| <html> | |
| <title> - DEPARTMENT OF AGRICULTURE FISCAL YEAR 2002 BUDGET PRIORITIES</title> | |
| <body><pre> | |
| [House Hearing, 107 Congress] | |
| [From the U.S. Government Publishing Office] | |
| DEPARTMENT OF AGRICULTURE FISCAL YEAR 2002 BUDGET PRIORITIES | |
| ======================================================================= | |
| HEARING | |
| before the | |
| COMMITTEE ON THE BUDGET | |
| HOUSE OF REPRESENTATIVES | |
| ONE HUNDRED SEVENTH CONGRESS | |
| FIRST SESSION | |
| __________ | |
| HEARING HELD IN WASHINGTON, DC, MARCH 14, 2001 | |
| __________ | |
| Serial No. 107-9 | |
| __________ | |
| Printed for the use of the Committee on the Budget | |
| Available on the Internet: http://www.access.gpo.gov/congress/house/ | |
| house04.html | |
| __________ | |
| U.S. GOVERNMENT PRINTING OFFICE | |
| 70-997 WASHINGTON : 2001 | |
| _______________________________________________________________________ | |
| For sale by the Superintendent of Documents, U.S. Government Printing | |
| Office | |
| Internet: bookstore.gpo.gov Phone: (202) 512-1800 Fax: (202) 512-2250 | |
| Mail: Stop SSOP, Washington, DC 20402-0001 | |
| COMMITTEE ON THE BUDGET | |
| JIM NUSSLE, Iowa, Chairman | |
| JOHN E. SUNUNU, New Hampshire JOHN M. SPRATT, Jr., South | |
| Vice Chairman Carolina, | |
| PETER HOEKSTRA, Michigan Ranking Minority Member | |
| Vice Chairman JIM McDERMOTT, Washington | |
| CHARLES F. BASS, New Hampshire BENNIE G. THOMPSON, Mississippi | |
| GIL GUTKNECHT, Minnesota KEN BENTSEN, Texas | |
| VAN HILLEARY, Tennessee JIM DAVIS, Florida | |
| MAC THORNBERRY, Texas EVA M. CLAYTON, North Carolina | |
| JIM RYUN, Kansas DAVID E. PRICE, North Carolina | |
| MAC COLLINS, Georgia GERALD D. KLECZKA, Wisconsin | |
| ERNIE FLETCHER, Kentucky BOB CLEMENT, Tennessee | |
| GARY G. MILLER, California JAMES P. MORAN, Virginia | |
| PAT TOOMEY, Pennsylvania DARLENE HOOLEY, Oregon | |
| WES WATKINS, Oklahoma TAMMY BALDWIN, Wisconsin | |
| DOC HASTINGS, Washington CAROLYN McCARTHY, New York | |
| JOHN T. DOOLITTLE, California DENNIS MOORE, Kansas | |
| ROB PORTMAN, Ohio MICHAEL E. CAPUANO, Massachusetts | |
| RAY LaHOOD, Illinois MICHAEL M. HONDA, California | |
| KAY GRANGER, Texas JOSEPH M. HOEFFEL III, | |
| EDWARD SCHROCK, Virginia Pennsylvania | |
| JOHN CULBERSON, Texas RUSH D. HOLT, New Jersey | |
| HENRY E. BROWN, Jr., South Carolina JIM MATHESON, Utah | |
| ANDER CRENSHAW, Florida | |
| ADAM PUTNAM, Florida | |
| MARK KIRK, Illinois | |
| Professional Staff | |
| Rich Meade, Chief of Staff | |
| Thomas S. Kahn, Minority Staff Director and Chief Counsel | |
| C O N T E N T S | |
| Page | |
| Hearing held in Washington, DC, March 14, 2001................... 1 | |
| Statement of: | |
| Hon. Ann M. Veneman, Secretary, U.S. Department of | |
| Agriculture................................................ 3 | |
| Hon. Charles W. Stenholm, a Representative in Congress from | |
| the State of Texas......................................... 28 | |
| Bruce L. Gardner, chairman, Department of Agriculture and | |
| Resource Economics, University of Maryland................. 36 | |
| Prepared statement of: | |
| Secretary Veneman............................................ 6 | |
| Representative Stenholm...................................... 30 | |
| Mr. Gardner.................................................. 40 | |
| DEPARTMENT OF AGRICULTURE FISCAL YEAR 2002 BUDGET PRIORITIES | |
| ---------- | |
| WEDNESDAY, MARCH 14, 2001 | |
| House of Representatives, | |
| Committee on the Budget, | |
| Washington, DC. | |
| The committee met, pursuant to notice, at 1 p.m. in room | |
| 210, Cannon House Office Building, Hon. Jim Nussle (chairman of | |
| the committee) presiding. | |
| Members present: Representatives Nussle, Hastings, LaHood, | |
| Schrock, Gutknecht, Thornberry, Brown, Fletcher, Watkins, | |
| Collins, Bass, Culberson, Spratt, Moore, Hooley, Clayton, | |
| Putnam, McDermott, and Matheson. | |
| Chairman Nussle. I call the full Committee hearing of the | |
| Budget Committee to order. | |
| Today we have the opportunity to continue our exploration | |
| of the President's fiscal year 2002 budget with an examination | |
