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[Senate Hearing 107-370]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 107-370
 
               REVIEW OF THE TRADE TITLE OF THE FARM BILL
=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 25, 2001
                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry

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

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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

                  RICHARD G. LUGAR, Indiana, Chairman

JESSE HELMS, North Carolina          TOM HARKIN, Iowa
THAD COCHRAN, Mississippi            PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            KENT CONRAD, North Dakota
PAT ROBERTS, Kansas                  THOMAS A. DASCHLE, South Dakota
PETER G. FITZGERALD, Illinois        MAX BAUCUS, Montana
CRAIG THOMAS, Wyoming                BLANCHE L. LINCOLN, Arkansas
WAYNE ALLARD, Colorado               ZELL MILLER, Georgia
TIM HUTCHINSON, Arkansas             DEBBIE A. STABENOW, Michigan
MICHEAL D. CRAPO, Idaho              BEN NELSON, Nebraska
                                     MARK DAYTON, Minnesota

                       Keith Luse, Staff Director
                    David L. Johnson, Chief Counsel
                      Robert E. Sturm, Chief Clerk
            Mark Halverson, Staff Director for the Minority

                                  (ii)

  

                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing(s):

Review of the Trade Title of the Farm Bill.......................    01

                              ----------                              

                       Wednesday, April 25, 2001
                    STATEMENTS PRESENTED BY SENATORS

Lugar, Hon. Richard B., a U.S. Senator from Indiana, Chairman, 
  Committee on Agriculture, Nutrition, and Forestry..............     1
Dayton, Hon. Mark, a U.S. Senator from Minnesota.................    32
Miller, Hon. Zell B., a U.S. Senator from Georgia................     2
Roberts, Hon. Pat, a U.S. Senator from Kansas....................    29
Nelson, Hon. Ben, a U.S. Senator from Nebraska...................    37
                              ----------                              

                               WITNESSES
                                PANEL I

Babcock, Bruce A., Director, Center for Agricultural and Rural 
  Development, Iowa State University.............................     3
Heck, Ron, Soybean Producer, Perry, Iowa and Vice President, 
  American Soybean Association...................................     6

                                PANEL II

Echols, James, Cordova, Tennessee, Chairman, National Cotton 
  Council........................................................    22
Hamilton, Timothy F., Chicago, Illinois, Executive Director, Mid-
  America International Agri-Trade Council, and Executive 
  Director, Food Export USA-Northeast............................    25
McDonald, Dennis, Melville, Montana, Chairman, Trade Committee 
  for 
  R-CALF, United Stockgrowers of America.........................    27
O'Mara, Charles J., President, O'Mara and Associates, Washington, 
  DC, on behalf of The American Oilseed Coalition................    20
Stallman, Robert, Columbus, Texas, President, American Farm 
  Bureau 
  Federation.....................................................    16
Swenson, Leland, Aurora, Colorado, President, National Farmers 
  Union..........................................................    18

                               PANEL III

Hackett, Kenneth, Baltimore, Maryland, Executive Director, 
  Catholic Relief Services, on behalf of Coalition for Food Aid..    51
Lewis, Judith, Acting Director of Resources and External 
  Relations, World Food Program, Rome, Italy.....................    48
Martin, Gary, President, North American Export Grain Association, 

  Washington, DC.................................................    54
                              ----------                              

                                APPENDIX

Prepared Statements:
    Fitzgerald Hon. Peter G......................................    64
    Miller, Hon. Zell B..........................................    62
    Babcock, Bruce A.............................................    66
    Echols, James................................................   109
    Hackett, Kenneth.............................................   139
    Hamilton, Timothy F..........................................   120
    Heck, Ron....................................................    72
    Lewis, Judith................................................   132
    Martin, Gary.................................................   156
    McDonald, Dennis.............................................   124
    O'Mara, Charles J............................................   104
    Stallman, Robert.............................................    87
    Swenson, Leland..............................................    96
Document(s) Submitted for the Record:
    Coalition to Promote U.S. Agricultural Exports...............   174
    Cotton Council International's COTTON USA Program............   162
    MIATCO.......................................................   163
    Sims, Douglas, Chief Executive Officer of CoBank.............   177

                              ----------                              

               REVIEW OF THE TRADE TITLE OF THE FARM BILL

                              ----------                              

                       WEDNESDAY, APRIL 25, 2001

                                       U.S. Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:07 a.m., in 
room SR-328A, Russell Senate Office Building, Hon. Richard 
Lugar, [Chairman of the Committee], presiding.
    Present or submitting a statement: Senators Lugar, Roberts, 
Fitzgerald, Crapo, Conrad, Baucus, Miller, Nelson, and Dayton.

    STATEMENT OF HON. RICHARD B. LUGAR, A U.S. SENATOR FROM 
  INDIANA, CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND 
                            FORESTRY

    The Chairman. I welcome everyone to this hearing of the 
Senate Agriculture Committee.
    This morning we will receive testimony on reauthorization 
of the trade title of the Farm bill. The committee will convene 
a second trade hearing in the near future in which witnesses 
from the administration and the private sector will engage in 
discussion of a broader range of trade issues impacting 
agriculture.
    Today, we will focus more specifically on the trade title 
of the Farm bill and the issues and programs related to 
reauthorization. As we begin this process of drafting a new 
farm bill, we emphasize again the vital importance of foreign 
markets to United States agriculture.
    Nearly every one of our 50 States exports agricultural 
commodities and benefits from export-generated employment, 
income, and rural development. No sector of the United States 
economy is more critically dependent on international exports 
than agriculture. The products of roughly 3 out of every 10 
acres of the United States agricultural production are 
exported, and farmers in this country are reliant on the 
ability to export what they grow.
    Ninety-six percent of the world's population lives outside 
of the United States, and each of these persons is a potential 
customer. We can best secure our farmers' and ranchers' 
profitability by promoting access to foreign markets. It should 
be borne in mind that agricultural exports generate and sustain 
hundreds of thousands of jobs and considerable income and 
activity in the American non-farm economy as well.
    When Congress enacted the last Farm bill, the FAIR Act of 
1996, we gave farmers the right to make their own planting 
decisions free from Government interference. However, there is 
unfinished business which we are discussing again today in 
securing free and fair trade in farm products and by opening 
more foreign markets to agricultural production from our 
country.
    There are a number of programs to increase United States' 
agricultural exports and facilitate farmers' access to those 
markets. We will hear testimony this morning on the various 
USDA export and food aid programs. It is important to remember 
that many of the barriers to increased exports are 
unfortunately outside the jurisdiction of this committee and 
cannot be addressed by Congress in the context of the Farm 
bill.
    But today's hearing will begin an overview of the 
agricultural export outlook, provided by Bruce Babcock of the 
Food and Agricultural Policy Research Institute and Ron Heck, a 
soybean producer from Iowa who will discuss his experience with 
South American agriculture. His presentation is very important 
as we consider the international agricultural landscape over 
the years covered by the next Farm bill.
    The second panel will address USDA's export programs. Bob 
Stallman, of the Farm Bureau, and Lee Swenson, of the National 
Farmers Union, will provide the committee with their 
organizational views. Also appearing on the panel will be Joe 
O'Mara, with O'Mara and Associates; James Echols, with the 
National Cotton Council; Tim Hamilton, with Mid-America 
International Agri-Trade Council and Food Export USA-Northeast; 
and Dennis McDonald, with Ranchers and Cattlemen Action Legal 
Fund.
    The third panel will focus on food aid programs, and that 
panel will include Judith Lewis, of the World Food Program; Ken 
Hackett, of Catholic Relief Services; and Gary Martin, of the 
North American Export Grain Association.
    We are pleased and honored to have each of these witnesses 
this morning. We look forward to an insightful hearing.
    I would like to call on my colleague, Senator Miller, and 
ask if he has an opening comment or statement.

 STATEMENT OF HON. ZELL B. MILLER, A U.S. SENATOR FROM GEORGIA

    Senator Miller. Thank you, Mr. Chairman.
    I would like to thank all those who are going to testify 
before the committee this morning.
    I do have a statement, but in the interest of time, I will 
submit it for the record.
    The Chairman. It will be published in the record. I thank 
the Senator.
    [The prepared statement of Senator Miller can be found in 
the appendix on page 62.]
    The Chairman. Dr. Babcock and Mr. Heck, we are very pleased 
to have both of you in front of us this morning. I will ask 
that Dr. Babcock testify first and then Mr. Heck, second.
    I will ask that you summarize your testimony in 10 minutes, 
if that is possible.
    We will proceed with you, Dr. Babcock.

      STATEMENT OF BRUCE A. BABCOCK, DIRECTOR, CENTER FOR 
  AGRICULTURAL AND RURAL DEVELOPMENT, IOWA STATE UNIVERSITY, 
                           AMES, IOWA

    Dr. Babcock. Thank you, Mr. Chairman. Thank you for the 
opportunity to participate in today's hearing.
    My research center at Iowa State University, together with 
FAPRI at the University of Missouri, jointly developed the 
annual FAPRI baseline. From this baseline, I have prepared a 
brief overview of what we see happening over the next 5 years 
in the agricultural economy.
    When are prices going to rebound? That is the No. 1 
question that I am asked. Prices have been weak for most crops 
since 1997, and pork and beef prices in the late 1990's hit 
rock bottom, although both have subsequently recovered.
    When discussing where prices are going, it helps first to 
take a long historical view. For agriculture, if you look back, 
the long run, inflation-adjusted price trend is clearly 
downward. Productivity increases have resulted in the supply of 
agricultural commodities growing faster than demand. Other 
commodities such as metals, oil, wood, chemicals, and computer 
capability have also experienced this downward trend.
    This downward trend in inflation-adjusted prices really 
does represent a success story for economic growth and wealth 
creation. Despite claims that the world will inevitably run 
short of basic commodities, low prices indicate that basic 
commodities have become relatively less scarce over time, not 
more.
    Technological progress means that we can spend relatively 
less on basic commodities, which helps increase standards of 
living.
    However, this long run trend does not imply that prices 
cannot rise over a 5-year period, particularly if prices start 
at a lower-than-expected base level, as they currently are now 
for agricultural crops.
    How did our prices get so low? First, the average yields 
for corn, barley, and sorghum were above trend each year from 
1996 to 1999. They fell slightly below trend in 2000. Average 
world wheat yields were below trend in 1996 but above trend for 
the following 4 years, so we had a lot of supply. As we look to 
the next 5 years, we should expect a more equal number of years 
in which yields are above trend or low trend, which should help 
prices out over the next 5 years.
    Second, the Asian financial crisis in 1998 had a direct 
effect on United States prices. The economies of Thailand, 
South Korea, Philippines, Indonesia and China either shrank in 
size or had significant declines in growth rates. This crisis 
caused United States exports to either fall, as in the case of 
grains, or to remain flat, when they were expected to grow 
sharply, as with meats.
    Most Asian countries have rebounded quickly from that 
crisis, with the notable exceptions of Japan and Indonesia. 
Continued economic growth in the region should help strengthen 
export demand for United States agricultural products.
    Third, United States prices were weakened by the strength 
of the dollar. Both in 1997 and again in 2000, the dollar 
strengthened considerably against European and most Asian 
currencies. It is difficult to determine if the dollar will 
weaken any time soon, although some think it is overvalued 
right now.
    Last, changes in domestic policies in the mid-1990's 
contributed to weak prices. The new United States farm policy 
passed in 1996 allowed farmers to take advantage of high market 
prices in the middle 1990's and expand their acreage, and large 
countercyclical farm payments have helped keep United States 
total planted acreage up even though price levels have fallen 
dramatically.
    China policy in 1997 and 1998--they decided to reduce the 
size of their corn, wheat, and cotton stocks. This internal 
policy decision helped switch China from a net importer to a 
net exporter of these commodities, which weakened prices.
    Public and private transportation infrastructure 
investments in Brazil and Argentina have allowed both countries 
to expand planted acreage, particularly soybean acreage, which 
has tended to expand total world supplies.
    Some of these policy decisions may be transitory. We expect 
China to become a net importer of corn, wheat, and cotton as 
they rationalize their producer incentives under the WTO. 
Congress may decide to lower loan rates and eliminate any 
further emergency payments; they may not. Brazil and Argentina 
could decide to return to a policy of higher taxes on 
agriculture, which would hold down their supply expansion. Any 
of these policy changes would lead to higher United States crop 
prices.
    In summary, we see no reason to believe that the long run 
trend in real prices will be reversed in the next 5 to 10 
years. However, recent price weakness is caused by short-run 
factors that are reversible, and we do see some reverse. So let 
me talk about in particular some of the price projections we 
are making.
    Wheat prices are expected to increase by 16 percent, from 
$2.67 to $3.17 in 2005. But United States exports are projected 
to remain flat. Because of its policy reforms, the EU is able 
to expand exports of wheat significantly without subsidies. If 
major producing and consuming countries like China and India 
suffer poor crops, wheat prices will be much higher than 
projected.
    Corn prices are projected to increase 20 percent between 
now and 2005. Our projection that China will become a net 
importer of corn by 2005 is a key factor underlying the price 
increase. World stock levels are projected to be adequate to 
forestall dramatic increases in price from a single year of 
poor growing weather, so the private sector really is holding 
stocks.
    Continued large LDP payments to soybeans will limit United 
States corn acreage, thus helping corn prices. If United States 
soybean loan rates are rebalanced downward, corn prices would 
tend to be lower than projected.
    Soybean prices are projected to remain below United States 
soybean loan rates for the next 5 years. Continued expansion of 
soybean acreage in South America and continued expansion of 
other acreage of competing oilseeds, combined with maintenance 
of large United States soybean acreage, keep prices weak.
    Despite continued high United States support prices, the 
United States share of world soybean trade declined over the 
period. Productivity gains in the United States and in other 
countries have made soybeans a relatively attractive crop to 
grow around the world.
    Cotton prices have already rebounded somewhat from their 
recent low levels. We project cotton prices to remain largely 
at current levels over the next 5 years. This static projection 
reflects moderate growth in world demand, significant increases 
in cotton acreage in Brazil, and continued liquidation of large 
Chinese stocks.
    Domestic rice prices are projected to rise by 25 percent. 
Strong increases in United States demand and growth in world 
rice trade fueled this increase. However, United States prices 
do not rebound as much as strong demand growth might suggest 
because other exporting countries are in a position to increase 
their share of world markets. Thailand, Vietnam, China, and 
India are all projected to increase their rice exports.
    Cattle prices are the bright spot in United States 
agriculture. Strong domestic demand combined with a continued 
decline in total cattle numbers have led to this strength. As 
herds rebuild over the next 5 years, we project prices to 
remain strong. In the short run, strong demand increases 
imports of cattle, but as the cattle cycle moves on, and prices 
fall a bit, we see exports expanding.
    Strong domestic demand and problems with foot and mouth 
disease in other exporting countries have led to a recovery in 
pork prices, although they still remain below the levels 
observed in most of the 1990's. Domestic hog numbers are 
projected to increase over the next few years, driving down 
price, but increasing exports. Pork exports are projected to 
increase 36 percent over the next 5 years. The phenomenal 
productivity growth in the United States pork sector is 
projected to continue, making the United States a low-cost 
producer in the world.
    In our baseline projects, we assume that current policy 
decisions are maintained throughout the projection period. 
Thus, for dairy, we assume that the dairy support price program 
is terminated at the end of 2001, which lowers price, and 
United States production lowers as United States production 
lowers as United States producers respond to lower dairy 
prices.
    Overall, we project moderate growth in crop prices over the 
next 5 years. With the notable exception of soybeans, we should 
see significant declines in price support payments. Crop prices 
will rise significantly if there is a major supply disruption. 
But over a 2- or 3-year period, the extent to which prices can 
rise is limited by the continued downward pressure of 
agricultural productivity increases in the United States and 
other exporting nations.
    We are optimistic about the health of the livestock sector. 
Strong demand, low-cost producers, and high-quality products 
are making the United States quite competitive in world 
markets. Of course, this strong position would be quickly 
eroded if the United States loses its FMD-free status. Public 
investments in maintaining this status may yield the largest 
short- and long-term returns in agriculture available to 
Congress and the USDA.
    As you rewrite the trade title of the Farm bill, keep in 
mind that 10 years ago, program commodities accounted for 64 
percent of the value of agricultural exports. In 2000, they 
accounted for 49 percent. Continued world economic growth will 
result in relatively greater demand for United States exports 
of higher-value commodities. A farm bill that gives United 
States agriculture the right incentives to deliver the kinds of 
food products overseas customers want will enhance the long-
term health and competitiveness of the sector.
    One last comment. The committee knows that it cannot spend 
more than the amber box limits under the WTO of about $19.1 
billion. This constraint, along with the generally accepted 
notion that world economic growth is enhanced with increased 
trade, gives momentum of the policies that do not directly 
influence world prices or trade flows.
    As the EU considers the future of its agricultural 
policies, it seems that it is replacing its food security 
rationale for intervention with a rural development/
environmental quality rationale. A similar search for 
justification for United States intervention has led many to 
push for expansion of conservation payments to farmers, such as 
Senator Harkin's Conservation Security Act. Supporters of 
conservation payments point out that taxpayers are more likely 
to support payments to farmers if they are getting 
environmental quality in return--and it is much easier for 
conservation payment programs to be classified as green box 
under the WTO.
    Thank you again for the opportunity to participate.
    The Chairman. Thank you very much, Dr. Babcock, for a very 
comprehensive review in a very short period of time.
    Let me just indicate to both of you gentlemen and to all of 
the subsequent witnesses that your comments will be published 
in full even though you have striven to summarize and given our 
hopes that we could proceed in this way.
    [The prepared statement of Dr. Babcock can be found in the 
appendix on page 66.]
    The Chairman. Mr. Heck, would you proceed with your 
testimony.

