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84–598 PDF 2003

S. HRG. 107–850

RURAL ECONOMIC DEVELOPMENT ISSUES FOR

THE NEW FEDERAL FARM BILL

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE,

NUTRITION, AND FORESTRY

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

AUGUST 2, 2001

Printed for the use of the

Committee on Agriculture, Nutrition, and Forestry

(

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

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

TOM HARKIN, Iowa, Chairman

PATRICK J. LEAHY, Vermont

KENT CONRAD, North Dakota

THOMAS A. DASCHLE, South Dakota

MAX BAUCUS, Montana

BLANCHE L. LINCOLN, Arkansas

ZELL MILLER, Georgia

DEBBIE A. STABENOW, Michigan

BEN NELSON, Nebraska

MARK DAYTON, Minnesota

PAUL DAVID WELLSTONE, Minnesota

RICHARD G. LUGAR, Indiana

JESSE HELMS, North Carolina

THAD COCHRAN, Mississippi

MITCH MCCONNELL, Kentucky

PAT ROBERTS, Kansas

PETER G. FITZGERALD, Illinois

CRAIG THOMAS, Wyoming

WAYNE ALLARD, Colorado

TIM HUTCHINSON, Arkansas

MICHEAL D. CRAPO, Idaho

MARK HALVERSON, Staff Director/Chief Counsel

DAVID L. JOHNSON, Chief Counsel for the Minority

ROBERT E. STURM, Chief Clerk

KEITH LUSE, Staff Director for the Minority

(II)

(III)

C O N T E N T S

Page

HEARING(S):

Rural Economic Development Issues for the New Federal Farm Bill ................. 01

Thursday, August 2, 2001

STATEMENTS PRESENTED BY SENATORS

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

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

Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 04

Dayton, Hon. Mark, a U.S. Senator from Minnesota ........................................... 06

Wellstone, Hon. Paul, a U.S. Senator from Minnesota ........................................ 03

WITNESSES

Cassidy, Jack, Senior Vice President, CoBank, Greenwoodville, Colorado ......... 21

Dearlove, Karen, President, Indiana Association of Regional Councils, Jasper,

Indiana .................................................................................................................. 14

Hassebrook, Chuck, Center for Rural Affairs, Walthill, Nebraska ..................... 11

Kolsrud, David, CORN-er Stone Farmers Cooperative, Luverne, Minnesota,

on behalf of the National Cooperative Business Association ........................... 07

Lane, Steve, President, Iowa Independent Bankers Association, Gowrie, Iowa,

on behalf of the Independent Community Bankers of America ....................... 20

Markley, Deborah M., Chair, Rural Equity Capital Initiative, Rural Policy

Research Institute, Chapel Hill, North Carolina ............................................... 18

Phillips, Ronald L., President, Coastal Enterprises, Inc., Wiscasset, Maine ...... 09

Wynn, Curtis, Chief Executive Officer, Roanoke Electric Cooperative, Rich

Square, North Carolina ....................................................................................... 16

APPENDIX

PREPARED STATEMENTS:

Lugar Hon. Richard G. ..................................................................................... 34

Cassidy, Jack .................................................................................................... 101

Dearlove, Karen, ............................................................................................... 68

Hassebrook, Chuck ........................................................................................... 60

Kolsrud, David .................................................................................................. 41

Steve Lane ......................................................................................................... 91

Markley, Deborah M. ....................................................................................... 83

Phillips, Ronald L. ............................................................................................ 49

Wynn, Curtis ..................................................................................................... 80

DOCUMENT(S) SUBMITTED FOR THE RECORD:

Stabenow, Hon. Debbie .................................................................................... 108

National Council of Farmer Cooperatives; David Graves, President ........... 114

Regional Report: Angels Unite to Invest Locally, The Wall Street Journal 119

QUESTIONS AND ANSWERS:

Cassidy,Jack ...................................................................................................... 134

Dearlove, Karen ................................................................................................ 124

Hassebrook, Chuck ........................................................................................... 122

Lane, Steve ........................................................................................................ 132

Page

IV

QUESTIONS AND ANSWERS—CONTINUED

Markley, Deborah ............................................................................................. 128

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RURAL ECONOMIC DEVELOPMENT ISSUES

FOR THE NEW FEDERAL FARM BILL

THURSDAY, AUGUST 2, 2001

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

The committee met, pursuant to notice, at 2:33 p.m., in room

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

[Chairman of the Committee], presiding.

Present or submitting a statement: Senators Harkin, Baucus,

Wellstone, Dayton, and Lugar.

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

IOWA, CHAIRMAN, COMMITTEE ON AGRICULTURE,

NUTRITION, AND FORESTRY

The CHAIRMAN. The Senate Committee on Agriculture, Nutrition

and Forestry will come to order. Today, we are having a full committee hearing on rural economic development issues for the new

Farm bill.

We have a distinguished panel of witnesses. We apologize for

being a little late. We just had two votes in a row and I thought

it would be best to get our votes out of the way before we came

over so that we wouldn’t have to go back.

I will just make my opening statement and then I will yield to

my friend from Minnesota for a statement and for introductions.

Today, we move ahead with development of the new Farm bill

and this afternoon’s hearing will focus on what I believe will be a

critical component of the new Farm bill, and that is rural economic

development.

There are steps we must take now to encourage growth and opportunity in rural America. We must help create the basic infrastructure required to do business and create jobs. In the 20th century, rural America requires miles of telephone wire and water

lines for households. These are the conduits of commerce. We needed farm-to-market roads. We have to have a continued commitment

in these areas.

In the new century, the barriers to rural economic development

are more complicated than just asphalt and wire. Our businesses

need broadband to compete. Our family farmers need new markets

for their products and they need help and support to fashion and

shape their crops to meet these new markets. Entrepreneurs need

greater access to capital, especially equity capital.

These are great challenges, but when we look at the challenges

we faced when rural electrification came in in the 1930’s, only 10

2

percent of the homes in rural America had electricity in the early

1930’s—only one out of ten. It used to be said that if you wanted

something newfangled like electricity, move to the city. Well,

thankfully, we didn’t do that and those days are long past us.

The barriers to rural economic growth in this century are new

and we need to address those. We have only scratched the surface

of developing farm-based sources of renewable energy, for example.

Anything we can produce from a barrel of oil we can produce on

our farms. It will increase farm income and decrease our dependence on foreign oil. That is just one area of adding value from processing and broadening the market.

We need to explore other ways of lifting up rural businesses. As

I said, they are being choked by a lack of access to capital. Last

year, I proposed legislation with Senator Craig—I guess he is not

on this committee any longer—that would create a rural equity

fund to address this issue.

What other steps can we take to structure financial assistance to

generate the most good efficiently and within our limited resources? Well, we have to look at the poor coordination of current

Federal programs in these areas, and do what we can to bring

them together in a more cohesive, coherent pattern.

The current budgetary climate requires USDA rural development

programs to leverage funds effectively from other Federal departments, from State and local programs, and most importantly from

private sources. These areas to which we have to look in the new

Farm bill.

There are three guidelines I believe we have to follow for rural

development assistance. First, assistance must be targeted to

where the need is great, but also where the funds can best be utilized.

Second, solutions must be community-based, not a top-down approach, but bottom up, and to a greater extent more holistic and

not programmatic.

Third, programs must be rooted in the traditional values of rural

America—hard work, no free rides. That is a recipe for more successful rural economic development assistance.

We have a lot of challenges. I look forward to hearing the

thoughts and the comments and the views not only of my fellow

members of the committee, but especially the distinguished panel

before us. I can assure you that rural development is going to be

a key part of the next Farm bill, one on which we are going to focus

a lot of attention.

Just keep in mind that 1 out of 15 people who live in rural America farm. The rest live in small towns, communities, acreages,

things like that, and to the extent they have a better quality of life,

so do our farmers. If our farmers have better incomes from valueadded, they can then support the other people who live in rural

America. This is a very—I don’t know whether the word is ‘‘synergistic’’ or what, but it is something that we have to pull together

in both ways in the new Farm bill.

With that, I would recognize my friend and colleague from Minnesota for any opening statement and for purposes of an introduction.

3

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

FROM MINNESOTA

Senator WELLSTONE. Well, Mr. Chairman, I am going to be very

brief. Let me just include my full statement in the record, if that

is all right.

The CHAIRMAN. Without objection.

Senator WELLSTONE. I want to introduce David Kolsrud, and I

want to first of all apologize, though, to everyone. Because of the

votes, I got way backed up and don’t get to stay very long.

Not only will your testimony be part of the record, but my Jewish

guilt tells me I have to read every bit of what you say because I

won’t be here. I don’t want you to think I am not interested, just

the opposite. We got into a ridiculous schedule conflict.

Very, very quickly, only one comment about what you said, which

is I love being in schools, but one of the things that really gets me

down in what we call greater Minnesota, in the smaller-town, rural

areas, is that quite often the students will talk about how the advice they have been given is to get ahead, you need to get a good

education. So far, so good.

Actually, the rural translation of that is to get ahead, get a good

education so you can get out of here because there is nothing left

for you to do, there is nothing here, which is the exact opposite of

what you want to have happen. That is what this hearing is all

about.

I put a lot of emphasis on education, I put a lot of emphasis on

entrepreneurship, I put a lot of emphasis on empowerment, the

three E’s, where people think what happens in the community is

not going to be independent of what we do. This value-added agriculture and how we keep more capital in this process in our communities is great.

I am so interested in tele-work and the potential it has for citizens in rural Minnesota and rural America, and all the other

issues that everybody seems to think somehow are urban—good

education, good health care, affordable housing, transportation, affordable child care. Let’s not forget that those are every bit as compelling issues in rural communities.

Ultimately, these young people stay on the basis of two considerations. Can I afford to? In other words, if I am going to farm, am

I going to get a decent price? If I am going to work, am I going

to get a decent job at a decent wage? If I am going to try to grow

a business, can I grow a business? The second thing young people

is ‘‘do I want to,’’ and that is quality of life. Is there going to be

good education for our kids, is there going to be good health care?

