U.S. GOVERNMENT PRINTING OFFICE

59–433 WASHINGTON : 1999

FARRM ACCOUNTS: STABILIZING AND IMPROVING

THE ECONOMIC CONDITION OF OUR FARMERS

HEARING

BEFORE THE

SUBCOMMITTEE ON RURAL ENTERPRISES,

BUSINESS OPPORTUNITIES, AND

SPECIAL SMALL BUSINESS PROBLEMS

OF THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

APRIL 27, 1999

Serial No. 106–9

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

JAMES M. TALENT, Missouri, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

DONALD A. MANZULLO, Illinois

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PHIL ENGLISH, Pennsylvania

DAVID M. MCINTOSH, Indiana

RICK HILL, Montana

JOSEPH R. PITTS, Pennsylvania

MICHAEL P. FORBES, New York

JOHN E. SWEENEY, New York

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

EDWARD PEASE, Indiana

JOHN THUNE, South Dakota

MARY BONO, California

NYDIA M. VELA ́ZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

CAROLYN MCCARTHY, New York

BILL PASCRELL, New Jersey

RUBEN HINOJOSA, Texas

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

DENNIS MOORE, Kansas

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

JANICE SCHAKOWSKY, Illinois

HARRY KATRICHIS, Chief Counsel

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON RURAL ENTERPRISES, BUSINESS OPPORTUNITIES,

AND SPECIAL SMALL BUSINESS PROBLEMS

FRANK A. LOBIONDO, New Jersey, Chairman

RICK HILL, Montana

JIM DEMINT, South Carolina

JOHN THUNE, South Dakota

JOHN E. SWEENEY, New York

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

DAVID D. PHELPS, Illinois

TOM UDALL, New Mexico

BRIAN BAIRD, Washington

(III)

C O N T E N T S

Page

Hearing held: April 27, 1999 .................................................................................. 1

WITNESSES

Hulshof, Hon. Kenny, a Representative in Congress from the State of Missouri ....................................................................................................................... 4

Nelson, Wayne, President, Communicating for Agriculture, Washington, DC .. 9

Bergamo, Jr., Ed, Farmer, Vineland, New Jersey ................................................ 11

Brown, Marlene, Director, Women’s Committee, Iowa Farm Bureau Federation, West Des Moines, IA ................................................................................... 13

Appel, Stephen J., President, Washington State Farm Bureau, Olympia, WA .. 14

APPENDIX

Opening statements:

LoBiondo, Hon. Frank ...................................................................................... 20

Sweeney, Hon. John E ..................................................................................... 20

Hill, Hon. Rick .................................................................................................. 21

Prepared statements:

Hulshof, Hon. Kenny ........................................................................................ 21

Nelson, Wayne .................................................................................................. 22

Bergamo, Ed, Jr ................................................................................................ 24

Brown, Marlene ................................................................................................ 25

Appel, Stephen .................................................................................................. 26

Additional material:

Statement of the National Cattlemen’s Beef Association ............................. 27

(1)

FARRM ACCOUNTS: STABILIZING AND IMPROVING THE ECONOMIC CONDITION OF

OUR FARMERS

TUESDAY, APRIL 27, 1999

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON RURAL

ENTERPRISES, BUSINESS OPPORTUNITIES AND SPECIAL

SMALL BUSINESS PROBLEMS, COMMITTEE ON SMALL

BUSINESS,

Washington, DC.

The Subcommittee met, pursuant to call, at 2:00 p.m., in room

2360, Rayburn House Office Building, Hon. Frank A. LoBiondo

(chairman of the subcommittee) presiding.

Chairman LOBIONDO. Welcome, everyone. I will now convene the

hearing. This is the inaugural hearing of the Rural Enterprises

Subcommittee, which has been added as a new Small Business subcommittee in the 106th Congress. Before I talk about the legislation before us, let me answer the obvious question: Why is a representative from New Jersey chairing a subcommittee dealing with

rural issues?

I represent the Second Congressional District of New Jersey,

which covers a third of the Nation geographically. Southern New

Jersey is home to a thriving agricultural community. We have

many fresh market fruit and vegetable farms, nurseries and seed

farms. I also grew up on a farm, so I have firsthand knowledge of

agricultural issues.

American farmers feed the Nation and they also help feed the

world. Our farmers also are able to grow crops in a cost effective

manner. Food is most affordable in the United States. We spend a

smaller percentage of our income on food than all other industrialized nations.

Our farmers perform a service and our farmers are in trouble.

Natural disasters, extreme weather, fluctuating prices, uncertainties in international markets, and other factors have plagued our

farmers the last couple of years. Now we are faced with farmers

across the country who are in serious jeopardy. These farmers need

assistance and there are several avenues the Federal Government

can pursue to provide it. One step we can take is to pass legislation

sponsored by Representative Kenny Hulshof and Representative

Karen Thurman which would establish farm and ranch risk management or FARRM accounts. I am proud to be a cosponsor of this

legislation which has significant bipartisan support in Congress

and is endorsed by a broad cross-section of small business and agricultural groups.

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We need FARRM accounts for many reasons. Weather and commodity prices are beyond the control of farmers and ranchers, yet

they can determine if agricultural producers earn a profit and remain in business.

Saving for unprofitable years is difficult for agriculture producers

because farm income is needed for operating expenses and to purchase supplies for the next production cycle. When producers earn

a profit, they usually invest in farm assets that can’t be easily sold

to pay expenses during difficult financial times.

Quite simply, FARRM accounts would allow a farmer to put

away income in a good year for use in a bad year. This will allow

farmers to stabilize their income and improve their economic condition. I want to thank Representative Hulshof and Representative

Thurman for introducing this important bill. I hope this hearing

will build some momentum for the legislation and we will soon find

it on the President’s desk.

Before we hear from Representative Hulshof, I would like to

yield to my ranking member, Representative Donna Christensen,

for any comments she might have.

[Mr. LoBiondo’s statement may be found in the appendix.]

Ms. CHRISTIAN-CHRISTENSEN. Thank you, Mr. Chairman. I want

to welcome everyone this afternoon to the inaugural hearing for the

Subcommittee on Rural Enterprises, Business Opportunities and

Special Small Business Problems. I want to in doing so thank our

Chair, Chairman Talent, and Ranking Member Vela ́zquez for adding this subcommittee to oversee the concerns of rural agriculture

and small businesses that are often overlooked by committees.

The farmers and farming are indeed the backbone of our Nation

and an integral part of the lives of each and every American family. The survival of this vital industry must be a priority with legislators as our farmers feed not only our country but the wider world

as well.

With its provisions to allow farmers to set aside up to 20 percent

of their taxable income and place it in a tax free interest bearing

FARRM account, I believe that the farm and risk management bill

can be an important tool in allowing our farmers a creative way of

saving resources in good times and utilizing them in bad. Since

money in the accounts can be withdrawn in lean years to smooth

out peaks and valleys in farm income, it could well be the life preserver that many utilize in critical times.

The U.S. Virgin Islands, the district which I represent, has a

small but vital farming community that can benefit from this legislation, and so I want to join my chairman in welcoming you and

I look forward to hearing the testimony from our colleague, Mr.

Hulshof, and those representing the farm community this afternoon.

Thank you, Mr. Chairman.

Chairman LOBIONDO. Thank you. We will—do any of the other

Members wish to make any opening statements? Congressman

DeMint.

Mr. DEMINT. Thank you, Mr. Chairman. Let me express my

thanks for holding this hearing on this important subject, and I am

disappointed that I will not be able to stay for the entire hearing,

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but would like to thank the witnesses for agreeing to testify here

today, especially my colleague, Mr. Hulshof, from Missouri.

America’s farmers and ranchers embody the entrepreneurial spirit of our country in exercising good stewardship of the land and in

taking advantage of the latest innovations. They have not only fed

their families and our country, but a great part of the world. As

some of you may know, South Carolina grows more peaches than

any State in the Union except California. Spartanburg County,

which is in my district, is the second highest producer of peaches

in the State. South Carolina is the fifth highest producer of watermelons in the United States. While farmers and ranchers can prepare for some things, an unexpected hurricane or early cold spell

can severely damage crops or kill off livestock. This is especially

hard for family farms to handle.

I support steps that would make it easier for small businessmen,

including farmers, to save money in good years. This money could

be used to level out the unexpected difficulties of bad years. The

FARRM Act is a good step in this process. I believe this legislation

could provide a useful framework to look at ways to address other

problems that are unique to small businesses. Again, thank you,

Mr. Chairman.

Chairman LOBIONDO. Congressman Thune?

Mr. THUNE. Thank you, Mr. Chairman. Let me just echo what

my colleagues said and credit my colleague from Missouri Mr.

Hulshof for this legislation. Sometimes I wish we could grow peaches in our part of the world, but we grow wheat, soybeans and corn,

and it has been increasingly difficult in the last few years for our

producers because of the volatility of prices, which has also led to

an incredible amount of volatility in their income. They need any

and every tool available that will allow them to help manage that

risk, that will allow them to help even out the income stream that

comes from what can be a very erratic business.

I have been a supporter and cosponsor of this legislation for some

time and hope that we will advance it through the process this

Congress and give our producers yet another tool that hopefully

will enable them to better manage the income stream that comes

from their agricultural production, avoid excessive tax bills in 1

year, and better deal with the erratic nature of the income stream

that comes from being in agriculture.

I think this is an important bill, and I appreciate the opportunity

to hear what our expert witnesses have to say and look forward to

the testimony. Thank you, Mr. Chairman.

Chairman LOBIONDO. Thank you, Congressman Thune.

If there are no more opening statements, without objection any

Member who wishes to submit a statement, it will be entered into

the record in its entirety. So keep that in mind.

We will move now to our first witness, and that is Representative

Kenny Hulshof. Kenny represents the State of Missouri and is the

sponsor of this legislation, was the sponsor of the legislation in the

last session of Congress in the 105th. He has spent a lot of time

and work putting this together. We are anxious to hear from you,

and welcome.

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STATEMENT OF THE HON. KENNY HULSHOF, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MISSOURI

Mr. HULSHOF. Thank you, Chairman LoBiondo and Ranking

Member Christensen. I was not aware that this was the inaugural

hearing, and as the initial witness for the inaugural hearing, I feel

especially honored to be here today. Mr. Chairman, if you would

allow me to introduce my written statement as part of the record

and then deviate from it if I could.

Chairman LOBIONDO. Without objection.