 STATEMENT OF RON HECK, PERRY, IOWA, VICE PRESIDENT, AMERICAN 
                      SOYBEAN ASSOCIATION

    Mr. Heck. Good morning, Mr. Chairman and members of the 
committee.
    I am Ron Heck, a soybean and corn producer from Perry, 
Iowa. I currently serve as vice president of the American 
Soybean Association, which represents 29,000 producer members 
on national issues of importance to all United States soybean 
farmers.
    ASA commends you, Mr. Chairman, for holding this hearing 
and appreciates the opportunity to testify today.
    Brazil has emerged over the past decade as the principal 
competitor to the United States for exports of soybeans, 
soybean meal, and soybean oil. ASA and other United States 
oilseed organizations are spending a great deal of time and 
resources to assess the long-term challenge which Brazil 
represents to our industry, since we depend on foreign markets 
for fully one-half of our annual soybean production.
    In addition to this national interest, every soybean 
producer wants to base decisions affecting the viability of 
their own operation on the best available information.
    The future competitiveness of Brazil in both the world and 
our own domestic market will affect the livelihood of my family 
in the coming years. We all need to accurately assess the 
impact of Brazilian production costs, production and exports in 
making decisions on whether to purchase additional land and 
plan to expand production.
    For these reasons, I have visited Brazil and Argentina four 
times in the last 14 months. I have also hosted Brazil's 
largest soybean farmers, the Maggi family, in a visit to my 
farm in September 1999 to tour Iowa State University's 
Precision Farming Project on my farm.
    Following these visits, I wanted to share my experiences 
and views with my colleagues at ASA, with other producers, and 
with the industry at-large. I developed a powerpoint 
presentation which is summarized in the tables, charts, and 
comments included in the balance of my testimony. I would like 
to briefly summarize this information for the committee and 
then will be happy to respond to any questions.
    The title of the powerpoint presentation is ``Can U.S. 
Farmers Compete with South America?'' It says I would like to 
get the facts straight about that. I am disturbed about some of 
the things I have been reading in the press.
    The first thing I would like to call the committee's 
attention to is the total world crop acres. In a long-term 
chart, we used to add about 5 million acres a year in total 
acres farmed for all crops, but in 1996, the year of $5 corn 
and $8 soybeans, the world farmers suddenly added 45 million 
acres all in 1 year, which is a 9-year supply of new acres and, 
certainly, just before the Asian crisis, this caused a short-
term oversupply problem.
    I would also like to point out to the committee that since 
1996, world acres have declined every year. We are not in an 
expansion mode in world acres; we are in a world contraction.
    The next slide, number 6, talks about the average yield for 
coarse grains that Dr. Babcock referred to. We had an old trend 
line yield, and the yields went up and down every year. But 
there again, in the same year, 1996, we had a sudden 
productivity jump of 5 percent all in 1 year, which is enough 
of a production increase to last for 7 years, further 
compounding the supply problem.
    I believe this sudden jump was because of genetically 
modified biotech crops, particularly in the coarse grains areas 
from BT corn, which makes your yields much more stable and 
higher than they were before that product existed.
    In Slide 7, we take a look at the world coarse grains area, 
which peaked in 1985 and has been going down ever since. As we 
became more productive, we did not need as many acres in the 
coarse grains, including corn and wheat, and the world's 
farmers responded by planting more soybeans. You see that world 
soybean production has been shooting up, but actually, world 
soybean ending stocks, surprisingly, have been going down 
during the decade of the 1990's.
    There is, however, a troubling trend. Although United 
States soybean stocks are down in the last 10 years, for the 
last few years, they have been going up a little faster than 
world carryover stocks. I think there are two reasons for this.
    Slide 11 shows the 1995 projection for what the value of 
the United States dollar would be, and this was the baseline 
forecast for the FAIR Act. It was projected before the Asian 
crisis and before the euro faltered that the value of the 
dollar would decline, but instead of declining, it went up 25 
percent higher than the forecast. I would say that our price 
problem is largely because of this value of the dollar. Six-
dollar beans with the predicted $85 index instead has turned 
into $4.50 beans with our current 115 dollar index. This is the 
price problem.
    But in theory, regardless of our price problem, the 
marketing loan should allow our prices to go down to a level 
where the United States stocks would always clear--yet this 
does not seem to be happening exactly as I would have predicted 
it. I think there is a reason for this, too.
    Slide 12 shows European Union imports of soybeans and yield 
by country of origin. You will notice that as their imports 
from the United States have gone down, their imports from 
Argentina and Brazil have gone steadily up. I would like to 
point out to the committee that all of Argentina's beans are 
GMOs, and the Europeans take them without complaint while they 
do complain about ours.
    The next few slides are general facts taken from the 1995 
CIA Factbook; they are a little dated, but they are consistent, 
and that is the source that I used.
    Talking about the differences between the United States and 
Argentina and Brazil, basically, they say over the next couple 
of pages that we are a much larger country, with many more 
resources to work with, including our Federal Government. In 
the interest of time, we need to skip over that.
    Slide 19, unemployment; of course, you know the United 
States is fully employed. Argentina and Brazil now are 
currently suffering through maybe 25 percent unemployment--I am 
not sure that anyone really knows.
    But so what? Here is the turning point. In 1995, the world 
certainly needed more food, but we got three responses. 
Investments were made by Europe and Japan in South American 
infrastructure, leading to an acreage expansion down there. The 
multinationals released the biotech products that they had, and 
that caused an increase in productivity and more expansion and 
supply. The U.S. Government passed the FAIR Act--all at the 
same time. All three investments worked, and we got more food.
    So, which one is going to survive? That may be up to some 
of you in the room today.
    Unfortunately for soybeans, soybeans became the 
battleground, because they are the commodity that is easiest to 
grow; they have a worldwide market; they have enough value per 
bushel to pay the freight; and they have United States 
production patent.
    Now we get down to looking at our exact competitors in 
South America, and there are really three. Southern Brazil is 
the first one. Land down there is as high as $2,500 an acre, 
just like ours. They grow mainly orange juice and ethanol. It 
is fully developed. They cut soybean acreage this year to raise 
more corn. Corn a year ago in Sao Paulo was $4 per bushel 
because Brazil did not allow the import of Argentine or United 
States corn, because they wanted to stay GMO-free. So Brazilian 
farmers responded and planted more corn and less beans this 
year, and they are really no further threat to expansion 
because they are in full production.
    Argentina has good soil and climate, but they only have 5 
million acres that are still available. They are very 
financially stressed, having a hard time, struggling. As you 
know, they have lax patent and copyright infringement and 
intellectual property laws, so they buy some of their inputs 
cheaper because they do not pay royalties, but nevertheless, 
they cannot expand much more, and they are suffering at these 
prices.
    Really, the Cerrados in central Brazil is the only area 
that I am concerned about for myself. The reason is there are 
several hundred million acres available; the land is cheap; but 
they have transportation costs that are as high as $2 per 
bushel. As they improve that, that will be a problem for us.
    They give relatively decent yields--30 bushels an acre is 
common, 45 bushels an acre on good farms--but they have very 
high production expenses, which is in contrast to what you may 
have heard.
    Slide 25 is a list of areas where the Cerrados is certainly 
not competitive. Slide 26 shows some areas where the Cerrados 
is competitive. I would be happy to answer questions on that, 
but time does not permit that we go through each one in detail.
    Slide 27 is what is in the popular press and what is being 
said about the cost of production in Iowa and Matto Grosso, and 
I would like to slow down for a moment and take a closer look 
at that.
    In the lower right-hand corner there, the conclusion is 
that Iowa's cost of production is $5.89 per bushel, and in 
Matto Grosso, it is $2.98 per bushel. That gives the impression 
that this is a hopeless situation for us, and that is just 
absolutely not accurate.
    The chart starts out with land as a fixed cost and a 
permanent cost, and as farmers, we all know that land rent is 
the residual after the production costs and revenue are 
determined.
    So let us take out the land and replace that with 
transportation cost to deliver it to the customer, because 
after all, the soybean on a farm has no value; it has to be 
delivered to a customer.
    Moving to the next page and the rest of the story, just 
making the one change to freight instead of land and also, at 
the bottom, changing the yield to 50 bushels an acre for Iowa 
and 45 bushels for Matto Grosso--Matto Grosso has never reached 
45 bushels an acre yet; I expect that they will, but they have 
not yet. The Iowa cost is now lower than Matto Grosso's--$3.79 
a bushel versus $4.67 in Matto Grosso.
    We are not done with costs yet. Looking at the other 
figure, $110.99 for Iowa and $40 for Matto Grosso.
    Slide 29 talks about how inaccurate that statement is. It 
is just not true.
    So on Slide 30, the best estimate is that Iowa production 
costs are $3.79; Matto Grosso costs are $6.23. So we are the 
lower cost area. We have some short-term problems here. We can 
handle our conservation problems in Iowa. In Matto Grosso and 
the tropical areas, they are mining their soil of nutrients, 
they are degrading their soil, they are operating at a loss, 
and they are really only being kept in business because of 
currency devaluations. The Brazilian real was cut in half in 
January 1999, and they are producing for the current signals, 
not for the market signals.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Heck can be found in the 
appendix on page 72.]
    The Chairman. Thank you very much, Mr. Heck. This 
information is extremely valuable, and I commend to all the 
members of the committee and the staff the powerpoint 
presentation you have described and which is in fact a part of 
your testimony. This is very valuable data.
    Let me begin the questioning by pointing out that you, Dr. 
Babcock, cited that you have had good weather, an Asian crisis, 
expanded acreage--both of you pointed out the 1996 jump--and of 
course, in your powerpoint presentation, Mr. Heck, you pointed 
out that acreage remained high. In other words, it was a leap, 
but people did not fall back in the total sense of the acreage 
being utilized. Then, finally, there were policy changes; 
policy changes here and elsewhere.
    Yesterday, when I met, as some of us did, with the farm 
editors, we were pointing out that some of these policy change 
have an effect, of course, upon supply in the United States, 
one of which is our crop insurance program. Many observers, and 
perhaps you, Dr. Babcock, having done some work with FAPRI, 
have indicated perhaps as much as three percent more production 
occurs because we have crop insurance, and marginal lands, or 
lands that would be more challenged, are in fact utilized 
because of that.
    Some have in fact pointed out--and the cost figures you 
have presented, Mr. Heck, are very interesting, because they 
get to the heart of the problem with the LDP--some have 
suggested that the LDP, the loan deficiency payment, was meant 
as a safety net, a sort of a catch-all at the lower end. But we 
have some efficient producers who are apparently able to 
produce for less than the LDP, and some incentive therefore to 
do more.
    The wide variety of costs on various farms is certainly an 
important factor, but nevertheless we may be getting more 
production even as we are trying to provide safety nets, either 
with an LDP or a safety net through crop insurance. That is 
likely to lead to lower prices. So on the one hand, as people 
come in, as they will to this committee throughout our 
discussion of the commodity title, lamenting lower prices, most 
would not be in favor of eliminating crop insurance or lowering 
the LDP or the soybean loan or any of the other fixtures that 
we have, all of which would appear to contribute to more 
production and consequently lower price, if you had the same 
weather.
    You are probably correct, Dr. Babcock--you will not always 
have weather that is the same. You, Mr. Heck, have pointed out 
that the dollar rose 25 percent as opposed to projections that 
it would fall. Those are consequences beyond this committee and 
maybe beyond any committee--they are the facts of life of the 
world.
    I would just suggest, finally, that although the price has 
been a preoccupation, sometimes the volume is important; price 
times volume equals income. As a matter of fact, as people have 
become more efficient and produced three times as much now, 70 
years later, than they did in the 1930's, revenue has increased 
even though price in a secular way, as Dr. Babcock just pointed 
out, may have decreased given these efficiencies or 
breakthroughs in research and so forth.
    I mention all of this because there is a mercurial aspect 
about what we are chasing here. If somebody has price in mind, 
and that is the only thing on their mind, why, that is one 
problem. But if we were to look strictly at that, why, of 
course, I suppose we would adopt policies that would be very 
abnormal with regard to our freedom to use land, quite apart 
from our export policy.
    Let me ask as an overall question to both of you, if you 
were to advise this committee on changes in farm legislation 
that would have an effect on our ability to be better 
exporters--and we have to take on faith now that our Trade 
Representative will be more adept and that somehow, we'll get 
fast-track authority, politically difficult as this may be, so 
that we are credible and have some chance of making a 
difference--because my judgment is that we will not have any 
difference at all without fast-track; we'll be whistling in the 
dark, hoping for something to happen there. But let's say we 
get those assumptions, so we do have a freer road to negotiate 
with other countries. What, in terms of our current policies, 
should we change to make us more competitive or more likely to 
be able to take advantage of those favorable world situations?
    Can you offer a suggestion, Dr. Babcock?
    Mr. Babcock. I look at the current farm policy, and I look 
at it in terms of the policy tools that this committee has at 
its disposal. It is export-friendly. I mean, if you look at the 
guaranteed prices put in with the LDPs, as Ron Heck said, they 
do allow the market price to fall to the level needed to clear 
the markets, which means that--and if you look at world 
markets, and you talk to other exporters, they think this is 
the worst possible program for them because it hurts their 
export price. So from a grains point of view and the program 
crops, it is export-friendly.
    From a livestock or meat side, it is export-friendly, too, 
because we are not artificially driving up or, actually, with 
the program causing prices to be lower than they were, which 
lowers feed cost, which expansionary for the livestock sector, 
which helps them.
    So if I look at the current policy, it is already export-
friendly.
    Now, you can talk about particular--and I think the later 
panels will talk about particular programs that might expand 
exports in one direction or another, but from a macro or a 
global point of view, I think that the FAIR Act is the most 
export-friendly policy that we have had.
    The Chairman. Mr. Heck.
    Mr. Heck. Yes, I would agree with that. I think that is an 
excellent answer.
    The question I really needed the answer to for my own farm, 
and it is the same for the committee, too, is this a long-range 
problem or a short-range problem; will the dollar always be 
high, and will the Cerrados in Brazil always be able to 
produce. I do believe it is a short-run problems that 
currencies will correct. I do not believe the Cerrados can 
continue at these prices.
    I think that our current policies are actually the right 
ones and should remain in place, and we should continue to 
pursue more aggressively the elimination of trade barriers 
around the world, whether they are tariffs or non-tariff 
barriers.
    The Chairman. Senator Baucus, I know that you have some 
time constraints, so I want to call on you so that you have an 
opportunity.
    Senator Baucus. No, no. Senator Miller was here ahead of 
me.
    Senator Miller. I do not have any questions.
    Senator Baucus. Thank you.
    Which trade barriers are the worst, cause the greatest 
problems for American producers, particularly wheat?
    Mr. Babcock. My experience is that the worst trade barriers 
are the ones that are not transparent, that you cannot get a 
handle on. That is why the past negotiations have tried to 
convert quotas, licensing restrictions, into tariffs, so that 
then you can negotiate those tariffs down. But it is very hard 
to get a handle on a trade barrier that is maybe a 
phytosanitary trader barrier, because you cannot tell if it is 
really reflecting true concerns about food safety or spread of 
disease versus a true wanting to protect domestic producers.
    Senator Baucus. Could you give me some examples of 
phytosanitary barriers that you suspect are really trade 
barriers? I will tell you that one is beef hormones. That is 
clear. My authority is Margaret Thatcher. Several years ago, I 
was sitting across the table from her, after listening to about 
a half-an-hour lecture on everything under the sun, and we got 
to talking about beef. I said, ``You know, we think that that 
is trade-related, not health-related.''
    She said, ``That is right; of course. But that is the 
continent''--she was putting the blame on the continental 
Europeans. But she flat out said that absolutely, that is what 
that is all about. Of course, that is just her own opinion.
    But what are some that come to your mind?
    Mr. Babcock. That one came to my mind right off the bat. If 
you look at it, look how long it has taken to--even though the 
WTO ruled that it was not a phytosanitary reason for doing it, 
or a health problem, we are still negotiating; it is still on 
the table.
    So those are the hardest to get resolved. IT is very 
difficult--for example, we just instituted a policy to keep us 
FMD-free, our FMD status free, and Russia banned imports from 
the EU for the same reason. There, you have to say that that is 
probably a wise decision. But where you draw the line on some 
of the more phytosanitary things is more difficult than on 
others. Some are true, some are not true. Some are trade-
restricting, some are not. Those are the hardest to get, and I 
think people are moving more toward that, because they are 
easier to defend.
    I would say the worst ones also are strict quotas, and I 
think the WTO has attacked import quotas as things that need to 
be converted into tariffs over time.
    Senator Baucus. In your statement, you say you think the 
European Union is reforming its agricultural policy. I know 
they talk a lot about it, and there is some talk that when they 
take in those Eastern countries, they are forced to, but I will 
bet you they bring them in under different conditions so that 
they are a little less forced to restructure.
    Mr. Babcock. The reform I am talking about is a lowering of 
their intervention prices. Basically, they are putting more of 
their programs into what we call the blue box, which are less 
trade-distorting than their old programs were. As I said, they 
seem to be going more for direct payments to farmers for rural 
development/environmental quality reasons rather than for what 
I would call enhanced production reasons.
    Senator Baucus. Have you given any thought to what the best 
leverage we have is as far as knocking down these trade 
barriers? I believe that no country, altruistically, out of the 
goodness of its heart, is going to lower a trade barrier. They 
just do not. Why should they, unless there is leverage, unless 
they are forced to?
    Mr. Babcock. Our leverage over the EU, just talking about 
EU now, is in a large sense--I have travelled through there--
they are a big country--or, a big entity, not a country--they 
are a big entity, and they have lots of variation in the types 
of production regions they have. They clearly can be self-
sufficient in food, and they--sometimes, I find it hard to get 
a lever on the EU because they are so big, and their internal 
politics are so complicated. It is hard for me to see how we 
can leverage the EU to do something.
    Now, the banana dispute was resolved, I think, because the 
trade representatives from the United States and the EU got 
together and decided that that was in the best interest of both 
parties. But I read about the EU, and I cannot see what 
leverage we have over them.
    Senator Baucus. It is difficult; otherwise, we would have 
come up with it by now, but we have got to find it, whatever it 
is, because frankly, I just think that the EU is by far the 
biggest offender with respect to agricultural trade barriers, 
and it is going to be very difficult. There is talk in the WTO 
that the next two big areas are agriculture and services, but I 
do not know what leverage we have on the EU at this point to 
get anywhere. But we have got to find it--that is our job. I 
think we gave up the store a few years ago when we agreed to 
proportionate reductions of export enhancements, and we sold 
ourselves a bill of goods, frankly, by giving up too much at 
that time, so we are in a box right now, and it is difficult 
right now.
    Nevertheless, that is a fact, that is what we face, and we 
just have to deal with it the best we possibly can.
    Mr. Chairman, thank you very much.
    The Chairman. Thank you, Senator.
    Senator Baucus. I also want to welcome Dennis McDonald, 
from Melville, Montana, who will be testifying later in the 
second panel. I will not be able to be here for his testimony, 
but I urge you all to listen very closely. He is a very wise 
guy, in many sense of the term.

