U.S. GOVERNMENT PRINTING OFFICE

70–294 CC WASHINGTON : 2001

S. HRG. 106–910

FEDERAL SUGAR PROGRAM

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE,

NUTRITION, AND FORESTRY

UNITED STATES SENATE

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

ON

FEDERAL SUGAR PROGRAM

July 26 2000

Printed for the use of the

Committee on Agriculture, Nutrition, and Forestry

(

For sale by the U.S. Government Printing Office

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

RICHARD G. LUGAR, Indiana, Chairman

JESSE HELMS, North Carolina

THAD COCHRAN, Mississippi

MITCH MCCONNELL, Kentucky

PAUL COVERDELL, Georgia

PAT ROBERTS, Kansas

PETER G. FITZGERALD, Illinois

CHARLES E. GRASSLEY, Iowa

LARRY E. CRAIG, Idaho

RICK SANTORUM, Pennsylvania

TOM HARKIN, Iowa

PATRICK J. LEAHY, Vermont

KENT CONRAD, North Dakota

THOMAS A. DASCHLE, South Dakota

MAX BAUCUS, Montana

J. ROBERT KERREY, Nebraska

TIM JOHNSON, South Dakota

BLANCHE L. LINCOLN, Arkansas

KEITH LUSE, Staff Director

DAVID L. JOHNSON, Chief Counsel

ROBERT E. STURM, Chief Clerk

MARK HALVERSON, Staff Director for the Minority

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C O N T E N T S

Page

HEARING:

Wednesday July 26, 2000, Federal Sugar Program .............................................. 1

APPENDIX:

Wednesday July 26, 2000 ........................................................................................ 69

DOCUMENT(S) SUBMITTED FOR THE RECORD:

Wednesday, July 26, 2000 ....................................................................................... 213

Wednesday July 26, 2000

STATEMENTS PRESENTED BY SENATORS

Lugar, Hon. Richard G., a U.S. Senator from Indiana, Chairman, Committee

on Agriculture, Nutrition, and Forestry ............................................................. 8

Santorum, Hon. Rick, a U.S. Senator from Pennsylvania ................................... 23

Conrad, Hon. Kent, a U.S. Senator from North Dakota ...................................... 10

Kerrey, Hon. J. Robert, a U.S. Senator from Nebraska ....................................... 22

Burns, Hon. Conrad, a U.S. Senator from Montana ............................................. 21

Dorgan, Hon. Byron L., a U.S. Senator from North Dakota ................................ 1

Abraham, Hon. Spencer, a U.S. Senator from Michigan ...................................... 2

Breaux, Hon. John B., a U.S. Senator from Louisiana ......................................... 26

WITNESSES

Mink, Hon. Patsy, a U.S. Representative from Hawaii ........................................ 7

Miller, Hon. Dan, a U.S. Representative from Florida ......................................... 5

PANEL I

Brick-Turin, Carol, CBT Consulting, Annandale, VA .......................................... 15

Schumacher, Hon. August, Jr., Under Secretary for Farm and Foreign Agricultural Services, U.S. Department of Agriculture, Washington, DC., accompanied by, Keith Collins, Chief Economist, U.S. Department of Agriculture . 13

PANEL II

Estenoz, Shannon, on behalf of the World Wildlife Fund and the Everglades

Coalition, Washington, DC. ................................................................................. 39

Frydenlund, John E., Director, Center for International Food and Agriculture

Policy, Citizens Against Government Waste, Washington, DC. ....................... 33

Hammer, Tom, President, Sweetner Users Association, Falls Church, VA. ....... 36

Jaeger, Arthur, S., Assistant Director, Consumer Federation of America,

Washington, DC. .................................................................................................. 32

Kominus, Nicholas, President, U.S. Cane Sugar Refiners’ Association, Washington, DC. ............................................................................................................ 35

Perry, Mark, Executive Director, Florida Oceanographic Society, Stuart, Florida .......................................................................................................................... 38

Shapiro, Hon. Ira, Coalition for Sugar Reform, Washington, DC. ....................... 30

Page

IV

PANEL III

Horvath, James J., President and Chief Executive Officer, American Crystal

Sugar Company, Moorhead, MN. ........................................................................ 48

Kennett, Alan, President and General Manager, Gay & Robinson, Inc.,

Kaumakani, Kauai, HI. ....................................................................................... 50

Lay, Jack, President, Refined Sugars, Inc., Yonkers, NY., accompanied by

Jack Roney, Director of Economics and Policy Analysis, American Sugar

Alliance ................................................................................................................. 52

McLaughlin, Lindsay, Legislative Director, International Longshore and

Warehouse Union, Washington, DC. .................................................................. 54

Orden, David, Agricultural and Applied Economics, Virginia Polytechnic Institute and State University, Blacksburg, VA. ...................................................... 56

VanDreissche, Ray, President, American Sugarbeet Growers Association, Bay

City, MI. ................................................................................................................ 46

APPENDIX

PREPARED STATEMENTS:

Lugar, Hon. Richard G. .................................................................................... 70

Harkin, Hon. Tom ............................................................................................ 72

Thomas, Hon. Craig ......................................................................................... 73

Dorgan, Hon. Byron L. ..................................................................................... 75

Breaux, Hon. John ............................................................................................ 79

Mink, Hon. Patsy T. ......................................................................................... 88

Miller, Hon. Dan ............................................................................................... 92

Baucus, Hon. Max ............................................................................................ 100

Abraham, Hon. Spence ..................................................................................... 102

Brick-Turin, Carol ............................................................................................ 116

Estenoz, Shannon A. ........................................................................................ 155

Frydenlund, John E. ......................................................................................... 133

Hammer, Thomas A. ........................................................................................ 142

Horvath, James ................................................................................................. 176

Jaeger, Arthur S. .............................................................................................. 126

Kominus, Nicholas ............................................................................................ 137

Kennett, E. Alan ............................................................................................... 182

Lay, Jack F. ...................................................................................................... 193

McLaughlin, Lindsay ........................................................................................ 198

Orden, David ..................................................................................................... 205

Perry Mark D. ................................................................................................... 152

Shapiro, Ira S. ................................................................................................... 120

Schumacher, August Jr. ................................................................................... 105

VanDriessche, Ray ............................................................................................ 165

DOCUMENT(S) SUBMITTED FOR THE RECORD:

U.S. Cane Sugar Refiners Association, List of Member Companies ............ 214

Letter to Ambassador Barshetsky, and Secretary Glickman, from Don

Wallace, chairman, ASA, submitted by James J. Horvath ....................... 216

Editorial, The Sweet Hereafter, submitted by Mark Perry .......................... 217

Editorial, Buyout May be Best Way to Re, submitted by Mark Perry ........ 233

Petition to support U.S. Sugar Policy, submitted by Lindsay McLaughlin . 251

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FEDERAL SUGAR PROGRAM

WEDNESDAY, JULY 26, 2000

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

The Committee met, pursuant to notice, at 8:32 a.m., in room

SH–216, Hart Senate Office Building, Hon. Richard G. Lugar

(Chairman of the Committee,) presiding.

Present or Submitting a Statement: Senators Lugar, Fitzgerald,

Craig, Santorum, Harkin, Conrad, Baucus, and Kerrey.

The CHAIRMAN. Good morning. This hearing of the Senate Agriculture Committee is called to order. I thank our witnesses and all

who are participating in the hearing for coming at this early hour.

I would mention that we anticipate roll call votes midway

through the hearing, and we have been advised that we must leave

the room by 12:45 because the Rules Committee of the Senate has

scheduled another hearing with another committee at that point.

So, with that in mind, I am going to ask if each of those who testify today, including our distinguished colleagues from the Senate

and the House and those representing the Department of Agriculture and the panels that have various views on the sugar program limit their initial comments to 5-minutes.

I will just state categorically at the beginning that all prepared

statements will be made a part of the record. So it will be unnecessary to ask for permission for that to occur because we want the

record to be as complete as possible, and we will ask Senators as

they appear for questioning to limit their question periods to 5-

minutes as we go through the rotations.

I will give my opening statement following that of our distinguished colleagues from the House and the Senate so as not to

delay their comings and goings this morning, but we are honored

that you are here. Let me just indicate that we anticipate testimony by Senator Dorgan, Senator Breaux, Senator Abraham, Representative Mink and Representative Miller.

Three of you are here now, and, therefore, Byron, I will recognize

you. It is always an honor to have the distinguished Senator from

North Dakota, Byron Dorgan, before us, and I would ask you for

your testimony.

STATEMENT OF HON. BYRON L. DORGAN, A U.S. SENATOR

FROM NORTH DAKOTA

Senator DORGAN. Mr. Chairman, thank you very much. It is a

pleasure to be here.

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Let me say that while I am excited to be here to support the

sugar program, a program that I think is a wonderful program, a

program that has worked for some long while to help sugar producers and stabilize the price of sugar for both producers and consumers in this country, I recognize that, that program has had some

difficulties recently, having to do mostly with the farm program,

the underlying farm program in this country that is not working,

number one, and, number two, a set of trade policies that have undermined our producers as well.

I would much sooner be here, I must say, Mr. Chairman, to appear at a hearing dealing with the Freedom to Farm legislation, as

you well know. You are probably tired of getting letters from me

on that subject.

The CHAIRMAN. Never, never.

Senator DORGAN. But because this is a hearing on the issue of

sugar, let me focus on that.

First of all, there is a lot of discussion about the world price for

sugar. The critics of this program go to the floor of the Senate and

talk about the world price for sugar. The world price for sugar is

a dump price. Largely, there is not free trade in sugar, as 75-percent of the world’s sugar is sold under contract, at a profitable contract, and the remaining surplus is dumped on the world market

at the current price of 8-cents a pound. The average world cost of

production is 18-cents a pound. It is obviously, it seems to me, that

the 8-cents is a dump price, and we ought not be talking about that

as the world price or the market price.

Twice, we have ended a sugar policy in this country, only to see

extremely volatile prices ranging from 60-cents to 3-cents a pound,

and that volatility has injured both producers and consumers in

this country. We know it, we have seen it, we felt it, and for that

reason, we should understand the value of a program that produces

price stability for both producers and consumers.

There is a Coalition for Sugar Reform, a group of good people

who are interested in their companies and their profits, bakers and

chocolate manufacturers and biscuit folks and grocery manufacturers, and they say, ‘‘Gee, if we could get rid of this sugar program

and collapse the price of sugar, savings would be passed on to the

consumers.’’ Of course, we know that is not the case.

Sugar prices are down by a full one-third since the farm bill

began to a 22-year-low. Chocolate and candy prices are up 6-percent. Cookies, cakes, and bakery products are up 7-percent. Cereal

and ice cream prices are up 9-percent. I was in a grocery store two

nights ago. The price of a bag of sugar, the raw product as we

know it, is essentially unchanged. They have not even lowered the

price of the raw product.

So I think we ought to set that argument aside. This is not about

consumers. Farmers and consumers alike, in my judgment, are

being fleeced.

We have got a couple of things that are working against the

sugar program. The GATT playing field in international trade is

tilted against our farmers. GATT left the European Union [EU]

subsidies for sugar 40-percent higher than our loan price, and the

EU is the world’s largest producer and exporter of subsidized

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sugar. Their high subsidy fosters overproduction which is being

dumped on a world market.

NAFTA is a failure for sugar and also for agriculture as a whole. NAFTA does not address the $2 billion in subsidy that Mexico has

pumped into sugar production, changing it from a net importer to

a net exporter. There has been no negotiation that would insist on

abiding by the side letters. We have got stuffed molasses coming

in from Canada. It is unforgivable that is happening, just unforgivable that we have this stuffed molasses coming in and nobody is

doing anything about it. So we have got the failure of the underlying farm bill, Freedom to Farm, the failure of trade negotiations

and trade acts that have been agreed to by Congress, and all of

that has pulled the rug out from under our sugar producers.

Finally, Mr. Chairman, I represent beet producers. They are the

most efficient producers in the world. Without the sugar program,

they cannot survive against lopsided trade agreements which are

tilted against them, and against the backdrop of a farm program

that has not worked, what has happened is we have seen more

acreage. That is true. But if we fix the trade problems and get a

decent farm program in this country, that sugar program will work

and work well as it has for many, many, many years and work for

consumers and work for producers.

That is why I am here to say today I support this program. This

program makes sense. If we take a look at changes in the farm program, and we should—we ought to do that starting tomorrow—we

ought not look at dismantling the one part of the program that can

work if everything else is fixed the way it ought to be fixed.

Mr. Chairman, thank you very much.

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

appendix on page 75.]

The CHAIRMAN. Thank you very much, as always, Senator Dorgan, for your testimony and for your interest in our work.

Let me ask now Senator Abraham for his testimony.

STATEMENT OF HON. SPENCER ABRAHAM, A U.S. SENATOR

FROM MICHIGAN

Senator ABRAHAM. Mr. Chairman, thank you, and I appreciate

the chance to go at this time since I have another meeting as well.

I also am here today to convey to the Committee my support for

the sugar program and why I believe it is a system that is necessary.

The reality of sugar in Michigan is very simple. It is responsible

for 23,000 jobs in my State, and as is the case with many United

States jobs created by sugar production and refinement, these jobs

are located in rural areas where there is little other economic activity. That is the reality of sugar production in Michigan.

Every time the sugar program is challenged, much of the criticism is leveled at so-called large sugar barons. That may be true

some places, but, Mr. Chairman, in my State, nothing could be further from the truth. In Michigan, there are approximately 2,000

family farms that grow beets, and most of these farms average between 100- and 150-acres. So, when some in Congress try to kill

the sugar program, what they are doing really is threatening the

livelihood of thousands of small Michigan farmers.

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Michigan sugar farmers are the most efficient producers of sugar

beets in the United States, and since U.S. sugar beet production is

the lowest cost in the world, I proudly label Michigan sugar beet

growers the most efficient sugar growers in the world.

Unfortunately, as has been the case with other agricultural commodities across the Nation, low prices are also prevalent in the

sugar industry. So, while the rest of the United States economy has

been roaring, U.S. agriculture has not. Prices for most crops are at

or near all-time lows in real terms. This body has certainly recognized that danger, as you know, because since 1996 we have provided over $70 billion in payments to U.S. farmers.

Like other American farmers, sugar farmers are facing tough

times. The price American farmers received for refined sugar has

fallen to its lowest level since 1978. These low prices threaten to

drive sugar producers out of business. Agriculture faces unique difficulties not experienced in manufacturing or finance, and I have

been a staunch supporter of efforts to provide emergency assistance

for American growers.

The Government should provide assistance to avoid commodity

loan failures. The Government should also protect American sugar

production from threats it cannot counter, and that really is the

purpose of the sugar program.

In my view, those who are seeking elimination of the program

should focus their attention first on the foreign subsidization of

sugar production, much as Senator Dorgan just commented on. If

every government around the world stayed out of the sugar production business, we would not need a program to keep our farmers

competitive.

Just look at what we are up against, whether it is from the EU

or from Brazil. We face competitors around the world who are

strongly supported by government subsidies, and to put it simply,

U.S. sugar producers are among the world’s most efficient and they

welcome a chance to compete with foreign growers, but cannot be

expected, I do not think, to compete in a situation where they have

to go up against foreign governments.

Without the sugar program, subsidized sugar from foreign nations would drive American sugar producers out of business. Our

efficient, labor-conscious, and environmentally sensitive production

would be replaced by heavily subsidized imported sugar grown

often under deplorable conditions which are illegal in all 50 States.

Until a level playing field can be created, perhaps through a new

round of trade negotiations, I believe this Congress must work to

protect our domestic market.

Finally, Mr. Chairman, let me just speak directly about this

much maligned program. This year alone, the Government is

spending over $13 billion in loan deficiency payments and marketing loss assistance to avoid forfeitures of wheat, corn, soybeans,

cotton, and rice. Last week, we agreed to another $900 million in

emergency agricultural spending. Meanwhile, the initial purchase

under the sugar program totaled $54 million. This was not a payment to producers. This was just the cost of purchasing sugar

which the Government now owns and may sell. Thus, the initial

cost of the sugar purchase is about one-half of 1-percent of the outlays to avoid forfeitures of other crops. It is clear to me that the

5

sugar program is a cost-effective way to help American sugar growers grow for the domestic market, and I am not alone.

Just last week, an overwhelming majority of Senators from both

parties defeated another attempt to kill domestic sugar production.

When so many sectors of American agriculture are suffering, I

think it is incomprehensible that anyone in Congress should consider eliminating the one program which protects U.S. growers

from complete eradication.

Until foreign sugar producers grow for the market and not a government, I intend to work to maintain the U.S. sugar program. I

know I will not be alone, and I look forward to working side by side

with my colleagues here today to protect U.S. sugar from misguided efforts which would harm this important sector of the agricultural community.

Mr. Chairman, thanks for having the chance to be here with you

again.

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

appendix on page 102.]

The CHAIRMAN. Thank you very much, Senator Abraham, for

coming early and giving this excellent testimony. We appreciate it.

Senator ABRAHAM. Thank you.

The CHAIRMAN. Representative Miller

STATEMENT OF HON. DAN MILLER, A REPRESENTATIVE IN

CONGRESS FROM FLORIDA

Mr. MILLER. Thank you, Mr. Chairman. Let me first of all congratulate you for the leadership you have given over here on the

Senate side. I have been the leader of the program to reform and

get rid of the sugar program since 1995 on the House side back

when we had the debate in 1996. It was a Miller and Schumer bill.

Now he is your colleague, and so, hopefully, he will provide that

type of support over here.

You have also done a good job advocating the elimination of a

program recently in Fleecing of America and It is Your Money.

This is an embarrassment to this Congress and this country because agriculture is the most efficient producer in the world, but

we are protecting one crop. It is bad for the consumer. It is bad for

jobs in this country. It is bad for trade. It is bad for the environment. Now we are finding it is really bad on the American taxpayer. We have created a cartel, not much different from OPEC, to

control sugar prices in this country and, as you know, they are

about three times the world price.

They talk about all the subsidized sugar. We have laws in the

books to keep subsidized sugar out, and we should not allow that

in. I would agree completely with that, but as I said, this is bad

for the American consumer. We have recently received a report

from the General Accounting Office. This is the independent agency

that has analyzed the sugar program and the cost on the American

consumer. They have sought the advice of the Agriculture Department, and the Agriculture Department refused to participate in

this, to come up with a model on the cost of it.

So they brought in some of the outstanding academic economic

modeling experts around the country to develop a model to project

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the cost, and they came up with a $1.9-billion cost on the American

consumer. That is real dollars.

I know some people are going to attack the messenger instead of

the message, but the fact is that the independent agency that has

got tremendous credibility here in Congress and has brought in

some of the outstanding economic modeling experts around the

country. It is a $1.9-billion cost.

Let’s talk about jobs. Let me give you two illustrations of how we

are losing jobs in this country. Bob’s Candy in Albany, Georgia,

makes candy canes, obviously a large user of sugar. They can get

sugar in Canada or in the Caribbean for a fraction of the price in

the United States. He cannot compete with foreign candy cane companies and sell, these being driven, his production, out of this country.

The cranberry business up in Massachusetts is hurting now because they cannot compete with Canadian cranberries because

sugar is needed. You need a lot of sugar to make the taste better.

So we are losing jobs in the cranberry business. So, when you start

managing prices, it is just bad economics. It is dumb economics.

Trade. We all recognize that we have got to open up markets for

agriculture around the world, but when you protect one product,

how do you negotiate with other countries? You cannot negotiate

with Canada and say, ‘‘We want all your markets open, but you

cannot sell any sugar to us.’’ That just does not work that way.

That was one of the problems when we went to Seattle. When

we enter more trade negotiations, and I think most of us are free

traders and want to open up trade markets, the problem is you

cannot product one product at the expense of all the others. Everything has got to be on the table, and you have got to go to these

trade negotiations with clean hands.

I am from Florida. From an environmental standpoint, sugar has

been horrible on the Everglades. We are getting ready to spend

about $8 billion on cleaning up the Everglades. The Federal Government will pick up about half of that cost, and the Senate has

been very active under Senator Smith in developing and hopefully

approving the plan that is going to be used there, but sugar is a

major contributor to the problem. With the high price of sugar, we

are overproducing sugar in Florida. We are encouraging more production of sugar, and it is hurting.

Finally, the cost to the American taxpayer. We heard the argument in 1996, ‘‘Oh, it does not cost the taxpayers anything.’’ Well,

just a month or so ago, they just bought $54 million worth of sugar

for the first time since 1985, and they may buy another 150- to

200-million in the next 60-days. Next year, because of the increased

production of sugar, we could be talking about a half-a-billion dollars. These are actual taxpayer dollars. We are buying the sugar,

and we have nothing to do with it. We cannot give it away around

the world. So we are going to store it, and I do not know how long

we are going to store it. Now we are going to have to have new

facilities to store it.

We have got to change the program. The program does not belong in a free enterprise, competitive system. We need to let the

economy work the way it was designed, and I hope with your leadVerDate 11-MAY-2000 10:14 Mar 23, 2001 Jkt 070294 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 70294.TXT SAGRI1 PsN: SAGRI1
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ership on the Senate side, we can get rid of this program in the

next reauthorization the next session of Congress.

Thank you, Mr. Chairman.

[The prepared statement of Representative Miller can be found

in the appendix on page 92.]

The CHAIRMAN. Thank you very much, Representative Miller, for

your leadership, for coming here this morning.

We are joined by Representative Patsy Mink. It is delightful to

have you, as always. Please proceed.

STATEMENT OF HON. PATSY T. MINK, A REPRESENTATIVE IN

CONGRESS FROM HAWAII

Ms. MINK. Thank you very much, Mr. Chairman. I appreciate so

much the opportunity to present the views particularly as it impacts on my Second Congressional District and the State of Hawaii

and as it affects the entire agricultural rural economy of this Nation.