This is a really important hearing, and I am very apologetic about

being in and out.

A special welcome to you, David. David is from Luverne and is

the manager and also a member of CORN-er Stone Farmers Cooperative, in Luverne. This is a farmer-owned cooperative that processes corn into ethanol through AgriEnergy LLC. David is also a

farmer. He grows corn and soybeans on 500 acres, and in some

ways that is what it is all about as we look to the future of Minnesota.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Senator Wellstone.

4

Senator Baucus.

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

MONTANA

Senator BAUCUS. Thank you, Mr. Chairman. I appreciate your

moving swiftly on the Farm bill. The plight in much of my State

is very similar to that in Minnesota, and also other States. Our

people are hurting, and they are hurting severely.

I might also say that the subject of today’s hearing is of particular importance to my home State. We have the lowest wage percapita income in the country, the lowest, 50th in the Nation. We

rank 47th in earned and unearned per-capita income. We were

10th in 1946, we were 38th about 6, 8, 10 years ago; now, we are

last, 50th. Yes, lower than DC. That includes DC. We are the lowest.

That is due primarily to a lot of reasons. I won’t go into all the

reasons, but a lot of it has to do with transition, with the pressures

of globalization, transition from a natural-resource-based commodity State—agriculture, forest products, mining—to a modern society

where those industries comparatively don’t earn the same rate of

return as do others, such as financial services and high-tech industries, software, and what not.

When we talk about a farm bill, which is our No. 1 industry, agriculture, still, thank goodness, it is not only the basic commodity

provisions and support provisions, the safety net, et cetera; it is

also all of the related development issues that are so important, so

integral and so tied to, I am quite confident, not only my State,

particularly eastern Montana, but all other rural areas in the country, and most particularly rural areas that are really rural; that is,

with a great distance between communities, between farmers.

The population density of the State of Montana is six people per

square mile. ‘‘Rural’’ west of the 100th meridian is really ‘‘rural’’

because it doesn’t rain, and when it doesn’t rain, there just aren’t

quite as many people. When there aren’t quite as many people, it

is harder to connect the dots and cross t’s and develop the enterprises that boost incomes.

We are really struggling. I won’t go into all the things we are

trying to do in our State to try to turn that around, but one thing

we did is I put together a large economic development conference

and we highlighted Ireland. We brought some people from Ireland

over because Ireland about 10, 15 years ago was a basket case. We

brought the Irish who put this together in Ireland and they explained some of the ideas that they had that might be appropriate

for Montana.

I might say that the essence of the Irish success story is really

several-fold. One is they did get some assistance, but not a lot,

from the EU. They attracted high-tech companies primarily

through education. They trained their people to the next higher

level of skill sets so they could attract the Microsofts of the world,

and so forth, to come there.

Now, they didn’t have any money to put into education, so what

did they do? The ‘‘then’’ generation pulled themselves up by the

bootstraps and they sacrificed. They just paid for it because they

5

knew Ireland was going to have to change and they knew their

kids had to have better lives.

All I am saying here is that when we put together a farm bill,

there are just so many ways where we have the obligation not to

just turn the crank and put more dollars into various programs,

but we have to think very creatively, recognizing how much the

world economy has changed.

I might say that USDA rural development programs have been

a lifeline in the meantime for our State’s economy, even though I

said our wage per-capita income is last in the Nation. Between

1994 and 1999, USDA successfully used its resources to provide

over $500 million for business development and for housing and

community activities in our State.

I am the chief architect in the Senate, along with the late John

Chafee, and John Warner, of the last highway bill, the 1990 highway bill. That makes a big difference to a State like Montana to

have highways that aren’t full of potholes and that work, and it

has helped our State tremendously. We need a lot more. Highways

alone aren’t going to do it, and commodity support alone isn’t going

to do it.

Help for co-operatives and really being creative in helping cooperatives is one way, and securing the necessary capital. I hear

over and over again how smaller entities, smaller entrepreneurs

just can’t find the capital to begin to put together something in a

community, say, in eastern Montana, a canola plant or something

just to get things going, get things started. We certainly need some

technical assistance; that is helpful, too.

Equity and capital is one of the biggest stumbling blocks I am

finding in our State. The assistance programs, the Business and Industry Guarantee Loan Program is widely used. It is very helpful.

That program provides up to 80-percent guarantee. It does help,

but I hear more and more the need to leverage to get still more

capital available in Montana.

As we work together, Mr. Chairman, I just want to emphasize

those needs and that our communities have great infrastructure

needs, too. It is water, it is sewage; all of these come together.

I might also add help for our Indian nations. We have to work

together, tribes and State, local and Federal Government. The days

are past when we try to get into these big issues of who is more

sovereign than the other, and so forth. Rather, the question is how

do we work together because we all are part of America.

I encourage us, as well, to work not only on traditional programs,

but also to spend some emphasis on Native American lands and

our tribes. They are ready. They, too, are going through tremendous change and it is positive.

In summation, Mr. Chairman, I just want to thank you for holding this hearing. It is really critical. I just want to thank all of you

who are here testifying. You have a lot of ideas and you have a lot

of experience. My only suggestion is, as we move ahead, that we

engage in some mind-bending here and really listen to people at

home so we have a better idea how to make the fit and provide the

resources that they really need.

Thank you.

6

The CHAIRMAN. I thank the Senator from Montana. I want to

thank him for being a very great member of this committee, and

recognize that the Senator from Montana also wears another hat

as the chairman of our Finance Committee. Working together on

some of these rural development issues will be most important in

both of our areas, and you can help us develop what we can do in

agriculture and hopefully some things may spill over into the Finance area and we can work together on that.

Senator BAUCUS. Sure. Thank you, Mr. Chairman.

The CHAIRMAN. We are glad to have the chairman of the Finance

Committee on the Agriculture Committee, aside from being a personal friend.

Senator BAUCUS. Thank you, Mr. Chairman.

The CHAIRMAN. Senator Baucus and I came to Congress together

in 1974.

Senator BAUCUS. Yes, Watergate babies.

The CHAIRMAN. I won’t talk about that, but it is true.

Senator BAUCUS. Thank you.

The CHAIRMAN. Thank you, Senator Baucus.

Senator Dayton.

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

MINNESOTA

Senator DAYTON. Thank you, Mr. Chairman. I don’t have an

opening statement. I would like to hear from the panel, but I would

like just to thank you and congratulate you on really an outstanding set of hearings this month. The breadth and the scope of the

topics we have covered, from conservation to economic development, as well as the essential underpinnings of the farm program,

has been very, very enlightening and the breadth of it has been

very impressive.

Thank you.

The CHAIRMAN. Well, I too want to thank the Senator from Minnesota for being such a diligent member of this committee and

being present at almost all of our hearings that we have had here

and having input into these hearings. I appreciate that very, very

much.

Senator DAYTON. Thank you. It has been an excellent tutorial for

me.

The CHAIRMAN. For all of us.

Senator Lugar’s statement will be made part of the record.

[The prepared statement of Senator Lugar can be found in the

appendix on page 34.]

Now, we turn to our panel and we will start here with Mr.

Kolsrud and just work across. I will introduce each of you as you

come up. I ask you, if you could, to limit your comments to about

five minutes. We will use a light system here, I hope, if it works

today. If you take about five minutes to just sum up what you

think your major points are, all of your statements will be made

part of the record in their entirety, and then at the end we can

have time to open it up for a general discussion.

First, we will turn to Mr. Kolsrud. Senator Wellstone introduced

him earlier, but I am told that he only lives about five miles from

Iowa anyway. In Iowa, we say that it just as good.

7

Mr. Kolsrud, welcome to the committee.

STATEMENT OF DAVID KOLSRUD, CORN-ER STONE FARMERS

COOPERATIVE, LUVERNE, MINNESOTA, ON BEHALF OF THE

NATIONAL COOPERATIVE BUSINESS ASSOCIATION

Mr. KOLSRUD. Thank you, Mr. Chairman and committee members. It is a great pleasure to be here today and it is an honor to

testify in front of this committee on behalf of the National Cooperative Business Association in support of new equity capital for rural

America.

As I was introduced, my name is David Kolsrud. My wife and

farm 500 acres of corn and soybeans in southwest Minnesota, and

we live five miles from Iowa and one mile from South Dakota.

I am manager of CORN-er Stone Farmers Cooperative. It is a cooperative in extreme southwest Minnesota that has a corn-into-fuel

ethanol plant, and we have members in South Dakota and Iowa

who are working with us or our members to help make corn fuel

ethanol in Luverne at a plant called AgriEnergy LLC, of which the

co-op owns 68 percent.

CORN-er Stone is a member of the National Cooperative Business Association, which represents co-operatives across all industries, including agriculture. Last year, NCBA organized a coalition

to build a consensus on a solution to the extreme shortage of equity

capital in rural America. Several of those coalition members are

also testifying here today.

The result of the coalition effort was the National Rural Cooperative and Business Equity Fund Act, introduced by Chairman Harkin, Senator Craig and several members of this committee in the

106th Congress. It was also included in S. 20, introduced by Senator Daschle and others earlier this year. The Act is supported by

a diverse coalition, including organizations representing electric

and telephone co-operatives, both co-operative and private lenders,

and farmers.

Mr. Chairman, Senator Daschle and members of this committee

who have cosponsored this legislation, we thank you for your leadership and your support. Now, we are asking you to include this

legislation in the next Farm bill.

From my perspective as a farmer, a cooperative business owner

and resident of rural America, I can tell you that this is one of the

most important things this committee can do to have a lasting and

positive impact on rural communities. Raising equity is a daunting

task for all rural businesses, regardless of how they are organized

or what they produce or where they are located, but it is particularly hard for new farmer-owned co-operatives.

In my view, the lack of equity capital is among the most significant barriers to further economic growth in rural areas. Let me illustrate by using a personal example. CORN-er Stone Farmers Cooperative is a new-generation co-op. New generation co-ops are different than other co-operatives or the traditional co-ops because the

farmers commit cash and commodities to the co-op in order to process them, and they hope to get value back out of those products by

owning the facilities in which they process them.