| of the Department of Agriculture budget priorities. Today we | |
| are honored to have with us the 27th Secretary of Agriculture, | |
| the Honorable Ann Veneman from California, who is the Secretary | |
| of Agriculture. | |
| We're so happy that you are with us today to visit with us | |
| about not only the President's priorities, but your priorities | |
| as you return to the Department of Agriculture in a new role. | |
| We were just reminiscing about a former colleague, Ed Madigan, | |
| who was not only a colleague of ours, and a dear friend of mine | |
| when I first came to Congress, but then of course went to the | |
| Department of Agriculture and whom you served for for that | |
| period of time. So we welcome you back to your role in the | |
| Department of Agriculture. | |
| As the markets continue to fluctuate out there, we | |
| particularly from farm country, coming from Iowa, the markets | |
| that we watch of course more closely maybe than any others are | |
| those that affect us in agriculture. Those markets have been | |
| down, maybe not as newsworthy to most, to the general public as | |
| they are to farmers and to ranchers across this country. But | |
| they've been fluctuating down for many years now. | |
| We have a real challenge out there in farm country. Bad | |
| news with regard to the economy is not news to those of us that | |
| come from rural areas and farm country. One of the great | |
| challenges, I think, that you have and the Administration has, | |
| together with us as partners, is to work at trying to do what | |
| we can in order to restore not only faith but to restore | |
| confidence, restore safety and security back into our food and | |
| that important resource that all of us take for granted. | |
| We all pick up the gallon of milk at the store and | |
| sometimes we forget that it comes from our farmers, or we buy | |
| that loaf of bread and those corn flakes and we forget about | |
| all the hard work that goes into it. We hear the stories about | |
| the box costing more than the ingredients these days. | |
| There are people out there that are in need of attention | |
| from the administration and from us as we work through this | |
| budget. I see a couple of challenges, and I'll mention them | |
| briefly to you. Firstly, with the emergencies we've been having | |
| in the farm program over the last couple of years in | |
| particular, I'm not sure that we can wait until next year for | |
| reauthorization of the full Farm Bill. | |
| We may want to look at a portion of that Farm bill being | |
| authorized even as early as this year, possibly by the end of | |
| this year, looking at the commodity programs to look at some | |
| changes, so that it takes effect as quickly as possible and we | |
| don't have this constant dipping into emergency funding to deal | |
| with our farmers. They don't want it. It's not what they want. | |
| They certainly need it, and we gladly provide it. But that's | |
| not the farm program they want, one that is based on emergency | |
| checks that go out from Washington, D.C. | |
| The second challenge that I would just report to you is one | |
| that involves the Department of Agriculture as a whole. I hear | |
| unfortunately some complaints about the way that constituents | |
| are being served through the different agencies, getting their | |
| responses attended to. You have a lot of great people that work | |
| down at the Department of Agriculture. But sometimes those | |
| great people working in poor systems don't always get to do the | |
| kind of work that we all want them to do. | |
| I would just encourage you, similar to what the President | |
| has suggested in the Department of Defense, that we consider a | |
| top to bottom review of the Department of Agriculture. It's not | |
| just that which affects farmers. We held hearings last year on | |
| the Food Stamp Program and on trafficking of food stamps that | |
| continues to go on, using it as a currency in some | |
| neighborhoods of our country, not using the technology and the | |