    The Chairman. We promise to do that, and thank you for your 
introduction.
    Senator Crapo.
    Senator Crapo. Thank you very much, Mr. Chairman.
    I just have one question. Dr. Babcock, in your testimony--
first of all, let me say I appreciate it--you address one of 
the perplexing questions that we have asked ourselves for years 
now, and that is why the ag prices continue to be so depressed.
    And with regard to domestic policies, you stated in your 
written testimony that ``Larger, countercyclical farm payments 
have helped to keep United States planted acreage up even 
though prices are down.''
    Do you believe that the countercyclical farm payments are a 
good or a bad aspect of United States domestic farm policy?
    Mr. Babcock. Well, to answer that, you have to figure out 
what the exact objective of United States farm policy is, and I 
have struggled with that for the last couple years in 
preparation for the next Farm bill, about identifying that 
objective. If you could identify the objective, then you could 
figure out if it is a good or a bad thing.
    We can look at the effects of countercyclical policies, and 
I think the biggest effect--and when I talk about 
countercyclical policies, I am talking about the LDP payments, 
the crop insurance payment, and the emergency AMTA payments. 
All of those have gone up over the last 3 or 4 years, so 
together, they are countercyclical.
    What those three programs have done primarily is keep the 
cash-flow flowing in agriculture, which has really reduced a 
lot of financial difficulty in the agricultural sector. It has 
also kept land rents up, land prices up. So it has probably 
kept more people on the farm than otherwise would be, and it 
has kept land prices up.
    Now, whether that is good or bad depends on if that is your 
objective, and I would say that that probably was the objective 
of those countercyclical payments, and so in the short-run 
objective, it is a good thing.
    I think we have to look longer-term, though, and ask are 
those countercyclical payments a way of creating more financial 
stability so that we can keep liquidity flowing into 
agriculture, or are they a way of basically transferring more 
money to agriculture, because for example, my projection is 
that the LDPs for soybeans will be there for a long time--that 
is not an emergency safety net when it occurs 3 years, 4 years, 
5 years, 6 years. What it really is is a transfer of income. So 
it is moving away from kind of a countercyclical payment into 
more of a transfer payment, so you get a little bit of a 
divergence there. But I would say that it did what it was 
intended to; it keeps people on the farm and keeps land prices 
up.
    Senator Crapo. Thank you.
    The Chairman. Thank you very much.
    Senator Miller.
    Senator Miller. No questions, Mr. Chairman.
    The Chairman. Let me comment on Senator Crapo's question 
and your response, because I think this is really a very, very 
important question and answer with regard to the Farm bill and 
farm policy.
    As you have said, Dr. Babcock, you have studied all of 
this, and you have tried to define what our objective was in 
this, and of course, one of the objectives was to bring about 
more freedom of decisionmaking, and I think that has been 
achieved, and likewise, to have an export-friendly situation, 
which both of you have testified that you support and have 
found very useful.
    But what, clearly, although unstated, we have been 
attempting to do is to really save every farm in America, that 
is, to keep cash-flow or values or what-have-you alive. Now, 
that may not have ever been blurted out in the precis or the 
preamble of all of this and so forth, but the effect of looking 
each year, as we have been doing, at what net farm income is--
and that line in the USDA report--and then at what the 
projection of what that might be next year, and if it looked 
like it was $4 billion less next year, or $5 billion less, it 
has been fairly predictable that the Congress would plug in 4 
or 5 or whatever was necessary to bring net farm income back up 
to where it was before, leaving aside anything else going on in 
the world, whether it was the high dollar or the Brazilian 
exports or so forth.
    Now, that may or may not be a good idea, but I think that 
very clearly, that is what we have been doing, with pretty wide 
support in both Houses of the Congress.
    Second, your point, Dr. Babcock, is that we have also been 
engaged in what might be called transfer payments to 
agriculture. This means essentially that in the pool of 
taxpayer funds that comes to this Government, to this committee 
and others, with the support of the Congress, we have dedicated 
more of those funds to agriculture arbitrarily, if necessary, 
either to supplement income, to keep the cash-flow going, or on 
occasion simply to say that agriculture, as we have discovered, 
is a low-return business in comparison to a lot of other things 
going on in our economy, in fact, it is so low that those who 
are having struggles in agriculture are likely to be below 
zero. You get a four percent return on invested capital with 
the best-managed farms over the years, and that is still a very 
low return in comparison to Federal bonds, for example.
    So you have a lot of latitude to make transfer payments 
even to get that return up into the ball park to something that 
might be competitive.
    Now, whether the rest of the country will stand still for 
that perpetually always remains a political question which is 
resolved by all of us--not just by this committee, but by all 
of our colleagues--who try to decide what the allocation of 
resources should be.
    Nevertheless, a lot of farm policy revolves around those 
two concepts, and I think the question is critically important 
as we try to discuss where we are headed, whether it be in 
exports or in the various titles.
    But we thank you for illuminating the territory so well, 
with so much good data which will be very, very helpful for our 
consideration.
    Thank you for coming.
    We will now call the next panel. That panel will include 
Robert Stallman, president of the American Farm Bureau 
Federation; Leland Swenson, president of the National Farmers 
Union; Charles J. O'Mara, president of O'Mara and Associates in 
Washington, D.C.; James Echols, chairman of the National Cotton 
Council; Tim Hamilton, executive director of Mid-America 
International Agri-Trade Council and executive director of Food 
Export USA-Northeast; and Dennis McDonald, chairman of the 
Trade Committee for R-CALF, the United States Stockgrowers of 
America, from Melville, Montana.
    Gentlemen, we welcome you to this hearing. I will ask that 
you attempt to summarize your testimony in 5 minutes. The full 
testimony which you have prepared will be made a part of the 
record in full.
    After we have heard from each of the six of you in the 
order that I introduced you, we will ask questions of you, and 
members will be recognized for that purpose.
    First, Mr. Stallman.

 STATEMENT OF ROBERT STALLMAN, PRESIDENT, AMERICAN FARM BUREAU 
                  FEDERATION, COLUMBUS, TEXAS

    Mr. Stallman. Thank you, Mr. Chairman, members of the 
committee.
    I am Bob Stallman, president of the American Farm Bureau 
Federation, and a rice producer and cattleman from Columbus, 
Texas. I appreciate the opportunity to speak with you today 
about trade issues affecting agriculture and the trade title of 
the next Farm bill.
    As you know, United States agriculture is highly dependent 
on access to world markets. Our sector has long enjoyed a trade 
surplus, but it is steadily decreasing due to declining support 
values and barriers to trade that are erected by our trading 
partners.
    At the same time, our competitors are outspending us on 
export subsidies and market promotion programs. We cannot 
expect our producers to compete on the world stage when they 
are outgunned by foreign government spending. Congress must 
equip United States producers with adequate funding to promote 
their exports.
    To put the specifics of the trade title in perspective, I 
am going to highlight a couple of other issues to show what we 
are up against, and much greater detail is in my written 
testimony.
    First, as the Chairman has indicated, Congress must secure 
trade promotion authority for the President in order to improve 
our access to world markets and correct the trade inequities 
now facing our sector. Granting this authority will signal to 
the world that the United States is ready to negotiate.
    However, trade promotion authority should not include labor 
and environment provisions that use trade as a weapon. Putting 
labor and environment standards in trade agreements and, more 
troubling, imposing sanctions on countries that fail to enforce 
their labor and environment standards, is a recipe for ensuring 
that no future commercially meaningful trade deal will be 
struck.
    Farm Bureau continues to oppose unilateral export 
sanctions. The sanctions legislation that passed last year was 
a good first step on the road to achieving meaningful reform. 
We urge the administration to issue the implementing 
regulations for this legislation without delay.
    Also, the restrictions on Federal export promotion 
assistance, financing of sales and travel to Cuba, and 
licensing requirements must be repealed in order to allow 
United States farmers and ranchers true access. We support S. 
171, which will accomplish this objective.
    The negotiations on agriculture in the World Trade 
Organization are critical for our sector, as they represent our 
best opportunity to increase market access. However, true 
progress in these negotiations cannot be achieved unless a 
global trade round is launched. WTO member countries should 
support a broad-based round to ensure that all sectors in the 
global economy benefit from increased trade liberalization.
    Completion of China's accession to the WTO is another 
critical issue. All outstanding issues for China's accession 
package should be resolved before the United States gives its 
final approval for China to join the WTO, including resolution 
of China's allowable domestic support commitments and the 
bilateral agreement to import our wheat, meat, and citrus 
products.
    On the bilateral front, Chile, as part of the Free Trade 
Area negotiations now under way, must agree to resolve all 
outstanding SPS measures that restrict United States exports to 
that market and must agree to eliminate its price band system 
which places imports into Chile at a price disadvantage.
    Regarding the Jordan FTA, Farm Bureau opposes including 
labor and environment provisions in the agreement and strongly 
objects to the use of sanctions to enforce labor and 
environment provisions.
    Concerning regional agreements, the FTAA, Free Trade Area 
of the Americas, will create an open market of 34 countries. 
These countries already enjoy significant access to our market 
and compete with us in the international marketplace. It is 
imperative that United States producers begin to enjoy access 
to the FTAA markets on equal terms.
    Moving now to trade disputes, we believe that the list of 
European products subject to retaliation should be immediately 
rotated and continue to carousel in accordance with United 
States law until EU lifts its ban on United States beef.
    Now, regarding the trade title of the next Farm bill, Farm 
Bureau supports approval for additional funding up to the WTO 
allowed limits for all export programs. Specifically, we 
support a 10 percent increase in food aid programs. The Market 
Access Program, or MAP, need to be funded at a minimum of $155 
million rather than the current $90 million, and the Foreign 
Market Development Program, FMD, needs to be authorized at a 
minimum of $43 million rather than the current level of $33.5 
million.
    The EEP and DEIP programs should be reauthorized at the 
maximum levels consistent with WTO rules.
    Mr. Chairman, the United States is facing an important 
juncture for agricultural trade. International conventions are 
writing new rules and standards for tomorrow, and ongoing 
bilateral and multilateral negotiations will design the future 
of global trade. The United States must assume a strong 
leadership role to ensure that these new rules and standards 
create a favorable trading environment for our producers. Our 
Government must take the necessary steps to make us a leader at 
the negotiating table and to once and for all open new markets 
for United States agriculture.
    Thank you for this opportunity for Farm Bureau to share our 
views. I look forward to questions.
    The Chairman. Thank you very much for your testimony. It is 
always good to have American Farm Bureau at the table and 
likewise to have National Farmers Union, and we will hear now 
from Mr. Swenson.
    [The prepared statement of Mr. Stallman can be found in the 
appendix on page 87.]

   STATEMENT OF LELAND SWENSON, AURORA, COLORADO, PRESIDENT, 
                     NATIONAL FARMERS UNION

    Mr. Swenson. Thank you, Chairman Lugar and members of the 
committee.
    I am Leland Swenson, president of the National Farmers 
Union, and I thank you for holding this hearing and commend you 
for taking the leadership in addressing this very important 
issue as part of the discussion of the next Farm bill.
    NFU understands and appreciates the potential benefits of 
agricultural trade. I think it is important to understand that 
the United States focus on export volume is not the cure for 
the problems that exist as we take a look at the challenge 
facing us in agriculture. It is a part of it, but it is not the 
cure-all of the economic problems. Sometimes we use it as the 
excuse when performance does not meet our expectations as to 
why we have low prices, and sometimes I think we ignore the 
importance of the domestic market, which has consistently shown 
the highest level of demand growth and usage over the years.
    When we look at the next Farm bill, and we take a look back 
at the 1996 Farm bill, it was really based on a lot of 
expectations of unabated growth and export demand that was 
going to occur. Well, I think we ran into some bumps in the 
road. We saw countries place a high value on self-sufficiency 
and food security and concern for food safety and other 
benefits that they saw to their society that they began to 
address and effect what was expected to occur under the 
structure of the Farm bill.
    United States producers and other producers around the 
world, who cannot individually influence what happens to price 
but are directly impacted by what price occurs, sought then to 
maximize returns or, as we have seen in the last number of 
years, minimize losses by expanding production, because that 
was their only alternative.
    The United States is not likely, as we take a look at the 
global situation, to be the low-cost supplier of most 
commodities, because we do not find ourselves in the situation 
to be the low-cost producer.
    In agricultural trade, we find ourselves to be a residual 
supplier to most countries when they do not provide a majority 
of what they need themselves.
    As we take a look at what has happened, the majority of 
export earnings growth that occurred in the mid-1990's was due 
to commodity price increases, not export volume. As we take a 
look at the majority of the current reduction in export 
earnings, it is due to a decline in commodity prices and not 
necessarily a reduced export volume.
    Competitive imports also represent the other side of the 
ledger that I think we cannot ignore. United States 
agricultural trade balances declined about one-third since 
1989. It has been a function of both declining exports in 
recent years, and an increase in competitive imports that we 
have seen occur in this country.
    Well, we can continue to blame periodic events--the Asian 
crisis--but I just want to draw to members' attention to the 
fact that we have seen these kinds of situations occur almost 
every decade, be it the Russian crisis, the Mexican crisis, the 
Poland crisis, the Brazil crisis. We have had similar events 
that have had a tendency to disrupt the market decade after 
decade.
    We and others have trade-distorting policies. How likely is 
it that we will be able to eliminate all those trade-distorting 
policies in the near term? Will Congress, as AFBF president 
Stallman just mentioned, and the administration support the 
total removal as they apply to sanctions on food and medicines, 
on a global basis?
    So, for farmers and ranchers, a test of trade policy and 
export promotion and sales promotion programs is the impact 
that those initiatives have on the income and the future 
opportunity for farmers and ranchers.
    As we take a look at the trade issues, we have the 
traditional issues--export subsidies, market access, sanitary/
phytosanitary regulations, dispute resolution, domestic 
agricultural programs--and we believe they should all be 
addressed.
    But we cannot ignore other, what we would like to raise as 
more important, issues affecting our competitiveness, such as 
exchange rates, labor standards, environmental goals and the 
regulation and harmonization of regulatory policies, the 
emergence of genetically modified products, GMOs, and the trade 
impact that these issues are having.
    Let us take a look at trade objectives as we look at the 
next Farm bill from the Farmers Union perspective. For 
traditional trade issues, we have to improve our capacity to 
monitor compliance. One of the biggest concerns we raised 
during PNTR was how are we going to monitor and enforce 
compliance. We should reform the dispute resolution process of 
the WTO and the regional agreements.
    We should ensure comparable health, safety, labor and 
environmental standards, No. 1. No. 2, we should extend tariff 
rate quota coverage to competitive imports that currently 
circumvent our customs schedules, such as ``stuffed molasses'' 
and other products.
    We should expand the application of end-use certificates to 
legally imported products when utilization is restricted by 
domestic law, such as milk protein concentrate.
    We should require country-of-origin labeling for imported 
agricultural products.
    We should oppose further proportional reductions in trade 
and domestic policies that reduce our capacity and flexibility 
to respond to trade and economic circumstances until all 
nations achieve comparable levels of reduction relative to the 
size of their agricultural industry.
    We should oppose any efforts to weaken or negotiate 
reductions in domestic trade law, such as anti-dumping, 
countervailing duty, and Section 201 and 301 trade remedies.
    We should have a full review of all of our current export 
promotion sales incentive programs.
    We should review current practices, policies and barriers 
to trade employed by others, including exchange rates.
    We should eliminate unilateral economic sanctions, as we 
mentioned, including Cuba.
    here should be implementation of the Byrd Amendment and 
extension of the Trade Adjustment Assistance Act to 
agriculture.
    We would also like to see included in the next Farm bill an 
expansion of our humanitarian food assistance programs, such as 
the proposed global school lunch program. We think that 
provides a real opportunity in the area of enhancing 
international trade opportunities.
    We should also seek international cooperation to address 
the potential of surplus production, including international 
food security buffer stocks.
    These are some of the areas that we believe, on an 
international basis, provide a basis for some better 
discussions on trade policy.
    Mr. Chairman, those are some of the ideas that we bring to 
the table, and we look forward to the questions and opportunity 
to discuss those with you.
    Thank you.
    The Chairman. Thank you very much, Mr. Swenson.
    [The prepared statement of Mr. Swenson can be found in the 
appendix on page 96.]
    The Chairman. Mr. O'Mara, would you please proceed with 
your testimony.

     STATEMENT OF CHARLES J. O'MARA, PRESIDENT, O'MARA AND 
 ASSOCIATES, WASHINGTON, DC, ON BEHALF OF THE AMERICAN OILSEED 
                           COALITION

    Mr. O'Mara. Thank you, Mr. Chairman.
    I am here today on behalf of the American Oilseed 
Coalition, which includes the American Soybean Association, the 
National Cotton seed Products Association, the National Oilseed 
Processors Association, the National Sunflower Association, and 
the United States Canola Association. I am very grateful, Mr. 
Chairman, to have the opportunity to speak on the important 
trade programs of the 1996 FAIR Act--export credits, food aid, 
and export promotion programs.
    In 2000, United States producers harvested 2.8 billion 
bushels of soybeans, the largest crop in our history, valued at 
$12.5 billion. Exports of oilseeds and oilseed products in 
calendar year 2000 were valued at over $7.5 billion. These data 
show the importance of exports to our industry. United States 
oilseed producers and processors depend on maintaining and 
expanding access to world markets.
    An aggressive United States trade policy and use of export 
programs are essential in maintaining market-oriented foreign 
policies. Full use of legitimate export assistance and 
promotion programs, and expanded food aid programming, were key 
commitments made by the Congress and the administration when 
the current FAIR Act was enacted in 1996.
    Full planting flexibility and production require enhanced 
efforts to increase United States farm exports and 
competitiveness. The success and continuation of currently 
domestic farm policies will require a renewed commitment to use 
our export credit and food aid programs consistent with our WTO 
obligations.
    The AOC fully supports export credit programs as a vital 
Government incentive to encourage exports of oilseeds and 
oilseed products. As you know, under the Uruguay Round 
Agreement on Agriculture, export subsidies have been cut, with 
further reductions or perhaps elimination, when the current WTO 
agriculture negotiation is completed. This means that export 
credits are the primary export tool available. We must make 
sure that export credits are consistent with WTO rules and 
disciplines.
    How to deal with export subsidies, including export 
credits, was one of the major issues during the Uruguay Round 
of multilateral trade negotiations. In that negotiation, the 
United States came under enormous pressure to accept 
disciplines on the use of export credit programs. The Cairns 
Group, for example, wanted export credits and credit guarantees 
to be treated as export subsidies and subject to the 
disciplines requiring reduction of such subsidies.
    The United States successfully resisted this pressure, and 
within the Uruguay Round Agreement on Agriculture, export 
credit programs were not specifically listed as subsidies, 
subject to the reduction commitments that were applied to such 
programs as the United States Export Enhancement Program and 
the EC export restitutions.
    Export credit programs were given a special status that 
exempted them from these reductions. In return, the United 
States and other WTO members agreed ``to work toward the 
development of internationally agreed disciplines to govern the 
provision of export credits,'' and to apply these disciplines 
once they were negotiated. This is the so-called Article 10(2) 
of the Agreement on Agriculture.
    Article 10(2) is a best-efforts commitment. It does not 
specify a timetable for concluding discussions, nor does it 
specify that credit programs need to be reduced. It was 
intended to be a discipline to govern their use, not to reduce 
them. Although not specified, the implicit assumption was that 
the discussion would take place in the Organization for 
Economic Cooperation and Development, or the OECD.
    Many people have asked why we need this OECD agreement if, 
during the Uruguay Round, we negotiated a special status for 
export credits, and if there is no timeframe mandated by the 
WTO for concluding negotiations.
    The reason is that our program could be challenged under 
what are known as the ``circumvention provisions'' of the 
Article 10 of the same Agreement I spoke of a moment ago. These 
circumvention provisions state that export subsidies not 
subject to specific reduction commitments--in other words, 
export credit programs--cannot be used in a manner that results 
in circumvention of the agricultural export subsidy 
commitments. Granting export credits or credit guarantees to a 
product in excess of the WTO-bound commitment could lead to a 
violation of our WTO obligations.
    I see that my time is running out, Mr. Chairman, so I will 
try to summarize even more quickly.
    In two sentences, as far as export credits are concerned, 
we are at a very important juncture on that program because of 
the status of the OECD discussions, and as you can tell from 
what I have said up to now in my testimony submitted for the 
record, this is a vital, vital program that not only does the 
soybean and soybean products industry need for exports, but all 
of United States agriculture.
    If I could take a few minutes on food aid, sir, the AOC 
believes that food aid programs need to continue to be strongly 
supported by the Congress and implemented by the 
administration. The National Oilseed Processors Association and 
ASA, the Soybean Association, have proposed a soy food 
initiative that could reduce United States farm program outlays 
by helping to raise soybean prices. Under the proposal, the 
U.S. Department of Agriculture would purchase soybeans and 
soybean products and donate them under various concessional 
sale and donation programs, including P.L. 480 and the 
International School Lunch Initiative.
    There are other initiatives in my testimony for the record 
that I will not mention now, but these initiatives could be 
enacted without a new authorization or funding from Congress 
and would result in a net savings to the Government and would 
provide increased assistance to those in greatest need--the 
hungry of the world.
    Now, if you will just permit me another half-a-minute with 
respect to the Market Development and MAP programs, both of 
these programs are also essential to continued United States 
agricultural export enhancement and promotion, and we would 
appreciate you and the committee taking the importance of these 
programs into account.
    Thank you, Senator, and I will be happy to answer any 
questions.
    The Chairman. Thank you very much, Mr. O'Mara.
    [The prepared statement of Mr. O'Mara can be found in the 
appendix on page 104.]
    Mr. Echols.