The bottom line is that farmers bear a disproportionate amount

of risk in these new-generation co-operatives to receive a potential

8

reward for investing in them. As a result, high capital requirements coupled with a limited number of pool investors—that is,

farmers who have limited resources that are stretched even thinner

when the farming economy is depressed—that combination limits

the ability of new-generation co-ops to generate equity, which creates barriers to developing value-added co-ops and other ventures.

Despite all these challenges, in 1995 a group of farmers in southwest Minnesota got together to form CORN-er Stone Farmers Cooperative, with the goal of building an ethanol plant. We spent two

years trying to raise the equity and secure the financing for the

$21 million plant. It was nearly an impossible task. The goal of our equity drive was $9 million. We raised $3 million from 201 farmers, or $15,000 per member. It was not enough. Ultimately, with the help of Stearns Bank, local banks that provided

subordinated debt, private investors, help from the city of Luverne,

a guaranteed loan from USDA, and $4 million in personal guarantees, some of which was done by farmers who put up their homes

and farms as collateral in order to secure the loan to build

AgriEnergy LLC, that is what it took to build our plant.

After we got it built and running, in our first three years of oper- ation we have generated over $50 million of additional revenue,

most of which stays in the community. We have created 28 highpaying jobs and returned a dollar per bushel over the market price

to our farmers. It almost never happened. Why? Because we

couldn’t raise the equity.

There are hundreds of examples of how equity barriers limit development of new rural businesses and expansion of existing ones.

Fortunately, there is a solution, and part of the solution is including the authority for a new source of equity capital for rural America. Part of this would be in a new bill.

This legislation should contain the following provisions. It should

provide a private corporation with the flexibility to manage the equity fund in a way that is both financially sound and good for rural

communities.

It should provide for incentives to attract private investment in

the fund, including a Federal match and guarantees on investment.

It should be governed by representatives of the fund’s investors and

the Department of Agriculture.

It should target equity investments on a variety of rural businesses, both farm and non-farm. It should require that businesses

applying for the equity be sponsored by a local entity, such as a

bank or development council. It should require that the equity fund

receive and invest a substantial amount of their own equity.

Mr. Chairman, my written testimony includes additional comments for legislation that would help expand the co-ops, but let me

close by saying this. Members of rural co-operatives and other rural

Americans are not asking for the Government to do it all. We want

to own our own future. We want to capture downstream revenue

through new ventures, and we want to invest our own financial resources and assets to make it happen. Too often, it isn’t enough.

A new source of equity capital will help fill that gap and make the

difference.

Mr. Chairman, I want to thank you again for the opportunity to

testify here today.

9

[The prepared statement of Mr. Kolsrud can be found in the appendix on page 41.]

The CHAIRMAN. Mr. Kolsrud, thank you very much for an excellent statement.

Now, we turn to Mr. Ron Phillips, of Coastal Enterprises, Inc.,

of Wiscasset, Maine. Welcome to the committee.

STATEMENT OF RONALD L. PHILLIPS, PRESIDENT, COASTAL

ENTERPRISES, INC., WISCASSET, MAINE

Mr. PHILLIPS. Thank you very much, and thank you for inviting

me to testify today as you craft development policy for the important 2002 Farm bill.

My name is Ron Phillips and I am president of Coastal Enterprises, a community development corporation and community development financial institution based in the rural coastal village of

Wiscasset, Maine. I have submitted a written statement and I will

make a few verbal remarks and offer some recommendations.

I am here today representing an informal coalition of rural nonprofit organizations coordinated by the National Rural Housing Coalition that are working to promote Federal rural development policies. I also serve on the boards of the National Congress for Community Economic Development, the National Community Capital

Association, and the Rural Advisory Council of Local Initiative

Support Corporations. These organizations represent some 2,000

CDCs and CDFIs working in rural America to do the kind of development work we are talking about.

In fact, the Rural LISC organization, Senator Harkin, has a campaign going nationally called the Stand Up for Rural America Campaign. I have one bumper sticker here for you. Maybe we can get

some more for the rest of the committee members.

The CHAIRMAN. I would like to have that.

Mr. PHILLIPS. This campaign alone has helped to generate a lot

of attention, especially from the private banking system, to devote

resources to rural America.

With over 20 years of rural economic and affordable housing experience, we have helped unleash entrepreneurial talent and created new jobs and housing for thousands of Mainers. We have invested and leveraged over $350 million.

CEI has been involved with USDA programs since the early

1980’s and one program very important to us in the Intermediary

Relending Program. With $11 million in what we call IRP financing alone, CEI has generated over $60 million in capital for 117

rural businesses in wood products, seaweed and fish processing,

manufacturing, child and foster care services, and new information

and environmental technology firms employing over 2,500 Mainers.

One recent project in Washington County was Washington County Psychotherapy Associates. With support from the town of Calais,

the IRP program, rural development, CEI and Key Bank, a financing package of over $2 million was put together to create a 20-bed

treatment center for troubled youth. The project not only met a

much-needed service in the community, but created economic impact by renovating an idle former Hathaway shirt factory facility,

keeping scarce dollars for the service in-State, and importantly

10

keeping the kids in a community familiar to them. This is the kind

of impact USDA programs are having in our rural communities.

There are still huge challenges that lie ahead, however, and

much-needed resources to meet these challenges. There are 54 million people living in rural America, 16.8 percent of whom live in

poverty. While the Farm bill is a critical piece of legislation for

American farmers, it must also address issues facing rural residents, 90 percent of whom derive their income from a non-farm

economy.

A startling fact is that despite the recent economic boom, the average rural worker earns less than in 1979. Even as startling, of

the 250 poorest counties in America, 244 are rural. Some 2,000

rural CDCs nationwide have vast potential to assist Federal efforts

in revitalizing rural places. Our development financing is directed

to value-added farm, fish and forest product enterprises, small

businesses, affordable housing, child care facilities, education, job

training, health care, nutrition and hunger reduction, elder care,

and arts and cultural programs.

USDA is the only Federal agency with a mandate to provide comprehensive assistance to America’s rural areas who can’t simply

turn to their tax base to fund their development. USDA’s very good

housing, business, water and utility programs are perennially underfunded and over-subscribed.

One statistic I came up with researching this testimony was that

the USDA’s appropriation has been reduced over $500 million a

year, and no other Federal agency has picked up the slack. In addition to dwindling Federal resources, private capital investments

over the last decade have predominantly flowed to a few urban and

suburban areas.

Let me try to go over some recommendations which are important for the committee to consider for the Farm bill. With this next

farm bill, Congress has an opportunity to lay out a vision of rural

America that captures our ideals of what rural America can be, a

place where we live, a place where we work, and a place where we

recreate. We must expand our way of thinking about resources we

spend and the priority we place on how policies affect rural areas.

I have four recommendations for you.

We urge the committee to take a bold action to support what we

are calling the rural endowment initiative. Our coalition is putting

together this concept and we are very glad to work with the committee on this. We believe we could put together a funding program

for mandatory funding building on decades from lessons learned

from Government programs and community-based development

strategies. This initiative could spur the creation of long-term assets in our farm and rural communities.

I read in the New York Times the other day on the front page

that one of the biggest and hottest and fastest growing sectors for

rural economies are State prisons. They quote a statistic here that

of the 245 new State prisons that have been constructed in recent

years, 212 of them are in rural communities. They are faster-growing than Wal-Mart. We need choices and the rural endowment initiative could give such choices.

We urge the committee to increase authorizations to USDA programs that they already have ongoing, such as the Intermediary

11

Relending Program, the Rural Business Enterprise Program for

Micro Enterprises, and the Rural Business Opportunity Grant to

help communities and organizations plan for their futures. Our

own State Office of Rural Development has offered recommendations that are consistent with these that I am giving you.

We urge the committee especially to create a rural venture capital finance program. I am glad my colleague has brought that up,

and it was mentioned by one or two Senators earlier. This could

be similar to the SBA’s investment program, the SBIC program,

hopefully a little bit more flexible, or the United States Treasury’s

Community Development Financial Institute Program.

It really is astonishing that the USDA does not have an equity

finance program. It really should do this. There is one bill, Senate

bill 3242, that would establish a national rural cooperative and

business equity fund, and we would simply urge that community

development organizations have a way of participating directly in

it. We would be very glad to work with you on that.

Finally, we urge the committee to mandate the establishment of

an assistant secretary’s working group on rural development. Rural

issues, policies and programs that affect rural America are far too

often relegated to the back burner in Washington.

We just got selected by the SBA to run their new Markets Venture Capital Program, a lot of which is affecting rural communities.

Just as an example, the way they set up the rules and the criteria

for what rural communities can participate don’t really reflect how

rural life exists. We just need some way to get access to and get

people listening to us on how to create criteria, what eligibility is

all about in rural America.

Basically, this concludes my testimony. Thank you very much for

this opportunity.

[The prepared statement of Mr. Phillips can ber found in the appendix on page 49.]

The CHAIRMAN. Thank you very much, Mr. Phillips, for your excellent testimony and for being here today. I will want to explore

further with you the idea of the rural endowment initiative.

Next, we turn to someone who is not a stranger to this committee, Mr. Chuck Hassebrook, from the Center for Rural Affairs, from

Walthill, Nebraska.

Welcome back to the committee.

STATEMENT OF CHUCK HASSEBROOK, CENTER FOR RURAL

AFFAIRS, WALTHILL, NEBRASKA

Mr. HASSEBROOK. Thank you, Mr. Chairman and Senator Dayton. I appreciate the opportunity to testify today because this farm

bill really presents an opportunity to make a profound difference

for rural America.

We are in the midst of an opportunity crisis in the farm and

ranch communities in our region. Farm and ranch counties in our

region, in the States of Iowa, Kansas, Minnesota, Nebraska and the

Dakotas have poverty rates that are 50 percent higher than our

metropolitan counties.