| good, new technological practices that are available, such as | |
| ATM cards, electronic transfers. | |
| So there are some challenges out there that we're hoping | |
| can be addressed by your administration as well as by the | |
| budget. We look forward to your testimony and the chance to ask | |
| you some questions about that. | |
| Welcome, and we look forward to working with you on these | |
| very important programs. | |
| I'd now like to recognize the Ranking Member, John Spratt, | |
| from South Carolina. | |
| Mr. Spratt. I'd also like to extend a warm welcome to you. | |
| We appreciate very much your coming. We'll have questions about | |
| the program later, but let me simply say we look forward to | |
| working with you. | |
| Chairman Nussle. Madam Secretary, your entire testimony | |
| will be made part of the record, and without objection, all | |
| members will be allowed to put a statement into the record at | |
| this point. | |
| You may summarize testimony or proceed as you would like. | |
| We welcome you and we look forward to your testimony. | |
| STATEMENT OF HON. ANN M. VENEMAN, SECRETARY, U.S. DEPARTMENT OF | |
| AGRICULTURE | |
| Secretary Veneman. Thank you, Mr. Chairman, and members of | |
| the committee. It is an honor for me to be here today. I | |
| appreciate the initiative you have shown in calling this | |
| hearing, because the issues that are affecting farmers, | |
| consumers and other constituents of the Department's programs | |
| are, as you pointed out, very important. | |
| As you know, the administration recently issued a blueprint | |
| document outlining its budget priorities for fiscal year 2002. | |
| While the detailed budget will not be submitted to the Congress | |
| until the first part of April, I want to give you the best | |
| possible overview of our priorities. | |
| There are three overarching considerations that shape the | |
| administration's approach to developing the budget for 2002. | |
| These include, first, slowing down the growth of Federal | |
| spending and funding urgent national priorities; second, | |
| achieving historic levels of debt reduction; and third, | |
| providing tax relief. | |
| Farmers and other beneficiaries of USDA programs all have a | |
| stake in these objectives and will benefit from the President's | |
| initiatives, particularly tax relief. Farmers especially will | |
| benefit from the elimination of the estate tax and from the | |
| proposed establishment of tax deferred risk management | |
| accounts. | |
| Restraint of Federal spending is important, since it has | |
| grown substantially in recent years. Left unchecked, this | |
| growth would cause spending to far exceed the Budget | |
| Enforcement Act baseline over the next 10 years. USDA has | |
| contributed to this accelerating growth of Federal spending. | |
| Over a 10 year period, USDA outlays increased by about $24 | |
| billion, from $46 billion in 1990 to nearly $70 billion in | |
| 2001. In recent years, USDA outlays have been highly variable, | |
| largely reflecting emergency spending to address natural and | |
| economic disasters in the agricultural and rural economy. | |
| Substantial growth occurred in both mandatory and discretionary | |
| spending. | |
| I'm sure this committee is aware that the Department of | |
| Agriculture has one of the most diverse sets of discretionary | |
| programs in the Government. In 2001 our discretionary budget | |
| will exceed $19 billion. The largest discretionary program that | |
| we administer is the Special Supplemental Nutrition Program for | |
| Women, Infants and Children, commonly referred to as WIC. This | |
| provides nutrition assistance to some of the most vulnerable | |
| and needy people in our society. | |
| The discretionary budget also provides funding for other | |
| crucial responsibilities, such as pest and disease control, | |
| domestic and international marketing assistance programs, | |
| conservation, rural development, research, food safety and the | |
| U.S. Forest Service. Developing a discretionary budget for the | |
| Department always involves difficult questions of finding the | |