   STATEMENT OF JAMES ECHOLS, CORDOVA, TENNESSEE, CHAIRMAN, 
                    NATIONAL COTTON COUNCIL

    Mr. Echols. Thank you, Mr. Chairman and members of the 
committee. Thank you for having this hearing today.
    My name is James Echols. I am president of Hohenberg 
Brothers Cotton Company in Memphis, Tennessee, and I currently 
serve as Chairman of the National Cotton Council of America. I 
have been in the cotton merchandising business for over 40 
years, selling both in the domestic and international markets.
    Trade is very important to the United States cotton 
industry, with about 40 percent of our approximately 17 million 
bale crops exported each year. In addition, we exported the 
equivalent of 5 million bales of cotton in the form of textile 
and textile products in 2000.
    Mr. Chairman, the United States cotton industry is facing 
stiff competition for export markets and for our domestic 
markets. We need trade policy that ensures our raw product is 
competitive, that opens markets for both raw cotton and United 
States-produced cotton textiles, and that ensures that the 
terms of competition are fair.
    One of the most significant influences on the United States 
cotton market is cotton textile imports. Although domestic 
consumption of cotton textiles at retail is about 21 million 
bales, over half of that market is sourced by imported textiles 
made from foreign cotton.
    This level of competition in our domestic market will 
continue to intensify as textile quotas are phased out.
    We are also witnessing the impact of the strong dollar. 
Compared to other agricultural products, cotton is uniquely 
vulnerable to the effects of an appreciating dollar through its 
impact on imports of cotton textiles and apparel products.
    Mr. Chairman, we must remain competitive. Cotton's 
marketing loan and three-step competitiveness provisions form 
the cornerstone of an effective United States cotton program. 
Maintaining all aspects of this program is central to the long-
term competitiveness of our industry. Without the presence of 
cotton's Step 2 program to offset some of the impact of a 
strong dollar, United States raw cotton exports would likely 
have experienced a far larger decline than was the case in 
2000.
    It is important that opportunities to increase demand be 
fully realized. Last year, the cotton industry stressed the 
importance of enacting a CBI, Caribbean Basin Initiative, 
parity bill to grant trade preferences for apparel produced in 
the Caribbean Region from United States-origin textiles. The 
CBI bill is enacted, but implementation is not complete. As a 
result, we have not yet experienced significant increases in 
demand. We have urged the United States Customs Service to 
issue final regulations implementing this legislation as 
quickly as possible.
    We must also have strong export assistance programs in 
place. However, a proposal being considered in the Organization 
for Economic Cooperation and Development would undermine our 
export credit guarantee program while providing no 
corresponding reductions in export subsidy programs operated by 
our competitors.
    Over $5.5 billion in agricultural exports have benefited 
from that GSM-102 program the past 2 years alone, yet the 
latest OECD proposals contain fee increases, shortened loan 
terms, and repayment requirements that would make the program 
ineffective for United States exports of cotton.
    We have estimated these changes could reduce annual United 
States cotton exports around one-half million bales and have as 
much as a 3-cent-per-pound impact on prices.
    United States officials have kept us informed but have not 
provided any estimate as to the actual fee increases expected, 
nor have they provided an analysis as to the impact of these 
changes on United States agricultural exports.
    The Council is very concerned about the future of this 
critical United States export program. We urge the committee to 
closely monitor the OECD negotiations, and we have provided 
suggestions for improving the GSM program in the new Farm bill 
in our written statement.
    The Council also supports market promotion activities 
carried out under the Market Access Program and Foreign Market 
Development Program. These programs are consistent with World 
Trade Organization rules and are classified as green box 
activities.
    The combined investment of private and public funds coupled 
with industry marketing expertise results in innovative, 
forward-looking programs that leverage money into high-dollar-
impact campaigns and promotional efforts. Our written statement 
includes a number of examples of highly successful 
accomplishments carried out by the cotton industry using the 
MAP funds.
    It should be noted that funding under the FMD program in 
particular has not kept pace over the last 2 years. We 
encourage the committee to provide funding for the FMD program 
at a minimum of $35 million per year and to consider restoring 
overall support for the MAP program to its 1992 level of $200 
billion. We urge our tradeofficials to ensure the United 
States-China Agreement is not undermined during the final 
accession discussion. China is the largest cotton-producing 
country and the largest textile and apparel exporter in the 
world.
    While the agricultural portion of the United States-China 
agreement were favorable to the United States, the textile 
provisions of that agreement would introduce even more 
competition into the United States textile market. But even the 
agricultural portion of this could be undermined if China is 
allowed to claim developing country status with respect to 
agriculture and textiles.
    The National Cotton Council supports the concept of fast-
track negotiating authority provided that it requires 
consultation with Congress and the private sector and contains 
negotiating objectives that will encourage trade agreements 
that will benefit the United States cotton industry.
    While the cotton industry supports expanded and liberalized 
trade, each new trade agreement must be evaluated on its own 
merits. While we support free trade arrangements that will 
benefit our industry, we have concerns about arrangements that 
further open our markets to our most difficult competitors. 
These concerns are particularly evident concerning textiles, 
where all quota restrictions are due to be phased out in four 
years. Should the United States complement that quota phaseout 
with the elimination of import duties on some of the world's 
most prolific textile-producing countries, the United States 
textile industry will not be able to recover.
    The cotton industry therefore supports the efforts of our 
Government to further liberalize market access and trading 
rules within the WTO and has outlined a set of priorities for 
the ongoing negotiations, including improving market access for 
cotton and textiles, improving rules restricting the use of 
downstream export subsidies, limiting exemptions for countries 
that are competitive in cotton and textile products, and 
ensuring countries do not erect nontariff trade barriers 
against agricultural biotechnology products.
    This concludes my testimony, and I will be happy to answer 
any questions at your convenience.
    Thank you.
    The Chairman. Thank you very much, Mr. Echols.
    [The prepared statement of Mr. Echols can be found in the 
appendix on page 109.]
    Mr. Hamilton.

STATEMENT OF TIMOTHY F. HAMILTON, CHICAGO, ILLINOIS, EXECUTIVE 
  DIRECTOR, MID-AMERICA INTERNATIONAL AGRI-TRADE COUNCIL, AND 
         EXECUTIVE DIRECTOR, FOOD EXPORT USA-NORTHEAST

    Mr. Hamilton. Thank you, Mr. Chairman.
    I would like to tell you this morning about how the Market 
Access Program specifically is being used to help United States 
food producers not only get started exporting but also to 
promote our country's value-added exports.
    Secretary Veneman has outlined that expanding trade is the 
administration's top priority for United States agriculture. We 
feel that continued support for trade promotion through the 
Market Access Program is a critical part of that effort.
    The MAP is designed to focus on value-added products. There 
are approximately 70 non-profit industry groups across this 
country representing all sectors of agriculture that 
participate in this program.
    The 50 State departments of agriculture participate in MAP 
through four State regional trade groups which I represent 
today. These groups coordinate the export promotion efforts of 
the States and focus on assisting particularly smaller food and 
agricultural processors.
    Our services rely heavily upon funding from the MAP 
program, along with considerable private and State investment.
    We identify three different levels of assistance for 
smaller exporters--specifically, exporter education and 
training, market access and opportunity, and market promotion. 
Let me tell you how we use MAP funds to support these efforts.
    Under exporter education and training, our Food Export 
Helpline is available to companies with specific questions on 
how to enter new markets, or how to handle documentation or 
other technical issues that they confront. We also publish a 
regular newsletter which informs thousands of particularly 
smaller companies around the country about opportunities and 
events in the export market.
    Under market access and opportunity, we simply help 
companies find importers and distributors overseas. 
International trade shows are one of the most important means 
of locating new customers. We support United States companies 
with the technical information that they need to learn if their 
product can be competitive in a market.
    Under market promotion, our Branded Program offers cost 
share assistance through which we support 50 percent of the 
promotional costs for small companies. This encourages firms to 
take the risk to attend international shows and promote their 
goods--risks that they might not otherwise take. We routinely 
hear from small companies that they simply would not have 
considered the export market were it not for the market access 
program.
    The MAP focuses on value-added products, including branded 
foods. Overseas consumers, like those here in the United 
States, tend to buy products based on brand names. By promoting 
those brand names that contain American agricultural 
ingredients, we build long-term demand for our products. These 
value-added products support jobs and encourage investment in 
our own domestic processing industries.
    I would like to give you just one example, if I could. 
Palermo's Villa is a small Midwestern supplier of frozen 
pizzas. They used MAP funding to sponsor in-store promotions in 
Canada, just like you see at grocery stores here in the United 
States. From these promotions, their export sales have more 
than tripled, and as a result of that, they have doubled their 
purchase of agricultural inputs like wheat flour, cheese, 
tomato sauce, and meat. They have added more than 30 new jobs 
at their small plant. This effort supports long-term 
sustainable demand for those United States agricultural 
products and the jobs that add value to those products here in 
the United States.
    The MAP also stimulates private investment. While the MAP 
requires that companies match all Federal dollars on a one-for-
one basis, in fact, most of our companies spend much more than 
that. Last year, companies in our program contributed 
approximately $4 for each dollar that they were reimbursed 
under our program.
    During the last year, United States companies signed more 
than 1,000 new customer agreements worldwide as a result of 
help through the MAP, and over 200 small companies made their 
first export sale ever. None of this would have been possible 
without support from this important program.
    Our competitors in Europe outspend us by a factor of 20 to 
one in promoting their products worldwide. As we have seen 
increased spending by other nations, we have seen our United 
States market share decline.
    How does this play out in the marketplace? Some major 
retail chains around the world have simply stopped budgeting 
for their buyers to travel to other countries, and they simply 
rely on their suppliers and promotion agencies like ourselves 
to simply pay for those costs. If we are not willing to pay 
those costs, they are not interested in looking at our 
products. Just last week, a major importer in Hong Kong 
canceled our invitation to visit the United States because he 
received a more generous offer from Canada.
    American products are seen worldwide as high-quality 
products, safe products. Selling higher-quality products 
requires promotion. The MAP is an investment in promotion that 
pays off.
    As world trade increases, so does competition. It is 
essential that we retain and in fact increase funding for the 
Market Access Program in order to continue to build our export 
markets for United States agriculture. We encourage the 
committee's support for efforts to increase funding for MAP, 
including S. 366 introduced by Senators Murray, Craig, and 
others, which would do just that.
    I have included additional information, including other 
stories about companies that have used the program 
successfully, and I have included a statement from the 
Coalition to Promote Agricultural Exports, which we are a 
member of.
    Mr. Chairman, thank you.
    The Chairman. Thank you very much, Mr. Hamilton.
    [The prepared statement of Mr. Hamilton can be found in the 
appendix on page 120.]
    The Chairman. Mr. McDonald, you have already been 
introduced by Senator Baucus earlier, and hopefully, you were 
present for his comments, and we promised to listen carefully 
to you, which we will.
    Please proceed.

  STATEMENT OF DENNIS MCDONALD, MELVILLE, MONTANA, CHAIRMAN, 
   TRADE COMMITTEE FOR R-CALF UNITED STOCKGROWERS OF AMERICA

    Mr. McDonald. Well, thank you, Mr. Chairman, members of the 
committee.
    I am Dennis McDonald from Melville, Montana. I am a cattle 
rancher there, although I must say not a real wise cattle 
producer, as Senator Baucus alluded to.
    You probably do not know where Melville is located. It is 
located in south central Montana, about an hour's drive north 
of Yellowstone Park.
    My wife, Sharon, of 25 years and our four children operate 
the ranch. Our children share the love of the ranch and 
participate in its operation. Sharon and I would like nothing 
more than to be able to pass this ranch on to our children, and 
we would like to do so without being accused of child abuse.
    The ranch consists of about 30,000 acres where we run 850-
plus mother cows, and after weaning in the fall, background our 
calves and often continue to own the cattle until slaughter. We 
also breed about 100 brood mares, quarterhorses primarily, 
cutting, reining, and working cow horses.
    I am here representing the Ranchers-Cattlemen Action Legal 
Fund. R-CALF was formed about 3 years ago to litigate an 
antidumping and countervailing duty case against Mexico and 
Canada. We represented 29,000 cattle producers from across the 
country and 140 different cattle organizations. The Department 
of Commerce determined that we represented 25 percent of the 
Nation's cow herd. In that endeavor, we collected over $1 
million in small donations to finance the litigation.
    Today, R-CALF has members in 30 States and is the fastest-
growing cattle organization in the Nation. As an organization, 
we focus on trade and market issues. We have actively 
participated in restructuring and rulemaking of the Packers and 
Stockyards Administration, sought and helped obtain an 
agricultural representative within the Justice Department, 
pushed for mandatory price reporting of live cattle, and 
participated in the rulemaking process. We have been active in 
trade matters and hold two active seats on the Business Forum 
of the Americas for input into the Free Trade Area of the 
Americas negotiations.
    I serve on the Agricultural Trade Advisory Committee, and I 
thank Senator Daschle and Senator Baucus for giving me that 
opportunity.
    I travel here to Washington in that capacity several times 
a year. I have attended WTO hearings around the world, 
including the Ministerial in Seattle and most recently, the 
Business Forum of the Americas in Buenos Aires, where I spent a 
week earlier this month.
    R-CALF strongly supports the free trade efforts and 
specifically supports efforts to expand access of United States 
cattle producers to foreign markets. In that regard, R-CALF 
supports those provisions in the Farm bill that promote exports 
of United States beef and related products.
    However, R-CALF believes that more attention must be paid 
to ensuring that the benefits of expanded exports and market 
access flow equally to individual ranchers and cow/calf 
producers, as well as to the shareholders of large 
agribusiness.
    We are really mindful that last year, for the first time in 
history, we exported over 2 million metric tons of beef. But we 
are acutely aware that all too often, the effect of that export 
trade has not filtered down to our family ranches and 
communities.
    Therefore, in addition to the current provisions in the 
Farm bill, R-CALF urges the committee to look forward and 
consider what additional measures and provisions should be 
included to ensure a viable and profitable cattle industry at 
the grassroots level. Maintaining a strong cattle industry will 
assist in preserving and rekindling the energy in rural America 
and help maintain our conservation measures and maintain our 
national vistas.
    Specifically, we urge, as has been mentioned earlier, that 
country of origin be a primary issue. As cattle producers, we 
feel that we are raising and can market the most nutritious, 
safest, cleanest, best, most tasty beef in the world. We need 
the opportunity to set our product apart from that produced in 
the rest of the world.
    In addition, and just as important, we need our foreign 
trade partners to identify the product that they are selling in 
our market. USDA recently entered into a rule with regard to 
Argentine beef, requiring that that beef be labeled as 
originating in Argentina. Our trading partners, the European 
Union, Japan, South Korea, all have stringent country of origin 
labeling requirements. It is a shame that we have not done 
likewise. R-CALF strongly supports Senator Tim Johnson's bill, 
known widely as ``The Consumer's Right to Know.'' You go to the 
store, and you know where your clothing is manufactured, you 
know where the tools that you buy are made--it is a shame that 
you go to the meat counter, and you cannot determine where the 
beef that you are purchasing originates.
    I see that my time is about up. I would like to mention one 
last issue, and that is the USDA grade stamp. That grade stamp 
is a mark of excellence known around the world. Cattle 
producers made it so by raising, again, the best beef in the 
world. It is a shame that that stamp is being placed on beef 
and cattle coming down from Canada and up from Mexico. That is 
our brand, and ranchers need to have that trademark. Again, it 
is known around the world as a mark of excellence.
    I did not get through nearly what I wanted to say, but I 
thank you very much for the opportunity.
    [The prepared statement of Mr. McDonald can be found in the 
appendix on page 124.]
    The Chairman. Thank you, Mr. McDonald. As you know, your 
full statement will be made a part of the record for the 
benefit of Senators and staff and the public.
    I am going to defer my questions for a moment and call upon 
my colleagues in this order. I will call upon Senator Roberts, 
then Senator Dayton, Senator Fitzgerald, and Senator Nelson.
    Senator Roberts.