Most people don’t recognize this, but of the Nation’s 20 lowestincome counties, half are farm and ranch counties in Nebraska and

the Dakotas. The Nation’s two lowest-income counties are NeVerDate 11-MAY-2000 10:46 Feb 19, 2003 Jkt 084598 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 84598.TXT SAG1 PsN: SAG1
12

braska farm and ranch counties. That, in part, reflects the dependence of these counties on agriculture. They don’t have the natural

amenities to become tourism centers. They are not located so as to

become centers for growth in manufacturing.

The contribution of agriculture to rural community development

is declining. The farm and ranch share of profit in the food system

is falling at a rate that, were the trend line extended to the year

2030, the farm and ranch share of food system profit would be zero.

We are losing our young. The number of beginning farmers, of

farmers under the age of 35, has fallen by 60 percent over the last

20 years.

There is also a positive side. There are opportunities for these

communities. Segmentation in markets in creating opportunities

for family farmers and ranchers to earn premiums for producing

food in ways that make it worth more to consumers. There was a

Successful Farming and Better Homes and Gardens survey of consumers reported recently that demonstrated that 57 percent of

American consumers say they would pay a premium for pork produced on a small family farm, and 71 percent say they would pay

a premium for pork produced on a farm that is environmentally responsible. That is an opportunity.

There is also opportunity, I believe, in the explosion of knowledge. We are becoming a knowledge-based society in which opportunity is primarily going to be—at least genuine opportunity is primarily going to be available to those who apply knowledge. To the

extent that we focus on embodying knowledge in new products to

sell to farmers, it is primarily going to be the input sector that benefits.

To the extent that we can focus our efforts on developing new

knowledge and developing new production systems that enable

farmers and ranchers to apply that knowledge by using more of

their management and skills to cut input costs and produce products that are worth more to consumers, then we can create opportunity in rural America and turn that declining farm and ranch

share of profit around.

The final opportunity, in my judgment, lies in entrepreneurship.

The farm and ranch counties in our region have twice the rate of

self-employment as metropolitan counties. In Nebraska farm and

ranch counties, 70 percent of the net job growth over the last decade was in non-farm self-employment. That presents an opportunity, but by and large our rural development programs have not

focused on promoting small-scale entrepreneurship.

We propose to change that. First, we propose an agricultural

community revitalization initiative that would commit $500 million

of mandatory spending, less than two percent of what we spent last

year on direct payments for relief, and commit that to long-term solutions for farm profitability, to initiatives that assist farmers and

ranchers in earning a fair income from the marketplace by responding to consumer demand and initiatives that support new enterprise development in rural communities.

We are proposing that this be a regionally administered program

that is regionally responsive and that makes competitive grants to

the best ideas that come forward to increase the farm and ranch

share of profit in the food system and to increase self-employment

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opportunities in farming and ranching and in our agricultural communities.

Second, we propose a beginning farmer and rancher initiative

that would include refining and strengthening some of our existing

credit programs for beginning farmers, but that would also take

some innovative approaches that provide technical assistance and

training in business management and business planning and ecommerce for beginning farmers, and incentives for retiring farmers to work with beginning farmers by leasing their land or their

facilities to the beginning farmer.

Finally, we propose a set of initiatives to support small business

development in agricultural communities. We propose that the

Intermediary Relending Program be expanded to $100 million

through mandatory funding, and that a portion of that be set aside

for the smallest businesses, businesses with five or fewer employees, and that it not only be available to provide loans, but that it

also be available to provide technical assistance and training in

business management, business planning, e-commerce and things

like that, because we can often get our biggest bang for the buck

in those types of initiatives.

One other change in the Intermediary Relending Program is we

would revise the prohibition on loans for agricultural production so

it no longer prohibits loans to farmers and ranchers to add farmrelated businesses like a cheese plant to their farming operation.

Finally, we propose an initiative to encourage savings to support

small business development. As part of that, we would revise the

Rural Business Enterprise Program to support individual development accounts so that the Federal Government could match money

saved and placed in an individual development account by low- and

moderate-income rural people to be used ultimately to start a new

small business. We think these types of initiatives can really unleash some of the entrepreneurial spirit in rural America.

It is time to close, but my key point is that we have underinvested in entrepreneurial approaches, and by committing a small

portion of the baseline of mandatory funding we can create a big

increase in support for entrepreneurship and make a very big boost

for rural community viability.

Thank you.

[The prepared statement of Mr. Hassebrook can be found in the

appendix on page 60.]

The CHAIRMAN. Thank you very much, Mr. Hassebrook; as usual,

a very provocative and strong statement. I appreciate that.

Next, we turn to Ms. Karen Dearlove, of the Indiana Association

of Regional Councils.

Ms. Dearlove, welcome to the committee.

STATEMENT OF KAREN DEARLOVE, PRESIDENT, INDIANA

ASSOCIATION OF REGIONAL COUNCILS, JASPER, INDIANA

Ms. DEARLOVE. Thank you, Chairman Harkin and honored members of this committee, for the opportunity to testify today on behalf of my rural local elected officials, the Indiana Association of

Regional Councils and the National Association of Development Organizations on the importance of a strong rural development title

within this next farm bill.

14

I am Karen Dearlove, seventh-generation Hoosier and Executive

Director of Indiana 15 Regional Planning Commission for the past

11 years, during which time we have been awarded four national

innovation awards. I am not serving my second year as the President of the Indiana Association of Regional Councils, and this fall

I will start my seventh year on the board of the National Association of Development Organizations.

Serving a 6-county rural region, Indiana 15 develops and administers a variety of State and Federal grant and loan programs for

communities facilities, economic development, rural transportation,

comprehensive land use planning, historical preservation, tourism

development, business development, and natural disaster recovery

projects. We also provide technical governmental services, including mapping and geographic information systems and the codification of municipal ordinances.

On the local level, my board of 43 directors consists of county

and municipal elected officials, business leaders and citizens to govern Indiana 15. This board structure inherently makes Indiana 15

and my peer regional development organizations responsive to local

needs and accountable to local elected officials.

The Indiana Association of Regional Councils represents the 11

regional development organizations at the State level, while NADO

represents a national network of 320 regional organizations that

provide professional and technical assistance to over 2,000 counties

and 15,000 small cities and towns.

This afternoon, Mr. Chairman, I want to briefly cover three main

points on the Nation’s current rural development programs.

First, the current structure of Federal assistance programs fails

to adequately provide rural communities with the tools to develop

sustainable economies. When examining the different types of Federal assistance targeted to urban areas versus rural areas, an

alarming trend is revealed.

While urban communities receive a substantial amount of direct

Federal grant funding for infrastructure development, such as

HUD’s Community Development Block Grant and the Department

of Transportation’s highway and transit programs, statistically the

bulk of assistance to rural communities is in the form of loans and

transfer payments, such as Social Security and ag payments.

By targeting billions of dollars in grants each year to urban

areas, the Federal Government has provided our metropolitan

areas with a distinct economic advantage not equitably afforded to

our rural communities. While urban areas are building the communities and economies of tomorrow, rural areas are struggling to

maintain the economies and legacies of yesterday, while trying to

piece together ever-shrinking, competitive grant programs and loan

programs to develop infrastructure and capacity for the future.

Second, Mr. Chairman, USDA rural development programs must

be better funded, more streamlined and more flexible to meet local

needs. Support for water and wastewater infrastructure still ranks

as the overwhelming No. 1 need of rural communities by recent

surveys of both the National Association of Development Organizations and the National Association of Counties.

Funding for transportation, advanced telecommunications and

local capacity-building also ranked high on these lists. In addition,

15

rural areas also need quality schools, affordable health care and accessible child care to attract and retain viable, sustainable industries.

As a specific example of the assistance provided by regional development organizations, Indiana 15 brought together partners to

establish the Crawford County Day Care and Youth Service Bureau Alternative School Project. This joint facility now provides

over 170 children and youth with a variety of services for one of

the most economically distressed counties in the State of Indiana,

and after three years of development efforts the only public day

care now exists. The programs of the Youth Service Bureau have

been expanded, unfortunately without funding or in partnership

with USDA due to a lack of sufficient funding for the Community

Facilities Program.

Third, and finally, Mr. Chairman, the next Farm bill should include a new program focused on building the long-term capacity of

rural areas. Study after study by Federal agencies and universities

have concluded that additional funding for capacity-building and

technical assistance programs is one of the most pressing needs

facing rural local governments. It is often difficult for the Nation’s

14,000-plus rural communities to access either public or private

sector funds theoretically designed to assist in community and economic development efforts.

Unassisted, rural communities have an extremely time dealing

with burdensome, complicated and frequently illogical paperwork

or procedures required to apply for Federal funds. One solution is

to implement the proposed rural impact program, a multi-county

approach to local capacity-building that would ensure that Federal

dollars are maximized in rural areas, while affording communities

the flexibility and authority necessary to overcome the ever-changing challenges of rural America.

For example, from 1999 to present, Indiana 15 has assisted local

governments and not-for-profits with more than 60 projects totaling

more than $40 million, while having only 6 full-time staff. Yet, Indiana 15 exists on the basis that only one-quarter of our operating

budget is funded annually by county per-capita fees and an EDA

planning grant, both of which are at the same funding level as 20

years ago. We do not, nor have we ever received operational support from USDA because such a consistent technical support and

capacity-building program today does not exist. The bottom line is

that USDA rural development programs need to be more focused

on building long-term capacity in local communities and on providing more assistance directly to local communities.

In closing, Mr. Chairman and members of the committee, I want

to thank you sincerely for inviting me here today on behalf of the

Indiana Association of Regional Councils and the National Association of Development Organizations. I would sincerely welcome any

questions you may have.

Thank you.

[The prepared statement of Ms. Dearlove can be found in the appendix on page 68.]

The CHAIRMAN. Ms. Dearlove, thank you very much. I look forward to looking more at the rural impact program that you have

proposed. That sounds pretty interesting.

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Next, we turn to Mr. Curtis Wynn, Chief Executive Officer of the

Roanoke Electric Cooperative of Rich Square, North Carolina.

Mr. Wynn, welcome.