I would like to focus my remarks on two aspects: first, the severity of the crisis facing the American sugar growers; and, second,

the flawed General Accounting Office report to which my colleague

has referred.

The U.S. raw sugar cane prices have plunged from 22.6-centsper-pound last July to now less than 17-cents-per-pound this

month. This is the lowest level that we have seen in nearly 20-

years, since 1981 when there was no sugar policy at all.

Because of flat producer prices since 1985 and rising sugar production costs, Hawaii’s sugar industry has shrunk in the past 10-

years from 12-sugar-companies to only three, and we are currently

being threatened that the third will probably announce its closure

very shortly. This is a catastrophe for my State, and I am sure that

my views with respect to the loss of this industry for Hawaii would

be similarly reflected in other places in the country.

The lost of 10 plantations in my district represents an economic,

social, and environmental disaster. One might think that these agricultural jobs could be readily absorbed by tourism and other industries, but, sadly, this is not the case. So, when we talk about

revising the Nation’s sugar policy, we have to bear in mind that in

places like Hawaii and perhaps elsewhere, it would be a total demise of the presence of this important industry.

Most of the jobs in the sugar industry in Hawaii are heavy equipment, industrial-type work that cannot be readily converted to

tourism jobs. So many of these individuals who come from these

plantations that have been closed are still unemployed and working

very, very hard to try to find some other kind of employment to

which they could convert.

The second catastrophe is the loss of the green. We have taken

great steps to try to preserve the green atmosphere of the State.

The lush sugar cane fields have contributed to that general aloha

impression. When the plantations close, what happens is you have

huge dust storms. There is nothing that you can use the land for

productively, and the vermin and other things contribute to the

problems that the adjoining communities have.

Hawaii’s producers currently achieve the highest yields of sugar

per acre. They are well-paid workers. They are in communities

8

where sugar is an important commodity. So I urge you to consider

the economic aspects of this industry upon a small State like Hawaii and the catastrophic impact it would have on the several thousand workers who remain in this industry.

I think it is important to look at the GAO report very critically

because they are talking about losses to the consumer based upon

world dump sugar prices. I have a chart here which shows what

the real prices of sugar are in terms of the retail market throughout the country, throughout the world, and you will see that the

United States prices on the shelf in our supermarkets at 43-centsa-pound is way below what the current prices are inmost of the industrial developed countries in the world.

So, when they talk about 6-, 8-cents sugar, it is not the real

world. There is no way in which you could base an agricultural policy on a world dump sugar price which could end in the demise of

a very, very important industry in this State.

So I urge you to look at the GAO report through the efforts of

many of us. Critical of the last GAO report, the Department of Agriculture was given an opportunity to put in comments as well as

the members of the sugar industry themselves, and if you will read

those critical comments by the Department of Agriculture and by

the industry, you will see that the GAO report really does not base

its findings upon reality.

I would like to ask unanimous consent that the entire statement

I prepared be inserted in the record at this point. Thank you very

much.

[The prepared statement of Representative Mink can be found in

the appendix on page 88.]

The CHAIRMAN. It will be inserted in full, and we appreciate very

much your coming this morning.

Let me just ask for a moment if my colleague, Senator Conrad,

has a question or comment with regard to the testimony of our congressional witnesses.

Senator CONRAD. Perhaps when they are concluded, I would have

an opportunity to make an opportunity to make an opening statement, Mr. Chairman.

The CHAIRMAN. Very well.

We thank both of you for coming this morning and adding to our

testimony.

Ms. MINK. Thank you very much, Mr. Chairman.

OPENING STATEMENT OF HON. RICHARD G. LUGAR, A U.S.

SENATOR FROM INDIANA, CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

The CHAIRMAN. At this point, I will make an opening statement,

and then I will recognize Senator Conrad. Then we will proceed to

our first panel, the administration witness and the academic witness.

Let me just say at the outset that my views on the subject are

well known, and I approach the hearing with a feeling that we

need reform.

I would just say for the record that in 1978, we voted on the

Sugar Stabilization Act really for the first time, and that act was

passed with my position negative in each of the three major votes

9

on that occasion. I worked with Senator Boschwitz for reform when

the 1981 farm bill came up, but our efforts in the Committee lost

by votes of 9 to 2 and 10 to 3. Finally, on the floor, the vote to end

the sugar program failed by a vote of 61 to 33, not unlike subsequent votes really for the past 20-years.

In 1985, the same motion to abolish the program lost by 60 to

32. One voted change in a 4-year period of time, one way or the

other. In 1990, Senator Bradley tried a more modest reform on the

floor suggesting that the support price be reduced from 18-cents to

16-cents. That motion failed 54 to 44 for a 2-cent reduction at that

point.

In 1996, when we had another farm bill situation, my motion to

end the program failed 35 to 61, and then for middle gain over 90

and 85 and so forth. Of course, we had a recent vote last week that

was very similar to the ratios of 60 to 30-odd votes.

So I appreciate the Congress. The Senate has spoken, and the

House in a similar way, many times on the program. Yet, I come

today suggesting that we will hear testimony about the status of

the industry and the future role of the program, and I believe that

events in this year indicate that the sugar program is becoming increasingly unmanageable and that radical reforms are really needed urgently.

This spring, as has been pointed out, USDA offered to purchase

150,000-tons-of-sugar to stabilize prices and prevent sugar loan forfeitures. The Department spent $54 million to purchase 132,000-

tons-of-sugar, but the price increases in the sugar market anticipated, or at least hoped for, have not occurred.

In its mid-session review of the Federal budget, the Clinton administration estimates that the sugar program will cost over $140

million this fiscal year for purchases and loan forfeitures, proponents that a sugar program can no longer cite a no-cost basis,

but this is just the beginning. The mid-session review projects that

the current program will cost taxpayers over $1 billion, result in

an accumulation of over 5-million-pounds-of-sugar in Government

inventory between now and the year 2005.

In announcing the offer to purchase sugar in May, Secretary

Glickman stated, ‘‘Something relying on continued Government

purchases over the long term is neither feasible nor realistic,’’ and

I strongly agree with the Secretary’s assessment. I hope that witnesses today will present alternatives to present policies that have

failed, in my judgment, producers, sweetener users, consumers, and

the taxpayers.

It is widely rumored that discussions are underway at the Department even now with segments of the industry to institute a

payment-in-kind program for sugar in an attempt to reduce the

supply. Such a program would be ill-conceived, in my judgment,

would highlight the desperate nature of efforts to preserve the program at almost any cost.

Under our current international trade commitments, we must

soon permit increasing imports of foreign sugar to enter the United

States markets. Obligations under the World Trade Organization

and the North American Free Trade Agreement coupled with

record high domestic production projections will result in a sugar

10

supply far in excess of demand. A long-term viable and rational solution to the matter should be implemented in the very new future.

An additional perspective relates to the fact that the Everglades

are dying. Testimony came before this committee as early as 1990,

from my records, indicating this unfortunate trend. The steady natural flow of water has been disrupted. Water that could be used to

restore this natural environment is being flushed to the sea, and

lack of adequate water storage results in discharges of polluted waters and surrounding waterways that makes water management

more difficult during storms and hurricanes.

In the 1996 farm bill, our committee supported the inclusion of

$200 million to purchase lands in the Everglades agricultural area

to help in the process of restoring the Everglades. This was a thoroughly bipartisan effort and one which required the close cooperation of Federal and State officials.

Florida Governor Jeb Bush called the recent purchase of these

lands the linchpin of Everglades restoration. We need to consider

the option of making further purchases of lands from willing sellers

in the Everglades agricultural area with the savings that might accrue from sugar policy reform. I believe that sugar policy reform

can play an important role in the Everglades restoration.

We appreciate the witnesses who have come here today to

present statements on the industry, on the program, and on behalf

of consumers and taxpayers. We welcome them and look forward

to their testimony.

I look forward now to the opening statement of my colleague,

Senator Conrad.

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

appendix on page 70.]

STATEMENT BY HON. KENT CONRAD, A U.S. SENATOR FROM

NORTH DAKOTA

Senator CONRAD. Thank you, Mr. Chairman. Thank you for holding this hearing.

I would like to turn to a couple of charts to talk about this industry and the myths and the facts that relate to it. We had a debate

last week. We had, I think, a vigorous debate on the question of

the sugar program, and we saw the result in the U.S. Senate, more

than a 2-to-1 vote in opposition to killing the sugar program. I

think that vote reflected the growing understanding our colleagues

have of the consequences of such a proposal.

Congressman Miller comes before us today and says that the

sugar program is not consistent with free market economics. Unfortunately, the world sugar industry and the programs that other

countries have are not consistent with free market economics, and

the United States can make a fundamental choice. We can choose

to abandon our producers. We can engage in unilateral disarmament. We can wave the white flag of surrender and see this industry vanish from our country, or we can stick up for our producers and fight for them the way other countries fight for theirs.

When the reference is made to free enterprise system, as Congressman Miller made reference, he should understand that is not

the rules by which world agriculture is being conducted.

11

This first chart shows exactly what is happening. Our major competitors are the Europeans. They are playing world agriculture by

the old rules. They are playing by the rules of mercantilist economics, and they are very good at it. I do not criticize them. They are

sticking up for their producers, and it is very clear what they are

doing.

On average, from 1996 to 1998, the Europeans are supporting their producers at $324 an acre. The equivalent comparison in the

United States is $34 an acre. They have a 10 to 1 advantage. In

effect, what we are saying to our producers is you go out there and

compete against the Germans and the French, and while you are

at it, take on the French government and the German government,

too. That is not a fair fight, but that is precisely what is happening.

Not surprisingly, the strategy in the plan of the Europeans is

working very well. They are gaining world market share. In the

last 20-years, they have gone from the biggest importing region in

the world to the biggest exporting region in the world, and this

year, USDA tells us they will surpass the U.S. in world market

share. They are doing it the old-fashioned way. They are buying

these markets, make no mistake.

We will go to the next chart which shows what happens to sugar

prices. Sugar prices have plummeted. We see a dramatic reduction

here, 36-percent reduction in wholesale refined beet sugar prices

from 1996 to the spring of this year, a dramatic price plunge.

Let’s go to the next chart. The fact is this does not get mentioned

much by the opponents, but the sugar industry has been paying in

the Government coffers, not drawing from Government coffers.

There is no subsidy here. There are no subsidy payments made to

sugar producers in the United States. I see this referenced all the

time by our opponents. There are not payments being made to

sugar producers. In fact, until very recently, the sugar industry

was paying into Government coffers from 1991 to 1999, almost

$280 million paid into Government coffers. We have ended that

payment because we are now in budget surplus instead of budget

deficits, but the fact is the sugar industry has been paying into

Government coffers.

Let’s go to the next chart. The opponents say repeatedly, in fact,

they chant it like a mantra, that U.S. consumers are paying more

because of the sugar program. Well, let’s compare what our consumers pay versus what consumers pay in other countries. It is

very interesting. In the developed world, there are only two countries where consumers pay less for sugar than we do in the United

States, Canada and Australia. If you look at all of the other major

developed countries in the world, we are paying on average 19-percent less for sugar than the consumers in their countries.

Let’s go to the next. It is very interesting to look at what is really

occurring because on the left you can see what has happened to

producer prices, the prices that are paid to the producers of sugar.

First of all, raw cane sugar, they have seen an 18-percent reduction

in their prices in the period covered by the chart which is September of 1996 until March of this year. Wholesale refined sugar in

that period of time is down 26-percent. You can see the prices of

the products that sugar goes into. Those prices have not gone

down. Those prices have gone up, whether it is cereal up 6.6-perVerDate 11-MAY-2000 10:14 Mar 23, 2001 Jkt 070294 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 70294.TXT SAGRI1 PsN: SAGRI1
12

cent or cookies up 6.7-percent or candy up nearly 8-percent or ice

cream up 9-percent. While the prices that producers receive have

plunged, the prices of the products that they make have gone up.

The argument that I find most frustrating to hear is that the

world price of sugar is 8 or 9-cents a pound. We heard it again this

morning from Congressman Miller. That is just absolutely false.

That is not the world price of sugar. The vast majority of sugar in

the world sells under long-term contract or is processed and used

in the country in which it is produced. The average cost of producing sugar in the world today is 18-cents a pound. That is the cost

of producing sugar.

So these people that run around and say that the world price is

8- or 9-cents a pound, that is just absolute fiction. What they are

talking about is the dump price for sugar. That is sugar that does

not sell under long-term contract. That is sugar which is not being

consumed and processed in the country in which it is produced.

That is the excess sugar. That is sugar that overhangs the market

that sells at a dump price far below the cost of production. That

is not the world price, and those that make that assertion are just

flat wrong.

Let’s go to the next chart, and I will conclude on this one if I can,

Mr. Chairman. Some say the sugar program costs consumers

money. Well, let’s look at the record. If we go back from 1979

through 1982 during the period in which we had no program, the

highest prices were when we had no program. The highest prices

for consumers were when we had no program. That is when prices

spiked.

So, Mr. Chairman, I hope very much that those who are advocates of killing the program will deal with the facts and not the

myths, and when we are talking about the GAO report, USDA’s rejoinder was stiff and stern. They called the GAO report naive, arbitrary, inconsistent, a puzzlement, inflammatory, and unprofessional. I do not think I have ever seen such harsh words in reference to a report, and the reason is very simple. The instant experts at GAO compared the U.S. price to that world dump price

that is a fraction of the cost of producing sugar and assumes that

if grocery chains and food manufacturers could have access to the

dump sugar price, they would pass 100-percent of their savings

along to consumers. Wrong on every count.

Mr. Chairman, I think the very strong vote in the Senate sends

a signal that people understand this industry is in trouble, that we

are being out-spent 10 to 1 by our European competitors, and if we

do not stick up for our producers, they will be gone from these

shores and we will wake up and wonder what happened.

I thank the Chairman very much for his indulgence.

The CHAIRMAN. Thank you very much, Senator Conrad.

We are now going to hear from the Honorable Gus Schumacher,

Under Secretary of Farm and Foreign Agricultural Services of the

U.S. Department of Agriculture, accompanied by Keith Collins,

Chief Economist of USDA, and Ms. Carol Brick-Turin, CBT Consulting of Annandale, Virginia, who will provide a historic overview

of the program.

Secretary Schumacher.

13

STATEMENT OF AUGUST SCHUMACHER, JR., UNDER SECRETARY FOR FARM AND FOREIGN AGRICULTURAL SERVICES, U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON,

DC.; ACCOMPANIED BY KEITH COLLINS, CHIEF ECONOMIST,

U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON, DC.

Mr. SCHUMACHER. Mr. Chairman and members of the Committee, I am certainly pleased to be here this morning. I am going to

be very brief.

I am also joined by, of course, Keith, and I have asked Parks who

did a lot of work on domestic programs—we have basically a team

approach to sugar because it is complicated, and I have some very

fine gentlemen and a lady sitting behind me as well who occasionally may counsel me and Keith as we have some questions.

I would like to cover briefly three issues, Mr. Chairman: one,

where we are on sugar policy; two, how we are implementing the

program that Congress has mandated; and three, a few observations on some possible USDA sugar activity in this coming crop

year.

First, with your permission, I would discuss where we are in

American sugar policy at this moment. Clearly, we have a very

high-quality and very value-added product that at least in the past

has provided farmers with a reasonable rate of return and particularly rural communities and certainly some States with an important source of income. We heard this morning we have an over-supply situation at the moment, and adjustments are occurring. Production is moving, to some extent, from a higher-cost to lower-cost

regions, and refiners at one sugar cane mill and several beet processing plants may be in jeopardy with possible closures, as I think

Congressman Mink mentioned this morning. Unfortunately, these

possible closures include areas of the U.S. where sugar cane production appears to be the only commodity available to support an

entire rural community.

In September 1999, USDA did not believe that forfeitures would

be likely for the fiscal year 2000. USDA’s own projections of supply

made in that month of September now appear to be low by about

300,000-tons. This was partly in response to the lower prices for

other crops, the corn and wheat prices, I think, are roughly 30-percent below their 5-year average. Some farmers moved from those

other crops to sugar and increased plantings of both beets and

cane, and, of course, the sugar recovery from beet processing was

very high.

Slippage in the tariff rate quota through the imports from unregulated sugar syrup, known as the stuffed molasses problem, also

added additional unexpected sugar to the domestic supply.

There has also been a lot of technological improvements in this

business. Both the processors and the farmers are actually making

a number of efficiency gains—in fact, the representative from Louisiana behind me had me down to observe them—I try to visit all

the sugar areas. I have been in North Dakota, Louisiana, and Hawaii. Down in Louisiana, they actually got me on a harvester, and

it was a very, very modern harvester. I drove it and I was fairly

successful in harvesting a few rows of cane, and I was very impressed by the technical skill involved in the movement in all of

14

our sugar. That was an eventful day for me. I have been on wheat

combines, but this is a pretty sophisticated combine in Louisiana.

Regarding cooperatives, I will just move quickly here. Virtually,

all of the sugar is sold by members of farmers cooperatives. Increasingly, the processing is done, I think, something like 72-percent by cooperatives.

Let me touch briefly on the world sugar market. It is dominated by Government intervention. The EU provides $2 billion in subventions for sugar. $1.5 billion is on export restitutions, and we

hope that we can move on that in the next round.

Let me just conclude with two issues, how we have tried to administer the tariff rate quota and what we are thinking about in

terms of options for dealing with the current growing surplus.

First, on the administration of the tariff rate quota, in the past,

the administration of the tariff rate quote prior to 1996 has been

pretty ad hoc. So what we try to do is to make it much more transparent and predictable. We tried to establish the Tariff-rate quota

[TRQ] prior to the start of the fiscal year based on the USDA projections of domestic sugar supply and use. Therefore, a portion of

this tariff rate quota was held in reserve and made available to exporting nations at established times during the fiscal year when

USDA projections of the fiscal year ending stocks to use ratio was

15.5-percent or lower. USDA views the stocks use ratio at 15.5 as

a signal that the domestic market needs the reserved sugar to be

adequately supplied at reasonable prices, and for the last 3-years,

by and large, it has provided some stability.

We tried under the earlier decision this year to take a prudent

course of action, but as the acreage increased, yields increased, and

extraction rates increased. So we are now facing the prospect of forfeitures. We have a current supply-and-demand problem that

makes it difficult to operate the program without costs. We, therefore, have taken action to address this.

We did purchase, as you indicated, 132,000-tons of refined sugar.

We did this because we felt that would save some money. We have

not gone further than that because the supply situation has taken

us into additional supply.

Let me just briefly, then, finally conclude on some options we are

looking at. There are a number of ways we could try and deal with

this, and some of them, we have not decided to do at the moment,

but we are certainly considering a number of options. The one we

are most seriously considering is the one you have mentioned, and

that is to reduce marketable supply in the coming year. We are seriously considering a program of paid diversion utilizing the currently available stocks we have and anticipate having. There are

other options, barring donations, ethanol, restricted-use sales, but

they are either expensive or they reduce the price of other commodities that already have depressed prices.

So, under Section 1009(E) of the 1985 act under the cost reduction options, we would consider this payment-in-kind or pay diversion for three reasons. We have not made the final decision, but we

are seriously considering it. One, it would eliminate the $265,000

monthly storage cost for the sugar, Mr. Chairman, we have already

bought. Two, it would eliminate any potential storage cost for possible forfeited sugar utilized under such a program. Three, it could

15

possibly reduce further Commodity Credit Corporation [CCC] outlays next year as the sugar surplus is expected to be larger next

year than it is this year. Thus, if non-recourse loans are mandated

in 2001, this may save CCC more than the cost of direct purchases.

In summary, we will continue to support a viable domestic sugar

industry with reasonable support for American sugar producers at

the lowest cost to the Government possible. Clearly, we would prefer a market where neither sugar purchases or a paid diversion

were used, but these options seem at this moment to be the best

alternative options to provide support.

Mr. Chairman, we would like to work with this committee and,

of course, Members of the Congress as you look at different options

for a sustainable manner to support our sugar farmers which we

think are, by and large, pretty efficient and to also ensure a stable

supply to consumers.

That concludes my oral testimony. Thank you, Sir.

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

appendix on page 105.]

The CHAIRMAN. Thank you very much, Secretary Schumacher,

and we appreciate your coming before the Committee. In our oversight capacity as to what you are doing and what you are planning,

why, this is an appropriate and timely moment.

Ms. Brick-Turin, would you give your testimony?

STATEMENT OF CAROL BRICK-TURIN, CBT CONSULTING,

ANNANDALE, VIRGINIA

Ms. BRICK-TURIN. Chairman Lugar, members of the Committee,

good morning. I am honored to be here today to share with you my

thoughts on the U.S. sugar program. I am Carol Brick-Turin, president of CBT Consulting, the company I formed 1-year ago this

month, having worked in both the public and private sectors on agricultural issues for the past 25-years, 15 of which were spent on

U.S. sugar policy.

In my remarks today, I would like to highlight the following

three points in setting the stage for the policy debate. First, adversities faced by the domestic sweetener industry today are the culmination of public policy and private sector initiatives that have

evolved over the past two decades.

Second, the U.S. Department of Agriculture is no longer able to

carry out the intent of its congressional mandate, and as a result,

the collision between free market forces and Government controls

is nearing.

Third, it is, therefore, crucial to begin the debate on the future

direction of the sugar program and, in so doing, the complexity of

current Government policy and the industry response to such policy

must be acknowledged and understood.

As shown in the attachment to my written testimony, the Federal Government has been involved in the sugar market for more

than 60-years. The price support program has been the only domestic program for sugar since 1981 with the exception for a brief period of the use of marketing allotments.