Mr. HULSHOF. Just to echo some of the comments already made,

I think we take for granted, Americans take for granted, unfortunately, our ability to walk into a grocery store or a supermarket

and pull off the shelves essentially any product that we want. And

that of course is largely responsible to our country’s farmers to

have that luxury, and it is some of the cheapest and safest food on

the face of the Earth. Again our agriculturalists deserve that credit. Yet as you pointed out in your opening statement, farming is

unique in that the ability to make a profit depends on things completely out of the control of the farmers. It could be bad weather,

decisions that we make in Washington.

One of the first political lessons, Mr. Chairman, that I learned

on our family’s farm in southeast Missouri was when the grain embargo was imposed back in the late seventies. I didn’t realize what

impact that was going to have on our family farm. We almost lost

our family farm because of a decision made by a policy maker in

Washington, and that is a political lesson that I have kept with me

as we address this farm crisis.

Let there be no mistake, we are in a farm crisis in this country.

I know the gentleman from South Dakota has spoken many times

on the floor about this issue and the ways to try to address the

problem. I happen to think that the farmers and ranchers management bill, the FARRM account, that Karen Thurman and I worked

hard to push and sponsor is maybe a silver lining to the dark cloud

that is hovering over American agriculture right now.

The idea is a simple one. That is in a good year, give a risk management tool to farmers and ranchers to prepare for the inevitable

lean years. It is not the government making the decision. This is

not talking about set-asides or loan caps, it is providing that management tool in the quiver of the local farmer to make that decision

for himself or herself.

In Missouri, we have had a couple of good years up until recent

times, and had this legislation been in play a couple of years ago

maybe farmers who are lamenting the fact that they are going to

be faced with maybe selling their family farm operations, maybe

this would have provided for them a management tool to avoid that

tough decision that they have facing them.

It is not often, Mr. Chairman, that so many segments of agriculture are on board a particular piece of legislation. Not only do

we have 131 cosponsors as of today, and we welcome those of you

not on the bill to get on the bill, but when you start looking at the

commodity groups that are also in support, traditionally it is corn,

wheat, soybeans, grain sorghum and livestock. But the reason that

Ms. Thurman, I welcome her support on this, typically what is

known as nontraditional agriculture, and, Mr. DeMint, you menVerDate 20-MAR-2000 08:14 Apr 14, 2000 Jkt 010199 PO 00000 Frm 00007 Fmt 6633 Sfmt 6602 E:\HEARINGS\59433 pfrm02 PsN: 59433
5

tioned peaches, here are just a couple of the commodity groups that

are completely supportive of the FARRM account, cotton, the sheep

industry, sugar beet growers, the Nursery and Landscape Association, obviously wheat, beef and corn, grain sorghum, milk producers, pork producers, Sunflower Association, peanut growers,

American florists, rice, canola and eggs. This is again a representative sample of those commodity groups which are in support of our

legislation.

I thank you for the opportunity to talk about the legislation. I

would be happy to answer any specific questions about technical

aspects of the bill if you would like to put those to me. But for

those witnesses who are coming behind me, the true producers of

American agriculture are the ones that I think have been the

strongest in telling the story.

When we first unveiled this legislation, Ms. Thurman and I had

a press event, to hear the farmers themselves say if this legislation

had been in effect a couple of years ago, they would not be in the

straits that they find themselves now. I think that is the most compelling testimony of all.

Let me yield to you for your questions. Thank you for allowing

me to talk about the bill and having a hearing on this legislation.

[Mr. Hulshof’s statement may be found in the appendix.]

Chairman LOBIONDO. Thank you. I just have a few questions before I go to the Members. Are there any restrictions of what the

farmer could spend the FARRM account income on?

Mr. HULSHOF. No. The FARRM account would establish much

like a trust account. Some have described it like an IRA, like an

individual retirement account. It is more like a trust account. The

limit is that in any given year a farmer or rancher, an individual

farmer or rancher, I know in some districts like mine when we talk

about corporate agriculture, that furrowed brows come about, we

are talking about individual farmers and ranchers being able to put

up to 20 percent of their income in any given year into this

FARRM account.

That money could accumulate up to 5 years, but in the sixth year

it would have to be taken out of the account. This just goes back

to being raised on a farm in southeast Missouri, to have 5 good

years in a row, that does not happen very often in agriculture, but

in the sixth year the money would have to come out. And of course

it would be taxed at that time. It is tax deferral. You would get to

take that 20 percent that you put in as a deduction. Without charts

and graphs, if you had in a really good year, let us say you had

$50,000 of income in a good year, you could take up to 20 percent,

that is $10,000, put that into a FARRM account and take that as

a deduction and now you are paying taxes on $40,000 not $50,000,

so you are able to put aside this money, as Mrs. Christensen mentioned.

You mentioned life preserver. I might use that in my next

speech. It is sort of preparing a rainy day fund. So there is really

no—I mean, you get to bring that money out for whatever purpose

that you want, and when it comes out of the account, Mr. Chairman, it then becomes taxable.

6

Chairman LOBIONDO. Just a couple of other quick questions,

have you had any questions with the chairman of Ways and Means

about how they might consider this?

Mr. HULSHOF. I have had several conversations with the chairman of the Ways and Means Committee, Mr. Chairman. And again

we were hopeful that the bill would have made it into last year’s

disaster assistance package, and it came very close. I think we

have more cosponsors now on today’s date than we had in the entire session of Congress last time, so we are building on our efforts

from last time. I really haven’t gotten from the chairman any positive or negative response. The chairman of the Ways and Means

Committee keeps his cards close to the vest and does not like to

say what is going to be in the tax bill. The budget bill that we

passed, I expect that there will be some sort of tax bill that comes

out of the Ways and Means Committee by mid-July. And so we are

hopeful if we get enough Members to cosponsor our legislation, that

it would be inevitable that the chairman would have to include it

in the tax bill.

Chairman LOBIONDO. Is it too early for you to have received any

indication from the administration of how the White House might

feel about this?

Mr. HULSHOF. We have not heard from the White House. And if

you have any special connections to the administration, we welcome that as well.

Chairman LOBIONDO. Do other Members have questions? Yes.

Ms. CHRISTIAN-CHRISTENSEN. Thank you for your testimony and

for sponsoring the bill.

I have a question on the role of interest. Withdrawals are on a

first in, first out basis, as I understand it. For example, if a farmer

had $50,000 in income during years 1 and 2 of a 5-year spell, depositing $10,000 in each of those years, in year 3 his income would

be say $35,000 and he withdraws $10,000 in that third year to supplement it, years 4 and 5 if his income was say $45,000, he withdraws $5,000 in each of years 4 and 5, what I am wondering is

what about interest and how is it counted? If there is interest, does

he first withdraw the interest attributable to year 1’s deposit and

only after that start withdrawing principal from year 2’s deposit?

What is the role of interest?

Mr. HULSHOF. The role of interest is obviously at some point the

interest that is attributable to the contribution in that year. If in

fact it were taken out, it too, the interest on the amount you put

in in the first year would have to come out on the first in, first out

basis, and it would be taxed as ordinary income.

The strength of this provision is that it is a risk management

tool for the individual producer. Again at some point you are going

to have to pay tax. The idea was that we didn’t want to have a

scheme or a bill set up that could be used to avoid tax completely.

So if you are able to make those types of contributions, and if there

were interest as a result, then it would also be taxed as ordinary

income at the time it was being taken as a distribution.

Ms. CHRISTIAN-CHRISTENSEN. Thank you. I don’t have any other

questions right now.

Chairman LOBIONDO. Congressman Thune.

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Mr. THUNE. I know last year, Kenny, you had this scored. Have

you got it scored this year?

Mr. HULSHOF. Essentially the score is the same. In the 5-year

window it would be a loss of revenue, and again I use that as a

term of art that joint taxes uses, $500 million over 5 years, $900

million over 10 years.

So again, I think that it is something that is doable. Again the

numbers are favorable. I think the numbers are favorable because

again we are talking about tax deferral rather than tax avoidance.

But $500 million over 5, $900 million over 10.

Mr. THUNE. That is an important point because it is tax avoidance in the 5-year window. However, someday those taxes are

going to be paid unless a producer passes away, and then the government gets it through the death tax.

It really is a tool, and it is a savings plan, too. Given the irregularities of farm income, in good years, if there was an incentive

for farmers and ranchers to put money aside for the down years,

I think they would, particularly if they can avoid the enormous tax

liability that they get in a good year.

Mr. HULSHOF. If I can expand on your point, Mr. Chairman, if

you were to be asked by those who oppose the legislation, gee, we

have done a lot for American agriculture in the last bill——

Chairman LOBIONDO. Does anyone dare oppose this?

Mr. HULSHOF. I hope not. But what I would say and, Mr. Thune,

building on your point, we have done some things for American agriculture like the net operating loss carryback. We changed the

rules. We enacted permanent income averaging, but income averaging is only good in an up year, and that is when you have excess

income you can take that excess income and spread it out and average it over the preceding couple of years to find yourself at least

with a more steady income stream, and that is useful as well as

far as risk management, but that is only available to farmers in

a good year and there is nothing for farmers in a bad year. We

have seen situations where we have conversations with agricultural economists, maybe income averaging in conjunction with

FARRM accounts where you could spread some out over the preceding years for income averaging and put aside some money into

a FARRM account to prepare for the down years.

So we see the FARRM account legislation really as a complement

to income averaging because again income averaging is good only

in a good year. There is no management tool available to help manage risk in a down year. That is why we think that this legislation,

its time has come.

Mr. THUNE. I think it does make a lot of sense. It is a nice complement to a lot of things that we have done previously. Clearly

there is a need, I think, to give our producers and the cyclical nature of the business itself as many tools as we possibly can. And

I think again the added advantage, when times are good there is

a tendency to not put aside for the rainy day, and I think the savings plan component and the incentive that it provides is a very

useful and helpful tool, and one for which I hope we can get a majority support in the Congress. And hopefully we can get your committee to move on this and get it through Congress this session.

Thank you.

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Chairman LOBIONDO. Congressman Baird, do you have any questions?

Mr. BAIRD. No.

Chairman LOBIONDO. Congressman Sweeney.

Mr. SWEENEY. Thank you, Mr. Chairman. I apologize for being

a little late. I was actually doing a dairy press conference. I have

submitted a statement for the record.

[Mr. Sweeney’s statement may be found in the appendix.]

Kenny, I just—I want to say that I think this committee needs

to send a strong message in support of your legislation, and just

this morning I was at a dairy farm in my district and had an interesting question from one of my dairy farmers and I would like you

to answer as best you can.

