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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

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

RICHARD G. LUGAR, Indiana, Chairman

JESSE HELMS, North Carolina

THAD COCHRAN, Mississippi

MITCH MCCONNELL, Kentucky

PAT ROBERTS, Kansas

PETER G. FITZGERALD, Illinois

CRAIG THOMAS, Wyoming

WAYNE ALLARD, Colorado

TIM HUTCHINSON, Arkansas

MICHEAL D. CRAPO, Idaho

TOM HARKIN, Iowa

PATRICK J. LEAHY, Vermont

KENT CONRAD, North Dakota

THOMAS A. DASCHLE, South Dakota

MAX BAUCUS, Montana

BLANCHE L. LINCOLN, Arkansas

ZELL MILLER, Georgia

DEBBIE A. STABENOW, Michigan

BEN NELSON, Nebraska

MARK DAYTON, Minnesota

KEITH LUSE, Staff Director

DAVID L. JOHNSON, Chief Counsel

ROBERT E. STURM, Chief Clerk

MARK HALVERSON, Staff Director for the Minority

(II)

(III)

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

Page

IV

PREPARED STATEMENTS—CONTINUED

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

(1)

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 nonfarm 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

2

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.

3

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 lowerthan-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 difVerDate 11-MAY-2000 08:04 Apr 17, 2002 Jkt 078561 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 78561.TXT SAG1 PsN: SAG1
4

ficult 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

5

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

6

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 longterm 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.

7

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.

8

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

9

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 BraVerDate 11-MAY-2000 08:04 Apr 17, 2002 Jkt 078561 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 78561.TXT SAG1 PsN: SAG1
10

zilian 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

11

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 agVerDate 11-MAY-2000 08:04 Apr 17, 2002 Jkt 078561 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 78561.TXT SAG1 PsN: SAG1
12

gressively 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.

13

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

14

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 cashflow 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.

15

But what, clearly, although unstated, we have been attempting

to do is to really save every farm in America, that is, to keep cashflow 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 AgriTrade 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.

16

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 negotiaVerDate 11-MAY-2000 08:04 Apr 17, 2002 Jkt 078561 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 78561.TXT SAG1 PsN: SAG1
17

tions 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.

18

[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.

19

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.

20

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.

21

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,

22

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

23

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, forwardlooking programs that leverage money into high-dollar-impact camVerDate 11-MAY-2000 08:04 Apr 17, 2002 Jkt 078561 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 78561.TXT SAG1 PsN: SAG1
24

paigns 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.

25

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.

26

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.

27

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 fastestgrowing 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.

28

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.

29

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

30

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 fiVerDate 11-MAY-2000 08:04 Apr 17, 2002 Jkt 078561 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 78561.TXT SAG1 PsN: SAG1
31

nance 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

32

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?

33

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,

34

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 variablerate 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

35

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 sectorby-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.

36

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

37

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

38

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 deVerDate 11-MAY-2000 08:04 Apr 17, 2002 Jkt 078561 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 78561.TXT SAG1 PsN: SAG1
39

livered. 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

40

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,

41

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.

42

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 hardpressed 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

43

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 inVerDate 11-MAY-2000 08:04 Apr 17, 2002 Jkt 078561 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 78561.TXT SAG1 PsN: SAG1
44

dustrial 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 whathave-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

45

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

46

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

47

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.

48

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.

49

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 shortterm 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

50

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

51

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.

52

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 solidbased 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.

53

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.

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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 shortterm, 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

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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.

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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,

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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 oneshot 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

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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?

59

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

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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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