million acres of corn over the next 3 or 4 years. That is an increase

of about 13 percent, but where will these acres come from? Oats

have nothing left to give. That is all gone already, and wheat is

headed for the same crisis.

Failure to significantly reform the CRP could mean that reducing

our dependence on foreign oil may result in an increased demand

for dependence on foreign grain. I find it the height of irony that

the U.S. Government through the Food and Drug Administration

in the U.S. 2005 dietary guidelines were encouraging consumers to

eat more grains, but, at the same time, we are very directly discouraging growers from producing those very same grains.

We believe Congress has a major opportunity to improve conditions for the entire wheat and oat value chain from producer

through the end consumer. This can be achieved, we believe, by reforming the farm program to reduce the Government-caused distortions of production decisions and by reforming the CRP to allow

sustainable acres back into production.

Mr. Chairman, thank you very much. I am delighted to have the

opportunity to address the committee today.

Mr. KING. Thank you, Mr. Schwein.

[The prepared statement of Mr. Schwein appears at the conclusion of the hearing.]

Mr. KING. Ms. Clark.

STATEMENT OF SHARON CLARK, VICE PRESIDENT, TRANSPORTATION, GRAIN AND OILSEED DIVISION, PERDUE FARMS

INCORPORATED, SALISBURY, MD, ON BEHALF OF THE ALLIANCE FOR AGRICULTURAL GROWTH AND COMPETITIVENESS

Ms. CLARK. Thank you, Mr. Chairman, for the opportunity to

participate in this important and very timely hearing regarding a

new farm bill. On behalf of the Alliance for Agricultural Growth

and Competitiveness, or the AAGC, I appreciate your invitation to

share the Alliance’s recommendations to help enhance U.S. agriculture’s ability to meet the demands of expanding markets at

home and abroad.

My name is Sharon Clark, and I am vice president of transportation for Perdue Farm’s Grain and Oilseed Division.

Headquartered in Salisbury, Maryland, Perdue Farms is a major

producer of agricultural products, from refined soybean oil to feed

ingredients to poultry.

Agriculture is in a period of dramatic change, becoming a source

of energy as well as food and fiber for global consumers. During the

years ahead, the growth and demand for agricultural products is

expected to be strong. Hundreds of millions of people in the large

population countries of Asia are earning more income and upgrading their diet to include more meat, poultry and dairy products.

Around the world, the high cost of energy is pushing agriculture toward ethanol and biodiesel production. Within the U.S., the de-
36

mand for corn for ethanol use is expected to grow by 30 percent a

year over the next couple of years, with a likely doubling of corn

use for ethanol to nearly 3 billion bushels to 2010 or shortly thereafter. U.S. biodiesel production from vegetable oils and soybean oils

and other oils is expected to grow even faster, although from a

smaller base.

The AAGC respectfully reminds policymakers of the tremendous

importance of the domestic livestock and poultry sector when foreign policy changes are being considered. The period ahead offers

great opportunities for growth in U.S. agriculture so long as our agricultural base remains competitive and U.S. farm policies and programs that market base choices decide the future balance among

users and allows full production on productive U.S. farm land.

One of the most important elements of a new farm bill is to successfully address the increasing demands on agriculture for food

and energy. The AAGC respectfully submits the following recommendations:

First, the Congress should allow some of the non-erodible, nonenvironmentally sensitive land in the CRP to respond to market

signals to return to agricultural production. This is critical to U.S.

agriculture because there could come a time in the years ahead, especially if unfavorable weather should occur, when U.S. agriculture

may not be able to meet the increased demands for ethanol and

biodiesel while meeting the needs of U.S. production of poultry,

livestock products and exports. We are entering an era where fuel

will be competing with food for U.S. agriculture products, and it is

vital that all viable acreage be available to come into production to

ensure adequate supply of grain and field for fuel and food.

Second, the Congress should proceed on schedule to draft and

enact a new multi-year year farm bill in 2007. The U.S. needs a

new farm bill that modifies current programs to assure the U.S. remains competitive and can take advantage of the growth opportunities ahead. Further, a new farm bill is necessary to address World

Trade Organization obligations. Addressing those obligations now

in a positive manner through a new farm bill will allow the U.S.

to advance an aggressive international trade agenda that will improve the outlook for growth in the agriculture growth sector. Otherwise, in the years ahead major crops will be subject to the uncertainty of trade litigation in the WTO and we may be faced with a

need to alter farm programs mid-stream or, worse, face trade litigation.

Third, the Congress should continue its current policy of not supporting Government storage programs. Programs which pay for

storage of grains and oil seeds compete with and replace storage

that is normally provided by producers commercials to carrying

charges in the market. In addition, Government-controlled stocks

want the price signals needed by the producers to react to changing

market conditions.

Fourth and finally, the Congress should move towards less market-distorting income support programs. Direct income support

payments tend to be the least market distorting, allowing producers to react to the rapidly changing markets expected in the period

just ahead.
37

Mr. Chairman, I have submitted written copies of my testimony

and request that they be accepted into the record. Thank you for

the opportunity to speak.

Mr. KING. Your documents will be accepted into the record without objection.

[The prepared statement of Ms. Clark appears at the conclusion

of the hearing.]

Mr. KING. The Chair recognizes Mr. Palmby.

STATEMENT OF PAUL PALMBY, EXECUTIVE VICE PRESIDENT

AND CHIEF OPERATING OFFICER, SENECA FOODS CORPORATION, JANESVILLE, WI, ON BEHALF OF THE CANNEDFROZEN FOOD AND GROWERS COALITION

Mr. PALMBY. Thank you, Mr. Chairman and members of the committee. I am Paul Palmby, executive vice president and chief operating officer of Seneca Foods Corporation.

Seneca Foods is the largest food and vegetable processor in the

country, with 22 plants located in New York, Wisconsin, Minnesota, Illinois, Idaho and California. We contract directly with

over 3,000 producers for over 300,000 acres to supply our plants

with raw product.

Mr. Chairman, I would like to thank you and Mr. Peterson for

the opportunity to testify today on behalf of Seneca’s 12,000-plus

full-time and seasonal employees as well as the Canned, Frozen

Food and Grower Coalition. CFFGC is a coalition of food and vegetable farmers, processors, trade associations and others from across

the Midwest which seeks flexibility for farmers to diversify by producing fruits and vegetables for processing. The principal vegetables at issue are tomatoes, sweet corn, green beans, peas, pumpkins, lima beans, cabbage and red beets, all grown under contract

for processing.

I would like to emphasize that the 2002 farm bill FAV production

restrictions are not a processor problem so much as a problem for

agriculture in the Midwest. The most direct and substantial damage caused by the FAV restrictions is borne by producers seeking

to diversify. When Charlotte Ousley’s husband was killed in a

farming accident, the Farm Service Agency wrote her to say that

she and her children would not be allowed to continue vegetable

production under her late husband’s grower history.

Each year, as growers across the Midwest are forced out of the

vegetable production or choose to stop growing fruit and vegetables

for processing, the supply of fruits and vegetable for processors is

reduced. The accumulating loss of growers poses a long-term threat

to the processing industry, creating a substantial opportunity for

our primary competition: foreign producers of processed fruits and

vegetables.

Seneca foods is currently the largest exporter of canned vegetables, with nearly 10 percent of our revenues derived from sales to

over 60 countries. Having traveled in the last 24 months to both

Thailand and Brazil, I can report firsthand that their quality is improving, their productive capacity is expanding, and their efficiency

is increasing. There is simply no question as to whether they will

match our domestic quality and consistency. It is merely a question

of when.
38

The factors limiting U.S. competitiveness, like the restrictions on

fruit and vegetable production, are a serious threat to our U.S. vegetable processing industry.

Mr. Chairman, the 2002 farm bill FAV restrictions have hurt

U.S. vegetable processing for three basic reasons:

First, when soybeans became a program crop under the 2002

farm bill, practically all of the quality farmland in the Midwest

came under the FAV production restrictions.

Second, restrictions on FAV production have proven to be unworkable. Allowances for fruit and vegetable production due to

farm history do not provide for reasonable crop rotation. Restrictions on the use of producer history by family members have proven unreasonable.

Third, many landlords in the Midwest now refuse to allow FAV

production on their land out of concern that a future recalculation

of base acreage may result in a loss of base.

In combination, these restrictions reduce the availability of land

for FAV production. Fortunately, there is a very good solution:

Farm Flex. Mr. Pence’s legislation, H.R. 2045, would permit production of vegetables for processing on program acres provided that

an acre-for-acre reduction in program grant payments occurs. In

addition, Farm Flex would clarify that Congress intends any future

recalculation of base acreage to treat FAV grown for processing on

base acreage the same as production of a program crop.

Farm Flex would allow farmers greater flexibility, reinforce family farm policies, remove an encumbrance on the international competitiveness of the U.S. vegetable process industry an even reduce

Government expenditures. Farm Flex would not harm fresh vegetable producers.

Prior to the 2002 farm bill, there was abundant land available

for production of fruits and vegetables without restrictions. If Midwest-grown produce were a threat to take over the fresh market,

it certainly would have occurred prior to 2002 when land was readily available for that purpose. It did not happen. Under Farm Flex,

there would be far less potential for Midwest production of fresh

vegetables than prior to the 2002 farm bill. After all, Farm Flex

only permits production of fruits and vegetables for processing.

Mr. Chairman, if competitiveness issues like FAV restrictions remain in place, it will only be a matter of time before American

canned corn is replaced by corn from Thailand, Brazil and China.

Mr. Chairman and the members of the committee, thank you. I

appreciate your consideration of our concern and will be pleased to

answer any questions you might have.

[The prepared statement of Mr. Palmby appears at the conclusion of the hearing.]

Mr. KING. Thank you, Mr. Palmby.

The Chair would recognize Mr. Hensler for his testimony.

STATEMENT OF FRED HENSLER, COMMERCIAL DIRECTOR,

MARS, INC., HACKETTSTOWN, NJ, ON BEHALF OF THE

SWEETENER USERS ASSOCIATION

Mr. HENSLER. Mr. Chairman and members of the committee,

thank you for the opportunity to testify at this hearing on the 2007

farm bill.
39

I am the commercial director for raw materials for Mars, Incorporated. I am testifying today in my capacity as first vice chairman

of the Sweetener Users Association.

As sugar users, we want and need a strong and healthy domestic

sugar industry that commands beet and cane producers, processors

and independent cane refiners.

We see some real problems with the current Sugar Program.

That doesn’t mean we advocate that the United States eliminate its

policy. Instead, we should come together as an industry—growers,

processors, refiners and users alike—to arrive at a consensus on

the best Government policy.

The Sugar Program is different from the Government support

policies of other commodities in several aspects. Two of the most

important differences are import quotas and marketing allotments.

Few other commodity programs rely on import quotas, and none

rely on marketing allotments.

The turbulent sugar markets of the past year have highlighted

some deficiencies in the current program. Obviously, the Sugar

Program did not cause last year’s hurricanes; and the markets

would have reacted no matter what the policies were that were in

place at the time.

The question is whether the current Sugar Program reacted well

to sudden shocks; and, unfortunately, it did not. For example, even

after the hurricanes had done significant damage to the Louisiana

sugar crop and it closed a major cane refinery, there was still perfectly good sugar that processors were willing to sell and industrial

users were more than willing to buy but which could not be legally

sold because of the allotment system. Eventually, the USDA did

free up the sugar; and I want to commend them for many acts that

they took in the wake of the hurricanes. But it should not be necessary for the Federal Government to give buyers and sellers permission to enter into commercial transactions.

One of the fundamental problems with the current sugar policy

is that it puts the Government in between buyers and sellers, often

to the detriment of the market needs. In my testimony, I have cited

other problems that occur in a tight market. I don’t want to leave

the impression that the Sugar Program works fine in tight markets. It doesn’t. In fact, the history of the Sugar Program over the

past 25 years has more often been a history of surplus domestic

production rather than shortages. Surplus domestic production is

not in the long-term interest of the industry and should not be a

policy goal any more than a short-term market should be.

Looking briefly towards the future, Mr. Chairman, we believe

that there are compelling reasons to revise the Sugar Program. Domestic sugar use is flat, and close to 10 percent of the domestic

sugar demand is being filled by imported sugar-containing products. The incentives to expand these products is directly related to

the typically wide spread between the U.S. and world sugar price.

The structure of the current Sugar Program has been associated

with the loss of thousands of manufacturing jobs. This was documented in a recent Commerce Department study. Unfortunately,

the situation has gotten worse. From 1997 through 2004, Government statistics now show that food and beverage sectors using

sugar actually lost 70,000 jobs—almost a 10 percent decline—even
40

as food and beverage sectors that do not use sugar saw job growth

of 4 percent, or about 35,000 jobs.

Finally, trade policies factor including an open border with Mexico in less than 2 years; and the prospect of increased export obligations under trade agreements strongly suggest the need to think

about alternative sugar policies. The current program is not sustainable in the face of trade realities.

Mr. Chairman, we believe that future Sugar Programs should be

redesigned to be more closely aligned with the realities of world

trade while still protecting producer income and promoting greater

market orientation. A variety of programs could be consistent with

these principles. For example, the committee might decide to make

the Sugar Program like other farm programs with marketing loans,

direct payments, counter-cyclical payments. That is exactly what

this committee did with the peanut program in 2002 when the program faced challenges that were quite similar to those now facing

the Sugar Program. SUA could support a range of alternatives if

they achieved our reform goals.

Let me also emphasize there might be acceptable reform options

that do not involve direct payments to producers or processors.

We believe change is coming and that all of us will be better advised to work together towards a sustainable policy that will meet

the needs of all stakeholders. We believe those goals are also

shared by this committee, and we look forward to working with you

as you develop your next farm bill.

Thank you for this opportunity.

[The prepared statement of Mr. Hensler appears at the conclusion of the hearing.]

The CHAIRMAN [presiding]. Thank you, Mr. Hensler.

Let me start by asking as many members of the panel as care

to answer the question. Several have discussed the negative impact

that CRP has had on local communities. Young and new farmers

and of specific crops and witnesses have suggested this problem

may become more pronounced as the need for corn acres increased;

and I wonder if, starting with you, Ms. Erickson, you might talk

about your perspective on that and what recommendations the

committee could consider to solve this problem.

Ms. ERICKSON. I am going to yield my time to others on the

panel to answer that specific question.

Mr. MALECHA. Let me take a stab at it.

What we have seen in rural areas, of course, is that, with CRP,

land that entered the program over the last few years—a lot of the

land—the very good land goes in with some of the power land or

the more marginal land. So what we would like to see is readdressing the program to make sure that the highly productive land can

come out of the program economically when that drives the issue.

The other is we are going to see filter strips being added to protect our inland waters, and we support that, but that land tends

to be very productive land. So the whole program, if it could be revisited, would help make good land available for production when

it is needed and when the economics allow.

Because it has taken time over the last 15 years or so with the

program—a lot of the small towns have seen brain drain and people leave the area, economics leave the area. It is part of why the
41

biofuels industry has moved to put plants in those areas, to help

bring back that production.

The CHAIRMAN. Thank you.

Mr. Schwein.

Mr. SCHWEIN. Mr. Chairman, in the oat industry, we have seen

such huge drops in production over the last 15 to 18 years. A lot

of that decrease occurred as a direct result of the implementation

of CRP in 1986.

While it is true that there are a number of acres in the CRP that

are environmentally sensitive, it is also equally true that oats tended to be planted on some of the less productive acreage on a farm.

While we fully support the environmentally sensitive land being in

CRP, if it is truly environmentally sensitive, we need to find a way

to bring the other productive acreage back out into production.

More flexibility for producers as they respond to market signals,

lower penalties as they look back at decisions that might have been

made a decade ago with new farming practices, those decisions

seem correct in hindsight. So we would like to revisit the entire

process to see if some of that needed acreage can be brought back

to meet the demand for acreage in the future.

With 10 billion more corn acres needed in the next few years, it

needs to come from somewhere. Tillable land is a finite resource.

They only have so many crop acres. Figuring how to allocate that

land is a significant challenge.

The CHAIRMAN. Thank you.

Anybody else.

Ms. CLARK. Mr. Chairman, if the AAC’s mission is to promote agricultural growth and competitiveness overseas and with the tsunami of biofuels growth that we are going to be encountering, we

think it is vital that viable land comes back into production. We

understand that there was testimony provided to a committee last

week by Dr. Keith Collins, Chief Economist of the USDA, who indicated that there is somewhere between 4.3 and 7.2 million acres

currently enrolled in the CRP that could be used to grow corn and

beans in a sustainable way, and we would strongly encourage that.

The CHAIRMAN. Thank you.

Mr. PALMBY. From the processing and the canned food grower coalition perspective, I think we would also like to see as much as

possible productive land brought in and growers given the flexibility to be able to grow crops on those acres and let the economics

dictate what they should do.

The CHAIRMAN. Very good.

Ms. Erickson, let me try again. What are the ramifications of an

open sugar market with Mexico?

Ms. ERICKSON. I can tell you, Mr. Chairman, that for the corn

refining industry it is a very positive picture. We anticipate that

we could capture a very sizable amount of the sweetener market

in Mexico, given our highly competitive corn sweetener; and we

would have done so, had we not been shut out of the market for

this period of time. In fact, we have had an economic analysis that

shows that full implementation of the NAFTA for corn sweeteners

could increase the price per bushel of corn by $0.06 nationally and

up to $0.10 in key corn States.
42

The CHAIRMAN. And lead back into the last question. Do you

have any concerns about the corn refining industry’s ability to obtain enough corn to profit and supply both the U.S. and Mexican

sweetener markets?

Ms. ERICKSON. Well, as long as the margin is there to produce

the market, we will make it. And, of course, there will be, as we

see, some supply considerations. We are counting on a number of

factors, not the least of which biotechnology, to assist our industry

in the coming years.

The CHAIRMAN. My time has expired. We will turn now to the

gentleman from Kansas, Mr. Moran.

Mr. MORAN. Mr. Chairman, thank you.

A lot of our discussions about farm policy are predicated on the

growing—one of you used the word bioenergy—a growing demand

for ethanol, soy diesel and other renewable fuels. Do any of your

associations or business plans include predictions based upon the

current price of oil and the declining price as compared to what we

had just even several months ago? Is there something we ought to

be aware of that is happening in regard to the demand for bioenergy as a result of declining oil prices?

Mr. MALECHA. Congressman, that is a wide open question, but

I think most of the models, if you look at for the expansion of

biofuels industry, has been based on oil levels significantly below

current levels; and yet we have seen the lower end of that market

move north as well.

So to not go around the question, I think it is a combination. We

are going to see grain supply, and we support all forms of feed

stocks to produce biofuels, whether it is ethanol or biodiesel or anything else that would be feasible. But a lot of those products take

more time and research to get the enzymatic action to be efficient

in corn right now, along with sugarcane or sugar products would

be the most effective to date. So everything we have seen in terms

of global energy pricing is still significantly capable of protecting

the industry. Now, in 5 years, 10 years, those ratios change, but,

overall, the forecast is in range.

Mr. MORAN. Good to hear. I see bioenergy as a huge opportunity

for agriculture, but I wanted to make sure that we all are operating within the models that suggest it is a viable industry into the

future. Anyone else?

Mr. SCHWEIN. Congressman, I think I have two comments. We

have been looking at ethanol internally for months and months and

months, and two things are true in our examination of the opportunities.

One is that the price models for construction of production capacity have risen maybe as much as 50 cents a gallon, or a third, in

the 10 months we have been looking at it, while the recommendations on the long-term price for ethanol have—in the last 60 days

or 90 days have begun to drift lower. So while the economics certainly look very, very good for ethanol production, the change in

the model would seem to suggest that the next 4 years will not see

100 percent of the plants being built that are currently being discussed today.

In the same breath, as an oat miller, about 40 percent of our raw

material, the inbound oats is a byproduct. In wheat milling, it is
43

24, 25 percent. In oat milling, it pushes 40 percent. It is very high.

It is about 7,500 BTUs per pound, which is high. We see the value

of the byproduct for use as fuel to be roughly five times its value

for use as a feed ingredient.

So we are exploring aggressively use as a byproduct for energy

production, and with starch conversion today so easy we are not

seeing too much effort on the cellulitic front. But while we talk

switch grass planted on some of these acreage, that has to be collected and shipped to a processing center. Every oat mill in the

United States has 40–80,000 tons of by-products that is already

gathered in one spot, 80,000 tons of those by-products that support

about a 35 million gallon ethanol plan.

Mr. MORAN. I have one second question, sir.

Mr. MALECHA. Let me add one comment. I know the city of Minneapolis has burned oat hulls for fuel for a long time, and we are

seeing corn stover as a possible fuel source as well as long as it is

managed with a certain amount of product left on the field for the

industry to offset natural gas costs or other energy sources.

Mr. MORAN. So there is still a lot of innovation that will occur

at a variety of price levels for our competing source of energy, an

extension of the farm bill that many commodity groups, farm organizations, including many Members of Congress, have proposed and

support. I am not yet one of those but could be.

I wondered, if we do something as a simple extension of the farm

bill, are there things that we need to correct or so-called ‘‘tweak’’

before we simply would extend to the current farm bill? Much of

the conversation is what the next farm bill should look like. Is

there something we should correct in the current one if the movement in the current farm bill is successful?

Mr. PALMBY. One of our concerns on the fruit andvegetable restrictions on program acres has been something that is a progressively worse problem every year as growers go out of production.

While we respect all of the issues around farm bill implementation

and the debate on whether to extend it or not extend it, we are certainly interested in seeing that problem fixed sooner rather than

later.

Mr. MORAN. Thank you.

Yes, ma’am.

Ms. ERICKSON. Congressman Moran, the Corn Refiners Association believes that in order to be compliant with our NAFTA obligations, which is just 3 months, of course, after the next farm bill

must be written, that we need to look seriously at altering the marketing allotment aspects of the U.S. Sugar Program to allow for unlimited free trade in sugar with Mexico.

Mr. MALECHA. Just one comment to add; and that is, the sense

of urgency if we do even bring acres out of CRP, a lot of that ends

up being in CRP long enough to be totally productive. It will take

1 to 2 years to get it back to full production. We don’t want to wait

overly long for future programs to come in and engage that.

Mr. MORAN. Thank you.

Mr. SCHWEIN. Congressman, we believe that course would lead

us down a path of tremendously missed opportunity. We are seeing

such huge declines in weed acreage, with a quarter of the crop now

over the last 10 years, that the infrastructure is starting to erode.
44

And as we know from what oats have been over the last 15 years,

once we lose the infrastructure in the country, the country elevators to handle the crop, the transportation infrastructure to move

the crop, once we lose that in a county, in a region of the country,

it is very difficult to bring it back even when the producers are

ready to grow the crop again. So we think extending the farm bill

would be a big missed opportunity.

Ms. CLARK. On behalf of the AAGP, we believe we would like to

see a new farm bill promoted both in order to get addressment of

the CRP issues to ensure production to meet our export, our livestock, poultry as well as biofuel demand. Also, we would like to

take that opportunity to address WTO issues so that our major

farm programs are not subject to potential litigation or trade disputes in future years.

Thank you.

Mr. MORAN. Mr. Chairman, thank you very much.

The CHAIRMAN. I thank the gentleman.

The gentleman from Minnesota, Mr. Gutknecht.

Mr. GUTKNECHT. Thank you.

Once again my colleague from Kansas has asked very insightful

questions, questions that I wanted to ask; and I wish that more of

my colleagues had been here to hear the questions and answers.

Because there has been sort of a chorus of folks who say, just extend the farm bill. We really haven’t heard that many folks who

have expressed a somewhat different point of view, and I think

that was helpful. As I say, I wish more of my colleagues had heard

it.

Let me say, first of all, welcome to the two gentlemen from Minnesota. We are happy to have you here today. I was intrigued by

your responses talking about renewable energy and the use of what

might be described as waste products. Are either one of you familiar with some of the research that is being done with the University of Minnesota on some of those kind of things?

Mr. MALECHA. I am fairly aware; and if some of that research

takes off, the next series of energy products will be significant. So

the hydrogen conversion, many different things, our land grant university, I think that is an area we need to see pushed to get research timely and with aggressive input. Your help would be greatly appreciated.

Mr. GUTKNECHT. I am sorry. Mr. Schwein, one of the things we

are trying to do and hopefully will be incorporated into the next

farm bill is essentially trying to deal with the way we deal with

research money in a more professional way. I want to be diplomatic

here. But the truth of the matter is, if we compare how we handle

research within the agriculture budget compared to how research

is handled at NIH, for example, my own view is it needs to be

much more peer-review-driven research. It has become in some respects a honey pot for certain powerful legislators here in Washington; and without being critical and trying to remain diplomatic,

that is one of the things I want to see in the next farm bill.

The other thing I want to see—and, Mr. Palmby, I want to thank

you for coming. You and your members have done a marvelous job

in educating me. I have not only become a cosponsor in your Flex

Act, I have been a real salesman. And, again, I wish more Mem-
45

bers were here to hear this testimony about what we are doing

with the vegetable crops in the United States.

Vegetable crops are extremely, important in my district. I appreciate the education that I received—that we grow over 51,000 acres

of vegetable crops in my district. We are one of the largest producers of sweet corn; and, of course, I knew that. We grow the best

sweet corn in the United States of America, because the genetics

that they have developed is just incredibly sweet corn.

But we also produce a lot of amounts of peas and beans and

other vegetable crops that ultimately wind up in cans. We have

made it incredibly difficult for our processors to get the acreage

they need, and the net result is we are now trucking these vegetable crops very long distances to get them to the canning facilities

which we have scanning out throughout the upper, upper Midwest.

So I want to thank you, Mr. Palmby, for what you and your team

has done; and it is one of the areas that, if we do extend the farm

bill, I will insist that we make some kind of accommodation along

the lines of the Flex Act so we can get the acreage and we don’t

penalize farmers who wanted to look at these kinds of crops that

they could grow on their grounds.

So I don’t particularly have a question. As I say, my colleague

from Kansas always asks the best questions. But I want to thank

you all for coming; and again, hopefully, we can share some of this

information with our colleagues who weren’t here.

Mr. PALMBY. We very much appreciate your leadership on this

issue, and I couldn’t have stated our case better than you just did.

So very much thank you.

[Mr. Schwein responded for the record as follows:]

Publicly funded research for oats and wheat is critical to developing varieties that

offer farmers a good return on their investment that will enable farmers to compete

with other crops that enjoy vastly greater levels of federal support.

The National Institute of Food and Agriculture Act of 2006 that has been introduced in the Senate proposes to address inadequate funding levels for U.S. agriculture research through a competitive funding process. NAMA’s position is that any

competitive funding process has to be in addition to current formula funding. If competitive funding comes at the expense of formula funding, it will be extremely detrimental to the applied research being conducted in oats and wheat.

Furthermore, in a competitive funding process, oats and wheat can be hampered

by their comparatively lower profile and the extended timeframes for research to result in commercial varieties.

The CHAIRMAN. Let me follow up on that and ask you, Mr.

Palmby, we have been looking at this issue in legislation for quite

some time. What is causing the acreage of fruits and vegetable

processing to go down? Is it reduction in payment to the producer,

or is it the producer or landowner apprehension about losing base?

Mr. PALMBY. I think the overall acreage of fruits and vegetables

is declining because there has been consolidation in the industry

and driving down inventories overall. That can’t go unrecognized.

There certainly has been a dramatic increase over the last few

years in imports from Canada, Thailand, Brazil, a couple of years

ago, not so much in the last couple of years, because of large corn

crops driving down market pricing over the last 2 years. But the

import problem has been a significant issue.

I think, to answer the question that you referred to in regards

to growers protecting base, the growers are very concerned after

the last farm bill and the revision of base acreage that they are in
46

a position in the future to maximize potential recalculations of base

acreage. We are seeing landlords not interested in renting land to

growers and producers that are going to produce vegetable crops

providing hardships for some producers that wish to diversify into

vegetable crops.

The whole rotation issue, for example, as Congressman Gutknecht alluded to one of our facility pea acreage, is an interesting

thing. You need to rotate peas on a very regimented basis; and

even after three or four crops of peas on the same acre you may

not be ever, ever be able to grow peas back on that crop again. So

it is imperative that you are able to have new acreage coming in

that is able to be used for production.

So I hope I answered your question.

The CHAIRMAN. I thank you very much.

Mr. Hensler, let me ask you, you mentioned in your testimony

that your organization has hosted industry-wide discussions regarding the future of U.S. sugar policy. I would appreciate knowing, if you plan to continue those future meetings plans, what results do you anticipate?

Mr. HENSLER. We had an industry-wide meeting about 6 weeks

ago in Chicago where the entire sugar industry as well as users

and processors and growers were there. We are continuing our discussions with several large cane and beet growers in the United

States as we speak. So we are still continuing those discussions.

The CHAIRMAN. Is it your hope that you can develop a unified industry-wide position on your policy?

Mr. HENSLER. At this point, I don’t think there is consensus, but

we are continuing to work on that.

The CHAIRMAN. We want to encourage you to work on those discussions.

Let me ask either of the other two members of the committee,

who have been very good about remaining right here to the end,

if they have any additional questions.

If not, I want to thank all of you for your contribution today as

well as the members of the previous panel. This has been a very

good discussion, and we have got into some specifics about some

areas of the farm bill that are of concern to many of us.

As chairman of the committee, I understand the significant challenges facing the agriculture sector in today’s environment. Unfortunately, we have little control over the—as to weather, market

prices and so on. However, there is one thing we can change, the

public misperception of farm programs and various other aspects of

farm programs plaguing other areas of the country.

While my colleagues on the committee and I realize the vital role

farm policy plays in sustaining the national economy as well as our

national security, many of our urban and suburban colleagues do

not. While you can be sure that we do our best to educate our colleagues, we need your help.

I recognize and encourage you and the members of your organizations and hope that you will continue to voice your concerns to

Members of the Congress outside the Agriculture Committee, to the

media and your local communities and spread the message about

the importance of U.S. agriculture beyond rural America.
47

A farm bill not only has to win the favors of this committee but

also win the majority of the entire Congress. Agriculture is important to every Member, no matter where they live; and that is a

message that we need to continue to drive home. We look forward

to maintaining an open dialogue with you and your fellow suppliers

and processors as we consider the next farm bill. Thank you very

much.

I have some very important language we need to put into play

here. Without objection, the record for today’s hearing will remain

open for 10 days to receive additional material and supplement any

written responses from witnesses to any questions posed by members of the panel.

This hearing of the House Committee on Agriculture is adjourned.

[Whereupon, at 12:47 p.m., the committee was adjourned.]

[Material submitted for inclusion in the record follows:]

STATEMENT OF DENNIS L. CRAIG

Thank you Chairman Goodlatte, Ranking Member Peterson, and other members

of the committee for holding this hearing today to review Federal farm bill policy.

I am Dennis Craig, executive vice president and chief operating officer of W B

Johnston Grain Company, based in Enid, Oklahoma. I am also Chairman of the Agricultural Retailers Association’s (ARA) Regulatory Policy Subcommittee and member of the ARA Board of Directors. Johnston Enterprises is an independent family

owned business founded in 1893 that has diversified its operations to include agricultural retail outlets, 21 grain elevators, a cotton gin, a seed company, water ports

in two states, a trucking company, five seed cleaning facilities and an agricultural

experimental research farm.

ARA members are made up of independent family-held businesses such as W B

Johnston Grain Co., farmer cooperatives and large national companies. A typical retail outlet may have 3 to 5 year-round employees with additional temporary employees added during the busy planting and harvesting seasons. Many of these facilities

are located in small, rural communities. Agricultural retailers proudly provide critical goods and services to farmers and ranchers such as seed, crop protection chemicals, fertilizer, fuel, crop scouting, soil testing, custom application of pesticides and

fertilizers and development of comprehensive nutrient management plans, and state

of the art integrated pest management (IPM) programs. Farmers and ranchers are

an important part of a strong rural economy. Many retailers are also farmers and

land owners so they understand their farmer customers’ needs. Certified crop advisors (CCA’s) who are tested and licensed are retained on many retailers’ staff to provide professional guidance on agronomy and crop input recommendations to their

farmer customers. ARA is the only national trade organization that exclusively represents the interests of our nation’s agricultural retailers and distributors.

Key Questions for Congress to Consider. This hearing today provides us an opportunity to review current farm bill policy and ways to make improvements as a 2007

farm bill is crafted beginning next year. There are several key questions that ARA

believes this committee and Congress as a whole need to consider in order to ascertain the right direction America’s future farm bill policy should take.

• Is the current farm bill policy working?

• Should Congress pass an extension of the current farm bill programs in light

of the recent breakdown in the WTO trade negotiations?

• What improvements should be made to conservation and environmental stewardship policies?

• What opportunities can farm bill policy help foster for America’s agricultural industry?

IS THE CURRENT FARM POLICY WORKING?

The commodity title of the farm bill is designed to provide a ‘‘safety net’’ and level

of stability for farmers that grow traditional program crops, which are largely used

as feed, food grains, fibers, and oilseeds. Generally these commodity payments are

tied to the amount of cropland enrolled in the programs and yield histories. As a

whole, we believe the current farm bill commodity programs seem to be working
48

well. The economic success of agricultural retailers is directly connected to the profitability and financial well-being of their farmer customers. The U.S. agricultural industry continues to be an efficient producer of food and fiber, consistently meeting

the needs of the nation’s consumers as well as consumers around the world with

the safest, most abundant and affordable food supply in the world. An income safety

net for farmers should be maintained but it must be price and production neutral.A

recent example would include the wheat producers in Oklahoma and surrounding

states. The current drought produced the smallest wheat crop in the past 60 plus

years in Oklahoma. Low production causes higher prices. Counter-Cyclical and Loan

Disaster are triggered by lower average prices. Therefore, these two safety net merchandising did not work. They are not price and production neutral.

ARA recommends Congress review whether to target direct commodity payments

to the activity of the farmer rather than to production history and landowners. This

could help ensure that government payments go only to those individuals that actually stay involved in production agriculture. Commodity payments going to landowners, recently highlighted in the news, who do not farm is not an efficient use

of taxpayer dollars and only hurts the industry’s image with the general public.

ARA supports continuing to providing flexibility on cropping farm land and policies

that support the efficient use of crop inputs. However, as an industry we strongly

oppose any requirements that would prevent the judicious use of plant nutrients

and crop protection chemicals as part of a requirement for participation in any farm

bill program. Nutrient and pest management should be based on precise plant and

soil needs rather than any government policy that arbitrarily proposes reduced used

of inputs as an overall environmental objective, without any scientific basis or consensus.

ARA recommends that farmers and ranchers enrolled in conservation or environmental protection farm programs be required to consult with a Certified Crop Advisor (CCA), Pest Control Advisor (PCA), or an equivalently licensed local professional

before applying crop production materials on their environmentally sensitive fields.

CCAs are highly educated and extensively trained in four major competency areas:

nutrient management, soil and water management, integrated pest management

and crop management. A primary focus of these licensed professionals is grower

profitability while helping protect natural resources and the surrounding environment.

As members of this committee well know, over 50 percent of all U.S. counties have

been declared primary or contiguous disaster areas by the United States Department of Agriculture (USDA) this year. These designations are in addition to the

nearly 80 percent of counties declared disasters in 2005. The economic impact of

these disasters has a resounding effect on our rural communities. ARA has joined

a number of commodity and farm organizations in urging Congress to enact emergency agricultural disaster legislation for fiscal years 2005–06. The August 29 announcement by USDA of $720 million in new, unused and accelerated disaster assistance funding will provide much needed help to many producers, their creditors,

and rural communities that are facing financial uncertainty and need Congress to

act soon. However, additional emergency assistance is likely needed to alleviate the

serious problem facing the industry. To prevent the necessity for future ad hoc disaster programs, the new farm bill should try to address this serious and ongoing

problem through revisions to current crop insurance and disaster assistance programs.

SHOULD CONGRESS PASS A FARM BILL EXTENSION?

America’s agricultural industry is increasingly being impacted by a changing global marketplace. The passage of the North American Free Trade Agreement (NAFTA)

and Uruguay Round GATT Agreement were beginning efforts to help level the playing field with our foreign competitors by reducing both tariff and non-tariff trade

barriers. A major issue now before this committee is whether to extend the 2002

farm bill until the World Trade Organization’s (WTO) Doha Round negotiations are

completed, which is supposed to be the next major step in reducing global trade barriers. Unfortunately this past July we saw a breakdown in these WTO negotiations

with no sign that any real progress can be made anytime soon. This primary obstacle remains a central issue related to increased market access for farm products.

ARA agrees with U.S. Trade Representative Susan Schwab’s comments that the

United States should continue to seek a successful outcome to the WTO’s Doha

Round as long as any final deal resulted in a real opening of trade. ARA supports

efforts in Congress to extend the 2002 farm bill until these WTO negotiations are

completed. Major changes to current U.S. farm policy should not take place until
49

there is a clearer picture on the final outcome of these trade discussions and its true

impact on the nation’s agricultural policy.

What improvements should be made to conservation and environmental stewardship policies? Conservation programs have focused largely on maintaining the productivity of cropland as well as protecting watersheds, flood prevention activities,

reducing soil erosion and runoff. If American agriculture intends to continue to be

productive and prosperous, it will need to promote environmental stewardship along

with the need to produce a marketable crop in an increasingly competitive global

marketplace. The 2002 farm bill saw a substantial increase in funding for conservation programs. According to USDA, funding for conservation programs amounted to

$4.7 billion in fiscal year 2005, an increase of $1.7 billion from 2001. Given the current trade disputes such as Brazil’s ongoing WTO case against U.S. cotton programs

and potential future cases against other commodities, it is highly likely that even

more farm bill funding will be shifted into so-called ‘‘green payments’’ under the

conservation title.

Environmental Quality Incentives Program (EQIP) and Conservation Security

Program (CSP). The original intent of the Environmental Quality Incentives Program (EQIP) was to primarily assist livestock producers with CAFO operations who

had to manage threats to soil, water and air from animal waste. A stated USDANRSC national policy priority is the reduction of non-point source pollution such as

excessive nutrients, pesticides, sediment or excess salinity in impaired watersheds.

It has been brought to ARA’s attention that EQIP funding is being provided to farmers to install enhanced pesticide loading and storage facilities in order to protect

against spills from bulk handling systems. According to the NRCS, since 1999 there

have been 406 farm sites that have received EQIP dollars for the construction of

existing or new agrochemical mixing and storage facilities. USDA states that this

‘‘NRCS cost-share funding allows farmers to install measures that might impact

drinking water wells and other sources of water.’’ USDA seems to indicate that as

farm sizes increase the agency will encourage farmers to build bulk pesticide storage facilities on environmentally sensitive land using scarce taxpayer resources.

While ARA strongly supports environmental stewardship and proper secondary containment for bulk pesticides and fertilizers in environmentally sensitive areas, we

do not believe that providing EQIP dollars to assist farmers in the building of these

facilities is the most effective use of the limited funding available under this program.

Why would the Federal Government through the use of large taxpayer subsidies

encourage the construction of bulk pesticide on farmland in environmentally sensitive areas and help increase the risk of spills and the contamination of drinking

water wells and other sources of water? Such a policy seems inconsistent with

USDA’s stated national policy priority of reducing non-point source pollution of pesticides and nutrients. Under the current EQIP program, individuals were eligible to

receive up to $450,000 during the life of the 2002 farm bill. ARA believes that the

most effective and efficient use of these EQIP dollars is livestock operations required to meet EPA’s CAFO regulations through the use of methods such as buffer

strips and waste management systems. Agricultural retailers have already spent

tens of thousands of dollars of their own money to build state of the art bulk pesticide storage and handling facilities. At these facilities our industry has highly

trained employees that are required to comply with countless Federal and state environmental and safety regulations. To our knowledge these bulk pesticide and fertilizer facilities being built on farming operations with EQIP funds are not being

properly inspected and regulated by Federal or state officials, do not have spill insurance or workers adequately trained or supervised to handle these bulk products.

ARA believes these facilities funded through the EQIP program should be periodically inspected by appropriate local, state or Federal officials to ensure compliance

with all laws and regulations related to the proper storage, handling, repackaging

and labeling of agricultural chemicals. The current policies are a potential recipe for

serious environmental problems if not properly addressed.

ARA also believes that a pesticide storage facility should not be located in an environmentally sensitive areas watershed area covered by the Conservation Security

Program (CSP), a voluntary conservation program that supports ongoing stewardship.

Conservation Reserve Program. The 2002 farm bill authorizes the enrollment of

up to 39.2 million acres under the Conservation Reserve Program (CRP). According

to USDA, through fiscal year 2005 over 34.9 million acres have been enrolled, providing $1.6 billion in annual rental payments to landowners and operators. CRP has

been successful in meeting its primary objective of reducing soil erosion. A recent

USDA report states that CRP has reduced soil erosion by 450 million tons per year.

However, this is down significantly from the 700 million tons per year in reduced
50

soil erosion or 19 tons per acre on average reported in 1995. ARA believes that this

diminishing return is the result of millions of acres of productive farmland that is

not environmentally sensitive being enrolled in the CRP only for the guaranteed

revenue. Much of the currently enrolled CRP acreage could meet conservation compliance requirements or objectives without costing taxpayers millions of dollars in

program payments.

Between 2007 and 2010 there are 26 million CRP acres under contracts expiring,

including 16 million acres in 2007. In light of the budgetary pressures and scarce

fiscal resources, ARA believes that any future CRP enrollment should be limited

only to highly erodible, environmentally sensitive land and the inclusion of land that

can be used as filter strips, trees or vegetative cover along streams, rivers or other

waterways. Productive land should be allowed to return to crop production or provide grazing areas for livestock. In the July 2006 issue of USDA’s Amber Waves,

it found that ‘‘by retiring productive farmland, CRP may have reduced demand for

certain farm services, undermining the strength of local economies in farm-dependant areas. And by making it easier for farm operations to retire from farming, CRP

may have facilitated population outmigration from farming communities.’’ ARA

strongly agrees with this assessment. Agricultural retailers have been directly impacted as a result of the expansion of the CRP from its original purpose to protect

highly erodible land. CRP encourages resource idling and land retirement policies

that hurt rural economies and help undermine U.S. farm export opportunities, reduce pastureland for livestock, and could undermine the nation’s ability to increase

renewable energy production.

ARA supports the use of economic and environmental impact analysis, including

county specific analysis, in the consideration on enrollment of land in the CRP or

other Federal land management and conservation programs. ARA recommends Congress consider the following:

• Significantly reduce the overall authorized acreage allowed to go into CRP;

• Allow for haying and grazing to take place on CRP enrolled land in all participating counties without having to be listed as a level ‘‘D3 Drought- Extreme’’ or suffered at least a 40 percent loss of normal moisture and forage for the pre-ceding

four-month period. CRP participants after providing notification to their local FSA

office should have the flexibility in any given CRP enrollment year to open their

lands for haying and grazing. However, doing so would result in a 25 percent reduction in their CRP payment;

• CRP participants should also be allowed to opt out early from part or all of their

contracts to produce biomass crops for the production of renewable fuels. 10-year

CRP contracts are too long and do not provide the flexibility for landowners to properly take advantage of new market opportunities in the production of corn, soybeans

or other biomass crops that can be used in ethanol production, biodiesel or other

forms of renewable energy such as solar and wind to help meet the fuel and energy

needs of rural communities. In recent congressional testimony, USDA Chief Economist Keith Collins, stated that domestic ethanol production ‘‘appears on a path that

exceeds USDA’s long-term projections’’ and that ‘‘the U.S. will require substantial

increases in corn acreage to prevent exports from declining and livestock profitability from falling.’’

Technical Service Providers (TSP)The current farm bill allows public/private partnerships in the delivery of technical expertise to farmers and ranchers, including

the development of nutrient management plans, the development of conservation

plans, and design and certification of conservation practices. Third-party providers

may include producers, retailers, certified crop advisers (CCA’s), certified professional crop consultants (CPCC’s), Professional Crop Advisor (PCA) and other individuals meeting the training and education criteria.

• Certified crop advisers (CCA’s) have extensive expertise and local knowledge in

nutrient management, resource stewardship, and custom application of crop protection products and fertilizers.

• Agriculture retailers and other CCA’s already have working relationships with

producers and understand their specific needs. Producers turn to their retailer or

CCA for soil testing, fertilizer, seed, farm inputs, and for resource management advice.

• The new farm bill is likely to establish an increased emphasis on conservation,

ramping up funding for EQIP, CRP, and other conservation programs. The new conservation workload can best be met by supplementing traditional delivery methods

with retailers and CCA’s already trained and equipped for the job.

• Producers should have an option to choose local technical service providers to

help develop and implement natural resource conservation plans.
51

ARA supports the continuation of the TSP program. However, we believe there

should be a greater cooperative effort between USDA and agricultural retailers on

program flexibility and payments.

Pesticide Applicator Standards. Agricultural pesticides are applied in a wide array

of agricultural lands, including those enrolled in farm bill programs. ARA believes

that Congress should establish the same competency standards for both commercial

and private pesticide applicators through valid exams, education and training requirements. Unless the pesticides are listed as a ‘‘restricted use pesticides’’ (RUPs),

there is no Federal requirement for competency by a private applicator. Only commercial applicators of RUPs or non-RUPs are required to take a written exam to

demonstrate competency as well as under go extensive training and education. According to the EPA, in 2004 there were over 650,000 certified private applicators

(i.e. farmers) and over 420 certified commercial applicators. It is common industry

knowledge that 25 percent of the new applicator equipment and 80 percent of used

applicator equipment is being purchased by farmers. In addition, it is estimated

that as much as 30 percent to 40 percent of all pesticide applications are now being

conducted by farmers or other private ground applicators. Crop inputs such as pesticides are applied with large application equipment with boom widths of 18.2 to

36.5 meters or larger. An average cost for a new self-propelled, boom sprayer with

precision guided equipment can be well over $200,000. To help cover the cost of this

equipment, many private pesticide applicators are doing a significant amount of custom farm work on other farming operations. Private applicators tend to use older

non-precision equipment and are less experienced and more prone to make errors

which lead to higher instances of spray drift and less accuracy in regards to the application of product on the crops.

The absence of minimum testing standards for non-commercial applicators of pesticides on agricultural lands makes users with inadequate knowledge an increased

risk to human health and the environment as it relates to the use of applicator

equipment, spray drift, and overall safety. Technology, equipment, risk assessments,

labels, and other important information related to the proper application and use

of pesticides is constantly changing and all applicators need to maintain knowledge

and minimal levels of competency in order to ensure strong environmental stewardship and safety to human health. Private pesticide applicators have access to the

same products as certified commercial applicators and should be required to meet

the same standards of competency. Currently there is a wide variation of exams

from state to state; standardization of exam requirements would help facilitate reciprocity between states.

What opportunities can farm bill policy foster for U.S. agriculture? Promote the

Increased Production of Home Grown Biofuels

The biggest growth opportunity for America’s agricultural industry probably rests

with the nation’s increased production of renewable fuels such as ethanol and biodiesel. Due to the ongoing war against terrorism, uncertainty in the Middle East,

rising fuel and fertilizer prices, there is an increased interest in the development

of home grown, renewable energy. According to USDA, U.S. energy consumption is

expected to increase by 30 percent by 2030, so the supply would need to grow at

least that much just to keep its current market share. Increased demand for renewable fuels helps increase the price a farmer receives for their crops, whether it is

corn, sorghum, soybeans and other crops.

USDA’s Rural Development Office currently provides financial assistance in the

form of grants and loans to improve the economy and quality of life in rural America. Several USDA programs can provide funding as well as technical assistance in

the development of ethanol facilities. ARA supports efforts to increase funding for

programs such as the Business and Industry (B&I) Guaranteed Loan Program,

Rural Business Opportunity Grants, and Rural Business Enterprise Grants to help

in the construction of new ethanol production facilities, which can produce more fuel

and increase jobs and economic opportunities in rural communities. There is also

the Commodity Credit Corporation (CC) Bioenergy Program that has been providing

$150 million annually in incentive payments to bioenergy producers in the U.S. that

increase their purchase of agricultural commodities over the previous fiscal year and

use that product to increase bioenergy production at the facility. ARA is a part of

the 25 x ’25 Agriculture Energy Coalition, which supports the goal of 25 percent of

our energy be produced from renewable resources such as biofuels, wind and solar

by the year 2025 and urges Congress adopt H. Con. Res. 424 and S. Con Res. 97,

which supports this new national energy goal.

Develop Private-Public Research on Economic Impact of Changing Transportation

Systems. ARA believes that the next farm bill should authorize funding that would

support the development of private-public research that will determine the economic

impacts of the changing transportation systems on agricultural retailers and dis-
52

tributors. This research effort should provide long-term recommendations to Congress on Federal transportation policies to address chronic concerns impacting the

nation’s agricultural industry. ARA recommends the Secretary of Agriculture establish a formal Agricultural Transportation Advisory Council to address issues related

to all major modes of transportation (railroad, trucking, waterways and air). This

transportation advisory council would be similar in function to USDA’s Air Quality

Task Force that was created in the 2002 farm bill.

Increase Hours of Service Agricultural Exemption from 100 to 150 Miles. ARA

recommends Congress increase the hours of service agricultural exemption from the

current 100-air mile radius to 150-air miles. Agricultural retailers heavily depend

on this specific HOS exemption in order to ensure that essential crop inputs can

be delivered to their farmer customers during peak times of the year. This proposed

air mile radius modification would better reflect the change and consolidation that

has taken place the last several years within American farming operations and the

retail industry that provides all their farm supply needs. This proposal, if enacted,

would also make this exemption for the agricultural industry similar to the U.S. Department of Transportation’s (DOT) 150 mile radius for short haul drivers.

Mr. Chairman, thank you for the opportunity to express our views today. These

issues should be fully and thoroughly discussed as this committee writes the 2007

farm bill. America’s agricultural industry faces many challenges ahead. It is only

if we continue to work together on important issues such as conservation, proper

environmental stewardship, and increased renewable energy production can we

hope to maintain a growing and vibrant agricultural industry and the rural communities they represent. Thank you!

STATEMENT OF JAY VROOM

Mr. Chairman and members of the committee: I am Jay Vroom, president of

CropLife America (CLA). CLA is a national trade association representing the manufacturers, distributors and formulators of virtually all crop protection chemicals

used in the United States. I appreciate the opportunity to testify before you today.

I want to begin by commending this committee and the entire Congress for the

tremendous success of the previous farm bills in achieving unparalleled environmental benefits, particularly in the area of soil and water conservation. Previous

farm bills have arguably had the greatest positive environmental impact of any legislation in the history of the United States Congress. At the same time, recent farm

bills have also provided an important safety net for American farmers and ranchers

who are committed to providing a safe and abundant food supply for this country

and beyond. These farmers are our customers and we call on Congress to continue

to adopt policies in the next farm bill that maintain a level of predictability in an

industry that is marked with tremendous volatility and uncertainty.

We also believe that increased international trade has already significantly aided

the U.S. farm economy, and there is even more potential for even greater farm exports-hence we commend the Committee’s careful consideration of farm policy components that can serve to encourage more trade opportunities. It is clear from the

work that you have already done that the House Committee on Agriculture will

maintain the careful balance between the necessary safety net and trade agreement

compliance.

Today, I will primarily emphasize the crop protection industry’s role in contributing to agricultural conservation. I will also mention a few other major policy challenges on the horizon.

Producing and marketing crop protection products involves a complex matrix of

factors, including crops, competitive chemicals, soil/climate conditions, geographic

region, patent life and data protection, liability costs, minor use considerations, regulatory compliance, transition to and reinvestment in ‘‘safer’’ products, research and

development costs, and a multitude of other considerations. We are pleased that our

member company investments in research and development have provided a vast arsenal of insect, disease and weed control tools for American farmers. Yields of many

crops in the U.S. have doubled and tripled since the introduction of modern pesticides and much of this increase is due to the effectiveness of these tools in controlling crop pests.

SOIL CONSERVATION

Herbicides have been used on more than 90 percent of US acreage of most crops

for the past forty years. The use of herbicides has greatly reduced soil erosion, decreased the need for millions of hours of difficult labor by workers in the field, and
53

has helped keep American agriculture competitive due to their low cost and high

degree of effectiveness. The performance bar is very high for herbicides. Farmers expect more than 95 percent season long control of all key weed species in their fields

with one or two applications and without injury to their crops. No other weed control technology is remotely close to delivering these benefits.

The USDA has reported that cropland soil erosion declined by 700 million tons

per year between 1982 and 2003. This reduction has coincided with adoption of

practices that conserve soil. No-till crop production, in which the soil is left undisturbed by tillage, is the most effective soil-conserving system. Elimination of tillage

means that the grower must rely on herbicides to control weeds. No-till acres increased to 62 million in 2004.

The external costs of soil erosion include higher susceptibility to flood damage,

lost reservoir capacity, increased water treatment costs, and cost impacts to waterway navigation and recreational activities. Research from the CropLife Foundation

indicates that by reducing erosion from cropland, no-till reduces these external damages by $1.5 billion per year. Of course, the farmer benefits too. With more soil staying on his land, those farms remain more productive and profitable.

LABOR AND ENERGY CONSERVATION

The use of herbicides greatly reduces the need for both fuel and laborers on U.S.

farms. Without herbicides, the need for fuel would increase by 337 million gallons,

since twice as many cultivation trips would be needed to replace herbicide spray

trips. Furthermore, cultivators use four times more fuel per trip than herbicide

sprayers.

Herbicides also play a key role in the U.S. ethanol production, a sector which is

projected to expand to seven billion gallons in 2010. Corn is the primary raw material for US ethanol production. On average, herbicides increase U.S. corn production

by 20 percent. If corn growers did not use herbicides, the decline in corn production

would be equivalent to the total projected ethanol capacity of seven billion gallons.

If farmers did not use herbicides, the alternatives for weed control would be increased mechanical cultivation and increased hand labor to pull weeds. Research

from the CropLife Foundation indicates that a minimum of 1.1 billion hours of hand

labor would be required at peak season for hand weeding necessitating the employment of seven million more agricultural workers. Even with the increased cultivation and hand weeding, crop yields would be 20 percent lower. Approximately 70

million workers would be needed to prevent any yield loss without herbicides.

Organic growers do not use herbicides to control weed populations. Organic farms

rely on laborers with hoes and numerous cultivation trips to remove weeds from

their fields. Growers of organic vegetable crops spend close to $1,000 per acre for

weed control in comparison to the $50 per acre spent by growers who use herbicides.

50–100 hours of labor are required for each organic vegetable acre. Each hour of

labor is budgeted at $10 which covers a minimum wage, plus administrative, supervisory, transportation and benefit costs. It should come as no surprise that the production of organic crops is being outsourced to countries such as Mexico and China

where the cost of farm labor is $1 per hour or less.

WATER CONSERVATION AND QUALITY

CropLife America’s member companies’ know that protecting water quality and

conserving scarce water resources in agriculture must often start in the laboratory,

where products are developed, tested, evaluated and approved for use. Their efforts

start with using the best science available to develop good products that can provide

the needed results. This attitude and approach has led to major water conservation

and water quality benefits in the U.S. and worldwide.

One excellent strategy to successfully conserve scarce supplies of water for agricultural and other critical uses is to develop crop varieties that are uniquely adapted to drought and other forms of weather stress. Our member companies have created plant varieties that are drought resistant or tolerant, allowing a crop to be produced with less irrigation and thereby conserving scarce water resources. We have

also created plant varieties that have resulted in innovative crop production practices, like the use of pre-germinated rice seeds that require 15 to 20 percent less

total water to produce a crop relative to more traditional rice production practices.