Given the volatility in dairy pricing and what is less than a perfect response by the Federal Government in terms of stabilizing

that market, does this bill not provide family farmers, dairy farmers the opportunity to be more self-sustaining, and why can’t they

do this for themselves?

Mr. HULSHOF. Both good questions. Absolutely this provides the

ability for the producers themselves—I wasn’t here, and some of

you were here, back when the Freedom to Farm was initially

passed, the last farm bill when it came to the Agriculture Committee. As we talk about phasing out or phasing down government

subsidies and getting agriculture to make their own decisions,

whether my father wants to plant fence row to fence row, that

should be his decision. The corresponding promise was that we

would aggressively market our agriculture products, and unfortunately we have maybe not seen that and we have used agriculture

products and sanctions, and there is also discussion about sanctions reform as well, but I think we have a duty in Congress to provide those management tools for agriculturalists to prepare. The

other question, Mr. Sweeney, you asked is—and even actually, Mr.

Chairman, the editor of my hometown paper has shown some opposition, what is so different about agriculture? We would not do this

for a shoe manufacturer or a textile plant.

And I think the answer is that agriculture is a unique type of

livelihood because so many things are completely out of your control where you have commodity markets that you have no input.

You have political decisions, you have weather. So many things

that are completely out of your control that this is the type of management tool that we really do need. Otherwise we will see, as we

did last year, where Congress has to come back and provide a supplemental appropriation of disaster assistance. It would be great if

we were in a situation where we would not have to do that, have

acts of Congress because we have allowed farmers and ranchers to

provide these management tools for themselves.

Mr. SWEENEY. And the answer my farmer gave to me, last year

we lost money, we had a tornado that hit us, the Federal supplement has not arrived yet. We are on very tight margins, and this

year with a 40 percent drop in prices in March alone, I am looking

at a loss of $15,000 so far. How can I possibly save money?

I thank you, Congressman and Mr. Chairman.

Chairman LOBIONDO. Any further questions of Congressman

Hulshof? Kenny, thank you very much.

9

Mr. HULSHOF. Mr. Chairman, thank you very much.

Chairman LOBIONDO. I am going to ask the second panel to get

ready, but before we do that, we have Congressman Baird, who will

not be able to stay with us the entire time, and you would like to

introduce a guest?

Mr. BAIRD. Thank you. It is a real pleasure as the representative

from southwest Washington State to introduce one of our friends

and a person who can speak with great ability on the importance

of this particular bill. Like the folks who commented earlier, I want

to commend the sponsors of this legislation but, most importantly,

I want to introduce Steve Appel.

When we talk about farm challenges, here is a gentleman who

is a third generation farmer. He is from the small town of Dusty,

Washington. I think we have two great names, a gentleman Appel

from Washington State from a farm town named Dusty. You can’t

get better than that, but you actually can because as a wheat and

barley grower, Mr. Appel has been active in the Farm Bureau since

1974, so he speaks with great authority on having seen Federal

proposals come and go, sometimes to the detriment and hopefully

sometimes to the benefit of farmers.

He sits on the board of directors of both the American Farm Bureau and the Farm Bureau National Bank, and he has been a

strong advocate for exports of American agricultural products. Having myself grown up in a farming community, it is a pleasure to

welcome Mr. Appel for his testimony, and I want to thank him for

his service to farmers across the country and in our State of Washington.

Chairman LOBIONDO. Thank you, Mr. Baird.

I now ask the second panel, Wayne Nelson, who is the President

for Communicating for Agriculture, to come up to the witness table;

and Ed Bergamo from Vineland, New Jersey, my hometown, a

farmer in Vineland, New Jersey; Marlene Brown, from the Iowa

Farm Bureau Federation; and Stephen Appel, from Dusty, Washington.

Mr. THUNE. Mr. Chairman.

Chairman LOBIONDO. Yes.

Mr. THUNE. It says here that Wayne Nelson comes from Washington, D.C. I happen to know better than that. He comes from

Winner, South Dakota, which is very near my home area. When he

speaks, his perspective is one which I am sure is with a great deal

of authority on the subject and we would not want to confuse anybody to think that he is from Washington, D.C.

Chairman LOBIONDO. We will make sure that the record reflects

that correction, Congressman Thune.

Welcome to our second panel and to start off, I would like to ask

Wayne Nelson to go ahead. Thank you for joining us.

STATEMENT OF WAYNE NELSON, PRESIDENT,

COMMUNICATING FOR AGRICULTURE, WASHINGTON, DC

Mr. NELSON. Thank you, Mr. Chairman and members of the committee. I thank you for the opportunity to testify today on behalf

of the members of Communicating for Agriculture in support of

H.R. 957, the Farm and Ranch Risk Management Accounts legislation. I commend you for holding this hearing on the legislation, and

10

especially Congressmen Hulshof and Thurman for introducing the

legislation.

My name is Wayne Nelson and I am President of Communicating

for Agriculture. CA is a 26-year-old national nonprofit rural organization made up of farmers, ranchers, and rural small business people in all 50 States. I am also a grain farmer from Winner, South

Dakota and I can tell you firsthand about the difficulties that farmers face in fighting the roller coaster ride that the agricultural

economy has become. I need not tell you how serious the problems

are facing the American agriculture economy right now. Virtually

every commodity has suffered severe price declines and farmers

throughout the country are losing money. In January of this year

Communicating for Agriculture launched what we call our campaign for family agriculture. Its goals are to establish a stronger

farm safety net, to restore competitive livestock markets, and to

provide new financial management tools producers can use to

strengthen their economic security. CA has several recommendations for Congress, such as strengthening crop revenue insurance,

mandatory livestock price reporting, strengthening antitrust oversight, export development and even a unique new proposal we have

developed called the price enhancement program that is beginning

to generate some interest.

But from the very beginning, our campaign has had its utmost

goal of passing the Farm and Ranch Risk Management Accounts.

It is fundamentally good tax policy as well as providing an incentive for farmers to save in good years for use in bad. In fact, Communicating for Agriculture has been very supportive of this concept

for a number of years. Nine years ago we introduced a similar concept for tax deferred savings accounts with some key policymakers

in Washington, D.C.

In a nutshell, FARRM accounts would be a self-help tool that

would help farmers and ranchers to set aside tax deferred income

in good years and draw the money back out later, perhaps in years

of lower income when it would be taxable.

FARRM accounts are a prime example of countercyclical policy,

and that is exactly the kind of public policy for agricultural support

that many leading economists are saying that we need. While

FARRM accounts themselves cannot replace the need for an agricultural price safety net, nor can they replace the need for a workable crop insurance program, they would be a management tool

that farmers would welcome and would use.

Some skeptics may be critical of FARRM accounts because of

their perceived cost at a time when Congress is facing budget pressures for other necessary farm income supports and because in a

year like this when prices are so low, very few farmers will be able

to start a FARRM account this year.

We urge you to look a little bit deeper. Number one, if indeed few

farmers will have profitable years in 1999 and not be able to invest

in a FARRM account this year, that also means that there will be

correspondingly little cost in the government in any delayed tax

revenue.

Number two, there is no better time to pass FARRM accounts

than now, except if Congress would have passed it 4 years ago

when the concept was first introduced. Imagine if FARRM accounts

11

would have been in place in 1996 and 1997 when grain prices were

relatively high. My farm in South Dakota, in western South Dakota, last year I sold wheat for $1.89 a bushel, and in 1997 I sold

wheat for $4.50 a bushel. So you can see the great differences we

have from year to year in our prices.

Think of what has happened with pork producers and pork prices

in the year between 1997 and 1998 and how FARRM accounts

could have helped.

Income averaging was made permanent last year, which helps a

great deal, but it is only for 2 years. FARRM would complement

income averaging by helping farmers and ranchers to even out the

peaks and valleys of farm income for up to 5 years. We hope the

roller coaster will start to rise again before too long, but the facts

are the top agricultural economists are saying under current conditions, American agriculture is likely to continue to see these big

swings in income and prices. It is dependent upon unstable, yet

competitive world markets, susceptible to harm from currency fluctuations, and of course the impact of adverse weather. It is far less

protected under the current farm policies than previously.

There are few, if any, sectors of the economy that operate in the

kind of volatile conditions as agriculture. FARRM accounts would

give producers one tool that would help them weather these economic storms a bit better. Communicating for Agriculture has a

slogan. We say, ‘‘CA works to advance good ideas for rural America.’’ We think FARRM accounts is a good idea, and we urge you

to pass it. Thank you very much.

[Mr. Nelson’s statement may be found in the appendix.]

Chairman LOBIONDO. Thank you, Wayne, for your testimony.

What we will do is go through the opening statements and testimony from each of the panelists and then we will go into questions.

Second is Ed Bergamo. Ed is a fourth generation farmer, who is a

good friend over a lot of years and actually a neighbor, too. Ed,

thank you for joining us today. And like many of our other active

farmers, he has taken time out from one of the busiest times of the

year to be with us.

STATEMENT OF ED BERGAMO, JR., FARMER, VINELAND, NEW

JERSEY

Mr. BERGAMO. Thank you, Mr. Chairman. I would like to say

good afternoon to the other members of the committee.

My name is Ed Bergamo, as Congressman LoBiondo said. I come

from South Jersey, and I have been a farmer my entire life.

I want to thank my Congressman, Frank LoBiondo, for giving me

the opportunity to speak to you today. Congressman LoBiondo has

been a good friend of farmers in southern New Jersey. I am a

fourth generation farmer operating a 120-acre vegetable farm with

my younger brother Paul as well as my father, Ed. We grow a variety of herbs and vegetables which we sell at our local produce auction. Our operation is obviously small, especially compared to the

larger operations in other parts of the country, but we have a higher profit per acre ratio than, for instance, a 1,000 acre wheat farm.

Like all farmers, my livelihood depends on many factors, weather, market fluctuations, international competition, distribution and

supply costs, as well as many other circumstances. Every year is

12

a challenge, and every year is different than the previous year. To

run a successful small farm, you need to be a good grower but you

also have to possess financial management skills. Every year I run

the risk of being in a different tax bracket. In good years I am

thrust into the upper brackets, essentially paying a penalty for my

success. In bad years, I find myself in lower brackets. As a specialty grower, I am not eligible for many of the subsidies that are

available to program crop producers through the U.S. Department

of Agriculture. If I have a bad year, it is up to me to figure out

how to pay the bills and plan for next year’s crop.