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

    Senator Roberts. Thank you, Mr. Chairman.
    I would like to thank all the members of the panel for 
excellent testimony. I have a short statement, and then I want 
to get to the questions, and I know that we have limited time.
    Last year, former Senator Kerrey and I held a subcommittee 
hearing that the chairman agreed to do where we took a serious 
look at all the export programs in the USDA, and quite frankly, 
what we found was that these programs are underfunded, they are 
understaffed, and they need a redirection of resources. I have 
indicated my strong belief in that regard as to the result of 
the hearings to our current Secretary and the staff down there. 
Tim Galvin came up and gave that testimony.
    I think it is time that we start to think out of the box. I 
might add that I am not sure there ever was a box that Senator 
Kerrey was in, Mr. Chairman, but at any rate, I think that we 
should really start to think about that. We have a good number 
of programs in place, but in the last 4 or 5 years, we have 
seen the United States share of export markets continue to 
fall. All the witnesses have testified to that, more especially 
with the value of the dollar.
    One study last year argued that a 16 percent appreciation 
in the value of the United States dollar was responsible for a 
17 to 25 percentage point decline in corn and wheat prices. 
Four years ago, it was $61 billion in exports, and now it is 
somewhere between $49 and $51 billion. If you just subtract the 
difference, I think you can take a look at the budget and see 
what we are sending out with regard to lost income payments to 
farmers.
    It is not a one-for-one cause--do not misunderstand me--but 
I think that it is germane.
    There is another problem here, and that is in regard to 
sales. It used to be that the United States--we hoped we were 
not a residual supplier. Sometimes, we got to that. We were a 
very reliable supplier. But today, sales have shifted and are 
being made to private buyers in countries that are purchasing 
much smaller quantities at a time, as opposed to a large 
Government sale. So they shop around, and they purchase grain 
from our competitors at a cheaper level than they can get it 
from the United States, and that is the way it is.
    This is a fundamental shift in the way that we are doing 
business, and I think we need to take a serious look at the 
existing programs, Mr. Chairman, and really stop for a minute 
and think and ask, are we in the same situation that we were 
before.
    I think most of the witnesses and most of my prejudice is 
to say that we have good programs on the books. I remember the 
people who put them in place. I used to work for Senator Frank 
Carlson a long time ago as a staff member. He was one of the 
godfathers of the Food for Peace program, the P.L. 480 program. 
I am not quarreling with that at all--it is next to motherhood 
and sunsets in Kansas--I think it is a good program, but I 
think we really have to take a good, hard look.
    I know there is a school of thought, a generational gap in 
Kansas, that when we are sitting around the coffee table or a 
coffee klatsch, and some of the younger farmers will tell some 
of the older farmers, ``Hey, this is not the 1950's.'' Well, 
this is not even the 1985's. So we are in a different world, 
and the landscape has changed, and I do not think these 
programs may be able to get the job done any longer.
    I remember the first time I went down to a meeting of the 
Export Enhancement Program, Ben, when Ed Zorinsky said, ``I am 
not going to vote for a budget until we get this stuff sold.'' 
I do not want to give you any ideas, but that is what he said. 
So Berkeley Bidell from Iowa and I went down to the first 
meeting, and we were very puzzled as to the fact that here was 
an export program that we really felt was to move the grain, 
but it was on a very selective basis, had to go through a 
committee, and all sorts of things. It was sort of alike a 
shotgun. I am not really advocating the E-Program now, but at 
least during that particular time, we were faced with a big 
problem, and I think we need to put our thinking cap on.
    In terms of questions here, I will try to get to them 
quickly. Let me just say, Bob, thank you for coming to the 
committee. If you had one recommendation for a new program to 
increase United States access to world markets, what would it 
be--not especially the ones that you testified to, but if you 
had one idea out of the box, what would it be?
    Mr. Stallman. I think it may be outside the trade title. I 
talked about the programs within the trade title that are very 
important. But I think it has more to do with trade policy, and 
actually, for the future, in terms of the single most important 
policy that we can implement, it is probably trade promotion 
authority, because without it, we are not going to go out and 
negotiate any meaningful trade agreements.
    Senator Roberts. So it would be fast track, or what we now 
call the Presidential trade--I call it enhancement--I changed 
the MAP program, by the way, when I was somebody in the House 
and was chairman of the sometimes powerful House Agriculture 
Committee--instead of ``trade promotion,'' I called it 
``access.'' I think that that whole perception--access and 
enhancement. But you would say that that would be the most 
important thing?
    Mr. Stallman. For the current makeup of where we stand in 
international markets, I think that would be key.
    Senator Roberts. All right, sir.
    Leland, you made some very good comments in regard to the 
currency concerns. Do you have any ideas along those lines? I 
have been wracking my brain trying to figure out what kind of 
an export program you could address on a sliding scale. I do 
not even know what I am talking about yet, but the value of the 
dollar and these currency concerns, there is no question that 
that study shows that we have lost a tremendous amount of 
products.
    Do you have any comments?
    Mr. Swenson. Senator, I think that that is the No. 1 issue 
in eliminating our ability to expand our export market, as well 
as impacting the level of imports coming into this country.
    I agree with you--I think we have got to think outside the 
box about how to address that issue. I think we could use an 
adjustable type of monetary financing program. You talked about 
the Export Enhancement Program. I think we should look at a 
monetary finance program that levels the playing field in the 
area of currency. We should aggressively seek to do that, 
because most of our competitors on an international basis are 
within specific commodities. It is not just across the board. 
We know who our wheat export competition is. We know what our 
feedgrains export competition is. We know what our beef 
competition is. We can center those out, and we need to 
aggressively address them.
    Senator Roberts. Let me tell the witnesses that my 
colleagues, the distinguished chairman, myself, and others, 
went down to the White House about 2 weeks ago in advance of 
the meeting in Canada with the President, and we talked about 
fast track. There were about 15 to 20 Members down there, both 
Democrat and Republican, House and Senate, and it was obvious 
that we were trying to figure out the third away.
    Our trade ambassador, Bob Zoellick, was there, and we were 
trying to figure out how on earth we could do this with the 
environment and labor, and the distinguished chairman is now 
quoted today in the National Journal. He indicated that some 
countries will accuse the United States of trying to intervene 
in their domestic affairs and insisting on labor and 
environmental provisions in the trade agreements, but he says 
the United States is not credible as a trading partner without 
fast track. Then, the chairman says this: We have our work 
really cut out for us.
    I see my time is expired, but could you just indicate to us 
what is the ``third way''? Now, I have to admit to you that I 
am the doberman on the chain on this issue; I think that if you 
add in labor and environmental issues, which are terribly 
important--but I think we have other venues we can approach 
that with--I do not think you will make many sales. On the 
other hand, I know that we are not going to pass fast track 
unless we have a third way. What is the third way?
    Mr. Swenson. To pass fast track?
    Senator Roberts. Yes. What is the third way that we can 
bring in the labor and the environmental concerns and still not 
get into a muddle or a real briar patch in that regard and not 
make sales?
    Mr. Swenson. Well, I think that we need members to think 
outside the box about how important producers in this country--
--
    Senator Roberts. That is not fair--you are using my terms 
back at me. Come on.
    Mr. Swenson. But we have members who are stuck in a rut, 
who say we cannot do anything about the environment, we cannot 
do anything about labor, and they stay there, and that is all 
they see.
    I think that we have got to think outside the box. 
Environmental rules and regulations are impacting the cost of 
production for producers in this country and making us 
noncompetitive in the world market. We hear companies talk 
about the need for MAP assistance to promote and compete in the 
global market. We have got to be able to level that playing 
field, and there are factors that come into play, and those 
include environmental costs of rules and regulations, chemicals 
that they can use in Canada and produce in a week that we 
cannot use in this country, made by the same company, based in 
this country.
    We have got to get outside that mentality and outside that 
rut, that furrow. We do not plow anymore. We use no-till. We 
have got to take a look at how we can address these issues and 
do it aggressively in negotiating trade agreements. I do not 
think that we need fast track to negotiate trade agreements. 
This President can do it; past Presidents have done it. They 
can be responsible to you as Members of Congress, and if they 
lay a good trade agreement before you, this Congress will pass 
it.
    Senator Roberts. I did not play that speech, Mr. Chairman, 
but I thought I would toss up a softball to Leland and let him 
express that.
    Mr. Swenson. Thank you.
    Senator Roberts. My time has expired. I have several other 
questions, and I hope we have time for another round.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Roberts.
    Senator Dayton.

  STATEMENT OF HON. MARK DAYTON, A U.S. SENATOR FROM MINNESOTA

    Senator Dayton. Thank you, Mr. Chairman.
    Thank you, members of the panel.
    I believe I have an open mind regarding trade, but I have a 
very parochial concern, which is how does it imbalance benefit 
or harm Minnesota farmers, producers, and the Minnesota 
economy, and I have a broader concern which is America first--
how does it imbalance, benefit, or harm our national farm and 
overall economy, and it is that measure and trying to achieve 
that measure of balance that kind of dictates my views on this 
topic.
    I guess I would like to use as a starting point, Mr. 
Stallman, your comment and ask each of you, given my brief 
time, to respond briefly in turn to this. But I think your 
point is very well-taken. You said we view FTAA--and I would 
say also the redrafting of this Farm bill--as an opportunity to 
apply the trade lessons we have learned from the North American 
Free Trade Agreement. On average, NAFTA has significantly 
benefited the United States agricultural sector. When you take 
a look at specific commodities, however, there have been some 
winners and losers.
    I confess--and I think it would be an exercise that I would 
like to try to engage in--assessing imbalance and whether 
Minnesota farmers and producers have benefited or been harmed, 
but I know anecdotally--and maybe I hear from the sectors that 
are being harmed more than those that are benefiting--that 
certainly, Minnesota dairy producers, Minnesota sugarbeet 
growers, and wheat producers have been adversely affected both 
by the design of some of these agreements and I think also the 
failure of our own Government to enforce our side of the 
agreements. Certainly in areas like corn production, soybeans, 
I would say the export imbalances have probably been 
beneficial, although I think the specter of some of this 
countries like Brazil, in terms of soybean production and the 
like, do not auger well for the future.
    So I guess I would like to ask each of you what specific 
lessons you think we have learned from NAFTA that we could 
apply to the future negotiations, and as you view the specter 
of enlarging this agreement to include all of central Latin and 
South America, do you view in the balance that it is going to 
be of benefit or not?
    Mr. Stallman. On balance, I definitely think it would be a 
benefit to have an FTAA agreement.
    Among the lessons that we have learned, one in particular 
is that with respect to agriculture as an industry sector in 
these agreements, we have to real sure that at the end of the 
day, agriculture is not held out and the deal cut, in essence, 
not as good a deal for agriculture as perhaps other sectors 
get, in terms of looking over the shoulders and being sure what 
we are getting.
    I would concede that NAFTA is not perfect. There are things 
that need to be addressed. There were side letter agreements 
which were purported to solve some problems that have not 
actually been enforced, and enforcement then gets to be the 
second lesson we have learned, and that goes across the trading 
board.
    Being a Texas cattleman, I will use beef and the been 
hormone issue in the EU. There is a growing sense in the 
countryside that we are truly not willing to enforce the trade 
agreements based on the laws that are available, particularly, 
in this case, carousel retaliation. So I think that to be 
credible for the future, for our members and for our producers 
out there, we have to show a real willingness to enforce those 
agreements. So those are two things--watch out for the 
negotiations with respect to agriculture and be sure we enforce 
the agreements.
    Senator Dayton. Thank you.
    Mr. Swenson.
    Mr. Swenson. Just touching quickly on some of the issues 
relating to the NAFTA agreement that I think we need to address 
as we look at expanding it to the Free Trade of the Americans, 
one is the currency, and I will come back to that. Second is 
harmonization--the use of chemicals in some countries that you 
cannot use in other countries and the very same chemical and 
components thereof; import surges and how we are going to deal 
with import surges and their impact on producers. The other 
thing is what I call the transshipment. For example, we have 
the ``stuffed molasses'' issue of a product coming in from 
Canada that has been exchanged, and we have sugar now, we have 
the peanut paste issue. There are a number of those that we 
have failed to address. Those are some of the things that I 
think we have got to deal with as we expand the trade 
agreement.
    Senator Dayton. Thank you.
    Mr. O'Mara.
    Mr. O'Mara. I was a big part of the NAFTA agreement in my 
former capacity, and I think there are really two lessons to be 
learned from it from the standpoint of being on the negotiating 
side.
    One is that a lot of the mistakes that were made with the 
United States-Canadian Free Trade Agreement were not 
duplicated, as a matter of fact, on the Mexican side, and those 
mistakes on the Canadian-United States Free Trade Agreement, 
most of the time was wasted on what the two sides were not 
going to do; the focus was all on the negative, so dairy was 
left out, for example. How can you have a free trade agreement 
with that important sector left out?
    On the Mexican side of the Free Trade Agreement, there were 
no exceptions. Now, I accept that has caused complications in 
certain sectors like sugar, but I think that if you look at the 
numbers, and you look at the overall benefit of the agreement, 
the outcome on the Mexican part of the NAFTA speaks for itself.
    I think the second point is--and I was very happy to hear 
compliments already made about the new United States Trade 
Representative by the chairman--I think that it is essential to 
have an aggressive United States trade policy, not necessarily 
in-your-face, but people who are competent in dealing with the 
immensely complex issue such as exchange rates. If there is a 
way to do it in a trade agreement, frankly--I have not thought 
out of the box far enough to figure that one out--but I think 
you have to have competent people in the field, and I think you 
have them in this administration in both Bob Zoellick and 
Secretary Veneman.
    So I think that the outlook for the FTAA is a positive one.
    Senator Dayton. I see my time is up, so I will ask each of 
you to respond briefly, if I may have the chair's indulgence.
    The Chairman. Yes.
    Senator Dayton. Thank you.
    Mr. Echols.
    Mr. Echols. The National Cotton Council has been a strong 
supporter of NAFTA. However, as we consider FTAA, a lot of 
those countries are significant producers of both textiles and 
raw cotton. We are still evaluating exactly how that may impact 
the two sides of our industry, both our domestic industry as 
well as the producer segment. A lot will depend on the rules of 
origin that are adopted there as to exactly what our position 
might be.
    Senator Dayton. Thank you.
    Mr. Hamilton.
    Mr. Hamilton. I think that our country's strength as a 
producer and our strength in the marketplace is based on our 
position as a value-added and a high-quality producer, so to 
the extent that our producers fit into that marketplace--and in 
Minnesota, I think you are taking a lead in a lot of those 
areas with identity preservation and value-adding--so to the 
extent that we are in that position in the marketplace, I think 
that the FTAA offers some real opportunities for us. It is 
important that we differentiate ourselves from the other 
members of the FTAA, however, to give ourselves that 
competitive advantage.
    Senator Dayton. Thank you.
    Mr. McDonald.
    Mr. McDonald. I agree with all the comments of the folks 
here on the committee. I guess I would just say two things. 
One, as we go down this road negotiating the Free Trade Area of 
the Americas Agreement in particular, we need grassroots 
participation in the process. I have been told that I am the 
first grassroots cattle producer to serve on the Agricultural 
Advisory Livestock Committee. That committee, which has 15 
members, should be dominated by grassroots producers.
    So, Senators, I would ask that you see that those slots on 
those committees, Small Grains, be filled by your grassroots 
constituents. I think they can have valuable input.
    Second, an idea that I have been carrying around is a 
variable-rate tariff quota so that at times of surges in 
imports and collapsing commodity price, that variable tariff 
rate quota could serve as some support. It would certainly work 
for cattle and beef. I am less sure that it would be useful for 
grains. But that is an idea that I have been trying to put out 
at some of these meetings.
    Senator Dayton. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Dayton.
    Senator Fitzgerald.
    Senator Fitzgerald. Thank you, Mr. Chairman.
    I would ask for unanimous consent that I be allowed to 
submit my statement for the record.
    The Chairman. It will be accepted and published in full in 
the record.
    [The prepared statement of Senator Fitzgerald can be found 
in the appendix on page 64.]
    Senator Fitzgerald. Thank you.
    I want to welcome Mr. Hamilton to the committee. Mr. 
Hamilton is from Chicago and is thus one of my constituents. So 
I appreciate your being here, Mr. Hamilton.
    I know that Mr. Swenson indicated that he did not feel that 
fast track was necessary, and I wonder if other members of the 
panel want to comment on that, particularly Mr. Stallman.
    How important do you think fast track is to the farmers in 
your organization?
    Mr. Stallman. It is very important. Yes, it is true, you 
can negotiate agreements without a trade promotion authority or 
without that process. But at the end of the day, you will find 
it very difficult to, quote, get the ``best deal'' from the 
parties, the other countries you are trading with, if they know 
they have to take a certain amount of political heat for 
putting a proposal on the table to meet in the middle, and then 
it comes before the Congress and can be amended and cut apart. 
So in essence, you can negotiate the agreement, but you are not 
going to get the best deal. That is the essence of the problem 
without having trade promotion authority to do that.
    Senator Fitzgerald. Do other members of the panel want to 
comment on that issue?
    Mr. O'Mara. I would just add, if I could, Senator, that 
fast track, or trade promotion authority as it is now being 
called, is essential. President Stallman is absolutely correct; 
you cannot possibly negotiate agriculture globally without fast 
track.
    The second point is that we also must have a comprehensive 
negotiation to get the best deal for agriculture. It cannot be 
a sector-by-sector negotiation.
    Senator Fitzgerald. I am also wondering if any of you would 
care to comment on what lessons we might have to learn from the 
Russian food aid program that we could apply to future food aid 
programs. There was a lot of criticism about significant waste, 
fraud, and abuse in the Russian food aid program, and I am 
wondering whether that harms our food aid programs going 
forward.
    Would anybody care to comment?
    Mr. Swenson. I think that any time you are dealing with a 
country in as much turmoil as Russia has been through in the 
last number of years, as any developing country--it depends on 
the type of structure of government within those countries--you 
risk, in developing markets with them, some fraud and some 
abuse. Should that distract from continuing to try to move 
forward and continuing to try to improve programs? I do not 
believe it should, because if we are going to create market 
opportunities, every market opportunity expansion and 
exploration is probably going to have some risk in it. We hope 
that we will make adjustments and improvements and be able to 
address those issues.
    It is one of the reasons that I believe some of the 
initiatives even of the World Bank and the IMF are misdirected, 
in that they push a lot toward free markets and market-driven 
structures rather than looking at what investments they make in 
infrastructure. If we are really going to have market access to 
get food products, value-added products, out to the people for 
their consumption, they have got to have an infrastructure in 
many of those countries with which to be able to access that 
food and that food product. We see less commitment being made 
to some of those infrastructures then we do trying to create 
this market development, and I really think that that is one of 
the redirections that, as a committee, you should try to 
encourage the World Bank and the IMF to look at.
    Senator Fitzgerald. Thank you.
    Some are concerned that large food aid shipments are 
displacing potential commercial markets. What effect has the 
food aid program had on the world's commodity price? What 
efforts does the USDA take in approving food aid programs to 
not displace domestic markets or disrupt free trade in the 
world marketplace?
    Would anyone care to address that?
    Mr. Stallman. Just briefly, there are processes in place to 
prevent that from happening. The criticism has been that even 
with that determination process that it has occurred--and you 
can get significant debate as to what extent and how often. 
Once again, it sometimes becomes a judgment call--how do you 
really know when you have displaced a commercial sale with a 
subsidized sale or with free aid? It is difficult to determine. 
I think that you need to make every effort to try not to 
displace commercial sales, but I do not think you can use the 
possibility that that may occur infrequently and at some times 
as a reason to do away with or limit those food aid programs, 
because I think they are very important, and they are a topic 
of concern in the WTO negotiation amongst all the countries of 
the world.
    So I think it is something that we have to be in and 
continue to be in. I think we have to monitor it and try to 
keep it from displacing commercial sales.
    Senator Fitzgerald. Thank you.
    Deloitte and Touche released a study evaluating the Market 
Access Program. This evaluation shows positive impacts for the 
MAP program. However, like GAO, the study also showed that 
MAP's management and measurement of benefits could be improved.
    What should be done to improve the management of the 
program and the tracking of its impact?
    Mr. Hamilton.
    Mr. Hamilton. I have seen the report, and I have actually 
seen some changes that have been implemented by USDA in the 
form of implementing some called ``results-oriented 
management,'' and in the allocation of the MAP funds, they have 
directed them more toward those groups that have done an 
effective job of planning and evaluating based on strategic 
performance measures. So it is not simply things like overall 
export sales, but it is interim steps that are leading toward 
additional export sales.
    Those are some of the steps that have already been put in 
place. I think there has also been some relaxation in the 
administrative regulations that had been implemented early on 
with the program as a way to give industry more flexibility to 
use the funds. The MAP is a market-driven program; we are 
dealing with buyers and sellers in the open market here, so we 
need the flexibility to accommodate the needs of those, 
particularly our customers. I think that some of those changes 
have been made on the administrative side.
    Senator Fitzgerald. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Fitzgerald.
    Senator Nelson.