However, in 1982, the Federal Government also began to use a

whole host of import policies in order to meet its domestic policy

objectives. Since President Reagan established a country-by-counVerDate 11-MAY-2000 10:14 Mar 23, 2001 Jkt 070294 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 70294.TXT SAGRI1 PsN: SAGRI1
16

try quota that year, the Federal Government has issued and reissued dozens and dozens of related rules, regulations, Presidential

proclamations, executive orders, and administrative decisions creating a complex web that constitutes the sugar import program.

Sugar policy set and administered by the Federal Government

has been the single most important influence on the evolution of

the sweetener industry over the past 20-years. Yet, many changes

in the dynamics in the sweetener marketplace have also occurred

as the result of normal industry practice to maintain a competitive

edge by cutting costs and increasing efficiencies. This interplay between public policy and private sector initiatives almost always results in the use of qualifiers when discussing the U.S. sugar program.

I know that President Truman once said that all of his economists say on the one hand and on the other hand and asked for

a one-handed economist. I did not mean to take him quite so literally this morning because I would like to share with you some

of the program tradeoffs.

On the one hand, a U.S. sugar policy has protected sugar growers from volatile price movements in the world market with guaranteed minimum price supports and restricted import levels. On

the other hand, the same policy by elevating prices has encouraged

displacement of sugar by HFCS, stimulated a rate of sugar production that has outstripped consumption, reduced U.S. import needs,

and advanced an extraordinary level of consolidation in the refining and beet processing industries.

On the one hand, current industry rules may be attributed to external factors such as imports of certain syrups from which nonquota sugar is extracted, threats of Mexican imports overhanging

the market, and from time to time tariff rate quota mismanagement. On the other hand, the industry itself must take responsibility for creating the current oversupply situation through increased

acreage and output.

On the one hand, opponents argue that lower loan rates will help

the consumer. Clearly, grower prices exceed levels that would be

expected in the free market scenario. On the other hand, the contention by GAO that the sugar program costs domestic sweetener

users almost $2 billion in 1998 unrealistically assumes 100-percent

pass through of cost reductions by refiners and industrial users to

the final consumer.

In fact, my point is that when it comes to U.S. sugar policy, there

is always another hand. There is simply no more ways for the

USDA to help the grower processor within the framework of the

current sugar title. The administration’s hands are tied by the congressional mandate that sets the loan rate and requires recourse

loans if imports drop below 1.5 million-tons, a WTO obligation to

permit imports of at least a million-and-a-quarter tons, and a

NAFTA commitment that will ultimately establish the freeflow of

trade between U.S. and Mexico. It is, therefore, vital to begin the

debate on the long-term direction of sugar policy.

In summary, while I take no side in this debate, I do believe that

the potential free form is undermined by oversimplified criticism or

applause of the U.S. sugar program; that the current sugar program is a patchwork of statutes, rules, regulations, executive orVerDate 11-MAY-2000 10:14 Mar 23, 2001 Jkt 070294 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 70294.TXT SAGRI1 PsN: SAGRI1
17

ders, and administrative decisions that have been pieced together

over the past two decades. When crafting a long-term policy, both

program opponents and supporters must recognize its complexity in

order to move forward towards a unified constructive approach that

accommodates the changing dynamics of the sweetener marketplace.

This concludes my prepared remarks, Mr. Chairman. I would be

pleased to answer any questions the Committee has for me. Thank

you.

[The prepared statement of Ms. Brick-Turin can be found in the

appendix on page 116.]

The CHAIRMAN. Thank you very much. As the Chair announced

earlier, Senators will try to restrict themselves to 5-minutes of

questions in interrogating our panelists.

Let me start by saying, Secretary Schumacher, Ms. Brick-Turin

has described the box in which you are in, and you are describing

potential options, all of which are difficult. I think both of you have

indicated, as have journalists writing about this problem, that in

some ways producing sugar in this country has become a more lucrative option than producing corn or wheat in some instances.

There appears to have been a shift of acreage to sugar.

This is despite the fact that throughout all of this debate, it has

been apparent that an oversupply of sugar in this country and

throughout the world was apparent, but nevertheless market signals at least to farmers who made these planning decisions were

that given the Government’s sugar program, it was a more lucrative option. We have that set of circumstances.

Perhaps a change in prices of corn, wheat, and soybeans would

shift that back, but, nevertheless, that will not be in the cards this

year, and many would forecast, I think, including Mr. Collins,

maybe not next year.

So the oversupply thing is there in a big way. Our foreign policy

has suffered through many ups and downs with the Caribbean,

with the Philippines and others, as we have shifted roughly from

a 55/45, that is, domestic import for sugar supply to about 87/13

now, domestic as opposed to import, but as Ms. Brick-Turin has

pointed out, we have obligations under WTO, under NAFTA. Clearly starting about the 1st of October, those come in, in a big way.

So the supply thing dictated by price in our own situation here,

that is, better price for sugar than for corn, say, or acreage return,

plus the export thing means that we have a bigger problem come

the fall and a much bigger problem come next year and without

changes, I have suggested, an overhang of sugar that is really impossible to manage.

So it appears to me that program changes are going to be required. The problem of the hearing right now is that people come

embattled as sugar growers are hanging on for dear life to whatever is there. My colleague, and I respect him, Senator Conrad, is

suggesting this world price idea of 8-cents, 9- or 10-cents is totally

fiction, but others would say that is sort of the clearing price. That

is what happens, even given all the restrictions in the world. The

fact is that sugar comes cheaper than 18-cents or what is effectively in many of our USDA programs more like 21, verging to 26

18

by the time you add in interest rates and carrying charges and various other things.

So consumers may not complain. Maybe they do not lose 2-billion. Maybe they lose only 1-billion-a-year depending upon the pass

through, but that has been a pretty effective tax on American consumers for quite a while, and that continues on.

My prayer, I suppose, is that somewhere coming from this hearing or the stimulus of this is that there is an outline of how all of

these interests are better met. I do not have one off the top of the

head. I feel the present situation as being described is not only a

collision, but impossible and ultimately will lead to all kinds of either evasions of the law or stretching it to the ultimate, as all the

parties try to gain what they want.

My own inclination would be to say that probably the support

price should be less so that there are fewer inducements to plant

more, that people finally shift their emphasis to something else, or

as I suggested during the tobacco debate, we have a buyout of

small growers who are hurt and are hurting. That, I think, would

have been a good idea. During the tobacco debate, it faltered for

various other reasons, although I noted Maryland is adopting a

program very similar to the one that I suggested for small tobacco

growers and the might be useful for sugar growers because we keep

getting into this rundown that there are some that are very small

and some that are very large, more large in the cane business than

perhaps in the sugar business, and there are needs for transition

here. So perhaps that ought to be a part of the policy likewise.

You are thinking of a paid diversion of sorts or a payment-inkind that accomplishes that, a sort of a limiting of the planting efforts so it does not increase an even more supply, but somewhere

in the Department, are there any planners taking a look at this

thing as to what would be a better option? You have spent a lot

of time figuring out how to deal with the current situation, the political pressures of that, but in the back room somewhere, are there

people theoretically trying to think about a better world for sugar

and consumers and foreign policy?

Mr. SCHUMACHER. Frankly, Mr. Chairman, we are working to administer the program that Congress has mandated to deal with

this increase in supply right now. That is why in my testimony, I

outlined a number of the options we did consider and one that we

are seriously considering at the moment. Clearly, we will be looking in the future, but I think right now—— The CHAIRMAN. Those are things you have to follow what we

have done. So that sort of passes the ball back here, and maybe

that is where it belongs. In other words, we try to find some economists and some theorists and get a better outline. I am just asking.

I suppose, from the standpoint of the administration, are you trying to think ahead to a better world for all of this?

Mr. SCHUMACHER. Certainly, this hearing has focussed my mind

on this a bit more, but I think right now, we are really trying to

look at the different options, as I indicated, to minimize cost to

CCC, look at our projections a little more carefully, and we see

where the cost potential forfeitures are coming and how we might

deal with those through the next 18-months or next 15-months to

minimize the cost to the CCC and the taxpayers.

19

The CHAIRMAN. Let me just ask, then, with regard to the policy

already adopted. I wrote to the Secretary suggesting he not buy the

sugar, and he has bought the sugar and may buy some more, largely because I did not think it would make any difference. I think it

is throwing good money after bad already. In essence, it has not

really affected the forfeiture situation. It is still just as grim as it

was before, after the expenditure of tens of millions of dollars, and

I presume if you buy some more, it will have much the same effect,

largely because the inducements to plan more are still there, even

while we are busy trying to get rid of the surplus. The signal is

given by the sugar program that people ought to do more of this,

and they probably will, and all around the world, they are doing

so. So there is just no end to the difficulty of heading down this

trail, whatever the pressures.

I read in The Wall Street Journal that 11 Senators went down

to see the Secretary. The USDA people were amazed at such a delegation, all waiting upon the Secretary to buy more, to try to bail

out. So there are some problems, but why not have forfeitures at

this point? Why not have a signal that enough is enough, that finally you have stopped this and that it is not a good idea to plant

more beet sugar or cane sugar or any other kind of sugar right

now? As a matter of fact, you ought to try something else, and that

is why I come to the idea is it necessary perhaps for somebody to

help some people out of this market, to offer some transition payments or is sugar so lucrative that there really is no option for

these farmers.

Mr. SCHUMACHER. Sugar, as I indicated in my testimony, Mr.

Chairman, compared to corn and alternative crops in the areas

where sugar is grown—and I visited the different areas—sugar is

certainly more profitable to farmers when they run their pencils

pretty carefully, whether it is to the South, certainly Louisiana, as

they expand along the coast a little bit and use some of these new

modern technologies and certainly in the beet growing areas in the

Northern Plains and in the West.

The CHAIRMAN. I just simply repeat, it is lucrative because of the

program we offer. If we did not have a program, people would have

different sorts of pencils and come to different conclusions.

Senator Conrad?

Senator CONRAD. Thank you, Mr. Chairman.

Maybe I could go to Secretary Schumacher and ask the question.

We hear repeatedly that the world price of sugar is 8- or 9-cents

a pound. Do you believe that, that affects the world price of sugar?

Mr. SCHUMACHER. We have looked at this pretty carefully, and

that is why I put in my testimony, Senator Conrad, the EU. I think

Congressman Mink and yourself put up the charts on the retail

price of sugar. Of course, what we focus on is how it affects trade

and the next round of WTO and the amount of money the EU is

putting into its sugar export restitutions which we have called for

in Seattle to be eliminated.

I think the sugar program in the EU is a classic case where if

they did not have those huge export restitutions, we might have a

little different world sugar price because they have been the main

influence, in my opinion.

20

In my previous career, I did a lot of work internationally on

sugar, whether it was Jamaica or other countries, in the cane business, and the way that EU has taken market share from the Caribbean and from other islands is really quite extraordinary. We are

going to work very hard in the next round to eliminate the export

subsidies in the classic cases, such as in the EU.

So the direct answer to my quick—— Senator CONRAD. What are—— Mr. SCHUMACHER. Go ahead.

Senator CONRAD. No, go ahead.

Mr. SCHUMACHER. The direct answer to your question is, clearly,

if you looked at the cost of production in a number of countries, it

is closer to 17-, 18-, 19-cents-per-pound, if you average it out over

a number of countries.

Senator CONRAD. Cost of production, 17-, 18-, 19-cents?

Maybe we could put up that chart that shows cost of production.

You know, it is just amazing to me that this fiction gets restated

over and over and over that the world price of sugar is 8-cents-apound. It is not 8-cents-a-pound. It is just nonsense.

The cost of producing sugar, the average world production cost,

just as you stated—you said 17-, 18-, 19-cents.

Mr. SCHUMACHER. In that range, yes.

Senator CONRAD. This is the world survey of sugar, 1997 report,

just over 18-cents a pound. So, obviously, sugar is not selling for

8-cents a pound in the world. Sugar is not selling for 10-cents

below its cost of production or half of its cost of production, less

than half its cost of production, or the entire sugar industry worldwide would be bust. Sugar is selling for something above its cost

of production, and these people that continually refer to the 8-cents

are referring to a dump price because the vast majority of sugar

in the world sells under long-term contract. It does not count in

this calculation that others are making, the opponents of the sugar

industry are making, and that is the hard reality here.

The fact is this is the relationship, average cost of production in

the world, and the world dump price, which is not the world price

of sugar at all. I think that is a key point that needs to be repeated.

Let’s go to what the Europeans are doing because it is very instructive. It is not just in sugar. It is in every agricultural commodity that they support, and you made the point very well. $2 billion

a year, that is what our chief competitors are doing in terms of

support for that industry. Overall, they are spending close to $50

billion a year to support their products. That is what the Europeans are doing, $50 billion a year, and they are doing it because

they want to gather world market share.

In my discussions with the Europeans, they have said to me repeatedly, ‘‘Senator, we see ourselves in a trade war with the United

States on agriculture. We believe at some point there will be a

cease-fire in this trade war, and we want to occupy the high

ground. The high ground is world market share.’’

You would think we would figure this out at some point. These

guys have a strategy. They have got a plan, and their plan and

strategy is to dominate world agricultural trade, and they are

doing it the old-fashioned way. They are buying these markets.

21

These are the numbers from the Organization for Economic Cooperation and Development [OECD]. These are not Kent Conrad

numbers. European Union supporting their producers at $324 an

acre. We are supporting ours at $34 an acre. That is a very simple

question that is before us. Do we give in and let them take these

markets that have long been ours, or do we fight back? That is the

question before us.

If we want to engage in unilateral disarmament, we will find

that they are successful, they are victorious, and we are out of

business. Let me ask you what your observation is.

The CHAIRMAN. I am reluctant to call time, but give your observation if you will, and then we will need to proceed to Senator

Santorum.

Mr. SCHUMACHER. One of the things I was most pleased about

in the last month or so is the presentation that this administration

made before Geneva calling on a very radically different approach

so that we can address this issue by simplifying and getting away

from what I call the crayon or the color or the Crayola approach

to amber and green and blue and all these different colors for exempt and non-exempt support programs, and that sugar would go

into the non-exempt category. Then we will see how we get along

with our European friends.

The CHAIRMAN. Thank you.

Senator Santorum?

Senator SANTORUM. Thank you, Mr. Chairman. I will defer to my

colleague who has to leave, if he has a comment or question, and

I will take it after Senator Kerrey, if that is all right with the

Chairman.

The CHAIRMAN. We are pleased to have Senator Burns here.

STATEMENT OF HON. CONRAD BURNS, A U.S. SENATOR FROM

MONTANA

Senator BURNS. I will be very brief, Mr. Chairman, and I thank

you for your kindness.

When I look at the policies of WTO and the NAFTA and the enforcement of these agreements, I am not so sure we are adequately

supporting our domestic programs, although I am very supportive.

Currently, we have got this problem of stuffing molasses to circumvent trade agreements.

I have got 20-years refereeing football. Right now, the only reason that game is a success, because it is a violent game, where you

can keep law and order among 22 of the most heavily armored

folks in the world, cranky with each other, mobile and hostile, is

that a rule book. We must have a rule book. Right now, I have a

feeling that when it comes to our trade policies the referees that

are supposed to be watching are not doing a very good job.

I am just astonished. Right now, I am asking them to make the

call where there are violations of the WTO or the violations of

NAFTA. Make the call and then walk off the field because that is

the way we must do it in our way of life. I would like to see that

happen with the sugar situation. I do not think we would find ourself in a situation that is as dire as it is today. I am not saying

we would not be in a negative situation, but we wouldn’t be in a

situation that is as dire as it is.

22

I would just suggest to my good friends down at the Ag Department and my good friends at the Federal Trade Commission and

the International Trade Commission [ITR] to make the call, and for

this administration through the ITR to make the case. That is my

message this morning. The only way we can get out of this thing

is to provide a little bit of protection for our producers. I think the

consumer wants a consistent supply at a consistent price. This program has supplied that for them.

I thank you, Mr. Chairman, for this time.

The CHAIRMAN. Thank you for your participation, Senator Burns.

Let me just mention our colleague, Senator Breaux, has arrived.

I am going to ask if it is all right with you, John, for us to complete

our questioning of this panel. Then we will hear from you, and

then we will hear from the next panel.

Senator Kerrey.

Senator KERREY. Thank you, Mr. Chairman.

STATEMENT OF HON. J. ROBERT KERREY, A U.S. SENATOR

FROM NEBRASKA

Ms. Brick-Turin, I hope you did not break your arm examining

the sugar program. I find your testimony to be very balanced,

though I would like to press you a bit on making some recommendations to me.

I tend to favor the free market and trying to decide what works

and what does not work. I like the marketplace, and indeed, in domestic sugar, we have got pretty much a marketplace operating,

but I quite agree with you, there is a collision going on here between the international market and our patchwork of Government

policies. The question that I have got in my mind is what kind of

policy should we put in place to replace the current program. What

do we do?

I am not convinced that throwing the program out is a good idea

or that a buyout is a good idea. In my homestate, I see the benefits.

I have got 555-farm-families, and that is the ultimate objective for

me. I have got 555 families that are on the land, and I would like

for them to feel even better about farming than they currently do.

I would say to you, Mr. Chairman, they are not going to grow

corn and wheat right now. They are not making money in any of

those. Their choice really right now is do I stay in farming or do

I go and do something else. Those 555 families produce about

1,000-metric-tons. We have two refiners that have about 14 or $15

million in payroll, another 600 good family jobs in our community.

So that is what I see as the ultimate. I do not see it just that we

are producing sugar for processors to use for cereal and candy, etc..

I know that is all important, but I see these families as the ultimate objective in addition to economic objectives.

So I want our policies to provide opportunities for farm families

to stay on the land throughout the United States of America, and

that is what we have done over 150-years of intervening in the

marketplace with land-grant college assistance and the transcontinental railroad—etc., etc.. We have tried to create more market opportunities by good Government intervention.

I wonder if you have thought about somebody like myself that

likes the marketplace, but as well wants whatever Federal rules we

23

have to create opportunities for families and jobs here in the

United States of America for people who choose to make a living

of working on the farm. I wonder if you have given some thought

of what you think would work as a good balance between what the

market could do, but what the market will not do, especially given

the presence of other government efforts, not just the European

Union, but throughout the Caribbean Basin as well.

Ms. BRICK-TURIN. Yes, I have, Senator. I do not mind being

pushed, by the way. I still have one good arm.

I understand that the marketplace does work. In fact, the sugar

market is unique because while on a day-to-day basis buyers and

sellers work within a free marketplace, the overall parameters of

supply and, therefore, price are still set by the Federal Government.

I by no means meant to suggest that we throw out the program.

What I would suggest is that we end the Band–Aid approach to

policy.

Certainly, over the past 10-years, I think that the administration

of sugar policy has reflected this Band-Aid approach. Policy makers

would stick a finger in one hole and there would be leakage elsewhere. I think that the overall program, both the domestic program

and import policy, needs to be thoroughly reexamined and, if necessary, rebuilt.

I think that clearly, Congress and the administration need to

weigh the importance of maintaining a domestic industry. I do not

think that anybody would argue with the fact that it is important

to do so. But I think that the program needs to be examined in the

overall context of Ag policy, budgetary policy, and international

trade policy, to create an overall policy approach that gets away

from the piecemeal types of decisions that we have had in the past.

I know that there will be other witnesses testifying as to specific

approaches or specific policies. I want to underline is the general

approach, the general strategy that I think both program opponents and supporters need to take.

Senator KERREY. Thank you.

The CHAIRMAN. Thank you, Senator Kerrey.

Senator Santorum.

Senator SANTORUM. Thank you.

STATEMENT OF HON. RICK SANTORUM, A U.S. SENATOR FROM

PENNSYLVANIA

In comment to Senator Kerrey’s comments, I, too, am concerned

about farm families. I also am concerned about the families of folks

who work in industries that consume sugars, that use sugar. We

have lost a lot of jobs in Pennsylvania in the confection industry

to Canada and Mexico where products are being produced there instead of employing people in Pennsylvania, and other places

around the country, because of the high cost of sugar.

Now I understand, in fact, most of the members of the Pennsylvania delegations and I, sent a letter to you regarding a proposal

to require import licenses for sugar-containing products. We expressed our concern about that, about what that would mean. Can

you give me an update? We did not get a decision on that. I guess

24

it has not been forthcoming, but if you can give me an update on

what your thinking is on that?

Mr. SCHUMACHER. What I would like to do is respond to you in

writing on that one so we have it clear and on the record, Senator,

because we have some changes in the rules in Canada that would

affect that. Of course, Senator Burns has counseled us on the

stuffed molasses issue as well. We are trying to put this altogether,

and we will get back to you in a more formal and timely way—I

want to get that out very shortly.

Senator SANTORUM. Some discussion has been made. I appreciate

that, number one. A second issue, discussion is here about NAFTA

and the fact that sugar imports are expected to increase as a result

of that. Can you tell me how you are approaching the situation

with respect to the interpretation of this side agreement of NAFTA

and what you plan to do about it this fall?

Mr. SCHUMACHER. I think one of the things that—we have now

a new ambassador-designate, Greg Frazier, who is actually in Mexico right now and I think is going to be coming back the next few

days and discuss these issues, and he has indicated to the Committee that he will be coming up here and giving the members and the

staff a detailed briefing in executive session on the results of his

discussions in Mexico that are currently ongoing as we speak.

Senator SANTORUM. But you cannot give us any update as to

what is going on?

Mr. SCHUMACHER. I am going to wait for Greg to get back and

tell me, and then maybe he can quickly come up to discuss this

with—— Senator SANTORUM. Or send us another letter or something like

that.

Mr. SCHUMACHER. No, no. He is going to come up and discuss

this personally with you.