Our science has also led to a crop protection product that can control weeds in rice

production that previously could only be controlled through flooding rice land, thereby avoiding the use of water that could be better dedicated to other critical purposes. Of course, all herbicides for all crops are designed to control weeds that would

otherwise grow and use precious water.
54

Crop protection science and water quality protection go hand-in-hand. Over the

10-year process of developing and bringing a crop protection product to the market,

our companies ask three primary questions related to water quality considerations:

• Does the compound reach water and how?

• How does the compound behave when it reaches water, if ever?

• How does the compound affect water quality and the health of living organisms?

Numerous rigorous scientific tests are conducted on a candidate compound and its

metabolites to answer these questions. We also use the same science to determine

if sound, reasonable and practical management strategies are available to ensure

that the products can be used without unreasonable adverse water quality risks.

The studies conducted involve identifying the compound’s decomposition pathways

within different crops, soils and water circumstances. Once the degradation patterns

have been established, analysis methods are developed for measuring residues.

Other studies analyze the effects of the compound and its major metabolites on

living organisms such as non-target insects, birds, soil and aquatic animals, and soil

micro-organisms. Such trials are run not only during product development but also

after their market launch. In fact, products are subject to continued monitoring and

re-evaluation, taking into account the latest state of the art developments. As far

as aquatic organisms are concerned, compounds are tested not only on fish, but also

on algae and water-fleas. Overall great efforts are made to constantly improve the

testing methods for the protection of even the smallest organism in natural water

bodies.

Our companies are also continuously engaged in research and development to find

ways to minimize the amount of water needed to spray crop protection products

while maintaining their efficiency and efficacy. New spray nozzles, for example, can

reduce water consumption by approximately 80 percent, from 530 gallons per acre

to 105 gallons. The use of low volume water-based sprays combined with application

nozzles that target each crop row can decrease water use by 95 percent or more,

from 210 gallons of water per acre to only 7 or 8.

Even after our products reach the market and are being used in the field, our

member companies continue to pursue innovative and practical crop protection product management strategies. We have been leaders in the marketing and use of

streamside buffer zones and filter strips as a way to improve water quality, reduce

soil erosion, and increase wildlife habitat.

Likewise, our products also help conserve water in non-agricultural settings. One

critical example is their use as part of an integrated program to control noxious and

invasive plant species. For example the Salt Cedar tree was originally introduced

into the US from Central Asia to prevent soil erosion near rivers and lakes. But

Salt Cedar is often able to thoroughly out-compete native plant species and in the

process absorb and transpire enormous quantities of water. One mature Salt Cedar

plant may withdraw up to 198 gallons of water per day. Where these trees have

become established, water levels in rivers and streams and groundwater tables have

lowered, and water supplies for urban, agricultural, wildlife and recreational uses

become threatened or diminished. Our crop protection products have been used in

public initiatives as part of an overall management strategy in key areas of the US

to control Salt Cedar. In the case of one prominent project in Texas and New Mexico, this has resulted in an estimated increase of over 15 billion gallons of river flow

during a year long season.

Our aquatic products also preserve and protect water quality through the elimination or control of noxious or exotic aquatic plant species in rivers, streams, lakes

and estuaries. Like Salt Cedar, these alien, invasive plants out-compete the native

aquatic plants, and in the process diminish or eliminate plant biodiversity and degrade or destroy fish habitat. These invasive aquatic plants include species like Eurasian Water Milfoil, Water Hyacinth, Hydrilla, Purple Loosestrife and Melaleucca.

Used as part of an overall aquatic invasive plant management strategy, aquatic herbicides can selectively control populations of invasive plants and support the restoration of native plant communities and quality aquatic wildlife habitat. Control

of these invasive plants can have substantial water conservation benefits because

their sheer mass can impede or stop the flow of water and increase rates of evaporation and other pathways of water loss that would otherwise be used for irrigation.

WILDLIFE CONSERVATION

One often over-looked contribution that pesticides make is in the area of wildlife

habitat restoration and conservation. Conservation scientists rank habitat destruction and nuisance plants as the two most serious threats to endangered species,

both plant and animal, and many of our pesticides provide significant benefits for
55

endangered species by reducing the amount of land needed to produce crops, thereby

preserving critical wildlife habitat.

Equally important, pesticides increase the diversity and quality of natural habitat

through the effective control of non-native or nuisance plants that seriously threaten

endangered species as well as damage lakes and streams, farms and natural areas.

Two years ago, CropLife joined forces with one of the country’s leading conservation organizations, Ducks Unlimited (DU), and established a Conservation/Technology Initiative. This unique partnership harnessed the power of crop science technology in conjunction with wildlife biologists’ expertise to reduce the abundance of

exotic grasses and other weeds at wildlife refuges and other sites where DU seeks

to restore native grasslands. The key here is to use herbicides and fungicides to suppress the weed production long enough for native grasses to reestablish. Because

many native plants are perennials, once reestablished, they can flourish for decades

under proper management.

Another one of this initiative’s specific projects was a demonstration pilot to show

how the use of certain pesticides could enable farmers to economically switch to winter wheat from spring wheat in the northern plains-again to the benefit of duck populations.

CropLife member companies are in the second year of this five-year partnership

with DU and the results are already very encouraging. Habitat restoration is well

underway at 20 sites nationwide and the benefits to waterfowl and other wildlife

are being recorded. Beyond the contributions being realized for wildlife conservation

efforts, these projects are also having a beneficial ripple effect for outdoor enthusiasts. At a number of the areas, control of nuisance plants and weeds is helping

aquaculture, water-related recreational activities, hunting and fishing, bird watching and natural scenic restoration.

STEWARDSHIP

CLA strongly believes in the power of public/private partnerships to steward pesticides. Over the past 5 years, more than 35 million pounds of pesticide plastic containers were recycled because industry, extension offices, and state governments

have worked together to provide farmers the opportunity to voluntarily recycle containers. Eleven states lead the way in promoting recycling and have worked handin-hand with our industry program called the Ag Container Recycling Council

(ACRC).

CLA would very much like to see the expansion of voluntarily recycling; however,

only the member companies of CLA are currently underwriting the costs of ACRC.

In order to sustain this program and increase pesticide container recycling rates in

the U.S., we have asked the Environmental Protection Agency (EPA) to develop a

rule to require all registrants to financially support recycling initiatives such as

ACRC. The rule could be based upon a recent pesticide container recycling standard

developed in conjunction with the American Society of Agricultural and Biological

Engineers and approved by the American National Standards Institute. The House

Interior/EPA Appropriations bill this year clearly acknowledges the importance of

such a regulatory step and would instruct EPA to proceed expeditiously.

We are also seeking ways to expand industry stewardship efforts in the area of

facility safety. Over the past three years, CLA member companies have sponsored

a program called the American Agronomic Stewardship Alliance (AASA) to inspect

all pesticide bulk facilities in the country. Through an electronic database, CLA

members can obtain inspection reports to ensure that facilities they do business

with can properly store and handle their products in bulk quantities. This program

will become an important tool in helping agricultural retailers and distributors meet

and exceed the requirements recently finalized by EPA in the agency’s Container

and Containment Rule.

ENDANGERED SPECIES ACT

One of our industry’s most significant policy objectives is the modernization of the

Endangered Species Act (ESA). CLA supports practical, balanced and scientificallysound amendments to the ESA to make it effective in recovering and saving species

at risk. We believe Congress needs to amend the ESA to improve the availability

of new technology and crop protection products for species habitat recovery. A huge

step was taken last fall when the House passed H.R. 3824, the ‘‘Threatened and Endangered Species Recovery Act.’’ We call on the Senate to pass similar legislation.

When the ESA was enacted in 1973, there were 109 species listed for protection.

Today there are roughly 1,000 U.S. species listed as threatened or endangered,

nearly 300 species considered as ‘‘candidates’’ for listing, and nearly 4,000 ‘‘species

of concern.’’ The authorization for Federal funding of ESA activities expired on Octo-
56

ber 1, 1992, though the U.S. Congress has appropriated funds in each succeeding

year to keep the program active.

On August 5, 2004, following coordination with EPA and the United State Department of Agriculture (USDA), the Fish and Wildlife Service and the National Marine

Fisheries Service published joint counterpart regulations, which streamlined the

interagency consultation process for endangered species risk assessments for pesticides. These new regulations intended to marry the effects analyses requirement

of ESA with the scientific-based, data-intensive environmental analyses required by

the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA).

The need for such regulations had been highlighted by a string of ESA citizen

suits alleging that EPA failed to consult with FWS and NMFS when registering pesticides. The concerns about current court decisions and threats of additional litigation have created piecemeal regulatory process, as well as unnecessary restrictions

for pesticide products. These lawsuits have cost taxpayers millions of dollars as EPA

defends itself against a process that does nothing to improve protections for endangered species. Just in the Pacific Northwest states, USDA estimates that the impact

of one of the major ESA/pesticides court decisions on agriculture is approximately

$583 million annually. There are approximately 10 similar lawsuit filings across the

country. Furthermore, just last month, a Federal judge in Washington State found

portions of the ESA counterpart regulation to be invalid, thus increasing the uncertainty surrounding the pesticide registration process and threatening farmer’s access to important crop protection products. Congressional action is needed so these

products, which are so critical for food and fiber production, will not be terminated

or compromised in the interim by further court orders or settlement agreements.

FQPA 10-YEAR DEADLINE

EPA deserves recognition for its accomplishment mandated by the Food Quality

Protection Act (FQPA) to reassess pesticide residue tolerances by August 3, 2006.

EPA’s work over the past 10 years has resulted in the reassessment of nearly

10,000 residue limits. CLA and our members have worked with the Agency in the

administration of FQPA, but we continue to have certain on-going concerns with its

implementation. Continuing political pressure has been directed at EPA to push

FQPA beyond its original, science-based intent while growers, food companies and

the crop protection industry have worked for a more reasoned regulatory policy.

During this 10-year process, many decisions that negatively affected pesticide

products were shaped by political pressures. Some of these matters are still open

today, such as the battle over the use of ethically produced human clinical and

worker exposure data in regulatory decisions. It is important that EPA applies

transparency and good science policy to allow statutory standards to be clearly applied to pesticide regulations.

Congress passed FQPA in 1996 and the act went into effect immediately. As a

result of the new law, better scientific methodology was developed and implemented,

such as reviews of the Environmental Fate model updates. Throughout the reassessment procedure, a wealth of valuable data was generated, including Market Basket

residue surveys, exposure data, crop profiles, biomonitoring information, and water

monitoring data. At the same time, risk assessment methodology was carried out

in a much more transparent fashion.

Industry developments during this period focused on bringing newer, more effective pesticides to the market. Through the Pesticide Registration Improvement Act

(PRIA), industry fees allowed EPA to maintain and accelerate its pace on tolerance

reassessment and provide improved time lines and predictability for registration of

new pesticide products. PRIA will need to be reauthorized rather soon and we and

the rest of the pesticides community stand ready to work with the House Agriculture Committee to accomplish this on a timely and informed bases.

As a result of FQPA and the contributions of EPA, the food chain and the crop

protection industry, Americans continue to reap benefits from a rigorous and thorough regulatory program and to enjoy the safest food supply in the world.

PESTICIDE REGISTRATION IMPROVEMENT ACT

PRIA was enacted on January 23, 2004. It requires pesticide registrants and applicants to pay specific service fees to EPA for the registration applications that it

handles. This law also establishes specific timelines for EPA to accomplish the various registration actions and prohibits certain other extraneous user fees.

The intent of the law is to provide additional resources for EPA’s registration efforts and a more predictable evaluation process. As enacted, PRIA will be effective

for five years and it continues the prohibition on the collection of pesticide registration fees (40 CFR Part 152.400), which has been in effect since FIFRA was amended
57

in 1988. PRIA also suspends collection of tolerance fees authorized by the Federal

Food Drug and Cosmetic Act (FFDCA) (40 CFR Part 180.33).

CLA has successfully helped lead an Industry Fees Coalition that included all

trade associations representing pesticide registrants and worked closely with environmental and labor groups in lobbying Congress for passage of PRIA, in defending

PRIA since its enactment, and in implementing PRIA with EPA.

In addition to the new registration service fees, PRIA retained and increased the

product maintenance fees that support reregistration and tolerance reassessment

under FQPA. Industry is projected to pay a total of more than $200 million over

a five year period. The registration service fees and increased maintenance fees

went into effect in the spring of 2004.

The amount of the pesticide registration service fees and the timetables for the

review periods vary somewhat from year to year to provide for phasing in the new

timelines. Since 1989, Federal budget proposals by various administrations have repeatedly sought to reinstate the original pesticide registration fees for new products

(40 CFR Part 152.400) through modification of FIFRA. For FY 2007, OMB has proposed in the President’s Budget increasing pesticide user fees from anticipated revenues of $31 million in PRIA and maintenance fees to a total of $87 million by increasing both PRIA and maintenance fees, reinstating tolerance fees and creating

a new ‘‘registration review fee.’’

Fortunately, Congress has repeatedly barred collection of these other fees and ignored Administration proposals to modify FIFRA and FFDCA accordingly. Proposals

for additional registration and tolerance fees would violate the spirit of the compromise that resulted in the passage of PRIA.

PRIA has been successful in improving the predictability and speed of the pesticide registration process, and CLA calls on Congress and specifically this committee to reauthorize this important law.

NPDES CLEAN WATER ACT PERMITS

In 1972, Congress enacted the Clean Water Act and the FIFRA. The Clean Water

Act authorized EPA to protect the nation’s waterways by regulating discharges of

large industrial operations and wastewater facilities through the National Pollutant

Discharge Elimination System (NPDES). FIFRA provided EPA with the authority

to regulate the sale and use of pesticides through a comprehensive registration and

labeling protocol.

Although CWA and its NPDES permit requirements have been in effect for over

thirty years, no government agency has ever concluded that the application of pesticides in accordance with label directions requires an NPDES ‘‘point source’’ permit,

including aquatic mosquito and weed control, as well as terrestrial uses that may

result in incidental spray drift entering water. FIFRA already requires strict testing

of pesticides to ensure water quality and aquatic species preservation; therefore, an

NPDES permit for pesticide applications has always been considered unnecessary

and duplicative.

However, in March of 2001, the U.S. Ninth Circuit Court of Appeals ruled in

Headwaters, Inc. v. Talent Irrigation District that NPDES permits were required

for the use of aquatic herbicides to control weeds in waterways. In November 2002,

the Ninth Circuit ruled in League of Wilderness Defenders v. Forsgren that an airplane used for the application of moth control products in the forest canopy was a

‘‘point source’’ pollutant and therefore aerial spraying of pesticides required an

NPDES permit under the Clean Water Act. Other similar cases are pending, and

activist groups are now using this unfortunate precedent to threaten lawsuits

against American farmers who must make millions of pesticide applications every

year in order to maintain viable crops.

Furthermore, since NPDES permits were never intended to be used for pesticide

applications, Federal and state agencies are not prepared to handle the massive rise

in permit requests from farmers who must spray regularly throughout the growing

season. In many states, obtaining an NPDES permit is very costly, time consuming

and bureaucratic. It is not practical to expect American farmers to bear such a

major expense and delay urgent applications in the event of a fast developing pest

infestation.

EPA has issued several interpretive statements over the past two years reiterating its position that NPDES permits are not required for pesticide applications directly to or near waters of the United States. A proposed rule is currently pending

at EPA, which would codify the agency’s position.

While EPA’s proposed rule is certainly a positive development, the agriculture industry believes that nothing short of legislation will remove the threat of lawsuits

against farmers. EPA has also acknowledged that a rule will not alleviate the threat
58

of litigation. Farmers, irrigators, mosquito abatement districts, fire fighters, Federal

and state agencies, pest control operators and foresters will all benefit if Congress

chooses to clarify current law. We commend Congressmen Butch Otter and Dennis

Cardoza and a total of 76 other bipartisan cosponsors for introducing H.R. 1749,

‘‘The Pest Management and Fire Suppression Flexibility Act.’’ We encourage Congress swiftly adopt this legislation to resolve this important issue.

ORGANIC AGRICULTURE

While CLA respects the right of consumers to have a variety of options in the grocery store, there are countless misperceptions about organic agriculture. It has often

been said that organic crop production is the fastest growing segment in US agriculture. That is not the case. Organic crop production increased from 400,000 acres

in 1992 to 1.4 million acres in 2003. Rather, the fastest growing segments of U.S.

agriculture have been those reliant on herbicides. No till crop growing increased

from 15 million acres in 1989 to 62 million acres in 2004. The number of biotech

herbicide tolerant acres where herbicides are used with crops that have been genetically engineered for tolerance increased from less than 100,000 acres in 1995 to over

90 million acres by 2005. Organic acres account for less than 1 percent of total US

crop acreage largely because these growers are not permitted the use of chemical

herbicides to control weeds.

The difficulties that organic growers have with controlling weeds without herbicides is well illustrated by a recent exemption from farm worker safety rules granted to organic growers in California. The organic growers were granted an exemption

from a rule that banned the practice of having workers pull weeds by hand. The

California Occupational Safety and Health Standards Board concluded that hand

weeding results in a substantial risk of permanent back injury to workers. Organic

growers claimed that they would incur severe profit losses if they could not use

hand weeding and they were granted an exemption to the state law.

While we acknowledge that a small segment of American consumers may prefer

to purchase organic produce, CLA does not believe organic agriculture should be

preferentially subsidized or promoted by Congress during the upcoming farm bill.

ECONOMIC BENEFITS OF PESTICIDES

The importance of pesticides in protecting American crop production can easily be

understood by looking at the value of fungicides in the growing of fruit and vegetables. Most of the nation’s fruit and vegetable acres are sprayed with fungicides

every year to prevent the crops from being infected with fungi and bacteria that

cause crops to rot. These fungi are ubiquitous in the environment. We have never

had widespread commercial production of fruit and vegetables in this country without the spraying of fungicides. For more than one hundred years, close to 100 percent of the apples, potatoes, peaches and grapes have been treated with fungicides.

Without fungicide use, yields of most crops would decline by more than 50 percent

while it would be impossible for widespread commercial production of certain crops

like apples and grapes. Fungicides are extremely economical for US growers. A recent study from the CropLife Foundation calculated that U.S. growers receive a net

benefit of $15 for every $1 that is spent on fungicides and their application. There

aren’t many technologies in the U.S. economy that can match that rate of economic

return.

Thank you again for the opportunity to share our views with the committee.

When writing the next farm bill, we encourage you to consider the numerous benefits of pesticides for conservation and crop production, and the ultimate benefit to

food consumers here in our country and the fantastic earnings the U.S. enjoys from

having food and fiber surplus available to export to consumers around the world.

STATEMENT OF PAUL PALMBY

Good morning, Mr. Chairman and members of the committee. I am Paul Palmby,

executive vice president and chief operating officer of Seneca Foods Corporation.

Seneca Foods is the largest fruit and vegetable processor in the country with 22

plants located in New York, Wisconsin, Minnesota, Illinois, Idaho, Washington, and

California. We are vertically integrated with large vegetable seed production capability in Washington, a 10,000 acre farming operation in Wisconsin, and two state

of the art can manufacturing facilities in Wisconsin and New York. We employ approximately 3,200 full time and 9,200 seasonal workers with an annual payroll of

over $260,000,000 and contract for raw product with approximately 3,000 growers
59

on over 300,000 acres with nearly $150,000,000 being paid to those producers in the

small rural communities where many of our plants are located.

I appreciate the opportunity to testify today on behalf of the Canned, Frozen Food

and Grower Coalition (CFFGC). CFFGC is a coalition of food and vegetable farmers,

processors, trade associations, and others from across the Midwest, which seeks

flexibility for farmers to remove some of their acres from program participation in

order to diversify by producing fruits and vegetables for processing.

Mr. Chairman, late in the process of writing the 2002 farm bill, soybeans were

added to the program crops, and a restriction on growing fruits and vegetables on

program crop acreage was by default extended to soybean acres. While that decision

was made in a very purposeful way, several of its consequences were not clearly anticipated. As a result, farmers in the Midwest are denied reasonable access to land

for the production of fruits and vegetables for processing. Of course, the principal

vegetables at issue are tomatoes, sweet corn, green beans, peas, pumpkins, lima

beans, cabbage and red beets—all grown under contract for processing.

I would like to emphasize that this problem is not a processor problem so much

as it is a problem for agriculture in the Midwest. Previous witnesses on behalf of

our coalition have been producers, because the most direct and substantial damage

caused by this problem is borne by producers. For example, Glenn Abbett previously

testified before this Committee about the barriers to continue his family farm’s traditional fruit and vegetable production because the grower history was in his father’s name and because Glenn has generally been unable to rent land for vegetable

production. The Senate Agriculture Committee recently heard from Charlotte

Ousley, a widow, who was informed by the Farm Service Agency upon the death

of her husband in a farming accident, that she and her children would not be allowed to continue fruit and vegetable production under her late husband’s grower

history.

Each year as growers across the Midwest are forced out of production or choose

to stop growing fruit and vegetables for processing, the supply of fruits and vegetables for processors is reduced. With the current restrictions on growing fruits and

vegetables, new and otherwise willing producers are prohibited from replacing those

who are no longer producing. In addition, the current restrictions prohibit current

growers from increasing their acreage in production. The accumulating loss of growers poses a long-term threat to the processing industry, creating a substantial opportunity for foreign producers of processed fruits and vegetables. In fact, foreign

processors already are making inroads.

Seneca Foods is currently the largest exporter of canned vegetables with nearly

10 percent of our revenues being generated from sales to over 60 countries. Recent

and dramatic growth in primarily canned sweet corn in Thailand, China and Brazil

are direct threats to our export business. Add to that increasing imports from those

countries, as well as Canada, and it is clear that declining exports are not our only

concern. While imports of corn have flattened over the last year, as a result of huge

domestic crops driving down pricing, an expanding import threat is equally as great.

Having traveled in the last 24 months to both Thailand and Brazil, I can report

first hand that their quality is improving, their productive capacity is expanding,

and their efficiency is increasing. There are now over 30 processors in Thailand,

where enhanced agricultural practices and focus on new varieties by major seed

companies are resulting in rapid improvements in yield and quality. There is simply

no question as to whether they will match our domestic quality and consistency; it

is merely a question of when. Any factors limiting U.S. competitiveness, such as the

restrictions on fruit and vegetable production, will contribute to lost exports, allow

growing imports, and, ultimately, capacity adjustments and job losses.

Mr. Chairman, I would like to explain why the 2002 farm bill fruit and vegetable

restrictions have had such an adverse effect and why Farm Flex is a reasonable correction.

Since 1996, our farm laws have generally prohibited the production of fruits and

vegetables on base acreage. However, this was not a significant problem for Midwestern fruit and vegetable production until the 2002 farm bill made soybeans a

program crop. Including soybeans as a program crop resulted in practically all of

the quality farm land in Midwestern states acquiring a program base. Since the

farm bill generally prohibits planting fruits and vegetables for processing on program acres, the availability of farm ground for fruit and vegetable production in the

Midwest has been dramatically reduced. For example, in Illinois, a state with almost 22 million acres of crop land, 8.5 million acres were added to the program base

by the 2002 farm bill, leaving just 300,000 acres outside of farm bill restrictions.

In some counties in southern Minnesota, as much as 98 percent of the tillable acreage is program acres. Thus, a dramatic change occurred in the availability of land

for production of fruits and vegetables. So, the farm program restrictions on fruit
60

and vegetable production for the first time came into sharp focus, and two clear

problems became apparent.

First, restrictions on fruit and vegetable production were simply unworkable. Allowances for fruit and vegetable production due to farm history did not provide for

reasonable crop rotation, and restrictions on the use of producer history by family

members has proven to be not only unreasonable, but heartless. Second, fear of base

acreage loss has made it extremely difficult for producers to rent quality crop land

for fruit and vegetable production. In the Midwest, most family farms rely on rented

acres to grow a substantial percentage of their crops. In the 2002 farm bill recalculation of base acreage, fruit and vegetable production caused a loss of base acreage. As a result, landlords in the Midwest now generally refuse to allow fruit and

vegetable production on their land, out of concern that a future recalculation of base

acreage may result in a further loss of base.

In combination, these restrictions not only reduced the availability of land for

fruit and vegetable production but significantly undercut the ability to rotate crops,

which is essential for integrated pest management purposes and to preserve crop

quality and disease control in susceptible fruit and vegetable crops.

Fortunately, Mr. Chairman, an easy answer, without adverse effect, is available—

Farm Flex. Farm Flex, as described in Mr. Pence’s legislation H.R. 2045, would permit production of fruits and vegetables for processing on program acres provided

that an acre-for-acre reduction in program participation occurs. In addition, Farm

Flex would clarify that Congress intends that, for any future recalculation, base

acreage would treat fruits and vegetables grown for processing on base acreage the

same as production of a program crop.

This two step approach would have several benefits. It would:

• Enable farmers to diversify their operations by producing a higher value crop

on land that otherwise would be locked into the farm program; • Make it easier for farmers to stop producing fruits and vegetables for processing

if they choose. Under the current scheme, farmers who do not have base on vegetable ground must either grow crops outside of the program or be forced, for economic

reasons, to continue in fruit and vegetable production; and • Reduce government expenditures by allowing farmers to forego government payments on program acreage that is in production of fruit and vegetables for processing.

So, Farm Flex would allow farmers greater flexibility, reinforce family farm policies, remove an encumbrance on the international competitiveness of the U.S. processed vegetable industry, and even reduce government expenditures.

Permit me to take a few minutes to address the arguments that have been advanced in opposition to Farm Flex.

It is asserted that Farm Flex would allow for subsidized competition for unsubsidized U.S. fruit and vegetable producers. That is wrong. Farm Flex specifically

provides that fruit and vegetable production may only occur on acres that opt out

of the farm program. By electing to produce fruit or vegetables for processing under

Farm Flex, the producer would elect to STOP receiving subsidy on acres in fruit or

vegetable production. That is why the Congressional Budget Office says that Farm

Flex saves taxpayer dollars, and why it would not allow subsidy for fruit or vegetable production.

Mr. Chairman, this Committee also has heard complaints that Farm Flex could

threaten fragile fresh produce markets because production on Farm Flex acres may

illegally move into fresh markets with devastating effects on fresh produce markets.

That is absurd. First, nearly all of the crops grown for processing are of a different

variety than used in fresh markets and are not suitable for fresh markets. Second,

such sales into fresh markets would become illegal and easily detected when the

produce is presented for sale at a fresh produce market. Third, production in the

Midwest consistently lags behind the premium early market prices of the fresh industry because Midwest harvest dates are simply later and shorter in duration than

harvest dates in traditional fresh production areas.

Finally, and most notably, there is absolutely no history of such problems occurring in the past. Prior to the enactment of the 2002 farm bill, there was abundant

land available for production of fruits and vegetables without restrictions. Had there

been such an opportunity for Midwest-grown fresh produce to take over the fresh

market, it certainly would have occurred prior to 2002 when land was readily available for that to occur legally. Since there is no history of such practices, it is silly

to think they would suddenly occur since moving Farm Flex production to fresh

markets would be illegal and subject to substantial penalties. Farm Flex simply allows producers some of the flexibility to produce fruit and vegetables for processing

that they had prior to the 2002 farm bill changes. Under Farm Flex, there would

be far less potential for Midwest production of fresh fruit and vegetable production
61

to move into fresh markets than was present prior to the 2002 farm bill. After all,

Farm Flex only permits production of fruit and vegetables for processing.

Mr. Chairman, if the current restrictions on fruit and vegetable production remain

in place, the continuing decline in the availability of quality acreage close to processing facilities will continue to erode the competitiveness of the U.S. processed fruit

and vegetable industry with its foreign competitors. Without your help, it will only

be a matter of time before American canned corn is replaced by corn from Thailand,

Brazil, and China.

Mr. Chairman and Members of the Committee, I appreciate your consideration of

our comments and would be pleased to answer any questions you might have.

STATEMENT OF MIKE MALECHA

Chairman Goodlatte, Ranking Member Peterson and members of the committee,

thank you for the opportunity to appear before you today.

I am Mike Malecha, senior vice president for US Bioenergy Corporation based in

Inver Grove, Minnesota. I have 30 years of experience in the food, feed and industrial agriculture industry. US BioEnergy is a producer and marketer of ethanol and

distillers grains. The company currently operates one ethanol plant, which is in the

process of expansion, and has three additional ethanol plants under construction.

Upon completion of these initiatives, the company will own and operate four plants

with combined expected ethanol production capacity of 300 million gallons per year.

I am testifying today on behalf of the National Grain and Feed Association, on

whose Board of Directors I serve. The NGFA has a long history of leadership and

involvement in agricultural policy issues, a testament to the importance these issues

play in U.S. agricultural competitiveness and our industry’s ability to serve domestic

and world markets.

The NGFA is comprised of 900 grain, feed, processing, exporting and other grainrelated companies that operate about 6,000 facilities that handle more than 70 percent of all U.S. grains and oilseeds. The NGFA’s membership encompasses all sectors of the industry, including country, terminal and export elevators; feed manufacturers; cash grain and feed merchants; end users of grain and grain products, including processors, flour millers, and livestock and poultry integrators; commodity

futures brokers and commission merchants; biodiesel and ethanol manufacturers

and allied industries. The NGFA also consists of 35 affiliated state and regional

grain and feed associations, as well as two international affiliated associations. The

NGFA has strategic alliances with the Pet Food Institute and the Grain Elevator

and Processing Society, and has a joint operating and services agreement with the

North American Export Grain Association (NAEGA).

The NGFA’s market philosophy is derived from its Mission Statement, which commits our organization to: ‘‘foster an efficient free market environment that achieves

an abundant, safe, and high-quality food supply for domestic and world consumers.

Further, our Statement of Purpose notes that ‘‘association activities are focused on

the growth and economic performance of U.S. agriculture.’’ Bottom line: The NGFA

advocates policies that maximize growth opportunities for U.S. agriculture.

To this end, the NGFA has identified four major priority areas that we believe

need to be addressed in the next farm bill:

• Biofuels: Understanding how big and how fast this market will grow, and to

craft policies that foster production to meet this demand without sacrificing other

markets, including livestock and poultry feed and grain export markets;

• Conservation: Adjusting the Conservation Reserve Program (CRP) to provide opportunities for U.S. agricultural growth while enhancing protection of environmentally sensitive lands;

• Market Distortions: Developing programs that provide opportunities to take advantage of market potential and minimize further trade disruption brought about

by litigation under the World Trade Organization (WTO); and

• Grain Reserves: Minimizing government involvement in grain stocks-holding,

except for humanitarian purposes.

THE BIOFUELS IMPACTS ON U.S. AND GLOBAL AGRICULTURAL MARKETS

By far the single most important development that will affect supply-demand balance sheets, commodity prices and the pattern of growth in various U.S. agricultural

sectors in the next five years will be the developmental rate of the biofuel industries.

For the NGFA, biofuels are not a food versus fuel issue. In fact, we count among

our membership the largest ethanol producer, the largest biodiesel producer, the
62

largest commercial feed manufacturer, the largest exporter and one of the largest

poultry integrators in the United States. Each may have a different focus. But they

share one important priority: ensuring optimal market conditions that allow for a

sufficient supply of grains and oilseeds to meet demand. For the NGFA and its

member companies, the biofuels issue is a resource-capacity issue, particularly with

respect to land and transportation.

No one can predict with precise certainty how quickly the biofuels industry will

grow or how large it may become. But here is what we are observing: ethanol prices

are retreating from summertime highs, but corn-based ethanol production remains

highly profitable and will remain so under a wide range of potential future cornand ethanol- price scenarios.

Forecasts regarding the ethanol industry’s likely expansion rate in coming years

range from USDA’s most recent estimate of 10 billion gallons of capacity achieved

by 2012 to some private estimates that forecast production will exceed 10 billion gallons in less than three years. Coincidently, in testimony presented Sept. 6 before

the U.S. Senate Committee on Environment and Public Works, USDA Chief Economist Keith Collins noted USDA will release a new analysis of biofuel demand for

corn and soybeans ‘‘this winter’’ and stated that USDA’s February estimates

‘‘while...comforting, are out of date, as ethanol production appears to be on a path

to exceed USDA’s long-term projections released last winter.’’ Collins stated that

‘‘with expected market incentives, ethanol production may reach 7.5 billion gallons

over the next couple of years and could reach in excess of 10 billion gallons by 2010–

11.’’

Estimates suggest that 35 percent or more of the corn crop could be utilized for

ethanol during the life of the next five-year farm bill. While the range of ethanolproduction forecasts indicates a degree of uncertainty, the most important takeaway is how rapidly assumptions are changing about its potential growth. Indeed,

some private estimates of ethanol production expansion have increased by as much

as 50 percent in just the last six months. Driving this are the public and private

forecasts of relatively firm energy prices in the face of continuing uncertainty in the

Middle East and, importantly, the entry into the U.S. market over the last year of

several new ethanol plant development and construction firms from Europe and

from other industries. Today, provided projected ethanol returns remain reasonably

healthy, the market has the capacity and the financial backing to add roughly 2 billion gallons of ethanol capacity every year, representing more than 700 million

bushels of new corn demand each and every year.

The potential for significant increases in biodiesel production also will contribute

to potentially dramatic changes in the grain, feed and processing industry. Some

private industry estimates are that at current capacity-plus-investment trends, soy

oil use for industrial purposes could increase from 82 million gallons in 2005–06 to

685 million gallons in 2010–11.

Because returns for corn-based ethanol plants likely will remain profitable over

wide ranges of commodity prices, it is reasonable to project that not only will a substantially higher proportion of the corn crop be directed to ethanol during the life

of the next farm bill, but that the ethanol industry could very well be in a position

to bid bushels away from other uses. To avoid supply disruptions to other users of

corn, the market needs to have the opportunity to bid more acres into corn production. Recognizing there will be some annual improvement in yields, there are only

two substantial ways to accomplish that: (1) pull acres now used for other crops into

corn production; or (2) implement policies flexible enough to permit the market to

bid for productive, non-environmentally sensitive acres expiring from the CRP.

Make no mistake, if current biofuel investment trends continue, the United States

will experience lower average stocks for grain and comparatively higher prices for

corn and for other grains as crops compete for available resources. This scenario

could develop very quickly. Grain futures markets already reflect such expectations.

Over the life of the next farm bill, it is entirely conceivable that the United States

will require an additional 8 million to 10 million planted acres of corn to avoid triggering: (1) sharp declines in livestock profitability; (2) supply interruptions to longterm export markets; and (3) supply shortages that could hamper ethanol profitability.

In his September 6 statement, Dr. Collins also noted that key factors that could

help manage risk from ethanol growth are corn yield increases and acreage withdrawals from the CRP. Concerning the CRP, he stated that USDA analyzed all CRP

land enrolled during general signups in counties where 25 percent or more of harvested cropland was producing non-irrigated corn and soybeans. Looking at only

those CRP acres in this category, Collins stated that 4.3 million to 7.2 million CRP

acres could be used to grow corn or soybeans ‘‘in a sustainable way.’’
63

The National Grain and Feed Foundation (NGFF) is in the process of commissioning an independent study to assess scenarios for the ‘‘most likely outcome’’ for

biofuel production each year—including the lowest and greatest growth rates that

can reasonably be expected, given both incentives and practical constraints on adding biofuel capacity. In addition, the NGFF has asked researchers to focus on two

factors we believe could have the greatest potential to limit future growth in both

traditional U.S. agricultural markets and in the biofuels market: (1) land-use restrictions imposed by government, the most significant of which is the CRP; and (2)

limitations on the United States’ near-term ability to expand transportation capacity

and services adequately, particularly rail freight.

The NGFA supports the development of public policy that facilitates opportunities

for growth in grain and oilseed production to supply traditional (feed, export and

grain processing) and new (ethanol and biodiesel) market demand. Achieving this

objective will be a significant challenge for the industry, Congress and the administration as a new farm bill is written.

CONSERVATION IMPACTS ON LAND USE AND U.S. COMPETITIVENESS

As noted previously, adjusting the CRP is one significant potential solution to anticipated land-capacity constraints. Acres currently enrolled in the CRP represent

the fourth largest crop in the United States. And if current trends continue, CRP

will surpass acres planted to wheat.

The NGFA recognizes the importance of conservation measures; but we encourage

an approach that reflects a commitment to free enterprise and support for U.S. agricultural growth. As such, the NGFA supports conservation programs that foster

sound farmland conservation and environmental-stewardship practices, while minimizing idling of productive land resources, thereby strengthening the economies of

rural communities while achieving environmental and other policy goals.

We submit that the CRP should be balanced, productive and not work at crosspurposes to a healthy commercial U.S. agriculture sector. Congress can assist by enacting a conservation policy worthy of continued taxpayer support that does not undermine U.S. agriculture’s competitiveness by idling productive land assets.

What policies should be considered to accomplish this objective? As Congress is

aware, the U.S. Department of Agriculture (USDA) developed and implemented a

plan to reenroll or extend many of the acres under CRP contracts that are set to

expire between 2006 and 2010. While the NGFA does not support automatic CRP

reenrollments or extensions, we understood the need to ease potential market impacts of so many acres expiring in such a short time frame. In our view, the large

numbers of acres reenrolled or extended is unfortunate. But USDA’s plan does provide the flexibility for Congress to redesign the CRP over the life of the next farm

bill.

Under USDA’s plan, all acres enrolled in expiring 2006–10 CRP contracts are to

be evaluated based upon their Environmental Benefits Index (EBI) percentile scores

in effect at the time the acres originally were enrolled in the program. The percentile scores then are grouped into one of five EBI tiers. Acres with an EBI ranking

in the 80 to 100 percentile range are eligible for enrollment under new 10-year contracts (15 years for acres with wetlands). Remaining expiring CRP contract acres

are eligible for extensions ranging from two to five years at their previous CRP rental rates, based upon their EBI rankings.

The NGFA supports USDA’s utilization of the EBI to determine which lands are

most environmentally sensitive and should be idled. However, we remain concerned

that contracts extended two to five years then will be offered reenrollments in the

future, which could lock up these productive land resources for an additional 10 to

15 years. Thus, we encourage USDA to allow current CRP contract extensions to

expire once the extension date is reached. This would accomplish the intended effect

of minimizing distortions of mass CRP contract expirations in any one year, while

allowing U.S. agriculture the flexibility to bid these acres back into production to

meet demand as biofuels production continues to expand at a significant pace. Further, the NGFA believes future enrollments of previous or new CRP contract acres

should be based upon updated EBI scores and current rental rates, and USDA

should enroll only those acres that are most environmentally beneficial. We recognize that environmental benefits are limited when acres are not enrolled under longterm CRP contracts; that’s precisely why we believe only those acres within the top

range of EBI scores should be idled.

While the NGFA still is evaluating other specific policy recommendations for the

CRP to be addressed in the next farm bill, we believe several options merit consideration. These include: (1) reducing the current statutory cap on CRP enrollments; (2)

placing a statutory limit on the annual authorized funding level; and/or (3) altering
64

how rental rates are established to ensure that government does not overly subsidize land-idling programs to the detriment of economically viable land-use options.

Government bidding for productive CRP acres in competition with the private sector

hampers efficiency and dampens U.S. agricultural growth. Regardless of the method, it is critical for the long-term viability of the U.S. grain and oilseed industry to

provide sufficient flexibility to bring idled cropland back into production and limit

idling of productive land when market conditions warrant.

Another important consideration for Congress when adjusting the CRP is to ensure that any acres that exit the program are on an even footing with other base

acres with respect to farm program payment eligibility. Unless such equity is

achieved, there will be a significant economic disincentive to restore non-environmentally sensitive CRP acres to production.

The NGFA believes that refinements to the CRP will be essential to obtain the

increased number of corn and soybean acres likely to be needed to support a growing biofuels industry while maintaining the demand for corn from export and livestock and poultry markets. Idling productive farmland runs counter to the support

Congress and the administration have shown to biofuels and creating opportunities

for growth.

OTHER NEGATIVE IMPACTS OF THE CRP

The negative impacts of the CRP extend beyond concerns over having sufficient

grain and oilseed supplies to meet market demand.

The NGFA regularly hears from members whose businesses and rural communities have been devastated by excessive idling of large tracts of productive farmland under the CRP. The economic damage is very real. From Idaho, the local coop manager in Moscow, as he was resigning from the NGFA for financial reasons,

stated, ‘‘the CRP program is a major reason for the downfall of our company. Over

45,000 acres in our service area are now in CRP.’’ From the state of Washington,

the elevator manager from Lind, in Adams County, reports that about one-third of

the acres in his marketing area are out of production, much of it in CRP, while the

population has dropped nearly 30 percent and school enrollment has declined nearly

40 percent. Lind, WA, has lost two farm equipment dealerships, a bank, an insurance broker and a hardware store. In a neighboring town in the same county, the

school has half the enrollment it had a dozen years ago.

The CRP program’s main financial benefits flow to landowners. What is sometimes forgotten is that the unintended side effects probably do the most economic

damage to the producers that many policymakers would most like to help—beginning farmers and tenant farmers trying to earn a reasonable income from active

farming. CRP rental rates inflate land values, which reduce the profitability of tenant farming. Reducing available farm rental acreage also makes it more difficult for

beginning and tenant farmers to put together an efficiently sized production unit

that will provide for a reasonable income. USDA’s own Beginning Farmer and

Rancher Advisory Committee has recommended that the secretary of agriculture

‘‘direct ERS, FSA and NRCS to research policy options for the CRP program to enhance beginning farmer and rancher opportunities as the next big wave of CRP contract expirations begin in FY 2006–2008.’’ This recommendation was made in March

2004, but we have yet to see any USDA statements that this proposal is under active consideration.

Another concern for the NGFA involves the validity of the current 25-percent

county cap on CRP enrollments. It appears that because USDA is using outdated

cropland data to determine the per-county cap acreage, total acreage being enrolled

far exceeds 25 percent of a modern-day ‘‘normal cultivated acreage’’ (in the absence

of a CRP program) for a given county. A couple of examples are illustrative: (1) Harmon County, OK, has 51,000 acres enrolled in the CRP, but only harvests 84,000

acres of cropland; (2) Ellis County, OK, has 63,000 acres in the CRP with current

plantings of crops of 97,000 acres. Both of these examples suggest the 25 percent

cap, as being administered by USDA, has not successfully limited the potential economic damage to rural areas. In addition, as noted previously, because so many

counties already have reached or exceeded the 25 percent limit as now being administered, USDA is being prevented from enrolling valuable filter strips in such counties that could contribute meaningfully to water-quality objectives. The NGFA recommends that Congress take a renewed look at the 25 percent cap and make adjustments to ensure its usefulness in reducing the potential negative impacts of the

CRP, while maintaining flexibility to enroll the most appropriate acres.

The wheat industry has been affected most adversely by the CRP, particularly the

buyout of whole, productive farms. A majority of the CRP ground has been concentrated in wheat states. The large number of acres in the CRP in the Northern
65

Plains has adversely affected U.S. agriculture’s ability to produce adequate quantities of oats and certain classes of wheat, and imports have become critical. Predictably, U.S. wheat imports have accelerated and the United States has struggled to

grow enough for our domestic mills. In addition, as ethanol production increases,

corn acres will move west, further pressuring the competitive position of U.S. wheat.

The NGFA continues to oppose the enrollment, reenrollment or extension of whole

farms or large tracts of productive land into the CRP.

The NGFA is not alone in expressing concerns about CRP. Fourteen agricultural

trade associations representing agricultural businesses, suppliers and end users endorsed testimony presented last year by NGFA President Kendell Keith before the

Senate Agriculture Committee on the CRP. More recently, the Iowa Farm Bureau

Federation announced its support for eliminating the CRP. Commenting on the proposal, Iowa Farm Bureau President Craig Lang stated, ‘‘I think it was the loss of

community activity and economic viability, and our farmers today said we want to

send a message.’’ The National Association of Wheat Growers, in a joint paper with

the North American Millers’ Association, indicated ‘‘idling productive resources

raises production costs and has a detrimental impact on competitiveness.’’ The

American Soybean Association has said it ‘‘supports restricting the CRP to environmentally sensitive lands, and returning productive farmland currently enrolled in

the CRP to production.’’ The message from a wide range of U.S. agriculture is clear:

American agriculture is poised to take advantage of significant growth opportunities

and U.S. government programs should facilitate, not hinder, its ability to compete.

The United States currently idles 36.7 million acres in the CRP, roughly 15 percent of available farmland. Congress has capped the CRP at 39.2 million acres. But

enrolling still more acres in the CRP will hamper U.S. agriculture’s ability to: 1)

produce and compete in domestic and global markets; 2) provide opportunities to

young farmers and ranchers and tenant farmers to enter production agriculture; 3)

sustain economic growth in the domestic livestock and poultry sectors; and 4) minimize the negative impacts of the CRP on local rural economies. The size of the CRP

has a direct impact on the availability of land to build and grow an economic foundation for agricultural producers, grain handlers, processors, exporters and other

U.S. agribusiness sectors. The 2002 farm bill contained unprecedented authorizations for conservation spending, particularly for working lands programs such as the

Environmental Quality Incentives Program (EQIP) and Conservation Security Program (CSP). The NGFA strongly supports directing scarce conservation resources to

programs like these that enhance conservation of working farmlands, coupled with

a shift away from land-idling schemes.

MINIMIZING MARKET DISTORTION IN FARM PROGRAMS

The NGFA also wishes to reiterate its long-standing position that Congress and

farm organizations are in the best position to determine the appropriate level of

Federal funding to allocate to farm program payments. However, the NGFA does

have three specific concerns relative to farm program payments. First, such payments should minimize market-distorting signals. Second, we believe Congress

should avoid major and immediate shifts in funding levels and program implementation that create near-term disruptions. And third, we support the statements from

the leadership of this committee that U.S. farm program payments should be structured and implemented in a way that minimize exposure to World Trade Organization (WTO) challenges.

Minimizing market-distorting farm income supports contributes stability and predictability to the market. This stability gives the industry greater flexibility to pursue new opportunities for U.S. agricultural growth while improving U.S. competitiveness. The NGFA recognizes the need for government to support agricultural producers given the volatility associated with agricultural production and supports programs that meet this goal while minimizing market distortions.

The NGFA also supports limiting dramatic swings in farm program funding levels

and delivery that create short-term disruptions. A measured and incremental approach to implementation is preferred to give markets the opportunity to efficiently

adjust to new programs and funding levels.

Finally, we remain concerned over U.S. agriculture’s exposure to further litigation

within the WTO. The NGFA strongly supports the administration’s efforts to complete a comprehensive trade agreement under the WTO’s Doha Round. Doing so

would provide significant new market access for U.S. agricultural products, dramatically reduce trade-distorting domestic supports (particularly those in Europe, Japan

and other countries) and eliminate export subsidies. The current ‘‘freeze’’ in negotiations is unfortunate, and we recognize the uncertainty of completing a comprehensive global trade agreement within a reasonable time frame. We believe the 2007
66

farm bill is the right place to enact policy reforms that will bring U.S. farm programs into compliance with our WTO commitments. Absent changes, U.S. production and trade conditions will operate under a cloud of potential challenge. Moreover, any successful challenge could impart sudden changes in the U.S. agricultural

system.

THE FOLLY OF GOVERNMENT-CONTROLLED RESERVES

Finally, given the potential demand pulls and market opportunities noted previously, the idea of resurrecting a government-controlled grain reserve is a worse

idea today than it was when it failed in the 1980’s.

Government-subsidized stocks holding has proven to be bad policy for a number

of reasons. First, government-controlled stocks distort market price signals and can

adversely affect planting and marketing decisions. Second, such programs encourage

uneconomically justified storage expansion decisions by the private sector. Third,

they blur market signals—known as carrying charges—that provide incentives for

producers and the industry to store grain. Fourth, they can—and have—undermined

price rallies for producers created by market demand because those reserve stocks

overhang the market. Finally, the government has shown in the past that once

stored in a reserve, it is difficult to ever release such stocks even if price triggers

are in place.

The NGFA also opposes government-subsidized programs that are designed to expand commercial or on-farm grain storage capacity. The market has—and will—provide the necessary economic incentives to encourage construction of storage where

and when it is warranted.

The NGFA does recognize, and support, the need for government controlled reserves intended for humanitarian purposes, such as the Bill Emerson Humanitarian

Trust.

GENERAL RECOMMENDATIONS FOR THE 2007 FARM BILL

In closing, the NGFA offers the following general recommendations for consideration by Congress in developing the 2007 farm bill.

(1)Provide access to sufficient acres to meet demand growth from energy and

biofuels without shorting supplies necessary to grow other important demand sectors, such as export and domestic livestock and poultry markets.

(2) Authorize conservation programs that minimize reliance on idling of productive land resources and strengthen the economies of rural communities, while

achieving environmental and other policy goals.

(3) Limit acres idled under the CRP. The CRP should shift away from the enrollment of whole farms and should focus on the most environmentally sensitive acres

and on filter strips and other areas that do the most to enhance water quality.

(4) Provide flexibility for acres to leave the CRP and ensure once acres exit or expire that they are fully eligible for farm program benefits as established by the next

farm bill.

(5) Craft farm program payments that minimize market distortions and volatile

swings in funding availability.

(6) Devise farm income supports in a way that minimize risk for potential challenges in the World Trade Organization (WTO).

(7) Reject proposals to establish government- controlled or managed grain reserves

or government-subsidized storage programs.

The NGFA appreciates this opportunity to provide an outline of its major concerns, as well as some general recommendations, for the next farm bill. We intend

to provide more specific recommendations as soon as the study to be conducted by

the National Grain and Feed Foundation is completed and our industry representatives have time to analyze and discuss its findings.

These clearly are issues that have significant impacts on NGFA members and our

farmer-customers. In closing, I would leave you again with a line from the NGFA

Statement of Purpose: The association is ‘‘focused on the growth and economic performance of U.S. agriculture.’’ We are hopeful that as Congress considers the next

farm bill that it also will focus on the ‘‘growth and economic performance’’ for all

of U.S. agriculture.

Thank you, and I look forward to answering any questions you may have.

ADDITIONAL STATEMENT FOR THE RECORD

Re: Questions regarding CRP reduction impacts raised in September 13 hearing

Ranking Member Collin Peterson, in questioning the first panel at the September

13 hearing, referenced a study conducted by the economists at the University of
67

Tennessee that estimated the ‘‘elimination’’ of the Conservation Reserve Program

would result in substantially lower commodity prices, higher Government payments

and lower farm income. As the witness for National Grain and Feed Association, I

was not on the first panel, so I was not able to respond at the hearing, but would

like to submit this response for the record.

The University of Tennessee study was based upon data from USDA’s February

2006 baseline, which according to September 6, 2006 testimony by USDA Chief

Economist, Keith Collins, before the Senate Committee on Environment and Public

Works, contain projections of ethanol production that are substantially under all

current private and public forecasts for ethanol production from corn. For example,

the February 2006 USDA baseline forecast that by 2010, 2.600 billion bushels of

corn would be used for ethanol production. In his September 2006 testimony, Dr.

Collins estimated ethanol production above 10 billion gallons by 2010, or the equivalent of 3.65 billion bushels of corn. With current yield trends, more than an additional 7 million planted acres of corn would be required to supply this additional

1.05 billion bushels. As I noted in my testimony, these acres have to come from either the CRP or be bid away from other crops. Thus, since the USDA issued its February 2006 baseline, there has been a shift in projected future market fundamentals

on the order of a 9 percent increase in total demand for corn by the year 2010. This

is a huge change that fundamentally alters the outlook and need for productive

acres that cannot be ignored by researchers.

There are private estimates of future ethanol production, and these were acknowledged by Dr. Collins in his testimony, that estimate ethanol production in 2010 will

be 30–40 percent higher than the 10 billion gallons forecast by USDA. If this turns

out to be an accurate forecast, an additional 14 million planted acres of corn will

be required, compared to the USDA February baseline, simply to maintain available

corn supplies to ethanol producers and all other corn users in the marketplace. (It

is of some interest that the University of Tennessee study estimated that even a

total elimination of CRP payments would only result in 12.6 million acres returning

to active farm production.)

We would submit that the University of Tennessee study should be completely rejected by the committee as it provides no credible information because of the woefully out-of-date assumptions. By all appearances, the U.S. is on track to be producing, at the minimum, 10 billion gallons of fuel ethanol by 2010 generating a need

for substantially more grain just to maintain our competitive position in livestock

industries as well as in fuel ethanol. While the University of Tennessee study assumed ‘‘elimination’’ of the CRP, we have not heard anyone making such a drastic

policy recommendation. There are, according to Dr. Collins, more than 7 million

acres in the CRP that can be farmed in an environmentally sustainable way. Even

if the marketplace can bid 7 million acres of CRP ground back into production, because of the trends in ethanol and other biofuels production, U.S. grain production

capacity will be sorely tested over the life of the next farm bill to keep pace with

market demand for grains and oilseeds. In all likelihood, this will result in upward

trends in farm prices and less dependence on farm programs to keep farming profitable.

In shaping policy that is optimal for the U.S. agricultural sector, we would urge

the committee to rely on the most recent data available and ignore studies that are

based upon clearly out-of-date information. For your information, the National

Grain and Feed Foundation, along with other organizations, plans to conduct a private study of the potential range of biofuel production over the course of the next

5–10 years, the impact on livestock operations and the demand for transportation

services, which are particularly tight in today’s marketplace. We would anticipate

the results of that study to be available sometime early in the 2007 session of Congress, and we will provide that study to the committee when it is complete.
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83

BOB FRAZEE ANSWERS TO SUBMITTED QUESTIONS

How do you design (redesign) CRP to keep land in conservation while

meeting the new land use needs for energy, wildlife and other competing

interests?

I believe there should be more involvement and input at the local level when it

comes to selection of lands to be enrolled in CRP. This could include better coordination with NRCS, FSA, state and local conservation groups. Payment rates, restrictions on enrollments for described purposes and conservation goals should all be established at the local level. We support the CRP program, but believe program

changes can be made that do not distort the marketplace and take unnecessary

working lands out of production.

Regarding transportation issues, what are the biggest concerns with rail,

truck and barge transportation particularly with the needs to transport

the quantity of biofuels of the future and the magnitude needed/to be produced?

We suggest Congress look at the infrastructure needs and design a plan to fund

them accordingly. We know there are a number of rural roads and bridges and river

locks and dams that need to be upgraded to provide the competitive edge needed

in a global economy. Congress needs to respond to these needs if agriculture is to

stay competitive.

How is the current drought affecting businesses across our industry?

Business is down significantly in drought areas. Equipment demand is typically

20–40 percent below non-drought areas.

What problems do you see if Congress extends the current farm bill?

If the current farm bill is extended, we believe there will be continued challenges

from WTO trade counties. An extension will also not fix CRP and conservation concerns, reflect on new energy opportunities or change outdated research priorities.

How should USDA research dollars be allocated in the future?

We believe research dollars should be directed towards biotechnology, one that

measures the impacts of conservation projects, improves rural infrastructure and

economic development. Energy research on new enzymes, better use of biomass, et

cetera should be a part of the next farm bill priorities.
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
(109)

REVIEW OF FEDERAL FARM POLICY

WEDNESDAY, SEPTEMBER 20, 2006

HOUSE OF REPRESENTATIVES, COMMITTEE ON AGRICULTURE, Washington, DC.

The committee met, pursuant to call, at 10:07 a.m., in room

1300, Longworth House Office Building, Hon. Bob Goodlatte (chairman of the committee) presiding.