Having a mechanism like a FARRM account that would allow me

to save some of my income for use in more difficult times would

be extremely beneficial. It would provide an incentive to save for

a rainy day, and it would allow me to avoid the higher tax penalty

when I have had a successful year. Managing a successful farm is

a delicate balancing act. You have to strike a balance between

many uncontrollable factors such as weather and price fluctuations.

FARRM accounts would provide a stabilizing force in farming.

Rather than proceeding on a boom or bust situation, FARRM accounts allow farmers to spread out the success from good years to

years that are not so successful.

This principle will inevitably keep more farmers in business. I

have known many farmers in our area that were forced into severe

debt by a bad year. Eventually, they have had to liquidate their

farms just to pay their creditors. FARRM accounts can lessen that

phenomenon by allowing good fortunes to offset difficult seasons. It

also reduces the tax crunch that inevitably results after a good

year.

I understand the reality of a graduated income tax, but for farmers with fluctuating income, our tax system almost provides a disincentive for success. The better you do, the more you are taxed.

One suggestion I would make in regards to the implementation

of the bill is to make it as flexible in regards to income eligible as

possible. Because farm incomes vary so greatly from year to year,

tight income restrictions could severely limit the number of farmers

who could take advantage of the legislation. I understand the sponsors of the bill used a wide definition of agriculture for determining

eligibility for FARRM accounts. That is encouraging. Often, specialty growers like myself do not qualify for traditional agricultural

assistance provided by the USDA. A broad definition of farming

will enable more small and specialty farmers to take advantage of

FARRM accounts. Farmers in southern New Jersey and across the

country are experiencing extremely difficult times. FARRM accounts would provide much needed relief to farmers who are struggling to get by.

I want to thank Representative Kenny Hulshof and Representative Karen Thurman for sponsoring the FARRM account legislation, and I want to thank Congressman LoBiondo for allowing me

to testify today.

[Mr. Bergamo’s statement may be found in the appendix.]

Chairman LOBIONDO. Thank you, Ed. The next panelist is Marlene Brown, a member of the Women’s Committee of the Iowa

Farm Bureau Federation.

13

STATEMENT OF MARLENE BROWN, DIRECTOR, WOMEN’S COMMITTEE, IOWA FARM BUREAU FEDERATION, WEST DES

MOINES, IA

Ms. BROWN. Thank you, Mr. Chairman. My name is Marlene

Brown. I along with my son Scott operate a 240-acre farm. We

raise corn and soybeans. We also have a small cow/calf herd, and

in the past we have raised hogs and we have had a dairy herd.

I am here today representing the Iowa Farm Bureau Federation.

IFBF is a general farm organization of about 160,000 member families who produce every commodity that is commercially marketed

in our state. Farm Bureau commends the Small Business Committee and the Subcommittee on Rural Enterprises for calling this

hearing to focus attention on the importance of saving and investment incentives for farmers. This is my first opportunity to testify

before a congressional committee, and I am pleased to be here to

speak today on behalf of the Farm and Ranch Risk Management

Accounts and their potential benefits to farmers.

Farm Bureau supports the creation of the FARRM accounts to

help farmers and ranchers manage risk through savings. Using the

FARRM accounts, agricultural producers would be encouraged to

save money in good economic years and to use those savings in the

ultimate lean economic years which we experience.

Like other small business persons, farmers and ranchers have

predictable expenses. Each month we must pay for fuel, animal

feed, equipment repairs, building maintenance, insurance, utilities,

and meet a payroll. We must plan for seasonal expenses like taxes,

seed, heat and fertilizer, and we also budget for major purchases

like equipment, land and buildings.

While many expenses can be predicted and to some degree controlled, farm income is neither predictable nor controllable. The

prices we farmers and ranchers receive for our commodities are determined by forces over which we have no control: the markets and

the weather. Farmers and ranchers do not know from one year to

the next if our business will earn a profit, break even or operate

in the red. Few other industries must face such a challenge year

after year after year. What all farmers hope for is that the good

years will outnumber the bad ones.

Believing that better times are coming, farmers and ranchers get

through tough times by spending their retirement savings, borrowing money, refinancing debt, putting off capital improvements

and lowering their standard of living. All of these activities damage

the financial health of a farm or ranch and the well-being of the

family operating the business.

The 1996 farm bill phased out government price and income supports to farmers through the year 2002. Farmers and ranchers supported this phaseout because of the promise of expanding market

opportunities and the assurances by Congress that new ways would

be found to help farmers and ranchers manage their financial

risks.

Many growers of perishable commodities, along with the producers of livestock, poultry and other nonprogram crops, have

never had the benefits of a farm program safety net. We rely on

our management skills, marketing ability and a little luck with the

weather to make our businesses turn a profit. We are always lookVerDate 20-MAR-2000 08:14 Apr 14, 2000 Jkt 010199 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 E:\HEARINGS\59433 pfrm02 PsN: 59433
14

ing for new and innovative risk management tools to help us manage our businesses successfully.

FARRM accounts are simple and that is why they sound so appealing to farmers. Under H.R. 957, the Farm and Ranch Risk

Management Act, eligible producers could choose to defer taxes on

up to 20 percent of their income for up to 5 years. Farmers would

decide when to save rather than to spend and when to withdraw

and pay taxes on that money. I know that we would use a FARRM

account as a risk management tool on our farm when our income

allows us to do so.

Farm Bureau asks each of you for your support on the FARRM

accounts. We urge Congress to pass them into law as soon as possible. Their creation will give farmers and ranchers a meaningful

incentive to save for a rainy day and provide a very valuable tool

for managing financial risk.

I thank you for being here today.

[Ms. Brown’s statement may be found in the appendix.]

Chairman LOBIONDO. Thank you, Marlene, for your statement.

The last panelist will be Stephen Appel.

STATEMENT OF STEPHEN J. APPEL, PRESIDENT,

WASHINGTON STATE FARM BUREAU, OLYMPIA, WASHINGTON

Mr. APPEL. Thank you, Mr. Chairman. My name is Steve Appel.

I come to today’s hearing from Dusty, Washington, where my

neighbors know me as a third generation family farmer who raises

wheat and barley. And I would like to thank Congressman Baird

for the glowing introduction. I even impressed myself.

I do want to set a couple of things straight. My name is Appel.

I raise no apples. I raise wheat. And Dusty is a well named town.

I invite you all to come there sometime during the summer, and

you will know why it is called Dusty, Washington. One other thing,

I and my fellow citizens from Washington State like to refer to that

as the real Washington.

Thank you for inviting me to speak at today’s Small Business

Rural Enterprises Subcommittee hearing. My statement is made on

behalf of 4.8 million member families of the American Farm Bureau Federation. I sit on AFBF’s board of directors, a distinction

made possible because of my post as president of the Washington

State Farm Bureau. It is especially fitting that the Small Business

Committee is now focusing on agriculture because these are especially hard times for many farmers and ranchers.

Last year, in some parts of the country, extreme weather or disease destroyed the fall’s harvest or made feed scarce for livestock.

Others were blessed with good crops last year, but faced low prices

because of troubled markets overseas. And now agricultural forecasters are predicting that 1999 will be just as difficult a year for

farmers as was last year.

Farm Bureau is most appreciative of the legislation passed by

Congress last year to provide immediate relief to farmers and

ranchers. However, if similar emergencies are to be minimized in

the future, farmers and ranchers must have new and innovative

ways to deal with uncertain incomes caused by weather and markets. Congress must act to give producers the risk management

tools they need to manage their financial jeopardy. Farm and risk

15

management accounts, FARRM accounts, are exactly that kind of

risk management tool. Using these accounts, producers will be encouraged to save up to 20 percent of their net farm income in the

higher income years by deferring the taxes on that income until the

funds are withdrawn. The program is targeted at real farmers, contains guarantees that the funds will not be at risk, and prevents

abuse by limiting how long savings could be held in an account to

5 years time.

I can’t help thinking how different things would have been if

FARRM accounts had been put on the books 5 years ago and farmers like myself could have had farm savings to use in this last year.

Legislation to create FARRM accounts, H.R. 957, has been introduced by Representatives Kenny Hulshof and Karen Thurman.

These are two smart representatives because when they have written their bill, so producers of all commodities from all size operations who come from all parts of the country can take advantage

of FARRM accounts. That is the reason over 30 agricultural organizations and more than 125 representatives support the bill. A list

of those agricultural groups who join Farm Bureau in supporting

the FARRM accounts is attached.

We know that members of the Small Business Committee understand the need for FARRM accounts, but I must tell you that many

of my fellow farmers wonder why it is taking Congress so long to

get them passed into law. When agriculture agreed to support the

phase out of farm programs in 1996, it was with the full expectation that Congress would make good on the promises that it made

to reduce regulations, expand markets, and provide risk management tools. Frankly, we are still indicating waiting for some of the

freedoms that were to come with Freedom to Farm.

I have been told that the passage of H.R. 957 would cost up to

$500 million in 5 years and up to $900 million in 10 years. But

rather than talking about the cost, I think we should be talking

about the benefits of the legislation. Would it not be better to say

that FARRM accounts will provide an important safety net for

farmers and ranchers worth just short of a billion dollars?

My position as president of the Washington State Farm Bureau

gives me responsibility for the grass roots process that our organization uses to develop policy positions. I listen to hours of debate

on farm policy in Washington State, and I can’t think of another

idea that has more enthusiastic support than the Farm and Ranch

Risk Management Accounts program. Farmers like the idea that

the government wants to make it easier for them to save for a

rainy day.

I ask each and every member of the Small Business Committee

to get behind FARRM accounts, please. Cosponsor H.R. 957 if you

haven’t already. Speak to your fellow representatives about the

wisdom of doing something to improve the farm economy long

term. The future of production agriculture is dependent on new and

innovative tools like FARRM accounts, to help us as farmers manage our financial risks.

Thank you.

[Mr. Appel’s statement may be found in the appendix.]

Chairman LOBIONDO. Thank you, Steve, very much. We will now

go to questions.

16

I want to start off, I have a question that really could apply to

each one of the panelists if you want to take a shot at it. Why do

you think farmers would utilize, if this legislation were passed,

FARRM account as opposed to if they had the money in a particular year investing in machinery or spending it in some other

way on the farm? Wayne, do you want to start off?

Mr. NELSON. Sure. Farmers got in the habit, I guess, in the

1970s and early 1980s of using investment tax credit. Your only tax

tool at that time was to buy more machinery or livestock facilities

in order to use the investment tax credit, and that became their

way of reducing their taxes.