Senator SANTORUM. I would like to ask Ms. Brick-Turin—to sort

of follow up on Senator Kerrey’s question. I think Senator Kerrey,

at least I thought, was trying to get some sort of specific recommendations, and I think you said we need to look at it. Can you

give us some more specific things that you would suggest changing

that could be made or should be made? Obviously, I make no secret. I am not a fan of the sugar program. I make no secret it costs

us jobs in Pennsylvania and costs consumers in this country

money. You may question the amount of subsidy that goes to producers as a result of this program, but I think the Chairman pointed out very correctly, this is one of the few remaining programs on

the books that provides support out there, a price that guaranteed

some level of profit. When you have the uncertainty that is in the

agricultural economy today, when you have a program like this, it

encourages people to get into that commodity which results in the

oversupply situation.

So I think the Chairman is absolutely right on. You may be for

or against this program, but if we continue with this program in

its current state, matters are only going to get worse for everybody

concerned and cost the taxpayer as well as the consumer a lot more

money. I think that is something that needs to be addressed.

I am not sitting here saying I know the answer, although I voted

for the answer that I think was as good, which is to eliminate the

25

program, but short of that, which only got—I see Senator Breaux

out there chuckling. His 66 votes in the Senate last week showed

that, that was not going to happen at any time soon. So what sort

of recommendations would you make that could alleviate the problem?

Ms. BRICK-TURIN. Thank you, Senator, for the question.

I think that policy needs to be looked at in both the short term

and long term. Certainly, in the short term, I would support another CCC purchase or Payment-in-kind [PIK] program. I think

that the Department should be given a chance to see if its initial

approach for this year’s oversupply situation will work. But I do

think, tying it to the longer term, that any short-term emergency

program needs to be based upon a commitment for structural reform.

The oversupply situation, as the Secretary discussed, needs to be

addressed because the problem is not going away.

Any reduction in the loan rate, for example, will allow free market forces to have a greater impact on the market. Certainly, producers with higher production costs will continue to go out of business. Facilities will continue to close; that is the natural course of

free market forces taking over.

I do not support the dismantlement of the overall program, but

I cannot stress enough the approach that I would take—to take

apart the overall program, both domestic and import policies, and

then rebuild the program. It needs some type of basic structural reform.

I am not prepared to give a specific answer. I know that other

witnesses will. But I do think that it is vital to look at the long

term as we address the short term.

The CHAIRMAN. Thank you very much, Senator Santorum.

Mr. SCHUMACHER. Senator, may I just respond? I do not want to

take time, but my staff has updated me quickly. I will still get the

letter back, but could I respond to Senator Santorum’s question on

Canada?

The CHAIRMAN. Of course, yes.

Mr. SCHUMACHER. On June 20th, Senator, what happened, as I

said, the Canadian government amended its export permit system

to rescind the requirement that exporters of sugar-containing products increase the proportion of the export in retail form. So, of

course, the U.S., on these products, has been seeking, as your letter

indicates, some new licensing requirements to require Canada to

continue to export bulk for products to be packaged in the United

States.

So we are working on a rule that will impose such a licensing

requirement, but now that rule is we have to reevaluate it, given

this new June 20th—I will get that letter to you, but I want to just

on the record respond to your question.

Senator SANTORUM. Thank you, Sir.

The CHAIRMAN. Let me just comment in thanking this panel. I

think Senator Kerrey’s observation that there are 555 farm families in Nebraska who are apparently now involved in production of

sugar because it is a better option, given lower prices of corn,

wheat, or what have you, is a factor that leads to some sympathy

for not only the sugar program, but other programs.

26

When the Senators were asked to vote last week on the sugar

program, they confront the fact that in our Ag policy this year, in

commitments this committee has made and have been ratified by

the Senate, 91 to 4, we are really trying to save every family farmer in the country, to put a safety net on every single one. So you

could very well raise the question why not the 555 who are in

sugar cane. I think we all understand that because we are in a

transition in agriculture that is very significant.

At the same time, even while we are attempting to help these

555 farmers, the facts are that the sugar supply of the world is increasing and we have monumental problems simply dealing with

this, and you have tried to touch on these briefly, Secretary

Schumacher, but obviously to dump the sugar in various ways

around the country, around the world is not very acceptable. So not

to dump it is to have it pile up.

The question then you have to face is whether you use some of

this sugar to buy people out of the idea of producing some more of

it, and that is sort of where you are headed, I gather, even as we

think about this, this morning.

As Ms. Brick-Turin has pointed out, this is another sort of patchwork, finger in the dike, before the whole thing flows over. I am

hopeful that the Department and likewise in the private sector that

there are innovative people trying to think through this because we

will have to return to this next year. It will not go away. Perhaps

absent an election and absent pressures of the current situation,

we can do better, but we appreciate your coming before us now and

sort of updating what you feel you must do, and we would like to

stay closely in touch.

Mr. SCHUMACHER. We will do that. Thank you very much for

having us here.

The CHAIRMAN. I thank the panel.

I would ask now for Senator Breaux to come forward to give his

testimony.

Senator KERREY. Mr. Chairman, if I could while he is coming forward, just to clarify since you have referenced my remarks. Nebraska beet producers are actually producing fewer metric tons a

day than they did 10-years ago. So we are not seeing people respond to the sugar program, producing more sugar, the options

that are there. In fact, the strongest signal from the Government

right now is to produce soybeans for the LDP. If you want to take

the full look at this thing, that is the signal they are getting at.

What I am suggesting is that the program has a purpose beyond

the economic purpose, and we have achieved that purpose.

The CHAIRMAN. Thank you very much.

Senator Breaux, would you please summarize in 5-minutes. Your

something will be made completely a part of the record, as was the

case with each of your other colleagues who have testified before.

STATEMENT OF HON. JOHN B. BREAUX, A U.S. SENATOR FROM

THE STATE OF LOUISIANA

Senator BREAUX. Thank you very much, Mr. Chairman and Senator Santorum and Senator Kerrey. We must be doing better. We

are now in the big room. I am delighted to be here.

The CHAIRMAN. There is more interest in your testimony.

27

Senator BREAUX. Yes.

Senator KERREY. As opposed to the big house.

Senator BREAUX. The big house.

Senator KERREY. Yes.

Senator BREAUX. Well, thank you very much. I am always delighted to discuss the sugar program.

If the Committee is looking to determine whether we need a program, I think the answer is pretty straightforward. The answer is

yes. We need a sugar program like we need a program for cotton

or rice or wheat or any of the other agricultural commodities. It

should be fair. It should be reasonable, and it should be workable.

So I do not think we are here today to determine whether we need

a sugar program unless you want to single out one commodity and

say every other agricultural commodity has a program except one.

I think we need one, and it also should be fair.

I think the question is not really whether sugar contributes to

the economy. It contributes many billions of dollars to the economy

in terms of small workers and family farmers and refiners and people who work in our industry, like they work in all of the other industries around the country. The answer is yes, it does contribute

to the economy in a major, major way.

If the question before the Committee is to understand better how

it operates, I think that is a very legitimate question because a lot

of the discussions on the floor of the Senate, I think, quite frankly,

have not been totally accurate in how the program operates.

We heard debate on the floor this past week about all of these

subsidies to sugar growers. Well, there is no direct subsidy to sugar

growers. As I think this committee understands, there is a loan

program, a commodity loan program for sugar farmers which is the

same type of program that is also authorized for cotton, for rice, for

wheat, and feed grains. There are no Agricultural Marketing Transition Act, AMTA, payments for sugar.

We have had an 18-cent loan program since 1985. It has not been

increasing every year. It has not gotten a cost-of-living adjustment.

It has not been increased since 1985. It has been 18-cents since

1985.

If the farmer puts the crop on the loan and he cannot pay off the

loan, he forfeits the crop. That is the essence of a commodity loan

program, but in addition, back in 1996, we made some major

changes and imposed upon the sugar program something that is

not in any of the other commodity programs. If the sugar farmer

forfeits his crop because he cannot pay for the loan, unlike any

other commodity, he has a 1-cent reduction if his crop is in fact forfeited to the loan program. No other commodity has that. He is penalized if he has to in fact put his crop under loan and forfeit it

under the loan program.

We also provide for 40 nations to import sugar into this country,

they do.

If we are here today to determine whether elimination of the program will benefit consumers, I think the answer is very simple. No,

it is not.

The chart I have on the right contains USDA figures, Mr. Chairman. I used it on the Senate floor this past week. It shows what

has happened since 1996 to the price of sugar. The figure on the

28

left is the price to the sugar cane farmers. The one on the right

is the price to the sugar beet farmers. It has dropped 14.6-percent

and 31.9, almost 32-percent. So you would say if the price of sugar

is dropping, all of these industries that use sugar must be reducing

their prices as well. Of course, it is not true. The retail refined

sugar price on the shelf has increased by a half-a-percent. Candy

is one of the biggest users in the country. You would think if the

sugar price was falling like this, candy prices would fall. Instead,

they have gone up 6.4-percent, cookies and cake, 6.6-percent, cereal, ice cream, all respectable, but very certain increases in the

price that they charge for their product while one of their main ingredients has crashed 32-percent and 14.6-percent in the last years

since 1996, over the last 4-years. These are not the industry’s figures or my figures. These are USDA figures.

So I think that if you say all right, let’s get rid of the sugar program and all the consumers will be better, I think history tells us

that is not the case.

I think, Mr. Chairman, in all areas, it is a program that has

worked, that has been stable. There has been a lot of misinformation about it, but I am certainly not for not looking a ways to improve this program or any agricultural program. Hopefully, when

the time comes, we will be looking at ways to improve it, bearing

in mind that what we have has worked very well, especially since

we modified it 4-years ago.

Thank you very much, Mr. Chairman.

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

appendix on page 79.]

The CHAIRMAN. Thank you, Senator Breaux.

Senator Kerrey, do you have a question or a comment?

Senator KERREY. Yes.

Senator Breaux, you were here along with Senator Lugar and I

when NAFTA was being debated, and one of the things that was

a concern with NAFTA was whether or not Mexico would seek to

avoid doing what we had to do here in the United States of America in the sugar industry, which is we had to restructure in our industry as a consequence of consumers picking a different product

in soft drinks, almost 100-percent of displacement that occurred as

a consequence of a preference for high-fructose corn sweeteners

that displaced the sugar market. We lost a lot both on the refining

side and on the acreage side. We had significant restructuring.

The fear was that Mexico would want to avoid having to do that,

and so I wonder if you could talk a bit about the production, this

side letter that was supposed to assure us that this was not going

to occur; that Mexican negotiators were saying this kind of displacement will not happen in Mexico, our tastes are different. Well,

their tastes are not different. What has happened is that these

sweeteners have done the same thing in Mexico as has happened

here. They have displaced 100-percent of the market, and Mexico

does not want to restructure.

Now they are saying this side agreement, this letter that they

had, was not binding. I wonder if you could talk about how that

influenced your vote in 1993 and your attitude towards NAFTA as

a consequence.

29

Senator BREAUX. A couple of points, Senator Kerrey. You have

really outlined the situation quite accurately.

I think Mexico has as much a political problem as they have anything else. They have greatly increased their reliance on fructose

corn syrup, corn sweeteners, which has replaced sugar in a lot of

their commodities, like we have done here in the soft drink industry. So now they have a lot of sugar that has been not used because

it has been replaced by the corn sweeteners. So they are trying to

say, ‘‘All right. What do we do with all of this sugar?’’ It is a political problem as much as an economic and agricultural problem.

Back when we were considering NAFTA, one of the concerns

among many, many people in the sugar beet and cane producing

areas was that NAFTA was going to unleash a flood of dumped

sugar into this country, and we could not handle that type of

dumping. So a side letter was negotiated which I participated in

and felt that it did provide the relief that was important and that

was a guarantee that Mexico would not be allowed to arbitrarily

just dump whatever they did not need into this market. That letter

is typical of many, many side letters and a lot of international

trade agreements. They are binding. They have to be lived up to

by both countries, and they cannot be denied.

I think that our administration is trying to make sure that the

Mexican government lives up to the signed letters and agreements

that they entered into. NAFTA would not have passed had it not

been for that. It is just that simple. Mexico has benefitted tremendously by NAFTA, and for them to now say that we got the benefits of NAFTA, but we are going to deny something that led to the

adoption of NAFTA, I think, is totally incorrect and not the right

policy.

Senator KERREY. I appreciate that. I would also say that I think

as people scratch their head and try to figure out why trade agreements have become unpopular, why we have been unable to muster

a majority to give this President trade-negotiating authority, why

PNTRs are controversial, why these kinds of trade agreements are

controversial, I cite the failure to live up to this side agreement as

an example. People do not trust these trade agreements as a consequence.

I will continue to press for trade negotiating and authority, etc.,

but I think it is really one of the reasons that in the countryside

people say these trade agreements are not what you promised them

to be.

Senator BREAUX. Yes. Clearly, NAFTA would not have passed in

the absence of that agreement.

The CHAIRMAN. Thank you very much, Senator Breaux, for coming this morning.

The Chair would like to recognize now a panel to be composed

of: the Honorable Ira Shapiro, Coalition for Sugar Reform; Mr. Arthur S. Jaeger, Assistant Director of the Consumer Federation of

America; Mr. John Frydenlund, the Director of the Center for

International Food and Agriculture Policy, Citizens Against Government Waste; Mr. Nicholas Kominus, President of the U.S. Cane

Sugar Refiners’ Association; Mr. Tom Hammer, President of the

Sweetener Users Association; Mr. Mark Perry, Executive Director

30

of the Florida Oceanographic Society; and Ms. Shannon Estenoz,

World Wildlife Fund and the Everglades Coalition.

We are grateful to each of you for coming today to enhance our

hearing. As perhaps you have heard earlier on, we have asked each

of our witnesses to summarize initial comments in 5-minutes. All

of your statements will be made a part of the record in full so that

this hearing will be as valuable to others who read the record as

those of us who have the opportunity to hear you personally, and

I will recognize you in the order that I called your names to begin

with.

First of all, Mr. Shapiro, would you please give your testimony.

STATEMENT OF IRA SHAPIRO, COALITION FOR SUGAR

REFORM, WASHINGTON, DC.

Mr. SHAPIRO. Thank you, Mr. Chairman.

I appear today on behalf of the Coalition for Sugar Reform,

which is an umbrella organization representing U.S. trade associations, consumer and environmental groups, and taxpayer advocates

who are united in the view that the sugar program needs fundamental reform.

The panel includes an array of witnesses here that can give you

valuable insight into the various issues, but as a former U.S. Trade

Official, I would like to focus my testimony today briefly on the

international trade aspects of the sugar program.

I believe that maintaining the sugar program in anything like its

present form will undercut our ability to open foreign markets for

a whole range of U.S. products and services, particularly agricultural commodities and value-added products. In that regard, Mr.

Chairman, I believe the sugar program is the Achilles’ heel of U.S.

trade policy.

Why do I say that? Looking at the record in international trade

and the central challenges facing us brings me to that conclusion.

I think history will mark the years since 1993 as an extraordinary period of trade expansion and market opening, beginning

with NAFTA and the Uruguay Round, continuing right up to this

year with the PNTR vote in China and bilateral agreement on Vietnam. By any measure, world markets are more open than they

were a decade ago, thanks to U.S. leadership, and that opening of

markets has undeniably extended to agricultural products and food

products as well.

The Uruguay Round began the process of bringing agriculture

trade under rules, opening markets and reducing the distortions

imperfectly, of course. NAFTA also did this, and we have had numerous bilateral agreements that Ambassador Barshefsky and Secretary Glickman have championed, with the strong support and the

prodding of this Congress, and particularly this committee and

your House counterpart.

Yet, despite those achievements, all over the world, agriculture

remains the most sensitive sector: politically, economically, and culturally. Barriers have come down, but agriculture trade remains

substantially restricted and distorted. Tariffs average 50-percent

worldwide for agricultural products. TRQs give some access, but

they continue to maintain restrictive conditions.

31

We have the EU, as Senator Conrad has pointed out, using something like 85-percent to 90-percent of the world’s export subsidies,

and State trading enterprises still play too large a role.

For all of these reasons, before Seattle and since, every U.S. official has made it crystal-clear that liberalizing agriculture trade further is the number-one priority of the U.S. in trade. We have set

forth our ambitious objectives recently in the comprehensive proposal—and in my view, there is no doubt of the commitment of this

administration or the next administration, Democratic or Republican, in that regard, as well as this Congress.

But the real question, Mr. Chairman and Senator Kerrey, is how

do we accomplish that objective? Where do we find the leverage,

where do we find the allies to bring about more open world agricultural trade, and against that background, I would submit that the

sugar program is a principal impediment to our efforts.

First, it makes our calls for a fair and market-oriented system

sound hollow and hypocritical. If we saw this program in any other

country, we would label it as a major distortion of trade. We cannot

really expect other countries to end protection or Government management of sensitive commodities if we are not prepared to do so.

Second, we need to build allies with the Cairns Group and with

the developing world if we are going to bring about the kind of

world that the Administration’s bold proposal talks about, and yet,

sugar drives a wedge between us and many of our likely allies. In

this sector, it puts us essentially in the camp of the European

Union and Japan as the major distorters of world trade.

Third, there are very few issues, if any—and I cannot think of

any—that matter more to more nations than sugar trade. It is at

the top of the agenda for the largest developing nations India and

Brazil, and for developing economies like Chile, Thailand, and the

Philippines. But it is also the high priority for the most struggling

economies in the world: Central America, the Caribbean, and Africa.

We know many of these countries think they got too little out of

the Uruguay Round. In terms of access to the markets of the developed world. I think the inequities in the sugar program compel the

conclusion that on this issue, the grievances of the developing countries are well justified, and not just deeply felt.

I will conclude, Mr. Chairman, by saying that every Nation has

its sensitive commodities, and certainly sugar is one of ours. But

when our sensitive commodity is vitally important to the economic

well-being of so many other countries, it becomes a major source

of imbalance in the global economy. I think we have to think carefully about it in terms of the next round and regional trade agreements recognize its possibility for helping us to open markets for

virtually everything else we want to export.

Thank you.

[The prepared statement of Mr. Shapiro can be found in the appendix on page 120.]

The CHAIRMAN. Thank you very much, Ambassador Shapiro. We

appreciate your testimony.

Mr. Jaeger.

32

STATEMENT OF ARTHUR S. JAEGER, ASSISTANT DIRECTOR,

CONSUMER FEDERATION OF AMERICA, WASHINGTON, DC.

Mr. JAEGER. Thank you, Mr. Chairman. I am pleased to be here

today on behalf of the Consumer Federation of America.

CFA has long opposed the Federal sugar program as costly to

consumers, and we appreciate your leadership over the years on

this issue.

As we have heard repeatedly this morning, the sugar program

does rely on a system of price supports and import restrictions to

keep prices paid to U.S. sugar producers well above the world market.

Unfortunately, much or all of this increased cost for raw sugar

is passed on to consumers by those who buy sugar from the producers—that is, the food processors and the retailers. Now, we may

not like that, but the major studies down through the years have

repeatedly shown that it is economic reality. It may not be 100-percent pass through, but it is a substantial pass through.

Consumers pay this, what I call a hidden subsidy, each time they

buy a food product containing sugar at the grocery store. It

amounts to a regressive hidden food tax. It is regressive, of course,

because poor people spend a disproportionate share of their income

on food.

The General Accounting Office, as we have heard, has repeatedly

found the sugar program to be costly to consumers and other sugar

users. GAO is an independent body. It is well respected. It is an

arm of Congress. It has no ax to grind here. In 1993, it put the cost

of this program at $1.4 billion a year to consumers and sugar

users. In the past year, it took an even more exhaustive look at

this program, and it found, once again, the cost to be $1.5 billion

in 1996 and nearly $2 billion in 1998. Without the sugar program,

GAO estimated consumers would pay $600-to $800 million a year

less for table sugar alone. That is not addressing other processed

foods.

These estimates would be less troubling to my organization if

most of what consumers were paying in extra food costs was helping struggling family farmers, the farmers that Senator Kerrey and

Senator Conrad referred to. Unfortunately, since the benefits under

this program accrue on a per-pound basis, the bulk of the money

goes to those who least need—it, the largest, most financially secure growers. GAO brought this point out in 1993. It said out that

more than 40-percent of the benefits from the sugar program go to

the top 1-percent of growers. Benefits, of course, are particularly

concentrated among cane sugar growers 33 of them, GAO found,

reaped in excess of a million dollars a year from this program.

These beneficiaries are not Senator Kerrey’s family farmers. The

money they receive could be used by consumers to buy additional

food or clothing, to help pay their mortgages, and to supplement

their savings.

In addition to the consumer cost, taxpayers are bearing an increasing burden under the sugar program. The next witness, I believe, will address that in more detail.

Defenders of the sugar program dispute many of the numbers I

have cited. In particular, they say consumers would never see any

benefit if the sugar program were eliminated. Processors and reVerDate 11-MAY-2000 10:14 Mar 23, 2001 Jkt 070294 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 70294.TXT SAGRI1 PsN: SAGRI1
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tailers would simply pocket any savings from lower raw sugar

prices.

But, contrary to some of the numbers we have heard this morning, consumers have already benefitted from the recent freefall in

the farm price of sugar. The retail price of table sugar—and that

is what you need to look at to see the impact of this program—hit

a 4-year low in April. It was down 4-percent from a year earlier.

That is despite rising energy costs.

Admittedly, this retail price drop is small compared to the producer price decline over the same period, and for that reason, my

organization is watching these numbers very carefully. We will not

hesitate to speak out if it appears processors and retailers are taking advantage of the recent sharp decline in producer prices and

not passing savings on to consumers.

I should also say, while we object to the sugar program, CFA is

concerned about the continuing decline in the number of small family farms in this country. Clearly, some small sugar beet farmers

in the upper Midwest, in Nebraska, and elsewhere are facing serious financial problems. They deserve Federal help. We simply feel

price supports are an inefficient way to do this because they concentrate benefits on the wrong producers.