Present: Representatives Everett, Lucas, Moran, Gutknecht,

Johnson, Osborne, Graves, Bonner, Neugebauer, Boustany, Kuhl,

Foxx, Conaway, Fortenberry, Sodrel, Peterson, Holden, Etheridge,

Baca, Marshall, Herseth, Cuellar, Salazar, Pomeroy, and Boswell.

Staff present: William E. O’Conner, Jr., staff director; Pelham

Straughn, Bryan Dierlam, Craig Jagger, Callista Gingrich, clerk;

Rob Larew, minority staff director; Chip Conley, Chandler Goule,

Clark Ogilvie, and Anne Simmons.

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

OF VIRGINIA

The CHAIRMAN. Good morning and welcome to the House Committee on Agriculture.

This is the committee’s 13th full committee hearing to discuss

and review Federal farm policy. Since February the committee has

traveled to 11 States to gather feedback from individual producers

about the future of farm policy. We have heard from 116 producers

through our series of field hearings, and today we are happy to

hear from 17 organizations that represent America’s farmers and

ranchers.

As you can see from the witness list, we have a full day ahead

of us. It is no secret that we find ourselves in a different environment now than when the 2002 farm bill was written. Today the

budget picture looks different, as does the export and trade environment. Whether or not the actual dollar amount set aside for agriculture spending remains the same as the previous farm bill remains to be seen. However, I assure you that the number of groups

expressing interest in this farm bill is growing daily. The result is

a larger number of players competing for a slice of the same pie.

We will have to be creative in how we approach the next farm bill

to ensure that all involved in American agriculture are equipped

with what they need to be successful.

I am committed to writing the best farm bill we can with the resources made available to us. To that end, I need your help, helping us identify your priorities, discern your needs from your wants
110

and secure the best possible budget allocation that will assist this

committee in crafting a farm bill that will serve America’s producers well.

I can say with certainty that this committee understands the

vital role that American farm policy plays in sustaining agriculture

and its impact on our national economy and our national security.

Unfortunately, many of our urban and suburban colleagues do

not. If this doesn’t concern every person sitting in this room today,

it should. Why? Because while the committee will be writing the

next farm bill, we cannot turn it into law by ourselves. The passage

of the farm bill requires an act of the entire Congress and must

garner the support of a majority of rural, suburban and urban representatives. We do our best to educate our colleagues, but we cannot do it alone.

We need you to consistently voice your concerns to all Members

of Congress, including those outside of the Agriculture Committee.

Your local media and local communities should hear the message

as well. We all need to spread the message about the vital role U.S.

agriculture plays in the lives of every American and how our policies are designed to meet our needs and ensure our security.

Now let us get down to the business of the day, which is to hear

from our witness. I respectfully request Members to submit their

opening statements for the record so we may proceed with our first

panel of witnesses. And always I have one exception to that, and

it is my pleasure to now recognize the ranking minority member

of the committee, Congressman Peterson of Minnesota.

STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Mr. PETERSON. Thank you, Mr. Chairman and thank you for

holding this hearing today and I want to thank all of the witnesses

for joining us. We have had a woodpecker out there. Maybe it is

that Arkansas one they can’t find.

We have had a busy year here in the Agriculture Committee,

traveling around the country for farm bill hearings. We have heard

from producers around the country about the 2002 farm bill, how

it has worked, where we need to improve it and where they think

we need to go with Federal farm policy.

For the most part we have heard that folks like the current farm

bill and want to do see a similar bill next time.

I am looking forward to hearing what your members are telling

you about farm policy and how it is working in the real world. And

I am also interested in hearing about how your members are dealing with the agriculture disasters that have plagued so many of our

agriculture communities.

More than 60 percent of all counties in the United States have

been designated disaster areas. So I know that most of you must

be hearing from your members about the situation out there and

what they need to recover.

We have big challenges ahead of us, addressing the need for agriculture disaster assistance and then moving on to the 2007 farm

bill.

I appreciate all of you being here today to offer your advice and

look forward to hearing your testimony.
111

The CHAIRMAN. I thank the gentleman

Other statements for the record will be accepted at this time.

[The prepared statement of Mr. Baca follows:]

PREPARED STATEMENT OF HON. JOE BACA, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF CALIFORNIA

Chairman Goodlatte and Ranking Member Peterson:

Thank you, Mr. Chairman and the ranking member, for your hard work and leadership as we move into the 2007 farm bill reauthorization. I am pleased to discuss

today the current state of our Federal farm policy from the perspective of American

farmers and growers.

This committee’s goal, of course, is to end up with a farm bill that strikes the

right balance between protecting American farmers, promoting sensible natural resource management, and strengthening our market position in the worldwide economy. The 2002 bill did a very good job in striking that balance, but things have

changed rapidly in the last several years. Hearing from different sides and perspectives over the next few months will no doubt help us get a more accurate view of

the state of American agriculture in 2006.

I also want to thank each of our many witnesses for coming here today and hope

that both of you will be able to help us in Congress understand what has changed

over the last 4 years and what could be improved in the current policy to ensure

that the balance we sought in 2002 remains.

In particular, I hope we can discuss with our witnesses how Congress can create

a renewable fuel economy that is accessible to all localities, regardless of the feedstocks that are generated in those areas. We hear a lot about ethanol in the Corn

Belt, but what other affordable, renewable energy sources are out there—especially

in the west coast and in my home State of California. Not every part of this country

grows corn or sugar cane. What other biofuel technologies could we be investing our

research dollars into? And what impact will further investments in corn-based ethanol do to the price of feed for our many livestock farmers? We must ensure that

their interests are protected as well.

I’d also like to talk more in this committee on what needs to be done in order

to balance the realities of the global marketplace while protecting the interest of

American family farms—many of which are not able to compete against foreign

crops and products that are produced in countries with sparse safety regulations

and labor standards.

Finally, I’m very interested to hear from the specialty crops farmers about what

they will need over the next several years to grow their businesses. As you know

Mr. Chairman, my home State of California produces a wide variety of specialty

crops. However, the term ‘‘specialty crop’’ is misleading. These crops aren’t just obscure plants and products. They are fruits and vegetables like peaches, plums,

strawberries, asparagus—all products that American consumers expect to see at

their local stores. We need to make sure that these valuable crops are better supported in the next farm bill.

Our country was founded on agriculture and ingenuity. It is fitting then that we

bring these areas together to create a new future for America based on a fair policy

that maximizes grower productivity, environmental responsibility, and global trade.

I look forward to working with our farmers on this next farm bill and thank the

chairman and ranking member again for their leadership.

Thank you.

The CHAIRMAN. We would like to welcome our first panel to the

table: Mr. Bob Stallman, president of the American Farm Bureau

Federation, from Washington, DC; Mr. Tom Buis, president of the

National Farmers Union of Washington, DC; Mr. Allen Helms,

chairman of the National Cotton Council, from Clarkedale, Arkansas; Mr. Paul Combs, chairman of the USA Rice Producers Group,

from Kennett, Missouri; Mr. Dale Schuler, president of the National Association of Wheat Growers, from Carter, Montana; and

Mr. Gerald Tumbleson, president of the National Corn Growers Association, from Sherburn, Minnesota.

Bob, looks like you have sustained injuries in the fight for American agriculture. But we are welcome to hear your testimony.
112

We would remind all our witnesses that their full statement will

be made a part of the record and ask you to limit your comments

to 5 minutes.

STATEMENT OF BOB STALLMAN, PRESIDENT, AMERICAN

FARM BUREAU FEDERATION

Mr. STALLMAN. Mr. Chairman, you can appreciate that working

in Washington your arm can only be twisted so many times.

Well, good morning, and, Mr. Chairman and Ranking Member

Peterson and members of the committee, thank you for the opportunity for to us to present testimony. My name is Bob Stallman.

I am a rice and cattle producer in Texas and president of the American Farm Bureau Federation. There is no question the existing

farm bill is popular with farmers and ranchers throughout the

country. Continued maintenance of its structure and its funding is

a high priority for Farm Bureau. 89 percent to 11 percent, American Farm Bureau Federation delegates cast a resounding vote in

support of extending the economic safety net of the current farm

bill until a new world trade agreement is reached that would increase foreign market access for U.S. farmers and ranchers. One of

the most important reasons for this extension is the current stalemate in the WTO negotiations.

America’s farmers and ranchers believe a significant expansion of

trade opportunities is the only acceptable outcome of the WTO negotiations, and the outcome of the negotiations particularly as they

relate to domestic support commitments must be known and taken

into account before we begin crafting a major new farm bill with

major policy changes.

We must negotiate a WTO agreement that accomplishes our objectives and then modify our farm policies accordingly and to the

extent necessary based on the final outcome of the negotiations.

Why do we believe this is so? This approach provides U.S. negotiators the strongest negotiating leverage. The primary component

the U.S. has to offer in the negotiations is reductions in our domestic support programs. The leading component for many other countries is primarily reductions in high tariffs. If we reduce our domestic supports in an upcoming farm bill budget reconciliation debate,

we have less leverage to use to convince other countries to reduce

their tariffs and export subsidies. Our strongest negotiating leverage is to maintain our current level of AMS support until we agree

to a WTO round that has been beneficial for agriculture. We will

not receive any credit for unilateral reductions made prior to resumption of the Doha negotiations.

Second point, we are simply not far enough along in the negotiations to anticipate a likely WTO outcome and to make major

changes in the new farm bill on that basis. Critics of our farm bill

say that any successful WTO negotiation will require reductions in

our farm programs near the 60 percent of trade-distorting domestic

support level offered by the U.S. a year ago. Therefore why not go

ahead anyway?

We do not know what will be agreed to at the end of the negotiations. There may be smaller average tariff cuts and a larger number of sensitive products than the U.S. had previously sought. Altering our programs now to reduce support by 60 percent just in
113

case that is what is included in the final agreement makes no

sense.

Third point, reforming the farm bill now absent a final agreement offers no assurance that additional reforms would not be required when an agreement is finalized.

I have heard some say that a question American agriculture is

going to have to answer is if we have to change our farm policy do

we do it ourselves or do we have others do it for us? A few years

ago, the European Union decided to change their policy on their

own terms and adopted their common agricultural policy.

These reforms shifted many of their programs from more trade

distorting programs to programs that qualified for the nontrading

distorting ‘‘green box.’’ many Europeans believed that by doing so

their changes would suffice as their contributions to the round. Virtually no country has given the European Union credit for those

changes.

And in a similar vein the U.S. offered a bold reduction in our

trade distorting domestic supports only to have it viewed as a new

starting point for the negotiations. If we attempt to prejudge our

contributions to a successful WTO round in an upcoming farm bill,

we would fall prey to the same outcome as the Europeans.

Farmers and ranchers are willing to lower farm program payments via the World Trade Organization negotiations if and only

if they can secure increased opportunities to sell their products

overseas. However, we are not willing to give up supports without

getting anything in return.

We will support making minor adjustments to the bill; for instance, to comply with recent WTO rulings on direct payments in

the fruit and vegetable planting restrictions. In the meantime U.S.

farm policy should continue to help level the playing ground with

assistance to American farmers until trade negotiations achieve a

more open world market.

On a related issue there are those who say we must change our

farm programs now because of our loss in the WTO challenge to

the Brazil cotton case. While there is a possibility that new challenges to U.S. support programs might be filed in the WTO, the

starting point for such complaints would likely be the Brazilian

challenge to our cotton programs.

The question to consider is how vulnerable other crops are to

similar challenges. We have looked at most of those questions and

believe that it will be more difficult to prove serious prejudice in

other crops than it was for cotton. But in the end it is impossible

to predict how the panel will rule as we found out in the case of

cotton. However, to alter farm programs now because a country

might have the resources and desire to file a case against our farm

programs and it might succeed and be implemented in 2 or 3 years

is not a good reason to alter in and of itself our current farm policy.

We have covered several other topics in our written statements

such as biofuels and energy, revenue insurance, conservation and

others, and I will be pleased to address any questions related to

those areas in the Q and A. Thank you very much for the opportunity to be before this committee.

[The prepared statement of Mr. Stallman appears at the conclusion of the hearing.]
114

The CHAIRMAN. Thank you, Mr. Stallman. Mr. Buis, welcome.

STATEMENT OF TOM BUIS, PRESIDENT, NATIONAL FARMERS

UNION

Mr. BUIS. Thank you, Chairman Goodlatte and Ranking Member

Peterson and the rest of the members of the committee.

I want to thank you for the opportunity to testify, but I also want

to commend you for your tremendous efforts at outreach all summer long and holding field hearings on the farm bill, holding the

Washington hearings and your efforts at outreach on the Web site

to truly get the feeling of what people want to see throughout

America in the case of the farm bill. The National Farmers Union,

like you, have conducted several farm bill listening sessions across

the country. I think we did 15 in the month of August.

And part of the reason we do it I think is the very same reason

that you do, and that is the true answers to the challenges that

face rural America lies with the people that live there, work there

and raise their families, and my favorite quote of all time is by

President Eisenhower, which sort of describes what happens in the

farm bill process, and that is that the farming is mighty easy when

your plow is a pencil and you are a thousand miles from the nearest corn field, and we want to thank you for going out into those

corn fields and cotton fields and other types.

First of all, what we heard at the listening sessions and what our

board has unanimously supported is a extension of the current

farm bill. I think there is an overwhelming feeling among farmers

that the 2002 farm bill was a significant improvement over Freedom to Farm. There is a lot of concerns that the political partisanship here in Washington, the sea of red ink with the budget deficit,

the uncertainties over trade, and I agree with Mr. Stallman that

we shouldn’t be negotiating with ourselves and guessing what is

going to happen in that agreement.

And probably a bigger concern is the shaky financial condition

that exists on farms, on the cash flow situation because of the tremendous skyrocketing input costs as a result of energy over the

last 2 years. That has had a significant impact. And so to move forward and change the safety net at this point with so much uncertainty, our folks feel that is not worth taking the risk.

They also feel that we might go backwards and there is no better

example than just pick up any major urban newspaper almost on

any given day and someone is blaming farmers for all the evils in

the world.

We are the reason for the budget deficit even though we know

we are not. We are the cause of other farmers not being able to

make a profit worldwide, even though we are not. We are the cause

of environmental problems. You name it. There is a lot of people

gearing up for this farm bill to which sort of creates a perfect storm

in our opinion on the timing.

However, when you do write a farm bill and if you will be at it

hopefully, one of the first in line to make suggestions and what I

heard around the country and what we gathered, the No. 1 issue

among everyone is getting a profit from the marketplace.

Often times, farm bills are reactive to the conditions that exist

throughout the country. They deal with the symptoms. They don’t
115

necessarily deal with the cause. And I think if there is anything

this committee and your counterparts in the Senate can do is put

a tremendous influence on creating a profitable environment for all

farmers.

There is a lot of excitement. There is a lot of excitement about

the opportunity of fuels from the farm, energy from the farm,

whether it is ethanol, biodiesel, wind energy, biomass, cellulosic,

every one is really excited. There is some caution to throw there,

because I think a lot of the excitement is they are getting more of

the total dollar produced from that energy and kept in those local

communities. There is a big concern that Wall Street and others

will take away this industry and the profit won’t be there.

The second really exciting economic opportunity is direct farmer

to consumer marketing of natural, fresh, source verified from the

farm products to the consumers. It is the fastest growing sector of

the food industry. Consumers are willing to pay for it. It is driven

by consumers’ preference to pay a higher price for fresh, higher

quality products. And I think we should do everything to keep that

going.

Fair, open competitive markets comes up repeatedly and with the

announcement this week of the No. 1 hog producer in the country

buying the number two hog producer, that certainly is probably

going to raise a lot more awareness and fair trade, truly leveling

the playing field on not just necessarily the free trade.

The safety net. A couple of ideas has come up that has come up

repeatedly, one is we need to have a permanent disaster program

in place that provides assistance in a timely manner, avoids the

embarrassment of people getting something for nothing, and actually makes some common sense to a lot of people. I think it would

save the Government money in the long run.

Improvements in risk management and a truly countercyclical

safety net based on the cost of production. The tremendous increase

in input costs the past 2 years has made just choosing a number

out there for a safety net inaccurate in protecting people’s risks.

I will stop there. Mr. Chairman, and ranking member, again

thank you for your efforts at outreach and I would encourage the

committee to focus on the cause of the problems, which is lack of

profitability and not just on the symptoms.

Thank you.

[The prepared statement of Mr. Buis appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you Tom. Mr. Helms, welcome.

STATEMENT OF ALLEN B. HELMS, JR., CHAIRMAN, NATIONAL

COTTON COUNCIL

Mr. HELMS. Thank you.

Mr. Chairman and members of the committee, thank you for the

opportunity to present testimony today on U.S. farm policy.

My name is Allen Helms. I operate a diversified farming operation in Clarkedale, Arkansas and I also have the honor of serving

as chairman of the National Cotton Council. Two years of above average yields growers in several parts of the Cotton Belt are facing

much lower yields due to extreme drought conditions. Currently

USDA has issued disaster declarations for 334 cotton producing
116

counties, covering almost 80 percent of cotton acreage. For those affected producers’ emergency staffer assistance for 2006 will be critical.

Mr. Chairman, the 2002 farm bill continues to enjoy solid support among cotton producers. Combination of direct and countercyclical payments provides income support, especially when prices

are low, without distorting planting decisions. We strongly support

continuation of the marketing loan with an effective world price

discovery mechanism. Marketing loan rewards responds to low

prices and does not cause low prices. It is vitally important that all

production is eligible for the marketing loan and can be redeemed

at the prevailing world price, so farmers can make informed orderly marketing decisions.

Cotton loan structure and world price calculation have served the

industry well. There have been minimum forfeitures and robust exports, but some modification may be necessary to respond to the

new emphasis on export markets and the determination of step 2.

Our Pima cotton producers support continuation of the loan program with a competitiveness provision to ensure U.S. extra long

staple cotton remains competitive in international markets.

The extra long staple program has minimal cost and Pima is an

importance alternative crop in the irrigated West particularly in

California’s San Joaquin Valley. A sound farm policy is of little

value to the cotton industry if arbitrary unworkable limitations are

placed on benefits. Frankly, we believe limitations should be eliminated but at the very least any limitations in future loss should not

be more restrictive or disruptive than those in current law.

We believe conservation programs will continue to be an important component of effective farm policy. These programs should be

operated on a voluntary cost share basis and are a valuable complement to commodity programs. However, they are not an effective

substitute for the safety net provided by commodity programs.

Continuation of an adequately funded export promotion program,

including the Market Access Program and Foreign Market Development Program, are important in an export dependent agricultural

economy. It is also valuable to maintain a WTO compliant Export

Credit Guarantee Program.

Mr. Chairman, the cotton industry can continue to support an

ambitious WTO agreement that does not unfairly target any commodity. We commend you and our negotiators for refusing to allow

unwarranted pressure and artificial deadlines to undermine the

U.S. position last July.

It is very important that when and if the negotiations resume,

they be conducted as a single undertaking and that there be no

early harvest for cotton. We understand that suspension of the

Doha negotiations has created debate as to the best way to steer

domestic farm policy. However, it is clear that the next farm bill

must allow the United States to negotiate from a position of

strength.

Cotton farmers are deeply concerned about the decline of our

longstanding customer, the U.S. textile industry, which until recently consumed nearly 50 percent of our annual production. Despite significant gains in productivity and efficiency, U.S. textile

manufacturers have found it difficult to compete with imported
117

barrel products from primarily Asian sources. The loss of step 2

compounds the gradual financial conditions of the textile industry.

The remaining manufacturers have indicated strong interest in

revising our step 3 import policy and in developing a possible WTO

compliant alternative to step 2.

Although cotton fibers are a primary product, cotton seed accounts for 12 percent of our farm gate value. About 50 percent is

crushed to produce high quality oil and meal and the remaining 50

percent is sold for feed. The feed market is an increasingly important market for cotton seed. We ask that as policy is developed any

impact on markets for cotton seed be carefully considered and mitigated if necessary and appropriate.

In closing, I would like to reiterate the cotton industry’s overall

support for the current farm bill.

We also know, however, that an extension will face hurdles both

domestically and internationally. I am pleased to assure you and

your colleagues that the cotton industry is prepared to continue to

work with all interests to develop and support a continuation of a

balanced and effective policy for all U.S. agriculture.

Thank you for this opportunity to testify, and we will be pleased

to respond to questions at the appropriate time.

[The prepared statement of Mr. Helms appears at the conclusion

of the hearing.]

Mr. EVERETT [presiding]. Thank you very much, Mr. Helms.

Mr. Combs, I believe you are up next.

STATEMENT OF PAUL T. COMBS, CHAIRMAN, USA RICE

PRODUCERS’ GROUP

Mr. COMBS. Good morning, Acting Chairman Everett and members of the committee. I am Paul T. Combs, a rice, cotton, wheat

and soybean producer from Kennett, Missouri. I serve as Chairman

of the USA Rice Producers’ Group, a member group of the USA

Rice Federation. And my testimony today is on behalf of both the

USA Rice Federation and USA Rice Producers Association.

We thank you for holding this hearing here today and for the opportunity you have given us to testify. As Congress prepares for the

next farm bill the U.S. rice industry supports maintaining an effective farm safety net that includes a marketing loan program as

well as price support payments and planning flexibility. These commodity programs also serve as rural development programs and

this is especially true in the case of rice because most of the U.S.

crop is transported, processed and marketed by firms in the rural

areas of the country where it is grown. Therefore, these programs

contribute significantly to the overall economic activity in the U.S.

rice growing region.

At this time rice producers and others in production agriculture

face an uncertain farm policy due to repeated proposals to cut our

farm programs and the pending Doha round of WTO negotiations.

For these and other reasons the U.S. rice industry supports an

extension of the 2002 farm bill, particularly the commodity program, until such time as the WTO provides a trade agreement that

has been approved by Congress.

We believe the policies and structure of the current bill should

be continued.
118

There are a number of key factors that support extending the

2002 farm bill. Number 1, our current farm programs are a fiscally

responsible approach to farm policy and they provide a safety net

when it is needed. CBO August 2006 budget baseline estimates

that the actual commodity title costs through 2005 reflect a real

savings of nearly $19 billion relative to the levels estimated when

the 2002 bill was approved.

Number 2, any reduction in the current programs and spending

levels of the farm bill will result in the effective unilateral disarmament by the U.S. and ultimately weaken our negotiating position with other countries and, number three, writing a new farm

bill in advance of a final WTO agreement would result in a very

short-term bill that must be rewritten should WTO negotiations be

concluded and the trade rules are in place. Any such changes that

inject uncertainty into this safety net will lead to financing difficulties to producers.

The U.S. rice industry opposes any further reduction in the payment limit levels provided under the current farm bill. It is essential that rice producers maintain nonrecourse loan program eligibility for all production.

Arbitrarily limiting payments results in farm sizes too small to

be economically viable, particularly for rice farms, which have the

highest cost of production of any major grain crop. Payment limits

have the negative effect of penalizing viable family farms the most

when crop prices are the lowest and support is most critical.

Conservation programs play an important role in production agriculture by providing assistance to producers in their continued efforts to conserve our Nation’s natural resources.

The rice industry supports maintaining a strong conservation

title in the next farm bill, but not at the expense of the commodity

title.

Forty to 50 percent of the annual U.S. rice crop is exported, so

trade is clearly critical to our industry and despite the general continuing trend towards market liberalization, rice outside the

United States has remained among the most protected agriculture

commodity.

In addition, U.S. policies intended to punish foreign nations or

encourage regime changes disproportionately harm U.S. rice producers. Unilaterally imposed trade sanctions have and in some

cases continue to play a key role in destabilizing the U.S. rice industry and constraining its long-term market potential in countries

such as Cuba, Iran and Iraq.

In conclusion, U.S. farm policy must provide a stabilizing balance

to markets and a reliable planning horizon for producers.

We urge you to recognize how well the current farm bill is working for U.S. agriculture and consider ways to maintain its structure

as we begin debate on the next farm bill.

However, with the need for a strong farm safety net as part of

U.S. farm policy the U.S. rice industry supports extending the 2002

farm bill until a WTO trade agreement is negotiated and approved

by Congress. This concludes my testimony.

[The prepared statement of Mr. Combs appears at the conclusion

of the hearing.]

Mr. EVERETT. Thank you very much. Mr. Schuler, you are next.
119

STATEMENT OF DALE SCHULER, PRESIDENT, NATIONAL

ASSOCIATION OF WHEAT GROWERS

Mr. SCHULER. Mr. Chairman, members of this committee, my

name is Dale Schuler. I am a wheat farmer from Carter, Montana,

and I am currently serving as president of the National Association

of Wheat Growers. Thank you for this opportunity to be here today

to share some of the thoughts of the growers I represent on farm

policy.

The effective farm legislation is essential not only for wheat

growers, but also rural economies and the American consumer.

Farm programs were designed to cushion the boom and bust cycles that are inherent to agricultural production and to ensure a

consistently safe, affordable and abundant food supply for the

American people.

The 2002 farm bill has strong points. And the wheat growers

that I represent believe that the next farm bill should build on

these strengths. However, while wheat growers generally support

the current policy, much of the safety net provided in the 2002

farm bill has not been effective for wheat farmers.

Since 2002, wheat growers have received little or no benefit from

two key components of the current bill, the countercyclical program

and the loan deficiency payment program for two main reasons.

First, severe weather conditions for several consecutive years in

many wheat States have led to significantly lowered yields or total

crop failure. The loan program and the LDP are useless when you

have no crop.

Second, the target price for the countercyclical program for wheat

was set considerably lower than needed to cover the cost of production, and severe weather conditions in some areas have created a

short crop which has led to slightly higher prices.

As a result there has been very little support in the form of countercyclical payments also. As you can see by the chart I provided

in my testimony, the support level for wheat compared to other

commodities in the 2002 to 2005 crop years, even as a percentage

of production costs, is relatively low.

We are not in any way suggesting that other crops receive too

much support. Far from it. They face the same problems our growers face and rely heavily on the safety net. We are simply stating

that wheat producers need a viable safety net, too.

There is no doubt that the American food stamp farmers would

rather depend on the market than the Government for their livelihoods, but the current economic and trade environments do not

offer a level playing field in the global marketplace. Many of our

trading partners support their farmers at a much higher rate than

the U.S. At the same time we face continually increasing production and transportation costs. Fuel and fertilizer prices are up an

estimated 24 to 27 percent for wheat growers just from last year,

as estimated in a recent FAPRI report and a current disaster situation including droughts, floods and fires has been especially troubling for our members.

These issues have led us to be looking at the effects of making

minor alterations to the 2002 farm bill and put wheat at a more

equitable position in the farm support system.
120

For instance, we are examining the impacts of increasing the direct payment to more accurately reflect the economic situation

wheat growers are currently facing.

Fuel and fertilizer costs continue to skyrocket, yet the price for

wheat for the most part remains stagnant. While there has been

a small increase in the price this year due to drought, this doesn’t

help many wheat farmers who had no crop and still does not cover

the cost of production for the wheat producers who did.

The direct payment is the most reliable cash flow of all program

components and as such greatly aids in securing operating credit.

We believe therefore more emphasis should be put on this component of the commodity support system for wheat growers.

In addition to increasing the direct payment, we are currently examining the impacts to both farmers and the Government of increasing the target price to be more aligned with today’s market

conditions.

Also our members would like to see conservation programs continue as presently authorized but with full funding.

We would like to explore opportunities to streamline the program

signup to be less time consuming and more producer friendly. We

also believe strongly in the pursuit of renewable energy from agriculture sources and support additional incentives to further research and development of renewable energy initiatives, specifically

cellulosic ethanol.

In closing, I must state that we are firmly committed to developing an effective 2007 farm bill and welcome the opportunity to

work with you to do so.

Thank you for this opportunity, and I will be ready to answer

any questions that you may have.

[The prepared statement of Mr. Schuler appears at the conclusion of the hearing.]

Mr. EVERETT. Thank you, Mr. Schuler.

Mr. Tumbleson, I think you are next.

STATEMENT OF GERALD TUMBLESON, PRESIDENT, NATIONAL

CORN GROWERS ASSOCIATION

Mr. TUMBLESON. Mr. Chairman and members of the committee,

on behalf of the National Corn Growers Association I want to

thank you for this opportunity to share our members’ views on the

2002 farm bill and provide input for the writing of the 2007 farm

bill.

My name is Gerald Tumbleson, and I farm with my wife and two

sons in southern Minnesota where we produce corn, soybeans and

hogs. I currently serve as president of the NCGA. National Corn

Growers Association represents more than 32,000 corn farmers

from 48 States. NCGA also represents more than 300,000 farmers

who contribute to the corn checkoff programs.

Mr. Chairman, I am sure you have heard the question, can we

grow enough corn for ethanol, livestock feed, export markets and

for food? The Nation’s corn growers are committed to being a reliable supplier of feed, food and fuel for this country and the world.

To do so we need a farm bill that provides a safety net when needed, a robust research effort by the public and private sectors, conservation programs that are directed to working lands, energy pol-
121

icy that accelerates a transition from a hydrocarbon economy to a

carbohydrate economy and the tools necessary to build broader and

robust, more robust international markets and funding for important investments in rural America.

My written testimony is based on policy developed by grass roots

members’ outlines of the measures of how we should proceed in

these areas. The 2002 farm bill has been a good public policy. It

is good for the farmers, good for the environment, and good for the

taxpayer.

When prices fall as they did at harvest last year due to big crop

losses in Hurricane Katrina, payments were made to producers.

And when prices are high, payments go down. This is good policy.

Additionally, there has been an expansion of participation in crop

insurance and we believe that should continue.

During times of localized crop shortages, some farmers are not

able to receive loan deficiency payments or countercyclical payments at a time when they need them most.

To take the positive underpinnings of the current program and

to develop a more effective safety net, our Public Policy Action

Team, a group of 15 growers, has spent the past year and a half

weighing numerous options for the next farm bill. The group is in

the final steps of refining a revenue based safety net program that

our voting delegates approved in July as the primary focus for the

commodity title of the 2007 farm bill. This concept factors in price,

yield and variable production expenses.

This revenue based proposal will replace a marketing loan and

the countercyclical programs and would directly target support to

producers that have a revenue loss. Two new programs, Base Revenue Program, or BRP, and the Revenue Countercyclical Program,

or RCCP, would work in complementary fashion and compensate

producers when market revenue declines below target levels.

BRP provides coverage against declines in farm level crop net

revenue. RCCP builds on this base and provides protection against

declines in revenue measured at the county level which is similar

to group risk income protection.

Coupled with the current fixed direct payments and recourse

loan program, BRP and RCCP would establish a safety net structured to meet current WTO rules for income insurance and safety

net programs in the green box, while the RCCP fits within the

amber box.

Our Revenue Based Program remains a work in progress and

NCGS is committed to reaching out to other commodity groups as

we further refine our proposal for your consideration.

In the opening of my testimony, I laid out a list of what our

members view as important in the various titles of the farm bill.

Our growers view these programs, the commodity title to the research title to conservation to trade and all the rest, as investments in America.

We can debate the various mechanisms by which these investments will be made but we need to commit to such investments.

Programs that encourage production of food, feed and fuel are better expenditures of taxpayer dollars than the enormous cost of

maintaining a secure and reliable flow of food and energy from unstable areas of the world.
122

Mr. Chairman and members of the committee, the world is short

of two things, energy and protein. I am proud to be able to represent the thousands of corn growers around this country who

wake up every morning eager to do their part to produce both. Our

organization is eager to work with you in the months ahead to ensure that we can do the best job possible to meet that challenge.

Thank you, and I look forward to answering your questions.

[The prepared statement of Mr. Tumbleson appears at the conclusion of the hearing.]

Mr. EVERETT. Let me thank all members of the panel and also

say to the Members and to panelists that we are expecting a vote

around 10:45 that may occur and/or may not occur and the Chair

will keep Members posted on that.

Two different places I am tempted to start, but I am going to,

Mr. Combs, since you expressed some interest in this, let’s start

and ask the panel, are you worried that 1- or 2-year extensions of

farm bill instead of longer multi-year authorizations will hamper

on how you plan your farm practices on a year-to-year basis?

Mr. COMBS. Congressman Everett, when we compared every

other alternative in the current policy that surfaced, our farmers

and lenders far and away prefer the current farm policy for as long

as we can get it. It is predictable. You can go to the bank and make

a loan and bankers understand it.

The alternatives that we have seen so far cost just as much and

do less for the farmer and, worse, some of these alternatives don’t

do anything to help insulate farmers from potential WTO litigation.

And so I believe that the vast majority of the farmers in this country like what we have got. We want to keep it and we want to see

Washington defend it in the world.

Mr. EVERETT. Other members would like to comment on that?

Mr. Stallman.

Mr. STALLMAN. Mr. Chairman, I would concur that from a planning standpoint, farmers need certainty and the longer the better.

And our position is clear that we want at least a 1-year extension.

Further year extensions of the major structure and funding of this

current program would certainly be more desirable from a planning

standpoint.

So that is something that you know we will have to address. But,

ultimately, it is better to be longer in terms of planning rather

than shorter.

Mr. SCHULER. Mr. Chairman, as we sit here comfortably in this

room many of the member wheat growers that I represent are sitting home in the uncomfortable position of wondering how to repay

their operating debt. And this isn’t just because of drought and

other disasters but because of the rapidly increasing cost of production for wheat producers.

We do not believe that our members can be satisfied with an extension of this farm bill. We need improvements and we need it

now.

Mr. EVERETT. Anybody else?

Mr. BUIS. Mr. Chairman, I agree, the longer a period of certainty, the better for the farmers. But I think if this committee expressed its wishes to put it off for 2 years and the sooner the better

would obviously help.
123

As far as those people out there suffering, there has been a tremendous amount of economic damage as a result of weather related disasters over the last 2 years. And I think if this Congress

could do anything before it goes home, pass an emergency disaster

bill for other weather related disasters. It is horrible out there. I

have been in 30 States in the past 3 months, and in many States

the only thing that was green was a tractor, the paint on the tractor. And the hurt, it is real and I share the concern with the Wheat

Growers.

Mr. EVERETT. Be glad to know you own your own John Deere.

Anybody else out there?

Mr. Tumbleson, you talked about increased fuel costs and that

has been a significant problem for farmers. I got a kind of a long

question. I will let you start off with it, but let me go ahead and

kind of read this thing.

We all know there is no doubt that production of biofuels is on

the increase. However, at many of the hearings that we have had

concerns have been raised about the consequences of this on other

segments of agriculture.

For example, where will we find additional acres needed to meet

the growing demand for corn for ethanol? In my part of the country, we are losing a lot of farmland to CRP and also to frankly subdivisions.

What does it mean for commodity and conservation programs?

What will the impact be on livestock and poultry producers or on

the price of mid-level proteins like cotton seed meal and alfalfa as

this distilled dried grain production increases? Do the witnesses

have any thoughts on this? And, Mr. Tumbleson, if you don’t mind

since you brought it up we will start with you.

Mr. TUMBLESON. Well, thank you, Mr. Chairman. And the national corn growers know they have been the lead in ethanol and

in the production of biofuels and we realize that. That came about

back in the 1980’s when we had a pile of corn so large that we

couldn’t use it. So we decided to do research. We decided to spend

some money on research. What has turned out that we did spend

the money on research and we were able to convert corn to ethanol.

And what also has turned out, amazingly, we still have a monstrous carryover.

And when we have done our research and we have done our

studies, it has turned out that we are increasing production faster

than we are increasing the usage, so when we converted to ethanol,

it is a way of converting our product to what we need.

Now, that sounds like it is for the farmers, and that sounds like

a program in the farm bill is for the farmers. It is really not. It

is really for the United States of America.

Now when we remain and we keep a strong farm bill that is our

safety net for agriculture. Everybody believes that.

Now, when we look at where we get our fuels today, they come

from hydrocarbons or oil, which is fine, that is brand new money

in the country that drills an oil well. We don’t have that necessary

product. So we use another brand new source of money and that

is called the sun.

We have it solar paneled from the east coast to the west coast

and it is called photosynthesis. We convert that photosynthesis to
124

energy. And like I said before, we are only short of really two

things. That is energy and protein. Now in doing this, the United

States suddenly realizes that the sun is the safety net for the

United States of America.

So if A equals B equals C, the farm bill is a safety net for agriculture, but agriculture is the safety net for the United States of

America. Do you realize the farm bill is the safety net for the

United States of America, not just the farmers? That is where we

are going with the fuels. And we will be able to supply that. Our

research is turning into a lot of production increases. We need to

have usage for that as we do it, and this is for the United States

of America and your safety net that this committee has put forth,

and I give you all the credit in the world of doing that. That is fantastic and I think that you don’t realize the power you have in the

United States of America in this committee to what will happen to

the United States of America. And we will produce the crops to do

it.

Mr. EVERETT. Anyone else?

Mr. STALLMAN. Mr. Chairman, this will be just a brief comment

but representing the diversity of American agriculture that exists

in this country, I have no doubt that American producers, if the demand and price is there, will provide whatever product is necessary

to supply that demand. There has been a lot of handwringing about

where is all this acreage going to come from? It will come from

other commodities. If it needs to come to corn some of it will come

out of CRP perhaps, but it will be market determined as opposed

to somebody dictating that those acres should come out. So I am

confident we will be able to do the job that is necessary.

Mr. BUIS. Mr. Chairman, I grew up in a farm. I have farmed for

20 years before coming here and I have been hearing two sort of

phrases repeatedly in my lifetime. One is we are going to run out

of food. We have to produce more, we got to produce more, we got

to produce more, and ironically at a time when we are now seeing

some hope of getting a decent profitable price from the marketplace

because of producing fuel, many are saying whoa, whoa, we can’t

go down that road. But the fact of the matter we have to get a profit somewhere, either get it from the marketplace or you get it from

the Government and the more we encourage the fuels to farm the

better.

The second method we are always one trade agreement away

from prosperity and neither one of those have much validity.

Mr. HELMS. Mr. Chairman, those of us in the cotton industry obviously are very supportive of all alternative energy sources and

policies, but we are fearful of some unintended consequences on the

value of our cotton seed and our cotton seed meal.

And we would just ask that this be watched and monitored and

possibly we may need some type of mitigating vehicle because we

do fear that we will see a price depression.

Mr. SCHULER. Mr. Chairman, I believe that as long as we producers can remain profitable, we will continue to supply abundant food

for the American people. We are working with several groups and

industries on a industry that is in its infancy and that is the development of a cellulosic ethanol production industry in this country,

and I think that all crops can at some point participate in that, and
125

that is utilizing a resource that really isn’t being used for any other

purpose at this time.

Also there may be opportunity to use some of our CRP acres in

production of cellulose for ethanol production while still maintaining the environmental and wildlife benefits that go along with

CRP.

Mr. EVERETT. Well, thank you very much, and now I turn the

questioning over to a Member of Congress who has done an awful

lot of work in the biofuels, and that is our ranking member, Mr.

Peterson.

Mr. PETERSON. Thank you, Mr. Chairman, and it is actually the

State of Minnesota, leadership, people like Mr. Tumbleson that

have really shown the way on this and I think Minnesota, by doing

what they have done, is showing what can happen when the Government puts the focus on working with private industry.

We have had a mandate on ethanol, we have had a mandate on

biodiesel now, we have forced the electric companies to buy wind

energy and other renewables and it works. And I think the Federal

Government ought to look at what we did in Minnesota, and that

would help propel this industry even faster than it is.

Mr. Tumbleson, I am sorry, we even had water wars in Minnesota. I had to go try and resolve a dispute this morning.

But when I was down in Iowa, I guess maybe this is just Iowa,

or I am not sure, but we had corn growers testifying that they

want a new program, revenue program. Is that a localized deal, or

what is going on with that?

Mr. TUMBLESON. Well, the national corn growers is looking at options and we have put the BRP and CPP together to go as a revenue source for protection.

There is an area that if you look into western Iowa, maybe not

quite, but west of there it is very, very dry this year. And our program, the 2002 farm bill does not really cover that area like—there

is a gap there on that, and if we had a revenue protection under

that scenario they would be covered better and there is a gap there

and whether you think of it as disaster or not, every year we come

up with a disaster program and it has been for as long as I can

remember I think some places had a disaster.

This program that we are talking about in national would cover

that type program. Now there is many views across the United

States on how that should be done, the National Corn Growers is

putting one forth and it is a work in progress and we are taking

it to other commodities to look at and to see what can be put together under that scenario. And it is really not necessarily just for

the farmer. It is for the sake of the United States of America because people, when you can keep them on the farm, find some way

to do that and protect them, they can turn around and invest.

Now on this revenue protection my wife and I were fortunate

enough to go to Australia. They do not have that revenue protection and sitting in the farmer’s house with them they had a—this

one farmer had 300,000 in a savings account, 2 percent interest.

And I said well, why don’t you invest that in an ethanol plant,

make something here that causes jobs for your local community

and turns up value and money turns again and he said I can’t. And

I said why not. He said because if I don’t get a crop next year I
126

have to use that. Well, this United States of America where I was

so proud to be from, I said, our Congress has allowed us to increase

the investments in rural America because they put in a safety net.

Now that is a safety net they are talking about so that we can invest. We can turn around and turn jobs. We had the NAFTA agreement. What happened in a few years? We have a jobs bill.

Well, this, what this committee does, is a jobs bill in a sense that

you are doing it. And that is where we want to go on the safety

net so the money then can be used to invest. Once you invest and,

you said it, Minnesota has been a prime example of how we invest

that money and the State of Minnesota returned a tremendous

amount and that is what they are looking at.

Mr. PETERSON. Well, that kind of ties into, you guys, I haven’t

had a chance to read all your testimony but what I have been hearing I think the corn growers generally want to keep what they have

got. That is your official position, no? You are in flux?

Mr. TUMBLESON. National Corn Growers has got a policy forward

on revenue coverage which we really like, but it is going to take

time to get it there.

Mr. PETERSON. So have you looked at the permanent disaster bill

that I put together?

Mr. TUMBLESON. Personally I have looked at it because you are

from the State of Minnesota.

Mr. PETERSON. And I want everybody to comment on this. Your

organization has not taken a position on this?

Mr. TUMBLESON. No.

Mr. PETERSON. The rest of you, what do you think about having

a bill that looks similar to what we have now and adding a permanent disaster where the Secretary would have the authority to

make disaster payments without having to come to Congress and

making that part of the farm bill?

Mr. SCHULER. Well, no one would appreciate more than the

Wheat Growers not having to come back here every year, every

other year, asking for ad hoc disaster assistance for our producers.

So certainly, if there was some mechanism either through improved

crop insurance or a disaster mechanism that would provide for

these losses when they occur, it would be much appreciated.

One concern is that the declining APH issue that producers experience when they have had successive years of drought, that would

have to be addressed in a permanent disaster program. Also, that

relied on APH in determining what the coverage level would be.

If there were some mechanism to address that, whether it is

long-term indexing or something else that addresses the declining

APH, it would probably be an effective program.

Mr. COMBS. Congressman Peterson, we support the concept that

in rice we spend several hundreds to thousands of dollars an acre

to be sure that the land is formed and that we can irrigate every

acre so we tend not to have crop failures due to production losses.

Where we get in trouble is on the price side. So we would like to

work with you on that. It doesn’t take away from the safety net

that is there.

Mr. HELMS. Congressman Peterson, we in cotton support the concept also. We certainly would like to be able to take a lot closer

look and see how, also see how this would fit in from the budgetary
127

standpoint and so forth, but I think conceptionally it sounds good

to us.

Mr. BUIS. Mr. Peterson, we wholeheartedly support the concept,

and I think it only makes common sense both in terms of getting

assistance out in a timely manner but that we don’t have to recreate the wheel every time we are lucky enough to get a disaster

package passed by Congress. And that is not an easy task. I mean

if you think back over the last few years, some of the struggles we

faced, we wouldn’t have got a disaster program probably in 2004

except for four hurricanes hitting a key battleground State right

before the presidential election.

Well, if you have a disaster when the political will is not strong

enough, it is still a disaster to that farmer and we can’t afford to

wait for the political winds to be strong enough to pass ad hoc assistance.

Mr. STALLMAN. In Farm Bureau we have kind of gone around the

circle on this. We removed our support for standing disaster, thinking that—and this is years ago—thinking that crop insurance was

going to fill the void, if you will, and make annual disaster assistance bills unnecessary. And as we all know, that hasn’t worked

nearly as well as it was anticipated back then. We do have a policy

that indicates that the Secretary should have wider discretion in

responding to some disasters, but we don’t have policy supporting

specifically a standing disaster program.

I will tell you, Mr. Peterson, that likely will be an element of discussion as we go forward through this policy debate this year within our organization just because of what has happened in 2005 and

2006.

Mr. PETERSON. Mr. Chairman, I can see my time has expired but

if I could just have 30 seconds to——

Mr. EVERETT. Thirty seconds.

Mr. PETERSON. To editorialize. I look forward to working with all

of you because what I put forth is not necessarily written in stone

and we understand there are things that need to be tweaked and

so forth.

But, Mr. Schuler, the reason that I did this is that after being

on the subcommittee and dealing with crop insurance all these

years, I am convinced that we are never going to fix this APH problem in crop insurance.

The only way we are going to fix it is to put a disaster bill together with crop insurance. We would have to repeal the actuarial

soundness deal in RMA to fix that problem. And I don’t think that

is ever going to happen.

So I just think we will spend a lot less money. It will make a

lot more sense. People will know where they are at.

And we look forward to working with all of you. Thank you.

Mr. Everett [presiding]. Mr. Lucas.

Mr. LUCAS. Thank you, Mr. Chairman, and it is a privilege to be

here with such a distinguished group. Having now participated in

previous farm bills and looking forward, like my colleagues, very

shortly in 2007, I think it is fair to say that the principles of the

2002 farm bill that carried over from the 1996 farm bill, of certainty of payments, the annual payments are obviously still very

popular.
128

And sometimes we forget how dramatic that policy change was

in 1996—away from supply management, away from Uncle Sam

owning grain stocks.

But I think it is worth noting, too, that in the 1996 farm bill we

struggled so hard with—in addition to the fixed annual payments,

in addition to the LDP statements. That was the main focus. And

there were, gentlemen, I think you would agree, probably some

pretty generally decent weather years in the late 1990’s, which produced some substantial stocks. And we have had several bump-ups

on the annual payments, and that led to a call in 2002 that we

needed to address that potential for all of our productive capacity;

and this committee responding perhaps not to every producer, but

to most producers across the country, added the countercyclical language.

Now we seem to be in a period of time where we have several

fiscal years in the payments, countercyclical payments do you no

good if you have nothing to sell, as you quite obviously have addressed. And that brings us, I guess, to this point.

Now the committee has one tradition. That is, we try very hard

to do what America production agriculture wants to do. So the

question, I guess, that I start off with, No. 1: Is there any disagreement with the concept that as we put together, or we move forward

on whatever kind of a farm bill you have, maintaining the flexibility and maintaining that certainty of payment in the annual payment, we all agree with that? Fair assessment? No disagreements?

Mr. Peterson brings up a fascinating concept about how we direct

and address the disaster, and I have been working on a disaster

bill since May to address both 2005–06, the wildfires, the floods in

California, and the loss of major crops up and down the Plains, and

I come up with an incredible number of about $3 billion that would

be necessary, the kind of money that is just simply not available

until we finish up the appropriations process and bring that whole

$2.8 trillion budget together, probably in late November and early

December; and I know we will all work diligently.

I guess my question to the panel, my first question, would be in

the spirit of permanent disaster; and I realize we are going to have

a vote shortly to implement the kind of program that Mr. Peterson

is talking about. It would take many billions of dollars. If it was

3 billions of dollars to cover the last year’s dollars, as I would estimate, then it is not unreasonable that your permanent fundings

would have to be in the $3, $4, maybe $5 billion range.

I guess my question is—and touch it if you dare, guys—we spend

about $4 or $5 billion maintaining the present crop insurance regime, RMA, the subsidies, all of those things. Would that money

be better spent, as Mr. Peterson thinks, perhaps in a permanent

disaster program and step Uncle Sam back away from the subsidies?

Be brave, guys.

Mr. BUIS. The devil hates a coward.

I would suggest another alternative to look at for the funding of

a permanent disaster program. The genesis for the direct payments

that began in the 1996 farm bill occurred because a couple of very

big States had crop failures, and we are going to have to repay advanced deficiency payments under the old program. That is the
129

genesis of the direct payment. And we all have heard, and we have

heard here again this morning, that the countercyclical economic

assistance and the loan rates, the LDPs, don’t benefit someone who

loses a crop and we would need to increase direct payment. We

might as well call it what it is.

The direct payment began in Federal farm policy to address production shortfall, and we might as well utilize that to address it

in the future. Whether you call it a direct payment, it is really not

based on economics. It is based on protecting that first unit of production.

Mr. LUCAS. But under the doctrine, under the 1996 and 2002

farm bill, if you were going to have maximum flexibility, the resources had to be delivered, it seemed at the time, in the form of

a direct payment to be able to allow producers to use those dollars

as they saw fit.

Mr. BUIS. I don’t see how that gets in the way of flexibility. In

fact, I think it provides certainty.

As we heard from the Wheat Growers, as you get in a cycle

where you have repeatedly bad production times, you need some

certainty. The APH program doesn’t work; a permanent disaster

program, I think, would work. I don’t know if it takes $5 billion,

but we certainly could work on tightening that down.

But what happens in disaster programs, because they are ad hoc

and it takes so many votes to get one passed, it takes a majority,

a lot of things get thrown in there, including the kitchen sink. That

is how we get the bad media that the guy’s cows who saw the space

shuttle fall out of the sky got the huge payment that we read about

in all the big papers. That gives us all a black eye.

I think we could create a program based on certainty. USDA

wouldn’t have to reinvent the wheel, and we wouldn’t have all of

that stuff thrown in annually.

Mr. STALLMAN. Well, first, I would have to say that we support

maintaining the direct payments and the flexibility that you referenced initially. We are not ready, from a policy standpoint, to

shift all of the funds from crop insurance over to disaster.

I will tell you, though, we have strong support, in principle, for

crop insurance, in sort of the philosophical elements of that, including investigating things like revenue insurance that corn growers

are doing.

I will also tell you, we have 64 policy positions about changes

that need to be put in place in the crop insurance program to make

it work. So that does create some dynamic there of believing in

crop insurance, but thinking we need to make it better.

I seem to remember a number that, on average, disaster payments amounted to about $2.5 billion a year over a long period of

time. I don’t think that applies in 2005 and 2006. So obviously the

question is, where do we get the money? I can’t say we want to

take it from there at this point. But as I responded, I think our

members are going to be looking at disaster assistance in the context of what is happening in 2005 and 2006.

Mr. TUMBLESON. The National Corn Growers, that is what we

are looking at in trying to structure and put together a revenue assurance, and that does get covered under that program. We

wouldn’t have the countercyclical anymore as it is today, but we
130

would have that in the revenue assurance in some form. And that

is where that maybe would tie in to what Congressman Peterson

was talking about, but that is our intent.

Mr. SCHULER. The Wheat Growers strongly support keeping the

direct payment because it gives us the flexibility, it gives us certainty from one year to the next.

Also, one important component of the crop insurance system that

currently exists is the optional unit structure. Many, many of our

wheat growers utilize that to give themselves some risk management, while still participating themselves in covering that risk.

We don’t believe that any Government program should guarantee

profit to producers, only give them the opportunity to be profitable.

So our belief is that producers should still participate at some level

in managing that risk.

So as we move forward, we would like to see improvements in

crop insurance as well as developing that mechanism, whether it

is permanent disaster or some type of farm savings account that

producers can put away money on their own, as well as with some

Government assistance. To make some incentive for producers to

do that, I think would be very invaluable.

Mr. LUCAS. Thank you, Mr. Chairman.

Mr. EVERETT. Mr. Holden.

Mr. HOLDEN. The majority of the panel has advocated extending

the current farm bill, so I assume we have struck a pretty good balance between conservation and the commodity panel. As the ranking member on the committee that Mr. Lucas chairs on Conservation, Credit, Rural Development and Research, any recommendations on the conservation title? Anything we should do different?

How is it working?

Mr. SCHULER. The conservation title is working well. The one

shortfall, of course, is the funding especially for the CSP program.

We think that is a very valuable program, giving incentives for conservation practices on working lands; and if we could fund that,

that program completely, so that all producers could participate,

that would be very beneficial.

Mr. COMBS. We participated, two or three, in the CSP program,

and we would like to see it on a national basis and see the rules

consistently applied in different parts of the country.

Mr. TUMBLESON. I think the farmers in the United States, our

conservation system itself, if you go into the country and see the

farmers are already doing those things, if we have a market for our

products, we will do the conservation because that is our future

generation’s land; that they are going to be going out there, but to

remember the research, research, research. There are going to be

things raised on the land that you haven’t even dreamt of today,

and it is not very far down the future.

So don’t tie the farmers, don’t tie the United States up in some

form that we cannot compete.

Mr. HOLDEN. If you know any appropriators, keep reminding

them about the research.

Mr. HELMS. We, in cotton, very much support the conservation

program. We think that is very important.

We have also run into problems with some of the administration,

some of the programs, in some of the availability to all of our pro-
131

ducers; but we also want to continue to state that while we strongly support conservation, we don’t ever want to see it as a substitute

or replacement for any commodity.

Mr. BUIS. We fully support the conservation security program

and the provisions you put in the 2002 farm bill. We do have concerns on how CSP was not only funded, but also how it was implemented. We want to see it be a national program, available to all

farmers, and not specific watersheds, and fully funded.

Mr. STALLMAN. Just quickly, funding for the Conservation Security Program and a broader application of the program, probably

funding in the equip area, too, with some attention paid to how

those funds are allocated.

Mr. EVERETT. The committee will be in recess. We have about 4

minutes left to get over to the floor and vote and then we will reconvene as soon as we get back.

[Recess.]

Mr. LUCAS [presiding]. The panel will please be seated.

Mr. Osborne.

Mr. OSBORNE. Thank you, Mr. Chairman. I would like to thank

the panelists for being here, for indulging us in this business we

do, called ‘‘voting.’’ I would just like to make a couple of comments.

Number 1, I think somebody mentioned the CSP has been underfunded and really has been a problem because you often see a divisive effect in rural America where some guy across the road gets

CSP and some guy who does almost the same thing as a neighbor

doesn’t; and it has caused a problem—so something that has been

duly noted, and it is difficult.

I would like to thank Mr. Tumbleson for his testimony, and I

have really been a proponent of some type of revenue insurance as

part of the safety net because, as you know, with base acres and

some of the complexities that we have, it is a little bit limiting in

terms of what a farmer feels flexible in terms of planning and

doing. And so we think that is certainly a point well taken.

I guess the question I have for the panel, just sort of a broad

question, we have heard several of you say, well, we really think

we ought to extend the current farm bill until the go-around is

completed. And the question I would have is, do you really think

WTO is necessary? Because it seems very tenuous. It seems like it

is very difficult to get movement.

We could theoretically have a series of bilateral trade agreements

like we have with Chile and Argentina. And I am certainly not negative towards trade, as some people are; I think trade is very good.

But on the other hand, we are starting to see some coalitions develop within WTO that are very difficult to work with—Brazil, obviously. A group of so-called ‘‘underdeveloped countries’’ have became difficult to work with.

And so I guess my question to you is, what do you think? Do we

really need to make the WTO work and then for that reason, fail

to implement a new farm bill for a period of time while we wait,

because we may wait a long time before that Doha Round is completed.

Go ahead.