   STATEMENT OF HON. BEN NELSON, A U.S. SENATOR FROM NEBRASKA

    Senator Nelson. Thank you, Mr. Chairman.
    The trade title of the Farm bill is clearly one of the most 
important components, in my opinion, at least. I think I agree 
with many of my colleagues and many who have witnessed the 
relationship of American agriculture in the world today, that 
the expanded trade opportunities can provide great promise to 
the future of agriculture as well as the food aid or commodity 
donation programs have a dual value, both in helping needy 
people, which is worthy, and supporting our agricultural 
industries, which is likewise worthy. So I am pleased that the 
committee is taking up these issues today.
    In Nebraska, agricultural trade is extremely important. 
While Governor, I took 11 trade missions, and we increased our 
international trade by 200 percent over 8 years. We are 
currently ranked third among States in agricultural exports. We 
export nearly $3 billion worth of commodities annually, led by 
meat and feedgrains, and the export business continues to grow 
in Nebraska. Our meat exports, for example, increased 13.5 
percent between 1997 and 2000.
    I do not want to take full credit--I just want people to 
remember that it happened during my watch.
    But despite these rosy numbers, I think trade has a 
different cast to it today than it had at one time. I think it 
is less popular and has the risk of becoming unpopular as times 
goes by. In particular, many of the producers see a connect 
between the export statistics and their own individual bottom 
line, and when that occurs, it is hard to disagree with them, 
because we need to look not only at volume but at what the 
impact is, the export value to producers.
    We cannot look at agriculture as a monolith, although 
typically, we do that. We try to break it down by sector, but 
typically, people will talk about agriculture--and I must 
include myself--as thought it is a singular industry, and what 
is good for part of it seems to be good for the rest of it may 
not always be the case. That is why the work of this committee 
is so important.
    I really do look forward to close examination of the 
existing agricultural trade programs and the policies as we 
consider the new Farm bill. I am encouraged by comments by the 
chair that we need to take into account labor and environmental 
issues as we move forward on this. I think it has bene pretty 
clear that we have expected agriculture to take a 
disproportionate share of the costs of trading. It is always an 
afterthought in trade agreements, not part of the original 
agreement--side letters, enforcement questions, sanctions, and 
all the rest of the things that agriculture faces today and has 
for the last several years, it is little wonder that we are 
experiencing some of the challenges in agriculture that we are 
experiencing today.
    So I hope that we will be able to focus on this and come up 
with trade and food aid programs that clearly make sense both 
in the short term and the long term, and that we will stop 
having agriculture be an afterthought as we move forward on 
trade issues.
    I appreciate it. I will extend my time back to my 
colleague, Senator Roberts, who has already indicated that he 
has a bunch more questions that he would like to ask.
    The Chairman. Very well.
    Senator Roberts.
    Senator Roberts. Well, Mr. Chairman, I do not want to take 
your time.
    The Chairman. I will take some at the end. Go ahead.
    Senator Roberts. I appreciate that.
    I would like to go further down the list and ask Charles in 
the ``out of the box'' category--just to refresh your memory, I 
think you indicated that we have many existing programs on the 
books now, and most of us feel that they are underfunded, and 
we always need to shake that up some in terms of direction, and 
you have had quite an experience in that regard and bring a 
great deal of expertise.
    Do you have any recommendation under the category of ``out 
of the box'' that you could share with the committee?
    Mr. O'Mara. Thank you, Senator Roberts.
    It is always good that you force me to think out of the box 
every time I meet with you. I think that many comments that 
have been made here this morning have been very relevant to 
thinking out of the box, actually. There is just no question 
that even though there are certainly differences of views 
represented at this table, fundamentally, United States 
agriculture has to be market-driven, and there may be ways and 
maybe ways need to be found to deal with certain dislocations 
or complications that happen from time to time--the exchange 
rate issue has been raised by you and others--but of course, 
exchange rates change in most cases because of market forces, 
and sometimes the dollar is high, sometimes the dollar is low. 
That is the way it is. Is it a requirement of foreign policy to 
deal with that? Well, I guess that is an issue that the 
committee is going to have to face. I think it would be very 
difficult to do it. Or, is there some other way to manage 
income complications because of exchange rate differences?
    Well, the fact is the green box that comes out of the 
Uruguay Round Domestic Support Agreement provides for the 
Congress, provided for the administration to convey income to 
producers without restrictions as to what the reason for it is. 
It dictates how it is delivered. So if your motivation is to 
compensate for exchange rate differences, as long as you do it 
in a decoupled way, you can do it.
    So fundamentally, we have to keep on the market orientation 
track.
    Senator Roberts. I think we need to upgrade this debate in 
a more general way if we possibly can. Let me give you an 
example.
    I was in Egypt with some appropriators and the chairman of 
the Appropriations Committee, Ted Stevens. There are one 
million new Egyptians born every 9 months; one million people 
they are adding every 9 months. I know the soybean folks have a 
food supplement--it is a new kind of food supplement, and I 
apologize for not knowing the name of it--and they feel this 
will have a very dramatic effect in alleviating the problem of 
hunger and malnutrition.
    I went down to Latin America with the leader of the Senate, 
Trent Lott, and we visited Guatemala, Ecuador, Costa Rica, and 
Panama and other countries. I remember talking with President 
Clinton about this, and he had a win-win-win speech, talking 
about we could export the bulk commodities if we had fast 
track. This was during one of the efforts where, unfortunately, 
that did not pass. If we exported the bulk commodities, those 
countries could go to more specialty crop areas. As we toured 
the countries, we saw people putting all sorts of agricultural 
chemicals to increase their production of the basic commodities 
that basically were not suited to that part of the country, and 
obviously, that led to a lot of degradation to that part of 
that country.
    So if you would export the bulk commodities, that is a win 
for us; if you were able to assist these countries, which we 
have many programs to do, with the specialty crop production--
there are 360 million people in the Southern Command, average 
age 14 years--so the humanitarian programs are leading those 
countries to become more self-sufficient with specialty crops, 
and then you do not get into the business of simply tearing up 
the rain forest. So it is a win for the environment, a win for 
those countries, and a win for the bulk commodities.
    With the President talking about that in connection with 
fast track legislation or some kind of bilateral agreement as, 
say, Leland has talked about, that is the kind of talk that I 
think is very helpful. You put it on a larger scale than you do 
in terms of an individual commodity.
    Do you have any suggestions in regard to how our food aid 
programs could be improved? Senator Durbin has a bill to use 
the 416 program on a humanitarian basis as well as to export 
the bulk commodities.
    Do you have any suggestions on the food aid situation?
    Mr. O'Mara. Frankly, I am not an expert on this, but I do 
have an opinion, if that is OK to make.
    Senator Roberts. Yes.
    Mr. O'Mara. I think the focus on food aid needs to be, as 
we have talked throughout this morning, on what the problems 
are now--not what existed when P.L. 480, frankly, was 
established a few years ago, even before I was born.
    I think we need to take a very serious look at what the 
food aid needs are. They are very different. They are broader, 
and in many cases, they are not only hunger-driven, but they 
are driven, as they are in Africa, by HIV and other diseases. I 
am not at all convinced, either from the point of view of the 
Government or the private voluntary organizations that work on 
these matters, that these broader issues are properly taken 
into account.
    Senator Roberts. That was exactly the advice that we 
received from people in Egypt, that if you were able to apply 
this soybean supplement to the AIDS victim, that then got the 
AIDS patient to a level of health where other medicines could 
be applied. Without that, it is just a losing proposition. It 
seems to me that that is important.
    Jim, any out-of-the-box suggestions?
    Mr. Echols. Well, I think we have some as far as cotton is 
concerned. We have our Step 2 program to help us counteract 
some of the currency adjustments, but the strong dollar is a 
tough hurdle. It has been mentioned a dozen times by virtually 
everyone here. It is a very difficult one to overcome. But up 
through 1995, I think, we exported about 47 percent of our 
crop, and since then, with the strengthening of the dollar, we 
have dropped to 37 percent. The cost of a pound of yarn in 
Pakistan, for instance, was $1.42 back in that period, and now 
it is about 87 cents, so it is a really serious problem to our 
domestic textile manufacturers, and I think we will come up 
with a proposal specifically for cotton, but I cannot speak for 
the other commodities.
    Senator Roberts. Mr. Hamilton.
    Mr. Hamilton. I will echo the earlier comment; I think it 
must be market-driven. I think we are still reeling from the 
effects of the programs that were eliminated under the FAIR 
Act; we still have the effect that there is a lack of 
connection between production and market demand, so we need to 
be producing those products that our customers are looking for 
specifically, and as that goes into specialty crops and things 
like that, I think we will find more opportunities there. But 
there is still a sense among producers that they will produce 
what they have always produced, without regard for what the 
customers are looking for. As a marketer, I am looking to what 
the customers want rather than what we have to sell, and there 
is not always a connection between those.
    So I think we need to look at creating that connection 
between what customers are looking for and what we are really 
producing.
    Senator Roberts. I might add that that was part of the 
design of the FAIR Act--I had a little bit to do with that--to 
give the farmer the flexibility to seek different markets or 
niche markets or whatever, as opposed to command and control 
from Washington. I had to put in that editorial.
    Mr. McDonald.
    Mr. McDonald. Yes, thank you.
    My thought is, particularly with regard to the cattle 
industry, that support for programs, especially programs that 
will help us reach those niche markets--we received in Montana 
a grand from USDA that was very helpful, and we were able to 
set up the Montana certified CAP program, protocol for 
vaccination, basically improving the quality of the cattle, to 
reach those specialty markets.
    I was going to tell Senator Nelson, another such program 
that was very helpful in Nebraska was the certified corn 
program, which was very similar. So, support for those kinds of 
programs that will help us to reach that niche market.
    Second, I have carried around another idea--we have heard 
several comments about the effect of currency fluctuations 
among our trading partners and the effect on our commodity 
prices here. This is just an idea that, again, I have been 
carrying around, and that is creating a watch committee within 
USDA so that producers could get up-to-date information on 
these currency fluctuations. I know that during the depressed 
cattle market in 1994, 1995, 1996, one of the things that 
prolonged the down leg of the cycle was the low Canadian dollar 
that made it attractive to the Canadians to take advantage of 
some of the opportunities here.
    I think, just having come back from South America, that 
several of those currencies may be facing devaluation once 
again. I am thinking of the real in Brazil, but also the 
Argentine peso, which as you know has been tied to the dollar, 
and they are now in their third year of some difficult economic 
times, and there is some movement to rid the country of that 
coupling of the peso with the dollar.
    So if that could be monitored and that information provided 
to producers on a timely basis, it might give us an opportunity 
to react as some global opportunity.
    Senator Robert. I want to thank all the witnesses.
    Mr. Chairman, I do not want to let this opportunity go by 
without thanking you for your continued leadership and your 
perseverance on sanctions reform. You have I think by far the 
best comprehensive bill. We tend to look at it on a country-by-
country basis, but I want to encourage you to keep up the 
fight, and you will have my strongest help.
    Staff has just given me a note--400,000 metric tons we 
could sell; beef exports would be 20 to 50 million annually; 
rice exports would be 40 to 60 million per year; soybean meal 
exports would be 42 to 48 million a year. We passed something 
called sanctions reform on Cuba--that is what I am talking 
about--but there is no United States-based credit or financing 
or travel or access to the report, yet we called it reform.
    I do not understand that, and I hope we can make some 
progress, and I want to thank you for your continued efforts.
    The Chairman. Well, thank you very much, Senator Roberts, 
for that comment, and I will lead off from that thought.
    Clearly, comprehensive sanctions reform legislation is 
important, I believe, for what we are talking about today. I 
visited with administration people, and we are eager to proceed 
with another comprehensive bill, but we want their support. We 
want to make sure that somebody is holding our coat back there 
as opposed to undermining the procedure, which has been 
occurring, really, during the last 8 years of these efforts.
    But I think the sanctions situation brings to the fore part 
of the problem that we have in this committee and part of the 
problem that we have in agricultural America. That is, we are a 
fairly small situation, and when push comes to shove--and I 
think you made this point, Mr. O'Mara--the need to have a 
comprehensive negotiation is critical. I think Mr. Stallman and 
Mr. Swenson also pointed out that sometimes, if we are not 
careful, agriculture is sacrificed. The fact is that 
agriculture would not even have been at the table during the 
Uruguay Round, ultimately, or the GATT before that, without 
there being a lot of other things that people in this country 
and in this world wanted. We discussed leverage with the 
Europeans earlier. On agriculture alone, our first witnesses 
were hard-pressed to figure out where the leverage is. Well, it 
is not with agriculture, and if we are to make progress with 
the European Community, it comes because there are a number of 
things that Europeans do want to see in terms of trade 
liberalization, and we want to see agriculture as a part of 
that package.
    Ultimately, this is why the fast track authority, or trade 
promotion authority, is absolutely critical. It is impossible 
to do this without having that authority.
    We come then to our own current political situation in the 
Congress, and President Clinton tried very hard twice, and the 
House of Representatives by fairly large majorities rejected 
fast track authority.
    The new administration comes, and President Bush hoped to 
approach the Quebec conference this last weekend with the fast 
track authority in hand, or some promise that it might occur. 
But it is a long distance away, and the fact is that Mr. 
Zellich and the President and everybody else meet continuously 
with people at the White House, trying to see if in fact they 
really want to have trade liberalization or not. The answer 
thus far has frequently been no, they do not.
    So here we are having a discussion on how to enhance 
agricultural exports in the world in the face of pretty strong 
feelings by many Americans and their representatives indicating 
this that they really do not want to take that chance. They 
want to protect particular things that are important to them 
and their States and their localities and their professions.
    I heard a very interesting speech yesterday by the former 
President of Russia, Mikhail Gorbachev. He spoke about many 
things, but one thing that disturbed him was that he had had a 
visit with John Sweeney, the head of the AFL-CIO, and he said, 
``I agree with Mr. Sweeney that essentially, trade and business 
ought not to be our paramount objectives. We must be protecting 
the environment of the world.'' He got into a little bit of the 
globalization rhetoric that had been a part of Quebec and 
Seattle. Well, that is a fairly big issue right now, with many 
people fearing that ``globalization,'' in quotes, undermines 
their status in all countries around the world, and some 
Americans feel that way here, too, so they want to protect what 
they have. They do not want to see this liberalization that we 
are talking about.
    Sanctions reform does not come about in large part because 
a lot of Members of Congress and previous administrations 
wanted sanctions. They want to have that ability, arbitrarily 
and fairly rapidly, to impose sanctions and make it very 
difficult ever to remove them, modify them, even get cost 
estimates of them, and to sunset them. So the books are filled 
with this sort of thing.
    Here we are in this committee--we have passed out of the 
committee, as Senator Roberts has pointed out, bills from time 
to time that we thought we had some jurisdiction on, but the 
Foreign Relations Committee has frequently said, ``No--we have 
jurisdiction on that. You are overstepping your bounds, because 
this is a foreign policy problem, not an agricultural 
problem.''
    I simply mention this because this is a rock-and-a-hard-
place situation. We are talking about looking outside the box, 
but if you look inside the box, at the politics of just simply 
getting the votes to get this authority, getting votes to get 
sanctions reform or to support those who want to do so it is 
pretty formidable.
    Mr. Swenson, you made the point--and I think this is worth 
exploring--that after all, trade is important, but our domestic 
markets are large, and they may expand. That may be true. My 
own common sense, though, leads me to believe that probably, 
consumption of food products in America is fairly stable. It 
may change product by product or in differentiation of product. 
Granted, we are growing a little bit as a population each year, 
incrementally. I think we still are back to the fact that we 
are fully able to produce by several times everything we need 
in this country.
    In other words, if we are thinking in terms of any kind of 
dynamic growth, it probably has to be outside the country. But 
could you illuminate that issue just for a moment?
    Mr. Swenson. Yes. Thank you, Mr. Chairman.
    First of all, let me commend you--I think that when you 
talk about the whole issue, we have a tendency to have it 
perceived in the public that trade is the silver bullet that is 
going to solve all of our problems. We have got to get past 
that. It is not the silver bullet, but it is a component, it is 
one of the elements that can be beneficial if we advance it in 
the right way.
    In the area of domestic market, I just want to point out, 
and I want to commend you, Mr. Chairman, for your leadership in 
the introduction of the renewable fuels standard. What a 
tremendous increase in demand that could create for not only 
corn, but sugar products, soybeans, and alternative uses, not 
necessarily a food or a feed product, but benefit our economy 
as a whole. That is one example of tremendous growth in demand.
    We just returned within the last 8 months from a trade trip 
to Japan and China with a group of our organization's 
leadership, trying to advance a market opportunities for value-
added products, looking at cheese components, trying to take a 
look at some rendering products, those types of items, into an 
international market.
    I think we can take a look at value-added products that are 
processed domestically and can create some opportunities in the 
market. We have a tendency to look mainly at bulk commodities. 
I think we have got to rethink what our growth potential is, 
and I think some of it is looking at what we can do in value-
added in a diverse manner.
     In addition, I think one element is sanctions relief, but 
we need total sanctions relief, not the piecemeal approach that 
is perceived to provide some benefits.
    I just want to emphasize that there are a number of 
factors. Let us not leave with the perception that production 
agricultre's problems are all going to be solved with one 
silver bullet.
    The other component is a strong domestic farm program that 
is able to complement the other initiatives.
    The Chairman. Well, I appreciate that comment, and I 
certainly agree that the use of agricultural products for fuel 
or energy for industrial situations, we really have to promote, 
and certainly this committee will work with you and all of your 
members to do that.
    To get back to the problem of needing breakthroughs, I 
think, in terms of our exports if we are going to have very, 
very substantial gains, I think we are all of a mind to try to 
do that, and my comments today are really to try to enlist the 
support of the witnesses--the other way around--because I think 
that that kind of political input is going to be important if 
we are going to get out of this situation.
    Let me make a comment, because a lot of you have talked 
about the dollar and its strengths. We started with a very 
interesting powerpoint presentation and graph which was 
mentioned, but which indicates that a forecast of one group was 
that the dollar would decline in value with regard to the bulk 
of currencies, and in fact it went up by 25 percent from 1996.
    But the chart also shows, using a model of 1982 as the 
baseline, that it really never got below 100 throughout the 
eighties and the nineties. In other words, the dollar has been 
strong. Now, this is not a surprise, because essentially, as we 
all know, many people deposit their money in the United States 
of America. The safety of having it here is obvious. This 
fluctuates as political risk is perceived. But here we have a 
world in which the U.S. Government sometimes offers gratuitous 
advice to Japan on how to improve their economy and are 
disappointed that for 10 years, they have not made headway with 
that, even if they took the advice. That certainly is strange; 
if you were to hold a hearing in this committee, as some of us 
remember, say, 24 years ago, with regard to the yen and the 
dollar, there was a very different outlook. People were 
commenting that the Japanese were eating our lunch at that 
time, and that it was only a matter of time until the West 
Coast might very well be purchased. But not so for the last 10 
years. The Asian community has had its problems, but these are 
exacerbated by having this enormous country, Japan, with a 
great economy, in a position where it has not been able to make 
much difference in that area.
    Now, Latin American countries are up and down with their 
currencies, and even the euro, which was forecast to be a 
strong competitor to the dollar, and many people were very 
worried about that situation, has not turned out to be that 
strong thus far.
    So here we have a very strong dollar. Most Americans, if 
they think about that, think that that is probably a pretty 
good idea, because it has brought huge amounts of capital to 
this country and has kept our interest rates very low in a 
secular way. As a matter of fact, to take the other standpoint, 
if we really were to advocate a weaker dollar, and people began 
to sell Treasury bonds wholesale and move off into some other 
situation, we would have some problems, in agriculture or in 
any other business.
    What we have wrestled with today is given the fact that 
this is an overall good for America, it is not necessarily an 
overall good for specific farmers who are exporting cotton or 
wheat or what-have-you.
    In a way, the countervailing policies that Congress has 
adopted have tried to meet that problem, and one reason why net 
farm income is not sometimes as high as it was the year before 
is because export sales have been down. Some reasons for that 
relate to a high dollar, among other things. In other words, 
the attempt to have some countervailing payments, whether as an 
extra payment that was not contemplated by the Farm bill, 
another AMTA payment or whatever we are doing, in a way tries 
to be a countervailing factor against these situations. Maybe 
we are not doing enough of it. Some will say we are doing too 
much of it all the time. Some lament all of this. But I do not 
know how you concoct a policy that would be better than that. I 
do not know how you index each crop versus the dollar, or that 
type of thing. You have an aggregate problem, I believe.
    I mention that just off the top of the head really to gain 
your reaction. If you are trying to weigh against this dollar 
problem, you take a comprehensive look at what agricultural 
income is in the country, you try to take some steps to shore 
it up or at least to keep it at that point. Maybe our 
rationalization has not been as good about that as it might 
have been, but this is at least one way you could argue it, I 
suppose.
    Mr. Stallman, you have surely thought a lot about this. 
What comment do you have about it?
    Mr. Stallman. Well, you have covered the ball park pretty 
well, Mr. Chairman. I think it is very difficult to address the 
currency exchange problem in the context of farm policy. I 
think that what we have been doing, providing the supplemental 
assistance to offset many effects, but that being one of them, 
to net farm income in this country is probably about the best 
you are going to do. The idea of variable rate tariff 
structure, commodity-by-commodity, country-by-country, sounds 
unworkable, to be perfectly honest, in terms of addressing this 
problem, and we think that that is probably the wrong direction 
to go in the international context of trade.
    The globalization that is occurring throughout the world is 
really democratization--democratization of finance, of 
information, of technology, and of capital flows and goods. As 
all of that occurs, these situations with currency exchange 
rates are going to fluctuate, but as the borders are open, the 
come back into balance. When you start trying to seal off the 
borders is when countries get into difficulties, and they do 
not achieve that balance.
    So what we are doing domestically to support net farm 
income in the context of the problems we face internationally, 
I think has certainly been useful and helpful. I do not know 
that we can do a lot more in terms of directly affecting 
exchange rate, however.
    The Chairman. Mr. Swenson, do you have a comment?
    Mr. Swenson. I appreciate your comments. I think a couple 
of things have unfolded, though, in the last 10 to 15 years 
that we need to recognize in the area of the currency.
    No. 1 is to identify the impact, especially on the 
producers, of the lack of access to markets. We saw a reduction 
in tariffs, which we thought was going to increase our market 
access, but countries simply took the opportunity to adjust 
their currencies so the tariff reduction provided no greater 
access, but provided greater access of many of their 
commodities to the United States, and we have seen a 
significant increase in the import of competitive products 
during this same timeframe--and I am not at all an advocate of 
devaluating the dollar; do not get me wrong. I think we have 
got to search for a mechanism to level that currency issue.
    The Chairman. Would you agree, though, that if a country 
deliberately lowers the value of its currency, it is 
deliberately hurting the standard of living of its people. In 
other words, it may be a way of stopping our wheat from 
entering the country, but the people of that country who are 
trying to stop it are going to be hurting because clearly, that 
depreciates their standard of living.
    Mr. Swenson. When you take a look at what Australia and New 
Zealand did, for example, in the adjustment to the tariff we 
placed on lamb, they adjusted their currency and continued to 
flow lamb into this country. So yes, it does have an impact on 
their producers.
    But one of the other things I wanted to point out that we 
have seen is a change in the multinational structure of 
entities, both in the food retailing system as well as the 
processing and the marketing system. It has changed 
dramatically in the last 10 years in the movement of commerce.
    The other is the importance of the diversity of trade, and 
how the currency issue impacts all crops and products . It is 
not just the exchange of bulk commodities that can be tied to 
the exchange rate issue. I agree with Bob--I am not sure how 
you would tie it into the structure of farm programs, because 
the impact is more than just bulk commodities. It is the impact 
exporting value-added products and other areas of international 
commerce. That is why I think the importance of addressing 
currency is so critical.
    The Chairman. Mr. Hamilton, I wanted your thoughts--you 
made a good point, I believe, that we ought to have production 
that is market-driven, and that is what you look at. You 
suggested that some farmers, some producers, are continuing to 
produce whatever they used to produce without regard to this, 
which is probably true. Some here would say, ``Well, what else 
do you want me to produce?'' In other words, I have a weather 
problem, or a climate problem, traditional situations.
    Ideally, under the FAIR Act, people would take advantage of 
freedom to farm to produce new things or different quantities 
with relation to the market.
    On the other hand, some of the other policies, of course, 
that we have adopted, whether it be the crop insurance 
situation I mentioned earlier on, or LDPs, or various safety 
net situations, in a way encourage farmers to continue along 
that course. They offer a comfort level that maybe more 
rigorous market economies would not.
    Would you illuminate further what you mean when you say you 
feel we need to move in that direction, and why don't people 
see it that way--why aren't they more market-oriented, in your 
judgment?
    Mr. Hamilton. If I could, Mr. Chairman, first, I would like 
to go back and address your earlier question about exchange 
rates and currency values. I think the effect that the high 
dollar has had over the last number of years is that it is 
simply a price issue, and it makes United States products more 
expensive than those of our competitors, and any time you are 
asking your customer to pay more for a product, they are going 
to want to know what is in it for them, what is the additional 
value that you have added in order to require that additional 
cost. I think that that is where we as a country do have a 
competitive strength. If we are matching our products on a 
commodity-for-commodity basis, then it is difficult to try to 
exact higher price from your customer. So I think that where we 
need to look is at what value are we adding with our products 
in order to convince our customers to buy those products. If 
you look at the export profile of the United States over the 
last 25 years, you will see that the value-added component of 
our agricultural exports has increased steadily over those 25 
years, and in fact last year I think exceeded the bulk 
commodities for the first time, and it is part of a very steady 
long-term trend.
    So if you are trying to address the issue of currency and 
exchange rates, I think that is a much larger issue than we can 
address within the context of agriculture, so you have to kind 
of deal with what the market is giving you; so if our products 
are going to be more expensive, then we have to justify that 
additional cost by adding value.
    With regard to your second question and relating to the 
issue of production, I think you are dealing with a very long 
tradition of producers who are comfortable producing what they 
always have; there is a disconnect between individual producers 
and overseas markets. It is a long way from Nebraska to Japan, 
and there are a lot of steps in between, moving those products 
from Nebraska to Japan.
    Again, we have the largest, most homogeneous market that we 
have ever had in the history of the world. Our producers here 
are focused on that domestic market, and their decisions are 
based on what they see around them. I think we need to do a 
better job of communicating back to our producers what the 
market demand really is about. There are many issues about 
identify preservation, genetic modification, those kinds of 
issues, that I think that if producers had all the information 
in their hand and if there were a distribution and 
transportation system in place, they would be able to make more 
informed decisions.
    I think we are starting to see that--some of the more 
proactive producers and suppliers are out there--but I think 
that that is a longer-term trend that we need to encourage.
    The Chairman. Mr. Swenson.
    Mr. Swenson. I want to challenge the statement that farmers 
have not adapted. I think that farmers have adapted in the 
United States more quickly than producers in any other country 
in the world, and they will adapt to different production, to 
different commodities, as well as we have adapted to changes in 
genetics, be it in the livestock and/or in the grains sectors.
    First of all, farmers are going to look at price--can they 
afford to make the investment in the production of that 
particular commodity, the equipment that it takes, and 
everything else, versus the return they are going to get? If 
the processor wants it well below the cost of production, 
absolutely, producers are going to be leery of making the 
investment. But I have watched agriculture change. I have been 
involved in the change in production agriculture, and producers 
have adapted in this country. That is why, when you talk about 
yield, we are the most efficient yield producers in the 
country, not necessarily the lowest-cost producers.
    The other element that farmers get caught in is the rules--
they are not clear, they are not understood. Take a look at 
Starlink and the impact that it has had on producers, and on 
the whole market system.--The local elevators, the segregation 
of commodities, the contamination--and we are supposed to trust 
that system?
    We are willing to adapt. I have never seen a system more 
easily adaptable and willing to change--but we have got to get 
decent compensation for it.
    The Chairman. Well, I thank each one of you, not only for 
your testimony but for staying through this extended period. 
You can tell that members of the committee are deeply 
interested in what you have had to say, and we will refer back 
to your testimony as we proceed to our next trade hearing and 
formulation of that section of our bill.
    I thank you for coming.
    The Chairman. I want to call now on our third panel, which 
includes Judith Lewis, acting director of Resources and 
External Relations at the World Food Program; Ken Hackett, 
executive director of the Catholic Relief Services; and Gary 
Martin, president of the North American Export Grain 
Association.
    We appreciate your coming before the committee and look 
forward to your testimony. I will ask each of you to attempt to 
summarize your testimony in five minutes, and your full 
comments will be placed in the record in full.
    Ms. Lewis.