In lieu of the sugar program, we suggest a targeted assistance

package specifically designed to help small sugar producers and

other producers that need help to survive.

Thank you.

[The prepared statement of Mr. Jaeger can be found in the appendix on page 126.]

The CHAIRMAN. Thank you very much, Mr. Jaeger.

Mr. Frydenlund.

STATEMENT OF JOHN E. FRYDENLUND, DIRECTOR, CENTER

FOR INTERNATIONAL FOOD AND AGRICULTURE POLICY,

CITIZENS AGAINST GOVERNMENT WASTE, WASHINGTON, DC.

Mr. FRYDENLUND. Mr. Chairman and members of the Committee,

on behalf of Citizens Against Government Waste, thank you for the

opportunity to testify on the Federal sugar program.

CAGW is a nonprofit, non-partisan organization with 1-million

members and supporters which grew out of President Reagan’s private sector survey on cost control, better known as the Grace Commission. The organization’s mission is to work for the elimination

of waste, mismanagement, and inefficiency in the Federal Government, with the goal of creating a government that manages its programs with the same eye to innovation, productivity, and economy

that is dictated by the private sector.

The Center for International Food and Agriculture Policy institutionalized CAGW’s longstanding goal of dismantling Depression-era

agricultural price supports and regulations.

In addition to a belief that Congress should build on the accomplishments of the 1996 Freedom to Farm bill and achieve a truly

free market for agriculture, the Center advances the philosophy

that the best way to assure America’s farmers a prosperous and secure future is to promote a more open, global food economy by dismantling barriers to free trade.

34

CAGW applauds Chairman Lugar for holding this hearing particularly at the present time, in advance of congressional consideration of a new farm bill. For years, the sugar lobby has successfully

deceived the public into believing that the sugar program has no

cost. However, the truth has finally come out. The Clinton administration’s decision to purchase sugar to prop up domestic sugar

prices finally debunks the greatest myth that producers have perpetrated on the U.S. public that the sugar program does not cost

taxpayers anything.

In fact, there was always taxpayer cost to the sugar program, roughly $90 million annually, and increased costs of sugar purchases that went to Government feeding programs, etc..

The Clinton administration’s mid-session budget review shows

that from 2000 through 2005, the sugar program will cost taxpayers—not consumers, but taxpayers—a cumulative $1 billion.

The White House agreed in May to purchase 132,000 tons of sugar

which will cost taxpayers approximately $54 million. However, this

is only the beginning.

The Clinton administration acknowledged that this purchase

would not help strengthen sugar prices. In fact, according to a report in the highly respected Pro Farmer, USDA budget analysts expect the Government to spend $140 million on sugar this fiscal

year. Indeed, the sugar lobby is already pushing for still more assistance that would cost at least as much as the sugar purchase.

The U.S. Department of Agriculture made this situation worse by

mismanaging the tariff rate quota for sugar. Although USDA is

supposed to announce the TRQ allocations prior to the beginning

of each new fiscal year, this year the TRQ was announced late,

over a month after the fiscal year began. If the TRQ is more than

1.5-million-tons, the U.S. sugar processors are eligible for non-recourse loans, which do not have to be repaid, but if the TRQ is less

than 1.5-million-tons, the loans become recourse.

Since sugar processors would rather not have to repay their

loans, they used their clout to pressure USDA to announce a TRQ

that would permit them to forfeit sugar to the Government if they

wished.

USDA came up with a novel approach of announcing an essentially fictional TRQ and simultaneously announcing a real TRQ

that would actually be enforced. The fictional TRQ was just over

1.5-million-tons, just enough to give sugar processors the right not

to repay their loans, but at the same time, USDA also announced

that only 1.25-million-tons of the quota could actually be imported.

In other words, USDA perpetuated a sham by putting the 1.5-

million in a press release, which gave the sugar processing industry the right not to repay loans made with taxpayer money, and by

ensuring that the real TRQ was significantly less than this, 1.25-

million-tons, USDA further restricted imports. In fact, the only reason USDA did not shrink the 1.25-million-ton figure even more is

that the United States has an international obligation under the

WTO not to import any less than this amount.

If USDA had followed the intent of the law last fall, the taxpayers would not be paying for sugar purchases now. If USDA had

announced the TRQ at the true 1.25-million-ton level, then price

support loans would have been recourse. The big processors could

35

have still gotten the loans, but they would have had to pay them

back with real money, not sugar.

USDA’s administration of the TRQ has been marked by a shortterm political focus and a bias in favor of the large domestic sugar

interests that have historically wielded influence at the Department. Even before this year’s fiasco, the General Accounting Office found that USDA raised sugar costs for users and consumers, $400

million higher than would have been necessary. In other words,

USDA has not just imposed the annual cost of the program on

users and consumers recently estimated by GAO at 2-billion, which

was a 40-percent increase since its last report, but it has added another $40 million to the consumer tax for sugar.

In conclusion, for the good of U.S. taxpayers, consumers, and the

rest of the agricultural industry, it is long past time to get rid of

the U.S. sugar program.

Thank you, Mr. Chairman.

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

appendix on page 133.]

The CHAIRMAN. Thank you for that testimony.

The Chair at this point is going to call for a short recess. The

roll call vote that was anticipated is occurring on the floor, and I

will return as rapidly as possible. We will proceed, then, with the

rest of our witnesses.

[Recess.]

The hearing is called to order. Again, we would like to proceed

with our next witness, Mr. Kominus.

STATEMENT OF NICHOLAS KOMINUS, PRESIDENT, U.S. CANE

SUGAR REFINERS’ ASSOCIATION, WASHINGTON, DC.

Mr. KOMINUS. Thank you, Mr. Chairman.

I would like to begin by commending you for calling this hearing.

Lord knows the sugar program needs a good look-see. Our cane

sugar refining industry has suffered under the program since it

was adopted in 1981, and now our producer friends in other segments of the industry are starting to share our pain.

Today, sugar is a mess. The Secretary of Agriculture has lost

control of the situation, and it is largely of his own doing and that

of his immediate predecessors. He can no longer support the price

of sugar for domestic producers by regulating imports. So now the

Secretary must resort to other steps such as purchases and perhaps plowing up planted acreage.

Over the years, our calls for more reasonable import quotas have

gone unheeded. Tight import quotas have forced up the price of

raw sugar to unreasonable levels well above the forfeiture levels

and thereby stimulated unbridled domestic production. I believe

the current mess could have been avoided or at least delayed had

the Secretary responded to three changes you made in the sugar

program in the 1996 farm bill.

The so-called no-cost provisions were dropped, and a 1-cent forfeiture penalty was adopted. Clearly, those changes would permit

less restrictive import quotas, but despite our pleas and the pleas

of others, the Secretary chose to ignore those changes.

He also chose to ignore the third change which attempted to restore balance to the program by denying non-recourse loans if imVerDate 11-MAY-2000 10:14 Mar 23, 2001 Jkt 070294 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 70294.TXT SAGRI1 PsN: SAGRI1
36

ports continue to slip. Although everyone in the sugar trade knew

that imports would be nowhere near the 1.5-million-ton trigger, the

Secretary went ahead with non-recourse loans last year. All of this

has resulted in the current mess. Where do we go from here?

We believe that the burden for correcting the oversupplied market should fall on those who created the problem by expanding

acreage. A strong message should be sent to them. The Secretary

should not further aggravate the situation by taking them off the

hook. In this regard, we have five recommendations that we believe

will help the situation.

First, the Secretary should announce and allocate the tariff rate

quota well before the beginning of this coming marketing year. The

6-week delay in announcing the quota last year created all sorts of

costly problems for refiners and others in the sugar trade and

should not be repeated.

Second, if the quota allocated is less than 1.5-million-tons, the

Secretary should, as the statute directs, provide resource loans. If

the quota announced is greater than 1.5-million-tons, the 1.5-million-tons should actually be made available for import.

Third, if the Secretary is going to purchase more sugar, it should

be refined sugar and not raw sugar, as low refined sugar prices are

driving the low raw sugar prices. Purchasing raw sugar will not result in any increase in refined sugar prices, and, thus, will not act

to avert refined beet sugar forfeitures.

Fourth, require that any increase in the quota for Mexico be imported as raw sugar for further refining. Cane sugar refiners

should not be further disadvantaged by the program.

Fifth, and perhaps most importantly, Mr. Chairman, whatever

short-term steps the Secretary takes to alleviate the current situation should be designed to facilitate a long-term solution to the

problem.

Thank you.

[The prepared statement of Mr. Kominus can be found in the appendix on page 137.]

The CHAIRMAN. Thank you very much, Mr. Kominus.

Mr. Hammer.

STATEMENT OF TOM HAMMER, PRESIDENT, SWEETENER

USERS ASSOCIATION, FALLS CHURCH, VIRGINIA

Mr. HAMMER. Mr. Chairman, partly because a lot of what I was

going to say has been said and because of your 5-minute rule, I will

just make a few remarks here.

Mr. Chairman, a lot has changed since I sat before you 5- or 6-

years ago or so and we discussed the sugar program, and I dare

say that my message at that time was not particularly well received by other members of your committee, or at least all the

members to say the least. I was often politely dismissed and sometimes not so politely dismissed by saying that the sugar program

was not broken and why in the world would I be up here offering

suggestions to fix it, and that was generally followed with the comments that the sugar program was a great example because it cost

no money.

37

I think that those two statements today do not meet at least today’s reality test, and I would like to make a few comments about

that.

For many years, we were concerned that the rigidness of the domestic sugar policy was not only unfair, but, more importantly, it

would not be able to be sustained in a dynamic global economy.

The answers to our problems are not simple. We are not in an isolated economy, and we are in the global economy and we must compete in such.

We are not dealing with one variable equation such as sugar. If

you are a manufacturer of a product, it is rare that sugar is your

only ingredient cost.

Also, we are not competitors. We are ultimately in a supply chain

with the refiners, with the processors, along with the industrial

users and the growers as we try to market our product to the ultimate consumer.

I would also say the TRQ plan is not working. It is not easy to

administrate. There are many herky-jerky responses that are occurring. The so-called administrative plan that was discussed that

was put in place in 1996 is impossible to administer for the very

simple reason, Mr. Chairman, that we have always used as our import policy tool the import quota on raw and refined products to operate the sugar program.

Over the years, U.S. import of sugar declined from around 5-million-tons to its currently 1.25-million. Due to these highly restrictive sugar quotas, domestic sugar prices generally average more

than two to three times above world prices.

Until recently, the operative element of the sugar program had

been the tariff rate quota. The domestic sugar program is, therefore, not truly a farm program. Sugar rarely went into CCC loan

programs and was almost never forfeited. There was no need for

acreage controls or marketing constraints, although we did dabble

in them for a year or so, because they could use the import quota

to reduce supply. However, as a result of the WTO minimum commitment of 1.25-million, we are now at that level. I dare say two

things. The WTO agreement was a very powerful agreement from

the standpoint of the industry because we would be below the minimum import level that today if we had not done that, but as a result, we can no longer reduce sugar imports. So we are looking for

other ways, like domestic sugar purchases and PIK programs. So

we do need to look at this because the tools are no longer available

to us.

Finally, if I may just say something from the manufacturer’s position, and I would ask anyone to step into our shoes for a moment,

if you saw higher sugar prices, you would be concerned for several

reasons. If you have low world sugar prices and high domestic

prices, four or five several problems can occur. One, we encourage

imports, imports of sugar-containing products. Two, you encourage

the ability or the desire for sugar-containing product manufacturers to look for sweetner substitutes at lower cost. We saw that in

the soft drink industry. We are seeing it more and more daily in

other products. Three, it makes it difficult for us to export into

world markets where world prices are combined in those product

costs. Finally, it makes it difficult for us to increase growth to our

38

consumers. They are not wed to sweetened products. They are able

to buy other products, and we would like to be competitive on the

shelf with other consumer items.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Hammer can be found in the appendix on page 142.]

The CHAIRMAN. Thank you very much, Mr. Hammer, for your

testimony.

Mr. Perry.

STATEMENT OF MARK PERRY, EXECUTIVE DIRECTOR,

FLORIDA OCEANOGRAPHIC SOCIETY, STUART, FLORIDA

Mr. PERRY. Thank you, Mr. Chairman and Honorable Congressmen. I would like to submit my written report for inclusion in the

record today and take a few minutes here just to give you a brief

presentation on it.

We focussed on Florida. We took a look at Florida which we are

familiar with. Just north of Lake Okeechobee is the Kissimmee

River and the Kissimmee Lake and chain of lakes which used to

gradually flow down into a very slow river flow into the Lake Okeechobee which then periodically would flow down in through this

broad area of about 40 to 60 miles wide down through into the

10,000 Islands area. It is very visible in the satellite imagery here,

but it also was adequately described back in 1947 by author and

conservationist Marjory Stoneman Douglas as the river of grass.

This was very slow-moving system which fluctuated according to

the inflows from rainfall and seasonally.

What occurred back in the 1900’s when Florida and the Congress

were interested in reclaiming the Everglades, that is, to drain the

Everglades down and make it more ‘‘valuable land’’ for agriculture

and other purposes, they began building canals south of the lake.

There were four main canals that were built south of Lake Okeechobee which went down south and then southeast to the ocean.

Those canals in the 1920s were very effective at draining that land.

Also, around in 1930, the Army Corps of Engineers built the

Hoover Dike around Lake Okeechobee which surrounded the entire

lake, 32-to–40-foot-high dike, and effectively stopped any of that

flow to the south. The Corps also constructed canals to the east to

the St. Lucic Estuary on the East Coast and to the Caloosahatchee

River Estuary on the West Coast. Those are the two major outlets

that are used for controlling the lake level.

Since that time, the Corps over the past 50-years and the water

management districts have been controlling that lake as a means

of flood protection, but also for the effective use for the south area

which is the 700-acres known as the Everglades Agricultural Area,

or the EAA, which is south of Lake Okeechobee.

In that area, the majority, or about 80-percent or so, is sugar

cane. There is about 460,000-acres, or about 50-percent of the domestic supply, producing about 2.1-million-tons-of-sugar annually.

About 440,000 tons is basically under the sugar program, but

sugar has been used to really effectively control that water south

of the lake. We talk about a subsidy here that is economic, and I

know you are focussed on that, but if you could focus for a minute

39

also on the hydrology of the area and how effectively sugar has

used the water to control south Florida.

What has happened since that control is basically they have

water when they need it for irrigation, and they pump it off to

properties when they do not need it and drain the land so it is 2-

feet below the surface which is ideal for sugar.

What has happened since that control has begun is the Everglades system and the Everglades has been completely interrupted

and is now seeing devastating effects to the Everglades. The water

is discharged east and west and really the demise of these estuaries is incredible. There is fish disease outbreaks which I have

documented and other problems in the estuaries, and the lake has

been kept artificially high which then produces a critical time for

the lake. Just this past year, they have had to dump massive

amounts out of Lake Okeechobee just to bring the lake down environmentally to save Lake Okeechobee.

So what happens here is a complete control over this area south

of the lake. You mentioned that there was farm bill money that

was helped to buy back about 200-million, and 133-million of that

was used last year for the Talisman tracts south of the lake in the

EAA, but that tract is now also being leased back to sugar cane in

order to continue to farm it for sugar cane for the next 3- to 5-

years.

So we need to continue, though, to look at—and I urge you instead of buying the sugar back and oversurplus supply—is to take

that money and apply it to buying the land itself that is in production underneath Lake Okeechobee and turning that land back into

the saw grass communities and restoring the Everglades, saving

Lake Okeechobee, and also saving these estuary systems. I think

it is very critical for the environment, but also critical for the water

in south Florida if we are going to have a sustainable south Florida.

Thank you for the time, and I will be available for questions.

[The prepared statement of Mr. Perry can be found in the appendix on page 152.]

The CHAIRMAN. Thank you very much, Mr. Perry, for coming this

morning to offer that very important testimony.

Ms. Estenoz.

STATEMENT OF SHANNON ESTENOZ, ON BEHALF OF THE

WORLD WILDLIFE FUND AND THE EVERGLADES COALITION,

WASHINGTON, DC.

Ms. ESTENOZ. Yes, Mr. Chairman. Good morning.

I want to thank you for the opportunity to represent the Everglades Coalition this morning on this issue that we consider to be

so central to the question of Everglades restoration.

The Everglades Coalition is a consortium of 42 civic, environmental, and recreational organizations dedicated to the preservation and restoration of America’s Everglades. I want to in particular thank you, Mr. Chairman, for your personal leadership and

dedication that you have shown in support of Everglades restoration over the years.

I want to straighten out a small, but I think important detail.

I notice on the witness list that it indicates that I am from WashVerDate 11-MAY-2000 10:14 Mar 23, 2001 Jkt 070294 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 70294.TXT SAGRI1 PsN: SAGRI1
40

ington, D.C., and though I love our Nation’s Capital and enjoy my

visits here, I have had the privilege of living and working within

a few miles of the Everglades my entire life.

A fundamental point, I think, made by Mr. Perry is that the Everglades Agricultural Area, as we know it today, was not just a

part of the historic Everglades like any other. It was the central

water storage feature of the system. Its primary ecological function

was to store water.

When it was drained for agriculture, the Everglades lost this

enormous 700,000-acre natural storage reservoir. The only way to

restore the Everglades is to build water storage back in the system.

We have got to take that fresh water that we currently discharge

out to tide. We have got to capture it, clean it, redistribute it to

the remaining Everglades and to the built environment, and we

have got to figure out a way to do it that meets the needs of a restored Everglades, but that is also fair and equitable to the public.

From an ecological perspective, it makes sense to restore this

water storage in places that it existed historically. To the extent we

can do that, to the extent that it makes fiscal sense and technical

sense, we should be putting the storage back where it existed historically, and that is true throughout the system, not just in the

EAA, but, unfortunately, the economics of growing sugar in south

Florida is distorted by subsidy and price supports.

Large-scale sugar production in south Florida exists as a result

of a vast and complex system of publicly subsidized flood protection, drainage, and water supply that combine to provide enormous

benefit to the growers in the region. Sugar producers in south Florida are essentially immune to weather-related adversity, and this

is no small boon in a region that is characterized by the extremes

of drought and flood.

On top of all of the advantage that the publicly subsidized water

management system provides, growers in South Florida also benefit significantly from the Federal price support program. They benefit not only at a cost to consumers, but at a significant and direct

cost to the Everglades and a disproportionate cost to the Florida

taxpayer.

The price support program obviously did not create the EAA as

we know it, but it certainly has come to define its size and maximize its impact on the Everglades. The Everglades Coalition proposes to restore rationality to the economics of growing sugar in

south Florida and to the economics of restoring the Everglades by

urging Congress to phase out the sugar program when it considers

reauthorizing the farm bill.

The program has significant and direct impacts on the Everglades. By eliminating risk and guaranteeing profit, the program

encourages overproduction. It keeps marginal lands that are only

profitable because of price supports in production. These lands contribute directly to phosphorous pollution in the Everglades ecosystem. As it is, Florida taxpayers are paying 70-percent of the cost

to clean up EAA runoff.

Lands that are in production because of the program contribute

directly to the water management conflicts that Mr. Perry described. He also described the devastating impacts that those conflicts have on the surrounding estuary systems and on the central

41

Everglades. The value of these lands is kept artificially high, distorting the economic analysis that goes into determining the smartest and best and least expensive way of restoring water storage to

the system. It distorts our ability to decide to what extent and how

we should be restoring water storage in the EAA. The Everglades

Coalition urges the Congress to phase out the program and put an

end to these distortions.

In closing, Mr. Chairman, I want to leave you with a final proposal. Unless or until the sugar program is phased out, the Federal

Government will be periodically faced with a decision of whether

to buy sugar or face loan defaults. Decisions to buy sugar simply

encourage the growth of more sugar and so on in a continuous cycle

of misplaced incentive, cost to consumers, and devastating impact

to the Everglades.

As an alternative to buying sugar, the Government could choose

to buy land in the EAA taking it permanently out of sugar production and thereby ending the cycle of overproduction and buyback

that is so destructive to the Everglades.

In short, Mr. Chairman, the Coalition urges Government to buy

land, not sugar. Again, I thank you for the opportunity to address

you this morning.

[The prepared statement of Ms. Estenoz can be found in the appendix on page 155.]

The CHAIRMAN. Thank you very much.

Ms. Estenoz or Mr. Perry, either one of you might have a response to this question. In November of 1995, I offered legislation

co-sponsored by the distinguished ranking member then of our

committee, Senator Leahy, to assess Florida’s sugar at 2-cents a

pound in order to provide money to purchase the land and to in

fact clean up the Everglades. That had some debate here, but it

resonated in Florida politics, and as you know, referenda occurred

in the election of 1996 in which, as I recall, by about a 52- to 48-

percent margin, such an idea lost.

What are the dynamics of Florida politics, or why would such a

good idea have lost? Obviously, this was a very large issue in Florida, a very conspicuous issue in 1996, and I just query from your

own response, since both of you are from Florida here today, what

is going on there.

Ms. ESTENOZ. That is an excellent question, Mr. Chairman.

That initiative did fail by a very close margin in Florida, and I

think as some of these initiatives often go, they often turn on sort

of last-minute information and kind of public campaigns that include commercials, very well-funded campaign to fight that initiative, and I think that, that was absolutely central in defeating that

proposal.

I think what we are seeing in Florida now is the debate among

the people of Florida about Everglades restoration has really

reached a new level, and it is primarily because the restoration

plan is moving through Congress as we speak and people are talking about it, and they are looking at how much it is going to cost

us.

It is going to cost the Federal Government $4 billion to restore

the Everglades, but the other $4 billion is going to come from the

State of Florida. I think folks are really now in the year 2000 lookVerDate 11-MAY-2000 10:14 Mar 23, 2001 Jkt 070294 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 70294.TXT SAGRI1 PsN: SAGRI1
42

ing at that, looking at that bill square in the eye, that bill to fix

the Everglades. They are realizing that we really need to make

public policy decisions that make sense and that fit with this larger

goal to restore the Everglades.