In an upward swing in the agricultural economy, that works

well. But what happened in the middle 1980s, was this great downfall in income, and a lot of this machinery was not needed any

more and there were still payments to pay for the machinery. Instead, this seems to be a much better plan looking at it from my

standpoint as a farmer and also our farmer members. Let us have

this credit, set it aside, have it tax deferred, and better manage it

with just money and not having to purchase the equipment. That

is an important point. So this would be very useful to farmers and

ranchers all over the United States.

Chairman LOBIONDO. Ed, what is your take on our part of the

country with our type of farming, with the folks that we know?

Would they utilize this, do you think, as opposed to spending the

money on other needs?

Mr. BERGAMO. I think so. If it were available, I think people

would find a way to work it into their tax and financial planning

and their general operation.

If it is available, you find ways to use it. There are very few—

as Wayne said, there are very few tools left as far as ways to manage your finances. Buying equipment is a good thing, but it is only

good if you need that piece of equipment. We have done it before.

But depreciation or leasing, you have to spend money to try to save

money, and it has gotten to the point—people were buying equipment as a way to avoid taxation and to enhance their operations,

but it is a vicious cycle and you still have to pay for it, and you

better need the equipment.

I think that it would be a good opportunity for farmers to be almost forced to save because it would be an attractive way to do so.

When they did find a year that was not so good, the money would

be there. It is a self-help thing. It is better than a government program.

As Mr. Appel pointed out, the majority of the farmers in our area

had a good year, but the majority of the farmers in his area did

not have a good year. Next year the situation might be reversed.

Different areas of the country experience different weather conditions, and what have you, or different products that they produce

are affected differently.

This would be across the board. It would be fair for everyone.

You would be able to utilize it using your own situation as the

guide. Your experience and your understanding of your business

rather than having someone come in and try to put—we are not

really—don’t have many opportunities of aid availed to us, but

when they are, they are not black or white tailored to every niche

17

of agriculture. This is across the board, and every part of the country would get treated evenly and it would seek its own level. Where

people have good years and others don’t, it would work itself out.

I think even if people were not aware of it and its benefits, they

would find ways to use it and be happy that it is available.

Ms. BROWN. I can only echo the comments made about the benefit of FARRM accounts being across the board for the people of the

United States. I think it is a wonderful plan and it does help out

everyone. And as far as saving to use something in a coming year,

we put drainage tile one year because we had extra money. The

next year we could have used the extra money, but you sure can’t

dig up tile and sell it to raise cash. This sounds like a wonderful

plan.

Mr. APPEL. I concur with what everybody has said. We have all

done it. Many times, our tax accountants have come to us and said

‘‘you have had a good year this year. It is time to buy something.

Go buy a new combine, or tractor because we have to reduce this

tax bite that you were going to have.’’

One of the people who traveled to Washington, DC with me is

a part-time farmer and a part-time tax accountant. I was putting

this whole idea past him and he became very excited over the prospect that there is another option that he could recommend to farmers that wasn’t a buy now, pay later situation because that has gotten so many people into trouble.

It is not uncommon for a farmer to go out in that good year when

he has a lot of disposable taxable income, and buy a combine because he can deduct all of this money. But most of us don’t have

money to pay 100 percent right then, so we go to the bank and borrow the money. What do you suppose happens 3 years down the

road, like this year, when you are going to be paying for that combine, and you don’t have the dollars to do it. So actually this is a

tool that is tremendous for the accountants to recommend to the

farmers.

Chairman LOBIONDO. Let me move on to other members for

questions. Does the ranking member have a question?

Ms. CHRISTIAN-CHRISTENSEN. I don’t really have a question. I

want to thank you for your testimony and just to let you know that

everyone has said the biggest problem with this bill is that it didn’t

come several years ago, and that message has come across quite

clearly. And as your representatives for farmers and rural businesses, we will do our very best to see about getting it through.

Mr. BAIRD. I want to thank all of you for your outstanding testimony and hard work on farmers. Part of our mandate in this committee is to deal with a broad spectrum of rural enterprises. This

kind of legislation, which I am proud to cosponsor, not only will

help the farmers, but it will help the farm communities because

when the farms have downturns and they don’t have resources to

draw upon, everybody in the community from the local cafe to the

feed store, they all suffer as well. And I think this is one of the

many steps we need to do. Inheritance tax reform and other steps

to help out also make sense.

I have had a chance to read the bill and the one concern I would

have is making sure that we choose the financial institutions in

which the trusts are placed well, lest we run into a time where a

18

sort of broad economic downturn hits and the institutions that are

holding your money at just the time you need it don’t have that

money. I want to ensure that, and I am sure no encouragement is

needed, but I am sure you will inform your members well when

this opportunity arises because I think it is a superb bill, and I am

proud to cosponsor it. Thank you for your excellent testimony.

Chairman LOBIONDO. Thank you, Congressman Baird.

Ed, can you give us an example of price fluctuations that you

have experienced from 1 year to the next with crops that you are

involved with in our part of the world?

Mr. BERGAMO. Yes. There are price fluctuations and there are demand fluctuations. For example, last spring due to bad weather on

the West Coast, spinach that we have very early in the spring, for

example, that grows over the winter and it is one of the first crops

to come to market, the movement on it was well and the price was

reasonable where we were able to make a profit on it. This year

there is an oversupply of product, so that not only is the price low,

but it is just at the point where you can make a small profit on

it, but there is no demand.

So those factors both play against one another. So you get situations where maybe a year ago a product was worth say 10, 12 or

15 dollars a box. Once you are in double digits you are doing very

well in the type of farming that we do. That same item this year

might be 4 or 3 dollars, clearly under the threshold of profit. And

you do have growers who for whatever reason will produce and intensify the problem by putting more product into the market

stream and therefore creating a further glut.

So there are a number of factors that come into play. Demand

and price go hand in hand, and you are really at your own wits

to try to come out ahead. The biggest thing that we try to do on

our farm is if we can’t make something and sell it for a profit, we

leave it in the field. You can go broke while you are working because you add additional costs of labor and packaging and transportation and everything else. Sometimes you are better cutting

your losses right off the bat rather than trying to chase something

that is not there.

Chairman LOBIONDO. So after planting, fertilizing, irrigating,

cultivating, everything that has to be done, the market isn’t there

and you have to just let it go?

Mr. BERGAMO. Right. It is especially bad when you experience

dry weather conditions and then you have to irrigate it to keep it

marketable until the last possible minute. And sometimes something breaks and the quality might be not nearly what it should

have been 2 or 3 weeks earlier on some items that can stand in

the field, and then you sell something that is not what in terms

of quality you would like to sell. You can drive around our area and

see fields of spinach that are being chopped up just because there

is no demand and there is no price. That is just an example.

Maybe another commodity it will reverse the other way. There

are times when you happen to catch a lot of situations like that in

a given year. And by the time Thanksgiving rolls around and our

season starts to wind up, you realize that you did a lot of work and

you could not have worked any more hours, and yet you didn’t have

the financial result that you expected. That is just the nature of

19

the business. You have good years and bad years, and that is what

this bill is designed to try to give you some recourse, some stability

there so you can plan for it without taking a real financial shot.

You can plan for it now, but you are going to pay the income tax

on it, and you have to have the money to plan for it. This will give

you a little easier way to do it. The government is not going to lose

any money because they are going to get the money eventually.

Chairman LOBIONDO. Do any of our other panelists have anything to add on the crop price fluctuation?

Mr. Nelson.

Mr. NELSON. Yes. There is also the great weather risk in many

areas of the country, so you have the production highs and lows as

well as the price highs and lows. A few years ago we had a freeze

in western South Dakota that killed much of our winter wheat

crop. We had a 4-bushel average. The corresponding—the next year

we had terrific weather, good rainfall and little disease. We had a

42-bushel average. So 1 year difference between 4-bushel and 42-

bushel, and not just in South Dakota, but in Dusty, Washington,

and many other areas of the country. There is a good deal of production variability due to the weather.

Chairman LOBIONDO. Steve.

Mr. APPEL. One final comment in that area. We have another

factor that keeps entering into our market situation, and that has

to do with access to foreign markets and things that influence that

access. Our own unilateral sanctions that we have placed on ourselves at times, and unfair trade practices or tariffs placed on us

by other countries. And in this case I am thinking specifically of

Washington State and Washington State apples.

We actually had a situation where the Mexican Government increased the tariff on Washington grown apples by 100 percent overnight. It devastated our market, and last fall literally hundreds

upon thousands of boxes of apples hung in the trees and went to

waste in the orchard. It was just pathetic, and it was exactly what

these folks were describing. It costs about $20 a bin to pick a box

of apples and the highest price was $15 a bin, and that was just

the picking cost.

So that is an example of outside influence that can cause a disaster to agriculture in this country, and this would help also protect or give us an out. It gives us a way to live through those situations. Thank you.

Chairman LOBIONDO. We will have the opportunity for 10 days

if there are any members of the committee who wish to submit additional comments on the record. I want to thank the committee

members for their strong statements of support for the legislation.

I would like to thank our panelists for taking time out of their busy

schedules to be with us.

I will convey to Chairman Talent the strong support that we

have heard today, and I am sure that he will be reviewing the testimony and the transcript, and hopefully we will be able to report

back to you that there will be some additional positive action which

will be taken. With that, the meeting is adjourned.

[Whereupon, at 3:10 p.m., the subcommittee was adjourned.]

20

STATEMENT OF U.S. REPRESENTATIVE FRANK A. LOBIONDO

Welcome everyone. I will now convene the hearing. This is the inaugural hearing

of the Rural Enterprises Subcommittee which has been added as a new Small Business Subcommittee in the 106th Congress. Before I talk about the legislation before

us, let me answer the obvious question: why is a representative from New Jersey

chairing a subcommittee dealing with rural issues? I represent the Second Congressional District of New Jersey which covers a third of the state geographically.

Southern New Jersey is home to a thriving agricultural community. We have many

fresh market fruit and vegetable farms, nurseries, and seed farms. I also grew up

on a farm, so I have first hand knowledge of agricultural issues.

American farmers feed the nation and they also help feed the world. Our farmers

also are able to grow crops in cost-effective manner. Food is most affordable in the

United States. We spend a smaller percentage of our income on food than all other

industrialized nations.

Our farmers perform a service and our farmers are in trouble. Natural disasters,

extreme weather, fluctuating prices, uncertainties in international markets, and

other factors have plagued our farmers the last couple of years. Now we are faced

with farmers across the country who are in serious jeopardy. These farmers need

assistance and there are several avenues the federal government can pursue to provide it. One step we can take is to pass legislation sponsored by Rep. Kenny Hulshof

and Rep. Karen Thurman which would establish Farm and Ranch Risk Management (FARRM) accounts. I am proud to be a cosponsor of this legislation which has

significant bipartisan support in Congress and is endorsed by a broad cross section

of small business and agricultural groups.