STATEMENT OF CURTIS WYNN, CHIEF EXECUTIVE OFFICER,

ROANOKE ELECTRIC COOPERATIVE, RICH SQUARE, NORTH

CAROLINA

Mr. WYNN. Thank you, Mr. Chairman. For the record, I am Curtis Wynn, CEO of Roanoke Electric Cooperative, in Rich Square,

North Carolina. I am also representing the National Rural Electric

Cooperative Association, NRECA, which is made up of 900 not-forprofit, consumer-owned electric utilities that provide central station

electric service to more than 34 million mostly rural consumers.

I commend you, Mr. Chairman, and the committee for convening

this hearing on rural development programs, and thank you for the

opportunity to be here to testify before you. These programs are increasingly important to rural areas. Rural communities want and

deserve the same opportunities for growth that our urban counterparts enjoy.

North Carolina’s economy has seen phenomenal growth in the

last decade. However, much of that growth has been concentrated

in the urban areas. I believe that many of you have seen similar

patterns of development in your respective States. Allow me to

briefly paint a picture of one example, which is my rural northeastern North Carolina community.

For decades, several of our counties have been among the most

impoverished and underdeveloped counties in the State. Bertie,

Halifax, Hertford and Northampton Counties were also recently reclassified by the North Carolina Department of Commerce as distressed counties, and this category is more severe than depressed

counties.

Our poverty levels range above 30 percent. In many of the counties, basic infrastructure, particularly natural gas, sewage lines

and treatment facilities, is missing. The region is also isolated technologically. Television signals come in weakly from the relatively

distant big cities. Many residents lack cable service and even telephones. Few T1 lines have been run to this area, resulting in minimal local service provider options. Northeastern North Carolina is

thus on the wrong side of the digital divide, with less than 10 percent of our residents online. Legislation is needed to encourage private investment and projects that existing venture capital funds do

not accommodate.

Electric co-operatives meet community needs through their economic and community development activities. These expanded efforts create jobs and opportunity in the community and are enabled

through USDA’s Rural Economic Development Loan and Grant

Program, also known as REDLG. Over the lifetime of the program,

REDLG has provided over $140 million in loans and over $66 million in grants to rural communities. These loans and grants have

leveraged nearly $1.2 billion in non-Federal capital for 851 projects.

Over 25,000 jobs have been created.

Mr. Chairman, the REDLG program has brought significant economic development opportunities to rural America. Over the last

decade, in North Carolina the electric co-operatives have provided

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loans totaling more than $20 million which have been leveraged to

over $150 million in commercial projects, creating over 4,600 jobs.

The financing of these loans have come from private and public

sources, including $4.6 million in rural utility services loans and

$15.5 million from a cooperatively created statewide revolving loan

fund. Projects have included the building of cotton gins, renovations and expansions of medical centers, water infrastructure facilities, and industrial parks and businesses to go with those.

The co-operatives’ commitment to their communities is more

than economic development and job creation. It is also about building and sustaining viable communities. In our region, Roanoke

Electric Cooperative has taken full advantage of USDA’s REDLG

program. In just 24 months, we have closed two zero-interest loans

for $846,000. Through the REDLG program, we have helped to create nearly 200 jobs and retained another 150 jobs, and have raised

another $1.3 million from other publicly and privately funded

sources. These funds have leveraged over $11 million in investments.

Access to capital, along with a commitment to build human capacity through continuous collaboration with local governments,

non-profits, community-based organizations and faith-based organizations are allowing us to reshape a community that time has forgotten. Preparing our community puts us in line for public-private

partnerships that are so badly needed for sustained growth.

While the REDLG program has worked well over the last decade,

the funds available for loans and grants have declined over the last

six years. I believe certain changes will reverse this trend and

make REDLG even more successful in the future. I, along with our

national association, look forward to working with you, Mr. Chairman, and other members of the committee to adapt REDLG to current economic realities and to reinvigorate this very important program.

The health and vitality of rural communities is of great concern

to me personally, and of great concern to the rural electric cooperatives that serve this population. Through encouraging capital

investment in our rural communities and taking advantage of new

opportunities, rural communities can remain a vital part of the

American economy. Rural communities are worth our investment.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Wynn can be found in the appendix on page 80.]

The CHAIRMAN. Mr. Wynn, thank you very much for an excellent

statement.

Now, we turn to Dr. Deborah Markley, the Chair of the Rural

Equity Capital Initiative of the Rural Policy Research Institute, of

Chapel Hill, North Carolina.

Welcome to the committee, Dr. Markley. Please proceed.

STATEMENT OF DEBORAH M. MARKLEY, CHAIR, RURAL EQUITY CAPITAL INITIATIVE, RURAL POLICY RESEARCH INSTITUTE, CHAPEL HILL, NORTH CAROLINA

Ms. MARKLEY. Thank you, Mr. Chairman and members of the

committee. I am the Chair of the Rural Policy Research Institute’s

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Rural Equity Capital Initiative, which is a research project funded

by USDA’s Fund for Rural America.

I want to speak today about equity capital in rural America, and

it has been mentioned several times during this hearing already.

What I would like to do is to talk specifically about what we have

learned as part of this research project, after spending the last 3

1/2 years in the dirt, so to speak, studying innovative venture capital funds that have focused investments on rural businesses and

entrepreneurs in real rural communities all across the country.

There is a lot to be learned from these venture funds. We have

learned that successful rural-focused venture funds are not onesize-fits-all. There is a great deal of innovation locally, regionally

and at the State level that needs to be recognized and rewarded.

These are not traditional venture capital funds, traditional Wall

Street venture capital funds, and very often the funds that are focused on rural investments value both social as well as financial

returns.

For successful rural-focused venture funds, local intelligence is

really key. These funds have spent time and money identifying

their rural market, looking at potential deals, and when deals did

not exist actually developing entrepreneurs and businesses. Traditional venture capitalists don’t operate in rural markets because, in

part, of the lack of local intelligence that they have. It is much

harder to make good investment decisions without it.

Successful rural-focused venture funds also have skilled management teams who are close to their investments, the rural businesses and rural entrepreneurs, so they can investigate the deals

before the investment and they can provide the support and technical assistance after the investment is made. Venture capital investing is a hands-on process and it is often about providing much

more than dollars.

We have also learned that there is an important role for the Federal Government to play in supporting existing institutions and

creating new institutions within rural America. The funds we studied are small. The industry is not widespread. The cost of starting

up a rural-focused venture fund is high, both in terms of time and

money—things that are often in short supply in rural America.

What should the Federal role look like in helping to create a venture capital industry in rural America? First of all, scale is important. We need to get more venture capital into rural America. We

need to help more entrepreneurs develop new businesses, we need

to help more existing businesses in rural America grow.

Any Federal effort needs to be capitalized at a level that can help

the industry achieve this scale, and also leverage private sector

funds, a very important component of any effort. It needs to be recognized that innovation occurs at the local level. This is where the

need for venture capital is identified, this is where the local intelligence is generated, and this is where the investment decisions

need to be made.

We need to use the lessons that we have learned from looking

on the ground at venture capital institutions that are making investments in rural areas to figure out how the Federal Government

can best encourage new institutions and support the existing ones.

Any Federal support needs to come with some strings attached.

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The venture funds that receive Federal investment need to be able

to demonstrate a comprehensive strategy for identifying rural deals

and making rural investments, that they know how to get out there

and identify deals, identify entrepreneurs develop the deal flow

within rural America.

They need to demonstrate the commitment of an experienced

management team, a plan for providing technical assistance and

management assistance to their companies, and also evidence of

entrepreneurial strategies for partnering with other programs and

organizations across jurisdictions so that we can begin to reward

a regional approach to creating solutions for getting more equity

capital into rural America.

For any Federal program, rural targeting is really critical to increasing the supply of venture capital in rural America. Without

explicit targeting of investments to rural-focused venture funds, investments are not going to occur in rural America. Whether it is

by increasing the rural targeting in existing programs like the community development financial institutions funds or the new markets initiative or a new rural-focused venture capital initiative,

there needs to be rural targeting so that the money gets out to

rural-focused funds and rural businesses and entrepreneurs.

Supporting rural entrepreneurship and rural economic development contains a lot of ingredients, one of which is venture capital.

Building venture capital infrastructure in rural America is not

going to provide a silver bullet to rural communities across the

country, but without expanded access to venture capital, it is going

to be harder for rural entrepreneurs to start businesses and harder

for existing rural businesses to grow and adjust and deal with the

global economy.

There are innovative venture funds in Iowa, in Minnesota and in

Maine that are doing creative equity investing in rural enterprises.

We need to use what we have learned about their success to craft

a Federal policy to support an expanded venture capital capacity

in rural America.

Thank you, Mr. Chairman.

[The prepared statement of Ms. Markley can be found in the appendix on page 83.]

The CHAIRMAN. Dr. Markley, thank you very much. We will get

back to you. If you have a couple of specific examples, we might

go over that if you have those.

Now, on behalf of the lifeline to so many of our farmers and rural

families out there, on behalf of both the Iowa Independent Bankers

Association and the Independent Community Bankers of America,

Mr. Steve Lane, President of the Iowa Independent Bankers Association.

Welcome to the committee, Steve.

STATEMENT OF STEVE LANE, PRESIDENT, IOWA INDEPENDENT BANKERS ASSOCIATION, GOWRIE, IOWA, ON BEHALF OF

THE INDEPENDENT COMMUNITY BANKERS OF AMERICA

Mr. LANE. Thank you, Chairman Harkin, for today’s hearing on

rural development. Rural development is essential for farmers to

have an economic opportunity off the farm as well as on the farm.

20

I am Steve Lane, President of the Iowa Independent Bankers,

and also President and CEO of Security Savings Bank, a $48 million ag bank located in Gowrie, Iowa. I also represent the Independent Community Bankers of America.

We hope the new farm program will secure significant new

money for rural development. Statistics and trends reveal that offfarm jobs are of increasing importance to the farm sector. Counties

dependent on agriculture are losing population. Farm programs

and rural development need to be at center stage. Farmers are

struggling to make their operating cash-flows. The big problem is

profits and equity. Many farmers and their spouses are working off

farms 40 hours a week to cover living expenses. Rural development

is in crisis.