I think the other thing I would say is that I think the public understands better now than they ever have before that as goes the

Everglades, so goes south Florida. South Florida cannot exist—we

cannot maintain our quality of life. We cannot maintain our water

supply without a healthy Everglades ecosystem, and I think people

are looking much more critically now in south Florida at ways to

make that happen.

The CHAIRMAN. I was impressed with the fact that although we

discussed these programs in Agriculture Committee and it is one

of the many programs that we have and obviously helps farm families and what have you, the ramifications when you have the concentration that occurred in the industry in Florida on the environment are very, very substantial, in fact, finally tragic and devastating to the economy of a large portion of a major State. So the ripple

flows out.

We have had testimony from all of you that the ramifications on

our foreign policy—and once again, this is not the purview of this

committee, but I know from my own experiences in the Philippines

and trying to build democracy in Latin America throughout the

1980s that this issue was a tremendously important issue, and it

had devastating impact upon those who were attempting to bring

about democracy and free market economics in those countries.

You might wish they were dealing with something in other than

sugar, but they were dealing in sugar. It was extremely important.

As we have heard earlier on, this is a very important and emotional subject for lots of countries.

So, on the one hand, we were advising them to head toward democracy and market economics, and on the other hand we had a

program that debilitated many of those efforts and continues to

really even today. So they are big issues outside this committee,

but we sort of bring them in here.

I just come back to the fact that we have a program now that

stimulates more supply. The fact is that the loan rates and the

policies being administered encourage people in the United States

for whatever reason, to produce more sugar, even as we sit here

and as we try to decide how we are going to dispose of it. That is

not a good idea. It is intuitive that somehow we need to change the

supply-and-demand equation, and the question is how to do so with

the most positive effects for all the people who are involved. So we

are continuing to search, really, for how to do this.

We have these votes from time to time on whether to end the

program, and they fail routinely by 2 to 1 because people say there

are all kinds of problems in just eliminating cold turkey, and there

are, but incremental attempts—I cited the attempt of Senator

Bradley, 10-years or so ago, to even make a 2-cent change also

failed 54 to 44 at that time. Maybe the Congress has changed, but,

essentially, this is a program that has been very durable, whatever

its effects upon the Everglades, on world trade, on democracy in

the hemisphere, on American consumers, and, therefore, it is sort

of curious for somebody who is outside the loop of people who come

43

to a sugar hearing as to how in the world such a thing could have

started and be allowed to persist. You have offered good testimony

in terms of some of the problems we must face. I hope you will

work with the Committee in terms of constructive solutions. We

will try to find some.

Let me call now on Senator Conrad.

Senator CONRAD. Mr. Chairman, I appreciate this panel. Obviously, there are many issues that have to be considered that relate

to different parts of the country. I noted that Ambassador Shapiro

made the statement that having a program makes hollow our request to other countries to abandon their support measures. I

would simply say the hard reality is other countries have these

support measures, and those who advocate unilateral disarmament,

I think, are misguided.

Those who believe that if we end our programs, thereby supposedly setting a good example for other countries, will be sorely

disappointed. That is precisely what we did in the last farm bill,

which proved to be a disaster. That is why we have had to write

three disaster bills in the last 3-years because some had this notion—I think it is naive—that if we just cut our support for farmers, other countries would follow our good example. That is not

what happened. The Europeans did not cut their programs. Instead, they went full speed ahead. The result is they have gobbled

up market share, establishing a stronger position in world agriculture than we have. USDA now tells us for the first time, Europe

will surpass us in world market share.

So my own conclusion is the only way you get a result is if you

have leverage, and the only leverage you have is to match our competitors in terms of the programs that they have to support their

producers, and if we fail to do that, we simply are abandoning our

producers and consigning them to failure. That is a disaster, too.

I go in the small towns, the farms of my State and see real economic hardship because, as I have indicated in the chart I have put

up before, our major competitors are outspending us 10 to 1 in support for their producers. The only way that I can see that you get

both sides to back off is if you have leverage and if you are in a

position to negotiate a more favorable result.

The hard reality is we do not have any leverage. When the other

side outspends you 10 to 1, they win and you lose. So my own view

is we have got to rearm in agriculture. We have got to rebuilt our

defenses.

As I said to some of my colleagues, if we were in a military confrontation with the Russians and they had 50,000 tanks and we

had 10,000 tanks, would our first move be to cut our tanks in half?

I do not think so. That is exactly what we did in the last farm bill

in agriculture. The Europeans were spending $50 billion a year to

support their producers. We were spending 10. In the last farm bill,

we cut our support for our producers in half to $5 billion, and then

we wonder why they are gaining world market share and moving

into a superior position.

We go to Seattle, and they are unwilling to move. They are unwilling to back off their massive export subsidies. Why? Because we

have no leverage to negotiate a better result.

44

So, Mr. Chairman, I hope all of these facts are kept in mind as

we move forward because I think we have adopted a losing proposition in terms of a strategy for American agriculture, and the result will be the ruination, the economic ruination of tens of thousands of farm families who do not deserve that result.

The CHAIRMAN. Thank you, Senator Conrad.

Senator Kerrey?

Senator KERREY. Thank you, Mr. Chairman.

First of all, I want to thank the witnesses for taking your time,

including an interrupted testimony with the vote, to appear before

us. Thank you, Mr. Chairman, as well for holding these hearings

because I do think that we have a program that is a mess.

We have got serious problems, and it is embarrassing, to put it

mildly, to have to get into considering things like a PIK or a

buyout and doing the various extraordinary things we are considering right now.

My own thinking is that some sort of structural change is needed. Senator Roberts, a week before last, and I held a hearing on

the issues of trade and how do we promote agricultural trade, and

I would say to you, Mr. Chairman, there are a number of structural

impediments that make it very, very difficult to get decisions made.

As a consequence, I think we have missed huge opportunities to

constructively assist Russia, for example, in making the transition

to free markets. Instead, we have supported and stabilized corrupt

government structures instead of encouraging the private sector.

We have, I think, an opportunity, if we can do it in a calm way,

to examine the sugar program and perhaps connect it to some

other trade issues and get the bureaucracies of Government to

start working in a more constructive way.

I am compelled, however, to say in listening to the witnesses that

in 12-years of operating, working, and serving the people of Nebraska in the Senate, I have seen the United States of America

time and time again take the lead in opening our markets. Nobody

has lower tariffs and trade barriers than the United States, and I

do not think we have to apologize. You may not like the sugar program, but it is certainly relative to the rest of our trade programs.

I am not embarrassed by it given the willingness of the United

States of America to lead and put our workers at risk. Do not tell

me it does not put our workers at risk.

I would say one of the reason that issue may have been defeated

in Florida is people like jobs. They sort of think it is an important

thing to have. I have got real job security. I do not have to worry

about the damn marketplace, and I get paid $132,000 whether I

perform or not, but 137-million-Americans do not. They have got to

work out there in that marketplace, and trade can play a nasty

trick on somebody at the age of 55. Please do not tell me I have

got to go and learn computer software when I am 55-years of age

if my job goes south, or move someplace else. There are all these

theories of comparative advantage and so forth, and I have voted

for free trade things. I have said that the United States has got to

lead, and as to democracy, my God, consider the price that Americans have paid in blood and in money in the last 60-years. Please

do not tell me that the United States of America has not led in trying to help the rest of the world become more democratic.

45

I have listened without success to fight back tears to Vaclav

Havel, Nelson Mandela, Kim Dae-Jung of South Korea. We have

paid a big price, America has, and we do not have to apologize for

that as we are trying to examine how to make the sugar program

work.

I voted to help restore the Everglades. It is not in Nebraska. My

ecosystem is the Missouri River, and we worry and try to figure out

how to balance the needs of the Missouri River as well, trying to

protect that ecosystem, redevelop that ecosystem. We recognize we

made mistakes, but I have got a million people that work at home

and they want jobs. They have got to produce something and earn

something. They are trying to earn a living.

Mr. Chairman, I apologize for making a philosophical statement

here, but it seems to me that in the presentation of the case

against the sugar program, we are arguing somehow the United

States of America is a protectionist Nation. We are not. Point to

me another Nation on earth that would allow itself to develop the

kind of deficits that we have. We bailed Asia out. We responded responsibly when the BOT declined in Thailand and Asia was in the

toilet. We did not protect our marketplace at that time. We allowed

enormous amounts of imports to come in the United States.

I think these hearings can lead to some constructive change in

this program. I do think it is a mess. I do think as well that it connects to the problems that Senator Roberts and I saw when we had

our witnesses coming up and talking to us about the barriers and

problems and frustrations.

I hope I do not mispronounce Mr. Kominus’ name. Somebody like

yourself that is actively involved in the business laid out some very

concrete suggestions of ways that we perhaps might make this program work better. I appreciate all the other suggestions as well. I

think we have got to find a way to improve this program rather

than just beating ourselves to death saying there is something

wrong with America as a consequence of, one, to produce a program that creates jobs for our people.

The CHAIRMAN. Thank you very much, Senator Kerrey. I pay

tribute to you again for supporting our committee’s attempt to get

into complex problems. We had a very good hearing on energy policy in the country last week that I thought was an extraordinary

opportunity to explore that and to put on the record for our colleagues a whole host of both problems and alternatives. I am hopeful this hearing will have a similar effect.

I would just announce for all who are interested, we will have

a hearing tomorrow on the proposal by Senator McGovern, Senator

Dole, and others for a school lunch program worldwide. The ramifications of that might be another complex and important issue

that the President has focussed on recently and others have.

But for the moment, we thank each one of you for coming and

for your patience and waiting through our roll call vote situation.

Yes. Ambassador Shapiro, do you have a comment?

Mr. SHAPIRO. Mr. Chairman, thank you.

Because Senator Conrad—I am sorry he is gone—and Senator

Kerrey’s statements were so strong, I just wanted to make a couple

of comments.

46

The first is that nothing in my statement should suggest that

this is not a hellaciously difficult problem. It is. Everything I

learned about trade started when I worked in the U.S. Senate, in

the 1980s and 1970s—where every job and every farm matters. So

I take that as a given.

What I was trying to say is that a full accounting of the costs

and benefits of this program includes trying to figure out how it

fits with our other agricultural trade objectives. This Government

has been committed to opening markets around the world, and if

you look around the world, you will find that agricultural barriers

are still very high.

In my view, you change that in the next multicultural negotiation or regional negotiation by finding allies, having leverage, and

essentially asking others to open their sensitive markets by being

willing to open your own.

I wanted to say to Senator Conrad—and we have worked together before—I have never believed in unilateral disarmament.

I do believe that the sugar program undercuts our ability to isolate the European Union. I believe we are in something of a worldwide competition as to how we approach agriculture around the

world, and I think the sugar program has the unfortunate effect of

undercutting our position in that regard, but nothing any of us has

said should suggest this is not a hellaciously difficult problem.

The CHAIRMAN. Thank you very much.

The Chair would like to call now a panel composed of: Mr. Ray

VanDriessche of the American Sugarbeet Growers Association; Mr.

James J. Horvath, President and Chief Executive Office of the

American Crystal Sugar Company; Mr. Alan Kennett, President

and General Manager of Gay & Robinson, Incorporated, in Kauai,

Hawaii; Mr. Jack Lay, President of the Refined Sugars, Incorporated, of Yonkers, New York, accompanied by Jack Roney, Director of Economics and Policy Analysis of the American Sugar Alliance; Mr. Lindsay McLaughlin, Legislative Director of the International Longshore and Warehouse Union; and Professor David

Orden, Agricultural and Applied Economics at the Virginia Polytechnic Institute and State University.

Gentlemen, we thank you for coming, and I will ask you to summarize your testimony as we have asked the other witnesses in 5-

minutes. Your full statements will be made a part of the record,

and then we will have questions by our Senators and our panel.

Mr. VanDriessche.

STATEMENT BY RAY VANDRIESSCHE, PRESIDENT, AMERICAN

SUGAR BEET GROWERS ASSOCIATION, BAY CITY, MICHIGAN

Mr. VANDRIESSCHE. Good morning. I just would like to let everybody know that we have the opportunity here to have a sugar beet

here for those who have never had a chance to see one. So this is

a sugar beet.

Mr. Chairman, my name is Ray VanDriessche. My brother and

I are sugar beet, corn, soybean, and dry bean farmers from Bay

City, Michigan. As president of the American Sugar Beet Growers

Association, I represent over 12,000 family farmers who grow sugar

beets in 12 States.

47

Mr. Chairman, it is critical to set the record straight on three

basic points. First, the U.S. sugar industry is efficient and globally

competitive. Beet sugar produced in the U.S. is the lowest cost

among beet sugar producers worldwide, as seen on chart one. In

fact, over half of the sugar produced in the world is produced at

a higher cost than U.S. beet and cane sugar, as seen on chart two,

and 75-percent of the world’s sugar is produced in developing countries that have substantially lower health, safety, and labor standards, and environmental standards and costs than what we do. Our

sugar and our sweetener industry has a comparative advantage

and an economic right to produce the essential ingredient for our

market.

Second, the world’s sugar market is a dump market. The price

of sugar on the world market does not reflect its cost of production.

Chart three shows that the average price of sugar on the world raw

market for a 10-year period is about one-half of the average worldwide cost of production of raw sugar during that same period.

Sugar policy in the U.S. has been a proper response to the predatory trade practices of our competitors. U.S. consumers pay 20-percent less for refined sugar than the average consumer in other developed countries. Comparing U.S. sugar prices against the world

market price is ignorant, foolish, or is an attempt to deceive those

who are not informed of the facts.

Third, lower sugar prices are not passed onto consumers. Industrial users purchase the majority of sugar in this country. The evidence is clear that their savings on lower-priced sugar is not

passed onto the consumer. Chart seven shows the decline in U.S.

prices since the beginning of the 1996 farm bill and the continued

increase in the price of sugar-containing products. There has never

been any evidence of pass through of savings to the consumers.

Mr. Chairman, let me tell you why there is so much controversy

over sugar. Big corporate users attack sugar policy because they actually have to pay for what it cost to produce the commodity, but

you never hear them whine about the billions of dollars that Government spends on other commodities that are necessary and are

appropriate to rescue those farmers from economic disaster. Such

policies allow them to purchase commodities below the farmer’s

cost of production, shifting the cost to the taxpayer. In the end, the

farmer is blamed for Government cost. It survives, but does not

prosper, and the big user reaps the benefit of commodities priced

below the farmer’s cost and does not pass the savings onto the consumer. An economic crisis is plaguing our industry and affecting

every grower throughout the country because every grower’s income is directly tied to the price of refined sugar.

Chart eight shows the collapse of the refined sugar market since

late last year. Refined sugar prices have dropped by 34-percent

since the beginning of the 1996 farm bill, and now prices in every

production region are well below the forfeiture price. The current

market conditions have not only put our farmers at risk, but also

our processing factories, their workers, and our real communities.

The price collapse is a result of three factors: quota circumvention by stuffed molasses from Canada; the threat of increased

Mexican imports under the NAFTA; and increased domestic production due to the lack of profitable alternative crops, three conVerDate 11-MAY-2000 10:14 Mar 23, 2001 Jkt 070294 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 70294.TXT SAGRI1 PsN: SAGRI1
48

secutive years of good weather that produced excellent crops, and

companies attempting to maximize efficiencies by greater throughput.

For 15-years, the U.S. sugar policy has run at no cost to the taxpayer, and in the last decade, sugar producers contributed $279

million in marketing taxes to help reduce the Federal deficit. This

was achieved because we had a balanced market and both the legislative authority and the administrative tools to properly balance

supply and demand. The major reforms of the 1996 farm bill and

the effects of the NAFTA and Uruguay Round import commitments

have thrown our industry into our current crisis.

Congress has appropriately stepped in over the past 5-years with

billions of dollars to assist other commodities. We believe our industry is equally threatened and deserves some form of relief, also.

Mr. Chairman, four things need to be fixed immediately to save

our farmers and our industry. First, the administration must buy

more sugar to avoid massive forfeiture. Second, we must retain

non-recourse loans for the crop we are about to receive. Third, the

circumvention of our tariff rate quota from products like stuffed

molasses must be stopped. Finally, we need to resolve the dispute

with Mexico over the NAFTA provisions.

Thank you, Mr. Chairman.

[The prepared statement of Mr. VanDriessche can be found in

the appendix on page 165.]

The CHAIRMAN. Thank you very much, Sir.

Mr. Horvath.

STATEMENT OF JAMES J. HORVATH, PRESIDENT AND CHIEF

EXECUTIVE OFFICER, AMERICAN CRYSTAL SUGAR COMPANY, MOORHEAD, MINNESOTA

Mr. HORVATH. Thank you, Mr. Chairman and members of the

Committee. I appreciate the opportunity to appear before you

today.

I am going to summarize my comments, as you requested, Mr.

Chairman, because I have submitted my testimony for the record.

My name is Jim Horvath, and I am president and chief executive

officer of American Crystal Sugar Company, based on Moorhead,

Minnesota. American Crystal is the largest sugar beet company in

the United States with five factories in the Red River Valley of

Minnesota and North Dakota. As a cooperative, we are owned by

3,000 family farmer shareholders, and we have about 1,500 employees.

The subject of today’s hearing, the sugar policy is unsustainable

given the current circumstances, is simply not an accurate conclusion. To analyze it, let’s review some facts.

The first fact is that sugar prices have been flat for 15-years.

Here is a chart showing nominal and real sugar prices since 1985.

As the trend lines show, nominal sugar prices have been stagnant,

while the real prices have dropped precipitously. The chart also

shows that since the 1996 farm bill, prices are down dramatically

taking a nosedive of 30-percent just since last year. This is the lowest level of price in the last 22-years. Prices now stand below the

forfeiture level in all regions of the country.

49

Some people argue that flat prices mean high prices. Let me assure you it does not. Otherwise, we would not have seen seven

sugar beet factories close since 1993, with two more slated for closure for next year. Profitable factories, Mr. Chairman, do not close.

Those that cannot offset inflation do.

Under flat prices, one of the few ways to fight inflation is

through growth. Without a strategy of growth to continually seek

efficiencies, it is very likely that American Crystal’s factories would

have closed by now, also. Growth is not a strategy to raise havoc.

It is a strategy to survive, plain and simple.

Some people blame the current price collapse on growth. Well,

that is not so plain and simple. It is a fact that the terrible farm

economy has forced shifts in acreage from program crops to sugar

beets and sugar cane. More obvious contributors to our current situation are our trade agreements. Quite frankly, the sweetener provisions of the North American Free Trade Agreement are shortsighted and disastrous. The agreement gives Mexico guaranteed

and, in some cases, unlimited access to our market, and it ensures

that any access would have occurred fairly, as though the billions

of dollars of subsidies the Mexican government is providing its

sugar industry to exploit this agreement had not occurred. Unless

it has changed, Mr. Chairman, NAFTA will destroy an efficient and

productive United States sugar industry.

The Uruguay Round of GATT also contributes to the current crisis in sugar. It requires the United States to import about 12-percent of our domestic consumption whether we need it or not.

Another factor is the egregious case of stuffed molasses. The London-based sugar trading corporation, ED&F Man, has continued to

blatantly circumvent our harmonized trade schedule in a manner

that should cause all Senators, supporters and opponents alike, to

bristle. This sneaky scheme offends our customs laws, our sugar

policy, and our common sense. It is flat-out circumvention, and it

must be stopped.

So, Mr. Chairman, these facts explain the real reasons of sugar

price collapse we are experiencing. To rectify the situation, the

sugar industry has been seeking USDA assistance in the form of

sugar purchases. We are seeking this because of the dramatic

stress in the industry and because it will actually save the Government money.

On May 11th, Secretary Glickman announced a modest purchase

of 150,000 tons of sugar, although the final purchase amount was

less. While we greatly appreciate the Secretary’s action, it is simply

not enough. Forfeitures under the loan program are not only possible this year, they are inevitable.

Anticipating this, the Secretary made a clear recommendation

that he expects the sugar industry to come forward with additional

measures to address sugar supply. We took the Secretary’s message

seriously. As you, Mr. Chairman, and the Committee have heard

from Mr. Schumacher, a payment-in-kind program for the current

crop year is under consideration by the USDA.

At American Crystal, we are supportive of this concept. We believe it achieves several worthwhile objectives for the industry and

the Government. It quickly reduces the current oversupply. It relieves the USDA of the responsibility of managing large amounts

50

of sugar, and it returns balance to the oversupplied market, and,

again, it saves the Government money.

Mr. Chairman, in conclusion, I was chief financial officer at

American Crystal Sugar Company for 13-years before I became

CEO 2-years ago. I know how to run a sugar company. The farmers

who own our cooperative know how to do that, too. The fact is I

still think it is remarkable that we have been able to do this and

do the things right in our industry in spite of flat prices for the last

15-years.

Having done what is right, we believe it is also right to implement measures in the short term to restore an economic environment in which shareholder investments and logical business strategies can fairly operate. For issues beyond that, we look forward to

the 2002 farm bill debate which, as you know, is not that very far

away.

Again, thank you for the opportunity to testify, Mr. Chairman.

[The prepared statement of Mr. Horvath can be found in the appendix on page 176.]

The CHAIRMAN. Thank you very much, Mr. Horvath, for your important testimony.

Mr. Kennett.

STATEMENT OF ALAN KENNETT, PRESIDENT AND GENERAL

MANAGER, GAY & ROBINSON, INC., KAUMAKANI, KAUAI, HAWAII

Mr. KENNETT. Thank you, Mr. Chairman and Members of the

Senate Agriculture Committee.