Mr. STALLMAN. Well, first, we believe very strongly in WTO in

being the only international, rules-based trade police that exists.
132

We support the bilaterals when they are positive for U.S. agriculture. But particularly for a lot of markets that show great future

promise for American agriculture, the only way we are going to get

those tariff reductions and those markets open is probably through

a WTO round negotiation.

That process is slow. It is agonizing for a Texan. You just want

to pull your hair out, which I have done. It seems like it is never

going to end. But the reality is, in Uruguay, there it took a number

of years and there was a hiatus of 3 years, which it looks like we

may be entering one of those kinds of periods in this negotiation.

These are more difficult because of the greater involvement of developing countries, lesser-developed countries, that was not there

during the Uruguay Round. But the reality is, a lot of those countries are where we have some great market opportunity, so it is

necessary to go through that process.

Our position is that it is not that we don’t want to have—I guess

we are dealing with terminology; ‘‘new’’ and ‘‘extension’’ mean different things to different people. What we are saying is, until we

have the restart of those WTO negotiations, unless we believe we

shouldn’t engage in them at all—which we don’t; we think we

should—we need to maintain the basic structure and funding.

And Chairman Gutknecht was right; our first action is going to

have to be to achieve as much budget allocation that we can as the

foreign bill. But we need to maintain that negotiating leverage, and

maintaining that by maintaining the basic structure and support

system that we have now, and not just come up with a new program that shifts that so-called AMS support to green box support

or something else, because the beginning point for the negotiations

of reducing our domestic support will be where we are, whether we

restart the negotiation.

Mr. BUIS. I think that is a great question, where do we go and

how do we get there; and trade is such a key component. However,

I think we are very concerned about the direction we are going in

trade, and if you look at what has happened in the last 10 years,

the United States has gone from a $27.5 billion annual trade act

surplus, agriculture trade surplus, down to $3.5 billion last year.

Who knows what it will be at the end of this year? We could be

a net importer of all agriculture products and that is sort of a sad

indictment, when we have been promised for so long that trade is

the answer. I think most farmers understand it probably isn’t the

answer; it isn’t going to solve our economic problems.

It is great to be able to trade the surplus, but I think a greater

emphasis needs to be put on increasing domestic consumption.

Fuels from the farm, other programs can certainly help make that

up, because leveling the playing field on trade with the negotiators

is leaving out several factors, such as currency manipulation, such

as labor rates and environmental and health standards. We are not

going to be a low-cost competitive producer unless those are thrown

into the mix, and currently they are not.

Mr. HELMS. We, in cotton, are very dependent on trade. We are

exporting our cotton. And the tremendous textile imports that are

coming back into the country. But we are singled out and hope we

are mentioned for some special trade in WTO.
133

And we, I think, would say that we would support a good WTO

agreement. We certainly don’t want to be unfairly treated or see an

agreement that would give up too much of our domestic support

and not get the market access we need. But with the right agreement, we think that we could support it, and would.

Mr. COMBS. Congressman Osborne, rice exports about 40 to 50

percent of what we grow. We think that WTO is important. We

tend to get treated as sensitive commodity, so if we get access to

the WTO, it needs to be real access. But we don’t see any real reason to unilaterally disarm and give up our programs now in hopes

of getting a trade agreement. We would rather have the trade

agreement and right the program at the roots.

Mr. SCHULER. Congressman Osborne, wheat growers, much like

other commodities, rely heavily upon the export trade for our producers, of about 50 percent of what is grown in the United States

being exported. Many of the bilateral and multilateral trade agreements that the U.S. has signed recently have benefited our producers.

But generally, overall, there is still a level of tariffs around the

world that are significantly higher than what we have here in the

United States. So if those levels could be reduced, I think we could

get more market access.

There are some other issues that have been brought up in the

WTO that would benefit wheat growers also, that would be disciplines on some of the state trading enterprises that allow them

to compete unfairly against our producers. Certainly we hope that

a WTO agreement would still allow our Government to provide

adequate support to our producers so that they can compete in the

world marketplace.

We think that a successful WTO agreement would be beneficial

to our producers.

Mr. TUMBLESON. Congressman Osborne, by the way, I really appreciate you on this committee, your thought process.

The National Corn Growers are fortunate; we can produce energy

and protein, and that is what we are producing. The secret to this

is, we are trading the protein wherever we produce it, whether it

is in livestock or everything else. Everything is in trade. Everything is trade, and the National Corn Growers want to join with

cotton, wheat, everybody else.

We have to be together in this discussion on trade, and we are

going to be with those groups as far as we can go.

Mr. OSBORNE. Thank you.

I yield back, Mr. Chairman. Thank you.

Mr. LUCAS. Thank you.

The Chair now turns to the gentleman from the Dakotas, Mr.

Pomeroy.

Mr. POMEROY. I thank the chairman. I have enjoyed very much

these hearings on the farm bill. But what strikes me? That the activity we have going in September here in the Agriculture Committee on the farm bill is really not dealing with the task at hand,

which is the need for a disaster bill.

It reminds me of a college student that might be contemplating,

during finals week, next semester’s reading list. We have got something immediately before us, and that is the imperative of getting
134

a disaster bill; and as far as I am concerned, finals week is when

we leave in September.

I don’t think anybody should draw the slightest bit of comfort

from vague words about coming back in a lame duck session to consider doing something about a disaster bill. This is the same crowd

that didn’t do a disaster bill last year when many parts of the

country needed it. So why are we going to think this year, once the

election is over, we are going to get the kind of response that we

need?

Now, I know we have stood in this room, just last week, and had

a strong bipartisan showing of House support for a disaster bill.

And what I think we need to have in the committee is discussion

in terms of how the response might have come from leadership, as

representatives of the majority on this committee met with leadership to discuss the need for a disaster bill.

Mr. Chairman, I note you are sitting in for our full committee

chairman. But is there someone—either you or someone else—that

can give us any information about how the discussions on a disaster response in September were received by majority leadership?

Mr. LUCAS. I don’t know that. The Chair can answer that.

I am sure you are a cosponsor of my disaster bill for 2005 and

2006, and I appreciate that cosponsorship. But to the direct answer

to your question, I cannot, Mr. Pomeroy.

Mr. POMEROY. I won’t put any other Member on the spot with

asking them directly now, but I will say this.

In any additional meeting of this committee this month, I will be

urging the Members to force all of the discussion on the farm bill.

Let us roll up our sleeves and talk about how we get a disaster

vote before we leave at the end of next week.

It is like the barn is burning down; we are trying to figure out

what color to paint the house.

And so I mean no disrespect for this panel at all, but I am upset

with this committee at the moment, because I think we are not

putting first things first.

Having said that, let us get on with the questions before the committee. And that is the need for a disaster bill relating to the 2006

crop reduction response.

Mr. Stallman, it is always good to see you. If you would just kick

off, I would like to go right down the panel, who thinks that, based

on your perspective on all of this, we need a 2006 disaster response?

Mr. STALLMAN. We are supportive of disaster assistance, disaster

assistance with—without offsets. We haven’t put a number on that

for 2006 at this point, because it is too early. There is harvesting

that will be under way, and we will have to see what the ultimate

end is.

There have been some tough times with respect to disaster

across the country, no question about it. So we are supportive of

disaster assistance as long as it is emergency and not offset.

Mr. BUIS. Mr. Pomeroy, we fully support disaster assistance. I

share the concerns that you outlined on the need and the high priority.

Most people in rural America think that it is a shame that this

Congress has not addressed it in the last 2 years. We seem to re-
135

spond to other crises, and they want to know why it is not as high

a priority. I have heard all kinds of suggestions from maybe we

ought to give names to droughts, so maybe we get a little bit more

attention, much higher visibility.

But the damage is real, the damage is severe; and I would be

glad to postpone talking about the farm bill if you want to pass

that today.

We have got a great number of cotton producers that are suffering a major disaster this year, and we would support emergency

disaster assistance. And we would also hope that 2005 would be

part of any disaster assistance.

Mr. SCHULER. We signed on.

Mr. COMBS. We signed on with a lot of other commodities.

Mr. SCHULER. Congressman Pomeroy, we certainly hope that this

Congress can find a way to provide disaster assistance for the 2005

and 2006 years. Many of our producers would agree with you

wholeheartedly that 2007 is a long way off if you can’t pay your

bills now.

And also this drought, this disaster goes well beyond the farm

gate. Our small communities, our rural economies depend upon a

viable agriculture industry to help support the business, to support

our schools. We need this support or many of our producers won’t

be in business in time for a new farm bill.

Mr. TUMBLESON. Yes, Congressman. The National Corn Growers

has been on record as supporting disaster assistance, but it would

be emergency spending now, with offset, because there are a lot of

high expenses in our producers crops here.

But we also realize that we feed a lot of the livestock in that

area, give these people a chance, they will be back and they will

do a good job for the United States.

Mr. POMEROY. Thank you. I yield back.

Mr. LUCAS. The gentleman yields back his time.

The Chair turns to the gentleman from Texas, Mr. Conaway.

Mr. CONAWAY. I thank you, Mr. Chairman. Gentlemen, I have

appreciated most of what you said this morning.

We have heard consistently throughout many of the farm bill

hearings that the farm bill is working, and so I will resist the normal temptation to recite chapter and verse. But thank you for reciting basically the same handbook, because that makes it a little

easier to go forward at it.

I did have one question, Mr. Buis. You did mention earlier all of

the things that were going on, converting farm products into energy, and you are worried that Wall Street is going to sweep in and

steal all of the profits. What did you mean by that?

Mr. BUIS. Thank you. I didn’t have time to fully explain that. I

appreciate the follow-up.

Much of the growth in the development of the manufacturing sector in ethanol, biodiesel, has been farmer-owned, local investors

who have risked their capital in order to keep this industry going.

You have to keep in mind this started 30 years ago. We used to

call it gasohol. Our experts were probably people that manufactured alcohol out of corn in woodsheds down by the river. We have

come a long way and it wouldn’t have happened without that investment.
136

Mr. CONAWAY. The statute of limitations has certainly run on

that, by the way.

Mr. BUIS. Well, they did it well and they thought it helped people. But the investment that was put into the industry—and I am

talking mostly farmer investment and the growth in the last 5

years—the No. 1 producer, manufacturer of ethanol, is farmerowned ethanol facilities.

That has been a good thing. It has been profitable. But if you go

to one of those communities where they put a plant, where they

put $100 million plant in there, you see economic activity that we

have never seen before in rural America.

We all talk about how rural America is being bought up, the

stores are being boarded up. In those communities, the boards are

coming off the storefront. You see the money stay in that local community. It gets reinvested; the profits don’t get sucked out to wherever that national corporation headquarters.

And it is a good thing. It builds the tax base, it helps the school,

it helps the health care system. And it provides hope and opportunity. That is, the concern is that now that the money interests

have suddenly discovered ethanol, that it is this hot new product

out there. They will either buy them out, or force them out of the

business from driving it up and keeping the producers out of it.

Mr. CONAWAY. OK. I met Monday with a fellow in Dallas who

is struggling mightily to finance 600 million gallons a year for ethanol plants, and none of them are going to be located in Dallas. He

has gone, obviously, to Wall Street, to New York to get the money

for the financing for that. All of those plants will be built in rural

America and all of those employees will be there.

So maybe there is a balance between those two, that there won’t

have to be a robber baron. It will be done at a scope that it needs

to to get the mandate that we have got in place and the future

needs that are out there if predictions hold true. So I appreciate

that.

Thank you very much for your testimony this morning. And I

yield back.

Mr. LUCAS. The Chair thanks the gentleman and turns to the

gentle lady from the Dakotas.

Ms. HERSETH. Thank you, Mr. Chairman. I appreciate and I

want to add a comment or two to questions previously posed and

then pose a question to each of our witnesses today. I appreciate

your testimony and your responses to questions posed by my colleagues on the subcommittee.

I would point out, in response to Mr. Conaway’s comment, in addition to some of these entities that are based out of Dallas, Texas,

or Sioux Falls, South Dakota, that are looking at business models

where they can get some of that financing out of Wall Street. I

don’t think anyone has a problem with that.

I think Mr. Buis’ point, and the point I would make is, diverse

ownership, however, of this industry, I think, is an objective that

we like to see, so that we can maybe take this canvas that is not

a blank canvas, but one in which we still have options, influencing

on behalf of rural America and economic prosperity in rural America; so incentivize business models, whether they be co-ops or

whether they be LLCs, where you have farmer investors or other
137

investors from rural America that aren’t getting Wall Street

money.

And a recent example is in South Dakota, where a current ethanol facility is expanding, had an equity drive that allowed people

to invest for $10,000—not $25,000, not $100,000—and they had

people waiting at the door. And we were able to raise I think $95

million among individual investors in rural South Dakota who

want to be able to be part of a growing industry and keep dollars

locally, who are going to help schools and mainstream businesses

and other farm businesses.

One other comment I would like to make is to draw everyone’s

attention to the DOS workshop, regional workshops where a number of stakeholders are coming together to analyze and do calculations on biomass production and what each region can sustain in

that biomass production. Because this goes to some of the mess, I

think some are starting to perpetuate that biodiesel production is

going to lead to shortages in feed for human consumption.

I think that we have got enough visionaries on the Agriculture

Committee, and the people that are testifying today, that we can

avoid precisely that problem if we are making these substantial investments in research that Mr. Tumbleson mentioned, as well as

looking at the profitability from the marketplace that we know is

important for farmers and ranchers.

My question to all of you would be that some of my colleagues

in the Congress, I have heard as we have prepared for this next

rewrite of the farm bill, if it isn’t extended another year or two, as

some of you suggest, it should be. They are arguing for a drastic

reduction in the Federal safety net.

In even some of the listening sessions I think Secretary Johanns

held, I felt there was an attempt to lower expectations in light of

the budget situation that we are in here in Washington. But some

are arguing that farmers are wealthy businessmen who don’t need

farm programs to mitigate the production and price risk inherent

in agriculture.

Now the numbers that I have seen for net farm income don’t

bear that out. And so I would like to know what your comments

are on recent net farm income and the continuing need for a meaningful safety net in light of increased cost of production and a lack

of adequate and timely disaster assistance.

So, any comment you would like to share on the safety net that

we want to maintain in the next farm bill?

Mr. STALLMAN. Well, for all of the reasons you have heard here

today and in other locations, we absolutely do want to maintain a

safety net. And the compelling policy reason for that is to reduce

variability in income and agriculture, due to the variability that we

have because of weather, because our markets and a lot of other

factors that aren’t—people say it is just another business. It is a

business. It has to be a business. But we do face a higher degree

of variability in our economic lives as agriculture producers then,

say, other industry sectors.

When you look at recent statistics and realize that these are

record numbers for—the net farm income numbers for the previous

2 years, compared to the projections for this year by USDA, 2004

net farm income is $82 billion; 2005 net farm income, $72 billion;
138

projected 2006 net farm income is $56 billion. Significant reduction,

a good part of that as a result of increased input expense is primarily energy related. We are almost double our input cost on energy compared to what they have been on an average basis.

So the safety net is there to help take some of that variability

out. Without it, the variability in net farm income would be even

greater than what it is.

And so that is a compelling reason to continue to maintain the

safety net we have that, yes, the first thing we will have to do is

to get the best budget allocation that we have for this farm bill.

Mr. BUIS. As I started off my testimony—the No. 1 goal is profitability; and if we do that, and we truly have a countercyclical safety net where we don’t give producers money for nothing just because they are farmers, and it is actually based upon the economic

conditions that we have or the weather-related production problems that we have, I think that is justifiable.

I have participated in a lot of conferences. I have heard a lot of

these groups out there, and by and large, most of the people that

are saying ‘‘cut the budget’’ are people that they want the farm programs cut, but they want that money for their purposes and they

do not necessarily have a rural constituency. Chasing that pot of

gold under the rainbow, and what they see are the commodity programs.

But I think we can do a better job ultimately, when we do write

a farm bill, writing one where we don’t sort of lead with our chin,

and any time the media and other critics can pick up on the fact

that somebody is getting huge payments for not planting the crop

or not doing something. I think that is wrong. I think that was the

Achilles heel of Freedom to Farm. It was based on what we did 20

years ago, not what we are doing today and not the real needs of

what in the real safety net that rural America met. Once we do get

beyond the extension point, I think we have to take a look at that

so that we sort of silence the critics.

In cotton, we have certainly, I think, been able to gain a lot of

benefit from the safety net, the countercyclical problem. We are in

a very high-risk business; and part of that risk is price risk, it is

not all production risk, and we see the strong need to have this

price risk safety net.

As I say, it is worked well for us. We have needed it and we have

had to use it, and it has been very good to us.

Mr. COMBS. We believe that the safety net, the balance, it works

and more money is paid out in lean times. I think we have got the

safest and most abundant food supply in the world. And those who

want to drastically reduce farm programs need to be careful about

what they are asking for; when a lot of that infrastructure gets—

if it were to get destroyed because of a misstep in farm policy, then

it would certainly be hard to get back.

And with regard to the administration trying to lower expectations, we are thankful that Congress writes the farm bills.

Mr. SCHULER. And respective safety net is critical. I remember

this is coming from a representative of a commodity that has not

been able to participate in the safety net program of this farm bill,

and that is why I say an effective safety net is essential.
139

The benefit of it, though, for not only the producers, but also the

American taxpayers is, as the name implies, the safety net should

only provide assistance when it is needed. When prices are high,

it should not provide the assistance, but when prices are low, it

should kick in and provide that benefit.

Certainly, in a new farm bill, whether or not we extend certain

portions of this current bill, there need to be some adjustments

made, especially for wheat producers.

Mr. TUMBLESON. That is interesting you should mention the

business sense of us as producers out there. When I left home I had

$1.80 for my corn. It is pretty interesting to look back over history

to see, how many times did I get more than $1.80; and $1.80 is not

a very good place to build from.

But when you look at business and farming, we have all had

courses in business, and what you do in a business degree is, you

look at some consumer and you ask him, What do you want? When

you find out what he wants, you go and find a product that you

can use for that and you do the research on it.

Agriculture Business 101 is not that. Agriculture Business 101,

because of weather—weather is the big factor here. You raise the

product; then you go to the consumer and say, What do you want?

Then you do the research on it.

So the safety net is in that sense of, what were you able to do,

raise the product to do, the research after you find out what they

want. Agriculture Business 101 is entirely different than Business

101. And as far as the safety net, the $95 million that Dave Gill’s

group was able to raise was because of the safety net, or you could

not have raised it. Therefore, rural America is benefiting from the

safety net. Therefore, the United States—A equals B equals C.

Mr. LUCAS. The gentle lady’s time has expired.

We now turn to the gentleman from Texas, Mr. Neugebauer.

Mr. NEUGEBAUER. Thanks to the panel for being here. I think

these listening sessions are very valuable. As I have traveled

across the country with the Agriculture Committee, we have heard

very much of the same testimony, but I think it is important to

continue this dialogue as we move into next year where we will,

in fact, sit down and address the 2007 farm bill.

Mr. Helms, I have heard testimony over and over again that the

2002 farm bill, as far as cotton is concerned, has been a good bill

that you can make plans off of, and is provided the price safety net;

but as I have traveled around recently in my district—and obviously we have had some drought conditions; we had some earlier

in the 2002 farm bill that affected cotton farmers. Today, now having almost completed the 2002 farm bill, looking back, if you could

go back to the front end, would you have put some of the dollars

that were in commodity and conservation and nutrition, would you

have maybe put some additional money in that production safety

net, and would that, overall, have made the 2002 farm bill possibly

a better bill for cotton?

Mr. HELMS. Mr. Neugebauer, I believe, as you mentioned, we obviously have stated over and over we like the bill. I don’t know that

we would want to have shifted any money within it. I would think

that if there had been more money available, we would have cer-
140

tainly been happy to have seen them in the safety net, or in a safety net-type mechanism.

But we will, I think, stand steadfast that we like the mix and

the way the program was structured.

Mr. BARROW. Anybody else want to take that question?

Mr. BUIS. Well, in essence, you sort of shifted the funds for us

because the drought in 2004 was paid for out of the Conservation

Security Program and with some research and rural development

programs, which I don’t think any of us up here would agree that

is the way to go to fund the emergency weather disaster program.

I think you still need that piece in there.

We had a good piece for the economic safety net, but we didn’t

for the production.

Mr. NEUGEBAUER. I think that has been the consensus, that if we

look at the next farm bill, we have to look at the production safety

net in order to make good farm policy.

Mr. Stallman, I know that you in your organization have supported a 1-year extension of the farm bill, and one of the things

that concerns me about that is that, one, we know that the current

farm bill has been challenged, and I think we reasonably believe

it could be further challenged to the existing format of that. And

second, if I am a farmer in west Texas, and there is a piece of land

coming up next to me, or I have an opportunity to lease another

farm or two after this year, how much propensity do I have to do

that when I don’t know what the rules are going to be for a longer

period of time than just a year?

And so I guess the question is, I still subscribe that if we can

give you a 6-year business model of what agriculture policy is going

to be in this country for the next 6 years, like we did with the 2002

farm bill, we are still better off than extending it. Because the extension really doesn’t provide any certainty; and what we do know

currently is, the 2002 farm bill is under challenge.

Mr. STALLMAN. Well, first, Mr. Neugebauer, let me be clear about

our position, as I think it has been misrepresented sometimes here

in Washington, DC Our position is, at least a 1-year extension of

the farm bill. We are perfectly willing to move forward with a

longer-lived farm bill in this renewal; we certainly believe that

longer is better from a planning standpoint, as you indicated, for

farmers. I am a farmer; I would like to be able to plan further.

So what we are saying is, at least 1 year. The reason we came

up with at least the 1-year, our position is tied so closely with what

happens to the WTO negotiations; and at that time we had the position, we weren’t sure about a time line as to whether it would be

shorter or longer. Right now, it looks like perhaps it will be longer

before the WTO negotiations will restart, and therefore, we believe

we shouldn’t have any major changes until we get back into that

negotiation and see what the ultimate outcome will be.

And if I could, I will address your challenges issue with respect

to the WTO, the cotton case. There are people that are viewing that

as a loss and, oh, my gosh, the rest of our commodity programs are

at risk.

Well, anybody can file a case any time they want to. That is the

first point to make. But the reality is that each case is separate,

and the factors that have to be considered in the other commodities
141

are—and I can’t remember them all—basically the type and aggregate level, or subsidization of a type, of given crop.

The subsidization is a percentage of the value of production, the

trends in subsidy production—portions of crops exported, world

market shares, price effects of subsidies on the world markets. All

of those are part of the things that go into a WTO case, and that

is very different for every commodity.

Cotton had a certain set of circumstances; rice and corn, that

may be vulnerable, have another set of circumstances, but we don’t

believe they are as vulnerable as the situation is with the cotton

case.

Mr. BARROW. I think, Mr. Combs, you wanted to follow up on

that.

Mr. COMBS. Yes. We would respectfully disagree that writing a

radically different farm bill to meet what you think the WTO is

going to have, and having to rewrite it if we get a WTO agreement,

we think that would cause more consternation in the countryside

than extending the current farm bill, then dealing with the trade

year if they are established. It is working for the rice industry.

And with regard to the chance of litigation of, let us defend our

programs. Let us get an administration that wants to defend our

programs and get some good lawyers and go to the WTO and

maybe win a case in rice or corn.

Mr. NEUGEBAUER. What I would be talking about is writing a bill

that we felt like was compliant. We were willing to stand by because we have one right now that we are willing to stand by. But

we lost the case there.

So certainly I, for one, am not to believe that we own foreign policy to appease the European Union and some of these other people.

I think we ought to write foreign policy in America for American

farmers and producers. So as I sit down at the table to be a part

of it, that is who I am going to be looking after, because that is

who I work for.

But with all things being equal, I think if we can give you a 6-

year window. I still believe that is a better window for you than

a 1-year window, where you don’t know that—in fact, that at the

end of that year that things can—that we would have to be materially changed, and if you are going out and buying $150,000 harvesters and tractors and leasing and buying land, it is hard, it

looks like to me, coming out of the private sector for 25 years, making those kinds of investments when I don’t know what the monthly is going to be past a 1-year period of time.

So that has been my perspective on that. I am not trying to appease anybody in Europe or anywhere else. I am trying to make

good farm policy for American farmers.

Mr. COMBS. We would point out, the 2002 bill was enacted—we

believed within our heart of hearts it was WTO-compliant. And we

lost just one part of one case, on cotton; and we don’t think that

was a reason to surrender. And if we need a 6-year bill, then let

us do a 6-year extension.

Mr. LUCAS. The Chair turns to the gentleman from North Carolina.
142

Mr. ETHERIDGE. Thank you for being here today, and for the

input that you have given thus far. And those who have testified

across the country, as we have heard the hearings.

Mr. Helms, thank you. Let me ask the first question to you because cotton used to be a big product in North Carolina, and it has

again become a substantial commodity in our State. With the technology and the eradication of the boll weevil, we are growing a lot

more cotton than we ever grown it for a long time.

And additionally, textiles remain an important industry in our

State of North Carolina, even though we have gone through some

tough times and lost an awful lot of jobs in recent years.

My question is that the loss of step 2 programs was a blow, I

think, to the entire industry as has just been alluded to in talking

to you, and I noticed in your testimony that you mentioned the

hope of an alternative to step 2 to be developed. Given the Reseo

case ruling, do you really think a WTO-compliant alternative to

step 2 is possible, and if so, do you have some ideas you would like

to share with us?

Do you think it will work? Because I think that is what I would

certainly like to hear, and I think the members of this committee

who are going to be working on this would certainly be interested.

Mr. HELMS. Mr. Etheridge, we are working very closely with our

textile members, our manufacturers’ members, and their organizations. We, at this point, are not willing to, I think, say that we

have been able to come up with something that would meet the criteria of replacing step 2 and be WTO-compliant.

We are hoping to get considerable input in the near future from

the textile sector, and we certainly will be back with some ideas

if they are forthcoming. We would like for them to give us more

input.

Mr. ETHERIDGE. We will stay tuned then. Thank you, sir.

Mr. Stallman, you cited the explosive demand for farm commodities to produce biofuels and noted the new investment in operating

capital and equipment that some producers will require to alter

their operations for this market.

You also stated that it is not unreasonable to ask for some producer protection while the investment is being made. Now what

protections do you suggest? What protections do you suggest, and

will this be additional protections beyond what we are now doing?

And I guess my final point to that question is we all get caught

up in is, will it be compatible with our WTO obligations?

Mr. STALLMAN. The purpose of that analysis that we gave about

what it would take for producers in terms of capital investment to

fundamentally change rotation, increase corn acreage and that type

of thing was to make the point—and it is similar to the point that

Mr. Neugebauer was making about certainty and planning. It

wasn’t a new kind of support or anything. It was about having that

safety net and the support programs in place so they could be confident that, moving forward to make those adjustments in the rotations, that safety net would be there.

So that was the intent of it. It wasn’t any additional type of programs.

Mr. ETHERIDGE. Let me make sure I understand it. So what you

are saying is, you want it so that you can have that long-term view,
143

and the commitments could be made by the agriculture community

to include the farmers’ eligibility equipment, as well as financial institutions that are going to be required to be engaged?

Mr. STALLMAN. Yes, that is accurate.

Mr. ETHERIDGE. Mr. Buis, in many areas of the country—and all

of you have alluded to this to some extent—drought and disasters

has been a major issue. The truth is, almost every year we find

that somewhere, because of the nature of farming, whether it be

from hurricanes, whether it be from drought, whether it be tornadoes.

In your testimony, you mentioned your work with other farm organizations to obtain action on disaster relief before the November

elections and the creation of a permanent program. You alluded to

that, talked about it earlier, and this may be a pretty good stretch,

but I am going to ask the question anyway.

How much relief is needed? This year, would you say we are experiencing disaster levels that we faced in the 2003 cycle of agriculture, as you see it?

Mr. BUIS. Yes. I think the latest CBO number of the score of

the—probably the best bill that has been introduced on the Senate

side is $6.9 billion. And obviously we are not done with this year’s

harvest, but that is no reason to wait. I mean, you can write a bill

to sums, as necessary; CBO is going to score it based on what they

think that damage is going to be.

Again, I think the real concern is the delay in getting this out

there. And that is why we need the permanent disaster program,

remove that uncertainty. And I don’t think people are asking for

a handout here. They are asking for a helping hand, Mr. Chairman, and I would hope they get it.

Mr. ETHERIDGE. Thank you.

Mr. Chairman, I would only add to that, I saw some numbers recently that family income, overall family income, has dropped over

the last several years, over $1,000 per family; and I would say in

rural America, it is substantially more than that with both farmers

involved.

Thank you. I yield back.

Mr. LUCAS. The Chair appreciates the gentleman’s observations,

and now turns to the gentleman from Minnesota, Mr. Gutknecht.

Mr. GUTKNECHT. Thank you. When we passed the last farm bill,

I served on both the Budget Committee and this committee. We

were able to get a pretty good budget allocation from the Budget

Committee for this farm bill.

In spite of that, because of House rules and perhaps, maybe, Senate rules as well, we can’t really take credit for the fact that we

have spent about $17 billion less than we were authorized to spend

under the farm bill.

Mr. Stallman, if you look at what we have to do to pass the farm

bill, first of all, we have got to get the allocation from the Budget

Committee; but second, something we haven’t talked much about

is changing budget rules so we are allowed some flexibility within

the amount of money that the Agriculture Committee has allocated, to make adjustments as we go forward or at least get credits

for those years in which we undershoot whatever our budget allocation is.
144

Has the Farm Bureau looked at that particular part of the problem? And I guess what I am really asking is, would you consider

looking at it and helping us on it?

Mr. STALLMAN. Well, first, the budget rules that the Congress

uses and that you guys set up, I don’t know that we are going to

play a huge role in that. What we do recognize, and as you have

already alluded to, is the fact that the program is working as intended.

It was designed as a countercyclical problem. Prices are high,

payments are less, the hit to the Federal Treasury is less; and the

reverse is true also. Based on what Congress is willing to allocate

in 2002 to this farm bill, we have a significantly underspent, if you

will, what those projections are. But I think that indicates the necessity of having this kind of program in place where you use it

when you need it, but have the allocations there to help support

times when prices are low.

Mr. GUTKNECHT. Well, I think that is the first step in this whole

process. And I think we need to think about it, and we need some

other people who are smarter than we are to think about how we

might be able to come up with new language relative to the budget

in terms of how this is all allocated.

Second, I want to turn to someone who is not only my constituent but also a trusted adviser. Gerald Tumbleson is someone who

I respect and admire and probably one of the deepest thinkers. He

probably does more thinking on his tractor than almost anybody I

know, and frequently when he does he gives us a call with a great

thought.

I want to share, if he hasn’t already, with members and others

who are here something he said, and I quote him all the time. As

we look over the horizon in terms of U.S. farm policy and U.S. agriculture’s ability to be involved in the world market, one of the

things that he says—and I think it is so important and this committee needs to be reminded of—is there is really only two things

the world needs more of. One is energy and the other is protein.

And if you think about it, we here in the United States are in a

unique position to provide more of both.

And the other thing Gerald was talking to me a lot about is we

need to at least start thinking outside of the box in terms of the

way we handle all of these programs, and he mentioned it to us

before, and I just want to give him some time to perhaps develop

some of these thoughts relative to whole notion of some kind of revenue assurance or revenue insurance, however we want to describe

the term, program—and Gerald do you want to talk a little more?

I just want to give you the rest of my time to talk about anything

else you figured out on your tractor.

Mr. TUMBLESON. Thank you, Congressman. It is interesting that

you and the committee don’t get the opportunity that we get, and

that is a tractor cab with nobody yelling in your ear. You turn the

radio off.

So it does cause us to sit back and do a lot of deeper thinking

on where we are going and we in the National Corn Growers look

to this crop revenue and we have talked about this. The Congressman and I have talked many times on revenue assurance and

where it goes and where it leads us. And it would help on the dis-
145

aster. It would help on all those ends that we are talking about.

But the fortunate part is where I live—and we have a lot of pigs

and we have a lot of corn and we have a lot of soybeans, and we

use the waste from the pig to fertilize our corn crop. The United

States of America has run into a problem. And we have a lot of

people who think that is toxic waste. That is not toxic waste. That

is one of the greatest things ever invented out there if you ever go

where the buffalo used to sleep at night, if you know anything

about cows you know where they stand up in the morning that is

where the best grass is. So that it not toxic waste. That is a fantastic thing that we are using so we don’t have to import the potash,

the phosphorous, and the nitrogen and you know where they come

from.

So in the same sense, we are really tied to every commodity and

every product of agriculture, whether it is meat or whether it is

cotton, or whatever it is, this whole concept has to come together.

Now in corn we do produce protein and energy. We are the fortunate ones to do that. Right now we have been allowed to have research money for mapping the corn plant, going that direction, we

hope to get every plant that is raised in the United States mapped.

Then we will move ahead in this world and that is called genomics.

That is where we are headed.

This Agriculture Committee, and I stressed it before, it is absolutely the critical part of the United States of America and—well,

you probably realize it but I don’t think the public realizes your

total value. They look at the Ways and Means, they look at the Appropriations Committee, they look at all those. No, it is right here.

This is where the United States of America will become very important and economically will survive.

Now, cutting budgets and things, I have always said one thing

when I am riding on my tractor and I told my wife that we are not

selling this tractor in December to buy Christmas presents that are

the wrong reason for the season and come broke and by the end

of February and I have nothing to plant with in March.

That is where we look at the farm bill. That is where we look

at the value of agriculture and everybody sitting at this table. And

you and I are going to chat again as time goes on, and thank you.

Mr. GUTKNECT. Thank you.

The CHAIRMAN [presiding]. I thank the gentleman. The gentleman from Colorado, Mr. Salazar, is recognized for 5 minutes.

Mr. SALAZAR. Thank you, Mr. Chairman. Let me briefly thank

the panelists for their commitment to agriculture. And Mr.

Tumbleson, I sure enjoy spending time on my John Deere tractor

every weekend. I appreciate that. It is the greatest place to actually think about the problems here in America.

But let me just ask all of you, since you all represent some different sectors. Would you support actually a funding for the specialty crop farmers in the 2007 farm bill? Whether it be research

dollars or—I would just like comment from each one of you.

Mr. STALLMAN. What was included in my written statement was

a reference to the WTO compliance issue as results, as a result of

the cotton case ruling whereby our direct payments are no longer

considered to be green box because there is a fruit and vegetable
146

planting restriction on there. So we believe very strongly that

needs to be fixed.

We believe just as strongly that there is a cost to the fruit and

vegetable industry if that happens because it takes very few additional acres that maybe were prevented from coming into production based on that restriction to seriously hurt markets for some

fruit and vegetable producers. And so what we are saying is we

need to fix that. But in return the fruit and vegetable industry

needs to have a WTO compliant compensation package, if you will,

to help offset some of the risks inherent in us doing that, some of

the market risks that could occur.

We don’t have a real good idea of exactly what components that

should be. We are encouraging our State farm yields of fruit and

vegetable production to come together and determine what that

package is. There is a consensus that there really isn’t a desire for

any type of commodity program per se, but research, market assistance, things related to conservation that could apply to fruit and

vegetable production specifically. Those sorts of things have been

mentioned, and I am sure there are others. But yes, we will be supporting in return for removing that restriction to make us WTO

compliant a package to assist those producers.

Mr. SALAZAR. Thank you. Tom.

Mr. BUIS. Congressman, short answer, yes, I think all farmers

need some help of some type. It is how we structure it and how we

move forward.

It hadn’t been that many years ago that fruit and vegetable producers didn’t even receive anything in disaster programs. And that

in itself is a disaster. I think we need to give careful thought and

consideration. The one thing that I hear all the time, and depends

on who it is and both Bob and I represent all commodities, not just

a few, but the other guy is getting more than I am getting. And

maybe one of the best documents that the committee could put together is take a look at all aspects, not just how much is going out

in the direct payment or how much is going out in the loan program but how much each commodity or each area gets in research,

in promotion programs, and other types of Federal assistance even

outside the committee’s purview so we can really start to look at

what is equitable.

Mr. HELMS. Mr. Salazar, as you may be aware, a lot of our cotton

producers in some parts of the country, particularly California, are

also specialty crop producers but we have some awareness of the

specialty crop needs. We would hope that we can work closely with

specialty crop groups.

We realize that they most likely are going to be included in the

next farm bill and think that we should work together and particularly during the budget process. We need to be closely allied at that

point, and then we will have some things in to try to work with

to help them.

Mr. COMBS. Yes, Congressman Salazar, we would like to see

work with the fruit and vegetable, especially crop producers, to figure out a way that they can be in the program and we can still

maintain the safety net that we enjoy.
147

Mr. SCHULER. Congressman Salazar, we also are concerned about

the WTO concerns over green box, direct payments as far as the

fruit and vegetable exclusion.

Certainly, I am sure that the fruit and vegetable people will

speak for themselves on what type of program they would like to

see.

But we do believe also that farm programs should provide equitable support between all commodities, and if there is some program that is developed for them it should be equitable and whatever meets their needs.

Mr. TUMBLESON. Yes, Congressman, we are evaluating that with

the vegetables but we are not evaluating research. Research, research, research, and that is the answer for the United States of

America. There is a NIFA program out here, National Institute for

Food and Agriculture, that is one area that once we convince the

people of the United States the value of it, the value for plant

based society, wow. We are going to go.

Mr. SALAZAR. I want to thank all of you for your participation.

And I yield back, Mr. Chairman.

Mr. LUCAS [presiding]. With that, it is your turn, the gentleman

from Kansas.

Mr. MORAN. Mr. Chairman, thank you very much. I appreciate

the panel’s testimony and the opportunity to visit with you today.

Far be it from me to make suggestions to all of you. The purpose

of your participation here today is to make suggestions to us. But

I do have some observations, particularly as it relates to disaster

assistance. Again I think that is our highest priority at this point

in time.

And I would encourage you all—I heard every one of you testify

on behalf of your organizations that you are supportive of disaster

assistance.

But I certainly encourage you to have your members contact

their Members of Congress, your members to contact the administration, to talk to the Department of Agriculture. Make certain that

this story is told. Don’t just expect Congress on its own volition to

be able to get the political will to get this done. We need your

input, help, assistance, your pushing, shoving, your demands, that

production agriculture’s problems due to weather related losses are

known here and that there is a appropriate response. And clearly

if we can do something—it is unfortunate to me because I have discovered in numerous battles in regard to disaster assistance it is

the election, elections that drive this process. I wish it was different. I wish it was much more the case that telling the difficult

circumstances that rural America, our agriculture producers face

was sufficient to win the battle. That is necessary. Those facts have

to be there. But ultimately there is a political consideration that

goes into the process here in Washington, and I urge you to use

this opportunity in the next 7 weeks to see that your story is told

and that the demands are made in a political sense as well as a

policy sense for assistance from Congress and the administration

with regard to disaster.

I am interested in the extension. We have gotten to the point in

which we have talked more about the extension of the farm bill

often more than we do about the farm bill itself. And I am not yet
148

willing to concede that we are in the position that an extension is

the best outcome. I think by reaching the conclusion that extension

is where we should go from now we miss an opportunity that we

might have to make circumstances better for farmers.

Clearly things have changed. If a farm bill is designed to provide

a safety net for farmers, a lot has changed since 2002, mostly related to input costs. Fuel, fertilizer, natural gas costs have increased

dramatically. And I hope that we can take into account those increased costs as we develop farm policy in this country.

And in that regard, I would urge you in the same vein as I urge

you in regard to disaster assistance, to hold congressional feet to

the fire in regard to the budget. It is often as we discuss agricultural policy, we talk about the farm bill, we talk about knowing

that we will have fewer resources, blah, blah, blah, blah. We ought

not start with the concession that we are going to have fewer resources.

This Congress has an opportunity to provide the necessary resources. Agricultural spending is not the culprit that it is made out

to be when it comes to budget deficits. We are a minority of Members of Congress who care about agriculture, but the reality is that

the nature of this place is that a few Members of Congress I think

can and will make a difference in the budget process come next

Congress.

So I would encourage you all not to concede the issue of necessary resources and ask your Members of Congress to hold firm

for a budget number in agriculture that is adequate to meet the

safety net needs of the next farm bill.

And finally, I worry about—and again one of the reasons an extension may be premature is that one of the things we all talk

about is the renewable fuels opportunities that we have in agriculture. And I would hate to concede with just extending the current farm bill, concede the opportunity that we have to create

greater demand for farm based energy production.

And I worry, again, and ask you to hold our feet to the fire. As

gasoline prices have come down, the pressure on Congress to respond with an energy policy to develop renewable fuels will diminish. And we will once again do what I think Congresses in the past

have done, walk away from a great opportunity to move our country toward energy independence and to create a revitalization of

rural America.

And if we allow lower gas prices to impede that effort, we will

have lost another opportunity, one more time, as members of agriculture communities, as Members of Congress, as policymakers in

this country to change the direction this country is going that we

need to go for economic and national security, for environmental

reasons. Don’t let the price of gasoline drive the policy that is needed here in Washington to the detriment of us simply walking away,

the status quo becoming sufficient.

I saw some article that I was labeled Preacher Moran. I am

sorry. I didn’t mean to provide a sermon. But as I have listened

to the testimony those thoughts come to my mind and I think you

all have an opportunity to lead us in the direction that we need to

go. Please work with us, but please demand that we respond in a

way that is positive.
149

The chairman is back. I was going to ask my friend, Mr. Lucas,

for an opportunity to ask a question, instead of a sermon, Mr.

Chairman.

The CHAIRMAN. I will be happy to let the gentleman ask his

question.

Mr. MORAN. Thank you and this is in particularly in regard to

you, Mr. Schuler, with regard to wheat. One of the things I would

like to explore with all of you is can we create a farm bill that creates, that treats commodities differently than another commodity?

Does that make sense? Do we have different payment limitations,

for example, commodity by commodity? Do we have a different mix

between the countercyclical LDP and deficiency payments commodity by commodity or do we need to treat them all the same and in

particular, Mr. Schuler, the question to you is, you are the one who

ought to be the most concerned about a simple extension farm bill

under the premise that you have received the least. My question

to you is, is the fact that wheat farmers have received less under

this farm bill, is it a fundamental problem with the farm bill itself,

the balance between countercyclical payments, the target price, all

the things that are components of the farm bill, or is it simply that

wheat farmers have experienced drought and therefore no production?

Mr. SCHULER. Well, thank you, Congressman Moran, and thank

you for your comments also. But certainly, we don’t think that

there needs to be a drastic restructuring of the farm bill. And it

isn’t that the components that are in place now aren’t workable,

but the problem was for wheat that the levels for the safety net

were just set too low.

Mr. MORAN. So regardless of the drought, lack of production—obviously that is a problem—but the problem is the price set, the

safety net doesn’t create the sufficient margins for profit?

Mr. SCHULER. Certainly, but the drought did cause its own problems because without production of course there is no support

through the LDP system. But that is just one component of it. Had

the countercyclical target price been set higher, there still would

have been some safety net provided for wheat producers in times

of low price.

The drought of course offers its own challenges, and hopefully

that can be addressed either through crop insurance improvements

or some type of mechanism that provides additional support, and

those times are lost.

But for us, though, there just need to be some improvements in

this farm bill and hopefully these can be made. Even if other commodities would like to see the current structure for their crop continued, let’s make adjustments for those crops that really need it.

We can keep a direct payment, but for wheat producers we would

like to see that at a higher level.

The loan program still provides some major support at times of

low prices if you have production. But then also the target price

needs to be set at a higher level. So it gives that safety net, raises

it off the floor, so it is actually at the level that provides some benefit to our producers.

Mr. MORAN. Mr. Chairman, thank you very much.
150

The CHAIRMAN. I thank the gentleman and I thank all of the

members of this panel. You have done an outstanding job and I can

say that even though I haven’t been here for a portion of the testimony because you have held the interest of the committee for close

to 3 hours. So we have two more panels to go, and we look forward

to hearing from them. We have a vote on the floor and will take

up the next panel as soon as that vote concludes, but I thank all

of you for your contribution today. I apologize for not being here.

We have two major pieces of legislation under consideration in the

Judiciary Committee and my attention had to be divided today, but

I can assure you that it is very much as we move forward focused

on writing a farm bill that takes into account the concerns raised

by each and every one of you. So thank you again and we excuse

you.

The committee will stand in recess.

[Recess.]

The CHAIRMAN. The committee will come to order and we now

will welcome our second panel: Mr. John Hoffman, vice president

of the American Soybean Association on behalf of the American

Soybean Association, the National Sunflower Association, and the

U.S. Canola Association from Waterloo, Iowa; Mr. Greg Shelor,

president of the National Sorghum Producers, from Minneola, Kansas; Mr. Jim Wysocki, president of the National Potato Council on

behalf of the Specialty Crop farm bill Alliance and the National Potato Council, from Bandcroft, Wisconsin; Mr. Jack Roney, Director

of Economics and Policy Analysis of the American Sugar Alliance

from Arlington, Virginia; Mr. Mark Kaiser, Board Member of the

Alabama Peanut Producers Association on behalf of the Alabama

Peanut Producers Association, the Florida Peanut Producers Association, the Georgia Peanut Producers, and the Mississippi Peanut

Growers Association, from Seminole, Alabama; and Mr. Richard

Groven, vice president of the National Barley Growers Association,

from Northwood, North Dakota.

I will remind all members of this panel as well that your entire

statement will be made a part of the record and ask you that you

limit your comments to 5 minutes, and Mr. Hoffman, we will start

with you, welcome.

STATEMENT OF JOHN R. HOFFMAN, FIRST VICE PRESIDENT,

AMERICAN SOYBEAN ASSOCIATION, ON BEHALF OF THE

AMERICAN SOYBEAN ASSOCIATION, THE NATIONAL SUNFLOWER ASSOCIATION, AND THE U.S. CANOLA ASSOCIATION

Mr. HOFFMAN. Well, good afternoon, Mr. Chairman and members

of the committee. I am John Hoffman, soybean and corn farmer

from Waterloo, Iowa. I currently serve as first vice president of the

American Soybean Association. I am also appearing today on behalf

of the National Sunflower Association and the U.S. Canola Association. I very much appreciate the opportunity to present the views

of U.S. oilseed producers on the 2007 farm bill.

Policy producer priorities are to strengthen the current safety net

for oilseed crops, support responsible conservation policies, develop

new opportunities for expanding production of energy crops, and

maintain funding for existing nutrition, research and trade programs.
151

To achieve these goals, we strongly endorse maintaining the current level of agriculture funding in the CBO baseline. We also support enactment of a new multi-year farm bill to enable farmers to

make long-term economic decisions.

Within the commodity title we support the basic structure of

farm programs under the 2002 farm bill. We believe adjustments

are needed on oilseed support levels in the event these programs

are reauthorized. Global demand for protein meal for animal feed

and for vegetable oil is growing rapidly as population and living

standards of developing countries rise.

We are also seeing increase in the use of vegetable oils for the

production of biodiesel both in the U.S. and abroad.

We are concerned that low oilseed support levels in the 2002

farm bill could discourage producers to responding to these positive

marketing signals to increase funding of oilseed crops.

Oilseed producers have strongly supported the marketing loan as

the most effective tool for ensuring that U.S. crops are competitive

with foreign oilseed exports and for supporting producer income

when world prices decline. However, loan levels should be established with reference to both recent average prices and to loan levels for other crops to avoid distorting planting decisions.

Countercyclical programs provide a viable method for supporting

farm income. While decoupling payments from current year production, current target prices for oilseed crops are too low to have triggered oilseed payments under the current farm bill. If this program

is reauthorized, these levels need to be adjusted, taking into account target prices for other crops.

Direct payments are a legacy of the 1996 farm bill when Congress decided to phase out income support by establishing production flexibility contracts and reducing AMTA payments over time.

Since they are fixed and attached to a farm’s historical crop acreage base, direct payments are factored into land values which raise

cash rents and make U.S. producers less competitive in world markets.

Support levels for program crops established in the 2002 farm

bill are not proportionate to their recent market value and should

be brought within a closer range to reduce the potential for planting distortions. The table attached to my statement compares crop

support levels as percentages of the Olympic average of prices for

these crops in 2001 through 2005.

As indicated, current marketing loan rates for program crops

vary from 75 percent to 125 percent of recent average prices.

Target prices range from 90 to 180 percent.

Direct payments range from less than 2 percent to 40 percent.

Disparities of this magnitude can significantly influence planting

decisions when prices are at or below support levels.

In the event competition for limited resources in writing the 2007

farm bill prevents equitable adjustments in oilseed support levels

or would result in cuts in existing levels of support, our organizations would support consideration of an alternative structure for

supporting farm income that could provide an improved safety net

for all crops.

I would like to comment on the potential influence of the WTO

and the development of farm programs in the 2007 farm bill.
152

The WTO panel ruling in the cotton case may require Congress

to eliminate the current planting restrictions on fruit and vegetable

crops if the direct payment program is to be continued.

Depending on the extent to which producers of these crops would

need to be compensated to offset potentially lower prices if the restrictions were eliminated, we believe the committee should consider shifting resources out of direct payments to other forms of

support for program crops.

Beyond the commodity title, oilseed organizations support reauthorizing and maintaining funding for existing conservation programs, nutrition research and energy and trade programs in the

2002 farm bill.

In the area of conservation programs, oilseed organizations support reducing the acreage enrolled in the Conservation Reserve

Program by restricting eligibility criteria to environmentally valued

lands.

There is a growing demand for more the viable farmland currently locked up in the CRP, including for the production of energy

crops. There have been significant advances in minimum and no

till farming methods since much of the current CRP land was first

enrolled and the USDA has established that up to 7.2 million acres

currently locked in the CRP could be returned to corn and soybean

production and farmed in an environmentally sustainable manner.

Mr. Chairman, oilseed producer organizations continue to develop specific positions in advance of the congressional debate of

the 2002 farm bill. I appreciate the opportunity to present views

today, and I welcome similar opportunities to participate over the

coming year and do entertain questions. Thank you.

[The prepared statement of Mr. Hoffman appears at the conclusion of the hearing.]

Mr. MORAN [presiding]. Thank you. Mr. Hoffman.

The Chair recognizes Mr. Shelor, National Sorghum Producers.

STATEMENT OF GREG SHELOR, PRESIDENT, NATIONAL

SORGHUM PRODUCERS

Mr. SHELOR. Thank you, Mr. Chairman. You look pretty comfortable in that chair.

Mr. MORAN. Please don’t let Mr. Goodlatte know that.

Mr. SHELOR. I thank the committee for the opportunity to

present my views for the next farm bill and the impact of the farm

bill on my family farm and operation.

My name is Greg Shelor, and I farm near Minneola, Kansas. My

1,700-acre cropping system includes no till dry land sorghum and

sorghum-fallow wheat rotation which enhances water conservation

and prevents wind and water erosion. Also I irrigate sorghum, corn

and soybean, depending on the economics, and partner with my son

on livestock.

This year has been a very trying year in the area of my country

as we are significantly behind normal in rainfall. Rain received

since then came too late to benefit much of the already stoned sorghum crop, although our grassland in summer-fall has recovered

nicely. Normally we can count on sorghum as a crop in these dry

years, but this year has been extreme.
153

Before I start my policy discussion, I need to talk about one of

the reasons that we have the current farm bill. And I feel that reason is that all of us, agricultural commodity leaders, general farm

groups and this committee all work together to develop that farm

bill and support the piece of legislation through this legislative

process.

I hope we can duplicate that effort as we continue to reauthorize

our farm laws. I understand that farm policy may look extremely

different 5 years from now, but because of the current budget situations in any potential WTO agreements. If that is the case, I ask

that you keep in mind the critical nature of the agriculture economy, especially in the semi-arid regions of Kansas where I farm.

Any new farm program needs to be available with family operations like mine that produce in areas that have limited rainfall.

Farm programs provide a significant safety net when the agricultural economy slows down. The current farm program, direct payments and the marketing loan programs provide my operation with

the most protection.

If Congress is to change the current programs, I would ask this

committee to preserve the equitability relationship between commodities and these programs.

Regarding conservation programs, sorghum is a water sipping

crop and it uses less water and nitrogen than any other crops in

my rotation. If a greener farm bill is to be developed I ask that any

new program created and existing programs reward crops that use

less water and need fewer input. For example, the EQIP program

which works well in sorghum areas, but I am told by fellow sorghum farmers that they have seen overall water use increase than

to decrease; that is, an increase in water demand in semi-arid sorghum belts.

Finally, the growth of the ethanol industry in the sorghum belt

has been phenomenal. Currently 15 percent of the sorghum crop is

made into ethanol. That is about the same percentage of the corn

crop. But we expect significantly more sorghum to be used in ethanol production in the near future.

For example, in western Kansas, the ethanol industry has targeted our area for building plants since we produce some of the

cheapest feedstocks in the country and once those plants are built

80 percent of the sorghum production in Kansas will be located

within a 50-mile radius of the ethanol plant. That is important to

producers because the ethanol industry will play a major role in determining local prices for my sorghum.

You have a challenge in rewriting our national farm laws, and

the sorghum industry will work with the chairman and this committee as you develop new farm programs.

Thank you for your time. I am happy for any questions.

[The prepared statement of Mr. Shelor appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you, Mr. Shelor.

Mr. Wysocki.
154

STATEMENT OF JIM WYSOCKI, PRESIDENT, NATIONAL POTATO COUNCIL, ON BEHALF OF THE SPECIALTY CROP FARM

BILL ALLIANCE AND NATIONAL POTATO COUNCIL

Mr. WYSOCKI. Good afternoon, Mr. Chairman and members of

the committee. My name is Jim Wysocki, and I am the chief financial officer for Wysocki Produce Farm, a nine-family farming operation in Wisconsin. I am the current president of the National Potato Council.

Today I will be providing comments on behalf of more than 75

organizations representing growers of specialty crops that have indicated their support for the farm bill priorities developed by the

Specialty Crop Farm Bill Alliance.

The specialty crop industry is a dynamic industry characterized

by constantly changing supply and demand conditions. We have

worked hard to remain profitable, satisfy consumer demands and

develop new technology in order to be competitive in the domestic

and global marketplace.

Our crops are perishable and are characterized by high cost of

production, high crop value and generally inelastic demand. Markets for specialty crops are highly volatile, yet our growers have

never relied on traditional farm programs to sustain our industry.

While it is the clear intention of the Specialty Crop Farm Bill Alliance to be more actively involved in establishing policy in the 2007

farm bill, alliance members continue to reject direct payment to

specialty crop growers as a policy option.

As the policy discussion for the 2007 farm bill takes shape, we

look forward to working with you to develop new programs and enhance existing programs that will improve the competitiveness of

the specialty crop industry. We are working with Members of Congress to develop specific legislative language consistent with our

priorities and expect to have a bill introduced in the House later

this month.

The alliance believes that Congress should complete the process

of establishing U.S. farm policy prior to the planting of the 2008

crop. We should develop policies based on the needs of our growers

and not on the expectations of future developments and bilateral

or multilateral trade agreements. The specialty crop industry

strongly supports maintaining or strengthening the current U.S.

policy which restricts producers from growing fruits and vegetables

on acres receiving program payments.

The market conditions and the potential for market disruptions

that led to the industry support for this provision in 1985 have not

changed.