W need FARRM accounts for many reasons. Weather and commodity prices are

beyond the control of farmers and ranchers, yet they can determine if agricultural

producers earn a profit and remain in business.

Saving for unprofitable years is difficult for agriculture producers because farm

income is needed for operating expenses and to purchase supplies for the next production cycle. When producers earn a profit, they usually invest in farm assets that

can’t be easily sold to pay expenses during difficult financial times.

Quite simply. FARRM accounts would allow a farmer to put away income in a

good year for use in a bad year. This will allow farmers to stabilize their income

and improve their economic condition. I want to thank Rep. Hulshof and Rep. Thurman for introducing this important bill. I hope this hearing will build some momentum for the legislation and we will soon find it on the President’s Desk.

Before we hear from Rep. Hulshof, I would like to yield to my ranking Member

Rep. Donna Christian-Christensen for any comments she might have.

STATEMENT OF U.S. REPRESENTATIVE JOHN E. SWEENEY

Chairman LoBiondo, thank you for giving me the opportunity to speak about H.R.

957, the Farm & Ranch Risk Management Act (FARRM). I am co-sponsor of this

legislation and believe it is essential for farmers.

H.R. 957 creates FARRM accounts which allow farmers to deduct 20% of their net

farm income. FARRM accounts provide an incentive for farmers to save money and

be prepared for economic downturns.

Farming is an uncertain business. Much of farmers’ profits are always fluctuating

depending upon the volatility of prices, reduced export demand, changing costs, a

strong dollar relative to other currencies, and crop disasters.

When the Asian financial crisis hit in 1997, farmers felt the effects since Southeast Asia has been a large market for agricultural exports, comprising 37% of the

total amount exported. Each and every region can cite many down years.

H.R. 957 would ensure that farmers would be financially stable in times of financial strain. It is good business practice that farmers are given the opportunity to

stabilize their profits and keep reserves without being penalized by the tax code.

It is important that Congress is committed to help farmers before disaster or troubled times occur. Sure, financial assistance is made available after disaster strikes

and disasters cannot be wholly avoided, but FARRM accounts would go a long way

to mitigating the severity of troubled times.

The USDA has failed to successfully tailor a crop insurance program to benefit

farmers and has neglected to act effectively on Congress’ disaster relief. Last year

in New York, USDA failed in its efforts to address severe storm damage to apples

where some growers lost over 80% of their apple crop.

My district in upstate New York includes a large number of farmers who are

struggling to make a living. New York’s largest industry by far is agriculture. In

1996–1997, the net farm income for New York State decreased by 52.5%, the 4th

largest drop in the country!

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I am willing to assist my constituents any way I can and we must give them tools

to manage their uncertainty with FARRM accounts.

Let me relay an example of the need for FARRM accounts. Last year dairy farmers in the Hudson Valley (and most other places) had a good year. Unlike 1997, they

made some money.

They should be allowed to save some of it for a year when the price is going to

be down. In fact this spring on-farm milk prices have fallen nearly 40%.

I visited a farm in my district just this morning and I heard firsthand that cash

reserves would surely come in handy as my farmers take to their fields to plant

their new crops this month!

I thank the Chairman for bringing this matter before the attention of this subcommittee and I call on the committee to strongly endorse this concept of FARRM

accounts and work to ensure that the Congress follows through and provides this

important tool to our farm families.

STATEMENT OF U.S. REPRESENTATIVE RICK HILL

Mr. Chairman and Members of the Subcommittee: I would like to thank you for

holding this hearing today—the first of many hearings in the very important Subcommittee on Rural Enterprises. I am proud to be the Vice Chairman of this Subcommittee and look forward to working with you Mr. Chairman and the ranking

member to make it a very productive session. I am the original cosponsor of H.R.

957, the Farm and Ranch Risk Management Act. The number one industry in my

state of Montana is agriculture, outpacing the number two industry, tourism, by

around $800 million. In my state of Montana, when agriculture hurts, Main Street

suffers.

In the last session of Congress, we passed meaningful tax reforms that benefit agriculture. Some of the more important tax reforms include a reduction in the capital

gains rate, which will allow a farmer or rancher to keep more profit from the sale

of assets. We also increased the exemption on estate and gift taxes, making it more

affordable to pass a lifetime of hard work to your heirs. In the last session we also

enacted income averaging which allows farmers to lower their tax burden by ‘‘averaging’’ a more profitable year with less profitable years. As you know, farmers and

ranchers have been without income averaging since 1986, when Democrats eliminated that provision.

While I recognize that the tax accomplishments of last year are a good start, those

victories do not go far enough. I believe that we must work to ease the tax burden

on American farmers and ranchers. And, in difficult times like these, we must look

for ways to give producers a wider array of risk management tools.

That in a nutshell is what FARRM accounts will do. By allowing producers to set

aside up to 20% of their gross income tax-free during good years, we provide a tool

to better manage the inevitable bad years when they come. Of course given the hard

times in ag country, at least for Montana producers, we have not picked a particularly appropriate time in the cycle to start these accounts.

Although H.R. 957 will not provide much relief in today’s agriculture crunch, I

believe we must have this tool in place for the time when agriculture is once again

profitable. I support H.R. 957 not as a solution for today’s crisis, but as a tool for

better managing future difficult times.

So many times agriculture producers are forced to cope with circumstances beyond their control. Weather conditions, and sadly, government policy, are two of the

biggest factors over which farmers and ranchers have little or no control. During

the past couple of years, drought and flood wrecked havoc on farms and ranches nationwide. Combine these tough weather conditions with the current Administration’s

failure to protect our farmers against unfair trading practices, and you have the recipe for the tough economic situation facing many producers. By allowing farmers to

save up to 20% of their gross farm income during good times, we are allowing them

to prepare for times like these that are beyond their control.

Given the opportunity, I believe there are many ways that producers can reduce

their risk to fluctuating income. Tax deferments, insurance, expanding exports, and

tax reduction are all tools that can be utilized to reduce risk. While this bill is not

the lone solution to risk reduction and is not a quick fix for today’s ag problems,

I believe that it is one more tool that can benefit Montana ag producers.

I am proud to cosponsor H.R. 957 and look forward to enacting further tax reductions in this Congress.

TESTIMONY OF U.S. REPRESENTATIVE KENNY HULSHOF

I would like to thank Chairman LoBiondo, Ranking Member Christensen as well

as the members of the Rural Enterprises, Business Opportunities and Special Small

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Business Problems for holding this hearing on the Farm and Ranch Risk Management, or the FARRM Act, legislation I have introduced with my colleague U.S. Representative Karen Thurman (D–FL). It is a pleasure to be here with you today.

Since our nation’s inception, agriculture has been the cornerstone of our economy.

Today, our nation’s farmers feed the world. We all take for granted the ability to

walk into a grocery store and choose whatever product we want from shelves filled

with American farm products. We owe a debt of gratitude to our country’s farmers

and ranchers for this luxury that we have come to take for granted.

As any farmer and rancher can attest, those who make a living in agriculture are

faced with unique challenges. Everything from weather conditions to a commodity

price swing to subtle changes in a market abroad have real-life consequences for our

nation’s farmers and the rural economies that depend on their success. Having

grown up on a family farm in Southeast Missouri, a farm my parents still operate

today, I can attest first-hand to the risks and rewards of farming.

To help handle the risks of farming and ranching, Representative Thurman and

I have introduced the FARRM Act. The idea behind FARRM Accounts is very simple. We should make it easier for farmers to put away some money in a good year

to use down the road in the bad years that inevitable come. To accomplish this, the

FARRM Act will allow a farmer or rancher to make tax free contributions of up to

20% of their income from farming to a FARRM Account. They can keep the money

in the FARRM Account for up to five years, and take the money out at any time

during this time period. The money would be treated as regular income for tax purposes when withdrawn.

The past few years have been tough for farmers. Natural disasters, low prices and

economic downturns in vital foreign markets have caused distress in rural America.

Let me give you an example of how FARRM Accounts would benefit rural economies. In the three years prior to the current downturn, farmers and ranchers in my

home state of Missouri were profitable. Had FARRM Accounts been in place in

1994, those that are feeling the economic pinch of the farm crisis today could have

access to the equivalent of 60% of a year’s income. Talk to any farmer or rancher

and they will tell you that this nest egg or rainy day fund would be extremely beneficial.

Those Americans who earn a living in agriculture are hard-working, self-reliant

entrepreneurs. However, they need the risk management tools to help them use

their own money to plan for their future. Making FARRM Accounts available will

help empower the people who feed America and the world.

Once again, I thank the subcommittee for allowing me to testify today and for

holding this important hearing. I would be pleased to answer any questions you may

have relating to the FARRM Act.

TESTIMONY OF WAYNE NELSON, PRESIDENT OF COMMUNICATING FOR AGRICULTURE

Mr. Chairman and members of the committee, I thank you for the opportunity to

testify today on behalf of the members of Communicating for Agriculture in support

of H.R. 957, the Farm and Ranch Risk Management Accounts legislation. I commend you for holding this hearing on the legislation.

Farming and ranching are small businesses that make up the backborne of rural

America. They are also inherently volatile industries. The experts tell us, and recent

experience confirms, that they are becoming increasingly economically volatile. This

is indeed a special problem that merits your committee’s attention. The FARRM Accounts legislation is specially designed to help agricultural producers deal with this

increased volatility.

My name is Wayne Nelson and I am President of Communicating for Agriculture

(CA). CA is a 26-year-old national, non-profit rural organization made up of farmers,

ranchers and rural small business members in all 50 states. I am also a grain farmer from Winner, South Dakota and I can tell you first hand about the difficulties

farmers face in fighting the roller coaster ride the agricultural economy has become

largely due to price sensitive international markets.

I needn’t tell you how serious the problems are facing the American agricultural

economy right now. Virtually every major commodity has suffered severe price declines and farmers throughout the country are losing money. In northwest Minnesota and eastern North Dakota there are unprecedented numbers of auctions taking place.

In January of this year Communicating for Agriculture launched what we call our

‘‘Campaign for Family Agriculture’’. It’s goals are to establish a stronger farm safety

net, to restore competitive livestock markets, and to provide new financial management tools producers can use to strengthen their economic security. CA has several

recommendations for Congress—strengthening crop revenue insurance, mandatory

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livestock price reporting and meat labeling changes, adjusting loan rates, strengthening anti-trust oversight and enforcement in key industry sectors, export development, and even a unique new proposal we have developed called a Price Enhancement Program that is beginning to generate interest.