         STATEMENT OF JUDITH LEWIS, ACTING DIRECTOR OF 
         RESOURCES AND EXTERNAL RELATIONS, WORLD FOOD 
                      PROGRAM, ROME, ITALY

    Ms. Lewis. Thank you, Chairman Lugar, members of the 
committee.
    Thank you for this opportunity to speak to you today on the 
issue of global food assistance.
    Katherine Bertini, the executive director of the World Food 
Program, wanted to be with you today, but she had a family 
emergency and was not able to be here, so she sends her most 
sincere best wishes for a wonderful hearing.
    The Chairman. Please convey our best wishes to her. She is 
a good friend of the committee, has appeared frequently, as you 
know, and we are glad that you are here.
    Ms. Lewis. Thank you so much.
    I would like to start my comments today by thanking 
Congress and the U.S. Government for its continued commitment 
to reducing hunger around the world.
    There are approximately 800 million hungry people today in 
this world. Every 4 seconds, someone dies from hunger. It is 
hard for us to imagine this type of hunger, but it does exist, 
and in far too many countries in the 21st century.
    Since its inception in 1963, the World Food Program has 
been on the front lines of fighting throughout the world. 
Today, WFP is the largest humanitarian agency in the world. 
Last year, we delivered approximately 3.8 million tons of food 
to 83 million people in more than 80 countries--and more than 
1.5 million tons of this food was produced by American farmers.
    I would like to start my comments today by mentioning one 
of the most exciting initiatives underway today, which you have 
already heard about several times this morning. This is the 
Global Food for Education Initiative.
    This initiative, which has been spearheaded by former 
Senator Bob Dole and Ambassador George McGovern, provides a 
wonderful opportunity for WFP, other NGO's and PVO's, and the 
U.S. Government to work together to provide nutrition and 
education to tens of millions of children who are deprived of 
both.
    There are more chronically hungry children in the 
developing world than there are people in the United States--
over 300 million in all. Studies have proven that children will 
stay in school longer and graduate if there is some type of 
food incentive present. This is especially critical for girls. 
When girls are educated, they grow up to become women who are 
more likely to be engaged in the work force and have smaller, 
healthier, and more prosperous families.
    The Global School Feeding Initiative is not charity, and it 
is not an international entitlement program. The vision that 
Senators McGovern and Dole have is to assist developing 
countries as they build their own capacity to maintain their 
own school feeding programs and then phaseout the foreign 
assistance.
    The U.S. Government has been critical in getting the Global 
School Feeding Initiative off the ground, and WFP is working 
hard to gain additional support from other countries for school 
feeding activities. Continued United States support, 
demonstrating to other countries that the School Feeding 
Initiative is not simply a short-term effort dictated by the 
presence of surplus United States commodities, is critical for 
securing broader international commitment and to keep this 
initiative on track and growing.
    I hope the members of this committee and Congress in 
general will look favorably on this legislation for this 
initiative and support our joint efforts of feeding and 
educating tens of millions of children throughout the world.
    Mr. Chairman, as you begin your deliberations on the Farm 
bill, I would like to urge you to continue to strengthen the 
United States commitment to food aid. Increased levels of food 
aid will help nearly 800 million hungry people around the 
world; and increased levels of food aid will help America's 
farmers, many of whom have been struggling with low prices for 
the past several years.
    According to the 1999 United States Action Plan on Food 
Security, United States levels of food aid decreased from 8.3 
million tons to 3 million tons between 1986 and 1996. This 
alarming downward trend in food aid has only been arrested due 
to the availability of exceptional food surpluses that have 
been made available to WFP under Section 416(b) of the 
Agricultural Act of 1949.
    Considering that the number of humanitarian emergencies has 
been on the rise in recent years, it is hoped that the U.S. 
Government will put in place the necessary mechanism to ensure 
a stable source of humanitarian food aid in the years to come.
    In this regard, I would like to point out that during the 
1980's, two-thirds of WFP's resources went to development 
efforts. Today, nearly 80 percent of our resources are focused 
on keeping people alive in emergency situations--emergencies 
like the Kosovar refugees who fled by the hundreds of thousands 
into Albania two years ago; the people of El Salvador and India 
who lost their homes and livelihoods in earthquakes this year, 
and the millions who suffered the effects of a devastating 
drought in the Horn of Africa last year.
    Thanks to the U.S. Department of Agriculture's 416(b) 
stocks, the past few years have been a reverse in the 
decreasing food aid trend. However, 416(b) is an unpredictable 
source of aid, and it is based on the availability of surplus 
commodities. Therefore, P.L. 480 Title II remains the major and 
most stable source of United States food assistance.
    The appropriated levels of Title II resources have 
essentially been frozen over the past 8 years, ranging between 
$821 and $837 million since 1994. Given the rising number of 
humanitarian emergencies throughout the world, the stagnation 
of funding provided through Title II is extremely alarming.
    While recognizing that the appropriated funding level for 
Title II resources will be debated in the Agriculture 
Appropriations Subcommittee, I urge this committee to support 
increases to Title II authorization and appropriation funding 
levels.
    Another issue that I would ask you to look at during your 
consideration of P.L. 480 Title II is the coverage of costs 
associated with commodity contributions. The P.L. 480 Title II 
funding window has provided WFP and various American NGO's and 
PVO's, including CRS, with millions of tons of food over the 
past few years. In addition to the actual commodities, the 
United States has provided accompanying funds to pay for 
transport, storage, handling, and associated costs for the 
food. This funding is imperative for our operations. However, 
under the current Title II language, it is only available to 
emergency-related operations.
    I would ask that during its reexamination of the Farm bill, 
this committee consider amending the Title II language so that 
costs related to recovery and development activities can be 
included as well.
    As has been stated today in the other panels, unless food 
aid is carefully managed, it can undercut local prices and 
remove incentives for local farmers to produce. Poorly managed 
monetization of donated food aid can be particularly damaging.
    WFP has designed its food aid operations to minimize local 
market disruptions. We have adopted a fairly strict regime 
against local monetization, as we distribute food in projects 
or in emergency operations only. We do not simply hand over 
large amounts of food to governments. WFP's food assistance is 
targeted to the very poorest and the most vulnerable people in 
the poorest countries in the world.
    Our targeting helps to ensure that food gets into the 
mouths of the country and not for sale in the markets. Our 
philosophy is that food is to be eaten.
    Another issue of concern is the possibility that food aid 
could supplant a surplus sale by the United States or another 
exporter. To ensure that there is no market displacement, our 
food aid activities are reviewed in the Consultative 
Subcommittee on Surplus Disposal, which is chaired by the FAO, 
to see that our projects are not supplanting commercial exports 
by the United States or other major exporters.
    But the simple fact of the matter is that the beneficiaries 
that WFP is supporting are not commercial buyers. They are 
people fleeing drought, crowded into refugee camps, or in the 
most remote corners of desperately poor countries--not people 
who are usual commercial buyers of imported food.
    The good news is that studies have repeatedly shown that as 
poor people in developing countries earn more, the first thing 
they spend their money on is more food and better food, and 
this is good news for America's farmers, as 1 day, these same 
beneficiaries may well be commercial food buyers.
    Mr. Chairman, as I started my remarks, I said every 4 
seconds, someone dies from hunger worldwide. The talent and 
productivity of America's farmers can be brought to bear in a 
renewed battle to end that tragedy. With the strong commitment 
of the U.S. Congress, this battle can be won.
    Thank you.
    The Chairman. Thank you very much, Ms. Lewis.
    [The prepared statement of Ms. Lewis can be found in the 
appendix on page 132.]
    Mr. Hackett.