Currently there are several studies being conducted to determine

the potential economic impact on specialty crop growers from the

loss of the planting flexibility restrictions. Preliminary results indicate that the impact would be in excess of $3 billion per year. The current $80,000 payment limit on disaster payments is not

equitable for specialty crop producers. Due to higher input costs

the loss from disaster per acre is generally significantly greater per

acre than for program crops. We believe that the cost of production

and the crop value should be used to index disaster assistance payments to allow specialty crop producers to receive a more equitable

disaster payment.
155

Consumers want an agricultural production system that not only

produces abundant, affordable safe food supply but also conserves

and enhances the natural resource base.

Environmental regulations continue to put pressure on the industry’s ability to be competitive in a world economy. Because of

these factors, the industry supports expanding cost share and incentive programs such as the environmental quality incentives program and the conservation security program and encourage producers to invest in natural resource protection measures they might

not have been able to afford without such assistance.

The economic well-being of the specialty crop industry depends

heavily on exports. Without further commitment to export market

development by the Federal Government and focused efforts to reduce tariff and nontariff trade barriers, the U.S. specialty crop industry will continue to lose market share to global market competitors. Farm bill programs that have worked well to increase access

to foreign markets for domestically produced specialty crops are the

technical assistance to specialty crops and the market access program. These programs should be continued and expanded in the

next farm bill.

Due to the next tremendous volume of plant material that move

in domestic and international commerce, the potential for introduction of pests of concern into the United States is great. In addition,

many of our potential trading partners are either unwilling or unable to complete the analysis necessary to develop risk mitigation

strategies to allow the shipment of the domestically produced specialty crops to their countries. We support enhancing the structure

and resources of APHIS, to better identify and prioritize foreign

pest threats, providing timely adequate compensation to producers

impacted by emergency eradication programs and to create an export division to more quickly process export petitions from U.S.

specialty crop growers.

Federal investment in agricultural research has been shrinking

in real times and it is not adequate to meet the terms of needs of

the industry. We support expanded Federal investments in research for fruit and vegetable crop production, including plant

breeding, pest management, production, physiology, food science

mechanization, marketing, product development, food security, food

safety and processing.

Additionally, research funding that emphasizes nutrition will

provide a significant return on investment through better health

for the U.S. population. Fruits and vegetables offer consumers

healthy and nutrition food options that are critical to preventing

cancer, reducing obesity and diabetes, and maintaining overall

good health.

To this end, future farm policy will not only support American

agriculture, it will support and encourage the health and wellbeing of all Americans.

The School Fruit and Vegetable Snack Program is an effective

and popular nutritional intervention program proven to increase

fresh fruit and vegetable consumption among children in participating schools. This program should be significantly expanded in

the 2007 farm bill in order for all States to participate in the program.
156

The industry supports continued expansion of the State Block

Grant Program for specialty crops that was authorized in the 2004

Specialty Crops Competitiveness Act. This program allows States

to invest in programs and projects that support production related

research, commodity production, food safety and other programs

that enhance the competitiveness of specialty crop producers.

We look forward to working with the committee on the development of the next farm bill. And we believe that policy options we

have outlined for specialty crop producers can improve our longterm competitiveness. We ask for your assistance in building a successful constructive partnership with the Government.

Thank you.

[The prepared statement of Mr. Wysocki appears at the conclusion of the hearing.]

Mr. MORAN. Thank you, Mr. Wysocki.

Mr. Roney.

STATEMENT OF JACK RONEY, DIRECTOR, ECONOMICS AND

POLICY ANALYSIS, AMERICAN SUGAR ALLIANCE

Mr. RONEY. Thank you, Mr. Chairman. I am Jack Roney, staff

economist with the American Sugar Alliance, the national coalition

of sugar beet and sugarcane growers, processors, and refiners, accounting for 146,000 American jobs in 19 States.

Mr. Chairman, members of the committee, the policy you provided our industry in the 2002 farm bill is working well. It is working well for American taxpayers. It is working well for American

consumers, and it is giving American sugar farmers a chance to

survive. The sugar industry recommends that Congress sustain

this remarkably successful policy in the next farm bill.

U.S. sugar policy ensures that American sugar farmers derive all

their returns from the marketplace and not from the Government,

and it attempts to provide farmers a stable price horizon. The policy is simple. USDA offers nonrecourse loans to sugar producers

and is required to avoid loan forfeitures at taxpayer costs. USDA

has two tools to balance supply and demand and maintain market

prices adequate to avoid loan forfeitures. One, it manages imported

supplies through our tariff free quota system. We are the world’s

second largest sugar importer. Two, it manages domestic supplies

through our marketing allotment system. Farmers can plant and

process as much cane and beets as they wish, but if USDA determines that they have produced more than the market needs, the

producers must hold that sugar back from the market and store it

at their own expense.

U.S. sugar policy thus places the burden of balancing the supply

and demand on the producers and not on the Government. How

successful has U.S. sugar policy been? Consumers and taxpayers

have been huge beneficiaries. American consumers enjoy some of

the lowest and most stable sugar prices in the world. Consumers

in the rest of the developed world pay 30 percent more for their

sugar than American consumers do.

The 2005 average retail price for sugar was 43 cents. What is

amazing is that this is the same price sugar sold for in 1990. It is

even the same price sugar sold for in 1980, 26 years ago. What is

even more amazing is that consumer prices remained this stable in
157

a year when American sugar farmers faced an unprecedented series of natural disasters, including three catastrophic hurricanes in

Louisiana and Florida.

Despite sugar policy’s continued success even after being tested

by last year’s natural disasters, some would like to change the policy. U.S. commodity policy changed in 1996 for most programs.

Commodity prices have been allowed to fall, but farmers are kept

afloat by Government payments.

Food manufacturers and retailers have been the biggest beneficiaries. They get the cheapest possible raw commodities from reliable American farmers and, by not passing their savings along to

consumers, increase their profit margins. The taxpayer costs of

subsidizing food manufacturers this way has totaled over $200 billion since 1996.

The income support approach has worked well for other commodities, and we are glad that it has. Converting sugar to income supports would be another boon to the food manufacturers, but would

hurt taxpayers and other farmers and consumers would derive no

benefit.

The food manufacturers propose a payment approach for sugar

with no payment limitation. A recent study put the cost of the

sugar payment program at $1.3 billion per year.

During this time of severe budget constraints, where would the

money for a new high cost U.S. sugar policy come from? Benefits

from other crop farmers would have to be reduced. And what happens when that money runs out? As sugar farms fail in 2.4 million

acres, the sugar beets and cane convert to other crops, the increased supplies would put pressure on other farmers’ prices.

U.S. sugar policy does face some serious challenges. In the short

run, we are concerned that the deal our Government struck with

Mexico in July in combination with a generous overall sugar import

quota could oversupply the market in the coming year.

The special sugar import concessions to Mexico have been puzzling to say the least. Mexico is a deficit producer of sugar. The

Mexican Government owns and operates half the Mexican sugar industry and the U.S. market does not need all the sugar Mexico has

been granted.

In the longer run, we face further challenges from NAFTA and

from a host of other trade agreements. Like the NAFTA and

CAFTA, new agreements could give away more of our market to

subsidized foreign sugar producers without addressing any of the

subsidies in those countries.

We believe we can overcome these challenges and we look forward to working with the Congress and administration to do so.

To conclude, Mr. Chairman, American sugar farmers have not

had a support price increase since 1985. And the survivors have

come through a nightmare of natural disasters in 2005. Through it

all, we supplied American sugar consumers dependably and well

and at no cost to the U.S. treasury.

We ask the committee not to entertain the food manufacturers’

suggestion that we yank the price stability out from this program

and place an added burden on taxpayers. We respectfully urge the

committee to continue the remarkably successful, no cost U.S.

sugar policy.
158

Thank you.

[The prepared statement of Mr. Roney appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you.

Mr. Kaiser.

STATEMENT OF MARK KAISER, BOARD MEMBER, ALABAMA

PEANUT PRODUCERS ASSOCIATION, ON BEHALF OF THE

ALABAMA PEANUT PRODUCERS ASSOCIATION, THE FLORIDA PEANUT PRODUCERS ASSOCIATION, THE GEORGIA PEANUT COMMISSION, AND THE MISSISSIPPI PEANUT GROWERS

ASSOCIATION

Mr. KAISER. Good afternoon, Mr. Chairman, Members of the committee. My name is Mark Kaiser. I am a peanut producer from

Seminole, Alabama. I am on the board of the Alabama Peanut Producers Association, and I am here today representing the Southern

Peanut Farmers Federation.

The federation is comprised of the Alabama Peanut Producers

Association, the Georgia Peanut Commission, the Florida Peanut

Producers Association and the Mississippi Peanut Growers Association. Our grower organizations represent over 80 percent of the

peanuts grown in the United States.

First, I want to thank you, Mr. Chairman, for the House Agricultural Committee’s field hearings around the country to hear from

our Nation’s farmers. This includes a hearing in my home State of

Alabama. We are proud of our Alabama members of the committee

but especially appreciate Congressman Terry Everett’s leadership

in moving the U.S. Peanut Program from a supply management

program to a more market oriented program in the 2002 farm bill.

The new peanut program has encouraged peanut product manufacturers to develop new products and spend more money on marketing these products.

Despite the NAFTA and Uruguay Round of GATT trade agreements in allowing peanut imports to increase significantly, reaching a high of 71,782 metric tons in 2001, the new peanut program

has provided U.S. producers the ability to compete with these imports.

The 2005 peanut import level was just 12,196 metric tons, which

is an 83 percent drop in imports. The U.S. peanut industry can

compete and be successful.

The new program has also allowed producers to more readily

enter peanut production. In Alabama alone, peanut production has

expanded from 15 counties in 2002 to 32 counties in 2005.

Georgia has expanded production to counties that traditionally

have been limited in the number of commodity options for producers.

The Southern Peanut Farmers Federation has met with other

segments of the industry, including buying points, sellers and manufacturers, and each have indicated they were pleased with the

2002 farm bill. Each segment of the industry supported the peanut

title of the 2002 farm bill.

While the Congress passed a very respectable peanut program in

2002, the administration of the peanut program by the U.S. Department of Agriculture has not been as successful.
159

While the domestic marketplace has seen a healthy increase in

the demand for consumers and production growth for producers,

this has not been the case for the peanut export market.

The USDA has continued to set the loan repayment rate for peanuts too high. Despite language to the contrary in the 2002 farm

bill, the Department has relied far too much on data unrelated to

the price other export nations are marketing peanuts for in the

world marketplace. U.S. peanut producers have lost significant portion of their export market notwithstanding the changes invoked in

the 2002 farm bill. Our present export situation is directly related

to the high loan repayment rates set by USDA.

The Southern Peanut Farmers Federation is scheduling a series

of producer hearings after this crop harvest is complete to discuss

the various components of the peanut program and how effective

it was for the 2006 crop. We will continue to work with our industry partners and communicate any additional suggestions to the

farm bill to the House Agriculture Committee.

At present, we support the continuation of the structure of the

current program, but we will seek to update specific provisions.

The current program should be considered the basis for the next

program.

When the 2002 farm bill was drafted, peanut producers did not

envision record high energy prices that impact our major crop inputs, including fuel, fertilizer and chemicals.

The 2006 peanut crop has felt the full impact of these increased

costs. It is important that the next farm bill not rest on the backs

of declining farm equity.

In Alabama, we saw more than a 26 percent reduction in peanut

plantings for the 2006 crop year. High energy costs and weak contract offers are the primary variables for less acreage. Weak contract offers are a direct result of the loan repayment rate being set

too high.

As the committee is aware, the storage and handling fees provided in the 2002 farm bill are eliminated for the 2007 crop year.

Producers consider this an integral part of the peanut program.

I would be remiss not to point out to the committee that if these

fees are not included in the 2007 farm bill, these costs will be

passed on to the peanut producer.

If the storage and handling fees are eliminated in the next farm

bill, the federation requests that the committee consider options for

replacing those fees that will prevent the financial burden being

placed on the producer.

I am grateful for the opportunity to be here today representing

peanut growers.

Thank you.

[The prepared statement of Mr. Kaiser appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you, sir.

Mr. Groven.
160

STATEMENT OF RICHARD GROVEN, VICE PRESIDENT,

NATIONAL BARLEY GROWERS ASSOCIATION

Mr. GROVEN. Thank you, Mr. Chairman. Good afternoon, Mr.

Chairman, and members of the committee. Thank you for the opportunity to appear here today.

My name is Richard Groven. I farm in Northwood, North Dakota,

where I produce barley, spring wheat and soybeans. I currently

serve as vice president of the National Barley Growers Association.

National Barley has serious concerns regarding the level of support barley receives relative to other crops in the current farm program. We believe barley has lost significant competitiveness in its

traditional growing region due in part to distortions in the Federal

farm program support levels, and the acreage trends certainly underscore our concerns.

The NAAS June 2006 acreage report showed barley seeded average acreage of 3.5 million acres, a 10 percent decline from 2005 and

the lowest planted acreage since estimates began in 1926.

At National Barley’s request, the Senate Agriculture Committee

asked FAPRI to look into the root cause of a barley acreage decline,

specifically if the farm bill might be contributing to it.

According to their findings, marketing loan benefits have clearly

favored traditional roll crops over cereal grains. In the Northern

Plains average marketing loan benefits the last 5 years were $4 an

acre for wheat, $8 an acre for barley, $12 an acre for soybeans and

$21 for corn.

At the national level, the combination of marketing loan benefits

and market returns can help explain the increase in the national

roll crop acreage since the early 1990’s and the decline in the small

grain production.

However, National Barley Growers does support the continuation

of the marketing loan program at equitable levels among program

crops. If a marketing loan were to be diminished or eliminated due

to WTO concerns, some form of similar support would need to be

developed to take its place to continue providing a viable safety net

for producers during downturns in prices or production.

We also support continuation of the direct payment program,

which is the best means to get much needed operating money into

the hands of producers.

We also support continuation of the planting flexibility provisions

that have been in place since the 1996 farm bill.

National Barley believes better risk management programs are

also needed that will adequately address multi-year losses as well

as provide a safety net for the high deductibles we face under current Federal crop insurance polices. We have a Barley Risk Management Task Force working hand in hand with RMA right now

on innovative ways to address these challenges.

With regard to the ongoing drought in much of the country, we

support disaster assistance for 2005 and 2006 crop losses and vigorously encourage debate on a permanent disaster provision in the

next farm bill.

I am sure members of the committee are aware of the rising fuel

and fertilizer costs brought about by the run-up in emergency

prices. These costs will likely not be compensated by the prices

farmers receive for their crops. National Barley supports a flexible
161

safety net that will help offset these costs, since they can not be

passed along to the market place; and we encourage the committee

to explore ways to address them, such as an energy tax credit.

National Barley Growers supports the Conservation Security

Program as authorized in the last farm bill. However, CSP has not

been implemented as intended by Congress, and we urge the committee to work towards full implementation.

National Barley Growers also believes the committee shall be

aware the transportation problems faced by farmers. More than

half of the U.S. barley crop moves to marketing positions by rail.

The majority of our production region is now captive to one railroad, and we pay rates well above those rates paid by other grain

suppliers who have competitive transportation options. This makes

it very difficult for barely from our traditional production areas to

compete in both the domestic and foreign markets. The worsening

‘‘captive shipper’’ dilemma faced by farmers undermines the positive effects that any farm bill hopes to provide, and we urge members of the committee to support legislation that would rectify

these problems.

Thank you again for the opportunity to testify. The National Barley Growers Association fully understands the challenges you face

as you write the next farm bill, but farmers must continue to be

offered a viable safety net if the United States is to maintain a

home-grown supply of affordable food. We are ready and willing to

work with the committee in the coming year to develop sensible

provisions to address these needs.

If you have any questions, I would be happy to address them.

Thank you.

[The prepared statement of Mr. Groven appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, sir.

The Chair recognizes the gentleman from Texas, Mr. Conaway.

Mr. CONAWAY. Thank you, Mr. Chairman.

Gentlemen, thank you all for being here today and testifying for

us.

Mr. Kaiser, will you flush out for us, for peanuts, in your view

does USDA have the necessary authority to fix or solve the problem

with that action from Congress?

Mr. KAISER. I believe they do. The way the bill was written, they

are supposed to be able to set the repayment loan rate to where

we are competitive, but for some reason it is not happening, and

we can’t get that out of them.

Mr. CONAWAY. So you have tried to have conversations with whoever in USDA handles this issue and give us what the differential

is.

Mr. KAISER. I really wouldn’t have an answer to that. I would

have to refer that to one of our higher-ups, because I am just a peanut producer. All I know is the loan rate, the repayment rate is set

so high that we are not able to clear out our stocks, and we have

just got way too many peanuts in loan right now, and we can’t get

contract prices up where we can make a decent living.

Mr. CONAWAY. I guess the question is, what is the loan rate?

Mr. KAISER. The loan repayment rate right now—I think it was

$3.50 this week, posted on Tuesday. The loan rate for us is $3.55.
162

But the loan repayment rate is what determines whether foreign

buyers can buy our peanuts. If we price it too high, we are priced

out of the market.

Mr. CONAWAY. Just rough-guess it. Is it $20 a ton, $30 a ton?

Mr. KAISER. I would say probably $30 a ton.

Mr. CONAWAY. Well, again, thank you and I will resist a congressional inclination to repeat everything you said back to us. Thank

you for your straightforward testimony. I appreciate the comments

telling us what you do want, what you don’t want, especially crops.

Thank you for your straightforward testimony as well. I look forward to working with you.

I appreciate you being here today.

I yield back, Mr. Chairman.

The CHAIRMAN. Thank you, Mr. Conaway.

The gentleman from Colorado is recognized.

Mr. SALAZAR. Thank you, Mr. Chairman; and I want to thank all

of you for your service in trying to preserve what I believe is the

most important industry in this country. I really don’t have any

questions. I just wanted to maybe get a remark from each one of

you as to the importance of the energy title in the 2007 farm bill

which we will be addressing. So, if you could, each of you want to

issue a couple of brief statements, I would appreciate that.

Mr. HOFFMAN. As you know, the main seed stock for biodiesel is

soybeans; and in my lifetime there hasn’t been the excitement out

in the country side for any new development as we have seen with

biodiesel and the new energy crops. An energy title would be important in a new farm bill.

Mr. SHELOR. I concur. For sorghum, it would be important. We

use a lot of our crops into ethanol right now. We look at wheat, sorghum going into biomass conversions. So I think in the future that

would be a promising crop.

Mr. WYSOCKI. I think it is extremely important for the specialty

crop growers in that I think increased production capabilities in

American agriculture benefit the most for price support issues and

for conservation-type issues. Having other crops and other alternatives will allow growers to make more money, will allow us to—

when we make more money, we can take better care of the land

because we can afford to.

Mr. RONEY. KNBs can be a competitive feed stock for ethanol,

and we think there is enormous potential there. We would like to

see sugar be a part of any feature of any ethanol programs that

the administration might propose. The administration has already

suggested that, absorbing excess sugar that we might have to bring

in from trade agreements. An ethanol program might be a way to

mitigate the harm from the trade agreements on U.S. sugar farmers, and we would be very interested in pursuing whatever the administration might have in mind on that.

Mr. SHELOR. We support bioenergy efforts. We are working on it.

We are trying to find peanuts that are cheaper to grow so they can

compete in the bioenergy market.

Mr. GROVEN. We are very supportive of the energy aspect.

I might add that the growers in the—at least in the Plains States

have been very quick to adopt and embrace the use of biodiesel and

ethanol on their farms. The rationale is, if we grow it, we use it.
163

On my farm, every diesel tractor is running bio of one mix or another. So it is very, very important.

Mr. SALAZAR. Mr. Groven, are you aware of any ethanol plants

that are actually used, barley, for ethanol production?

Mr. GROVEN. Yes, there are. In the State of Maryland, not very

far away, they are working on making ethanol out of the hairless

barley. In North Dakota, one of our processes is actually—a multiplant is starting up using barley as a source for ethanol. The plants

have to be changed somewhat. Barley is a little bit more abrasive

than corn, the yield per bushel is very, very good. So we feel there

will be a lot more use of barley with it.

Mr. SALAZAR. Mr. Wysocki, do you raise potatoes?

Mr. WYSOCKI. Yes, I do.

Mr. SALAZAR. I am a potato farmer myself as well. Are you aware

of any potatoes that are being used for production of ethanol?

Mr. WYSOCKI. There are some potatoes that have been in our

State about 10 years ago and that failed. In our industry, I think

a lot more of it will come from coal generation and electricity

through methane digester and that type of operation as the energy

is to be produced. In the potato industry, it will be more of a use

of the waste product in taking waste energy than actual production

directly for energy, at least at this time.

Mr. SALAZAR. OK. Well, thank you, Mr. Chairman.

Mr. EVERETT [presiding]. You are welcome. Thank you.

I have a couple of questions.

Mr. Shelor, you and I have been down this path before, the difficulties we have had in the loan rate, grain sorghum versus corn.

And part of the goal of the 2002 farm bill—one of the goals was

to equalize those rates. How has that turned out in practice?

Mr. SHELOR. Well, we still have some disparancy in the county

rate; and it goes back to the formula that they use to set that price

in each county. It goes over the history of previous years of low

prices of sorghum, and that affects the price compared to corn.

Mr. EVERETT. Has USDA implemented that provision in line

with the farm bill? Have they done it correctly?

Mr. SHELOR. Well, the farm bill says it should be equal. It is not

in each county, so I guess they haven’t.

Mr. EVERETT. And what is the consequence of that unequal loan

rate?

Mr. SHELOR. Well, it is about 20 cents a bushel right now difference between corn and sorghum.

Mr. EVERETT. And the consequence of that is what? Less grain

sorghum being grown than would otherwise be the case?

Mr. SHELOR. Yes. When you have a price disparancy, the producer looks at the profits of availability there; and when you go to

the bank and do a cash flow and you can’t produce a return as well

as you can with another crop, then it does influence that.

Mr. EVERETT. You live in a part of Kansas that has a declining

aquifer. Water is becoming more and more scarce. Energy prices

are increasing, natural gas to bring the water to surface for irrigation. Has there been a shift in crops or crop rotation due to those

conditions?

Mr. SHELOR. I think there has been some this year, but not near

as much as we would like to see. We still have a few problems with
164

sorghum, not having the right herbicides and available to use on

the irrigated land, but we are working towards that area to give

the producers another tool to do that. But if we could get a more

consistent price at the local level that would help a lot.

Mr. EVERETT. I think your testimony was that the consistent

price comes with the production of ethanol.

Mr. SHELOR. We are hoping so, yes.

Mr. EVERETT. And is there a disincentive from a crop insurance

perspective in growing grain sorghum?

Mr. SHELOR. Yes, there is. The price election when you do your

crops, your selection for crop insurance is—there is a disparancy

there; and that is one of the issues that we have lost some makers

to on the crop selection insurance. That is one of the tools you look

at when you go to the banker and doing your cash flow; and if the

money is not there, then it is hard to put the crop in the ground.

Mr. EVERETT. Do you know, Mr. Shelor, the increase or decrease

in numbers of acres planted to grain sorghum in the country or in

Kansas?

Mr. SHELOR. Numbers I don’t have, right offhand.

Mr. EVERETT. Let me ask Mr. Wysocki. The specialty crops

grown on program acres, I want to give you the chance to indicate

to the committee why that is such an important issue to, especially,

crop growers; and I would also like your comment in regard to the

Brazilian cotton case. Does it affect this issue for us in Congress?

Does your association believe that the decision made at WTO has

an impact or effect on what the law can be and still be complying

with WTO in regard to those program makers?

Mr. WYSOCKI. I guess I will take the first one.

One of the things that our industry did, and specifically to potatoes, is we reduced voluntarily the production of potatoes by 2 percent in order to improve our prices. We were well below cost of production, and that net result created a doubling of price which we

were able to maintain. Not increasing our acres in a subsequent

year, even though we were able to double our price, we were able

to do that. If a quarter percent of the program crops flex into specialty crops and potatoes share of that would be equal to that shift

and, ultimately, each time we reduce our production, we will raise

the price such that someone will come in on new land, new ground,

new production facilities.

As a producer, I can’t walk away from my production facility I

haven’t paid for yet, but I now have a 10- or 15-year-old model that

is less efficient, and I basically would be forced to exit the industry

through a bankruptcy proceeding, and our industry is not profitable. A lot of people who share my role are ex-potato producers several years after doing that. I am hoping not to be one of them in

a couple of years. Maybe I will be back.

I think, in regard to the WTO, I don’t find that that case makes

it illegal. It changes the nature of the payment, but it does not

make it illegal to do so, and I don’t think that a change that would

destroy as large of an industry of specialty crops is a worthwhile

trade.

Mr. EVERETT. Thank you very much.

I would be very interested in your association’s analysis of the

WTO cotton case and how it affects specialty grown crops on pro-
165

gram makers. All I know is the bits and pieces that I have read

about that case and have wondered if it resolves this issue. You are

telling me it does not, although we may need to make some

changes in regard to being compliant to WTO.

I also appreciate what appears to be happening here with the

specialty crop producers coming together and trying to present a

unified voice in regard to the 2007 farm bill. I think that will be

very useful to those of us trying to sort those out.

The gentleman from Alabama, Mr. Bonner.

Mr. BONNER. Thanks to each of you for being here.

I know sometimes, as an aside, when you leave your homes and

farms and communities to come to Washington, DC, to testify before Congress, you expect a bigger audience from Members of Congress. And for the record, most Members are on two or three committees, and there are other hearings being held. But we do appreciate you being here, each and every one of you.

Mr. Kaiser, much of the Southeast, as you know, has experienced

record drought this summer and this year. What has been the impact to you and the other growers in the Southeast?

Mr. KAISER. Well, basically, our farm is going to see lower yields;

and most areas of the Southeast are going to see extremely lower

yields.

We are somewhat fortunate. We did get some rains in July. We

are going to make it through the peanut crop. We haven’t started

harvesting yet. We have delayed harvesting, trying to stretch out

the maturity of the crop due to the drought. So we really don’t

know how our yields are going to be. But in much of the Southeast,

we have seen fields abandoned. It is pretty bad.

Mr. BONNER. Since we are asking you to look into a crystal ball

that none have used, how would correcting the repayment rate improve exports, in your view?

Mr. KAISER. It would take all of the peanuts that are in Government loan and clear them out of our supply. So when we do try to

get contracts, there won’t be this huge supply hanging over our

heads, and we can get a contract with a premium. But, right now,

there is a buyer’s market, because we cannot get rid of the extra

peanuts. If we have produced too many for the domestic market,

we can’t get rid of them.

Mr. BONNER. I have got a few more questions that I will submit

for the record.

But last one for you, Mr. Kaiser, is it has been a large increase

in acreage by new growers in your area, along with Mississippi and

South Carolina. How has the program worked for these other two

States as well?

Mr. SHELOR. Well, the other two States were not involved very

much in peanut production in 2002. In our area, there was some

peanut production going on. So they are at more of a disadvantage

because they don’t have base. A lot of us were able to build some

base. They are having to stay in business by having above average

yields, and that happens when you go into a new area. But as you

grow peanuts there for a period of time, diseases build up, and

yields go down. And we experienced the same things. When we

first started in peanuts, our yields were phenomenal, but now we
166

are starting to get average yields, and then you are going to be in

trouble if you don’t have base.

Mr. BONNER. Mr. Groven, not a question, just a comment, if you

have time. I want to you out to go over to the House dining room

in the Capitol. I had beef and barley soup today, and I could find

little of either. And I support the barley growers, and you need to

do a better job of supplying barley to our group.

Mr. GROVEN. I will have a truck heading this way tomorrow.

Mr. BONNER. Thank you.

Mr. EVERETT. Thank you very much.

It appears that we are finished with this panel, but, before I dismiss you, the gentleman from Indiana, Mr. Pence, who is a member of this committee, could not attend this hearing. He has for

you, Mr. Wysocki, a series of four questions that our clerk will

hand you. I would ask that you respond to him and to this committee, and your answers will be made a part of the record.

I thank the panel for your testimony. I hate the word ‘‘dismissed.’’ You are now dismissed.

The Chair would now call our third panel: Mr. Jim Evans who

is the U.S. chairman of the USA Dry Pea and Lentil Council, Inc.,

from Genesee, Idaho; Mr. Mike John, National Cattleman’s Beef

Association, from Huntsville, Missouri; Ms. Joy Philippi, president,

National Pork Producers Council, from Bruning, Nebraska; Mr.

Ron Truex, president and General Manager, Creighton Brothers,

LLC, Atwood, Indiana, on behalf of United Egg Producers; Mr.

Paul R. Frischknecht, president, American Sheep Industry, Inc.,

from Manti, Utah.

We are missing one, but we will proceed.

Mr. Evans, you are recognized. Thank you very much for being

here.

STATEMENT OF JIM EVANS, CHAIRMAN, USA DRY PEA AND

LENTIL COUNCIL, INC., GENESEE, ID

Mr. EVANS. Thank you, Mr. Chairman; and thank you for the opportunity to be here today.

My name is Jim Evans. I am a fifth generation farmer from Genesee, Idaho; and I raise dried peas, lentils, chickpeas, wheat, and

barley. I am also chairman of the USA Dry Pea and Lentil Council,

a national organization representing producers, processors, exporters of dried peas, lentils and chickpeas across the northern tier of

the United States.

Good farm policies should encourage farmers to take advantage

of market opportunities and reward them for crop diversity and

management practices that help the environment. Every country

helps protect their agricultural base in some form or fashion. The

recently failed WTO negotiations prove that most countries are unwilling to leave their farmers unprotected. If U.S. farmers are to

compete against subsidized competition, high tariffs, and

phytosanitary barriers the following elements of the farm programs

must be included in the next farm bill:

Title I, commodity programs. The Marketing Loan LDP Program.

The Marketing Loan Program is the single most important farm

program tool used on our farms. This program provides some protection when prices go in the tank and pays me nothing when
167

prices are good. I like this program because it allows me to take

advantage of market opportunities and it satisfies a banker’s need

for some downside risk coverage. This useful program needs to continue because it allows me to include environmentally sound crops

with targeted market opportunity.

Direct and Counter Cyclical Program. I fully support the continuation of direct and counter cyclical program payments that have

sustained my farming operation and local businesses in our area.

Farmers do not have the opportunity to set prices, so direct and

counter cyclical payments provide financial security against things

which I cannot control, like political decisions blocking access to lucrative markets or unexpectedly increasing costs of fuel and fertilizer. Direct and counter cyclical payments are also good for rural

development because the dollars go directly to the rural communities.

Planning Flexibility. The best part of the 1996 farm bill was the

freedom to plant a crop based on market signals instead of base

acres. Planning flexibility must continue and expand in the next

farm bill. Chickpeas are currently considered a vegetable crop and

are not eligible to be planted on farm programmed acres. Chickpeas are a very important part of my farm operation, and I want

the flexibility to be able to plant them on program acres.

Conservation Programs. We support CRP has had very environmental benefits, but it has been devastating to the rural farm communities. In the next farm bill, CRP should be limited to only the

most fragile land and whole farm bids should be difficult to obtain.

CSP. In order to achieve the environmental and conservation

goals of this great country, we need to fully fund the CSP program,

make it available to all producers at the same time. Sign-up for the

current CSP program is time consuming and complicated. The program should reward producers for achieving conservation goals

based on systems that are economically sustainable and result in

significant improvement in soil, air, and water quality. CSP should

be modified to reward producers for addressing conservation goals

in their local watersheds and encourage farmers to diversify crop

portfolios.

Trade. WTO. In a perfect world there would be no agricultural

subsidies, tariff barriers, restrictions and currency manipulations.

Unfortunately, we do not live in a perfect world. The USA Dry

Peas and Lentil Council supports the current WTO negotiations if

it results in an agreement that puts U.S. agriculture on an equal

playing field with all other countries. WTO negotiations are on the

rocks. Congress needs to write a farm bill that protects U.S. agriculture in the current trading environment. We support an extension of the 2002 farm bill until a fair WTO agreement is reached.

We encourage the Food Aid Program. Public Law 480 has been

a big part of our income.

MAP and FMD. Phyto-Sanitary Barriers. We currently are having problems with selenium issues in China. They are freezing our

shipments. We are also having problems with India with

phytosanitary barriers, along with our neighbors on the north.

Energy Conservation. We encourage energy programs to be used

in this next farm bill. We also would like to be included in this

next farm bill. Peas, lentils and chickpeas produce nitrogen in the
168

soil; and we believe that we should get an energy credit for something that doesn’t take energy or conserves energy.

In summary, I would like to thank you for allowing the USA Dry

Pea and Lentil Council to provide testimony; and at any time I will

take questions.

[The prepared statement of Mr. Evans appears at the conclusion

of the hearing.]

Mr. SODREL [presiding]. I thank the gentleman.

We will now hear from Mr. Mike John from Huntsville, Missouri.

STATEMENT OF MIKE JOHN, PRESIDENT, CHAIRMAN, USA DRY

PEA AND LENTIL COUNCIL, INC., GENESEE, ID

Mr. JOHN. Thank you. My name is Mike John. I am a cattle producer from Huntsville, as you indicated, and president of the National Cattleman’s Beef Association.

Ranchers are an independent lot who are focused on working towards an agricultural policy which minimizes direct Federal involvement in our operations, achieves a reduction in Federal spending, preserves the right of individual choice and management of

land, water and other resources, provides an opportunity to compete in foreign markets and does not favor one producer or commodity over another.

There are many areas where we can work together to truly ensure the future of the cattle business in the United States, including conservation and environmental stewardship. Ranchers are our

partners in conservation. Our livelihood is made on the land, so

being good stewards of the land not only makes good environmental sense but is fundamental to our industry to remain strong.

The goal of conservation and environmental programs is to

achieve the greatest environmental benefit with the resources that

are available. Programs such as EQIP here are extremely popular

with cattlemen, and we hope to see this type of cost share program

expand to include more producers. Cost share and working land

programs serve to protect both the environment and taxpayers

money.

As we saw 2 weeks ago with the House vote on H.R. 503, the animal activists are not only increasing their presence on Capitol Hill

but they are also winning. The vote on H.R. 503 is frightening to

those of us in the livestock business. You are all bombarded with

all sorts of claims, but the fact is this bill had no sound argument

behind it and was based solely on emotion.

It is not a secret that these animal activists want to put the U.S.

cattle groups out of business, and the farm bill should not be a

platform for their agenda. H.R. 503 creates a slippery slope that we

must be very cautious of.

Outside of conservation and activist issues, there are several

other issues that have the ability to impact the beef industry. One

such area is trade. U.S. cattlemen have been and continue to be believers in international trade. We support aggressive negotiating

positions to open markets and to remove unfair trade barriers to

our product. We support Government programs such as the Market

Access Program and the Foreign Market Development Program

which help expand opportunities for U.S. beef, and we urge sustained funding for these long-term market development efforts.
169

We appreciate the committee’s help in working to reopen foreign

markets that were closed to U.S. beef after the discovery of BSE.

To grow our business, we have to look outside of the U.S. borders

to find 96 percent of the world’s consumers. We encourage the committee’s continued strong and vigilant oversight of the enforcement

of any trade pact to which American agriculture is party.

As with the 2002 farm bill, we fully expect to deal with several

marketing issues. In looking at these issues, it is important to note

that we support the critical role of Government in ensuring a competitive market through strong oversight. This includes the role of

taking the necessary enforcement actions when situations involve

illegal activities such as collusion, anti-trust and price fixing.

However, Government intervention must not inhibit the producers’ ability to take advantage of new marketing opportunities and

strategies geared towards capturing more value from our beef. A

ban on packer ownership or forward contracting has been a farm

bill debate for years. We are strongly opposed to those efforts because we feel that Congress is trying the tell cattle producers how

and when to market their cattle. This strikes at the very basis of

our business, which is utilizing the market to improve our returns

and make a living. Each producer should be able to make their own

marketing decisions whether they market their cattle through traditional channels or new and progressive channels. The market

provides many opportunities, and cattlemen should be allowed to

access all of them.

As you can see, we are not coming to you with our hands out.

As I mentioned before, cattlemen are proud and independent; and

we want our opportunity to run our ranches the best way we can

to provide a high product to the American consumer and provide

for our families and preserve our way of life. The open and free

market is powerful; and as beef producers, we understand and embrace that fact. Cyclical ups and downs of the market can be harsh,

but the system works and we ranchers are steadfastly committed

to a competitive and free market system. It is not in the Nation’s,

farmers’ or ranchers’ best interest for the Government to implement policy that sets prices, underwrites inefficient production or

manipulates domestic supply, demand, cost or price.

We are coming to you in an effort to work together to find ways

to use the extremely limited funds available and the best way possible to conserve our resources, build our industry and provide for

individual opportunity and success. We ask for nothing more than

a Federal agricultural policy that helps build and improve the environment for cattlemen.

We look forward for working with you.

[The prepared statement of Mr. John appears at the conclusion

of the hearing.]

Mr. SODREL. Thank you.

We will now hear from Ms. Joy Philippi, president of the National Pork Producers Council from Bruning, Nebraska.

STATEMENT OF JOY PHILIPPI, PRESIDENT, NATIONAL PORK

PRODUCERS COUNCIL, BRUNING, NE

Ms. PHILIPPI. Thank you, Mr. Chairman, Mr. Peterson. My name

is Joy Philippi. I am a pork producer from Bruning, Nebraska, and
170

I am the president of the National Pork Producers Council. I own

and operate a nursery that has networked with my neighbors, and

I also have 400 acres that is in corn and soybeans.

Mr. Chairman, it is imperative that the U.S. pork industry be at

least as competitive as we are today after the next farm bill is written. We need to maintain, strengthen and defend our competitive

advantage at home and abroad.

I would like to cover five issues today that we feel are important

to our industry.

The first one is risk management. This year, U.S. pork producers

are estimating that we will have 15 percent of our production exported. That is up from 12 percent last year. So a loss of exports

would have a severe adverse economic impact on pork producers.

Iowa State economists estimate that the industry would lose $3.6

billion if our export markets were to close. We believe that we must

look at revenue assurance options that would help our pork producers in case those markets are interrupted.

The second topic I would like to discuss is conservation and environment. Pork producers are reducing the environmental footprints

of today’s pork operations on our country’s national resources. Pork

producers are participating in USDA’s working-lands programs,

such as EQIP, but that program has provided only minimal support

to our country’s pork producers. Since 2003, in the eight States

where 78 percent of the Nation’s pork is produced, producers received only 11 percent of the EQIP cost share assistance provided

to all livestock producers. We need your help in correcting this imbalance.

In a bit I will touch on renewable fuels, but let me say that pork

producers believe that the marketplace should decide how to meet

the demand for energy, and that is going to mean bringing CRP

acres out and putting them back into production. Now, without additional production acres, we realize our producers face run-ups in

the price of our feed. However, we do support leaving CRP those

acres that provide significant environmental benefits.

The third issue I would like to discuss with you is ethanol. Now

let me first be very clear. American pork producers strongly support the development and the use of renewable fuels to reduce our

Nation’s dependence on foreign oil. But the rapidly growing demand for corn for ethanol production really gives producers like

myself the jitters. Industry analysts predict that 2008 ethanol production will be large enough to dramatically reduce the corn available for other uses and drive up corn prices to the point where

some pork producers will exit this business. Any widespread

drought would significantly accelerate that problem. We urge Congress to focus not just on energy security but rather on fuel, food,

and feed security.

And I also want to caution you about the claims that ethanol byproducts, DDGs, can make up any deficiencies for corn. Remember

this fact: Only 17 pounds out of a 56 bushels of corn is a usable

grain after the processing.

Additionally, one thing you need to know is that pigs cannot utilize DDGs as effectively as other livestock. We have got some challenges like the variation of nutrient content and availability, difficulties in handling and storing and transporting DDGs. There are
171

some meat quality problems and waste nutrient management

issues.

The fourth issue I would like to visit with you about is animal

welfare. America’s pork producers, using our check-off funds, established the world-class Pork Quality Assurance Program to promote

responsible animal care through the application of scientifically

sound animal welfare practices. That means that we work on proper care and handling at each production stage. We have well-kept

facilities to allow safe and humane movement of our animals, and

we have health care programs that are developed with veterinary

advice. We do not tolerate the mistreatment of our pigs.

We are enhancing our commitment to this through a new program called PQA Plus, which combines producer education and onfarm assessments to ensure we use the highest levels of animal

care. These assessments will be third-party audited. We also have

a trucker assurance program that will make sure that the animals

are handled during transportation correctly.

The last issue that I must touch on is market-structured information. In the past 25 years, the U.S. pork industry has undergone

a dramatic change; and in that transformation we have seen a different response in our domestic and international pressures to compete. But our industry does face some challenges from other meats

in competing nations.

We have been able to meet those challenges because of our open

and transparent markets which have been enhanced by the price

and quantity information that has received in the Livestock Mandatory Price Reporting Act. It is imperative this act is renewed

soon to ensure that the data be available to all market participants. We thank this committee for helping us get that done here

in the House.

We have several market tools that are still available to us. We

would like to believe that we would be able to maintain what we

use today. We also hope that there will be no restrictions put on

how we market. We support the right of all producers of size or

type of production system to market access, and we oppose anything that does hinder that access.

Mr. Chairman and members of the committee, as you will be

crafting this next farm bill, please keep in mind that pork producers need to maintain, strengthen and defend their competitive advantage both domestically and internationally; and on behalf of the

National Pork Producer Council, we thank you for the opportunity

to be here today. Thank you.

[The prepared statement of Ms. Philippi appears at the conclusion of the hearing.]

Mr. SODREL. I thank you.

Next, representing United Egg Producers from Atwood, Indiana,

Mr. Ron Truex.

STATEMENT OF RON TRUEX, PRESIDENT AND GENERAL MANAGER, CREIGHTON BROTHERS, LLC, ATWOOD, IN, ON BEHALF OF UNITED EGG PRODUCERS

Mr. TRUEX. Mr. Chairman, Mr. Peterson, I appreciate the opportunity to be here today. I am Ron Truex of Creighton Brothers, an

egg producer in Atwood, Indiana.
172

I am honored today to testify on behalf of the United Egg Producers. The UEP represents the producers of about 90 percent of

the Nation’s eggs. We are honored that nine of the top ten egg producer States are represented on this committee, including Iowa,

Ohio, Indiana, Pennsylvania, California, Nebraska, Texas, Minnesota and Georgia.

Our industry has several concerns that we hope you will consider

addressing in the 2007 farm bill.

The first issue involves indemnities for low-pathogenic Avian influenza. The USDA will soon propose a program to monitor and

control outbreaks of this disease. Low-pathogenic is not the Asian

H5N1 strain of highly pathogenic AI, but it must be controlled because it has the potential to mutate into the highly pathogenic

virus.

The USDA regulation, when it is published, will propose indemnities if a flock has to be destroyed or vaccinated. We hope the Department will pay indemnities at 100 percent of the producer’s loss.

Unfortunately in the past, there have been efforts by the use of

management and budget to reduce the indemnity levels. That

would be inconsistent with the principles of animal disease control

and we feel would hurt our AI surveillance effort. Therefore, we

ask Congress to consider mandating 100 percent indemnities for

AI, whether it is low-pathogenic or high-pathogenic.

Our second concern is the national animal identification system.

It will be difficult to get producer participation in a voluntary program unless the confidentiality of data that we have is guaranteed.

Unfortunately, it is questionable whether the USDA can give us

those guarantees today. We ask you to explore ways that the farm

bill can protect the confidentiality of data submitted under the

NAIS.

Our third issue involves air emissions from egg farms. As you

know, air emissions from all types of livestock are getting more attention from regulators and the public. Our industry has already

invested $3 million of our own money through the American Egg

Board in research that will measure these emissions so that all of

us have a scientific basis for our decisions.

But we need to go beyond measuring emissions and start reducing them. To do that, we need a better scientific basis for determining which technologies are the most promising, both technically

and economically. So we respectfully ask that you consider authorizing this research subject to appropriations in order to help keep

our industry to be proactive in improving the environment.

And, finally, the UEP asks this committee to oppose any efforts

to attach harmful provisions to the farm bill. For example, a recently introduced bill, H.R. 5557, which has been referred to this

committee, would apply arbitrary and unscientific animal welfare

standards to all Federal food purchases, which would either raise

the cost of procurement dramatically or drastically cut the amount

of meat, dairy, poultry and egg purchased in poultry programs. Either way, it is a bad idea. We believe these issues should be resolved in the marketplace.

Eighty-seven percent of the egg industry has adopted the UEP

certified program developed by an independent, unpaid scientific

advisory committee made up of experts in animal behavior, animal
173

physiologists and other disciplines. I am proud to say the Chair of

the committee is the former head of the Animal Science Department at Purdue University and is now Dean of Agriculture at

Michigan State University. All participants in the UEP certified

programs are independently audited by either USDA or a private

firm.

Like other egg producers, I am proud to be a part of the U.S. agriculture in this new century. We look forward to working with the

committee on a sound, forward-looking farm policy for the coming

years.

Thank you.

[The prepared statement of Mr. Truex appears at the conclusion

of the hearing.]

Mr. SODREL. Thank you.

Now we will hear from Mr. Paul Frischknecht, president of the

American Sheep Industry, from Manti, Utah. Did I pronounce that

right?

STATEMENT OF PAUL R. FRISCHKNECHT, PRESIDENT,

AMERICAN SHEEP INDUSTRY INC., MANTI, UT

Mr. FRISCHKNECHT. I found over time, Mr. Chairman, that my

best response to that is that it simply comes from a long line of

family nobility. But you did pronounce it correctly.

And I thank you, Mr. Chairman and Congressman Peterson, for

the opportunity for the American Sheep Industry Association to

participate in this hearing and give our input with you with regard

to the new farm bill that is slated to be crafted next year. I am

certainly doing this as a follow-up, which we appreciate, to the field

hearings that we had an opportunity to participate in in Colorado

and Texas and South Dakota.

I am proud of the accomplishments we have made nationally in

the sheep industry with the flock expansion for the past 2 years.

A successful industry farming labor promotion program in putting

American wool in the industrial farm place, the 102 farm bill gives

the same type of credit for the farm industry success and we

strongly support Congress’ efforts to readdress the next farm legislation.

The Wool Loan Deficiency Program was included for the first

time in the 2002 farm bill and implemented timely by the Department of Agriculture for shorn wool and unshorn pelts. However, it

is clear that the base loan rate should be set at $1.20 per pound

to support the initial research of the program works for the processors and intended. Only one of nine loan categories is utilized at

the current base.

The National Sheep Industry Improvement Center, a very successful program of USDA to assist lamb and wool businesses, is

due for reauthorization by the farm bill which would fully endorse

$20 million in funding and would complete the $50 million authorized by the 1996 legislation.

Regarding the conservation title of the farm bill, our industry

supports the propriety of prescriptive grazing with sheep for control

of noxious weeds and invasive species. In the rangelands of the

U.S., both of these are serious problems and we believe are a very

effective tool in livestock grazing.
174

Cost-share programs ought to be directed to prescriptive grazing

projects to provide fiscal and technical assistance to promote grazing contracts on Federal, State, municipal, tribal and private lands.

I add that our industry provides grazing that can be expanded to

a revenue option for farmers and ranchers which, in turn, strengthen the economies of the rural areas of our country.

We look forward to working with the committee and reauthorizing of two programs and consideration of conservation programs,

emphasis on prescriptive grazing for weed and invasive species control. These programs are very helpful to individual producers as

well as to the entire lamb and wool industry and can help us continue to rebuilding the sheep industry.

We know international trade may well have a bearing on agriculture legislation in the U.S., and I offer for the committee’s review the priority of the sheep business is to address the 2 billion

in sheep subsidies that the European Union provides its industry

every year and the strict tariff quota system they employ against

imported American meat.

ASI believes the Federal Government must address this inequity

in trade negotiations, and we would be pleased to share a report

of 2006 sheep meat trade reform, the global benefits which provide

the direction to level the playing field.

Two issues I add for the committee’s consideration that tie more

directly to other livestock industries here today are livestock mandatory price reporting and the livestock risk program. Livestock

mandatory risk reporting expired nearly a year ago. All U.S. producers and marketers have voluntarily provided with it, but we

have got no cooperation whatsoever from foreign companies.

We need, in fact, to have your help in getting further into law

the mandatory price reporting that, as I say, expired approximately

a year ago.

Livestock risk protection program for lamb is something that the

industry direly needs. We request the committee’s support for a

pilot program for lamb price risk protection, just as now has been

offered to the beef and swine industries in the country. And, in

fact, the Federal Crop Insurance Corporation is meeting next week

to consider this issue for lamb, and we fully expect that it will be

approved but we could use your support.

Thank you.

[The prepared statement of Mr. Frischknecht appears at the conclusion of the hearing.]

Mr. SODREL. Thank you. I just have one question, and I would

like the give each of you about a minute to respond. And you have

already touched a little bit on it in your testimony, but since animal agriculture is the largest single consumer of program crops, I

am curious about your views on Federal programs relating to feed

grains.

So could each of you just take a minute, kind of elaborate on

what you had to say in your testimony, or follow up and comment

on it? Start with Mr. Evans, at this end.

Mr. EVANS. I would like to make a comment. Peas and lentils or

chickpeas don’t eat corn, so I am wrought by all of this.

Mr. JOHN. I will just have to say that our policy has always been

that farm programs be fair across all commodity sectors, and so ob-
175

viously, since corn is a huge input crop in the beef industry, any

program that adds support or price protection or any kind of subsidy to our input is something we have an interest in. So I would

say that we will be very interested in those titles and how they affect corn production and corn price.

Ms. PHILIPPI. For the pork industry, we have always watched

very closely as they developed the commodity title. We always want

to make sure things are done so we can remain competitive. As

part our farm bill task force effort, we will have a working group

that will work directly on the commodity title. It will include looking at all the things that are proposed, as well as how the subsidies

will affect the costs.

Mr. TRUEX. We have had the opportunity the past 15 years in

our area to have an ethanol plant in the South Bend, Indiana, area

that we have been competing with. It does increase the price of our

grains slightly.

As some of you may know, we have the world’s largest soybean

plant going in our county now, and it will be producing soy diesel.

We look at that as an advantage because we will be able to use the

soy diesel and the bean meal product out of that plant for our poultry.

I think the opportunity that we see, after 80-some years in the

egg production business, the high price of grain is usually a good

thing for animal production, because we tend to trail up on the income level; as grains go up, so does our egg price.

So we are looking at an opportunity as an agricultural industry,

not just eggs. And we think it will be a good thing for the country.

Mr. FRISCHKNECHT. Historically, over time, the farm bill legislation has been focused on crops and it has not been focused so much

on livestock until a more recent reauthorization of the farm bill.

Our feeling about your question is that the administration of it all

ought to be fair. And that is the primary criterion that ought to be

used in legislation.

Mr. SODREL. Thank you.

I would like to call on the ranking member of the committee, the

gentleman from Minnesota, Mr. Peterson.

Mr. PETERSON. Thank you, Mr. Chairman.

How many of the rest of you, well, except for Mr. Evans——

Mr. EVANS. I can step out of the room if you want me to.

Mr. PETERSON. We will see how it goes here, but I hear this back

home a lot that as we have higher grain prices, we get higher livestock prices.

Mr. Truex, I think that is what you said.

Mr. TRUEX. Yes.

Mr. PETERSON. How many of the rest of you agree with that?

Normally, that is true?

Mr. FRISCHKNECHT. It is.

Mr. PETERSON. Any disagreement? So as long as it is within reason, you guys aren’t too nervous?

Mr. JOHN. I would say, since you used the term ‘‘within reason.’’

Mr. PETERSON. What do you think about the corn growers idea

to shift off of what they have got and go to a different system?

Have you guys looked at that at all, what impact that might have

on corn prices or——
176

Mr. JOHN. I am sorry we haven’t really analyzed that.

Mr. PETERSON. Nobody has really looked?

Mr. TRUEX. No. But I have a lot of confidence that the corn, seed

corn, companies will keep up the pace for the demand that we are

going to generate.

Mr. PETERSON. Amen. I have been talking to them, and I think

that there are some real opportunities to increase production substantially in corn. And there are some good things going on with

the fact that they are mapping the genome, and I think a lot of

these predictions out there have been overblown in terms of what

could be the problem, so——

Mr. TRUEX. There are reports of some 100-bushel soybean potential now, too.

Mr. PETERSON. And I have heard 400-bushel corn; I don’t know

if that is true, probably it won’t be up by Canada, in my district.

If we could get to 200 up there, we would be happy, and the mandatory price reporting, we are doing our part.

If you can tell us how to straighten the Senate out, we would appreciate that. So we will all work together on that.

But we thank the witnesses for their testimony and, we will take

under advisement your request to include you in the program, Mr.

Evans, just so you don’t feel left out, and look forward to visiting

with you and looking at that situation.

So, thank you all.

Mr. SODREL. Thank you and I would like to add to that, I appreciate the witnesses being here. The testimony here and field hearings are really important as we go forward in the new farm bill.

Without objection, the record of today’s hearing will remain open

for 10 days to receive additional material and supplementary written responses from witnesses to any question posed by a member

of the panel.

This hearing of the House Committee on Agriculture is adjourned.

[Whereupon, at 2:51 p.m., the committee was adjourned.]

[Material submitted for inclusion in the record follows:]

STATEMENT OF PAUL T. COMBS

Good morning, Chairman Goodlatte, Ranking Member Peterson, and members of

the committee.

I am Paul T. Combs, a rice, cotton, wheat, and soybean producer from Kennett,

Missouri.

I serve as Chairman of the USA Rice Producers’ Group, a member group of the

USA Rice Federation. My testimony today is on behalf of both the USA Rice Federation and the US Rice Producers Association.

Mr. Chairman, we thank you for holding this hearing and for the opportunity to

express our views on the farm bill.

The U.S. rice industry supports maintaining an effective farm safety net that includes a marketing loan program, as well as income support payments and planting

flexibility.

At this time, rice producers and others in production agriculture face an uncertain

farm policy and financial future due to repeated proposals to cut our farm programs

and the Doha Round World Trade Organization (WTO) negotiations.

We supported the efforts of U.S. negotiators in Geneva in July to hold firm for

greater market access in the Round. Gaining greater, assured market access is a

must if rice producers are to see any net trade gains from the Round.

As you probably know, on August 18th USDA announced the presence of trace

amounts of genetically engineered (GE) rice mixed with a commercial long grain rice

sample in the Southern rice producing states. This was the first occurrence of GE
177

rice in commercial rice supplies and was a surprise to the industry given that there

had been no commercial production of GE rice in the U.S. Both USDA Secretary

Mike Johanns and Dr. Robert Brackett, Director of Food and Drug Administration’s

Center for Food Safety and Applied Nutrition, have clearly stated that their analysis of the Liberty Link 601 protein found in long grain rice poses no human health,

food or feed safety or environmental concerns and is safe for consumption.

Unfortunately, in the face of the uncertainty presented by this situation the value of the U.S. rice crop fell an estimated $200 million to $250 million over the course

of the next 2 weeks, based on the $1.36 cent per hundredweight fall in the rice futures price on the Chicago Board of Trade. As of the market close on September 14,

2006, nearby futures prices remain down $0.68 per hundredweight from the close

of $9.83 per hundredweight on August 18, 2006. These domestic price reductions are

particularly frustrating to rice producers, since world rice prices have been on an

upward trend in recent months. This type of unexpected market event is just one

more example of the need for a strong safety net for rice producers.

For these and other reasons, the U.S. rice industry supports an extension of the

2002 Farm Act until such time as the World Trade Organization provides a multilateral trade agreement that is approved by the U.S. Congress. Furthermore, we believe the policies and structure of the current bill should be continued.

2002 FARM ACT EXTENSION

There are a number of key factors that support extending the 2002 Farm Act until

a final WTO agreement is in place.