But from the beginning, passing Farm and Ranch Risk Management Accounts legislation has been a key goal of the campaign because it represents fundamentally

sound tax policy as well as providing an incentive for farmers to save in good years

for use in bad. In fact, Communicating for Agriculture has been very supportive of

the concept embodied by the FARRM Accounts legislation going back as far as nine

years, when CA introduced a similar concept for tax-deferred savings accounts for

agriculture to key policy makers in Washington. CA supports H.R. 957 and S. 642

and we strongly encourage Congress to pass them.

FAARM accounts would allow farmers and ranchers to set aside tax deferred income in good years and draw money back out of the FARRM account in the lower

income years offering a better opportunity to balance income from year-to-year.

These accounts would let qualified individual farmers and ranchers set aside up to

20 percent of their farm income each year. These individuals would have to materially participate in farming with the amount to be set aside calculated from their

scheduled F portion of their tax return. The contribution would be tax deferred but

any interest earned on the account would be included in the individual’s annual

gross income. There would be a 5-year limit on deposits to the account so a distribution would have to be made. Distributions would be treated as taxable income in

the year they were received. Any money left in the account over the 5-year limit

would be subject to 10 percent penalty. Individual farmers that don’t meet the participation guidelines for two consecutive years would have to immediately distribute

the funds in the FARRM account.

In a nutshell, FARRM accounts would be a self-help tool that would help farmers

and ranchers to set aside tax deferred income in good years and draw the money

back out later, perhaps in years of low income, when it would be taxable. FARRM

accounts are a prime example of ‘‘countercyclical’’ policy, and this is exactly the kind

of public policy for agricultural support that many leading agricultural economists

are saying we need to get back to.

While FARRM accounts themselves cannot replace the need for an agricultural

price safety net, nor can they replace the need for a workable crop insurance program, they would be a management tool farmers would welcome and would use.

Some skeptics may be critical of FARRM accounts because of their perceived cost

at a time when Congress is facing budget pressures for other necessary farm income

supporters; and because in a year like this when prices are so disastrously low, very

few farmers will be able to start a FARRM account this year.

We urge you to look a bit deeper.

Number one—if indeed few farmers will have profitable years in 1999 and not be

able to invest in a FARRM account this year—that also means there will be corresponding little cost to the government in any delayed tax revenue. Cost-wise,

FARRM accounts simply use tax deferral.

And number two—there is no better time to pass FARRM accounts than now

. . . except if Congress would have passed it four years ago when the concept was

first introduced as legislation.

Imagine . . . if FARRM accounts would have been in place in 1996 and 1997

when grain prices were relatively high. Think of how many farmers would have welcomed the opportunity to set aside some of that long needed profit in a tax-deferred

rainy day account. Even more importantly, think of how welcome that savings

would have been this past year when grain prices fell to their lowest levels in decades. Think of the difference in pork prices between 1997 and 1998 and how

FARRM could have helped. Income averaging was made permanent last year helps,

but it is only for two years. FARRM would complement income average helping

farmers and ranchers to even out the peaks and valleys of farm income for up to

5 years.

Dairy farmers represent a more recent, but just as good an illustration. Last year

dairy prices rose to very high levels. It was the only major commodity sector to enjoy

good profits last year, while all others were depressed. Then a few weeks ago, the

price of milk dropped $6 per hundredweight—the largest one month drop in history.

Dairying suddenly became unprofitable again with producers facing possible loses.

Had FARRM accounts been in place, there is no doubt many dairy farmers would

have used them to set aside income from a profitable year to bring the deferred income to be taxed in the probable lower income year of 1999.

We hope the roller coaster will start to rise again before too long. But the facts

are, the top agricultural economists are saying under current conditions; American

agriculture is likely to continue riding the wild side. It is dependent upon unstable,

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yet competitive world markets; susceptible to harm from currency fluctuations and

the impact of adverse weather; and is far less protected under current farm policies.

Dr. Abner Womack, one of the country’s leading agricultural economists from the

University of Missouri and the head of the Food and Agricultural Policy Institute

(a leading agricultural econometric forecasting institute), recently outlined for the

National Council of State Agricultural Finance Programs both the near term dangers, as well as long term strengths of the world economy and global demand for

U.S. farm products. Dr. Womack’s central message, however, was, the future is likely to bring more volatility for the agricultural economy, with ‘‘higher highs and

lower lows.’’

There are few, if any other sectors of the economy that operate in the kind of volatile conditions as agriculture. FARRM accounts would give producers one tool that

would help them weather these economic storms a bit better.

Communicating for Agriculture has a slogan . . . we say CA works to advance

‘‘good ideas for rural America.’’ We think FARRM accounts is one of them, and we

urge you to pass them.

Thank you.

STATEMENT OF ED BERGAMO JR.

I want to thank my Congressman Frank LoBiondo for giving me the opportunity

to speak to you today. Congressman LoBiondo has been a good friend of farmers

in Southern New Jersey. I am a fourth generation farmer operating a 120 acres vegetable farm with my younger brother, Paul. We grow a variety of herbs and vegetables which we sell at our local produce auction. Our operation is obviously small especially compared to the larger operations in other parts of the country, but we have

a higher profit per acre ratio than for instance a 1000 acre wheat farm.

Like all farmers my livelihood depends on many factors—weather, market fluctuations, international competition, distribution and supply costs, as well as many

other circumstances. Every year is a challenge and every year is different than the

previous year. To run a successful small farm you need to be a good grower but you

also have to possess financial management skills. Every year I run the risk of being

in a different tax bracket. In good years I am thrust into the upper brackets essentially paying a penalty for my success. In bad years, I find myself in lower brackets.

As a specialty grower, I am not eligible for many of the subsidies that are available

to program crop producers through the U.S. Department of Agriculture. If I have

a bad year, it is up to me to figure out how to pay the bills and plan for next year’s

crop.

Having a mechanism like a FARRM account that would allow me to save some

of my income for use in more difficult times would be extremely beneficial. It would

provide an incentive to save for a rainy day and it would allow me to avoid a higher

tax penalty when I have had a successful year. Managing a successful farm is a delicate balancing act. You have to strike a balance between many uncontrollable factors like the weather and price fluctuations. FARRM accounts would provide a stabilizing force in farming. Rather than proceeding on a boom or bust situation,

FARRM accounts allow farmers to spread out the success from good years to years

that are not so successful. This principle will inevitably keep more farmers in business. I have known many farmers in our area that were forced into severe debt by

a bad year. Eventually they have to liquidate their farms to pay their creditors.

FARRM accounts can lessen that phenomenon by allowing good fortunes to offset

difficult seasons.

It also reduces the tax crunch that inevitably results after a good year. I understand the reality of a graduated income tax but for farmers with fluctuating income

our tax system almost provides a disincentive for success. The better you do the

more your taxed. One suggestion I would make in regards to the implementation

of the bill is to make it as flexible in regards to income eligibility as possible. Because farm incomes vary so greatly from year to year, tight income restrictions could

severely limit the number of farmers who could take advantage of the legislation.

I understand the sponsors of the bill used a wide definition of agriculture for determining eligibility for FARRM accounts. That is encouraging. Often, specialty

growers like myself do not qualify for traditional agricultural assistance provided by

the USDA. A broad definition of farming will enable more small and specialty farmers to take advantage of FARRM accounts.

Farmers in Southern New Jersey and across the Country are experiencing extremely difficult times. FARRM accounts would provide much needed relief to farmers who are struggling to get by. I want to thank Representative Kenny Hulshof

and Representative Karen Thurman for sponsoring the FARRM Account legislation

and I want to thank Congressman LoBiondo for allowing me to testify today.

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STATEMENT OF MARLENE BROWN, IOWA FARM BUREAU FEDERATION WOMEN’S

COMMITTEE DIRECTOR

My name is Marlene Brown. I, along with my son, Scott, operate a 280 acre, corn,

soybean and hay farm in Brandon, Iowa. We also have a cow-calf herd. I’m here

representing the Iowa Farm Bureau Federation. IFBF is a general farm organization of 160,000 member families who produce every commodity commercially marketed in our state.

Farm Bureau commends the Small Business Committee, Subcommittee on Rural

Enterprises for calling this hearing to focus attention on the importance of saving

and investment incentives for farmers. This is my first opportunity to testify before

a Congressional Committee and I am pleased to be here today to speak on behalf

of Farm and Ranch Risk Management Accounts and their potential benefits to farmers.Farm Bureau supports the creation of Farm and Ranch Risk Management Accounts (FARRM), to help farmers and ranchers manage risk through savings. Using

Farm and Ranch Risk Management Accounts, agricultural producers would be encouraged to save money in good economic times for the ultimate lean economic

years.

Like other small business persons, farmers and ranchers have predictable expenses. Each month they must pay for fuel, animal feed, equipment repairs, building maintenance, insurance, utilities, and meet a payroll. They must plan for seasonal expenses like taxes, seed, heat, and fertilizer. They must also budget for major

purchases like equipment, land and buildings.

While many expenses can be predicted and to some degree controlled, farm income is neither predictable nor controllable. The prices that farmers and ranchers

receive for their commodities are determined by forces they can’t control, commodity

markets and the weather. Farmers and ranchers do not know from one year to the

next if their businesses will earn a profit, break even, or operate in the red. Few

other industries must face such a challenge year after year after year.

What all farmers hope for is that the good years will outnumber the bad ones.

Believing that better times are coming, farmers and ranchers get through tough

times by spending their retirement savings, borrowing money, refinancing debt, putting off capital improvements and lowering their standard of living. All of these activities damage the financial health of a farm or ranch and the well being of the

family operating the business.

The 1996 farm bill phased out government price and income supports to farmers

through the year 2002. Farmers and ranchers supported this phase-out because of

the promise of expanding market opportunities and assurances by Congress that

new ways would be found to help farmers and ranchers manage their financial

risks.

Many growers of perishable commodities along with the producers of livestock,

poultry and other nonprogram crops have never had the benefits of a farm program

safety net. We rely on our management skills, marketing ability and a little luck

with the weather to make our businesses turn a profit. We are always looking for

new and innovative risk management tools to help us manage our businesses successfully.

FARRM accounts are simple and that’s why they are so appealing to farmers.

Under H.R. 957 the Farm and Ranch Risk Management Act, eligible producers

could choose to defer taxes on up to 20 percent of their income for up to five years.