My town works very hard to try to attract new businesses. We

offer many incentives, one of them being exemptions from property

taxes. These incentives by themselves have not been enough. Basically, we need more money and some new programs. Success

means keeping people currently there in the communities and attracting new ones to move in. Otherwise, at some point communities are falling below their critical mass of people needed to sustain a small community.

Let me suggest four principles of rural development: target

scarce resources to rural areas based on population; provide tools

to complement the private sector; target resources to various sizes

and types of businesses, including individuals; and maintain a

rural population base and infrastructure.

In regard to targeting rural communities, let’s ensure that rural

programs target rural areas with scarce Federal dollars. This creates new jobs in the local area where people live. A population criteria would be the key to deciding where scarce Federal moneys go.

The B&I program targets loans to communities of 50,000 or less.

Second, let’s complement the efforts of the private sector. There

are about 3,000 ag banks and several thousand non-ag banks in

rural areas. Let’s be sure that these programs can be used by all

these areas.

We need to focus particularly on value-added agriculture. If we

can process more of these products in the local area rather than

shipping the commodities across the country or to large cities for

processing and packing, the local farmers will reap the benefits.

The key is locally oriented value-added incentives that help create

a better market for our farmers, and also create jobs for farmers

who need off-farm income.

Mr. Chairman, I would like to applaud you for the legislation to

establish a rural equity fund. A broad coalition supports this bill

to spur businesses and cooperative development. The rural equity

fund will encourage private investment in value-added agricultural

enterprises and small business startups and expansions.

As you know, large venture capitalists are not interested in rural

America. This legislation creates a private-public partnership designed to attract equity investment to co-operatives and other businesses and ventures in rural America. The funds would be capitalized by investments from private sector institutions, and the Government would match these moneys up to a specific level.

21

From a banker’s perspective, there funds could provide equity financing to help complete the loan package or debt financing for the

banks. The intent is to target rural businesses in rural areas. The

need for more equity financing in rural America was highlighted by

the Center for the Study of Rural America’s 1999 report on the

topic. Let’s put this into the Farm bill.

My written statement has other suggestions. These include prohibiting USDA from raising fees on B&I programs to 3.25 percent,

eliminating fees for all users of B&I programs, including targeted

funding and authorities to B&I programs for smaller-size business

loans with streamlined applications, and providing incentives for

banks that promote and develop value-added agriculture.

Mr. Chairman, rural development should be a key part of our

new farm bill, a working partner to build a stronger farm safety

net. Off-farm jobs go hand-in-hand with a new and improved farm

bill in accomplishing the goal of keeping farmers on the land and

keeping Main Street vibrant and keeping rural America healthy.

Thank you.

[The prepared statement of Mr. Lane can be found in the appendix on page 91.]

The CHAIRMAN. Steve, thank you very much for your great leadership in my State and nationally, and thank you very much for

a very excellent statement. I appreciate it very much.

Now, we will conclude with Mr. Jack Cassidy, Senior Vice President of CoBank, of Greenwoodville, Colorado.

STATEMENT OF JACK CASSIDY, SENIOR VICE PRESIDENT,

CoBANK, GREENWOODVILLE, COLORADO

Mr. CASSIDY. Thank you, Mr. Chairman. I appreciate the opportunity to appear before the committee today and testify on this important initiative.

My name is Jack Cassidy. I am Senior Vice President for Board

and Corporate Relations with CoBank. We are headquartered in

Denver, Colorado, but we operate throughout the United States,

and also have an international program as well.

With $24 billion in assets, CoBank is the largest bank in the

Farm Credit System. We provide financial services to about 2,600

customers, who are also our member-owners. These member-owners are all corporate enterprises that include farmer-owned cooperatives, rural water systems, telecommunications companies,

and electric systems. We also provide financing to support the export of agricultural products.

CoBank works with many other financial institutions, including

commercial banks through syndicating and purchasing loans.

These alliances with other financial institutions help us meet the

growing needs of the many businesses we serve. In the past 18

months, CoBank has acted as the agent for $4 billion in loans sold

to other lenders. We also purchased $2.5 billion in loans from other

lenders.

I would add that that facilitates the flow of capital to these rural

areas. Most of these businesses are very rural-oriented, and so our

ability to work with other lenders on these activities helps move

that capital to those communities.

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This partnership of commercial banks and other lenders brings

new sources of capital to meet the needs of rural businesses, while

at the same time spreading risk among the lenders. We consider

the development of these alliances with other lenders as critical,

and have plans to place even greater emphasis on this area in the

future.

Unfortunately, many rural communities have not shared in the

prosperity of the 1990’s. It has been difficult for many rural businesses to obtain the necessary equity capital, as others have already noted, and to grow and create new market opportunities and

new employment. In addition, rural communities often do not have

access to technology and communications systems that are vital to

economic growth, as Mr. Wynn noted in his area.

I would like to comment on four areas of policy recommendations

for the committee to consider.

First, we think it is important that the rural co-operatives be acknowledged in advancing the economic interests of rural America,

and we would like to mention a few steps that can be taken to

strengthen the role of co-ops, especially in the area of value-added

initiatives.

Second, we would make a couple of comments about CoBank’s

authorities and adjustments that might make it easier for us to

serve some of these rural businesses and communities; third, talk

a little bit about equity capital in rural America; finally, improvements that might be made to the USDA B&I loan program.

With regard to value-added businesses and co-operatives, for decades CoBank customers have been leaders in marketing and processing agricultural products to obtain a greater share of the consumer food dollar for the American farmer. We believe strongly, as

do our member-owners, that value-added initiatives are one of the

keys to a prosperous farm sector.

We would suggest some adjustments to existing Federal programs that could help support farmer-owned value-added enterprises. For example, we would support expansion of the ValueAdded Technical Assistance Grants Program. We would support

making a separate agency in USDA called the Farm Business Cooperative Service that would be dedicated and focused on supporting farmer co-operatives.

As part of a revitalized farm business-cooperative service, we

support funding for research, education and technical programs for

farmers and co-operatives. We would recommend that not less than

$6 million annually for cooperative grants be provided to the Farm

Business Cooperative Service.

In the international arena, we think there are some adjustments

that could be made that would help make U.S. value-added products more easily sold overseas. We have joined a long list of commodity and exports organizations in recommending legislative improvements to the USDA’s Supplier Credit Guarantee Program, in

particular lengthening the authorized program tenors from 6

months to 1 year, increasing the guarantee coverage, and reducing

the program fees and enhancing the effectiveness of this program

to assist co-ops market their products in international markets.

With regard to our own lending authorities, we would have three

specific recommendations. As noted earlier, we work with many

23

commercial lenders to sell and purchase interest in loans. All loans

purchased by CoBank must be originated by commercial lenders

that make loans to companies that are very similar to the types of

loans that we make directly to farmer-owned co-ops. This excludes

some transactions involving companies where food or fiber operations may be only part of a larger enterprise.

CoBank has been unable to participate in such loan syndications

when asked to do so by commercial banks. By allowing us to participate in such transactions, we could strengthen our existing

partnerships with commercial lenders and bring an additional

source of capital to these rural companies and agricultural businesses.

Second, under current law CoBank may provide financing to

communications companies that are eligible to borrow from the

Rural Utilities Service. However, many of the communications companies interested in providing Internet, broadband and other types

of advanced communications services to rural communities today

do not borrow from the RUS and there are not eligible to borrow

from CoBank. If we had the authority to finance such companies,

we would help ensure that rural communities would be afforded

greater access to the technology that is vital to their future.

Third, under current law CoBank can finance the export of farm

machinery and other farm-related products that are used on-farm

and in foreign countries. This on-farm requirement limits our ability to finance the sale of some U.S. agricultural-related products

simply because the foreign purchaser plans to use these products

someplace other than on the farm.

For example, we can only help a co-op sell its used packaging or

processing equipment if the foreign purchaser is going to use that

equipment on a farm. For a cooperative trying to get the best price

for its outdated equipment, there is little concern about whether

the equipment will be used on the farm or somewhere else, and we

would recommend that change.

With regard to the equity capital and venture capital, many others have commented on that. I would just commend the chairman

and this committee for the efforts that have been made in that

area. We strongly support the rural equity legislation that has been

introduced, the Harkin-Craig bill, and we are pleased to be part of

the coalition that would like to see that legislation adopted.

The final comments I would make relate to the B&I loan program. I associate myself with the comments that Mr. Lane has

made. Our comments would be very similar. We have worked with

the National Council of Farmer Cooperatives to come up with some

other recommendations that would make the B&I loan program

particularly more helpful to farmer-owned co-ops.

We would like to see the maximum loan guarantee increased. In

today’s environment, if you want to have a big job-creating company, a $25 million limit is somewhat restrictive. We would like to

see the minimum loan guarantee of 90 percent put in place for

most co-ops and eliminate the geographic restrictions in the case

of farmer-owned and value-added products.

Many of our farmer-owned facilities are located in areas that

cannot really be described as rural, but because they are farmerowned facilities, even if they are located in an urban area, the benVerDate 11-MAY-2000 10:46 Feb 19, 2003 Jkt 084598 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 84598.TXT SAG1 PsN: SAG1
24

efits flow back to the farmers in the rural communities, and the

current geographic and population limitations that exist create

something of a problem.

Finally, as part of the Farm Credit System, I would note that

CoBank is a key link in channeling private sector funds from the

Nation’s money markets to businesses operating in rural America.

In recent years, Congress, through various initiatives, has greatly

expanded the authorities of commercial banks and provided them

with virtually unlimited access to GSEs through the Federal home

loan bank system and the Federal Agricultural Mortgage Corporation.

Congress took these actions as part of an effort to make more

capital available to rural America. Congress has an opportunity

with this farm bill to take additional steps to make capital more

available by providing needed updates to Farm Credit’s charter and

considering innovative ways to facilitate the ability of lenders to

work together to meet the needs of our rural communities.