1. Any unilateral reduction of the current programs and spending levels of the

farm bill will result in the effect of ‘‘unilateral disarmament’’ by the U.S. and ultimately weaken our negotiating position with other countries.

2. Writing a new and different farm bill in advance of a final WTO agreement

could result in a short-term bill that must be rewritten should the WTO negotiations be concluded and new trade rules put in place. Multiple farm bill authorizations in a short timeframe will weaken the predictability and stability that are key

components of any effective farm safety net. This predictability is a key requirement

for the lending community that provides financing for production agriculture. Any

changes that inject uncertainty into this safety net will lead to financing difficulties.

3. Our current farm programs are a fiscally responsible approach to farm policy

and provide a safety net when needed. As such, the Congressional Budget Office’s

(CBO) August 2006 budget baseline estimates that actual commodity title costs

through 2005 reflect a real savings of nearly $19 billion relative to the levels estimated by CBO when the farm bill was approved in 2002. And total farm bill costs—

which includes costs for commodities, conservation, trade, and any ad hoc disaster—

during the period of 2002–2005 are approximately $17 billion below the total level

estimated in 2002. Compared to the three years before passage of the 2002 farm

bill, average annual costs are down 32 percent.

Certain WTO decisions ruling against U.S. programs make clear that crafting a

WTO compliant farm bill is not easy, even when a good faith effort is made over

an extended period of time. We believe it would be nearly impossible to write a farm

bill to comply with a future WTO agreement while those negotiations are still incomplete.

Ranking Member Collin Peterson and a bipartisan group of more than 20 cosponsors have introduced a measure to extend the current farm bill to accommodate

Congressional consideration of an eventual WTO Agreement (H.R. 4332). We support this and other similar such legislation that recognizes the realities of the legislative process while still respecting the multilateral trade negotiating process.

Another concern is the timelines for trade-distorting domestic support and tariff

reductions in trade agreements. Any timeline for reductions in trade-distorting domestic supports should be concurrent with the timeline for reduction and elimination of tariffs and duties. It only makes sense that similar timelines for the

phase-in of measurable market access gains and for any reductions in U.S. tradedistorting domestic support should be required in future trade agreements. Otherwise, how will producers manage their operations in the interim after support is reduced and increased market access is not obtained for several years?

To the extent that there is ultimately a successful WTO round that involves a reduction in so called trade distorting support, rice producers strongly believe that the

amount of the reduction should be captured and dedicated to providing a more WTO

compliant safety net of equal benefit to U.S. agricultural producers. Even in a world

with expanded trade opportunities there will always be a need for a safety net in

production agriculture. This will be true so long as other countries continue to employ trade barriers against certain commodities, including rice.
178

CRITICAL NEEDS OF RICE FARMING FAMILIES

For the typical family farm that produces rice, economic survival is dependent

upon several key factors: • An effective farm program that provides basic support through marketing loan

eligibility for all production and income support through counter-cyclical and direct

payments; • The maintenance of eligibility for farm program benefits for rice operations of

all sizes; and • The development and expansion of global markets for crop off-take.

While U.S. rice yields are among the highest in the world, our production cost per

acre is significantly higher than that for other grains.

Even with the safety net in place, much higher production costs, in particular for

fuel and fertilizer, have reduced and will continue to reduce rice profitability far

below levels previously expected.

These higher costs of production had a direct impact on 2005 crop returns and

have impacted producers’ 2006 crop planting decisions and returns. In fact, USDA

reports that U.S. rice plantings this year are down 14 percent from last year, and

are at the lowest levels in 10 years.

The current programs do not ensure that individual rice farms can make a profit.

In the face of rising production costs many farmers-especially those who must rent

much of their land-can and do experience significant losses. These losses are occurring despite the current farm programs and the recent improvement in rice market

prices off of their historically low levels.

It is important to note that the marketing loan levels were not increased for rice

or soybeans in the 2002 Farm Act, while the loan levels for all other major crops

were increased. Rice has maintained the same loan rate since 1989.

Regarding the rice marketing loan program, there was an initiative by USDA this

year to adjust the loan rates for long and medium/short grain rice just as planting

was starting in some parts of the rice belt. While there were several options under

consideration, the ultimate effect would have been a reduction in long grain loan

rates and an increase in medium/short grain rates.

The industry raised its concern over this proposal and the poor timing of such a

change with USDA and Members of Congress. USDA ultimately chose to set rice

loan rates by class for the 2006 crop year as they have consistently for the past 18

years. We greatly appreciate the willingness of USDA to work with the industry on

this issue, and to forego any changes in the loan rates for the 2006 crop year. This

will allow time for further study and analysis of the production and market impacts

of such changes in the loan rate, and the industry is currently undertaking such

an analysis. However, given the current situation detailed earlier regarding the GE

rice discovery in long grain rice, we are urging USDA to delay any further action

on loan rate adjustments until a more appropriate time, and at least until the situation in our export markets is resolved and market prices stabilize and recover.

We look forward to continuing to work with USDA on this issue.

PAYMENT LIMITATION POLICIES

To be a viable family farm, we must use economies of scale to justify the large

capital investment costs associated with farming today. This is especially true for

rice farming, which has the highest cost of production of any major grain crop. Payment limits have the negative effect of penalizing viable family farms the most

when crop prices are the lowest and support is the most critical.

The U.S. rice industry opposes any further reduction in the payment limit levels

provided under the current farm bill. We also oppose any government policies that

attempt to ‘‘target’’ payments or apply a means test for agricultural production payments. It is essential that rice producers maintain non-recourse loan program eligibility for all production. Arbitrarily limiting payments results in farm sizes too

small to be economically viable, particularly for rice farms.

THE REAL FACTS ON FARM STATISTICS

When the issue of payment limits is brought up, oftentimes opponents of production agriculture attempt to use misleading statistics taken out of context for the

purpose of making their argument. Here are some key points that I know you are

all probably aware of, but it’s important to be reminded of so that we see the real

picture of production agriculture.

1) Statistics skewed by ‘‘Rural Residence Farms’’: ‘‘Rural residence farms’’ as defined by USDA represent about two-thirds of the 2.1 million ‘‘farms’’ in this country.

Excluding these farms where farming is not the primary occupation of the family
179

results in a very different picture about the percentage of ‘‘farms’’ receiving farm

program payments. The universe of farms actually producing this nation’s food and

fiber is much smaller than 2.1 million. In fact, 38 percent of farms produce 92 percent of our food and fiber. While producing 92 percent of our food and fiber these

farms receive only 87 percent of farm program payments. We appreciate the efforts

by the chairman and members of this Committee to cut through the rhetoric of

those who apparently would like to see reductions in support of rice and other farm

families. Thank you for your continuing efforts to focus on the realities of the U.S.

food and fiber production system.

2) Sector-wide ‘‘Averages’’ Hide Unhealthy Subsectors: Using only averages for the

farm sector as a whole when it comes to income data can be misleading about the

true condition of various sectors of the agriculture economy. Certain sectors may be

squeezed between high costs and low prices while others are experiencing high

prices and average costs. Since program crops are being targeted for cuts, when statistics are given on Net Farm Income, program crops should be examined individually and separate from other agricultural sectors (i.e.: livestock, fruits, vegetables,

etc.). A healthy farm economy as a whole does not necessarily translate into all sectors of the farm economy being healthy.

ECONOMIC CONTRIBUTIONS OF THE U.S. RICE INDUSTRY

The regional concentration of rice production makes it an extremely important

crop in key producing states. Rice production is an important economic driver in all

states and regions where inputs for rice production are manufactured and where

rice is grown, milled, and processed for food or other uses.

Rice production ranks in the top 8 most valuable crops produced in each of the

six major rice-producing states (Arkansas, California, Louisiana, Mississippi, Missouri, and Texas).

Given the high costs of producing rice compared to most other basic agricultural

commodities, the contribution to general economic activity from land devoted to rice

production tends to be much higher than for other crops.

High input expenditures for rice production imply significant economic activity for

the sectors that supply those inputs in the regions where rice is produced.

Each dollar’s worth of rice produced in the United States generates about 90 cents

worth of revenue for the industries that supply variable production inputs.

Based on state estimates of production costs and rice acreage planted in 2005,

U.S. rice farmers spent nearly $1.7 billion to produce 3.38 million acres of rice, including both variable costs and basic ownership costs associated with rice production.

Even modest adjustments to the levels of current support could create a more significant reduction in rice acreage. These effects would be even more acute when

combined with the current spike in fuel, fertilizer, and other energy input costs.

A reduction in rice acreage would reduce the total economic activity in the region

where the reduction occurred due to the impact on the processing, transportation,

marketing, and input supply sectors. Some of this reduction in economic activity

would occur regardless of whether or not an alternative crop is planted, because rice

contributes disproportionately to the revenues of various input sectors due to its

higher production costs.

It is also important to note that in many regions producers have few viable alternatives to producing rice, so the adverse impact on the agricultural economy is severe when rice acres decline.

ECONOMIC CONTRIBUTION TO KEY INDUSTRIES

In addition to the economic activity generated from rice farming, an extensive

transportation and processing infrastructure has evolved alongside farm-level rice

production. These allied industries are highly dependent on the continued supply of

rice to support their economic contribution to the overall economy.

Mills: The U.S. rice milling industry performs the important function of processing rice into forms useful to the food and feed industries. The U.S. Census Bureau

estimates that the rice milling industry employs more than 4,000 people, and supports an annual payroll in excess of $135 million.

Ports: At major Gulf ports, for example, rice accounts for about 35 percent of all

food products shipped. At some West Coast ports (Stockton and Sacramento), rice

accounts for 27–37 percent of total outbound shipments. Studies have suggested

that each ton of rice handled by major ocean ports generates $50 to the local economy and $75 to the state economy.
180

ENVIRONMENTAL CONTRIBUTIONS OF THE U.S. RICE INDUSTRY

Conservation Programs. Conservation programs play an important role in production agriculture by providing financial cost-share and technical assistance to producers in their continual efforts to conserve water, soil, air, and wildlife habitat. The

rice industry supports maintaining a strong conservation title in the farm bill. The

Conservation Security Program (CSP), the Wetlands Reserve Program (WRP), the

Environmental Quality Incentives Program (EQIP), and the Conservation Reserve

Program (CRP) each offers valuable resources that assist producers and helps protect the environment and conserve natural resources. All of these programs are important to rice producers.

Rice producers were some of the early participants in the CSP and we see real

benefits from continuing this and the other conservation programs. Specifically on

the CSP, we would like to see the program implemented on a nationwide basis in

an equitable fashion. We look forward to working with the Committee to address

any refinements to the program going forward.

While all these conservation programs play an integral and important role in agriculture, any additional funding that may be provided for these programs should not

come at the expense of the current commodity programs. The commodity programs

provide an important farm safety net and are the first line of defense in ensuring

producers remain on the land and can continue to be good stewards of our natural

resources.

Water Quality. Modern rice production is critically dependent on a reliable supply

of water to flood fields. However, the use of this water in responsible rice farming

actually produces several environmental benefits that simple irrigation of alternative crops cannot match. For instance:

• Much of rice irrigation water is returned to its original source. About 25 percent–35 percent of the water used for irrigating rice is ‘‘recycled’’ back into the environment. Outflow irrigation water is either reused, percolates to groundwater to recharge aquifers, or drains back into rivers, thereby conserving water that could otherwise be lost from future beneficial use.

• Modern rice cultural practices preserve water quality. The practices widely

adopted by rice farmers are credited with preserving water quality and minimizing

ground and surface-water contamination relative to many alternative crops. The

flooding of rice fields is itself a powerful means of weed management that decreases

the need for herbicide use, and timely planting and rapid establishment of rice

plants at the proper spacing also suppresses weeds by eliminating the space and

light that weeds need to grow. When pesticides are applied, water retention in the

flooded fields helps to biodegrade the remaining chemical substances and minimizes

the potential for contamination.

Wetlands, Waterfowl, and Wildlife. Rice farming is one of the few commercial enterprises that actually promotes wildlife habitat and improves biological diversity.

Since the very nature of rice production requires that fields be flooded for many

months of the year, evidence shows unequivocally that it plays a vital role in supporting common environmental goals, such as protecting freshwater supplies and

providing critical habitat for hundreds of migratory bird species.

Rice fields are typically flooded for at least five months a year, during which time

they become temporal wetlands with enormous significance to bird populations wintering and breeding in the rice-producing states of Arkansas, California, Louisiana,

Mississippi, Missouri, and Texas. Like natural wetlands, these agricultural wetlands

are also indispensable to wetland-dependent bird populations.

Without rice farming, wetland habitats in the United States would be vastly reduced. A loss of this magnitude would have a disastrous effect on waterfowl and a

host of other wetland-dependent species.

Arkansas, Louisiana, Mississippi, and Missouri production areas are located in

the lower portion of the Mississippi Flyway, which is the continent’s most heavily

used waterfowl migration route. This Flyway ranks first in abundance of mallards,

wood ducks, blue winged teal, gadwalls, and many other migratory birds. The state

of Mississippi is among the Flyway’s most important waterfowl breeding areas, producing more than 15 percent of the continent’s fall flight of ducks during years with

good water conditions.

With 95 percent of original wetlands now gone, the waterfowl, shorebirds, and

other wildlife along the Pacific Flyway have come to depend on ricelands. At certain

times of the year, rice acres now hold up to 60 percent of the millions of waterfowl

in the Pacific Flyway. More than one million Northern Pintails have been counted

in recent years during January waterfowl surveys in California’s Central Valley.

The Valley’s rice country is now critical habitat for the recovery of this highly val-
181

ued duck species. In addition, upwards of 300,000 shorebirds are known to use our

fields annually.

Rice production areas in Texas correspond with the bird migration corridor known

as the Central Flyway, providing important habitat to hundreds of bird species that

rely on these artificial wetlands during their migratory journey. According to the

Texas Ornithological Society, Texas is home to nearly 650 different bird species,

more than half of which can be found in the Texas Rice Belt.

The clear and positive benefits that commercial rice production has for migratory

birds and other wildlife species contribute not only to a more interesting and diverse

landscape, but also provide economic benefits that support local economies and create jobs.

By providing an environment favorable to wildlife advancement, rice production

clearly generates positive benefits to the economy and society.

As commercial development and urban sprawl continue to pressure existing agricultural and wetland resources, rice farming provides an environmental counterweight in the form of ‘‘surrogate’’ wetlands that directly support waterfowl and a

wide range of species that would otherwise be even more threatened by habitat destruction. These widely noted environmental benefits accrue not only to current and

future generations of wildlife enthusiasts, but also produce economic benefits that

support recreational industries and, ultimately, local economies.

Taking rice acreage out of production in favor of other crops would eliminate the

environmental benefits of wetland creation and habitat protection. Farmers are good

stewards of the land and operate in an environmentally sensitive manner. With regard to rice production, the clear and undisputed benefits of it rank the commodity

among the top of all agricultural systems in terms of a positive environmental impact.

TRADE POLICY IMPACTS ON THE U.S. RICE INDUSTRY

The U.S. market for imported rice is virtually an open-border market, with U.S.

tariffs on rice imports almost non-existent. The U.S. rice industry supports the

elimination of all rice duties in other importing countries, and equitable tariff treatment for all types of rice.

Despite the general continuing trend towards market liberalization, rice outside

the United States has remained among the most protected agricultural commodities.

The level of government intervention in the international rice market through trade

barriers, producer supports, and state control of trade, is substantially higher than

for any other grains or oilseeds. High tariff and non-tariff barriers, such as discriminating import tariffs on U.S. paddy and milled rice exports, also are used.

These are major factors contributing to price volatility in the international rice

market and a fundamental reason why the U.S. industry needs the stabilizing influence of current Federal rice programs.

Because the U.S. rice industry exports between 40 and 50 percent of annual rice

production, access to foreign markets is fundamental to the health of our industry.

We believe that multilateral negotiations through the WTO are a way to bring down

trade barriers worldwide. However, the Doha Round negotiations are also about agricultural domestic supports. If an agreement is ultimately reached, the U.S. proposal tabled in late 2005 would substantially reduce the allowable levels of Amber

Box support. It will also substantially reduce the potential for providing support

through the Blue Box. Therefore it will be necessary for a Doha Round agreement

to foster an open market that provides for the opportunity of a substantial increase

in the world price of rice. Only such enhanced market opportunities can begin to

make up for the price and income support we will be losing. In addition, we are concerned about the number of countries that will declare rice a sensitive product to

block or delay rice imports.

Merely shifting support to the Green Box in the form of conservation payments

will likely not work for commodity support. Currently, 63 percent of U.S. conservation funding goes to operators whose primary occupation is not in agriculture. Conservation support is mostly cost share funding and not price or income support.

With the Doha Round currently suspended, the overall effect of any final agreement on our industry will depend on the overall package that may emerge. We recognize the difficulty in reaching an agreement with 149 countries in the Doha

Round that will be beneficial for the US rice industry. Given these factors, Free

Trade Agreements on a bilateral or regional basis may be as important an avenue

to increase market access for rice.

The United States’ share of world rice exports has averaged between about 10

percent and 13 percent over the last 10 years, down from a peak of about 30 percent

as recently as 1975.
182

This decline in world export share reflects increased supplies from traditional exporters like Thailand and Vietnam, among other factors. U.S. sales are also constrained by market access barriers in high-income Asian countries like Japan,

Korea, and Taiwan, and the European Union and Latin American countries.

Remember the type of governments we are dealing with when signing trade

agreements. We must realize that, unfortunately, they are not always reliable. The

U.S. really has limited recourse against a country that fails to follow through on

its trade commitments. The EU withdrew a trade concession on brown rice in 2004.

It took six to nine months to resolve and they imposed a higher tariff than originally

agreed to. Mexico has imposed anti-dumping tariffs on milled rice imports from the

U.S., contrary to WTO rules, and is playing the review system as a way to continue

these tariffs. Time is of utmost importance when controlling grain inventories. If a

surplus arises due to a country’s refusal to open its market as agreed to, then our

prices start to fall due to over supply.

The recent discovery of trace amounts of GE rice has also raised trade concerns.

Even with the strong and continued assurances of our government regarding the

complete safety of our rice, concerns have been raised by key importing countries,

particularly the European Union (EU), which has put in place a strict requirement

for testing of imports of U.S. long grain rice to certify it is free of Liberty Link 601

genetically engineered rice. The EU represents a 300,000 metric ton market annually worth over $100 million. USDA and USTR continue to work on our behalf to

help ensure we maintain access to this and other key markets. Given there are no

safety concerns with this GE rice and that the Liberty Link protein has been approved in several other crops (corn, soybeans, canola, cotton) in a dozen or more

countries also speaks to its safety and level of acceptance. We urge your Committee’s support and assistance in working with USDA, USTR and our trading partners

to ensure rice exports do not suffer.

We continue to work with USDA as it undertakes its investigation into how the

GE rice became mixed with commercial long grain rice. We are also in discussions

with Bayer CropScience, the developer and owner of the Liberty Link technology,

to help determine the best avenue to address this situation.

MARKET PROMOTION PROGRAMS

To assist the industry in continuing to promote our product in overseas markets,

we utilize both the Market Access Program (MAP) and the Foreign Market Development Program (FMD) to conduct promotional activities. Both of these programs play

a critical role in our promotion activities and we support continuing to fund both

programs at no less than the current authorized levels. The industry uses MAP and

FMD extensively and successfully in one of the Federal Government’s finest publicprivate export development and promotion partnerships.

In several countries, such as in Central America, the U.S. rice industry partners

with local governments to ‘‘do good while doing well’’ by collaboratively participating

in rural and school feeding and education programs using U.S. rice. Reducing funding for these programs will have immediate negative consequences for the rural poor

in these countries, as well as for U.S. farmers. The programs have benefited U.S.

rice trade with Japan, South Korea, Taiwan, Mexico, Turkey, and Ghana.

More than 70 U.S. agricultural organizations participate in these important cost- sharing programs. MAP participants have increased their funding share to $1.66 for

every dollar contributed by USDA. FMD participants have increased their contributions to $1.39 for every USDA dollar provided. The programs benefit American jobs,

help counter subsidized foreign competition, and they are outstanding public-private

cost-sharing partnerships. We strongly support their reauthorization and full funding.

FOOD AID PROGRAMS

The U.S. rice industry is proud to contribute to the humanitarian feeding and food

assistance programs that the Federal Government provides to those in need in foreign countries. The P.L. 480 title I and title II food aid programs, the McGovernDole International Food for Education Program, Food for Progress, and the Bill

Emerson Humanitarian Trust are Federal aid programs that feed the hungry and

malnourished overseas. We encourage the continuation and funding of all U.S. food

aid programs

Title I of the P.L. 480 Program has provided U.S. food aid successfully for over

fifty years. Though funding for the program in FY 2007 is opposed by the Administration and no new funding was provided in the House or Senate Agriculture Appropriations bills currently under consideration, the industry believes the program still

serves as an important food aid resource and should be reauthorized and funded.
183

The U.S. rice industry strongly opposes any attempt to convert P.L. 480 title II

food aid donations to a cash food aid program. The industry also strongly opposes

any effort to authorize the use of U.S. taxpayers’ funds to purchase food grown in

foreign countries to be used as U.S. food aid, thereby displacing the use of U.S. farm

products for food aid in the process.

The industry wants to work closely with the Congress in achieving reauthorization of P.L. 480 title I and to make sure that the title II Program of P.L. 480 uses

taxpayers’ funds to procure and provide food donations of U.S.-produced agricultural

commodities.

U.S. TRADE SANCTIONS UNFAIRLY IMPACT THE RICE INDUSTRY

In addition to the distorted international markets faced by the U.S. rice industry,

U.S. policies intended to punish foreign nations or encourage regime change disproportionately harm U.S. rice producers.

Unilaterally imposed U.S. trade sanctions have played a key role in destabilizing

the U.S. rice industry and in constraining its long-term market potential. U.S. sanctions have and continue to place downward pressure on market prices to U.S. producers.

Trade sanctions have caused disproportionate harm to rice among U.S. commodity

groups. At various times within the past four decades, our number one export markets were closed because of unilaterally imposed U.S. trade sanctions policy:

Cuba: Prior to 1962 Cuba was the largest market for U.S. value-added rice, but

since then this important market has been largely closed to U.S. exporters. As a result, China, Vietnam and Thailand have emerged to become major suppliers of the

roughly 500,000 metric tons of rice that Cuba imports annually. Recent efforts to

ease restrictions on U.S. sales of food and medicine to Cuba under the Trade Sanctions Reform and Export Enhancement Act of 2000 have allowed the United States

to regain a share of this market, with U.S. rice exports to Cuba reaching nearly

177,000 metric tons in 2004, valued at more than $64 million. However, even these

important gains are threatened by restrictive regulations imposed by the U.S.

Treasury Department that have resulted in the volume of rice exports to Cuba declining by 25 percent in 2005. The United States has a considerable freight cost advantage over other exporters, which suggests that the further easing of the restrictions that remain in place could provide substantial opportunities for much larger

rice exports to Cuba.

Iran: Similarly, in the 1970’s the U.S. rice industry exported on average 300,000

metric tons of value-added rice to Iran. This was the largest U.S. rice export market

for value—added rice, and it also was eliminated through the unilateral imposition

of U.S. trade sanctions on Iran. But Iran’s demand for imported rice continues to

grow. In 2004 Iran imported 973,000 metric tons of rice valued at nearly $300 million, mainly supplied by Thailand and Vietnam.

Iraq: In the 1980’s, U.S. rice exports to Iraq averaged about 400,000 tons. United

Nations sanctions eliminated the market for U.S. producers even while this market

grew to nearly 1 million metric tons ($200 million) supplied primarily by Thailand,

Vietnam and China through the U.N. Oil for Food program. In 2005, U.S. rice sales

to Iraq were resumed with exports of approximately 310,000 metric tons. We appreciate the efforts of our government to reopen this vital market.

The total of these three markets represents more than 2.5 million metric tons of

market potential per year that the United States had lost for decades, and that in

many cases remains restricted today far below its full potential. This is equivalent

to approximately 25 percent of current U.S. production.

In light of significant market access barriers in many key rice-consuming countries, U.S. rice farmers are denied the opportunity to compete openly and fairly.

These further restrictions imposed by our own government interfere with the industry’s opportunity to discover a market price structure that could reduce the need for

government support.

RENEWABLE ENERGY & AGRICULTURAL RESEARCH

As you know, there has been considerable discussion and speculation already

about the role renewable energy will play in agriculture policy in the future and in

the upcoming farm bill debate.. While the ethanol and biodiesel industries are currently expanding at a rapid pace, we believe cellulosic ethanol and the use of cellulose products for energy production is an area primed for growth and expansion.

Certainly, resources are now being devoted to research and development of technologies to convert cellulose material into ethanol and other renewable energy products.
184

As technologies improve, the economics of renewable energy production from cellulose, including rice straw, may be aligning for other regions of the country to contribute towards our increased energy independence. We believe the use of rice straw

for ethanol holds promise for both enhancing the financial health of the rice industry and the benefit of the nation’s energy needs. And, it stands to reason that the

demand for ethanol will track large population centers across the Nation and a

number of those are located near the rice growing regions of the country and will

offer numerous marketing opportunities.

We urge Congress to include a comprehensive renewable energy title in the farm

bill, including new funding for the research, development, and commercialization of

the use of rice, rice straw, and other rice byproducts in ethanol and cellulosic ethanol production. In addition, new funding may be necessary to restore our rice research and foundation seed infrastructure as a result of the encroachment of genetically engineered rice into our rice seed supplies and rice crop.

However, in developing and expanding the renewable energy and research titles,

any additional funding for these initiatives should not come at the expense of the

current commodity programs, which provide the foundation of the safety net for agriculture in general and for rice producers specifically.Conclusion

U.S. farm policy must provide a stabilizing balance to markets and a reliable

planning horizon for producers.

We urge you to recognize how well the current Farm Act is working for U.S. agriculture, and to consider ways to maintain its structure as we begin the debate on

the next farm bill.

Rice producers: contribute a highly-nutritious food product for the nation;

• contribute to the nation’s food security;

• contribute to the local, state, and national economies and the nation’s balance

of trade; • contribute to conservation efforts and the environment.

Rice producers call on Congress to continue sound, fair agricultural policies in the

next farm bill, including those policies in the current farm act that help to provide: • producers with stability and reliability; and

• consumers with an abundant, affordable, stable, safe, and secure food supply.

Rice producers look forward to working with Congress and the Administration in

the development, enactment, and implementation of a sound, equitable farm bill and

rice program.

In the interim, however, in light of the need for a strong safety net as part of

U.S. farm policy, the U.S. rice industry supports extending the 2002 farm bill until

a Doha Round trade agreement is negotiated to completion and approved by Congress. Thank you, Mr. Chairman, for holding this hearing.

This concludes my testimony.

STATEMENT OF MARK KAISER

Good Morning Chairman Goodlatte, members of the committee, my name is Mark

Kaiser. I am a peanut producer from Seminole, Alabama. I am on the Board of the

Alabama Peanut Producers Association and am here today representing the Southern Peanut Farmers Federation. The Federation is comprised of the Alabama Peanut Producers Association, the Georgia Peanut Commission, the Florida Peanut Producers Association and the Mississippi Peanut Growers Association. Our grower organizations represent over 80 percent of the peanuts grown in the United States.

I am a proud family farmer. I raise Peanuts, Cattle, Hay, and Timber. My family

has been farming in Baldwin County since 1906. I received a BS in agriculture business economics from Auburn University, and I am a member of the Baldwin County

Farmers Federation Board of Directors.

First, I want to thank you Mr. Chairman for the House Agriculture Committee’s

field hearings around the country to hear from our nation’s farmers. This includes

a hearing in my home state of Alabama. We are proud of our Alabama members

of the Committee but especially appreciate Congressman Terry Everett’s leadership

in moving the U.S. peanut program from a supply-management program to a more

market oriented program in the 2002 farm bill. The Committee’s foresight protected

those U.S. quota holders who had invested their money in peanut quota for many

years. These changes allowed our industry to move into the future with a program

designed to make U.S. peanut producers competitive in both the domestic and export marketplaces.

According to the University of Georgia’s National Center for Peanut Competitiveness, since 2002, the U.S. total peanut domestic consumption has increased by 16.5

percent. The new peanut program has encouraged peanut product manufacturers to
185

develop new products and spend more money on marketing these products. Despite

the NAFTA and the Uruguay Round of GATT trade agreements allowing peanut imports to increase significantly, reaching a high of 71,782 metric tons in 2001, the

new peanut program has provided U.S. producers the ability to compete with these

imports. The 2005 peanut import level was just 12,196 metric tons which is an 83

percent drop in imports. The U.S. peanut industry can compete and be successful.

Unlike the old quota program, the new program has also allowed producers to

more readily enter peanut production. In Alabama alone, peanut production has expanded from 15 counties in 2002 to 32 counties in 2005. Alabama is now the second

ranking peanut producing state in the United States. Georgia has expanded production to counties that traditionally have been limited in the number of commodity

options for producers. The Georgia 2005 peanut crop was valued at approximately

$370 million pushing 50,000 jobs into Georgia’s economy. Seventy Georgia counties

are directly impacted by peanut production. South Carolina and Mississippi are now

for the first time important peanut states. Our Florida producers have also expanded production providing new opportunities for young producers.

The Southern Peanut Farmers Federation has met with other segments of the industry including buying points, shellers and manufacturers and each have indicated

they were pleased with the 2002 farm bill. Each segment of the industry supported

the peanut title of the 2002 farm bill.

As we discussed at the Committee’s Auburn hearing, that while the Congress

passed a very respectable peanut program in 2002, the administration of the peanut

program by the U.S. Department of Agriculture has not been as successful. While

the domestic marketplace has seen a healthy increase in demand from consumers

and production growth for producers, this has not been the case for the peanut export market.

The USDA has continued to set the loan repayment rate for peanuts too high. Despite language to the contrary in the 2002 farm bill, the Department has relied far

too much on data unrelated to the price other export nations are marketing peanuts

for in the world marketplace. U.S. peanut producers have lost a significant portion

of their export market not withstanding the changes invoked by the 2002 farm bill.

Our present export situation is directly related to the high loan repayment rate set

by USDA. The 2002 farm bill directed the Secretary to establish a loan repayment

rate that the Secretary determines will: • Minimize potential loan forfeitures

• Minimize the accumulation of stocks of peanuts by the Federal Government

• Minimize the cost by the Federal Government in storing peanuts

• Allow peanuts produced in the United States to be marketed freely and competitively, both domestically and internationally.

It is this last point that is most problematic. The Federation believes that USDA

is not sufficiently considering the competition in the world marketplace. This lack

of response to competition from other origins has critically wounded our export programs.

We have been encouraged by meeting in Washington, DC with USDA Farm Service Agency economists. At this meeting, peanut producers offered three options for

achieving a more accurate posted price.

• USDA should use the International Trade Commission methodology to convert

shelled stock prices to farmers stock. This has been accepted as a suitable method

within the U.S. industry and internationally.

• USDA should ask the Foreign Agricultural Service to collect farmer stock information from U.S. agricultural attaches in peanut exporting countries such as India,

China and Argentina.

• Another option may be a percentage value difference of shelled goods from the

U.S. versus other peanut origins. Domestic farmers stock prices could be factored

to determine the value of other origin farmers stock and those values included in

the USDA posted price formula.

The Southern Peanut Farmers Federation is scheduling a series of producer hearings after this crop harvest is complete to discuss the various components of the

peanut program and how effective it was for the 2006 crop. We will continue to work

with our industry partners and communicate any additional suggestions for the

farm bill to the House Agriculture Committee.

At present, we support the continuation of the structure of the current program

but will seek to update specific provisions. The current program should be considered the basis for the next program. When the 2002 farm bill was drafted, peanut

producers did not envision record high energy prices that impact our major crop inputs including fuel, fertilizer and chemicals. The 2006 peanut crop has felt the full

impact of these increased costs. It is important that the next farm bill not rest on

the backs of declining farm equity. In Alabama, we saw more than a 26 percent re-
186

duction in peanut plantings for the 2006 crop year. High energy costs and weak contract offers are the primary variables for less acreage. Weak contract offers are a

direct result of the loan repayment rate being set too high. With a declining export

market, peanuts are not moving out of the loan quickly enough resulting in a buyers’ market.

As the Committee is aware, the storage and handling fees provided in the 2002

farm bill are eliminated for the 2007 crop year. Producers consider this an integral

part of the peanut program. Without these fees, the marketing loan will be reduced,

for producers, in excess of $50 per ton. With a 26 percent reduction in Alabama production in the 2006 crop year, peanut plantings could fall below pre–2002 levels in

the 2007 crop year if these fees are not restored. I would be remiss not to point out

to the Committee that if these fees are not included in the 2007 farm bill, these

costs will be passed on to the peanut producer. The $355 per ton marketing loan

rate in the 2002 farm bill will now be reduced to an approximately $300 per ton

marketing loan rate. Producers in the Southeast will not plant peanuts at this level.

If the storage and handling fees are eliminated in the next farm bill, the Federation

requests that the Committee consider options for replacing those fees that will prevent this financial burden being placed on the producer.

Most peanut producers are involved in other farm enterprises as well. In our area,

most peanut producers are also cotton producers. With the increased pressure on

farmers due to markets, fuel prices, etc, I would urge Congress to assure that the

benefits of these programs go to the individuals who are assuming the risk associated with farming. This assures that the program is effective for the producer as

well as more cost efficient for the government.

Finally, our peanut producers in the Southeast are very concerned about the revival of the World Trade Organization negotiations. The Federation has met with

the Office of the U.S. Trade Representative on several occasions but they do not

seem to understand that the U.S. peanut producer problem is not closed foreign

markets but a USDA loan repayment rate set far too high, assuring that potential

foreign buyers find U.S. peanuts cost prohibitive. In addition, to allow Less Developed Countries access to markets import and duty free could severely impact U.S.

peanut producers. The list of countries involved in this sector produce over twice

as many peanuts as U.S. producers. We appreciated Chairman Goodlatte conveying

the Committee’s concerns about the Doha Round negotiations to the Administration.

U.S. peanut producers believe Congress should set U.S. agricultural trade policy,

not the leadership of South America or Europe.

I am grateful for the opportunity to be here today representing peanut growers.

STATEMENT OF JOHN HOFFMAN

Good morning, Mr. Chairman, and Members of the Committee. I am John Hoffman, a soybean and corn farmer from Waterloo, Iowa. I currently serve as First Vice

President of the American Soybean Association. ASA represents 25,000 producer

members on national issues important to all U.S. soybean farmers. I am also appearing today on behalf of the National Sunflower Association and the U.S. Canola

Association. I very much appreciate the opportunity to present the views of U.S. oilseed producers on the 2007 farm bill.

Mr. Chairman, oilseed organizations are very much aware of the challenges you

and your Committee face as you prepare to write the 2007 farm bill. These challenges include working with limited funding available under the CBO baseline, defending against the possibility of additional budget reductions, proposals to reallocate resources to other farm bill priorities, and concerns about compliance with

WTO requirements and future WTO rulings. Each of these challenges will generate

pressure to change the structure and funding of various programs authorized under

the 2002 farm bill. They will also affect efforts to adjust or even maintain current

commodity support levels under the farm program. As this process goes forward, the

Committee will need to decide whether current programs are viable, or whether

there may be other approaches that could provide a more effective safety net. Oilseed producer organizations are fully committed to working with you, Mr. Chairman, as you and your Committee make these decisions over the coming year.

Oilseed producer priorities for the 2007 farm bill are to strengthen the current

safety net for oilseed crops, support responsible conservation policies, develop new

opportunities for expanding production of energy crops, and maintain funding for existing nutrition, research, and trade programs. To achieve these goals, we strongly

endorse maintaining the current level of agriculture funding under the CBO baseline. We oppose any efforts to reduce this level of spending, or to shift resources

from farm programs to other priorities. We also support enactment of new omnibus
187

farm legislation, rather than a slightly modified one or two-year extension of the

2002 farm bill. Farmers need to make long-term economic decisions, and conditions

in agriculture have changed sufficiently in the last four years to justify a comprehensive review of farm policy.

Within the commodity title, we support the basic structure of farm programs

under the 2002 farm bill, but believe adjustments are needed in oilseed support levels in the event these programs are reauthorized. Global demand for protein meal

for animal feed and for vegetable oil is growing rapidly as the populations and living

standards of developing countries rise. We are also seeing a sharp increase in the

use of vegetable oils for production of biodiesel, both in the U.S. and abroad. U.S.

oilseed producers need to be able to respond to these market signals. So it is important that farm program support levels not have the effect of discouraging producers

from planting oilseed crops. We believe low oilseed support levels in the 2002 farm

bill relative to supports for other crops and crop market values could discourage producers from planting oilseed crops.

Oilseed producers have strongly supported the Marketing Loan as the most effective tool for ensuring that U.S. crops are competitive with foreign oilseed exports

and for supporting producer income when world prices decline. However, loan levels

should be established with reference to both recent average prices, and to loan levels

for other crops, to avoid distorting planting decisions.

The Counter-Cyclical program provides a viable method for supporting farm income, while decoupling payments from current year production. Current Target

Prices for oilseed crops are too low to have triggered oilseed payments under the

2002 farm bill. If this program is reauthorized, these levels need to be adjusted, taking into account the Target Prices for other crops.

Direct Payments are a legacy of the 1996 farm bill, when Congress decided to

phase out income support by establishing Production Flexibility Contracts and reducing AMTA payments over time. Since they are fixed and attached to a farm’s

historical crop base acreage, Direct Payments are factored into land values, which

raises cash rents and makes U.S. producers less competitive in world markets.

The support levels for program crops established in the 2002 farm bill are not proportionate to their recent market value, and should be brought within a closer range

to reduce the potential for planting distortions. The table attached to my statement

compares crop support levels as percentages of the Olympic average of prices for

these crops in 2001–2005. As indicated, current Marketing Loan rates for program

crops vary from 75 percent to 120 percent of recent average prices. Target Prices

range from 90 percent to 180 percent. Direct Payments range from less than 2 percent to 40 percent. In the case of the Marketing Loan and Target Price, disparities

of this magnitude can significantly influence planting decisions, particularly when

prices are at or below support levels.

The Target Prices and Direct Payments established for oilseed crops in the current farm program are disproportionately low compared to other program crops. As

indicated in the table, the Target Price for soybeans is 110 percent of recent average

prices, canola is at 101 percent, and sunflower is only 90 percent. The current Target Prices for minor oilseeds are so low that the counter-cyclical mechanism is

meaningless. In the case of Direct Payments, the soybean payment is 8.3 percent

of recent average prices, canola’s payment is 8.0 percent, and sunflower is only 7.1

percent. Both Target Prices and Direct Payment levels for soybeans and other oilseed crops are well below supports for most of the other program crops, and should

be adjusted in the event these programs are reauthorized in the 2007 farm bill.

In addition, the Marketing Loan rate for minor oilseeds, at 82.0 percent of recent

average sunflower prices, is well below loan levels for other crops. This has resulted

in sharply reduced plantings of sunflower and canola under the 2002 farm bill.

Minor oilseed organizations strongly support adjusting their loan rate to a level that

is proportionate to loan levels for other crops. Using recent average sunflower prices

and the current soybean loan percentage of 95 percent, the minor oilseed loan rate

would be $10.71 per hundredweight, up from the current level of $9.30 per hundredweight.

In the event competition for limited resources prevents equitable adjustments in

oilseed support levels, or would result in cuts in existing levels of support, our organizations support consideration of an alternative structure for supporting farm income that could provide an improved safety net for all crops.

One program alternative we have explored with other farm organizations would

guarantee a percentage of program crop revenue, as opposed to offsetting low prices

or yields. A 70 percent revenue guarantee would be considered non-production and

non-trade distorting, or ‘‘Green Box,’’ for WTO purposes. In addition, a net income

guarantee would protect a higher percentage of total crop revenue than a gross income guarantee. This approach could be combined with one or several existing pro-
188

grams, including Federal crop insurance, or with permanent disaster assistance, to

provide an improved safety net. We encourage the Committee to consider a revenue

guarantee approach in the event limited resources prevent addressing our concerns

with current oilseed support levels.

I would also like to comment on the potential influence of the WTO on the development of farm programs in the 2007 farm bill. As we know, the WTO panel ruling

in the cotton case may require Congress to eliminate the current planting restriction

on fruit and vegetable crops if the Direct Payment program is to be continued. We

also are aware that producers of these crops are demanding to be ‘‘compensated’’ to

offset the potential for lower prices resulting from expanded production of fruits and

vegetables on program crop acres. Oilseed producer organizations are concerned

about the impact such compensation could have on our effort to seek improvements

in the support levels for oilseed crops. Depending on the extent of compensation required, we believe the Committee should consider shifting resources out of Direct

Payments to other forms of support for program crops.

Finally, oilseed producers support a farm program safety net that will serve as

the basis for long-term economic decisions over the next several years. Accordingly,

we believe the Committee should consider the possibility of future WTO challenges

to current U.S. farm programs in deciding whether they should be reauthorized or

restructured as programs that are less likely to be challenged and are WTO compliant.

Beyond the commodity title, oilseed organizations support reauthorizing and

maintaining funding for existing conservation, nutrition, research, energy, and trade

programs in the 2002 farm bill. However, any proposal to increase funding for these

programs should not come at the expense of commodity programs. To the extent

practicable, programs that have been vulnerable to budget reductions in the past

should be restructured as entitlements or as front-loaded contracts to minimize the

possibility of future cuts.

In the area of conservation programs, oilseed organizations support reducing the

acreage enrolled in the Conservation Reserve Program by restricting eligibility criteria to environmentally valued lands. There is growing demand for the viable farmland currently locked up in the CRP, including for production of energy crops. Given

the significant advances and acceptance of minimum and no-till farming methods

in the 20 years since much of current CRP land was first enrolled, we believe a significant portion of the land currently locked in the CRP could be farmed in a completely environmentally sustainable manner. According to USDA, between 4.3 and

7.2 million acres currently enrolled in the CRP could be used to grow corn and soybeans in a sustainable way. At the average CRP rental rate of $52 per acre, the

savings from reducing CRP enrollment by 7.0 million acres would total $364 million

per year. These savings could be used for other conservation programs, for research

or trade expansion programs, or to promote production of energy crops, possibly

through an energy payment, including on former CRP land.

We also strongly support reauthorization and increasing the current funding levels for the Foreign Market Development Program and the Market Access Program.

FMD and MAP are key tools in our efforts to keep U.S. oilseeds and oilseed product

exports competitive. With no alternative WTO-legal export incentives available, we

urge the Committee to preserve these important foreign market promotion programs.

Mr. Chairman, oilseed producer organizations continue to develop specific positions on these and other programs in advance of Congressional debate on the 2007

farm bill. We appreciate the opportunity to present our views today, and would welcome similar opportunities to participate in this process over the coming year. I will

be happy to respond to any questions.

STATEMENT OF MIKE JOHN

Mr. Chairman, Ranking Member Peterson, Members of the Committee, thank you

for the opportunity to present the cattle industry’s perspective on the upcoming

2007 farm bill. My name is Mike John, and I am a cattle producer from Huntsville,

Missouri. I am a member of the Missouri Cattlemen’s Association and am currently

President of the National Cattlemen’s Beef Association.

As with most agricultural producers in the country, we’ve been anxious for work

to begin on crafting the 2007 farm bill. As cattle producers, our livelihood is tied

to many other agricultural commodities. Livestock consumes three out of four bushels of the major feed grains like corn, sorghum, and barley. Cattle in feedlots account for nearly one-fourth of the total grain consuming animal units, and all beef

cattle account for nearly 30 percent. We are dependent upon this nation’s agricul-
189

tural system and infrastructure to feed, transport, market our cattle, and provide

beef for America’s table; and as such, we are interested in seeing this segment remain healthy and viable.

Unlike other agricultural commodity groups, however, we tend to take a different

look at portions of U.S. agriculture policy. Our industry is made up of over 800,000

ranchers in all 50 states, and we have over 95 million head of cattle in this country.

Cash receipts from cattle and calves in 2005 are over 48 billion dollars, and those

sales account for nearly 40 percent of all livestock sales and nearly half of all farm

receipts. Ranchers are an independent lot who want the opportunity to run their

operations as they see fit with minimal intrusion from the government. As the nation’s largest segment of agriculture, the cattle industry is focused on continuing to

work towards agricultural policy which minimizes direct Federal involvement;

achieves a reduction in Federal spending; preserves the right of individual choice

in the management of land, water, and other resources; provides an opportunity to

compete in foreign markets; and does not favor one producer or commodity over another.

The open and free market is powerful, and as beef producers, we understand and

embrace that fact. The cyclical ups and downs of the market can be harsh, but the

system works, and we remain steadfastly committed to a free, private enterprise,

competitive market system. It is not in the nation’s farmers or ranchers’ best interest for the government to implement policy that sets prices; underwrites inefficient

production; or manipulates domestic supply, demand, cost, or price.

CONSERVATION AND THE ENVIRONMENT

There are portions of Federal agriculture policy that we can work on together to

truly ensure the future of the cattle business in the United States. Conservation and

environmental issues are two such areas. Some of the cattle industry’s biggest challenges and threats come from the loss of natural resources and burdensome environmental regulations. Ranchers are a partner in conservation. Our livelihood is made

on the land, so being good stewards of the land not only makes good environmental

sense, it is fundamental for our industry to remain strong. Our industry is threatened every day by urban encroachment, natural disasters, and misinterpretation

and misapplication of environmental laws. We strive to operate as environmentally

friendly as possible, and it is here where we can see a partnership with the government.

The goal of conservation and environmental programs is to achieve the greatest

environmental benefit with the resources available. One such program that achieves

this is the Environmental Quality Incentive Program or EQIP. Cattle producers

across the country participate in this program, but arbitrarily setting numerical

caps that render some producers eligible and others ineligible limits the success of

the program. Addressing environmental solutions is not a large versus small operation issue. All producers have the responsibility to take care of the environment

and their land, and should have the ability to participate in programs to assist them

establish and reach achievable environmental goals. Accordingly, all producers

should be afforded equal access to cost share dollars under programs such as EQIP.

Secondly, many producers would like to enroll in various USDA conservation programs such as CSP and CRP to reach environmental goals. However, to enroll in

these programs requires the producer to stop productive economic activity on the

land enrolled. We believe economic activity and conservation can go hand in hand.

As such, we support the addition of provisions in the next farm bill that will allow

managed grazing on land enrolled in CRP. This will have tangible benefits on environmental quality, for example, helping to improve lands threatened by invasive

plant species.

USDA’s conservation programs are a great asset to cattle producers. We want to

see them continued and refined to make them more producer friendly and more effective in protecting the environment in a sensible way.

Environmental issues are also a huge challenge for our industry. We understand

the need for environmental regulations to protect resources downstream, and we believe those producers that knowingly and willingly pollute and violate the Clear Air

and Clear Water Acts should be prosecuted to the fullest extent of the law. However, the use of other vehicles, such as EPA’s Superfund, to sue agricultural producers in an attempt to get larger settlements is egregious and it threatens the future

of agricultural producers both large and small. This, combined with EPA’s talk of

regulating agricultural dust, animal emissions, and other naturally occurring substances, makes us all concerned for our industry. Although these items are not addressed in the farm bill, we ask that the members of the Committee step in and
190

help agricultural producers in their fight to have effective and sensible environmental regulations.

Activism. In addition to dealing with the misapplication of environmental regulations, our industry is also becoming more at risk from attacks by environmental and

animal activist and terrorist groups. Activist groups such as PETA and the Humane

Society of the U.S. (HSUS), along with extremist groups such as the Animal Liberation Front and Earth Liberation Front, use extreme measures to try and force their

views of vegetarianism and extreme environmentalism on others. Every person has

a right to their own views, but to force their views on others using scare tactics,

arson, and terrorism is unacceptable. It’s not just the extremists, however, that

threaten animal agriculture. All we have to do is look at the issue of processing

horses for human consumption. All it took was a few celebrities, horse racing

groups, and misinformed politicians to pass a law that banned the use of USDA

funds to inspect horse processing facilities. The processing of horses is a regulated

and viable management option that helps take care of unwanted or unmanageable

horses. It would be preferable if there were plenty of people willing to pay for these

animals and take care of them, but there are not. Instead, a group of activists have

pushed their emotional views on others, and in return are running the risk of allowing more horses to starve or be mistreated, as well as putting companies out of business. This win gives activist and extremist groups a foothold to come after other

species. It’s no secret that groups, such as PETA, want to put the U.S. cattle industry out of business. It may seem far-fetched, but in today’s society, the rural voice

is quickly being lost. The farm bill should not be a platform for these activist

groups.

Trade. Outside of conservation, environmental, and activist issues, there are several other issues that have the potential to impact the long-term health of the beef

industry. One such area is trade. U.S. cattlemen have been and continue to be

strong believers in international trade. We support aggressive negotiating positions

to open markets and to remove unfair trade barriers to our product. We support

government programs such as the Market Access Program and the Foreign Market

Development Program which help expand opportunities for U.S. beef, and we urge

sustained funding for these long-term market development efforts.

We also support Congressional and regulatory action to address unfair international trade barriers that hinder the exportation of U.S. beef. We appreciate the

Committee’s help in working to reopen foreign markets that were closed to U.S. beef

after the discovery of BSE on December 23, 2003, in a Canadian cow in Washington

State. As you are aware, we continue to fight to get our product into several countries and have seen recent setbacks in places such as Korea and Japan. We ask that

you continue to support the effort to see that sound science is being followed in

bringing down these artificial trade barriers. To grow our business, we have to look

outside of the U.S. borders to find 96 percent of the world’s consumers. We encourage the Committee’s continued strong and vigilant oversight of the enforcement of

any trade pact to which American agriculture is a party.

Animal ID. In trying to deal with, and mitigate the effects of, animal health emergencies on our business and trade, we believe in participating in a privately held

animal identification system. That system now exists and is under the administration of the U.S. Animal Identification Organization or USAIO. Formed in January,

they are administering an animal movement database that has the ability to work

with animal identification service providers across the country to collect animal

movement data and serve as a single point of contact in the event of an animal

health emergency. This system will provide real time access to USDA and their

State Vets, and will allow trace-back of any diseased animal to start immediately

and be completed in less than 48 hours. Confidentiality of the information is paramount and is one of the greatest concerns for producers. This privately held database will keep the information much more safe than a public, or USDA system

would. The USAIO is currently recruiting partners and building the amount of data

they have in their system. It will be self-funded and will not rely on any Federal

funding.

Research. In regards to animal health emergencies, we see a need to keep a

strong agricultural research component to the farm bill. USDA’s research is critical

in all aspects of our business. Their research and extension activities help to find

new and improved cattle production methods to help make our business more efficient and effective. Animal health research helps to control and eradicate animal

diseases; develop better methods to keep foreign animal diseases out; and to identify, control, and preempt new diseases. These activities keep our national herd

healthy and make it easier to export our beef and cattle. In addition, nutrition research is important to show that beef is a healthy part of America’s diet and plays

an important role in USDA’s ‘‘My Pyramid’’ and food guidelines.
191

Energy. Research is also needed to identify and develop alternative methods of

producing energy. Renewable energy is going to become an increasingly important

part of our country’s energy supply and there are many ways that cattle producers

can contribute and benefit. Research and development is needed to find cost-effective methods of utilizing manure and animal waste as a fuel supply. Gasification

and other methods hold a lot of promise for our industry. When looking at ethanol,

however, we must be careful not to act in a way that is detrimental to the livestock

industry. Livestock consume the majority of U.S. corn. As ethanol continues to grow,

we must make sure it does not do so at the detriment of the cattle feeding industry.

We must take all opportunities to look at ways to balance feed demand, price, and

the benefit of renewable fuels.

Property Rights. In turning to business matters, one of the biggest concerns to

cattlemen right now is their private property rights. The Supreme Court’s ruling in

Kelo v.The city of New London sent a shockwave through the cattle community. The

thought that our ranches could be taken by municipal governments and turned over

to private developers in the name of economic development is disturbing. Our country is great for many reasons, but one of them is the ability to own property, use

it how you see fit, and not worry about it being taken from you on someone else’s

terms. We believe in the rights of cattlemen to keep their property and applaud the

Committee’s efforts to protect those rights.

Taxes. Reducing the tax burden on ranchers has always been a top priority for

our industry. We continue to support permanent repeal of the Death Tax. Regardless of how many or how few are effected, if even one rancher has to sell off part

of their operation to pay this tax, it is unacceptable to us. Cattlemen pay their fair

share of taxes, and resent the fact that many are being penalized for wanting to

pass their operations on to future generations. Our priority is to keep families in

agriculture, and this tax works against that goal. We do not see this as a tax cut

for the rich. The rich can afford high priced attorneys and accountants to protect

their money now. Ranchers operate in an asset rich but cash poor business environment. Ranchers must spend money that would otherwise be reinvested in their businesses to hire the resources necessary to protect their assets and pass their operations on to their children. At the same time, however, they may have several hundred acres of land whose value has been driven up by urban sprawl and the unintended consequences of Federal crop supports. We also support keeping the Capital

Gains Tax at a lower rate, repeal of the Alternative Minimum tax, and full 100 percent deductibility of health insurance premiums for the self-employed.

Marketing Issues. As with the 2002 farm bill, we fully expect to deal with several

marketing issues in title X of the bill. Although we believe that the farm bill is not

the place to address these issues, they continue to come up and we must be prepared to defeat them. When looking at these issues, it is important to note that we

support the critical role of government in ensuring a competitive market through

strong oversight. This includes the role of taking the necessary enforcement actions

when situations involve illegal activities such as collusion, anti-trust, and price-fixing. The USDA Office of Inspector General’s recent report on the audit of GIPSA

is concerning, but we have faith in the new Administrator’s ability to comply with

the OIG’s recommendations and tighten up GIPSA’s enforcement of the Packers and

Stockyards Act.

However, government intervention must not inhibit the producers’ ability to take

advantage of new marketing opportunities and strategies geared toward capturing

a larger share of consumers’ spending for food. A ban on packer ownership or forward contracting has been a part of farm bill debates for years. We are staunchly

opposed to those efforts because by legislating those conditions, Congress is trying

to tell cattle producers how and when to market their cattle. This strikes at the very

basis of our business which is utilizing the market and its opportunities to improve

our returns and make a living. We do not believe that Congress should tell cattlemen how they can market their cattle. Each producer should be able to make that

decision for himself, whether he markets his cattle through traditional or new and

progressive channels. The market provides many opportunities and cattlemen

should be allowed to access all of them.

Another issue of concern is mandatory Country of Origin Labeling or COOL.

Cattlemen across the country realize the benefit of labeling our product because we

produce the best beef in the world. The ability to separate our product from everything else in an effort to market its superiority is a fundamental marketing strategy. There are voluntary labeling programs across the country that are being driven

by the market, led by cattlemen, and are providing a higher return on their cattle.

This is what a labeling program should be about: marketing. Instead, mandatory

COOL has turned this into yet another commodity type program that treats all beef

the same and does not allow for forms of niche marketing. This will cost producers
192

money, but will not provide them with any return. In addition, mandatory COOL

is being pushed by some as a food safety prevention tool and a non-tariff trade barrier. COOL is a marketing tool only, and in no way should be tied to food safety.

We have firewalls in place to keep U.S. beef safe. COOL should also not be used

as a non-tariff trade barrier. To label our beef in an effort to capitalize on the demand for our premium product is one thing, to label it as a way to block the competition is yet another.