 STATEMENT OF KENNETH HACKETT, BALTIMORE, MARYLAND, EXECUTIVE 
DIRECTOR, CATHOLIC RELIEF SERVICES, ON BEHALF OF THE COALITION 
                          FOR FOOD AID

    Mr. Hackett. Thank you very much, Senator.
    I would really like to thank you for this opportunity that 
you and the committee have offered to s how our appreciation 
for the food assistance that has been provided under the Farm 
bill through the private voluntary agencies.
    I am here also today to encourage urgently needed changes 
in food aid legislation so that we can make a much stronger 
contribution to our Nation's commitment to cut world hunger and 
poverty.
    I am speaking to you today both as the executive director 
of Catholic Relief Services and as the spokesperson for the 
Coalition for Food Aid, which is a group of 13 American private 
voluntary organizations--CARE, Save the Children, Africare, the 
Adventist, et cetera. These 13 organizations count millions of 
private contributors and constituents across our Nation.
    I would like to start by stepping back a bit from many of 
the complicated details of the United States food aid program 
to make a few key points pertaining to, first, the levels and 
the stability of assistance that is needed in terms of food 
aid, and second, a fundamental change in the mindset needed in 
the way the U.S. Government works with private voluntary 
organizations on these programs.
    The Coalition members, these 13 private voluntary 
organizations here in the United States, believe that food aid 
is a very precious resource. We have all used food aid, many of 
since the 1950's, to respond to emergencies, drought, civil 
unrest. We have supported development programs in health and 
agriculture, and have really helped people who have limited 
capacity to help themselves, and we have done it all with food 
assistance.
    We have support from the American people in these efforts, 
and we are representing what we feel to be the true exhibition 
of solidarity and concern and compassion of the people of the 
United States. That was attested to by a recent study by the 
University of Maryland indicating that Americans overwhelming 
support efforts to alleviate hunger and world poverty. We want 
to work with the Congress to make the critical changes 
necessary to the upcoming farm bill so that United States 
international food aid programs, in all of their 
manifestations, become much more effective tools for private 
voluntary organizations and organizations such as the World 
Food Program to use in meeting the needs of hunger around the 
world.
    First, I would like to ensure, if we may, that there be 
adequate budgetary provisions so that the United States private 
voluntary organizations can rely on United States food aid and 
programs for their multiyear programs and for multiyear 
periods. To date, food aid availability has varied widely 
depending on production here in the United States, and the 
discussion that went on a little bit earlier indicates the 
motivations of American farmers that are changing continually. 
Production obviously is a function of weather and of the 
planting decisions and farming decisions of American farmers. 
But on the other hand, food aid needs are generated out of 
circumstances that are often beyond the control of 
organizations such as our own, are generated from drought and 
civil unrest and AIDS epidemics, and the commitments that PVO's 
and other organizations have toward changing and affecting 
long-term improvements in health and agriculture and education.
    We need to increase tonnage levels for Title II from 2 
million metric tons to 2.5 million metric tons, and for Food 
for Progress from 500,000 metric tons to 1 million metric tons, 
with a discretionary provision for the Secretary of Agriculture 
to add an additional million metric tons to the program. This 
will ensure a solid-based level of assistance above which 
additional resources may be programmed on a short-term basis.
    Second, we are proposing radical change in the way food 
programs are conceived. Radical may relate to Senator Roberts' 
comments on ``out of the box,'' but we are asking that United 
States food aid be provided to United States PVO's to support 
the PVO's' planned relief and development activity.
    That really does not sound very radical, but it is a 
radical departure from what has gone on over the last decades. 
We want to be able to find the best ways, innovative and 
creative ways, to use food aid to support our own strategic 
plans, which will incorporate, in addition to the U.S. 
Government assistance, the private resources we raise here 
among our contributors in the United States.
    Over the last 10 to 15 years, PVO's have been increasingly 
constrained in how we can use food aid. We often feel treated 
as contractors carrying out a changing agenda, one which we 
have not helped to establish and one which has not benefited 
from our practical on-the-ground experience. For many years, 
for example, PVO's have been discouraged from developing school 
lunch and education programs under the Title II program. Then, 
only last year, we were very happy to see the new major global 
food initiative launched.
    The point is it came on us very rapidly; it was something 
new, something different, and we had to scurry about trying to 
address those concerns.
    A central component of this new conception of how food aid 
programs are carried out is to make the private voluntary 
organizations part of the decisionmaking process for resource 
allocation and for how programs are implemented and evaluated.
    We have accumulated expertise in technical fields and in 
food management and logistics. We have knowledgeable national 
and international staff in countries where we work around the 
world. We have many partner organizations that work directly 
with communities and with people who benefit from assistance. 
Yet we are not at the table when the priorities are set and the 
decisions are made.
    We are open and willing to explore new U.S. Government 
institutional arrangements and structures that will support us 
and improve our work on the front lines of hunger and poverty. 
We are not asking for carte blanche. We commit ourselves to 
meet the agreed-upon performance standards for food programs. 
We welcome U.S. Government audits and systems of 
accountability. But we need your help to make some big changes 
in how these programs are designed and run in the future.
    Finally, let me reiterate a point that I made in our 
testimony last July in front of your committee. We believe that 
the distribution of food aid alone, without complementary and 
supportive resources, is an insufficient and in many cases 
wasteful use of this precious resource. As recently as last 
month, an evaluation of school feeding programs in Haiti which 
we were a part of indicated that food distribution alone is an 
ineffective means of improving nutrition or enhancing 
educational impact. Food distribution can only be effective 
when it is combined into an entire program with a series of 
complementary inputs.
    So as we think through the future of food aid programs, I 
hope we can find ways to leverage other complementary 
Government resources as well as the resources of our own 
private contributors to make food assistance more meaningful 
and effective.
    I thank you very much, Mr. Chairman.
    The Chairman. Thank you very much, Mr. Hackett.
    [The prepared statement of Mr. Hackett can be found in the 
appendix on page 139.]
    The Chairman. Let me intervene at this point to mention 
that our distinguished ranking member, Senator Tom Harkin of 
Iowa, had planned to attend this hearing but encountered very 
difficult circumstances in terms of scheduling today, including 
attending to matters of a death in the family. He simply wants 
all witnesses to know of his regard for them and their 
testimony, which he will study.
    In particular, he wants to note the attendance of Iowa 
witnesses and in his stead, I will do that, and we appreciate 
the ranking member.
    Mr. Martin.

  STATEMENT OF GARY MARTIN, PRESIDENT, NORTH AMERICAN EXPORT 
               GRAIN ASSOCIATION, WASHINGTON, DC

    Mr. Martin. Thank you, Mr. Chairman and members of the 
committee, for the opportunity to participate in the hearing 
this morning. It is a special privilege, Mr. Chairman, for me 
to appear before you, our association's recipient of the 
Agricultural Trade Leader of the Year Award just this past 
year.
    The North American Export Grain Association, founded in 
1912, is the association that represents the publicly and 
privately owned companies as well as cooperatives that ship 
practically all the bulk grains and oilseeds from the United 
States. That is $16 to $20 billion, perhaps as much as 40 
percent of our total agricultural exports each year. When we 
ship, we take the risk, both in the short-term, of individual 
shipments that range up to $35 million and, of course, have the 
long-term investment risk in the facilities that provide for 
the export of the grain.
    Food aid programs in particular are a very significant and 
important component of the United States bulk grain and export 
market. Every year, NAEGA member companies sell millions of 
tons of commodities, which are exported through the various 
food aid programs.
    Our association recognizes and supports the contribution of 
United States international food assistance, not only in 
alleviating hunger but also in providing for economic growth, 
the foundation of increased demand for our products.
    As commercial exporters, we see much opportunity to improve 
and strengthen United States food aid programs. The testimony 
which you have been kind enough to enter into the record 
emphasizes and makes recommendations related to three 
priorities of our association--first, to provide for 
consistency and sustainability of food aid funding and improve 
performance in the delivery of United States food aid programs 
to recipients themselves; second, to improve the process of 
allocating commodities to specific countries in order to ensure 
that food aid programming is consistent with overall market 
development and domestic agriculture support programs; and 
third, to ensure compatibility of our food assistance programs 
with the United States strategy to provide for more open and 
free international trade.
    In our testimony, we make four very specific 
recommendations. First of all, the process under which the USDA 
and others determine aid eligibility and target food donations 
to specific countries needs improvement. Food aid is an 
important component of the bulk grain export market, as I said 
before, and it does provide additional demand for bulk grains, 
but at an excessive level, food aid displaces commercial 
exports. Our companies feel that most directly.
    Shifting the resource base for food aid away from surplus 
to more permanent funding and including private sector input 
into the decisionmaking process is key to more effective 
programming. Food aid programming in the United States and 
around the world is based on internationally accepted 
calculations based on usual marketing requirements. We suggest 
that United States producers and agriculture business should be 
engaged in the development of UMR and UMR formulae for more 
timely and market-sensitive--not only based on quantity but 
also on quality--programming standards.
    Second, food aid shipments prior to fiscal year 1999 
averaged about 3 million metric tons per year; after that, 8 to 
9 million metric tons per year in recent years has been the 
case. That level of 3 million metric tons plus an expansion of 
perhaps a million metric tons, depending on emergency and 
programming justification, is much more reasonable, 
sustainable, and acts as a cap to assist in the prevention of 
commercial displacement.
    Again, provisions to provide for long-term funding would 
alleviate most of the adverse program consequences and lead to 
the necessary incorporation of market needs from the commercial 
markets.
    Third, the Title I P.L. 480 concessional program is a 
valuable market tool and should be retained in any rewrite of 
the food aid title. While our competitors maintain the ability 
to directly subsidize exports and distort markets through the 
monopoly power of State trading enterprises, our Title I 
concessional sales program is fully justified and should be 
more strongly promoted and defended in international trade 
negotiations.
    Fourth, we are quite satisfied with the procurement 
operations that exist under the current program, P.L. 480 
Titles I, II, 416(b), and Food for Progress, but would suggest, 
as we look forward to a more sustainable environment that 
provides for long-term funding, more flexible conditions for 
procurement and delivery that recognize, again, market needs 
not only from a timeliness standpoint but from a quality 
standpoint as well as a quantity standpoint and both economic 
development and humanitarian needs.
    I see that I have just a bit of time, and I am going to 
take the liberty of digressing from my prepared statement to 
address two trade issues that I think were somewhat overlooked 
in this morning's hearing. I have had the privilege of sitting 
through the entire hearing.
    First of all, mentioned in my testimony is the problem and 
the barriers represented by the State trading enterprises, 
particularly for the United States wheat industry. Those must 
be addressed very directly as part of this next round of 
agricultural negotiations.
    Second, on Senator Baucus' comments that the biggest 
problem is the most serious trade barriers, I think we would be 
remiss if we did not point out that the lack of consistency in 
terms of trade and regulatory procedures with regard to 
biotechnology in international trade are perhaps the most 
significant and growing barrier to United States trade of 
agricultural products, particularly grains and oilseeds, that 
we have to deal with today.
    A drive for international consistency in those regulatory 
and trade terms is an absolute imperative. Our members have 
seen a loss of market share around the world in particular 
commodities, like corn that may exceed 10 million metric tons 
in just the last 12 months.
    Those two points in particular I wanted to bring out in 
addition to the testimony.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Martin can be found in the 
appendix on page 156.]
    The Chairman. Thank you very much, Mr. Martin.
    Let me begin by mentioning--although none of you addressed 
this specifically--that one barrier to our feeding people 
around the world has frequently been political repression.
    For instance, we have had Dr. Borlug and others before us 
estimating the need for maybe three times as much food 
production in the world in the next 50 years given population 
increases and likewise rising standards of living. But as all 
of you have testified from your experience and as we have heard 
from the earlier witnesses, the flow of this food is obstructed 
in many ways. There is no industry in the world more protected 
than agriculture, and it is because specific governments have 
adopted policies to protect either their producers or 
themselves in some cases, or protect certain parts of the 
population even in worst cases, that others are left to starve.
    These are difficulties which are beyond our committee, but 
we recognize an imperfect world and a very imperfect flow in 
terms of the trading system, whether it be humanitarian or 
commercial, as the case may be.
    Having said that, the subject of the Global Food for 
Education Initiative is important to what we are discussing 
this morning, because it is a bold suggestion. Our former 
colleagues, Senator Dole and Senator McGovern, who used to sit 
around this table, as you know, are very distinguished giants 
of the American political system, and they remain that, and 
their initiative was listened to by the committee at a well-
attended hearing in which I think some of you were involved.
    The dilemma of translating that into legislation boils down 
to some of the things that you have mentioned, Mr. Hackett. As 
we proceeded into the minutiae of this, the problem of how the 
private voluntary organizations are to be treated--as you say, 
why they were not at the table in this big initiative was sort 
of a surprise--well, it cannot just remain a surprise, and it 
is not going to work out until the PVO's, all of the 
organizations which have some legitimate reason to be involved 
in addition to the multinational organizations, are there.
    That will take some doing in terms of the internal politics 
of humanitarian distribution. I want to underline that. This 
was an immediate feeling, not necessarily of bad faith but of 
difficulty, even among people whose idealism could not be 
questioned, so we take that seriously.
    You mentioned the monetization problem, Ms. Lewis. We heard 
testimony at that hearing, and we have been hearing it ever 
since, and it comes down to something like this. People who are 
in rural schools in developing countries frequently say that 
the dilemma of distribution of this food to the children or to 
other recipients is very difficult. Furthermore, we have a 
school lunch program which seems almost axiomatic--children who 
are better fed learn better, and so forth, and this is likely 
true in developing countries. As a practical matter, it boils 
down to this suggestion: let us monetize the food because we 
need the money; We need the money to set up a school that will 
even have teachers in it.
    We had very poignant testimony about parts of Africa where 
large numbers of the teaching staff have been seized with AIDS 
and are suddenly gone in the prime of life. The recruitment of 
staff, quite apart to ever getting to place where you have a 
stable school, education, and then feed the children lunch or 
breakfast, assumes all sorts of infrastructure.
    The thought that you globalize the school lunch program is 
an important idea. But then, as you get into the various 
countries--you have all dealt with this as experts--actually 
making this work is very complex.
    So the monetization issue is not a sticky point, but it is 
really going to have to be addressed in several different ways 
that will require great sophistication.
    Then, the commercial displacement issue is always with us 
in this area. It is not going to disappear, yet at the same 
time, sometimes is more of a problem than in others. I simply 
mention it because if monetization is a factor, which I think 
it is, as well as the cooperation of governments, who is to 
allow this intrusion? Well, this requires a fairly liberal 
regime on some occasions, some schools to be more favored than 
others, and so on--a number of various issues differing from 
region to region.
    Leaving those very large barriers aside, I simply want to 
mention this because this committee takes very seriously the 
initiative. It is something that, from the beginning, I have 
been enthusiastic about and have been a public witness to that.
    But I am also listening to sophisticated people like 
yourselves on who are bringing these factors to light that are 
going to be important if we are going to have ongoing 
legislation as opposed to a one-shot appropriation or a 
Presidential edict that says we will do it this year, but you 
work out the details.
    If we are going to have something that has longevity long 
after this committee has been sitting here, these are factors. 
So I invite you--you are very specific technical witnesses 
beyond this hearing; you know the issues well, you know the 
problems of legislative language that finally can help persons 
such as yourselves or those who will administer your duty after 
you have left.
    Beyond that, let me say that in hearings such as this one, 
although it has been unstated today, I shall state it--we have 
a number of producers who off the record would say, ``Listen, 
we have huge surpluses. We have overhanging surpluses. They 
depress our prices.'' Now, it would be nice if you could think 
of some legitimate way of getting this out of here in a 
humanitarian sense. But in fact, if it is sunk in a boat at 
sea, it would accomplish the same thing. In other words, move 
it, under any circumstances, any time you can.
    That, of course, disrupts everybody. If it sinks at sea, no 
one eats. If it gets to a country and is monetized, this 
bothers some people. If it is maldistributed by a government 
that uses it for its own political advantage, that seems to me 
worse still. If it displaces a commercial sale or roils 
internally a country that says, ``Despite all that you are 
saying, what you folks are really after is dumping on us''--you 
have got a big problem.
    It is amazing--we have talked about Russian aid today, and 
having had some experience back and forth in that country on 
other circumstances, on arms control, I run into Russians who 
say, cynically, ``Of course, there are a lot of us who do not 
have very much food, but in fact your motivation is clear--you 
have got surpluses, and you are dumping them on us, and you are 
hurting Russian farmers, whoever they may be.'' This is widely 
felt throughout the world; there is a cynicism as opposed to an 
appreciation for American idealism.
    From the other standpoint, American taxpayers, if you take 
a look at firm appropriations for this, say, OK, maybe we 
should be doing more than the $814 to $837 million--the range 
that you mentioned, Ms. Lewis--but on the other hand, how is 
this being administered? Is this good money after bad? Who are 
the people doing it, and who are the recipients? Are they 
appreciative?
    Well, maybe so, maybe not. Many of them feel that our 
motivation is unclean. But the taxpayers' motivation is clean. 
They were not farmers or producers. This is a transfer payment 
from other taxpayers to American agriculture, in a way, or to a 
humanitarian organization to achieve something.
    So if cynicism abounds too much, then we have not only 
freezes on this, but we may have declines. The whole foreign 
aid area that we discuss in the Foreign Relations Committee is 
indicative of this. It has been declining substantially, and 
for all sorts of reasons, because many Americans say we have 
big problems with Medicare and Social Security right here at 
home, or food pantries in our cities.
    It is all well and good to talk about this, but we are not 
really sure, we are not as confident about this. So it is 
incumbent upon all of us who are involved in the emergency 
projects to be pretty clear in describing what we are doing, 
and that is hard to do, because there are many of us doing it, 
many organizations, under various auspices.
    I make this precis because I think you all are 
knowledgeable about it. Can you make some comment, specifically 
targeting for a moment the Global Food Initiative on how can we 
work out in a sophisticated way both the problems of how PVO's 
generally can be involved, and what do we do with regard to 
monetization and the problem with these school teachers or the 
others who are trying to help.
    Have you given thought to that--I am sure you have--and 
what advice do you have today?
    Ms. Lewis. I think all of us have thought about this and 
discussed it. We see it as an opportunity for partnership where 
we can use food for the actual school feeding initiative, and 
then, other partners who want to be involved can monetize to 
provide the educational equipment, to help build an 
infrastructure, to help provide teachers.
    So you could see it as a well-balanced partnership if we 
work together, if we are certain that we are all working in the 
same areas and the most vulnerable areas where we can make the 
most of the initiative.
    So that is one way we could look at it, as looking at 
strong partnerships to make the entire initiative not only for 
food but for the education as well.
    The Chairman. Ms. Lewis--and that is a reasonable outline--
but moving from that to legislative language that will last the 
test of time, how do we draw this up in ways in which the 
guidelines are clear as to what is prohibited or what we can do 
and so forth? Is that possible?
    Ms. Lewis. I do not know. I would have to seek Mr. 
Hackett's opinion.
    Mr. Hackett. If I may, Senator, I believe it is possible, 
and I think the American PVO's are ready to put the energy 
behind such an effort soon. We will work with WFP and others to 
make sure that we are not bumping into each other and stepping 
on each other's toes, but are basically complementing each 
other's efforts so that we can make a significant impact.
    Senator Lugar. Well, I invite you to do that promptly, 
because we have a legislative situation here where a lot of 
people are very hopeful of success, yet we are not making a lot 
of headway in part because the expertise and even the 
organizations involved in these issues have got to help us come 
to grips with a sharp pencil as to how you draft this and what 
do you say so that there is not an afterglow that somehow we 
forgot that or that someone was shortchanged.
    I mention that really specifically to take advantage of 
this hearing. This is an ongoing project but one of some 
urgency, certainly felt by you in your testimony today. The 
extent to which you can work with our staffs on some 
legislative language would be very helpful.
    Mr. Hackett. If I may, Senator, again to repeat, the 
Coalition is prepared to go all the way, so to speak.
    I was taken by a comment in the earlier testimony when we 
were talking about farm bill and the trade relations and food 
aid, that it is not the same as it was 50 years ago. I believe 
this is the opportunity for all of us to take a look at what it 
should be for the future, not what it was.
    The Chairman. I agree.
    Mr. Hackett. So we are with you on that.
    The Chairman. Good.
    Mr. Martin, looking at this from your perspective, what 
would you advise the Global Food Initiative people who are 
going to be meeting and helping us with this language? Do you 
have some suggestions?
    Mr. Hackett. Actually, I think the suggestion has been 
turned into action already in that the producer groups, 
commodity groups, and commercial entities involved in handling 
grain and oilseeds in particular, but even other products, have 
agreed to sit at the table with the PVO community and sort 
through the legislative process to support initiatives like the 
Global Food Initiative, but expand that into the consideration 
of Title II expansion as well as discipline on the overall food 
aid.
    The Chairman. Well, that is important while you are at the 
table to take up Title II and other issues. I do not mean to 
have an exclusive conference, but obviously the Global Food 
Initiative is a large new subject that was not a part of the 
1949 Farm bill or subsequent iterations. But it offers an 
avenue, once again, to discuss this among yourselves and with 
the American people, who must ultimately support this idea if 
it is to be politically viable and to have some legs over time.
    I think we all understand what we are talking about here 
within this committee and the hearing group and the 
humanitarian group. This is an initiative that could strike 
people as being a very, very good idea and others as almost a 
fanciful giveaway of sorts. We need to make sure it is the 
former by a really sound program that has the commercial people 
and the Catholic Relief Services and other PVOs and the world 
organizations--everybody--aboard in a very unusual but 
important coalition.
    I appreciate very much your preparation of your testimony, 
which will be published in full, and likewise your testimony 
and responses this morning. We look forward to working with you 
and entertaining you back here again some time.
    Having said that, the hearing is adjourned.
    [Whereupon, at 12:28 p.m., the committee was adjourned.]
      
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                            A P P E N D I X

                             April 25, 2001

      
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                             April 25, 2001

      
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