My name is Alan Kennett. I am the president and general manager of Gay & Robinson. G&R is a family-operated sugar cane farm

and cattle ranch. I have been involved in the sugar industry for 35-

years, beginning my sugar career in England. I have worked in Africa, the Caribbean, and now fortunately in Hawaii.

Today, I speak for the sugar cane farmers of Hawaii. The Hawaiian sugar industry began commercial operations 165-years ago on

the Island of Kauai. For many years, beginning in the 1950’s up

through 1986, Hawaii’s annual production exceeded 1-million-tonsof-sugar. Today, Hawaii produces only 330,000 tons of sugar annually from far-operating factories.

In 1986, there were 13 operating factories, and sugar was grown

on all of the four major islands, Hawaii, Maui, Oahu, and Kauai.

Today, sugar is grown only on Maui and Kauai.

Earlier this month, AMFAC Sugar on Kauai announced plans to

furlough 100 of its workers immediately, and I am afraid this is an

indication that they may be finally getting out of the business.

Unfortunately, since the demise of sugar on the big island, nothing has replaced sugar as a viable agricultural crop, and the former

cane lands remain idle, overgrown with weeds. Unemployment is

high, and drug usage, marijuana growing and drug trafficking,

have increased dramatically, as have the social problems that are

created by high unemployment and drug usage.

Maui and Kauai could see the same occur should we lose our

sugar industry. Our company, G&R, employs 270 people. We also

provide housing for 350 families of both current and former employees. I promised our workers that I would do my best to impress

51

upon you the importance of this issue. I pray to God, I do not let

them down.

Try and imagine what it must be like to wonder if you have a

job tomorrow, next week, next month, next year. On the Island of

Kauai, that is what many of our employees of sugar wake up contemplating each morning.

One of my workers suggested to have the Senate Agriculture

Committee come and visit and see firsthand these rural communities and witness what is going on and see for yourself the despair

that exists in places where sugar was once grown.

Because of Hawaii’s isolation relative to our market, Hawaiian

producers incur high freight costs, which puts us at a disadvantage

relative to other sugar-producing areas. Clearly, Hawaii has not received congressionally approved returns from the sugar program,

nor have many U.S. sugar farmers whose livelihoods are being

threatened by the dramatic fall in prices over the past year.

When Congress passed the 1996 farm bill, we were lead to believe that we had an 18-cent price for 7-years. We went out and

we invested money in our business. We have not seen anything like

the 18-cent price we thought we would have. This is not fair.

Oversupply and loss of market confidence in the ability of USDA

to maintain a viable program have resulted in some fairly depressed producer prices for raw and refined sugar. The U.S. raw

sugar cane prices have fallen about 22.5-cents a pound to 17-cents,

the lowest in 18-years. To put this in perspective for Hawaii, if you

take the 17-cent price level, you need to take 3.62-cents off for handling, transportation, and a refiner discount. We in Hawaii are

presently only receiving 13.38-cents a pound, and we do not have

the benefit of the price flow protection because we cannot use the

loan program.

Sugar has been overlooked in Government market loan assistance efforts during the farm crisis for the past several years. Net

CCC outlays for other program crops exceeded 10-billion in fiscal

1998 and 19-billion last year. Sugar revenues totaled 30-million in

1998 and 51-million last year. Nearly 30-billion is budgeted for

other program crops this year.

Government action to address this problem is appropriate because so many of the factors leading to the price drop of sugar are

more closely related to Government action and inaction than to

producer decisions. Furthermore, the Government has responded to

similar price drops for other program crops by providing tens of billions of dollars in assistance over the past several years.

I see my time has run out, Mr. Chairman. I would like to just

conclude.

Sugar farmers in Hawaii are in serious danger. If sugar was no

longer grown in Hawaii, that would have a devastating effect on

the Hawaiian economy. We have done much to look for ways to

survive the changing economics of the U.S. sugar industry. We

have made significant efforts to become more efficient by continued

investment in our farming operations. We have pursued alternative

sugar cane byproducts to provide additional and independent

sources of income to the plantation. The U.S. Government has

shown compassion to other farmers in crisis. Why not for sugar

farmers?

52

Please remember that sugar farmers want what all other program crops want, a fair opportunity to farm and make a reasonable

living. American sugar producers’ competitiveness and the disastrously low prices parallel the plight of other American farms.

Sugar farms do not want to be treated more favorably than other

farmers, just equally.

Thank you.

[The prepared statement of Mr. Kennett can be found in the appendix on page 182.]

The CHAIRMAN. Thank you very much, Mr. Kennett, for coming

all the way from Hawaii to give this testimony. We appreciate it.

Mr. Lay.

STATEMENT OF JACK LAY, PRESIDENT, REFINED SUGARS,

INC., YONKERS, NEW YORK ACCOMPANIED BY JACK RONEY,

DIRECTOR OF ECONOMICS AND POLICY ANALYSIS, AMERICAN SUGAR ALLIANCE

Mr. LAY. Mr. Chairman and members of the Committee, I appreciate the opportunity to appear before you today to offer a perspective on what I believe to be a needed change in the direction for

both U.S. and international sugar policies. I am currently serving

as president of Refined Sugars, Inc., in Yonkers, New York. I recently returned to the sugar industry after 7-years of retirement,

having been employed by Domino Sugar for 39-years and ultimately as president.

Reference was made previously as to 12-sugar-cane-refiners closing. As one who had direct responsibility for closing two of those

refineries, the reason was not because of the sugar program, but

rather because of the high fructose corn syrup displacement of

sugar in soft drinks.

Many of the refineries that have closed would have closed regardless of whether it was high fructose or not, in my opinion, because they were inefficient.

Mr. Chairman, the structure of the sugar industry in every country of the world is cumbersome and complicated. The United States

is no exception to the general rule. Sugar requires a dedication of

large numbers of acres of land as well as substantial capital assets

to grow beets and cane as well as to provide beet processing, canemilling and cane-refining facilities to produce raw and refined sugars.

Rotation of the crop on a yearly basis to reflect or anticipate

swings in general commodity prices does not occur in sugar. Stability is what all sugar producers hope to achieve, so long as the price

they receive is above their cost of production, or in the case of the

cane refiner, the cost of raw sugar acquisition plus a refining margin sufficient to cover refining cost and provide a reasonable return

on investment.

The uniqueness of sugar is the primary reason that Government

agricultural policies support sugar to the extent that they do. In

many countries, this direct support leads to overproduction. Overproduction then leads to dumping of sugar on the world market,

and ultimately the world market price bears no relation to the actual cost of producing sugar.

53

In the United States, we support producers indirectly. We limit

imports in the hope that domestic prices will settle at levels that

yield a fair and reasonable return to growers. Many decry the

intervention of the U.S. in the domestic sugar market through the

USDA’s administration of the import quota. However, the United

States imports roughly 15-percent of its requirements, and is the

third largest importer of sugar, second only to Russia and Indonesia, and most of this comes in tariff-free. Whereas, most of the

larger world producers are subsidized exporters.

It has been the position of the U.S. Government and the U.S.

sugar industry in international trade negotiations that all government supports of sugar be phased out. However, European Union,

a large exporter, has shown little interest in further internal reforms and has recently concluded several regional free trade agreements that specifically exclude sugar.

Mexico has reacted to tough times by rolling over large Government loans to privatize sugar groups. Even Australia, the supposed

free trade paragon in agriculture, has relapsed in the last 2-years

into more traditional patterns of conduct coming to the financial

aid of its sugar industry.

The U.S. sugar policy that was adopted by Congress in the 1996

farm bill presumed that the global march towards free trade would

take a predictable path. The 1996 farm bill repealed supply management policies that attempted to limit U.S. sugar production. It

also reinforced the premise that the U.S. would continue to import

more than our Uruguay Round commitment of 1.2-million-tons-ofsugar from abroad.

In 1996, producer prices in the U.S. were at stable levels. With

marketing controls repealed, sugar growers planted more, confident

that the import quota would be ratcheted down to maintain a constant domestic price support.

AMTA payments to producers of other crops allowed them to

begin to grow sugar as an alternate crop, and, consequently, domestic production grew and the import quota was cut until it hit

the WTO floor and then prices collapsed in both raw and refined

sugar. It is not a pretty picture, but it is the culmination of a cycle

that had its origin in 1996 legislation. We took the restraints off

of domestic production. It was assumed that our efficient producers

would grow for the U.S. market as well as for world markets. The

policy assumption was that world markets would rationalize as a

result of global elimination of Government subsidies. This has not

happened. As evidence to this, one need only look at the world

price levels of sugar which until recently have been substantially

below the cost of production, of even the lowest-cost producer. This

reflects increasing levels of Government support around the world

for sugar industries, not less support.

We now have too much sugar grown in the United States. We

also have international trade obligations that require us to import

large amounts of sugar whether we need it or not.

You have heard reference to the stuffed molasses here today

which bypasses the TRQ and results in 132,000 tons of sugar, refined sugar-equivalent, coming into the United States duty-free.

The large subsidizers in the world are not going to suddenly

eliminate their internal supports and subsidized exports. If the

54

United States wishes to maintain any sort of defensive support for

its sugar industry in this environment, we must find a way to limit

U.S. production of sugar cane and beets to levels that balance the

supply with demand in our domestic market.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Lay can be found in the appendix on page 193.]

The CHAIRMAN. Thank you very much, Mr. Lay.

Mr. McLaughlin.

STATEMENT OF LINDSAY MCLAUGHLIN, LEGISLATIVE DIRECTOR, INTERNATIONAL LONGSHORE AND WAREHOUSE

UNION, WASHINGTON, DC.

Mr. LINDSAY. Good morning, Chairman Lugar and members of

the Agriculture Committee. It is an honor to be here today to represent the International Longshore and Warehouse Union, or the

ILWU. The ILWU is the largest private sector labor union in the

State of Hawaii. We represent longshore workers, hotel workers,

general trades, and agricultural workers, and all of these workers

are consolidated into one large local, ILWU Local 142. We also, by

the way, represent about a hundred workers in Crockett, California, at the C&H Sugar Refinery there.

Mr. Chairman, ILWU members at the three remaining sugar operations on Hawaii asked me to present a petition for you which

I have attached to my written testimony. These are hard-working

decent citizens who live in constant fear that their livelihoods will

be stripped from them. They believe, as I do, that without a sugar

program, there is no hope for their industry in Hawaii.

Mr. Chairman, we are proud of what we have accomplished for

sugar workers in Hawaii. During the 1950’s, the sugar workers

made great gains in their struggle for economic justice. The ILWU

established an industry-wide medical program, sick leave, and paid

vacation and holidays, all unique in the agriculture industry. The

ILWU also won the first pension plan ever negotiated for agricultural workers in the United States and established the 40-hour

work week for the first time ever in agriculture.

But the story of sugar workers in Hawaii in the last few decades

has been one of just attempting to survive. The union and the

workers have cooperated to combat chronic low prices for raw sugar

with productivity gains. Periodically, throughout the last 20-years,

the union members have agreed to accept little or no wage increases and flexibility of work rules, all in the name of keeping the

Hawaiian sugar industry alive.

Despite these joint labor-management efforts to keep the Hawaiian industry alive, we have seen the shutdown of seven sugar companies in the last 9-years and the loss of 3,000 jobs. The president

of Local 142 said this in 1995 about the death of sugar on his island, the Big Island of Hawaii, ‘‘Last year, my home on the Big Island of Hawaii, Hamakua Sugar Company and Hilo Coast Processing Company shut down because of low, declining sugar prices. The

shutdown has caused devastating in my community, the likes of

which I have never seen in my lifetime. Even the devastation

caused by Hurricane Iniki could not rival what I have witnessed.

Close to 1,200 workers lost their jobs. These jobs are not easily reVerDate 11-MAY-2000 10:14 Mar 23, 2001 Jkt 070294 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 70294.TXT SAGRI1 PsN: SAGRI1
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placed, and most of the displaced workers have not found other employment. Their unemployment benefits either have been or are

soon to be exhausted. They are finding themselves in desperate situations resulting in more stress in the home, increased substance

abuse, and crime, and more incidence of domestic violence.’’ Recently, as Mr. Kennett said, 100 workers out of 450 at AMFAC

Sugar Plantation were furloughed while the company assesses its

future in the sugar operations. These employees are drawing unemployment insurance while they wait for a phone call that may

never come to go back to work.

The State of Hawaii is very concerned about sugar leaving the

Island of Kauai and say that it would be an enormous cost ranging

from $4.7 million to $8 million for the first year alone. The direct

and indirect impact of losing the sugar industry on Kauai would

cause the unemployment rate on the island to skyrocket from 6-

percent to 9-percent, then higher as indirect job losses occurred.

There are no jobs for these people to transfer to.

Local 142 vice president, Bobby Girald, said, ‘‘All I see in the

local newspaper in the Employment Section is part time, part time,

part time. That is not good enough to take care of a family.’’ I wanted to let you know, Mr. Chairman, that our members are

concerned that abandoning the U.S. sugar program would mean a

certain loss of their jobs because they cannot compete with heavily

subsidized European sugar or sugar that is produced by cheap

labor. The ILWU has offered assistance and solidarity with struggling sugar workers and their unions in developing countries, but

change is slow. An ILWU delegation to the Philippines found conditions to be very poor. Workers work long hours for little pay and

begin work at a very young age.

According to the Department of Labor report, ‘‘By the Sweat and

Toil of Children,’’ which I am sure you have seen, young people are

cutting cane at age 12, which is a very dangerous job. What kind

of message does it send to American sugar workers who have

struggled to achieve a decent standard of living that we will abandon them in favor of heavily subsidized European sugar or in favor

of plantation owners in countries that rely on cheap oppressed

labor?

We believe sugar is an area where the inclusion of labor standards and environmental standards in trade treaties could make a

difference.

I see my time is up, but I just wanted to conclude by saying that

our union is not the only union interested in this program. In the

past, I have worked with the International Association of Machinists. They represent workers in the State of Florida. I have worked

with the Food and Allied Service Trades Department of the AFL–

CIO, the Grain Millers and the Distillery Workers. I appreciate

your allowing me to testify today.

Thank you.

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

appendix on page 198.]

The CHAIRMAN. Thank you, Mr. McLaughlin. Your testimony is

very important from the perspective of the longshoreman and likewise Hawaii, as is the case with Mr. Kennett.

Professor Orden.

56

STATEMENT OF DAVID ORDEN, PROFESSOR, AGRICULTURAL

AND APPLIED ECONOMICS, VIRGINIA POLYTECHNIC INSTITUTE AND STATE UNIVERSITY, BLACKSBURG, VIRGINIA

Mr. ORDEN. Chairman Lugar, Senator Kerrey, and Senator

Conrad, thank you for the opportunity to testify at this hearing.

I am David Orden, Professor of Agricultural and Applied Economics at Virginia Tech and an author of the recent book, ‘‘Policy

Reform in American Agriculture.’’ This morning, I am here to suggest several possible reforms to

the sugar program. Sugar policy is at a crossroad at the turn of the

millennium. The traditional form of program management has run

out of room to operate. A new approach to sugar policy is required.

To achieve this new policy, we must look behind the two main

options that have dominated past debate. The reforms that are required are steps that will do three things, allow greater market

flexibility within the domestic market, retain the terms of our existing border measures and our international trade commitments,

provide some direct support to producers.

Similar steps have been taken progressively for other field crops

since the 1960’s, a period of almost 40-years. It will in fact take

courage to apply these measures to sugar, but the time to do so has

arrived.

My first observation is that current policies are out of room to

operate, and I think there has been quite a bit of discussion and

comment about this in previous testimony and the discussion about

that testimony. This year, domestic supply has expanded compared

to demand putting downward pressure on prices. The domestic policy has run out of room to operate. Farmers face enormous uncertainty in the market, and traditional policy instruments are indeed

under stress.

One option for sugar policy is to attempt to hold the price level

up through constraints on domestic supply. Stocks can be accumulated by the CCC, and if that is not enough, we can have a

plowdown PIK or marketing allotments or acreage reductions can

be re-legislated, but these are the types of Government storage and

supply control measures that Congress has progressively abolished

for other crops. They will be detrimental to the American sugar industry if they are now applied in this sector.

The alternative to current programs offered by critics of the

sugar program is likewise ill-advised. To unilaterally eliminate all

domestic support and simultaneously increase imports until U.S.

prices fall to world price levels is too draconian a short-term shift

from past rules.

Let me turn to the objectives of a direct payment policy broadly.

There are five positive objectives. These are to free up prices to

allow the domestic market to clear in response to supply-and-demand considerations; to avoid outdated interventions through Government involvement in purchases, forfeitures, stockholding which

will necessarily then imply stock disposal or domestic marketing allocations; to reduce incentives for oversupply relative to demand,

and this applies both to domestic producers and also to foreign producers who have access to the U.S. market under our existing

international commitments; to provide adjustment compensation to

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icy that eventually has more open trade and a reasonable safety

net for producers.

Senator Kerrey, you asked for a balanced approach to future

sugar policy and have pointed out the need for something different

from what we have done, and these are the kinds of directions I

am trying to point us.

Let me talk about two options. These are options for domestic

policy reform that can be carried out within the context of current

international commitments with no change in border measures. For

this reason, they are not subject to the objection that domestic producers would be exposed to unfair competition from abroad. Moreover, they may help address the coming impasse over recourse versus non-recourse loans. I am surprised this morning there has not

been more discussion of the difficulty the Secretary of Agriculture

will have announcing non-recourse loans for next year after a PIK

piledown has occurred this year.

The first direct payment approach would be implement marketing loans that would allow consumer prices to fall while providing

a price guarantee to producers. It would lower domestic market

prices when supplies are large. Sugar use would expand, helping

bring supply and demand into balance. This change in policy would

help restore market equilibrium in circumstances like this year.

The cost of a marketing loan program for each penny of pay- ments per pound of sugar is around $180 million, assuming full

participation, and because of the concentration in sugar production,

the distribution would be skewed unless there are payment restrictions applied. Nonetheless, for each penny of taxpayer cost, more

than that penny is saved by consumers, and this shift in support

from consumers to taxpayers yields a net gain and distributional

gains that have been mentioned by a previous speaker.

The introduction of marketing loans would provide support for

domestic producers, but would reduce production incentives abroad.

In particular, it would reduce the incentives for production in Mexico as they gain access to the U.S. market. Marketing loans would

also ease the adjustment to future multilateral trade liberalization.

Domestic producers would be assured of some compensation if as

part of a general package of agricultural trade liberalization, increased sugar imports were agreed to by the United States. Thus,

marketing loans achieve many of the objectives of a direct payments policy while providing a guaranteed price to producers and

should appeal to producers for this reason.

Senator Lugar, if I can indulge in having one more minute, I

would like to mention a second alternative in the direct payments

arena. It may be impossible in fact to maintain through a marketing loan program current prices that American farmers, American

sugar producers have been receiving and are expecting. If the principal market force putting downward pressure on prices is farmers’

increasing ability to supply sugar when current loan rates set the

price incentive for production, then a marketing loan program with

current loan rates will prove expensive every year. An alternative

to this approach is fixed direct payments based on historical production and lower loan rates. Under this approach, farmers would

have a choice about whether to continue to produce sugar and

would receive payments regardless, and production decisions would

58

be market-based, with loan rates lowered below expected market

prices.

These are not, as you were well aware, new policy instruments,

but their application to sugar would be new. In a State like Nebraska, Senator Kerrey, where farmers are producing a variety of

crops, it would bring, if you will, all of the agricultural policies that

they face under one umbrella.

One option Congress could consider, and this is the last point

that I will make, would be what I call a 25/50 proposal, to reduce

loan rates by 25-percent and provide fixed compensation payments

of 50-percent of the change in loan rate. Loan rates would be reduced from 18-cents to 13.5 for raw cane sugar and from 22.9 to

17.2 for refined sugar. Payments based on average U.S. production

during 1997 and 1999 would have an estimated cost of around $450

million. If these compensation payments were made on an emergency basis next year, they could be reconsidered in the 2002 farm

bill and either eliminated or converted to a more permanent basis.

Mr. Chairman, I am out of time. I will not reiterate the main

points that I made except to say that it is possible and it is probably essential that we now do reformed domestic policy within the

constraints of both our current border measures and our international commitments.

[The prepared statement of Mr. Orden can be found in the appendix on page 205.]

The CHAIRMAN. Thank you very much, Professor Orden. I appreciate the specific policy recommendations you have made which are

amplified in your overall statement. This is, I think, a very important contribution as to how we meet the dilemmas that many have

described today, and I think you have offered considerable balance

by pointing out that in the past, the two polls of policy have been

supply control. Then we plow it under and restrict farmers somehow or another to do the impossible, despite the fact that we try

to stop imports. This country is not an armed fortress, and we

found that to be a very difficult policy, quite apart from the fact

that we have already trade obligations. We have signed treaties.

Other people depend upon our word, and we are trying to negotiate

greater openness, sometimes with great difficulty.

So the supply control situation does not appear to me to be a

very promising one, and I would agree with you that simply to repeal the sugar program as a draconian step, it has all kinds of

ramifications that are difficult, given the predicament that we are

in, so what to do. You have suggested at least we might move in

an incremental way recognizing that we already are paying a fairly

heavy price as a society. We can argue whether USDA is paying

it or American consumers or somebody, but you are suggesting that

essentially a marketing loan business that finally affects supply

and decisions, but at the same time some compensation to people

who are in this transition may be a fair way to go, and then to try

to see in the next farm bill where that led us, what sort of modifications we need to make to that, but that the current situation

is basically unsustainable in large part, as you point out, however

fudged the situation was with regard to expectations of imports

this year, whether the Secretary waited 6 weeks beyond the proper

time or found some fictitious level. That will be even harder to do

59

next year, even if this committee is not watching or the rest of society omits any inspection.