In an effort to enhance the marketplace for cattlemen, we support legislation that

would allow meat inspected by state departments of agriculture to be shipped across

state lines. Packing plants across this country, both big and small, follow all the

same food safety techniques, and state inspectors are effectively trained and competent in their meat inspection skills. This type of provision would create additional

competition in the packing sector and create marketing opportunities for familyowned packing companies who are currently limited to simply marketing in-state.

In short, the government’s role should be to ensure that private enterprise in marketing and risk management determines a producer’s sustainability and survival.

As you can see, we are not coming to you with our hand out. Like I mentioned

before, America’s cattlemen are proud and independent, and we just want the opportunity to run our ranches the best we can to provide a high quality product to the

American consumer, and even more importantly, provide for our families and preserve our way of life. We are coming to you in an effort to work together to find

ways to use the extremely limited funds available in the best way possible to conserve our resources, build our industry, and provide for individual opportunity at

success. We ask for nothing more than Federal agriculture policy that helps build

and improve the business climate for cattlemen. We look forward to working with

you on the 2007 farm bill.

STATEMENT OF JIM EVANS

My name is Jim Evans. I am a farmer of dry peas, lentils, chickpeas, wheat and

barley near Genesee, Idaho. I am also the Chairman of the USA Dry Pea and Lentil

Council, a national organization representing producers, processors and exporters of

dry peas, lentils and chickpeas across the northern tier of the United States. In the

audience today is the Vice Chairman of our Council, Greg Johnson. Greg owns and

operates Premier Pulses International in Minot, ND. Premier Pulses International

is a large processor of peas, lentils, and chickpeas from Montana and both North

& South Dakota.

Good farm policy should encourage farmers to take advantage of market opportunities and reward them for crop diversity and management practices that help the

environment. Every country protects their agricultural base in some form or fashion.

The recently failed WTO negotiations prove that most countries are unwilling to

leave their farmers unprotected. If U.S. farmers are to compete against subsidized

competition, high tariffs and phytosanitary barriers the following elements of the

farm programs must be included in the next farm bill:

TITLE I—COMMODITY PROGRAMS

1. Marketing Loan Program/LDP—The Marketing Loan Program is the single

most important farm program tool used on my farm. This program provides some

protection when prices go in the tank and pays me nothing when prices are good.

I like this program because it allows me to take advantage of market opportunities

and satisfies my banker’s need for some downside risk coverage. This useful program needs to continue because it allows me to include environmentally sound crops

with targeted market opportunities.

2. Direct & Counter Cyclical Program—I fully support the continuation of the direct and counter cyclical program payments that have sustained my farming operation and the local businesses that support my farm. Farmers do not have the opportunity to set market prices, so Direct and Counter Cyclical Payments provide financial security against things which I cannot control like political decisions blocking access to lucrative markets or like Hurricane Katrina which unexpectedly increased costs of fuel and fertilizer. Direct and counter cyclical payments are a good

form of Rural Development because the dollars go directly to rural enterprises that

support farming and provide commerce throughout our small communities. The

farm bill 2007 should include Direct and Counter Cyclical Payments for Pulse crops.

3. Planting Flexibility—The best part of the 1996 farm bill was the freedom to

plant a crop based on market signals instead of base acres. Planting flexibility must

be continued and expanded in the next farm bill. Chickpeas (Garbanzo beans), for
193

example, are currently considered a vegetable crop and are not an eligible crop to

be planted under farm program rules. Chickpeas are an important crop to my farm

operation and I want the flexibility to grow them as an eligible farm program crop

when market signals warrant.

TITLE II—CONSERVATION PROGRAMS

The USADPLC believes that our farm policy should reward producers for managing their soils based on long-term environmental sustainability on working lands.

1. CRP—The Conservation Reserve Program (CRP) has had many environmental

benefits but the way it has been managed has been devastating to rural communities. In the next farm bill, CRP should be limited to only the most fragile lands

and whole farm bids should be difficult to obtain.

2. CSP—In order to achieve the environmental and conservation goals of this

great country, we need to fully fund the Conservation Security Program (CSP) and

make it available to all producers at the same time. Sign up for the current CSP

program is time consuming, complicated, and it often fails to recognize accepted conservation practices in a local area. The program should reward producers for achieving conservation goals based on systems that are economically sustainable and result in significant improvement in soil, air, and water quality. The CSP should be

modified to reward producers for addressing conservation goals in their local watersheds and should encourage farmers to diversify their crop portfolios.

TITLE III—TRADE

1. WTO—In a perfect world there should be no agricultural subsidies, tariff barriers, phytosanitary restrictions, and currency manipulation. Unfortunately, we do

not live in a perfect world. The USADPLC supports the current WTO negotiations

if the result is an agreement that puts U.S. agriculture on an EQUAL playing field

with all other countries. WTO negotiations are on the rocks. Congress needs to write

a farm bill that protects U.S. agriculture in the current trading environment. We

support an extension of the 2002 farm bill until a fair WTO agreement is reached.

2. Cuba-When people ask me why U.S. farm programs are still needed to protect

farmers I tell them we live in an imperfect world and sometimes my own government is working hard against me. Cuba imports over 200,000 MT of pulses each

year, mostly from Canada. In the year 2000, Congress passed legislation allowing

sales of agriculture commodities to Cuba. A year ago, our industry shipped over

50,000 MT of dry peas to Cuba mostly from Montana and North Dakota. This year

the Administration modified the rules of payment from Cuba and dry pea sales have

plummeted. Our government has cost the pea and lentil trade millions of dollars in

lost sales to Cuba and other countries. We hope the next farm bill will eliminate

all trade restrictions with Cuba and other countries.

3. Food Aid-We have a responsibility as a nation to share our abundance with

those in need. We support the continuation of all food aid programs in the next farm

bill. In order to address the increasing need for food aid in developing countries,

P.L. 480 title II funding should be $2.0 billion per year. Our organization does not

support cash donations in lieu of purchasing U.S. commodities within the food aid

title.

4. MAP & FMD—The Market Access Program and Foreign Market Development

Program have allowed our industry to penetrate new markets around the world.

This program should be enhanced in the upcoming farm bill.

5. Phyto-Sanitary Barriers—The pea and lentil industry continues to battle

phytosanitary barriers around the world. We have been battling fumigation requirements in India for the past two years. In March, China banned all imports of U.S.

dry peas claiming excessive selenium levels in our peas. Sound science is not the

basis for either of these restrictions. However, access to major markets is restricted

with our harvest just around the corner. The new farm bill needs to beef up U.S.

enforcement of phytosanitary barriers.

TITLE VII—RESEARCH

To compete successfully in the global economy we need to increase our investment

in agricultural research. The USDA Agriculture Research Service and our Land

Grant Universities have faced flat or decreasing budgets for years. We support increasing agricultural research budgets in the next farm bill.
194

TITLE IX—ENERGY

Energy Conservation Program—We fully support programs in the next farm bill

to enhance the development of biobased fuels. We are investigating the fit pulse

crops will have in the ethanol production market. farm bill policy should not just

consider energy products. Rewards for energy conservation should also be included.

Legume crops like dry peas, lentils, and chickpeas do not require fertilizer because

they fix their own nitrogen in the soil. If the farm bill rewards farmers for planting

‘‘energy crops’’, then it should also reward them for planting crops that conserve energy.

TITLE X—MISCELLANEOUS

Transportation—Cost effective and adequate transportation of our crops to market

has emerged as one of our biggest limiting factors during the growth of our industry

in the past few years. Most of the pulse processors in our industry are captive shippers on a short line railroad. They provide rural jobs in places like Ray, North Dakota and Chinook, Montana. Competitive rail rates and adequate service is critical

to the long-term health of our industry. The BNSF railroad services a large pea and

lentil processing facility in the small town of Ray, North Dakota that is about 100

miles from the Canadian border. To ship a box car from Ray to the west coast costs

$3,463. The same boxcar on the Canadian Pacific Railroad to the west coast carrying Canadian pulses costs $2,463. It is currently $1,000 cheaper per car to ship Canadian pulses to either west or east ports. Our industry supports the captive rail

legislation sponsored by Senator Burns, Dorgan and others. We ask Congress to address the issue of transportation by both rail and water in the next farm bill.

I would like to thank you for allowing the USA Dry Pea & Lentil Council to provide this testimony and for coming to the great state of Montana. Part of my extended testimony is a printed power point presentation with information about our

industry and our farm bill policy positions.

I would be happy to answer any questions at this time.

STATEMENT OF GERALD TUMBLESON

Mr. Chairman, Ranking Member Peterson and members of the Committee, on behalf of the National Corn Growers Association (NCGA), I want to thank you for this

opportunity to share our member’s views on the 2002 farm bill and provide input

for the writing of the 2007 farm bill.

My name is Gerald Tumbleson. I farm with my wife and two sons in southern

Minnesota, where we produce corn, soybeans and hogs. I currently serve as president of NCGA.

The National Corn Growers Association represents more than 32,000 corn farmers

from 48 states. NCGA also represents more than 300,000 farmers who contribute

to corn check off programs and 26 affiliated state corn organizations across our

country, working together to create new opportunities and markets for corn growers.

America’s corn producers continue to make a significant and important contribution to our nation’s economy. Over the last five years, the nation’s corn crop has

averaged 10.3 billion bushels resulting in an annual average farm gate value of almost $22 billion. The relatively stable production over the past ten years, made possible by innovation in production practices and technological advances, has helped

to ensure ample supplies of corn for livestock, an expanding ethanol industry, new

biobased products, and host of other uses in the corn industry. Moreover, investments by the American taxpayer in our nation’s agriculture programs have helped

to produce a more stable financial environment for production agriculture and a

brighter future for our rural communities. In our view, reliable, abundant, affordable and safe supplies of grain for the food on our tables to the fuel in our cars are

generating benefits many times over for our national economy.

COMMODITY PROGRAMS

I must emphasize that the farm safety net provided in the commodity title of the

2002 farm bill and its predecessors is considered a critical component of most producer’ risk management plans. The changes to farm support programs adopted in

May of 2002 have proven to be more effective in delivering assistance to farmers

when it is most needed; during periods of low commodity prices, adverse weather

conditions and crop disease. The new counter-cyclical payments combined with direct payments and the marketing assistance loan program has enhanced producers’
195

ability to make long term business decisions, including investments in ethanol production and other agriculture value-added opportunities.

Another important part of the farm safety net is the Federal crop insurance program. Due in large part to additional resources authorized by Congress in 2000 and

improvements in revenue coverage, the program has experienced a substantial increase in enrolled acreage and the average level of protection for both traditional

multi-peril crop and revenue based policies. Many of our members, however, continue to express concern that Federal crop insurance remains too costly or provides

insufficient protection. Because of the diverse production conditions across the Corn

Belt, NCGA urges the committee to advance policy changes to expedite the research

and development of enhanced revenue based products or innovative program options

that may better match the risk management needs of farm operations not adequately served by the crop insurance policies available today.

While the 2002 farm bill has performed well for most corn growers, NCGA has

noted in previous hearings a serious flaw or what some economists have referred

to as a ‘‘hole’’ in the safety net. First, for producers who have sustained large crop

losses or repetitive years of shallow losses during the recent years of record harvests

and low prices, the combined support of fixed direct payments, marketing loan deficiency payments and countercyclical payments have provided insufficient income

protection, even with the purchase of crop insurance coverage at higher levels. Secondly, growers who have found themselves in isolated areas of drought or other adverse weather conditions and unable to fully benefit from higher market prices, cannot look to countercyclical payments to lessen the adverse impact of lost income and

the drain on their financial assets. Third, NCGA remains concerned about the traditional formula of crop disaster assistance in current and past legislation which does

little to fill these gaps in today’s farm safety net. By redirecting payments for losses

already covered by Federal crop insurance to a portion of uninsured losses, we believe reforms proposed by Rep. Sam Graves, in the Companion Disaster Assistance

Program Act, H.R. would provide a more effective, sensible delivery of aid without

compromising the objectives of our Federal crop insurance program.

In anticipation of last year’s budget reconciliation and development of a new farm

bill, NCGA decided to undertake a careful review and analysis of the farm safety

net. Under the current structure, the distribution of support from direct payments,

loan deficiency payments, and counter-cyclical payments appears to be relatively

balanced over time. Looking forward, however, changes in the corn industry, particularly an expanding ethanol industry, suggest a significant reduction in price

based support from loan deficiency payments and countercyclical payments. Projections for corn and other commodity markets by the Food and Agriculture Policy Research Institute and other experts have underscored the need for NCGA and several

affiliated state associations to investigate alternative safety net concepts for our

members’ consideration.

Based on input we have gathered and the work of our public policy team, NCGA

has developed a preliminary proposal for a revenue based safety net that our initial

analysis indicates more effective net farm income protection factoring in price, yield

and variable production expenses. Two new programs, Base Revenue Protection

(BRP) and Revenue Countercyclical Program (RCCP), would work in a complementary fashion and compensate producers when market revenue declines below target

levels. BRP provides coverage against declines in farm-level crop net income. RCCP

builds on this base and provides protection against declines in revenue measured

at the county level, similar to Group Risk Income Protection (GRIP) in Federal crop

insurance.

Briefly, BRP guarantees that a grower’s per-acre crop-specific net revenue would

not fall below 70 percent of the previous five year Olympic average of per-acre net

revenue on a farm. The actual per-acre net revenue in any one year would be calculated by multiplying the actual farm level yield by a national market price and

subtracting the variable costs of production estimated by the Economic Research

Service. A producer would then receive assistance if his net revenue falls below the

guarantee. RCCP payments would be triggered whenever the actual county revenue

falls below the county revenue guarantee. The county guarantee under NCGA’s initial proposal is set at 100 percent of the product of the effective target price (target

price less direct payment of crop) and the expected county yield. The actual county

revenue determined using the season average price and National Agency of Statistical Services (NASS) county yield. Because RCCP and BRP are a package of programs, the maximum payment for RCCP is capped when the actual county revenue

falls to 70 percent of the county revenue guarantee.

Coupled with the current fixed direct payments and a recourse loan program, BRI

and RCCP would establish a more effective safety net structured to transfer considerable trade distorting support into a program exempt from WTO domestic support
196

limits. In fact, BRP is designed to meet current WTO rules for income insurance

and safety-net programs in the Green Box while the RCCP fits within the Amber

Box. This reform, alone, could potentially offer greater flexibility for other agriculture support spending reported as Amber Box Support. Our revenue based concept remains a work in progress, but NCGA is committed to reaching out to the

other commodity groups to address their concerns as we further refine our proposal

for your consideration.

As important as an adequate safety net is to America’s farmers, NCGA views commodity programs to be strongly linked to revitalizing our rural communities. We

urge the committee to carefully consider the proven programs in the Rural Development title that are better leveraging our farm support resources for locally owned

agriculture based investments. The experience of our members indicate programs

such as direct value-added producer grants, loan guarantees for renewable fuels

projects and investments in rural infrastructure stimulate economic development

generating a wide range of benefits for rural areas. By providing new sources of capital and engaging farmers in value-added processing, production and marketing, the

Rural Development title can help enhance farm profitability and creation of new

jobs. Unfortunately, we have seen these cost effective programs and other important

rural development initiatives in the 2002 farm bill impacted by reduced funding and

in a number of cases, no funding at all. If we are to continue the progress in building a more prosperous economy and a better quality of life in Rural America, NCGA

believes that the next farm bill can serve as an engine of growth for new business

opportunities.

CONSERVATION AND STEWARDSHIP

Another top priority for NCGA is an agriculture policy that recognizes and promotes the best available practices by farmers to further improve our environment.

When President Bush signed the farm bill into law on May 13, 2002, he stated at

the signing ceremony: ‘‘For farmers and ranchers, for people who make a living on

the land, every day is Earth Day. There are no better stewards of the land than

people who rely on the productivity of the land.’’ We commend Congress, particularly this Committee, and the Administration for providing a strong emphasis on

conservation in the 2002 farm bill, especially on working lands.

Corn growers are very concerned with the health and well-being of American citizens and are mindful of the need to balance environmental stewardship with the

need for a long-term, dependable food supply and necessity for long-term profitability in farming. We support the use of sound science to set environmental policy

and the use of voluntary programs to assist farmers in meeting environmental

goals.

Farmers are making important environmental gains through the use of farm bill

conservation programs—we see that in reduced soil erosion, improved water quality,

and increased wildlife habitat. Likewise, we support efforts to measure the real results of the conservation practices we’ve implemented. We applaud the collaborative

work thus far on the Conservation Effects Assessment Project (CEAP) to scientifically assess the environmental outcomes from farm bill conservation programs and

determine benefits from conservation practices and programs. The ability to develop

understandable and relevant performance measures and communicate them to the

public will help shape future public and congressional support for farm programs.

Looking Ahead to 2007. In anticipation of upcoming farm bill conservation policy

deliberations, NCGA’s Production and Stewardship Action Team commissioned research of recent National Resources Inventory (NRI) data, concentrating on sites

with a history of corn production. The goal of this research is to determine the level

of conservation practices and production practices nationwide that growers have implemented to conserve soil and limit erosion. We are working to identify the remaining conservation practices that might be adopted on corn producing lands to properly address remaining conservation challenges.

For example, initial exploration of NRI data show increases in farm bill conservation title investments to conservation tillage in areas where appropriate may hold

the potential for the single largest gains in further reducing erosion from corn lands.

Additionally, the overlap between energy conservation, conservation tillage and Natural Resources Conservation Service’s (NRCS) own emphasis on improving growers’

energy conservation practices all point toward possible and successful initiatives in

the next farm bill.

We understand tight budgetary constraints will be a major issue with the 2007

farm bill. While each of the conservation programs utilized by corn growers could

benefit from more funding to increase efficiencies, enrollment opportunities, and environmental gains, any increase in funding should not come at the expense of the
197

farm safety net (title I programs). In general, we recommend that the farm safety

net should be enhanced with conservation programs but not replaced by conservation programs.

As is the case with many farm bill titles (conservation, research, rural development, energy, etc.), programs that are authorized but never funded are of no help.

Likewise, programs that are deprived during the appropriations process never reach

their full potential. For example, altering support levels to the 2002 farm bill conservation programs has caused unnecessary disruption across the farming community, and we do not recommend this practice in the 2007 farm bill. Corn growers

do not support the notion of one conservation program funded at the expense of another, or title II funded at the expense of title I.

Farm Bill Conservation Programs. Regarding the future of conservation programs,

many of our members have expressed concern with how the current programs are

being implemented on the state and local level. Many believe their knowledge and

expertise are ignored and not wanted. They believe they are essentially shut out of

state technical committees, which as a result are dominated by paid professionals

who usually do not have the farmer’s best interest at heart. Our members also are

discouraged by backlogs in funding and seemingly arbitrary funding decisions.

Technical Assistance. The demand for technical assistance continues to increase.

Yet, funding for technical assistance has been relatively flat over the years. In general, we recommend the next farm bill provide adequate funding for NRCS field

staff to help address conservation challenges on-farm. We encourage the Committee

to look at a long-term view of budgeting for technical assistance that balances national priorities with local needs.

Conservation Reserve Program (CRP). The Conservation Reserve Program is one

of the most important and widely used conservation programs for corn growers.

NCGA supports the full utilization of CRP at its maximum authorized level and the

President’s goal of sustaining the environmental benefits of the program.

Current NCGA policy endorses the targeted enrollment and reenrollment of the

most environmentally sensitive land, such as field borders and filter and buffer

strips, and other areas needed for conservation compliance. These targeted areas

should be allowed to be managed in such a manner that would not disrupt the normal management of the entire field. Corn growers also recommend the voluntary

enrollment of filter strips under the continuous enrollment provision of CRP.

NCGA supports maintaining an equitable balance among soil erosion, water quality and wildlife benefits. However, the program should have flexibility to address

local concerns as well. For example, in some parts of the country, it is very difficult

to achieve cost-effective wildlife benefits.

NCGA strongly supports the use and further development of state-based Conservation Reserve Enhancement Programs (CREP) as they bring together a broad

group of interest to address specific, local concerns. However, CREP’s popularity has

resulted in an over-subscription of available funds.

We support a CRP that pays adequate and fair rental rates and allows farmers

to bring land back into production at the end of their contract if they desire. However, rental rates should be reviewed by USDA to ensure that payments for whole

field enrollments do not exceed county average rental rates for similar land capability classes.

Corn growers also have heard concerns from our partners in the conservation

community regarding land use implications of dedicated energy crops, especially

since increasing land areas for this purpose could affect marginal and ecologically

sensitive areas (wetlands, wildlife habitat) and CRP lands. Along with research and

development of increased ethanol production capabilities, we encourage this Committee to consider how farm bill conservation programs can mitigate potential unintended consequences in this regard.

Environmental Quality Incentives Program (EQIP). The Environmental Quality

Incentives Program is very popular and delivers effective conservation program dollars to assist landowners who face natural resource challenges on their land. Above

all, EQIP should preserve the full flexibility needed to adjust the program over time

to focus on evolving issues and allow improvements to program features based on

national, state and local needs.

NCGA continues to support the requirement that 60 percent of EQIP funds be directed to livestock-related conservation practices. Likewise, we support the environmentally sound use of manure and the use of incentive payments to producers who

develop Comprehensive Nutrient Management Plans (CNMPs). CNMPs are sound

investments that help ensure livestock effluent is managed responsibly.

However, EQIP should be made available to livestock and poultry facilities without bias to size or location. The intent of Congress was to help all livestock producers cope with the costs imposed by current and emerging local, state, and Federal
198

environmental regulations; however, those producers who manage the majority of

total livestock in the United States have not had access to the program.

In addition, limiting EQIP’s water quality priority to solely address non-point

source pollutants misses the intent of the 2002 farm bill. For example, the National

Pork Producers Council has cited in previous comments on EQIP that approximately

80 percent of all the hogs produced in the United States—and therefore 80 percent

of all the hog manure produced by these operations—could be classified by the Environmental Protection Agency (EPA) as point sources. In order to improve water

quality nationwide, we encourage the Committee to clarify that the program must

also provide assistance to help those that produce and manage the majority of animals and manure.

While most of the technical issues addressed by EQIP concern water quality improvement, most of the public perception problems and citizen opposition concern

odor. NCGA encourages the use of EQIP funds for odor control systems for livestock

operators.

However, NCGA does not support EQIP as a funding source for endangered species protection, especially when other, more effective and well-funded financial assistance programs within the Department address at-risk species habitat recovery,

including the Wildlife Habitat Incentives Program.

Conservation Security Program (CSP). The Conservation Security Program continues to be a work in progress. Since its enactment, seven legislative actions on the

CSP statue have resulted in funding changes creating a range of implementation

challenges. As a result, a number of corn growers have expressed frustration with

the continuous changes in the application process, describing it as a moving target.

Funding stability is needed in order to fully appreciate the impact of the program.

NCGA supports environmental incentive payments for implementation of conservation practices. The agency’s approach of rewarding both existing practices and

encouraging the adoption of additional practices with corresponding incentive payments is a positive aspect of the program. We encourage this Committee to review

program requirements that phase out the early adopter of conservation enhancements to ensure that this is not counterproductive to ‘‘rewarding the best.’’

Congress should reiterate the need to ensure that enrollment categories and subcategories are fairly and consistently applied to all farmers across the nation. While

NCGA is generally supportive of granting states flexibility in implementing conservation programs, the Committee should consider additional oversight mechanisms to manage how states interpret and disseminate information about the program. Inconsistent application of conservation laws, programs and standards can

have the unintentional effect of helping one farmer while hurting another, thus diluting environmental benefits.

Very few NCGA members have control of all of the land they farm for the length

of time prescribed by CSP. Most corn growers rent land on an annual basis, and

the size and make up of their operations vary from year to year. Some states have

founds ways around the land control requirements in the program, however, a national, uniform standard should be in place to address this concern. Corn growers

recognize the challenges associated in addressing the program’s approach to rental

lands and will work with the Committee and USDA to find a solution.

Wetlands Reserve Program (WRP). Moving beyond the ‘‘no net loss’’ of agricultural wetlands to have an overall increase in wetland acres each year is a direct

result of the work farmers and ranchers have done to create, maintain or enhance

wetlands. According to USDA, the greatest gain in wetland acres has occurred in

the Corn Belt and Delta States. WRP can help continue to create, improve and protect millions of wetland acres but the program is oversubscribed in many key areas

of the nation.

Energy. While the 2002 farm bill is often noted for authorizing a record level of

conservation program funding, the legislation was the first in history to contain a

separate energy title, reflecting a fundamental policy linking of agriculture to energy. Title IX of the farm bill established new programs and grants for procurement

of biobased products to support development of biorefineries; to educate the public

about benefits of biodiesel fuel use; and to assist eligible farmers, ranchers, and

rural small businesses in purchasing renewable energy systems.

As this committee moves forward with writing the next farm bill, it is important

for you to know the high level of support for an Energy title that emphasizes opportunities for growth in renewable fuels production, building new markets for biobased

products, and investments in value-added agriculture businesses. NCGA advocates

farm bill policies and programs reflective of the current market and rising demand

for renewable fuels. It is our view that the next farm bill can be developed to play

an even more valuable role in shaping the future of the renewable fuels industry

and reducing the country’s dependence on foreign energy supplies.
199

I would like to highlight a few key provisions from the 2002 farm bill that have

been beneficial to our corn grower members. However, without adequate funding,

these programs cannot be successfully implemented.

First, the Value-Added Agricultural Product Market Development Grants provision makes competitive grants available to assist with feasibility studies, business

plans, marketing strategies, and start-up capital. Many farmer-owned ethanol and

biodiesel plants have utilized this program. Moreover, with more ethanol plants

coming online many rural communities are seeing stronger economies and increased

development.

Additionally, the Federal Procurement of Biobased Products provision established

a new program requiring the purchase of biobased products by Federal agencies.

This program has promoted the growth of biobased consumer goods and has created

another value-added arena for commodities like corn. NCGA continues to believe

this program requires more attention at the Federal level and support for incorporating biobased chemicals into the parameters of the program.

The Biorefinery Development Grants program provides Federal grants to ethanol

and biodiesel producers who construct or expand their production capacity. The 2002

farm bill authorized funding for this program but no money has been appropriated.

In today’s expanding energy market and a growing demand for homegrown fuels,

Federal initiatives to support biofuel expansion and increased capacity would be a

welcome benefit for producers.

Another competitive grant program, Biodiesel Fuel Education, was established for

facilitating education of government and private organizations with vehicle fleets,

as well as the public, on the benefits of biodiesel fuel use. In step with this program,

NCGA supports expansion of this program to better inform agencies and other

groups about the benefits of ethanol and E85 fuel. Again, the potential benefits of

these programs are lost without proper funding and continued Federal support. Additionally, the Renewable Energy Systems and Energy Efficiency Improvements Section, which created a loan guarantee, and grant program to assist eligible farmers,

ranchers, and rural small businesses in purchasing renewable energy systems and

making energy efficiency improvements has proven useful in some communities.

This program can serve as key asset in expanding renewable energy use and mitigating the adverse impact of rising fuel costs on farm income. Lastly, the 2002 farm

bill reauthorized the Bioenergy CCC Program and broadened the list of eligible feedstocks. This program which expired June 30 of this year, required the Secretary of

Agriculture to make payments through the Commodity Credit Corporation to eligible producers to encourage increased purchases of eligible commodities to expand

production of bioenergy and support new production capacity. Overall, this program

has been helpful in encouraging expansion and stimulating capacity growth, but

there is room to restructure this program to be more inclusive of other feedstocks.

As U.S. agriculture becomes a major player in domestic energy production, research and development will be critical in diversifying the nation’s energy portfolio.

Our next farm bill should provide direct investment into ethanol and biofuel research and development. For instance, R&D investments in ethanol production technology could have a very positive long term economic impact while immediately decreasing dependence on imported oil. Examples of R&D investment opportunities include improving production and utilization of animal feed, co-production of biobased

chemicals, utilization of corn kernel fiber, and reducing natural gas use in ethanol

plants. Today, the Federal biomass research program is focused on long-term cellulose research. Cellulose research is one of several potential strategies to increase

ethanol production and will need a steady stream of R&D dollars to reach its full

potential.

NCGA expects each of these programs to produce significant opportunities for

rural economic development, energy diversification, and environmental quality.

Clean energy development provisions in the farm bill are providing a new income

stream for farmers and ranchers as well as creating new jobs. As we work together

to craft the next farm bill, we encourage members of the committee to carefully consider the successes and lessons learned from these programs. U.S. farmers and the

towns where we live are excited about the possibilities of producing more renewable

energy for our country.

Trade. The farm bill also authorizes two programs, the Market Access Program

(MAP) and Foreign Market Development Cooperator Program (FMD), which play integral roles in overall U.S. efforts to further agricultural trade. These programs promote U.S. agriculture products, including corn and value-added corn products, in

important foreign markets. The trade of corn and its value-added products is essential to the profitability of U.S. corn farmers. According to the USDA Foreign Agricultural Service (FAS), the U.S. exported almost $4.8 billion of corn during 2005. Addi-
200

tionally, exports of value-added products such as beef, pork and chicken totaled over

$6.7 billion during the same year.

The Market Access Program and Foreign Market Development Cooperator Program. NCGA supports both an increase in the funding cap for MAP and a higher

level of minimum funding for FMD in the 2007 farm bill. Rural American farmers

and ranchers, as the primary suppliers of commodities benefit from MAP. In addition, all regions of the country benefit from the program’s employment and economic

effects from expanded agricultural export markets. Each year, both of these programs help launch and expand sales of U.S. agricultural, fish, and forest products

overseas. However, the most recent FAS data focusing on market development programs similar to MAP and FMD in other countries showed competitors’ total spending (government and private sector) exceeded that in the United States by nearly

a 4 to 1 ratio during 2002.

MAP uses funds appropriated by Congress to: encourage the development, maintenance, and expansion of commercial agricultural export markets; stimulate and increase interest of small companies in exporting; open new markets; counter unfair

foreign competition; and increase commercial sales of U.S. agricultural products.

MAP forms a partnership between non-profit U.S. agricultural trade associations,

U.S. agricultural cooperatives, non-profit state-regional trade groups, small U.S.

businesses, and USDA’s Commodity Credit Corporation (CCC) to share the costs of

overseas marketing and promotional activities such as consumer promotions, market research, trade shows, and trade servicing.

The FMD Program, also known as the Cooperator Program, uses funds from the

U.S. Department of Agriculture’s Commodity Credit Corporation to create, expand,

and maintain long-term export markets for U.S. agricultural products. The Cooperator program has fostered a trade promotion partnership between USDA and U.S.

agricultural producers and processors who are represented by nonprofit commodity

or trade associations called Cooperators. Under this partnership, USDA and the Cooperators pool their technical and financial resources to conduct overseas market development activities. These programs help to build international markets for important corn co-products such as distiller’s dried grains with solubles (DDGS). Without

these programs, it would be difficult to conduct the feeding trials and education programs that help lead to increased DDGS demand in countries such as Mexico. For

instance, the results of a feeding trial conducted in Veracruz, Mexico, are used to

promote this ethanol co-product at national and regional trade shows. DDGS demand in Mexico increased 269 percent in recent years, moving from approximately

28,000 metric tons in 2002 to 104,294 metric tons in 2005.

Similarly, these programs are creating new opportunities for American farmers in

Chinese markets. MAP and FMD fund technical and managerial training to assist

in the modernization of China’s feed and livestock industries. As these industries

expand, their grain demand increases, diverting Chinese corn that might otherwise

have been sold on the international market in competition with U.S. feed grains.

The effect of these programs is evidenced by increased domestic corn prices in China

and the government’s decision not to renew corn export quotas since February.

Trade Promotion Authority. Finally, NCGA strongly supports reauthorization of

Trade Promotion Authority (TPA) for the President. Our mission is ‘‘to create and

increase opportunities for corn growers’’. TPA ensures that an administration has

the necessary tools to negotiate good trade agreements for U.S. agriculture. TPA

plays an essential role in the success of multilateral trade negotiations, which create

and increase opportunities for American corn growers through improved market access for corn and value-added products. Improved foreign market access results in

better prices for our growers.

Mr. Chairman and members of this committee, I have been known to say more

than a few times that the world is short two things: energy and protein. NCGA is

working toward a farm bill to help address this challenge in a changing world and

to tap the full potential of our agriculture economy and rural communities as well

as provide a stronger safety net for our producers, young and old. We are eager to

work with you in the months ahead to advance a farm bill that will ensure United

States agriculture is equipped to supply this changing world as we look to the future. NCGA recognizes the difficult task ahead for you and appreciates your steadfast support.

STATEMENT OF RON TRUEX

Mr. Chairman, I am Ron Truex of Creighton Brothers, LLC, of Warsaw, Indiana.

We are egg producers and we very much appreciate the chance to appear before the

Committee on Agriculture to offer ideas for the 2007 farm bill.
201

I am honored to testify on behalf of United Egg Producers (UEP). UEP is a cooperative whose members independently market about 90 percent of the nation’s eggs.

Since 1968, UEP has provided leadership to the U.S. egg industry, not only performing the functions of a trade association, but also providing a number of other services, including facilitating the trading of eggs, and arranging direct export sales to

overseas customers.

About the U.S. Egg Industry. The U.S. egg industry generates several billion dollars a year in farm cash receipts, and creates jobs and economic activity in rural

America. Cash receipts at the production level are $4 billion to $5 billion a year.

For comparison, cash receipts for the nation’s turkey industry are about $3 billion,

while the larger broiler industry has cash receipts of about $20 billion.

There is some egg production in nearly all states, but about half of all laying hens

are in five states: Iowa, Ohio, Indiana, Pennsylvania and California. The next five

largest producing states are Texas, Nebraska, Florida, Minnesota and Georgia.

These top 10 states account for nearly three-quarters of the laying hens in the country. Our industry is honored that nine of these 10 states are represented on this

Committee.

The nation’s layer flock produced 76.859 billion table eggs in 2005, or 6.4 billion

dozen. Industry statistics are often reported in cases (a case holds 30 dozen eggs).

On that basis, 2005 table egg production was 213.5 million cases, of which about

60 percent were sold to retail stores, 31 percent were destined for breaking and further processing as food ingredients or for other value-added uses, and a little more

than 8 percent were sold to food-service outlets and other institutional users. Under

1 percent were exported, but the industry is somewhat more export-dependent than

implied by this statistic, which does not include exports of processed egg products.

Most newer egg operations are ‘‘in-line,’’ which means that several henhouses are

attached to a processing plant in which the eggs are cleaned, sanitized, graded and

packed into retail cartons or onto flats, or in some cases broken and further processed at the same location. The industry also still has a significant amount of ‘‘offline’’ production, in which eggs are produced on smaller individual farms and then

transported to a central processing plant. Many of these ‘‘off-line’’ facilities involve

contract production, but one of the chief structural differences between our industry

and other poultry sectors is that contract production is much less common in the

egg industry.

Our industry has enjoyed periods of profitability in recent years, notably during

2003 and part of 2004, but unfortunately there have been extended periods of losses

as well. We went through one such period this year, with producer egg prices falling

off sharply after Easter. Toward the end of August, as reported by Feedstuffs magazine, large eggs in the Midwest were 60–62 cents per dozen delivered to store doors,

3 percent lower than the price a year ago. This has not been a good year for most

egg producers.

Farm bill Priorities. The egg industry neither receives nor seeks direct income or

price supports. However, our industry has several concerns that we hope you will

consider addressing in the 2007 farm bill. The remainder of my testimony will cover

these specific points. In general, I ask you to keep in mind the importance of the

livestock and poultry sectors to U.S. agriculture. Historically, farm bills have primarily been concerned with support for major crops, and we do not criticize the programs for these commodities. However, we believe a greater emphasis on the needs

of livestock and poultry will ensure a balanced farm bill that addresses all the needs

of rural America.

Avian Influenza. The media and the public have focused attention on the Asian

H5N1 strain of highly pathogenic avian influenza (HPAI) or bird flu, and the Federal Government has expended major resources to prepare for a potential—but so

far hypothetical—human pandemic. We commend the Congress and USDA for their

efforts to stress facts over fear and perspective over panic.

Our industry has also tried to do its part. The overwhelming majority of the egg

industry tests its flocks for avian influenza on a regular basis, through either company or state plans. Our industry is participating in several USDA task forces that

are providing advice to the Department on biosecurity, surveillance, control measures and other topics that will be critical if there is ever an outbreak of HPAI in

a commercial flock. So far, the disease has not been found in the United States. Although it is quite possible that it will be found in the wild bird population, we also

need to keep in mind that commercial poultry are raised in biosecure conditions that

are designed to prevent wild birds and other vectors from carrying any disease into

our flocks.

I also expect widespread participation in USDA’s upcoming monitoring, surveillance and indemnity program for low-pathogenic avian influenza (LPAI). USDA is

expected to publish regulations in the near future for this program, which will be
202

operated by the National Poultry Improvement Plan, a public-private partnership

led by USDA’s Animal and Plant Health Inspection Service (APHIS). Like other

poultry organizations, UEP has supported the development of the LPAI program.

Controlling LPAI is directly relevant to our efforts to prevent HPAI. LPAI viruses

can mutate—and in the past have mutated—into highly pathogenic forms. The largest previous outbreak of HPAI in the United States, in the Northeast in 1983–84,

involved a virus that began as low-path but mutated into a high-path form.

Only two subtypes of AI—those designated H5 and H7, a nomenclature which refers to the hemaglutinin protein on the surface of the virus—have ever shown the

ability to become highly pathogenic. For that reason, USDA’s LPAI program will

only be concerned with H5 and H7 viruses.

Low-path AI can be present in a flock without obvious clinical signs. In contrast

to HPAI, where egg production ceases and a very high percentage of a flock will die

in a short period, LPAI does not necessarily involve large increases in mortality. It

also presents no risk to human health. However, it is extremely important to control

LPAI so that it does not have the ability to circulate and mutate into HPAI. From

this perspective, it is critical to secure producer cooperation. Whether flocks are destroyed or vaccinated, it is absolutely necessary to take control measures quickly

whenever there is an outbreak of LPAI.

The World Animal Health Organization (OIE) now considers H5 and H7 LPAI to

be of special concern and includes them in the same category as HPAI. Our government has supported this change in OIE practice. Producers, too, recognize the need

to act against LPAI. However, we also believe strongly that producers should be indemnified for the loss of birds and production in a LPAI outbreak, in the same way

that indemnities are paid for HPAI and other serious animal diseases in other species.

We hope and expect that USDA’s proposed regulation for the LPAI program will

provide for indemnities at 100 percent of the value of any birds that must be destroyed, including the value of those birds’ future egg production. We also anticipate

that the regulation will indemnify the expenses involved in cleaning, disinfecting,

vaccinating and other operations that may be necessary in an LPAI outbreak. Unfortunately, in the past, some within the Executive Branch have sought to reduce

Federal indemnities sharply for all animal diseases, and we cannot be certain that

such proposals will not surface again.

Therefore, we respectfully ask Congress to provide, in the farm bill, that indemnities for LPAI are to be paid at 100 percent of the properly assessed production

value of any birds that must be destroyed, and should also cover expenses involved

in vaccination, cleaning and disinfection and other measures that state or Federal

officials may require to be taken by producers in an outbreak.

National Animal Identification System. Although development of the National

Animal Identification System (NAIS) has primarily been motivated by diseases of

beef cattle, the poultry industry will also be affected by the NAIS. A workable, nationwide system of identifying premises, animals and movements offers great potential to control and eradicate animal diseases, as well as to facilitate international

trade.

UEP and other poultry organizations are active in a working group that advises

APHIS on the NAIS. There is a consensus in both private and public sectors that

commercial poultry should be identified on the basis of flocks. Clearly, identification

of individual birds is neither necessary nor feasible.

Beyond that, UEP members share the concern expressed by many other agricultural producers that information supplied to the NAIS should remain confidential.

All of us have become more sensitive in recent years to the potential threat of bioterrorism. We have also become aware of the threat to property and biosecurity

posed by activist groups that engage in unlawful break-ins, targeting both laboratory and animal production facilities.

From that perspective, to make large amounts of information about site locations,

population numbers and other parameters available to the public does not seem advisable. Yet we continue to hear concerns expressed that if the Federal Government

has access to NAIS data—regardless of who controls the actual database—then the

information may be subject to public release.

Obviously, NAIS data need to be available to state and Federal authorities, and

there are circumstances—such as in an actual outbreak—when some of the data

probably would become public. However, we believe that producer participation in

what remains a voluntary system will be quite limited unless Congress acts to protect the confidentiality of NAIS data. Therefore, we urge the Committee to provide

in the farm bill for the protection of information submitted by producers under the

NAIS.
203

Agricultural Research. Most recent farm bills have included a separate title devoted to agricultural research, and this reflects the critical contribution that research and extension activities have made to our nation’s ability to increase food

production, enhance agricultural productivity and safeguard the natural environment. We encourage the Committee again to focus on research priorities in the 2007

farm bill.

Within the egg industry, we have found that agricultural research at both landgrant universities and USDA laboratories has helped us respond to all the critical

challenges we have faced in recent years. USDA’s world-leading expertise on avian

influenza, for instance, has allowed us to formulate appropriate responses to the disease, and to demonstrate the safety of properly handled eggs and egg products.

Similarly, the industry’s Egg Nutrition Center has benefited from the collective advice of university experts on food safety in formulating and providing guidance to

the industry about appropriate steps to control and eliminate food-borne pathogens.

The Committee may wish to consider devoting additional resources to agricultural

research, in light of the high historical payoff from research that enhances productivity and protects natural resources. A strong emphasis on research that addresses

the needs of livestock and poultry producers would likewise be most welcome, from

our industry’s standpoint.

We would also like to request the Committee’s consideration of one area of environmental research that is of particular concern to the egg industry. Like other livestock and poultry enterprises, our members have witnessed increasing concern

about air emissions from our operations. We have joined with other commodity

groups in a consent agreement with the U.S. Environmental Protection Agency,

under which our industry is assisting in the collection of accurate, reliable and representative data on actual emissions, so that any future regulatory actions can be

based on sound information. Through the American Egg Board, producers have contributed some $3 million of our own money to this research.

However, we would like to plan for the future as well as assessing the present.

Producers need to know how they can mitigate air emissions, not just measure

them. Fortunately, a number of promising technologies may help us in this regard.

Emission technologies include feed additives, manure amendments, housing design

and configuration, and even bird genetics. There is an urgent need, however, to assess these technologies’ effectiveness and cost on the farm, not just in the laboratory. In addition, we need initial laboratory work on mitigation technologies as they

emerge.

For this reason, we request that the 2007 farm bill authorize a program of research on air emission mitigation technologies, emphasizing on-farm applications,

with particular attention to the technologies’ efficacy in reducing emission rates,

operational feasibility and affordability. We make this suggestion only on behalf of

the egg industry, but research might be timely for several livestock and poultry species, and we would support the application of the program to these species as long

as the organizations representing them concurred.

Avoiding Harm. Finally, UEP asks the members of this Committee to oppose the

inclusion of any provisions in the farm bill that would harm our industry. For example, legislation (H.R. 5557) introduced in the House and referred to this Committee

would require all Federal food procurement to be conditioned on animal welfare

standards—specified in the text of the legislation, not through any objective scientific procedure. In the case of the egg industry, the legislation appears to require

all Federal purchases to be limited to cage-free or free-range eggs, or similar production systems. As an organization, we are not opposed to these systems, and indeed

some of our members operate them. But eggs produced in this way are typically two

to three times as expensive as conventionally produced eggs. The result of the legislation—not just for eggs, but for milk, beef and other animal products as well—

would be either to increase Federal procurement costs dramatically, or to reduce

dramatically the quantity of animal products procured under Federal programs.

We doubt that this Committee would welcome either outcome. At the same time,

our fundamental objection to the legislation goes beyond the issue of cost: We believe Federal food procurement standards should be built around product quality

and food safety, not conditioned on essentially political judgments about appropriate

animal care. We urge the Committee to oppose any efforts, which would most likely

occur on the House floor, to add such provisions to the farm bill. Unfortunately,

some animal rights groups are simply opposed to the existence of the livestock and

poultry industries. Congress should be on the alert against policies advocated by

these groups that seem moderate but are in fact aimed at the ultimate elimination

of animal agriculture.

In fact, science and the marketplace are already addressing production practices

so as to maximize both animal and human health and welfare in a commercially
204

feasible manner. Some 87 percent of our industry has adopted the UEP Certified

Program developed by an independent, unpaid scientific advisory committee that

comprises experts in animal behavior, animal physiology and other disciplines. The

committee’s work has led to important adjustments in production practices that

have enhanced hen welfare, but also has reaffirmed the basic validity of conventional commercial husbandry techniques. The UEP program has been endorsed by

the Food Marketing Institute and the National Council of Chain Restaurants, and

participants are independently audited by either USDA or a private firm.

Like other egg producers, I am proud to be part of U.S. agriculture in this new

century. I am also honored that this Committee has invited producers of many different commodities to testify at this hearing. Coming from a variety of states, you

are well aware that producers’ concerns are similar across the country. We look forward to working with the Committee on a sound, forward-looking farm policy for

coming years.

STATEMENT OF PAUL R. FRISCHKNECHT

On behalf of the 68,000 family farms and ranches that produce sheep in America,

I am very appreciative of this opportunity to discuss our nation’s agricultural policy

with the agriculture leadership of the U.S. House of Representatives.

I am Paul Frischknecht and currently serve as president of the American Sheep

Industry Association (ASI), the national trade organization of the nation’s sheep industry. I am a life long sheep rancher from Manti, Utah.

The sheep industry of the United States produces lamb and wool in every part

of the country. The industry provides half a billion dollars to the American economy

and is a mainstay of many rural communities in which sheep are a key use of grazing and pasture land.

Sheep producers have been aggressive and creative in their approach to national

initiatives that strengthen the domestic industry.

In 2005, the sheep industry approved a national referendum to continue our

American Lamb Board checkoff program. This lamb promotion program is entirely

funded by the industry and I am pleased to say that of those who voted, 80 percent

voted in favor of the referendum. We collect over $2 million annually from sheep

sales with producers, feeders and lamb companies all paying a share of the checkoff.

We are the first livestock industry to use the standing authority for checkoff programs as authorized in the 1996 farm bill and can report to you the system does

work.

The American Wool Council launched a wool production, information and marketing program for American wool in early 2001. Our national initiatives have improved competition for American wool. International marketing programs have exposed U.S. wools to the world and exports have grown rapidly to over 60 percent

of our annual production. Total exports represented less than a third of production

prior to our programs. We now sell into eight or more international markets each

year. In addition to expanding market opportunities for producers, the Wool Council

has developed new fabrics and treatments for textiles with U.S. companies and

America’s armed services. We are proud to help provide clothing and uniforms for

the men and women of our military. Nearly one fourth of our wool production is

consumed by the U.S. military.

The year 2004 marked the first growth in U.S. sheep inventory since 1990. We

grew our industry again in 2005, the first year on year increase in sheep numbers

since 1987–88. Industry growth improves competitiveness for all segments of the industry from lamb feeders to lamb meat companies, wool warehouses to wool mills,

feed suppliers, trucking firms and shearing companies.

I am pleased to comment on the positive impact of the current farm bill as it included the new Wool Loan Deficiency (LDP) program which provides the only safety

net for producers in our business. I encourage the Committee to re-authorize the

wool LDP and at a base loan rate of $1.20 per pound in order to provide the benefit

of the program as intended. While nine loan rates are available, essentially all wool

LDP applications are in one non-graded rate category. The research provided in

2002 by the Food and Agriculture Policy Research Institute (FAPRI) supported a

$1.20 per pound base loan rate however, the legislation lowered the base to a $1.00

per pound with a budget score of $20 million annually. The total payments for each

of the 2002 through 2005 crop years was $7.8 million, $7 million, $7.3 million, and

$6.1 million respectively.

The significant difference between the annual cost estimate and the actual payment total each year combined with the fact that nearly all participation has been

in only one loan category out of nine, supports the request that the program be au-
205

thorized at the base rate of $1.20 per pound rather than $1.00 in the current legislation. With a loan rate of $1.20 per pound, total payments are projected to remain

under $20 million annually.

I urge the Committee to support re-authorization of the National Sheep Industry

Improvement Center.

As established in the 1996 farm bill in the Rural Development program of USDA,

the National Sheep Industry Improvement Center provides loans and grants to business ventures for financing programs where normal commercial credit or funds were

not available. This program does not provide funds for individual producers or for

the purchase of sheep or land, but rather for projects to strengthen the sheep business including loans to wool warehouses, lamb slaughter and processing ventures,

and wool processors. The Center has provided 56 loans to 38 entities in 21 states.

The total volume of dollars that have been loaned since 2000 totals approximately

$15.5 million. The Center has also made 58 grants equaling $20,754,529.

Re-authorization of the Center for the life of the next farm bill is crucial to the

efforts to continue re-building the U.S. sheep inventory and infrastructure. $20 million of funding would complete the $50 million authorization of the 1996 legislation.

Additionally, the sheep industry actively participates in the USDA Foreign Market Development, Market Access Program and Quality Samples Program and we encourage inclusion of these in the farm bill.

The United States has no barriers to lamb meat imports and as such has become

the market of choice for lamb exporters from around the world. Lamb was never

part of the Meat Import Act so other than the brief period of temporary restrictions

in late 1999—2001, lamb meat has and is freely traded. However, the playing field

is not equitable for U.S. sheep producers. The European Union continues to provide

over $2 billion annually in government price support and subsidies to their sheep

producers. The European Union maintains strict and effective tariff rate quotas on

lamb imports. Our industry looks to both the Agriculture Committee’s role in industry programs in the next farm bill and the Committee’s role in pushing for aggressive reform of Europe’s agriculture programs and barriers to assist the domestic

sheep business.

Our industry supports enhancement of the conservation title of the next farm bill

with support of prescriptive grazing with sheep.

Weed invasion into rangeland communities often results in reduced biodiversity,

increased soil erosion, degradation of wildlife habitat and water quality and reduced

carrying capacity for livestock.

Due to the fact there are many challenges when controlling invasive plants on

rangeland, including vast roadless areas that limit access for weed control and lands

of low economic value that make chemical and mechanical control impractical, these

challenges favor biological control methods. One biological control method that is an

under-exploited, readily available tool is prescribed livestock grazing, which is

quickly proving to be very effective for weed control.

Prescribed grazing is the application of livestock grazing at a specified season, duration and intensity to accomplish specific vegetation management goals. Scientific

studies and on-the-ground experiences have clearly demonstrated that livestock are

a promising tool in the battle against weeds in pastures, rangeland and forests.

We believe the conservation title should address programs and direction to support prescriptive grazing with sheep both for invasive species and noxious weed control.

Cost-share programs could be directed to prescriptive grazing projects to provide

financial and technical assistance through our industry to promote grazing contracts

with Federal, state, municipal, tribal or private lands for prescribed grazing. I add

that our industry believes prescribed grazing can be expanded to a revenue option

for farmers and ranchers which in turn strengthen the economies of rural areas of

the country.

As evident in the listening sessions on the farm bill that USDA Secretary Johanns

conducted last year, a number of comments were provided by producers in support

of a retained ewe lamb program in the next farm bill. The growth of the U.S. sheep

industry can in part be credited to the USDA retained ewe lamb program that was

in effect for 2002—2004. The incentive payment to producers to keep ewe lambs in

their breeding herd rather than sell them for slaughter encouraged producers to expand breeding herds which, in the longer term, will provide increased market lambs

to help U.S. producers maintain and increase their share of the American meat

case.

Sheep producers have two issues that can preferably be addressed by the Committee earlier than in the next farm bill.

Livestock Mandatory Price Reporting (LMPR) expired nearly a year ago and while

the Committee on Agriculture approved a five-year reauthorization, final legislation
206

has not been reached with the U.S. Senate. Many American lamb companies have

continued to comply voluntarily with LMPR however, importers have steadfastly refused to cooperate; therefore we lack 40 percent of wholesale lamb price data. We

have had no retail prices reported during this lapse and for two weeks last winter,

carcass lamb prices were not available. We appreciate the Committee effort to reauthorize LMPR and urge all expediency to finalize legislation in the 109th Congress.

Livestock Risk Protection (LRP) for the lamb industry has been under consideration by USDA since 2004. We request the Committee’s support for a pilot program

for lamb price-risk protection as has been provided for cattle and swine. The Federal

Crop Insurance Corporation board meets September 27–28 and we anticipate a pilot

program of LRP for lamb will be considered at that time. The lamb industry does

not have any price-risk management tools as slaughter and feeder lambs are not

traded on a commodity exchange. We believe the lamb industry to be a great candidate for the price risk management that was intended to be provided by the authority in the ‘‘Agriculture Risk Protection Act of 2000, as amended for Livestock

Risk Protection.

Thank you for the opportunity to provide the sheep industry priorities for the next

farm bill.

STATEMENT OF TOM BUIS

Chairman Goodlatte, Congressman Peterson, Members of the Committee, thank

you for the opportunity to testify today. My name is Tom Buis and I’m the president

of the National Farmers Union—a nationwide organization representing more than

250,000 farm, ranch and rural residents.

NFU members very much appreciate being included in several of your Committee’s field hearings. We were also pleased that the Senate Agriculture Committee

held similar sessions throughout the nation. Likewise, NFU held farm bill listening

sessions last month. In fact, more than 1,000 people attended one or more of our

13 sessions across the country. Two weeks ago, more than 250 of our NFU members

came to Washington to meet with members of the House, Senate and Administration to express their views on issues that arose at the listening sessions. To a large

extent, my testimony will address these issues. This, and other information on NFU

policies, can also be found at NFU.org.

farm bill Extension—Our members overwhelmingly believe that the 2002 farm bill

was a significant improvement over the previous farm bill, Freedom to Farm. They

also believe that writing a new farm bill at this time would not result in an improvement, but most likely a farm bill that would be a step back in addressing the

challenges we face in rural America. The Federal budget is a sea of red ink, and

there are many who want to blame the Federal deficit on farm programs—while in

reality, if all Federal programs were as fiscally responsible as the 2002 farm bill,

we would have a Federal budget surplus. Farm programs cost roughly $20 billion

annually out of a total Federal budget of $2.5 trillion. Eliminating farm programs

would only make a small difference, yet there is an organized effort to paint farmers

as the root of all evil. There is also a very deep concern that writing a farm bill

next year would put us in the position of guessing what happens at the World Trade

Organization negotiations. Some groups, some policy-makers, think that we should

unilaterally change our programs and hope for a WTO agreement. To our members

this is not negotiating from a position of strength. Ronald Reagan, in his negotiations with the Soviets, had leverage because he negotiated from a position of

strength. We should do the same on agriculture and not lead with our chins by unilaterally cutting safety net programs.

Finally, and probably the most compelling reason to extend the current farm bill

for a couple years is the current economic climate on farms and ranches throughout

America. As a result of skyrocketing input costs, without offsetting increases in commodity prices, many farm operations are in a financial bind. The risk of changing

farm programs is too great given the financial uncertainty on the farm.

For these reasons the NFU Board of Directors unanimously endorsed a two year

farm bill extension.

This does not mean that we like everything in the 2002 farm bill, and that there

are not significant opportunities for improvement. NFU will be at the front of the

line to make suggested changes, based upon the direct input of our members at the

listening sessions throughout the country.