Farmers would decide when to save rather than spend and when to withdraw and

pay taxes on the money. I know that we will use a FARRM account as a risk management tool on our farm when our income allows us to do so.

Farm Bureau asks each of you for your support for FARRM accounts. We urge

Congress to pass them into law as soon as possible. Their creation will give farmers

and ranchers a meaningful incentive to save for a rainy day and provide a very valuable tool for managing financial risk.

MARLENE BROWN, DISTRICT 1 WOMEN’S CHAIRMAN

Marlene Brown is a member of the Iowa Farm Bureau Federation state women’s

committee. She represents District 1, which consists of 11 counties in northeast

Iowa.

Marlene previously served as chairman of the Buchanan County Farm Bureau

women and was board president from 1993 to 1996. She is currently a member of

the county legislative committee and voting delegate.

She manages a diversified crop and livestock farm with son Scott near Brandon.

Marlene has served on the Buchanan County Sesquicentennial committee, the

Iowa State University Extension council and past president of the Brandon United

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Methodist women. She is an Iowa Master Gardner, currently serves as a United

Methodist women district officer and is an active member of the Brandon Area Community Club and the Buchanan County Homeless Council. She also participates in

the local farmers market and works part time for Brandon Electric Motor.

The Iowa Farm Bureau Federation participates in the following agreements that

have been funded in part by the Iowa Department of Natural Resources through a

grant from the U.S. Environmental Protection Agency under the Federal Nonpoint

Source Management Program (Section 319 of the Clean Water Act):

(1) Agreement Number 99–7148–11 Iowa Farm A*Syst/Home*A*Syst Program. Funding is for $108,500 for the term of October 1, 1998 to October 31, 1999. Funding for this contract is made available under ‘‘Catalog of Federal Domestic Assistance’’ No. 66.460.

(2) Agreement Number 98–7147–08 Iowa Farm*A*Syst/Home*A*Syst Program.

Funding is for $41,900 for the term of April 20, 1998 to October 31, 1998. Funding

for this contract is made available under ‘‘Catalog of Federal Domestic Assistance’’

No. 66.460.

(2) Agreement Number 96–7146–01 Iowa Nonpoint Source Pollution Information

and Education County Grant Program. Funding is for $52,000 for the term of April

1, 1996 to April 1, 2000. Funding for this contract is made available under ‘‘Catalog

of Federal Domestic Assistance’’ No. 66.460.

STATEMENT OF STEVE APPEL, PRESIDENT WASHINGTON STATE FARM BUREAU

My name is Steve Appel. I’ve come to today’s hearing from Dusty, Washington,

where my neighbors know me as a third generation farmer who grows wheat and

barley.

Thank you for inviting me to speak at today’s Small Business Rural Enterprises

Subcommittee hearing. My statement is made on behalf of the 4.8 million member

families of the American Farm Bureau Federation. I sit on AFBF’s board of directors, a distinction made possible because of my post as president of the Washington

State Farm Bureau.

It’s especially fitting that the Small Business Committee is focusing on agriculture because times are especially hard for many farmers and ranchers. Last year,

in some parts of the country, extreme weather or disease destroyed the fall’s harvest

or made feed for livestock scarce. Others were blessed with good crops, but faced

low prices because of troubled overseas markets. Agricultural forecasters are predicting that 1999 will also be a difficult year for farmers and ranchers.

Farm Bureau is most appreciative of legislation passed by Congress last year to

provide immediate relief to farmers and ranchers. If similar emergencies are to be

minimized in the future, farmers and ranchers must have new and innovative ways

to deal with uncertain incomes caused by weather and markets. Congress must act

to give producers the risk management tools they need to manage financial jeopardy

caused by unpredictable weather and markets.

Farm and Ranch Risk Management Accounts (FARRM accounts) are exactly the

kind of risk management tool that farmers and ranchers are looking for. Using

these accounts, producers will be encouraged to save up to 20 percent of their net

farm income in higher income years by the benefit of deferring taxes on the income

until the funds are withdrawn. The program is targeted at real farmers, contains

guarantees that the funds will not be at risk, and prevents abuse by limiting how

long savings could be in an account to five years. I can’t help thinking how different

things would be now if FARRM accounts had been put on the books five years ago,

and farmers and ranchers had FARRM savings to use this year.

Legislation to create FARRM accounts, H.R. 957, has been introduced by Reps.

Kenny Hulshof and Karen Thurman. These are two smart representatives because

they’ve written their bill so that producers of all commodities, from all sizes of operations, who come from all parts of the country, can take advantage of FARRM accounts. That’s the reason over 30 agricultural organizations and more than 125 representative support the bill. A list of agricultural groups who join Farm Bureau in

supporting FARRM accounts is attached.

We know that members of the Small Business Committee understand the need

for FARRM accounts, but must tell you that many of my fellow farmers wonder why

it’s taking Congress so long to pass them into law. When agriculture agreed to support the phase-out of farm programs in 1996, it was with the full expectation that

Congress would make good on its promises to reduce regulations, expand markets

and provide risk management tools. We’re still waiting for some of the freedom that

was to come with ‘‘Freedom to Farm.’’

I’ve been told that passage of H.R. 957 would ‘‘cost’’ $500 million over five years

and $900 million over 10 years. Rather than talking about cost, I think we should

27

all be talking about the benefits of the legislation. It would be better to say that

FARRM accounts will provide an important safety net for farmers and ranchers

worth just short of a billion dollars.

My position as president of the Washington State Farm Bureau gives me responsibility for the grassroots process that our organization uses to develop its policy positions. I listen to hours of debate on farm policy in Washington State and I can’t

think of another idea that has such enthusiastic support as Farm and Ranch Risk

Management Accounts. Farmers like the idea that the government wants to make

it easier for them to save for a ‘‘rainy day.’’

I ask each and every member of the Small business Committee to get behind

FARRM accounts. Please cosponsor H.R. 957 if you haven’t already. Speak to your

fellow representatives about the wisdom of doing something to improve the farm

economy long-term. The future of production agriculture is dependent on new and

innovative tools, like FARRM accounts, to help farmers and ranchers manage their

financial risks.

Thank you. I’ll be glad to take your questions.

ORGANIZATIONS SUPPORTING FARM AND RANCH RISK MANAGEMENT ACT (FARRM

ACCOUNTS) IN THE 106TH CONGRESS

Agricultural Retailers Association; Alabama Farmers Federation; American Cotton Shippers Association; American Crop Protection Association; American Farm

Bureau Federation; American Mushroom Institute; American Nursery and Landscape Association; American Sheep Industry Association; American Society of Farm

Managers & Rural Appraisers; American Soybean Association; American Sugarbeet

Growers Association; Black Farmers and Agriculturists Association; Communicating

for Agriculture; Farm Credit Council; The Fertilizer Institute; National Association

of Wheat Growers; National Barley Growers Association; National Cattlemen’s Beef

Association; National Corn Growers Association; National Cotton Council of America; National Council of Farmer Cooperatives; National Grain Sorghum Producers;

National Grange; National Milk Producers Federation; National Pork Producers

Council; National Sunflower Association; North American Export Grain Association;

North Carolina Peanut Growers; Peanut Growers Cooperative Marketing Association; Society of American Florists; Southeast Dairy Farmers Association; Southern

Peanut Farmers Federation; USA Rice Federation; U.S. Canola Association; U.S.

Rice Producers Association; United Egg Producers; United Fresh Fruit and Vegetable Association; Virginia Peanut Growers Association.

BIOGRAPHY OF STEVEN APPEL, PRESIDENT WASHINGTON FARM BUREAU

Steve Appel is a family farmer from Whitman County, in southeast Washington,

He owns and operates a wheat and barley farm near Dusty.

Next to his family, Steve loves farming and the Farm Bureau. And like most

farmers today, he realizes that if you want to farm, you have to invest time to protect the family farm from being plundered by a not so benevolent government.

That is why he is here today.

Steve has been active in the Farm Bureau since 1974, serving as chair of the

Whitman County Young Farmers and Ranchers Committee and later as President

of the Whitman County Farm Bureau for three terms.

Mr. Appel was elected to the Washington Farm Bureau board in 1987—served as

First and Second Vice Presidents—and in 1994, was elected President—a position

he holds today.

He was elected to the American Farm Bureau board of Directors last month and

sits on the Farm Bureau national bank board of directors.

For those of you who don’t know, the Washington Farm Bureau represents family

farmers and presently has more than 18,000 member families.

NOTE: Pursuant to Rule XI(2)(g)(4) of the U.S. House of Representatives in the 105th Congress, neither the American Farm Bureau Federation, the Washington State Farm Bureau, nor

Steve Appel receive any federal grants or contracts.

STATEMENT OF THE NATIONAL CATTLEMEN’S BEEF ASSOCIATION

Chairman LoBiondo, Members of the Committee: The National Cattlemen’s Beef

Association commends you and the Committee for all of its hard work to protect the

interests of America’s small businesses. We are particularly grateful to you and your

staff for the effort expended to call today’s hearing on H.R. 957, ‘‘The Farm and

Ranch Risk Management Act,’’ (FARRM) introduced by Representatives Hulshof and

Thurman, and cosponsored by you and several members of the Full Committee.

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The business management tools provided for in this legislation will go a long way

today helping beef producers better manage the cyclical nature of farm and ranch

income, and is strongly supported by NCBA. Annual variations in income are a

major problem for farmers and ranchers. Unpredictable weather and markets make

long-term financial and tax management planning difficult and often threaten the

continuation of a ranching or beef feeding operation. In addition, recent changes in

federal farm policy are requiring agricultural producers to be more attentive to market conditions across all commodity sectors. Add to that the current economic instability in many of our key export markets and the combined effect results in an increasingly volatile income outlook for ranchers and feeders.

Without the ability to even out the swings in income, farmers and ranchers end

up paying more taxes than individuals with stable incomes because peaks are taxed

at a higher rate than if the same income were evened out over several years. This

problem has been accentuated since the income tax brackets were widened over a

decade ago. Income averaging and carry back tax provisions certainly help, and we

appreciate the efforts in the last Congress to improve those tools.

However, the FARRM legislation provides an additional tool that cattlemen and

women believe would significantly improve their ability to manage income—it would

allow them to establish an easily accessible tax-deferred ‘‘rainy day’’ fund that would

provide a safeguard for revenue shortfalls in the tough years. NCBA joins the commodity and farm groups testifying today in endorsing FARRM, in thanking you for

your leadership on this legislation, and in looking forward to working with you to

provide this tool to America’s beef producers.