In closing, CoBank is committed to rural America. Our slogan is

‘‘CoBank-Rural America’s Cooperative Bank.’’ Those are more than

just words to us. We live by that slogan and that is who our customers are. Those are the people who own the bank, and we appreciate this opportunity to be here today and present this testimony

to the committee.

I would be happy to answer any questions. Thank you, Mr.

Chairman.

[The prepared statement of Mr. Cassidy follows can be found in

the appendix on page 101.]

The CHAIRMAN. Mr. Cassidy, thank you very much. Thank you

all for very succinct and very pointed statements. As I said, your

entire statements will be part of the record.

At the outset, I also want to request of each of you that as we

proceed ahead into this fall that you continue to give us the benefit

of your suggestions, advice and input as we develop this farm bill.

We will, to the best of our ability, try to keep in contact with you

either through the organizations some of you are representing here

or individually, as the case may be, to try to keep you up to date

as to what the progress will be on the Farm bill.

The House has finished their work on the proposed new farm

bill. I have not really had a chance to look at it yet. I only know

what I read about it, but it seems to me that there really wasn’t

a lot of attention paid to the rural economic development portion

of a farm bill. It just sort of continues on with what we have been

doing.

I read your statements before and looked at them again here

while you were talking today, and as I understand it, most of you

are saying we have had a fairly good basis in the past, we have

done some good things in the past, but we have entered a new era

and many of the programs and things we did in the past aren’t

keeping up; that we have to find some different ways of getting

capital and getting support out to rural areas for value-added. That

was not something that was around much either in concept or actuality a few years ago. The whole idea of Internet access, broadband

access in rural areas is something that is new.

25

How we provide the kind of planning and support—a couple of

you referred to that, about how it is not just important to get the

money out, but many of these areas lack the kinds of resources to

adequately plan, take an assessment of the possible areas of economic development in their areas and put together good proposals.

A lot of these are kind of farmed out to different entities, I guess.

I am interested again in thoughts you have on how we provide

more help and support for the planning process, on how to get people together with the private sector, because obviously the private

sector has to be the engine that drives this. If you get the private

sector in to meet with these people to say, OK, here is where you

will have promising areas of economic development and growth in

your geographic area and get them really involved in this process.

I might say this, Mr. Cassidy. I am always a little concerned

about how we balance raising guarantees. Obviously, everyone

would like to have a 100-percent guarantee. If you do that, do you

really keep close tabs on what is happening?

Obviously, we want the private sector involved, but not to the

point where if everything is gone, it is all written off and we pay

for it anyway. We have seen debacles like that in the past. Somehow we have to balance that and I am not smart enough right now

to figure it out. Some way of having that support, but we need to

have the private sector keeping tabs on what is happening out

there and to keep them towing the line on some of these projects.

Those are just my general thoughts in listening to this. I intend

to make rural economic development a very integral part of the

Farm bill on the Senate side. As I said in my opening, there has

got to be more of a balance in this area of providing just straight

support to our agricultural producers, but then balancing it by providing support for the infrastructure that is out there.

We have a basis on which to go. We have experience in this area.

It is just that we have to change some of the ways we have been

doing it and provide for avenues of getting more equity capital into

rural America. That is why we have this fund up. Some of you

mentioned the rural equity fund that Senator Craig and I have

worked together on for quite a while, which I hope to put in the

new Farm bill. Again, I ask you to take a look at it. Nothing is

written in stone around here. If you have thoughts on how we

should change it or modify it or improve it, we certainly welcome

that from any of you in that regard.

The rural endowment initiative that Mr. Phillips raised is sort of

what I have been talking about, getting Federal funds to support

a planning process, and if it comes together, then a series of annual

grants to keep them implementing the plans, as I understand it.

It sounds like a good concept.

Can you tell me if there has been any basis for that in past programs or not? Is this building on something that we have been

doing in the past?

Mr. PHILLIPS. Actually, if you look at some of the work that went

on with HUD in the enterprise zones and communities, there is a

lot of emphasis on bringing everybody together to plan strategies.

Those are the good things.

The CDFI fund is sort of interesting because although they are

investing in individual CDFI institutions, they are investing in a

26

business plan which represents a widespread market development

or market strategy that involves a lot of different institutions, particularly the banking institutions. There is precedent for Federal

agencies to really support local collaboration planning. That is the

good news.

The bad news is that often communities are inspired to be

brought together by some of the Federal programs and ideas, but

there is no implementation money or flexible capital to then invest

and followup. What happens then is all the entities that are participating have to go off and access—not to demean the value of

silos, but to go after programs that are separately funded and try

to do a patchwork of putting together the actual implementation of

these local plans that come together, not that this is a perfect

world and you are going to have just a single door to go through

for the implementation grants.

For example, we have heard a lot here about individual things,

the B&I, the IDA programs, tweaking different programs that

USDA has, which are really good things to do to improve those.

Those are all the pieces. The question is can we have some kind

of way of looking at the whole as a more holistic way of following

through with funding. If you do a rural endowment initiative and

it has mandatory funding around it, it links with and coordinates

with other types of things going on. You don’t have to maybe make

separate applications; you are funding something much more comprehensive in approach. While we want to support planning, the

implementation funding for these might be separate tracks that

then just help fragment local communities.

I would also say, too, that one of the panelists here mentioned

the Federal Home Loan Bank, which is sort of an interesting thing

because there is access. What we have been doing at CEI is trying

to access private capital. We have leveraged up a lot. We have

three equity funds going and all of those are principally targeted

to northern New England, and especially Maine.

Now, most of the investment capital for those funds are private.

They are small funds and we struggle with creating our own capacity to work on enterprises and new enterprise creation, which is actually what the real challenge is in rural America. We have had

some success and we have a lot of banks to pay attention to this.

CRA has certainly driven that.

The Federal Home Loan Bank is something like a $700 billion

network of 12 regions throughout this country. I am on the board

of directors of the Federal Home Loan Bank of Boston and have

been trying to move them toward more equity investment and encouraging their membership to make more equity investment in

funds such as ours.

One of the local banks in Maine actually drew down what they

call an advance, which comes from Wall Street, and borrowed

money at a managed discounted rate so they can manage the interest rate payment back on those funds, and made an equity investment in our fund which doesn’t have a current earning.

Now, this is, as I said, a $600 or $700 billion gateway to the private capital market. If, in the Farm bill, as someone suggested, you

can focus on how we leverage those kinds of relationships through

GSE-sponsored institutions, that is just one piece of how to help

27

empower what we are doing as grass-roots groups and then make

sure implementation capital is there, which is the real problem for

these kinds of comprehensive strategies we are trying to put together.

The CHAIRMAN. Steve Lane, the independent bankers that I

know in Iowa and others I know across the country have been on

the front line of being the source of lending not only to farmers,

but to people in rural areas, small businesses in our small towns.

It would seem to me, taking your idea of leveraging—these are the

people who know the area; they know the people who bank there.

Usually, these banks have been there a long time and they know

the area.

It would seem to me that would be one way that we could leverage it by somehow getting it to our smaller community banks out

there, who don’t have a lot of deposits, by the way. They have a

lot of need for loaning, but they don’t have a lot of deposits. Somehow, if we could get access to that to get it to our banks, maybe

that might be a way of doing it.

I don’t know, Steve, if you have any thoughts on that or not.

Mr. LANE. Well, that is a good idea. Our community banks are

always looking for different access to areas of funding to help these

small entities. The problem that we have, and maybe this would

help, is the expertise in these areas. We are not involved with a

lot of these Government programs. Unfortunately, the time that

our loan officers go through to work on these loans and applications is frustrating and they don’t like to work with them.

The CHAIRMAN. I understand that. In fact, you made some mention about a low-documentation program, like SBA does.

Mr. LANE. Yes. We utilize the SBA low-doc quite a bit. It is a

program that is a 2- to 3-page application that we can fill out. We

have a 36-hour turnaround in response to other information needed

or rejection or acceptance. Some of the USDA programs that we

deal with may take three weeks to fill out the forms, and it may

take another three weeks before we hear any response back. By

that time, there is a new form that needs to be filled out. It is very

frustrating sometimes to our loan officers, where they enjoy the

low-doc SBA program. Unfortunately, the maximum is a dollar

limit of $150,000, I believe, on the small businesses.

The CHAIRMAN. What is the loan limit on some of our USDA programs? Richard tells me that the loan guarantee is $25 million. He also

says we probably couldn’t do low-doc up that high, but we could do

it someplace up there. He says we can definitely do it in the Farm

bill. There you go.

Mr. LANE. Great. We appreciate it.

The CHAIRMAN. That is a great suggestion. We could take that

mirror image to the SBA program, make it a low-documentation

program. I don’t know how high we can get it, but we can work

on that.

You say SBA is only $160,000, though?

Mr. LANE. $150,000, I believe.

The CHAIRMAN. $150,000. Well, we would have to go considerably

higher than that to make it worthwhile.

Mr. LANE. Yes.

28

The CHAIRMAN. It is a great suggestion. That is something we

could do.

One other thing I wanted to bring up was targeting of funds and,

how we allocate resources. One of the common criteria is income.

The poorer you are, the higher priority. Again, a lot of logic to that,

but then there is another proposal or another key, and that is who

is going to use the funds in the best and most effective way, who

is the most capable.

How we balance that and how we judge that, I don’t know. If you

just say what is the poorest area and put the money there, that

may not be the most viable place right now. Maybe a place that

is up a notch but they have the capability to use it and really use

those funds and they have good planning, maybe this ought to have

some weight. We are wrestling with that.

Do any of you have any thoughts on that?

Mr. Wynn?

Mr. WYNN. I would like to suggest, Mr. Chairman, that one of

the things that we are seeing in our region is just that very same

thing. We are wrestling with how do we create a capacity to handle

those things, and one of the keys that we are seeing is collaboration where groups are coming together to prove that.

You are going to find that that capacity is being created all

along, so that you can prove your case that you are ready to receive

those funds once they come to your region. Some of the smaller entities that we deal with are not in a position to make the most benefit of some of the funds. We acknowledge that, but if they can be

partnered with someone or another entity——

The CHAIRMAN. Regionalize it, you mean?