Here are some of the suggestions we have heard thus far. We are still in the process of gathering information, and we will gladly share a more detailed list with the

committee later.
207

Profitability from the Marketplace—Above all else, farmers and ranchers want to

receive a fair price from the marketplace. They view the farm bill as an opportunity

to help them achieve profitability for their hard work and investment. farm bills

often focus on the symptoms and miss the cause of the challenges faced in rural

America. Producers’ biggest concern is the lack of a decent return from the market

for the commodities produced and/or raised. There is a strong feeling that the next

farm bill’s focus should be on solving the problems that are barriers to a fair, open

and competitive marketplace.

Two significant economic opportunities were cited at our listening sessions as

means of addressing profitability:

1) Direct farmer-to-consumer sales of farm-fresh, source-verified, natural and/or

organic commodities. The ‘‘buy local/buy fresh’’ trend is the fastest growing sector

of the food industry and presents an opportunity for farmers to price their products

based upon quality. Congress should enact legislation to encourage new-generation

food distribution systems. Value-added endeavors should lead the way to ensure

that more of the food dollar goes back to those who work the land and the communities in which they live.

2) The same goes for fuels from the farm—renewable, environmentally friendly

energy sources like ethanol and biodiesel are helping to rejuvenate rural communities. They also offer added benefits to our nation’s energy security and independence, by promoting less reliance on a handful of countries in the most volatile region

of the world. Polices should be targeted to ensure that the production of ethanol,

biodiesel and wind energy be locally owned, in order to build and maintain our rural

communities.

Natural Disaster Assistance—At every listening session, producers expressed frustration at the lack of assistance for natural disasters. A stream of personal accounts

made it clear that people are hurting and deserve to be assisted. More than 66 percent of all U.S. counties have been declared primary or contiguous disaster areas

by the U.S. Department of Agriculture (USDA) in 2006. A year ago, nearly 80 percent of all U.S. counties were declared weather-related disaster areas by either secretarial or presidential declarations.

The 2002 farm bill was not designed to provide protection or mitigate weatherrelated losses, and risk management programs are insufficient in addressing production and quality losses. Farmers and ranchers at the listening sessions called for

Congress to vote on disaster assistance before the November elections. They also

sought a permanent disaster program as part of the next farm bill, so that assistance is not contingent on ad hoc legislation and political volatility. Finally, they felt

strongly that disaster assistance should be equitable and that all weather related

disasters should be treated the same—a drought is just as devastating to crops as

a hurricane.

Fuels From The Farm/Energy—There was a common theme that American agriculture needs to play an even greater role in moving the country toward energy

independence. Programs and polices, including tax-based incentives, should ensure

that family farm agriculture and rural communities benefit from increased use of

renewable fuels from the farm. Linking agriculture and renewable energy is the key

to diversifying our energy markets and creating new economic opportunities for

rural America.

Conservation—There was extreme frustration that existing conservation-related

programs, such as the Conservation Security Program, remain under-funded. Likewise, producers called for increased conservation efforts on working lands and for

technical assistance resources, in addition to an expansion of the Conservation Reserve Program.

Trade—Producers at the listening sessions expressed concern that agriculture is

being used as a bargaining chip in the overall World Trade Organization (WTO) negotiations in order to get a trade deal on other industry sectors. The farm and ranch

families we heard from support negotiating from a position of strength and not unilaterally seeking new limits and disciplines for future domestic agricultural policies.

Producers also said that trade agreements must address all factors of trade including environmental standards, health and labor standards and currency manipulation. Finally, many expressed concerns that the U.S. agriculture trade balance has

shrunk from a surplus of $27 billion in 1996 to $3 billion today. Competitive imports

are outpacing exports so rapidly that the United States may become a net agriculture importer in the very near future.

Competition—Family farmers and ranchers told us that inadequate market competition is one of the most severe problems they face in the agriculture industry.

As evidenced by the sharp decline in the number of family farms in the past decade

and the increasing trend toward horizontal and vertical concentration in the agriculture and food sector, independent producers cannot succeed in the absence of pro-
208

tection from unfair, anti-competitive practices. Producers expressed concern that

mandatory Country-of-Origin Labeling (COOL) was not being implemented as called

for in the 2002 farm bill, the need for a ban on packer ownership of livestock, and

enforcement of existing antitrust laws.

Agriculture/Rural Budget—Producers sought new and creative programs for conservation, rural development, energy, research and other areas and expressed concern that the agriculture and rural budget not be reduced. The administration and

Congress continue to cut funding from farm bill programs through the annual appropriations and budget reconciliation process as a way of reducing the Federal deficit, despite the farm bill saving more than $15 billion in the first three years of enactment. Those speaking at the listening sessions supported keeping the budget for

agriculture and rural programs at current or increased levels.

With that Mr. Chairman, I thank you again for the opportunity to testify. I’d be

pleased to take any questions and thank all of the Members for their support of and

work on these important issues.
209
210
211
212
213
214
215
216
217
218
219
220
221
222
223
224
225
226
227
228
229
230
231
232
233
234
235
236
237
238
239
240
241
242
243
244
245
246
247
248
249
250
251
252
253
254
255
256
257
258
259
260
261

ADDITIONAL STATEMENT FOR THE RECORD BY MR. WYSOCKI

Dear Mr. Chairman:

I am responding on behalf of the Specialty Crop Farm Bill Alliance to the written

questions submitted for the record by Congressman Mike Pence at the September

20, 2006, committee hearing on the 2007 farm bill.

The Alliance is in the process of completing the final version of the economic

study referenced in my testimony at the hearing. This study, when completed, will

be published and made available to the committee. The economic study addresses

the overall economic impact of the so-called planting flexibility restriction.

The Alliance supports the continuation of the planting flexibility restriction as a

matter of equity. This provision has been included in every farm bill since 1985 and

has not differentiated between products sold fresh or for processing. All growers of

crops which receive direct payments have been subject to this restriction and it was

clear that crops which were added to those receiving direct payments would also be

subject to the restriction. In the 2002 farm bill, new program crops i.e., soybeans

and peanuts, were made eligible to receive direct payments. In addition to continuing and even expanding the exceptions to this restriction, soybeans were allowed a

1-year phase in so that existing crop patterns, particularly non program crops grown

on contract land for processing, could adjust to the change.

The Alliance does not believe that there is a difference in the economic disadvantage placed on a non program crop producer competing with a producer receiving

program benefits regardless of whether the products are sold fresh or sold for processing. Growers who do not grow fruits and vegetables on program acreage but compete for processing contracts with growers who do are economically disadvantaged.

Any exception which provides for the continuation of payments or maintenance of

base acres, even when interrupted during the year the fruits or vegetables are

planted, creates an economic playing field that is tilted in favor of those receiving

payments.
262
263
264
265
266

STATEMENT OF ALLEN HELMS

Chairman Goodlatte, Ranking Member Peterson and members of the committee,

thank you for holding this hearing and for providing me the opportunity to present

testimony on current and future farm policy.My name is Allen Helms. I serve as

Chairman of the National Cotton Council. I operate a diversified farming operation

on which I produce cotton, corn, soybeans, rice and wheat in Clarkedale, Arkansas.

I also am president of a grower-owned cotton gin.

In recent years, cotton acreage in the United States has fluctuated between 13.5

and 15.5 million acres as farmers adjust acreage based on agronomic practices and

relative returns between cotton and competing crops. In 2004 and 2005, growers in

many areas of the Cotton Belt were fortunate to have above-average yields, and as

a result, the U.S. produced record crops in excess of 23 million bales. Unfortunately,

weather in 2006 has not cooperated, and growers in several parts of the Cotton Belt

are facing much lower yields.

The demand base for U.S. fiber has shifted from the domestic market to the export market as increased imports of cotton textile and apparel products have reduced domestic mill use. In 1997, the U.S. textile industry consumed more than 11

million bales of cotton, or 60 percent of total disappearance. For the current marketing year, U.S. mill use is estimated at 5.5 million bales, which is 25 percent of total

use, with export markets accounting for the remainder. Exports of raw fiber are estimated to exceed 16 million bales. With the removal of textile import quotas and

China’s continued emergence as the largest spinner of raw cotton, the reliance on

exports is expected to continue for the foreseeable future. The U.S. position in the

global market has remained relatively stable over the past 30 years, averaging 15

percent and 19 percent of world area and production, respectively.

Mr. Chairman, the 2002 farm bill enjoys considerable support among cotton producers. That support appears to be widespread. Over the past six years, no farm

organization has called for major modification of current law nor has Congress approved any major changes.

The current farm bill provides a stable and effective national farm policy. The

combination of direct and counter-cyclical payments provide an effective means of

income support, especially when prices are low, without distorting planting decisions. The primary shortcoming of the 1996 law was the lack of a counter-cyclical

payment that triggered when prices are low. As a consequence, farmers were forced

to request emergency assistance from Congress year after year. This has been alleviated by the counter-cyclical program.

The direct payment mechanism helps provide financial stability required by our

lenders and suppliers, also without distorting production decisions.

The cotton industry believes it is important to maintain a balance between these

two mechanisms. Higher direct payments can have unintended impacts. They can

provide an incentive for landlords to take land away from producers; they can create

unexpected payment limitation issues; and they can cost the taxpayers more than

is necessary to ensure agricultural stability.

It is also important to consider that sudden, significant program changes can have

different regional impacts due to historical differences in cropping patterns and

yields.

We strongly support continuation of the marketing loan. It is clearly our top priority under all circumstances. The marketing loan responds to low prices, it does not

cause low prices. It ensures that U.S. cotton farmers are not residual suppliers in

the world market.

It is also especially important that all production remain eligible for the marketing loan so farmers can make informed, orderly marketing decisions. And, it is important to continue to administer the marketing loan in a manner that minimizes

forfeitures and allows U.S. commodities to be competitive in domestic and international markets. For example, an ineffective price discovery mechanism or arbitrary limits on loan eligibility signal our competitors that the United States will be

competitive on a portion but not all of our production. This is an open invitation

for foreign competitors to increase production, even in the absence of, or in spite of,

market price signals-and would return U.S. farmers to being residual suppliers.

In addition, we are disturbed by continual claims that 80 percent of all program

benefits go to fewer than 20 percent of the producers and that only the so-called

program crops receive direct benefits from farm law. These comments are misleading and serve to divide rather than inspire cooperation. First, it’s important to remember that program benefits do not just come as direct payments. Virtually every

commodity receives some type of support, whether through direct income payments,

price support programs or barriers to import. For example, for some commodities,

the U.S. imposes higher tariffs on imports during times when domestic supplies are
267

the most plentiful. In addition, some commodities receive support through government purchases of the product or by mandating use of the product. Favorable tax

laws also are used to provide support for certain products but the benefits are not

directly attributed to individual farmers. It also should be recognized that our current farm programs provide very real benefits to the livestock sector. Livestock interests benefit because our current farm programs facilitate preservation of a reliable, safe and affordable supply of feedstuffs such as corn, soybean meal and cottonseed.

It is also misleading to compare payments going to the number of farmers. With

the natural consolidation of agriculture, it is inevitable that the majority of program

benefits will go to the farmers who account for the majority of production. However,

it is also true that per-pound or per-bushel support is consistent across producers

regardless of size. Plus, payments to producers represent just a fraction of the costs

and risks incurred to enable farmers to produce. This is especially true in the current environment of increasing fuel and energy costs. Today’s program benefits are

an important safety net and not a windfall.

The cotton loan structure and world price calculation have served the industry

well. There have been minimal forfeitures and robust exports, but some modification

may be necessary to respond to the new emphasis on export markets and the termination of Step 2. Simplification of the loan rate schedule and modification of the calculation of a world price should be reviewed as part of any new farm law. We also

support elimination of the longstanding prohibition on USDA projecting cotton

prices for the purposes of administering the program.

Pima producers support continuation of a loan program with a competitiveness

provision to ensure U.S. extra-long staple cotton, also known as Pima cotton, remains competitive in international markets. The balance between the upland and

pima programs is important to ensure that acreage is planted in response to market

signals and not program benefits.

A sound farm policy is of little value to the cotton industry, as well as merchants,

cooperatives and processors, if arbitrary, unworkable limitations are placed on benefits. Current law requires USDA to determine if individuals meet certain eligibility

requirements and there are statutory limitations on each category of benefits. Unfortunately, these limits have been dictated by public perception, not the requirements of efficient, internationally competitive farming operations. Because there is

continuous pressure on USDA to streamline and downsize, it is reasonable to question the cost and efficiency of USDA administering and farmers complying with

complicated limitations provisions. Frankly, we believe limitations should be eliminated but at the very least any limitations in future law should not be more restrictive or disruptive than those in current law.

We believe conservation programs will continue to be an important component of

effective farm policy. These programs should be operated on a voluntary, cost-share

basis and are a valuable complement to commodity programs. However, they are not

an effective substitute for the safety-net provided by commodity programs. The Conservation Reserve Program, Conservation Security Program and Environmental

Quality Incentive Programs are proven, valuable ways to promote sound, sustainable practices through voluntary, cost-share, incentive based programs.

Access to an affordable crop insurance program also is an important tool for most

farmers. However, given the continued inequities of coverage and service in different

regions and for different crops it is probably time for another thorough evaluation

of the cost and benefits associated with the multi-peril crop insurance program. This

is especially important as the concept of a whole-farm, revenue insurance program

is gaining attention as a way to devise a new program that is potentially WTO-consistent. While we welcome the discussion, I cannot tell you that a majority of cotton

farmers will embrace crop insurance as a major component of future farm policy

without a great deal more information. In fact, there are those who would support

establishment of a permanent disaster assistance program in lieu of funding crop

insurance programs.

Continuation of an adequately funded export promotion program, including the

Market Access Program (MAP) and Foreign Market Development (FMD) Program,

are important in an export dependant agricultural economy. It also is valuable to

maintain a WTO-compliant export credit guarantee program. Individual farmers

and exporters do not have the necessary resources to operate effective promotion

programs which maintain and expand markets—but the public-private partnerships

facilitated by the MAP and FMD programs, using a cost-share approach, have proven highly effective and have the added advantage of being WTO-compliant.

The U.S. cotton industry understands the value and benefits of effective promotion. In addition to being original and continuous participants in FMD and MAP,

growers finance a very successful promotion program through a self-assessment
268

(check-off) program. In large part, and as a result of effective promotion, the average

U.S. consumer purchases 38 pounds of cotton textile and apparel products each

year. In the rest of the world, consumption is less than six pounds per person per

year. Promotion works! It is important that the authority for farmers to operate selfhelp, self-financed promotion programs be continued.

Mr. Chairman, we understand you and your colleagues will face significant challenges in designing and maintaining effective farm policy in the future. In addition

to the need to balance the diverse interests of different regions and commodities,

we know you have to compete for financial resources in times of a significant budget

deficit. We also realize you will have to consider compliance with international

agreements as you craft the next farm bill.

The suspension of the Doha negotiations, coupled with (uncertainties) stemming

from the cotton dispute panel decision, appear to have created doubt as to the best

way to steer domestic farm policy. However, I think two things are very clear:

We are far better off constructing a new farm bill under current WTO spending

ceilings than we would be under the kind of reductions contemplated in the U.S.

offer. We would rather have a $19.1 billion amber box ceiling and current rules,

than a $7.6 billion ceiling and worse rules.

We should ensure the next farm bill continues to allow the United States to negotiate from a position of strength.

The Doha negotiations were moving forward only when the U.S. made more concessions. Our trading partners have clearly ‘‘pocketed’’ the generous U.S. offer on

reductions in agricultural support and demanded further U.S. reductions while making it clear they would not agree to significant increases in market access. In fact,

several G–20 countries have worked to undermine trade liberalization as the primary goal of the Round.

By refusing to agree to equitable levels of market access, the EU and the developing world walked away from a U.S. offer of a 60 percent reduction in the ceiling

applicable to the most trade distorting subsidies.

That offer directly targeted the support category containing the marketing loan

program, the dairy program and the sugar program. The National Cotton Council

has estimated that this level of reduction, placed within the current farm bill structure, could lead to a 10–15 percent reduction in marketing loan rates. As growers

face rising energy costs, make no mistake—a 15 percent reduction in loan rates is

real and would immediately affect the financial structure of rural America.

The Doha Negotiations were leading toward an agreement with rigid, inflexible,

poorly defined limits and no real gains in market access. It is worse for U.S. cotton

farmers as the negotiators have unwisely carved out cotton for inequitable treatment while threatening to exempt China, the largest cotton market in the world,

from meaningful market access commitments.

A Doha Agreement that cuts U.S. amber box support by 60 percent, targets U.S.

cotton for inequitable cuts, provides little or no real market access gains for agriculture in general, and exempts the biggest cotton user in the world from liberalizing its cotton quota system will not benefit U.S. cotton or U.S. agriculture.

Each concession offered by the United States simply generated a call for an additional concession. The next farm bill, therefore, should enable the United States to

negotiate from a position of strength. We should not unilaterally disarm.

These inequitable demands by our international partners will not work for U.S.

agriculture. If other countries cannot match the U.S. level of ambition for market

access, while continuing their calls for even deeper cuts in U.S. domestic supports,

we should either withdraw or reduce our offer on domestic support. We sincerely

appreciate the continued, clear commitment of this Committee for an equitable

agreement. I am certain that your vocal support for a strong U.S. position has enabled our negotiators to be more effective during the meetings.

We remain concerned that cotton continues to be singled out for inequitable treatment. Cotton has already given more than any other commodity in these negotiations. The Step 2 program has been eliminated, the subsidy component has been removed from the Export Credit Guarantee program and in Hong Kong, least-developed countries were assured of receiving duty-free, quota-free access to the U.S. raw

cotton market as soon as an agreement is reached. An agreement that singles out

U.S. cotton for even more inequitable treatment cannot be supported by the US cotton industry.

Our longstanding customers, the U.S. textile industry, have faced tremendous

competition from low-cost imported apparel. Despite significant gains in productivity

and efficiency, U.S. textile manufacturers have found it difficult to compete with imported apparel products from primarily Asian sources. Cotton farmers are deeply

concerned with the loss of our manufacturing customer base. We will continue to

work with U.S. textile manufacturers to ensure that there are policies in place that
269

promote and reward fair competition. We also are committed to continue supplying

the top quality fiber necessary for U.S. manufacturers to produce internationally

competitive textile and apparel products. The loss of the Step 2 program had an adverse impact on our domestic manufacturers given their fragile financial conditions.

The remaining manufacturers have indicated strong interest in making revisions to

our Step 3 import policy and in developing a possible WTO compliant alternative

to Step 2.

The rapid decline in raw cotton consumption by domestic mills has created challenges for all cotton farmers who must identify new export markets to replace domestic consumption lost to imported products. The market has placed new and

added pressure on our infrastructure including surface transportation and port facilities. We are working with the industry and with USDA and Congress as appropriate to meet those challenges.

Although cotton fiber is our primary product, cottonseed and its products account

for 12 percent of the value of the crop at the farm gate. Cottonseed processing facilities provide important markets for our seed, add economic value and create employment. The increasing emphasis on renewable fuels can have varying impacts on cottonseed markets. Growth in biodiesel increases demand for vegetable oils, thus increasing the value of cottonseed. Also, the production and ginning of cotton produces

cellulosic product that is suitable for the production of renewable fuels. However,

our members are also closely watching the expansion in ethanol production. Interestingly, as ethanol production increases, one of the by-products—dried distillers’

grain—has depressed the value of cottonseed and meal in feed markets. This is

clearly an unintended consequence of policies and programs designed to stimulate

production of renewable fuels, and also an example of unforeseen impacts due to

dramatic policy changes.

Mr. Chairman, we understand you and your colleagues will face significant challenges in designing and maintaining effective farm policy in the future. In addition

to the need to balance the diverse interests of different regions and commodities,

we know you have to compete for financial resources in times of a significant budget

deficit. We also realize you will have to consider compliance with international

agreements as you craft future farm policy, but we appreciate that the next farm

bill will be written in Congress by the agriculture committees and not dictated by

the WTO.

In closing, I would reiterate the cotton industry’s overall support for the current

farm bill. Frankly, most cotton farmers and a majority of the industry would be satisfied with an extension of current law. We also know, however, that an extension

will face hurdles, both domestically and internationally. I am pleased to assure you

and your colleagues that the cotton industry is prepared to continue to work with

all interests to develop and support continuation of a balanced and effective policy

for all of U.S. agriculture.

Thank you for the opportunity to testify today. I will be pleased to respond to your

questions at the appropriate time.
270
271
272
273
274
275
276
277
278
279
280
281
282

STATEMENT OF THE FEDERAL MANAGERS ASSOCIATION

Chairman Goodlatte, Ranking Member Peterson and distinguished members of

the House Committee on Agriculture:

On behalf of the over 1,800 managers in the USDA Farm Service Agency and

Rural Development, and the nearly 200,000 managers in the Federal Government

whose interests are represented by Federal Managers Association (FMA), the National Association of Credit Specialists of the Farm Service Agency (NACS-FSA),

and the National Association of Credit Specialists of Rural Development (NACSRD), please allow us this opportunity to present our views before your Committee.

As Federal managers, we are committed to carrying out the mission of our agency

in the most efficient and cost effective manner while providing necessary services

to needy farmers and ranchers, rural residents, businesses and communities. We

truly appreciate your interest and leadership in ensuring our stability by assessing

the state of our Farm Loan Program and Rural Development Programs.

The mission of the Farm Service Agency is to ‘‘administer farm commodity, credit,

environmental, conservation, and emergency assistance programs for farmers and

ranchers.’’ As Loan Managers, we work daily with farmers and ranchers who, for

a variety of legitimate reasons, do not qualify for direct loans from private lenders.

In such cases, we offer both direct and guaranteed loans to assist farmers and

ranchers in getting started on a family-sized agricultural endeavor or expanding an

existing operation. To meet our mission, the agency provides direct loans of up to

$200,000 or guaranteed loans from a private lender to assure repayment and minimize the commercial lenders’ risk. Ideally, the goal for these small loans is for farmers and ranchers to graduate through the process from receiving direct loans from

the government, to having the government guarantee a loan from a private lender,

to establishing their own sustainable line of direct private loans.

The effective and capable leadership of Deputy Administrator Carolyn Cooksie in

conjunction with recent years of positive economic fortunes allows us to report that,

from our perspective, the FSA’s farm loan programs are in good standing. The agency has highlighted that loan funds are in high demand and loan default and loss

rates are low. The Office of Management and Budget (OMB) Program Assessment

Rating Tool (PART) scores and the ‘‘Farm Service Agency Direct Loan Program Effectiveness Study’’ performed by the University of Arkansas Department of Agricultural Economics and Agribusiness confirm that the loan programs are meeting objectives, being managed effectively, and sit in good standing.

With few exceptions, the program changes made with the passage of the 2002

farm bill have pleased its customers, the commercial lenders, farmers and ranchers.

The bill authorized the Farm Loan Program to modernize its delivery tools, regulatory rules and resource infrastructure to better serve rural Americans. Despite

budget shortfalls and a growing disparity in information technology resources, significant enhancements have been achieved in the use of existing modern technology

and expansion into Web-based programs. We are in the final stages of streamlining

loan program regulations and updating our forms. This effort should result in the

elimination of approximately 38 regulation manuals. Any remaining documents in

use will be automated to improve cost savings, enhanced efficiency and easy access

for internal and external customers. Ms. Cooksie is to be complimented for her accomplishments in modernizing the programs given the limited resources, improving

customer service, improving program efficiency and for maintaining a loan portfolio

that is worthy of our continued support.

We do not wish to overshadow the many accomplishments of the Agency and the

incredible work being conducted by the dedicated managers and employees of its

workforce. However, as responsible stewards of the taxpayers’ dollars, we find it

necessary to express some concerns for the future economic well being of rural

America and the continued effectiveness of the programs that we administer. Somewhat like the fishermen at sea looking into the horizon at the bourgeoning storm,

there seems to be a number of warning signs that indicate an impending perfect

storm could hit the shores of the FSA and threaten the stability of rural America.

Rising interest rates, high agricultural production costs, high capital investment

costs, increasing costs of living, the probability of less generous commodity program

benefits, shrinking agricultural profit margins, a declining number of lenders offering credit to family-size farm operations, outdated information technology resources

and a ‘‘human capital crisis’’ of increasing attrition rates at the Agency are all indications that a potentially devastating scenario could cripple the strength and stability of the farm loan program. We recognize the inherent risks of the cyclical agriculture industry that we are in and understand that no degree of preparation will

allow us to save every family farm, rural business, rural school or rural community

from market conditions. Yet, as responsible stewards of the program, it is our opin-
283

ion that we must seize this opportunity to stave off the detrimental effects of preventable problems and secure the tools that will be necessary for us to weather the

storm and save as many family farms as possible. In saving family-size farms and

ranches we will help preserve the economic stability of rural America. The continued effectiveness of farm loan programs depends on our ability to retool and prepare

for the storm.

POSITIVES AND MISSED OPPORTUNITIES IN THE 2002 FARM BILL

During the 2002 farm bill debate, NACS-FSA and FMA supported many of the

changes that were eventually adopted by Congress and implemented in the field.

The most critical of issues that Congress supported and we believe has significantly

improved the programs and services for rural Americans were:

• The ‘‘bridge loans’’ that allowed loan applicants to secure approval for real estate purchases from FSA and then to refinance a temporary source of credit to purchase farm real estate at times when loan funds are not available;

• Changes in the beginning farmer down payment loan program, which increased

FSA’s participation level from 30 percent to 40 percent and increased the amortization period from 10 years to 15 years;

• The passage of an amendment that required an annual rather than a semiannual assessment of each direct loan borrower’s operation to reduce the amount

of paper work and unburden managers with a more effective assessment timeframe;

• The increase in the ‘‘Lo-Doc’’ benchmark allowed more loan applicants to use

the streamlined loan processing provisions; and,

• The continuation of interest assistance on guaranteed farm operating loans.

These changes have allowed the farm loan program to develop into the robust government service it is today. However, there were a number of other issues which

we believed would further improve the program and allow it to maintain its stability

that were overlooked. We proposed some of these reforms in 2001 and 2002 during

the consideration of the 2002 farm bill. More specifically, addressing term limits on

direct and guaranteed loans, increasing loan limits, blanket assignment authority

on FSA program payments, and allowing FSA to guarantee ‘‘aggie’’ or tax exempt

bond loans made by commercial lenders are a few issues that we recommended as

further improving the effectiveness of the program, but were ultimately omitted

from the 2002 farm bill. As we face the expiration of the 2002 farm bill, this seems

like an opportune time for Congress to act on reforming these important issues during the reauthorization of the Agriculture, Conservation and Rural Enhancement

Act.

REFORMS TO THE FARM LOAN PROGRAM; END THE TERM LIMITS

The phrase ‘‘term limit’’ is used to describe rules limiting the number of years

that a customer can be enrolled in the FSA direct and guarantee loan programs.

The term limits for direct loan programs are 7 to 10 years depending on the type

of loan received. A customer who is unable to obtain credit from commercial sources

can only receive loans from the agency for seven to ten years at which point the

farmer or rancher must either have built up a strong enough credit to go to a private lender or face the alternative of being unable to sustain their operations. Term

limits do not have any caveats or exclusions for natural disasters, falling prices or

random occurrences such as a ban imposed on the American beef industry by the

Japanese government. Term limits are hard and fast dates that set forth a get lucky

or get out mandate seemingly unsuitable for a need based Federal farm loan program. The reality is many needy farmers and ranchers are unable to apply for loans

because of these arbitrary term limits.

In our line of work, these are not just theoretical examples. Day in and day out,

we encounter good, hard working people who just need a little more assistance or

a little more time to stay afloat. For instance, a Wisconsin dairy farmer who cannot

apply for credit to rebuild his dairy barn that burned down, or the Texas farmer

with a terminally ill wife who suffered two consecutive years of crop failures as a

result of a severe drought, is unable to secure credit to continue a farm operation

that has traditionally been profitable. As a farm loan manager, these arbitrary

standards put us in the unenviable position of turning away otherwise qualified applicants such as a forty year old apple orchard farmer from Washington forced to

sell a third-generation farm after 20 years of ownership because three consecutive

years of low apple prices eroded her financial condition and prevented her from securing commercial credit, or more than 375 Indiana farmers who will not be eligible

for FSA loans unless the term limits are removed. These are real scenarios collected

from our members across the country that reflect the reality of a farm loan program
284

established to aid people in these situations, but are rendered useless due to the

unfortunate bureaucracy.

A similar situation is occurring on a family farm in South Dakota. The family has

one year of FSA direct operating loan eligibility remaining. For example, in this

area, we lost the majority of three grain crops over the past four of five years. Our

corn yield has plummeted from around 76 bushels per acre to 47 bushels per acre

during the past 10 years. Unfortunately, Federal crop insurance does little to assist

farmers in areas that suffer multiple crop failures. With only one year of FSA loan

eligibility remaining, it is not likely that they will be able to prosper enough to meet

commercial lending standards within the next 12 months. The family will lose their

safety net and their source of financing within one year. Simply allowing an extension of the term limits would give this family more time to get on their feet and

build an economically sustainable farm.

The amount of capital required to maintain a viable farming operation is staggering. In the best of times the profit margins are slim, often requiring more than

seven to ten years to build the equity and profitability that commercial lenders require. FSA loan programs are a critical part of the safety net that was created to

assist viable family-size farmers and ranchers who are unable to secure commercial

credit at affordable rates and terms. By neglecting this issue, we are hindering the

sustainable development of rural farmers and ranchers by forcing term limits instead of working with the fluctuating markets and unique agricultural environments.

Provisions contained in the 2002 farm bill allowed for a two-year waiver of direct

operating loan term limits on a case-by-case basis. Although it was appreciated, this

band-aid did not fix the problem and the agency must then deny essential services

to a large number of farmers and ranchers. One farm loan manager from Texas reports that a prolonged drought and term limits will force 23 of his customers to seek

a new line of work within twelve months with approximately 80 percent of the 130

direct loan borrowers in that area to follow within a few years since they do not

meet today’s ‘‘chain bank underwriting standards.’’ A loan manager in Wisconsin reported that 63 of 103 direct loan borrowers in his area will become ineligible for

direct loans before the next farm bill is signed. As these families exit the farming

business, liquidate their assets and move to the city to find work, the rural community and rural economy will suffer a devastating blow. It is possible to prevent this

and help encourage sustainable rural agricultural development.

Term limits also apply to loans made by commercial lenders that are guaranteed

by FSA. Term limits on guaranteed loans were waived through the end of the 2002

farm bill and will become effective again on January 1, 2007. Waiving the term limit

rule on FSA guaranteed loans did not jeopardize the integrity or effectiveness of the

program in any way, and guaranteed loan activity remained healthy while loan default and loss rates remained low. Therefore, we strongly recommend that the Committee support farm bill provisions to eliminate term limit rules on FSA direct and

guaranteed farm loan programs.

By failing to address the elimination of this bureaucratic matter, we are denying

the Agency a tool that will be essential in our efforts to save viable farm operations

and provide stability to rural economies when the seas get rough and rural America

needs us most. The get lucky or get out term limit rules should be eliminated in

favor of agency graduation, market placement and credit elsewhere provisions that

are already in existence. When properly applied, graduation, market placement and

credit elsewhere rules are effective in assuring that FSA is not competing with private industry in providing essential credit to farmers and ranchers.

As loan managers, it takes extensive training and experience to become a manager or an officer. The decisions that we render are not done without proper oversight, review, consideration and reconsideration. It is in our interest as managers

to provide economically sound loans to qualified seekers. We are not recommending

this modification as a way to impair the loan making structure or create an unbalanced risk for the Federal Government. Rather, it is a way to use government resources as they were intended to be used in a profoundly helpful program such as

this.

INCREASE THE FARM LOAN LIMITS

Loan limits describe the maximum amount of dollars that an applicant can borrow from FSA. As managers, we also struggle with the hindrance of the limits

placed on the level of loan we may make at a given time. FSA’s direct operating

loan (OL), which is used to finance production expenses, machinery, equipment, vehicles, livestock or other short and intermediate term farm business ventures, has

a limit of $200,000. Direct farm ownership (FO) loans, which are used to finance
285

the purchase or improvement of real estate, also have a $200,000 loan limit. These

loan limits were established more than 20 years ago and do not meet the needs of

modern day operations. Production and capital costs increased significantly over the

past 20 years. Direct OL and direct FO loan limits need to be adjusted to allow FSA

to effectively serve family-size farmers and ranchers in all areas of this great nation.

A farm loan official from Wisconsin reported to us that a farmstead costing less

than $200,000 20 years ago is currently selling for at least $650,000 and they are

lucky if a $200,000 loan is enough to purchase a ten acre farmstead. East and West

coast states are realizing an even larger spread between our current loan limit and

the amount of funds needed to finance the purchase of a modest family-size farm.

Of greater concern is that our operating loan limit is preventing FSA from meeting the needs of customers. A loan manager from Washington reports that a typical

50 acre fruit production operation in his area requires $150,000 operating capital

annually, and they do not sell their crop from 1 year before needing funds to

produce the following year’s crop. This means this customer will need $300,000 of

operating credit for a short period of time when only $200,000 is available from

FSA. This also does not take into consideration his credit needs for machinery and

equipment with the agency on a term loan. The Washington loan official, with just

reason, claims that we are setting beginning farmers up and ‘‘directly participating

in their demise’’ because our loan limits are not sufficient to meet the needs of the

customers that we are attempting to assist. Similar stories may be heard from loan

officials in Georgia, Florida, California, Iowa, Minnesota or any other state in the

country. Agricultural production, start up and capital costs 20 years ago are not a

reasonable baseline for use in establishing loan limits today.

We urge the Committee to consider raising the loan limits for direct operating

loans to at least $300,000 along with the direct farm ownership loan limit. As an

alternative, we suggest that the Committee eliminate provisions setting forth a separate loan limit for each type of loan—operating and farm ownership—and authorize individuals to receive any combination of direct operating and farm ownership

loans for a total amount not to exceed $500,000 to $600,000 as the Committee may

see fit. A combined loan limit may help customers who need FSA operating or farm

ownership loans, but are able to secure their other credit needs from a commercial

lender.

Prevent the increase of guaranteed loan fees. The President recently proposed a

150 to 450 percent increase in fees charged to commercial lenders who work with

FSA in offering guaranteed loans. According to the American Bankers Association

(ABA), the FSA guaranteed loan programs are a remarkable success story representing a supreme example of a true public-private partnership that will suffer

considerably if the new fees are incurred. We agree with ABA’s assessment of the

resulting problems from increasing the guaranteed fees. At present, the fees are

modest and the guaranteed loan programs are performing as intended. Program

usage has been strong. Loan default and loss rates have been low. ABA’s concern

that an increase in fees will have a significant adverse effect on FSA guaranteed

loan programs is valid. However, we believe that the impact of such an action will

be much greater than ABA has reported.

Family-size farmers and ranchers use guaranteed loans because their credit represents more risk than a commercial lender is able to incur without the backing of

a guarantee from FSA. Guaranteed loan customers generally fail to meet commercial lending standards due to a lack of repayment margin or a lack of owner equity;

therefore, assessing larger guaranteed fees will add to the already sizeable financial

burdens of the customers that we are attempting to serve.

In understanding the relationship that exists between the FSA direct and guaranteed loan programs one will recognize what we believe to be an even greater reason

for concern regarding the proposed increase in fees. Guaranteed loans are used to

help direct loan borrowers secure credit from commercial lenders, otherwise known

as graduating; to help loan applicants secure all or part of their credit needs from

a commercial lender, or market placement; and to serve those who do not quite meet

commercial lending standards but can prosper without having to rely on FSA direct

loans. Increasing guaranteed loan fees will reduce guaranteed loan demand and increase demand for direct loan funds, thus, shifting loan making and loan servicing

responsibilities from commercial lenders to FSA. FSA does not have sufficient resources in terms of loan funds or human capital to meet a significant increase in

direct loan demand.

In an effort to preserve program effectiveness and prevent administrative fee increases in future years, we ask that the Committee add a provision to the 2007 farm

bill that will require Congressional approval of any future USDA guaranteed loan

fee increases.
286

LIABILITY INSURANCE FOR PROGRAM MANAGERS

In 1998, Congress mandated that agencies cover 50 percent of the professional liability insurance premiums for management officials in supervisory roles. This applied to managers across the Federal Government. As it is an inherent hazard of

their job, the government, like most private employers, covers a percentage of the

cost for managers to maintain liability insurance should a claim be brought forth

that names them as one of the defendants. The professional liability insurance offered in affiliation with FMA costs roughly $300 per year, and would be an obligation of $150 for the Agency. This protects against a supervisor or manager being

named in a lawsuit or other kind of legal action.

A limitation in the law stipulates that the employee must be a supervisor in order

for the government to cover 50 percent of the insurance premiums for liability coverage. The reality is that many other management officials who are in decision-making positions, such as farm loan officials and contracting officials, may be subject

to legal action even though they do not meet the definition of manager under the

law. In their case, they do not have the same support from the Federal Government

that Federal supervisors do in recognition of the hazards of the job. We recommend

that Congress amend the 1998 law to require agencies, including the Farm Service

Agency and Rural Development, to extend coverage of 50 percent of the professional

liability insurance premiums to non-supervisory Federal managers.

ADDRESSING THE HUMAN CAPITAL CRISIS

The Office of Personnel Management Director Linda Springer recently unveiled

a four-year operational plan to address both internal and government-wide human

capital needs in order to prevent what she called the impending ‘‘retirement tsunami’’ in the Federal Government. Over the next few years, more than 50 percent

of the entire Federal workforce and more than 60 percent of all managers will be

eligible for retirement. FSA is not immune to the potentially disastrous impact of

the baby boomer retirement wave on the agencies most valuable commodity, the

human capital workforce.

In an effort to develop a strategic plan for managing human capital, FSA performed a study identifying mission critical positions, evaluating retirement eligibility trends, and assessing the amount of time required to train personnel to perform mission critical tasks. Results of the study are alarming. The study looked at

mission critical positions in the 1165 FSA classification series including: Farm Loan

Officers, Farm Loan Managers, Farm Loan Specialists, and Farm Loan Chiefs. Of

the 1165 employees studied, 28 percent of the employees will be retirement eligible

as of 2008, while 50 percent of the supervisory employees will be eligible in the

same timeframe.

Agency officials reported that the average 1165 job series employee is retiring

within three months of becoming eligible to retire as compared with the average

Federal employee who works for three years beyond the date that they become eligible to retire. FSA also determined that it requires 18 to 24 months to train an employee to perform entry-level Farm Loan Officer’s duties. The concern is compounded by the realization that FSA farm loan program personnel, after multiple

consolidation and streamlining efforts, are delivering loans from fewer than eight

hundred FSA field office locations often covering very large geographic regions.

Farm loan program staffing levels in many states are few in number and sparsely

scattered leaving no fully trained loan personnel within a reasonable commuting

distance to fill field office loan official or loan technician positions that become vacant for any length of time. Customer service is suffering at an increasing number

of locations.

Poor credit decisions made by inexperienced or inadequately trained loan officials

during good economic times often go unnoticed. In good times, above normal income

and/or increasing asset values allow customers to get by and allow the agency to

avoid a loss. In less favorable economic times, poor credit decisions often result in

costly loan losses and the failure of farm operations that may have been avoided

by a more experienced loan official armed with the knowledge, skills and ability to

address the complexities of the job. As family-size farms fail, rural businesses, rural

communities and rural economies suffer. Delayed action could prove to be hazardous

to the economic well being of rural communities as we embark on less favorable

times with too little experience, too little training and too few personnel in mission

critical loan official and loan technician positions.

The state of Michigan is a great example of a potential human capital problem.

Currently, there are 52 loan officers working in the farm loan program area. Of the

staff in the field, four managers are eligible for retirement as we speak, six more

within the next two years, and five additional employees over the next five years
287

for a total of 15 farm loan managers. The sad part is there are only 20 farm loan

managers in Michigan and it takes a minimum of two years to train a new manager. Should the employees that are eligible to leave today retire, there will be 11

counties of the 83 counties in Michigan with no loan officers present. Within two

years the potential counties increases to 38. Presently, there are no additional loan

officers in the pipeline. In simple terms, 46 percent of the state of Michigan has the

potential to have no loan officer coverage for FSA within the next 2 years.

We would be remiss if we failed to compliment FSA Administrator Teresa

Lasseter for the positive first steps that she took towards addressing our concerns.

Administrator Lasseter set aside 30 full time equivalents (FTEs) for Farm Loan Officer Trainee (FLOT) positions in 2006 and is proposing to allocate 15 additional

FTEs for FLOT positions in 2007. Administrator Lasseter’s actions, while extremely

positive and possibly the best that she can do within current budget constraints,

may prove to be too little too late unless Congress provides additional resources to

assist her efforts.

In order to preserve program efficiency and effectiveness, we would like to encourage the Committee to work with appropriators in providing additional funding and

FTEs to allow the Administrator to hire and begin training Farm Loan Officers and

Farm Loan Program Technicians 18 to 24 months before the trainer walks out the

door leaving no-one to train a new hire and no-one to efficiently and effectively carry

out and fulfill program objectives. Furthermore, we would ask that Congress approve an allocation for training and travel funds targeted at assuring that the Farm

Loan Officers and Farm Loan Program Technicians are properly trained during

their 18 to 24 month apprenticeship.

INFORMATION TECHNOLOGY FUNDING AND CAPITAL NEEDS

One of the five pillars of the President’s Management Agenda is to bring all Federal agencies up-to-par when it comes to e-government. The expansion of electronic

government programs seeks to meet the high demand of government services while

reducing the cost to the Federal Government. Farm Loan Programs moved expeditiously into an e-government compliant organization to achieve enhanced levels of

efficiency through better use of automation tools. However, if we do not continue

supporting investments in hardware and software to complete the modernization

process we can not achieve desired results. We made a commitment; we are mid

stream and we can not turn back.

From an employee’s perspective, the most frustrating part of working with Webbased applications is the connectivity and the down time. Providing quality customer service depends on our ability to access and use Web-based systems every

hour of the day and night. Sending customers home without service because the

FSA servers are down is simply not acceptable. Even more unacceptable is an employee staring into a computer monitor waiting for the next screen to come up because connectivity is woefully inadequate. This is not a model of government efficiency. Rather, this forces employees to modify their business practices because they

can not depend on infrastructure to support the Web-based applications to work

properly. Appointments cancelled or work deferred because computer systems are

not working, can not be replaced and are awaiting repair should not become common place.

Reduced funding for information technology has had and will continue to have a

significant adverse impact on agency employees and on the quality of service provided. We ask that information technology funding levels be maintained, at minimum, or improved to allow the Agency to attain Congressional objectives for providing efficient, effective, and quality services to rural Americans.

Several years ago, the USDA established an equipment replacement plan that

would allow for the timely replacement of computer equipment. Budget reductions,

however, forced the Department to amend their plan, and with fewer information

technology personnel available to repair the machines, the Department must attempt to keep the average computer in service forty percent longer than was outlined in the original plan.

Cuts in personnel coupled with cuts in information technology expenditures are

a double-edged sword. We need the efficiencies from better software and hardware

to achieve agency objectives with fewer employees. However, information technology

budget items are routinely cut in order to meet short-term obligations. We recommend that information technology objectives be adequately funded and departments be held accountable for achieving objectives within budget. Information technology enhancements are an investment in our future. Funds that are intended for

information technology enhancements must not be diverted to pay rent, utilities and

similar short-term obligations.
288

Reforms to the Rural Development Program; Guaranteed Housing Program

The mission of Rural Development (RD) is to increase rural residents’ economic

opportunities and improve their quality of life. This is done by forging partnerships

with rural communities and funding projects that bring needed housing, community

facilities and utilities. RD also provides technical assistance and financial backing

for rural businesses and cooperatives to create quality jobs in rural areas and promote the President’s National Energy Policy. Rural Development works with lowincome individuals, state, local and Indian tribal governments, as well as private

and nonprofit organizations and user-owned cooperatives.

Rural Development’s single family housing programs assist rural residents in purchasing or repairing homes at reasonable rates and terms. This assistance is accomplished using both a direct loan program and by partnering with conventional lenders in offering guaranteed loans to low income families.

In fiscal year 2006, RD will have guaranteed over 30,000 single-family housing

loans nationwide, helping those families achieve the dream of homeownership. The

program also assists rural communities by providing an increased tax base and better living conditions for their residents. The delinquency rate on these loans is approximately 12 percent, which is lower than the other government loan programs

within the Federal Housing Authority and the Department of Veterans Affairs. The

subsidy rate for this program has remained constant and is projected to experience

a slight decline in FY07, demonstrating that its costs are not increasing. Currently,

there is a two percent fee charged by Rural Development for the guaranteed program and this fee is passed onto the borrower as a loan cost.

The President’s Budget proposal for the United States Department of Agriculture

Rural Development (USDA-RD) program for fiscal year 2007 included a guaranteed

fee increase to three percent for Section 502 Guaranteed Housing Program. We believe that this will have detrimental effects on the home buyer, rural lenders and

the Guaranteed Rural Housing Program seeking to build a stronger rural community.

For the homebuyer, significant additional costs could be incurred as the potential

buyer seeks options for purchase. For example, given the current interest rates of

7.125 percent, a potential homebuyer with an average size loan of $98,500 in fiscal

year 2006 would pay an extra $2,390.40 over the life of the loan with the one percent increase in guaranteed fees of $985. While this may not seem like a lot of

money, for people in need it could mean the difference between meeting the mortgage every month or coming up short.

In addition, increasing the guaranteed fee will create a triple threat to potential

homebuyers. This is not just about the isolated issue of an increase in the guaranteed fee. The potential homebuyer is now facing significantly higher interest rates

on top of rising home prices; interest rates as calculated for the Section 502 Guaranteed Housing Program rose 114 basis points from 6/1/05 to 6/1/06. The negative synergy of higher fees, higher interest rates, and higher home prices will lock our low

and moderate applicants out of the home buying process.

This can lead to bad home financing choices that will work against long term

home ownership for many rural residents. To avoid the negative perception of a

three percent guaranteed fee, applicants may choose sub-prime products with teaser

interest rates followed by significant rate increases, as well as adjustable terms versus our fixed-rate loans in the USDA 502 Guaranteed Housing Program, all of

which will work against long term homeownership opportunities for our low and

moderate income rural applicants.

The concept of the increased USDA-RD guaranteed fee will be difficult to sell. A

one-time charge of three percent will make this one of the most expensive mortgage

insurance options in the market place. Furthermore, the mortgage insurance is nonrefundable as is the case on other single-premium mortgage insurance options. This

is a real concern that has come from feedback received from our nationwide originators following the release of the President’s FY07 Budget, as well as from USDARD field offices following their discussions with local originators.

As stated above, the combined problem of higher fees, higher interest rates, and

higher home prices means decreased borrower qualification. Fewer borrowers qualifying mean fewer loans closing and ultimately loss of revenue to the private sector.

Several states have high cost tests (otherwise known as predatory lending tests)

that restrict all costs/fees to no more than five percent of the loan amount. With

the guaranteed fee raised to three percent, there is no way economically for the private sector originators, the appraiser, the settlement agents, etc, to work off the remaining two percent.

Under this increased fee scenario, there will be destructive long term effects on

the program particularly in threatening the heightened adverse selection. For with

this very expensive mortgage insurance requirement, the Section 502 Guaranteed
289

Housing Program will attract with greater frequency applicants with poor credit and

income profiles that do not have other choices. This deterioration in credit quality

will ultimately increase loss rates and loss claims paid by USDA-RD. Higher loss

rates and loss claims will then ultimately require higher subsidies (even higher

guarantee fees) to maintain the current economics of the program.

We would encourage the Committee to consider these issues as they move forward

in reforming guaranteed fees in the USDA-RD program. An increase in fees could

significantly damage the vitality of the program and its service to needy Americans.

TAX EXEMPT FINANCING FOR ESSENTIAL COMMUNITY PROJECTS

Rural communities often finance essential community projects (water, sewer, fire

stations, health clinics, assisted living facilities, etc) by issuing tax-exempt bonds.

Project financing costs are thereby reduced because investors are willing to accept

a lower rate of return (knowing that the interest income generated by the bonds is

not subject to taxation). Alternatively, some rural communities utilize USDA loan

guarantees to finance these projects. Loan guarantees also confer lower financing

costs because investors’ risk is limited. In practice, these guarantees result in interest rates that are one to one and a half percent lower than non-guaranteed loans.

Under current law, however, rural communities are not allowed to combine these

two mechanisms (tax exempt bonds and loan guarantees) to further reduce financing costs. In other words, local communities have to choose between USDA loan

guarantees or tax exempt bonds. We encourage reforms similar to H.R. 2378 that

would allow local project sponsors to utilize both USDA loan guarantees and taxexempt bonds to achieve lower financing costs. We believe these benefits include: • Lower end-user fees or reduced tax burdens on local residents;

• Improved viability of rural lenders (USDA guarantees help preserve lending authority of rural banks, allow for longer-loan terms, reduce interest rates and improve the marketability of loans on secondary markets); • Help in reducing the backlog of loan applications for small communities to build

or improve water, wastewater, and essential community facilities, where USDA

Rural Development currently has an application backlog of over a billion dollars in

water and wastewater project applications; and, • Improvements to critical infrastructure (water, sewer, medical facilities and public safety) to help rural communities become more attractive to business and industry, thereby enhancing local economic activity.

Recently, an Ohio rural county district obtained a taxable loan guarantee to finance a local water project. If legislation like H.R. 2378 were enacted, the tax exemption would have saved the district $43,000 in interest in the first year. The savings would have also resulted in lower end-user utility fees. In addition, a rural

Pennsylvania health care provider, primarily serving migrant workers and low income families, sought $1 million in RD guaranteed financing for the construction

of a new administrative office and pharmacy. The provider later withdrew the application due to the high interest costs the loan would have incurred. In Idaho, a rural

community was unable to secure RD guaranteed financing for a new waste water

treatment project due to costs incurred from the taxable bond. These costs amounted to $11,000 per month or $2.64 million over the life of the proposed loan. These

are just a few of the many stories we have heard from our members across the country. Without question, the inability to combine tax exempt bonds and loan guarantees can have devastating effects rural communities.

CHANGING THE INTEREST RATE STRUCTURE OF THE WATER AND ENVIRONMENTAL

PROGRAM

The existing three-tiered interest rate structure within the direct loan program

operated by the Water and Environmental Programs (WEP) of the Rural Utilities

Program (RUP) provides for a fixed poverty interest rate of 4.5 percent regardless

of the current market rate. The intermediate rate is set at the poverty rate plus

one-half the difference between the poverty rate and the market rate. The third tier,

the market rate, is the average of the Bond Buyer (11-GO Bond) Index for the four

weeks prior to the first Friday of the first month before the beginning of the quarter. The market rate applies to all loans that do not qualify for a poverty or intermediate interest rate.

This interest rate structure recently revealed that the bond index had dropped

below the established poverty rate for WEP direct loans on four occasions. This drop

resulted in a market rate for the loans that was lower than the poverty rate. The

drop meant that the customers eligible for the poverty and intermediate rate loans

would repay their loans at a rate higher than the market rate customers would pay.

As the name implies, the poverty rate should be the lowest rate available to our
290

customers. It is our sense is that we have not been able to help as many small, poverty income communities within the current structure.

Based on current market conditions and the low income levels of families living

in rural communities, we propose the current interest rate structure be so the Agency can improve the delivery of its programs and increase their impact in rural

America. Our proposal is as follows:

• There would be no change in the current process for determining the market

rate.

• The intermediate rate would be 80 percent of the market rate, but not to exceed

7 percent.

• The poverty rate would be 60 percent of the market rate, but not to exceed 5

percent.

Maintaining the three-tiered interest rate structure, this proposal will float the

poverty rate with market rate changes just like the intermediate rate does currently. When interest rates rise, the poverty rate will also rise, thus helping to keep

the subsidy from rising as much as if the poverty rate were fixed. The proposed interest rate change will allow Rural Development to assist more rural communities

by providing them with increased borrowing capacity. The flexibility created by the

proposed change will allow RD to easily adapt to market changes. With the ever

shrinking grant dollars being made available, this proposal will play a key role in

trying to keep user rates affordable for our borrowers.

It is our contention that the Farm Service Agency’s Farm Loan Program loan

portfolio is in good financial standing. The USDA Farm Loan Program makes it possible for beginning, financially strapped or multi-generational family farmers and

ranchers to compete in the market place. The 2002 farm bill aided the efforts of the

FSA in achieving its mission, but we have grave concerns that a number of pending

issues on the horizon could place at risk the taxpayer’s investment in the agency’s

loan portfolio.

We are standing on the precipice of what could be a disastrous storm. The combination of questionable economic conditions, unknown weather patterns, human

capital deficiencies, technology failures, and bureaucratic hindrances rests on the

horizon in a preventable scenario that could be harmful to rural America and the

agriculture industry. Congress and this Committee is in the pivotal position to address some of these pending disruptions, and there is no better time than now as

the 2002 farm bill is set to expire at the end of this year.

We recommend the elimination of term limits as a means to free up farm loan

managers to make sound financial decisions in offering loans to qualified recipients

who otherwise would be ineligible because of the current regulations. It also means

preventing scenarios like a Georgia family of five—a farming father, and a stay at

home mom—from defaulting on their loan because they reached the term limit and

could not find a private lender to take on the small farm as an investment. As the

cost of living goes up, so goes the cost of maintaining and establishing farms and

ranches. Rural America has not been immune to the cost increases of a growing national economy, and the Federal Government farm loan program limits should keep

up with the growth. In order to reap rewards of investment, it is important to provide loans that will adequately assist in the cost of farm and ranch maintenance.

It is time to increase the loan limit from $200,000 to at least $300,000. Additionally,

charging substantial increases in guaranteed fees to commercial lenders only adds

to the financial burden of the farmer or rancher seeking private loans from the

same commercial lenders. Congress must also work to protect the workforce of

America from often frivolous lawsuits by supporting the inclusion of loan officials

and contracting officers into the liability insurance reimbursement program.

As previously mentioned, the mission of Rural Development is to enhance the

ability of rural communities to develop, grow, and improve their quality of life by

targeting financial and technical resources in areas of greatest need. The changes

we have outlined will undoubtedly assist the Agency with this mission. With the ongoing demands on Federal appropriations, we encourage reforms similar to H.R.

2378 that would allow our customers to utilize both USDA loan guarantees and taxexempt bonds to achieve lower financing costs. Such reforms would also help eliminate the one billion dollar backlog within our Rural Development Direct programs.

Changing the interest rate structure of the Water and Environmental Program

will allow RD to provide the neediest rural communities with increased borrowing

capacity. Such a change benefits the Agency by giving it the ability to easily adapt

to market changes. We also encourage the Committee to consider the damaging impact of increasing the 502 Guaranteed Housing Program Loan Fees. This increase

in fees will significantly damage the vitality of the program and its service to rural

Americans.
291

These reform recommendations, however, can only be effective if the Agency is

provided the necessary resources to administer the program services and its reforms. The Administration must offer budget proposals that take into account the

impending brain drain in human capital, proper succession planning, information

technology upgrades and overall adequate funding, and Congress must authorize

and appropriate funds that meet those resource needs. With so much pending on

the horizon, however, it is critical that Congress and the Administration invest in

a successful Federal program before it falls apart and wreaks havoc on rural America.

We are the men and women who work with American farmers, ranchers and their

communities everyday. We see the potential of so many worthwhile applicants, and

take to heart the work we do. We are dedicated and committed members of the Federal workforce serving rural America. Thank you for the opportunity to present our

perspective on the state of the farm loan and rural development programs.

Æ