As a result, we probably have to do something in the next year,

but I appreciate your outlining these alternatives because I suspect

that somewhere in that area, if we are to make any change, lies

the potential solution, either optimistic or pessimistic about whether we will find a solution. It could very well be that this is such

an intractable problem, people are so emotionally involved, that we

do nothing, but that will lead to all sorts of things that each of you

have described, and I think in a very articulate way. There will be

a lot of pain for workers. There will be more mills shut down, a

lot of farmers going out of business, all supposedly why we kept the

thing propped up and it simply will not work for anybody’s benefit

that I can perceive, largely because we have a problem now in

which we are producing much more than this country consumes

and the world consumes and offering incentives to do more of the

same. This is simply an unsustainable structure. It will collapse,

if it is not already in process of disintegration.

I appreciate the focus each one of you have given. From the

standpoint of management, Mr. Horvath has described very accurately the problems that are involved there. Certainly, there are

differences between the beet sugar people and the cane people and

even our programs that apply to that, and we have to be thoughtful

about that, regional differences, the historical point of how we got

there, but each one of you in your own way have made a very, very

important niche contribution as well as an overall collective statement.

Senator Conrad.

Senator CONRAD. Thank you, Mr. Chairman. Thank you for holding this hearing, and thank you for the panels that we have had.

It has certainly been a good discussion.

I want to especially welcome Jim Horvath of American Crystal

Sugar, one of the outstanding citizens of my State. I think he did

an exceptional job here defining the problem.

If I could, Mr. Chairman, I would like to take this back to the

broader question of farm policy because I personally believe we

have got to reconsider the direction that we have taken.

As I analyze it, as I diagnose it, we are in a circumstance in

which our major competitors support their producers at a level ten

times ours. That creates an unlevel playing field. That puts our

producers at a substantial disadvantage, and the question is how

do we respond.

We responded in the previous farm bill by what I call unilateral

disarmament. We substantially cut our program on the theory that

others would follow our good example. It did not work. It has been

a disaster. That is why we have had to write three disaster bills

in the last 3-years.

My own conclusion is the only way you lead to a more rational

world agricultural policy is through negotiation, but the only way

you get a result in negotiation is with leverage, and we have given

up ours.

My own belief is that we have got to rearm in agriculture in

order to go to the table to get a negotiated result that leads to a

more rational outcome; in other words, build up to build down. It

60

is exactly what worked in a military confrontation with what was

then the Soviet Union. We built up in order to build down.

After being in Seattle, I am absolutely persuaded we are not

going to get a rational response from the Europeans absent substantial leverage, and the only leverage that they will respect is if

the United States reverses course and adds resources to agriculture

so they can see that their long-term goal of world agricultural

dominance is going to be disappointed. It is only in that context

that I believe that we will be able to negotiate a rational world agricultural policy, and that is why I have introduced the FITE bill,

farm income and trade equity, because I think we have got to say

to the Europeans, we are going to take you on, we are going to

meet you head to head, and then we are willing to negotiate to

eliminate export subsidies and to try to fashion a strategy for world

agriculture that is fair and one that is economically rational.

I thank the Chairman.

The CHAIRMAN. Senator Kerrey?

Senator KERREY. I, too, Mr. Chairman, want to thank you both

for holding the hearings and for the witnesses coming forward.

I do think we have an urgent problem here that calls for action.

As always, we have got to find areas where we can reach bipartisan agreement. I would hope that we could reach bipartisan agreement on the idea that when you sign an agreement with another

Nation, they ought to honor that agreement, and Mexico is unquestionably circumventing that with actions that basically say, ‘‘I

know you guys restructured your refining industries as a consequence of a shift to a different product from sugar to high fructose corn sweeteners. We do not want to do it. We are not going

to do it. So we want to dump.’’ We ought to at least hold their feet

to the fire on that issue and communicate in a bipartisan way to

President–Elect Fox that it is vital that Mexico lives up to that

agreement. We ought to find ways to stand up to this circumvention that is occurring with stuffed molasses. That is a clear violation of an agreement. It is going to be very difficult for us to have

much of an impact if we cannot find some bipartisan area where

we can move, but also find some area that reinforces things that

generally this committee has supported, which has been the advancement of free trade agreements and the use of free trade

agreements to assist agriculture.

I asked Senate Breaux. NAFTA would not have passed—would

not have passed the House of Representatives without that agreement, and you are not going to get trade negotiating authority. If

you are looking for a reason why trade negotiating authority has

not been provided at present, you have to look no further than that

side agreement that has been dishonored. So it is vital that we do.

I would like to ask Mr. VanDriessche and perhaps Mr. Lay as

well, because both of you have commented on this—and, Mr.

Orden, I appreciate the constructive suggestions. I do not know in

the short term if we are going to be able to act on those, but if you

look at the existing farm program—and I would just like to get

your comment on this—what we have got is a decoupled farm program payment that was signed in a 7-year contract in 1996. It was

projected to cost $43 billion over 7-years. We are going to spend

close to $35 billion just this year because we have modified the conVerDate 11-MAY-2000 10:14 Mar 23, 2001 Jkt 070294 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 70294.TXT SAGRI1 PsN: SAGRI1
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tract in 1998, 1999, and this year as well putting out additional

AMTA payments. Indeed, I think it would be about $10 billion of

AMTA payments this year.

The LDPs have been shockingly expensive, and by the way, Mr.

Orden, one of the issues you have to examine on the marketing

loan is look at what has happened with the current LDP program.

We set the LDP very high for soybeans in order to get some additional support for Freedom to Farm, just as Freedom to Farm was

enacted as a consequence of an agreement to bring on the Northeast Dairy Compact, which is not exactly Freedom to Farm. What we see is about $3 billion now in soybean payments in LDP

versus almost the same amount for corn. We may spent more on

the LDP for soybeans than we do for corn. In both cases, what we

have got is a situation, Mr. VanDriessche, that you described that

essentially any processor can buy at much lower prices, and then

the taxpayer comes in and picks up the differential with a direct

payment out to the producer.

I am wondering if, relative to what we have in sugar, if either

one of you see this as essentially corporate welfare. Do you see this

as a payment that benefits the processors as well? Do you have

ideas, either philosophically or specifically, because that is where

Mr. Orden is going, to modify Freedom to Farm so that it could

work for sugar growers as well?

Mr. VANDRIESSCHE. I would say because of the level that is paid

on those AMTA payments, it actually sets a low level for those

processors to be able to buy their commodity.

Essentially, it is more of a benefit to the users than it is to the

farmer because really what it does for us it allows us just to survive. It is just enough of a payment where growers can continue

to raise those particular commodities and—— Senator KERREY. Except for soybeans which we have said above

the cost of production. You would have to look at soybeans as almost a special case because we have set that price higher, and we

got a lot more acreage in it as a consequence.

Mr. VANDRIESSCHE. There is a result of that, that with the price

of soybean support being where it is, there is more acres that has

gone into soybeans. So I do agree with you on that.

Senator KERREY. Do you see ways to modify, either you or Mr.

Lay, the existing Freedom to Farm Act, perhaps even in the short

term, that would be of assistance to producers, to beet producers?

Mr. LAY. As I understand it, the AMTA allows a farmer to take

acreage out of production and then put it back into production in

some other crop, and I believe——

Senator KERREY. No. Actually, the AMTA payment is made—

there is no acreage reduction program at all. The AMTA payment

is made independent of what is being produced.

Mr. LAY. OK. Well, maybe if they are producing soybeans or cotton on land in Louisiana and they take that out of production and

get AMTA payment and then put it into sugar cane, that is one of

the—of course, Louisiana is one of the areas where production of

sugar has just skyrocketed in the last 10-years, and it is going to

continue.

Senator KERREY. That is what I am saying. I think the Freedom

to Farm has had an impact. Both of you have asserted, and I think

62

correctly so, that Freedom to Farm has had a negative impact upon

the price of sugar——

Mr. LAY. Yes.

Senator KERREY.—and created part of this situation. So the question is whether or not some modification could be made. You can

see this as a modification of Freedom to Farm since you are paying

the consequence. You are paying the price for it that would be of

assistance to producers.

Maybe you can think about that over lunch and come back to the

Committee later.

Again, Mr. Chairman, I thank you very much for holding these

hearings.

The CHAIRMAN. Thank you, Senator Kerrey.

Just picking up your thought, I suppose one of the anomalies of

Freedom to Farm, as the witnesses have pointed out, farmers have

the ability to plant whatever they want to plant on their farms,

and that is one of the appealing aspects of that, to utilize their

land and their resources that way, but as Mr. Lay has pointed out,

if market signals indicate it is more profitable to plant sugar cane

than cotton or rice or wheat or whatever, farmers will do that.

I suppose one of the arguments here could go either way. I suppose as the incentives to plant sugar now are sufficiently lucrative,

given the program we have, that people would go in that direction.

So this is increasing the oversupply, given both the freedom to do

it. In the old days, you had to plant whatever you had there in

order to keep the quota. So you went the corn route or wheat or

cotton or rice. You did not have that option. Now, under Freedom

to Farm, you can plant whatever you want to plant. So people

plant sugar. Why? Because they do better with sugar.

But one of the consequences of this is, of course, an oversupply

which our own program creates, just as the Senator has pointed

out with soybeans. An anomaly of that program is the LDP for soybean, clearly out of line with corn. So the farmers have found that

out, and they have planted more soybeans for a variety of reasons,

but one of them is the LDP.

Each time, we jigger with the program, we create some unintended effects, as people find in a market system, and if they have

the freedom to do so, where is the advantage?

I do not know how we stop that except, as Professor Orden pointed out, one way, of course, is supply control. You move the other

way sharply, and you just simply plow it under or offer incentives

to do that, such as giving people payment-in-kind, sugar, to plow

it under, so that they will not produce more sugar.

But, as I think he points out correctly, we have been down that

road from the time of the New Deal and killing of little pigs and

plowing under of corn and so forth a good number of times, and it

has some real problems in terms of both freedom for farmers as

well as supply and demand which USDA has never been able to

gauge particularly well.

So the marketing loan thing, as the Senator points out, has its

problems in that however you set this marketing loan thing, maybe

we will make a mistake, maybe as we did, with soybeans, sort of

get it out of whack.

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It is sort of hard when you are arbitrarily setting these things

to find out really how the world works and where markets might

wind up, but on the other hand, it is sort of a halfway home between the draconian step of scrapping the whole program and

doing supply control and trying to figure out how much you plow

under now, how much sugar you give somebody not to produce

sugar, and figuring out how long that can be sustained in a world

that is producing even more sugar all the time.

I think Senator Conrad makes a good point in terms of analogy

to the cold war, and he often does this in our committee about unilateral disarmament and gearing up, but taken to its extreme, the

Europeans arguably are going to spend from 65- to 75- or $80 billion to make their program work.

Even at the Senator’s estimate of $30 billion for our program— that may be a little high, but maybe not too far off—we are still

a long way from 75 or 80. Conceivably, the American people may

say in order to beat the Europeans at this game, we are prepared

to invest $50 billion more of taxpayer money in agriculture to show

the Europeans what we think of them, but in the meanwhile, farmers in this country might pick up some market signals and produce

a whole lot more. So we would say, ‘‘Well, you cannot do that. We

are going to put supply control on you. We are going to put this

money into the economy somehow to beat the Europeans, but we

do not want to throw it out of whack altogether, the supply-anddemand situation, but a tough thing to do,’’ even if you want to go

head to head on these things.

I think we all are frustrated in this committee, I would share

with you, with the fact that we are not making good headway in

our exports. We were stymied in Europe. We still have a recession

in Asia. We are unable hardly to even get a bilateral treaty with

getting Chile into NAFTA. Even when the King of Jordan came

over and said it is vital for peace in the Middle East to have a free

trade agreement with him, even to move a bilateral one, with or

without fast-track authority, this is a situation that is terrible, and

it will not work, because otherwise we are going to produce more

and we cannot send it anywhere, whether it is sugar or beans or

corn.

Mr. VANDRIESSCHE. Mr. Chairman?

The CHAIRMAN. Yes.

Mr. VANDRIESSCHE. I wonder if I might have a minute to comment here.

The CHAIRMAN. Sure.

Mr. VANDRIESSCHE. I think we have to be careful that we do not

compare sugar production with other commodities. For one thing,

we do not have the flexibility that soybeans, corn, and other commodities do because we are tied to a processor.

As you know, I have stated I raise corn and soybeans and sugar

beets, and as a matter of fact, I plant them all with the same drill,

the same 12-row drill, but I have a lot more flexibility with those

other commodities because, if I decide that one particular elevator

or company or whatever does not work for me, I will go to another

one. That is not the same with sugar. We are tied to a contract to

a processor, and there are many elevators that I could take my

product to.

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With sugar, if we lose our processor, we are essentially out of

business, and with some of the things that are being talked about

here, we could very easily do that. We are at sustainment levels

right now.

It is not one of these things you can get in and out of, as we

talked about, ‘‘Well, if soybeans look good, we will get into soybeans. If corn looks good, we will get into corn,’’ or whatever, but

sugar beets is not the case that way. If we lose our processor, we

are out of production with that particular crop.

Senator KERREY. Specifically, does that mean it is important for

us, whatever we do in the short term, that we do not force USDA

into having to go from non-recourse to recourse loans?

Mr. VANDRIESSCHE. We have to look at that. That is a very important point.

Senator KERREY. In other words, we do not force USDA into a

policy option that would require them to shift from recourse to nonrecourse because it is difficult to approach a processor unless you

have got a non-recourse loan, isn’t it?

Mr. VANDRIESSCHE. Correct.

We want to be very careful how we formulate this policy, and we

want to look at the whole picture, not just at what production has

done here in the United States because of all the other trade implications that come in along with that.

There was reference made that if we look at doing some type of

things with sugar as we have done with the other commodities, is

this going to be lucrative, are we going to have that much more in

production, and is it lucrative right now. Well, I do not think it is

lucrative right now when we have a number of factories that are

closing, and as a matter of fact, I should not be sitting here right

now. The person that should have been president of this organization called us at Christmas time. He was supposed to assume his

responsibilities as of February 1st, and he had to let us know that

he was going out of business.

He is a very sharp individual, a very promising young farmer

that would have done a great justice for this organization, but he

is out of business.

Senator KERREY. Mr. Chairman, do you mind if I put some additional detail on this?

The CHAIRMAN. No, go right ahead.

Senator KERREY. One of the things that I hear as well when I

talk to, whether it is beet or corn or wheat or soybean, farmers in

Nebraska is when they hear that we have got to increase quotas

in sugar and we have got a lot more product into the United

States, they immediately say, ‘‘Senator, understand that the structure of agriculture in Mexico or Brazil or one of these other countries is completely different than ours.’’ You are not going to be

shifting production to small-scale family farms in these countries.

These are larger processors with much different environmental regulations and much different cost on the labor side as well. So they

do not see a level playing field, and they certainly do not see the

comparative advantage shifting over to something that necessarily

is going to be viewed qualitatively as an improvement.

Mr. VANDRIESSCHE. Well, I think that is what is frustrating to

us as growers when we talk about the import quotas that are here.

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We have to work with them. They are part of our trade agreements. But let’s face it. We are the third-largest importer of sugar

in this world, and when we as growers are looking at what we need

to do to solve our problems, we have to consider the fact that we

are importing this much sugar and we are talking about the problem that we have and what we are doing as producers. It is very

frustrating for us on the farm.

Senator KERREY. Mr. Chairman, I just want to say there will be

some things that we have talked about today, some views where it

is impossible for us to reach agreement in the short term, but my

guess is you can find four or five things where you could get broad

agreement from the Committee and I hope you do because, with

your leadership, I think we could do some things that would be

constructive.

The CHAIRMAN. This is what we will try to do. We are not going

to have success on this policy any more than any other without

broad bipartisan support which ultimately about all the Committee

agrees, and when we have that, we have some success. Otherwise,

we just have a discussion.

I just want to raise one more question because of the expertise

here. In addition to the problems abroad, mention has been made

of the high fructose syrup situation. If we were in a different

forum, either privately or publicly, in the past many people who

are corn producers or people representing that interest have been

very much in favor of high sugar supports, however they came,

with the thought that somehow that gave them some room to maneuver under that. So it has been an unusual alliance of what

seemed to be a competitive source of sweetener, but in fact there

was a partnership of effort.

That may still be the case, although it is less so, as I understand

the current situation, but what about the fact that if sugar has

been more expensive, apparently, to candy makers or cookie makers or what have you, they have gone another route to corn? That

is a free market system and very possible. Therefore, how do we

work that out internally in the country? Do you just observe that,

that is the case? Clearly, if the demand for sugar declines because

people are finding substitutes in terms of sweeteners, this is another facet of the problem, even while we are busy trying to maintain the cane or the sugar beet industries.

The corn people say, ‘‘We have an interest in this, too,’’ as a matter of fact, competitive product, and a lot of the dispute with the

Mexicans comes from the corn people in a way saying we have been

frustrated altogether by the trade dodges that are occurring there

in Mexico so they could go together with sugar people and all the

rest of us. The Mexicans try to get relief.

Do any of you have any thoughts about this sort of sophisticated

nuance of the problem?

Yes, Sir.

Mr. HORVATH. Yes, Mr. Chairman. I would like to comment on

that.

I think the conversion that has occurred in the United States of

converting from the use of sugar in many products to high fructose

corn syrup started about 20-years ago, mainly in the soft drink industry, and has basically from our perspective been, more or less,

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complete. There continue to be minor changes, and the reason that

there is not more, from my perspective, is that functionality differences exist between our two products.

I think that we have a situation where we probably will not see

much continued conversion to high fructose corn syrup.

As far as the consumption of sugar itself is concerned, sugar consumption continues to rise in this country basically in relationship

to the increase in population.

I have a couple other comments, Mr. Chairman, I would appreciate if I could make.

The CHAIRMAN. Yes.

Mr. HORVATH. On Senator Kerrey’s comment concerning recourse

loans, from my perspective, recourse loans for next year, any policy

changes that would reflect a direction to go in that direction would

be quite disastrous for this industry and could in fact start the

process that Mr. VanDriessche talks about where you start to see

more and more processors closing and, therefore, more and more of

our folks on the farm going out of business.

Second, I think an important point relative to the profitability of

sugar versus other crops, I do not think we are talking here about

sugar making a lot of money. I will quote an article from the Minneapolis Star Tribune that reflected the fact that last year, the average Minnesota farmer made $47,000, and $48,000 of that 47

came from the Government. So we are looking at, for all other

crops, basically our farmers are trading dollars while sugar provides a modest return and has for some time, but at today’s prices,

we are not seeing that in the sugar business either.

Half of my shareholders will be losing money in the next year

based ‘upon what we are seeing in the marketplace today. So this

is really a significant change.

I have one more point, Mr. Chairman, if I may. Relative to the

whole issue of the sugar industry’s support about foreign trade,

this industry has been united for many years in support of finding

a level playing field as far as foreign trade is concerned for sugar,

and we continue to support that. Recently, last week in fact, we

sent a letter to Ambassador Barshefsky and Secretary Glickman

reflecting our support of their recent statements as far as the direction of future trade talks as far as sugar is concerned. So we are

very much supportive of finding that level of fair playing field for

sugar in world trade.

I would ask, Mr. Chairman, if we could please submit that letter

for the record.

The CHAIRMAN. Yes. We would be happy to enclose that in the

record.

[The information referred to can be found in the appendix on

page 216.]

Mr. HORVATH. Thank you, Mr. Chairman.

The CHAIRMAN. I think your point you have made there is an important one.

Let me just say with regard to the food processing or manufacturing side, the testimony we are getting from almost everybody in

that area is they are not doing very well. Sometimes we have a byplay between producers and people from manufacturing with the

assumption that one is doing well and the other is not, but, neverVerDate 11-MAY-2000 10:14 Mar 23, 2001 Jkt 070294 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 70294.TXT SAGRI1 PsN: SAGRI1
67

theless, the people from the stock market come and point out that

everything involving food is out of favor, which is very, very low

ratings by the market as opposed to other things that Americans

are doing. This is not a high-flying business in any aspect of it,

which sort of gets to Mr. VanDriessche’s point.

If people who are involved in the processing of the sugar go out

of business, there is not a lot of flexibility for people who are growing it either. This is an interchangeable situation, or for workers

who are employed by all of this.

Let me just ask as a technical point, though. We heard early on

the fact that the non-recourse or recourse loan situation sort of recurs next year at this point of $1.25 million or what have you that

was either fudged or ignored or somehow this year, but given the

supply situation that we are discussing, it is very difficult to see

how the Secretary is going to make a finding there. Unless there

is a deliberate change in policy or some discussion of this, why, we

are going to reach a crossroads in a few months, which all of you

have pointed to, and that is one reason we are holding the hearing

now as opposed to at that moment, so we all sort of understand.

Yes, Professor Orden.

Mr. ORDEN. If I could comment on that for just a minute, Chairman Lugar. I think you are right that it will be very difficult for

the Secretary to in good faith announce under the current circumstances sufficient imports to have a non-recourse loan, and by

the letter of the law, that then leaves the Secretary with a recourse

loan which is a very serious problem for domestic producers.

One suggestion would in fact be to implement early next year a

marketing loan program associated with that recourse loan so that

there was some cushioning of the lower prices that might occur

next year in the marketplace by some compensatory payments. I

just wanted to point that out as an option because otherwise we

are going to be in the same plow-down situation next year, and it

looks like for some number of years in the future.

The CHAIRMAN. We thank each one of you for staying with this

hearing. It has been, I think, an important hearing for the Committee, staff, and for the public, and you have made it so. We thank

you for coming.

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

appendix on page 72.]

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

appendix on page 100.]

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

appendix on page 73.]

The CHAIRMAN. The hearing is adjourned.

[Whereupon, at 12:27 p.m., the Committee was adjourned.]

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