Mr. WYNN. Regionalized, and bring in collaboration. Some criteria that makes us prove that we are collaborating and working

together to the greatest extent possible would be something I would

love to see, if it is not already there. Co-ops can do a lot of that

in terms of collaborating, bringing that capacity to a region.

Mr. HASSEBROOK. I do think that one of the factors in targeting

needs to be looking at population loss because one of the best indicators that an area is devoid of economic opportunity is when it is

losing its population. That needs to be a factor as well.

We find in some programs, in a State like Nebraska, like the

Rural Business Enterprise Grant Program, because our rural areas

are losing population and are not as populated as some other rural

areas, those programs don’t really extend to States like Nebraska

in a meaningful way. We do need to find ways to direct some resources to rural areas that are facing the most severe opportunity

crisis, and part of that is being measured by population loss.

The CHAIRMAN. Yes, Mr. Phillips?

Mr. PHILLIPS. Senator Harkin, the target issue is something that

is very important and it is one that we have struggled with over

the years at CEI on how to advise the Federal Government on policies in that direction.

For us, it ought to be a ‘‘both and’’ in terms of the answer to how

one targets; that is, when ought to direct resources to the extent

possible to distressed communities and regions that have the kinds

of measures and metrics that show that more help is needed. Of

29

course, the way those resources are delivered in communities is important.

I also think people who are of low income on an individual

basis—and also when you break down census tracks, they may be

next to a more wealthy area, so pockets of poverty do not show up

when looking at rural communities. Our way of looking at targeting is to target both benefiting people as well as a place or a region. I would really strongly recommend that when we do targeting

that it is a ‘‘both and,’’ that it is not just a physical location, a

place, which I do think is important, but it is also people who reside in these places.

I am from the town of Waldoboro, in coastal Maine, with a 5,000

population. It is a very distressed community within its own right,

but it is part of Lincoln County, which is an affluent county and

has some of the richest people in the State in that area. They will

not show up on the distressed metrics when you look at that particular community.

The CHAIRMAN. Ms. Dearlove?

Ms. DEARLOVE. Another point on this is also where there is innovation going on and a lack of resources to actually bring it to fruition. Just recently, we have been a part of bringing together a coalition of a municipal electric utility, a rural telephone cooperative

and a private utility provider to implement, if we can pull it off,

actually a first of its kind telecommunications infrastructure in two

of our rural distressed counties.

The comment was made earlier about those that are not participating in the Rural Utilities Service program. We have our rural

telephone cooperative that also is not accessing those loan programs because of the bureaucracy of the paper. They will not do

it. We are looking to fill that role and provide that administrative

capacity, be the tamer of the paper tiger and pull this off.

I would like a brief opportunity to remark on telecommunications. This is an optional utility. It is high-risk when it is very

rural, and current regulatory restraints on municipal electric departments on how rural telephone co-operatives can use their equity buildup in their telephone utility don’t exactly mesh because

at this point it is still an optional utility. There is a pivotal, critical

role for the Federal Government—I would like to see it through

USDA—in rural development, be able to bridge that gap.

High-risk loans are a difficult matter. There does need to be capital infusion to make telecommunications work in these areas. The

writing is on the wall of where the private telecommunications providers are not out there. Timeframe is short, in my mind, for rural

communities to take advantage and get that infrastructure in place

because the corporation centers are already moving. Development

is already occurring on this information highway and the rural

areas are far, far behind the eight ball on this. There are opportunities, there is innovation at work, but there is a huge gap and

there is no source at this time to bridge it.

The CHAIRMAN. One last thing before we close up the hearing.

Mr. Hassebrook mentioned segmentation in markets and new markets. I see down the road in agriculture—now, I am getting back

basically to farmers—that there are going to be opportunities for,

I don’t want to use the word ‘‘non-traditional,’’ but for farming that

30

is not just geared toward production of the major crops—corn,

beans, wheat, cotton, rice—but other things.

Maybe now they are niche markets, but they may become bigger

markets in the future for food, but also for non-food items, too. Regardless of how you feel about biotechnology—and I happen to be

a supporter of biotech—there are going to be opportunities in the

future for farmers to grow biotech-engineered crops for pharmaceuticals. In soybeans you are going to see all kinds of new opportunities because of the healthful aspects of isoflavins and the

things they can derive from soybeans. I just think you are going

to see areas going in that direction.

How do we provide the kind of, first of all, research support, but

also the kind of technical and financial support for a farmer and

their family who may want to change some of their operation to

take advantage of these, but because their investments are already

in equipment that is geared toward one type of production and

their technical expertise is geared toward that production, they

really don’t know how?

If they want to, they may see an economic opportunity, but how

do you shift a part of your operation over? What do you do? How

do you operate it? How do you get access to the markets? All these

things, plus the economic support for that, may hold for existing

farmers today, but it is also true of young and beginning farmers.

They may not have any kind of capital for the big combines and

the big planters and stuff that they need to farm the 2,000 acres,

but if they could start off with 3, 4, 5, 600 acres, make a good living and buildup their capital, maybe they can get into other things.

I am looking for suggestions along that line and any thoughts

you have on how we provide that kind of support for farmers. I see

that in a rural development mode, not just for farm income, but in

a rural development mode.

You kind of touched on it, Chuck, so if you have any other ideas

on it, let me know.

Mr. HASSEBROOK. Now?

The CHAIRMAN. Yes. I have to go vote here pretty soon.

Mr. HASSEBROOK. That is what we want to do with our Agricultural Community Revitalization and Enterprise initiative—— The CHAIRMAN. ACRE. I have read about it.

Mr. HASSEBROOK [continuing]. Commit funding to that so we can

make grants to non-profits, to units of government that can be specifically set up to provide technical assistance in making those

changes, training in things like e-commerce that help people make

those changes. Also we could make grants to a non-profit that

might be working with a network of farmers that could then turn

around and re-grant some of those funds to those farmers to make

those kinds of changes in their operations they need to make to

produce for those new markets.

We talk about niches, but the mass market is turning to some

extent into a collection of niches, and the niches that provide the

greatest opportunities for family farmers and ranchers are those

that enable them to add value to the product, to make it unique

by what they do, by application of their own management. That is

what we are seeing in these premium markets for natural meat, for

example. Those are production systems that take more manageVerDate 11-MAY-2000 10:46 Feb 19, 2003 Jkt 084598 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 84598.TXT SAG1 PsN: SAG1
31

ment and skill by the farmer, and that is what creates an opportunity because if it is just producing the same thing but using a

different seed, it is pretty easy for anybody to switch to that and

pretty soon the returns get driven down, just like commodities.

There are great opportunities for farmers to use their management and skill to produce things in ways that make them worth

more to consumers. To tap those we have to do what you are talking about, provide more technical assistance, more training, maybe

some seed funds, and also funding to develop the new co-operatives

to link those farmers with the consumers who want what they

have.

The CHAIRMAN. I had a farm family in here last week testifying.

I know this family. I was out to their farm; it has been probably

15, 20 years since I have been out to their farm, but they changed

all their production practices. Ms. Roseman and her husband were

here testifying. She and her husband have 600 acres in western

Iowa, around Harlan, out in that area. They have changed their

whole production practice.

They have 600 acres. Both he and his wife work on the farm.

They have two sons, one in college and one in high school, who

work there all summer, plus they have a year-around hired person

who they pay to work there on 600 acres. She said they are doing

pretty well, but she said it was pretty painful getting there because

they didn’t have the technical support, nor the expertise. They

were production-oriented farmers, as everyone else is. It just took

them a long time to get there. They said they didn’t really have the

kind of capital and stuff, but they just bore up under it for quite

a few years and now they are doing all right. That is the kind of

thing that maybe we can try to look at helping.

Yes, Jack?

Mr. CASSIDY. Mr. Chairman, if I can add to that, we think the

farmer co-ops that are going to be survivors and prospering 5 and

10 years from now are going to fill some of that role.

The CHAIRMAN. You are right.

Mr. CASSIDY. They have to become more than just depository entities for what the farmer produces. They are thinking more and

more in terms of the partnership with the farmer, providing the

technical expertise. We need to make sure the support system that

allows our co-ops to thrive is in place, whether it is the USDA programs or the credit programs that the Farm Credit System provides to those farmer-owned entities. We would encourage you to

keep looking at those sorts of things.

The CHAIRMAN. We certainly will. In fact, she said that almost

all of the marketing they have done and been able to do has been

through co-operatives of one form or another.

Mr. CASSIDY. We are glad to hear that.

Mr. HASSEBROOK. Senator Harkin, I would draw your attention

to this book that was handed out, ‘‘The New American Farmer,’’

that details many examples of farmers who are doing just the kind

of innovative things you are talking about.

The CHAIRMAN. There may be some opportunities out there. I

will be very provocative here. We have been thinking for a long

time that you have farmers who need off-farm income. Almost all

farmers today have some form of off-farm income. Well, how about

32

maybe some of those who live in rural areas providing some onfarm income? Just turn it around. Those who live in rural areas

may have a job or something, but they could, with support and

some capital, some expertise and help, maybe provide some little

niche areas like that that could be very helpful. I sort of turn it

around like that, perhaps the other way, too.

I am going to have to go because I am going to have to vote, but

I just want to thank you all very much for all the work you have

done in this area of rural development. As I said in the beginning,

as we proceed on with this legislation, any thoughts, suggestions,

advice that you have we are more than eager to get as to how we

really make rural development part of the next Farm bill, and really make it shine and have a major emphasis on it.

Thank you all very much for being here.

The committee will stand adjourned until the call of the Chair.

[Whereupon, at 4:15 p.m., the committee was adjourned.]

(33)

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AUGUST 2, 2001

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106

(107)

DOCUMENTS SUBMITTED FOR THE RECORD

AUGUST 2, 2001

108

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114

115

116

117

118

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120

(121)

QUESTIONS AND ANSWERS

AUGUST 2, 2001

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135

Æ