| appropriate balance between all of these programs within a | |
| reasonable budget figure. | |
| Mandatory spending accounts for over three quarters of the | |
| Department's spending and will amount to $53.5 billion in 2001. | |
| The primary components of our mandatory budget are the Food | |
| Stamp Program, the child nutrition programs, farm support | |
| programs, and a number of conservation programs. Many of these | |
| programs are entitlements and their funding requirements are | |
| largely dictated by economic conditions. | |
| USDA's discretionary budget for 2001 reflects a 13 percent | |
| increase over the 2000 level, which in our view is | |
| unsustainable over the longer term. For 2002, the budget | |
| includes a more realistic level of $17.9 billion, which is | |
| about 5 percent over the 2000 level, largely reflecting the | |
| rate of inflation over the 2 years. | |
| To achieve what we believe is the appropriate level of | |
| growth in spending, the 2002 budget proposes to eliminate | |
| approximately $1.1 billion in one-time spending provided for | |
| 2001, most of which is emergency funding. In addition, the | |
| budget saves about $150 million by eliminating approximately | |
| 300 earmarked projects that were not subject to the merit based | |
| selection process. | |
| The budget also proposes saving taxpayers an additional | |
| $200 million by reducing or eliminating programs that are not | |
| immediate priorities or need to be better targeted. | |
| The budget does fund a number of very important top | |
| priorities in USDA that are part of the President's agenda. | |
| First, it carries out the President's commitment to expanding | |
| overseas markets for American agricultural products by | |
| strengthening USDA's marketing intelligence capabilities and | |
| the Department's expertise for resolving technical trade issues | |
| with foreign trading partners. It also expands and strengthens | |
| our analytical capabilities in a number of USDA agencies that | |
| have trade related programs. | |
| Second, it redirects USDA research to provide new emphasis | |
| in key areas such as improving protection against emerging | |
| exotic plant and animal diseases and pests of crops and | |
| animals, biotechnology and the development of new uses for | |
| agricultural products. It maintains funding for priority | |
| activities in the Forest Service's wildland fire management | |
| plan, including hazardous fuels reduction. In addition, the | |
| budget proposes a reserve for unforeseen national emergency | |
| disaster needs. | |
| It also funds 7,600 meat and poultry inspectors without | |
| reliance on user fees, in addition to fully supporting other | |
| USDA food safety and inspection activities. The budget | |
| maintains average monthly participation in the WIC program at | |
| 7.25 million individuals, which is the year end level for 2000 | |
| and the participation level projected for 2001. It supports | |
| 60,000 low to moderate income rural families in their | |
| acquisition of decent, safe, affordable housing and provides | |
| access to clear, safe drinking water for 1.4 million poor rural | |
| residents. | |
| It provides conservation assistance to 650,000 landowners, | |
| farmers and ranchers. It funds continuing actions to combat | |
| pest and disease infestations through direct appropriations | |
| rather than through emergency funding transfers. Emergency | |
| funding would be considered for unforeseen infestations. | |
| On the mandatory side, the largest component of spending is | |
| for the food assistance programs, and that is followed by the | |
| farm support programs. Mandatory spending in the food | |
| assistance area covers both food stamps and child nutrition. | |
| The 2002 budget proposes no major changes for either of these | |
| programs. The current services outlay estimate for 2002 is | |
| $20.9 billion for food stamps and $10.3 billion for child | |
| nutrition programs. These estimates are driven by the cost of | |
| the food benefit and the number of anticipated participants in | |
| the program. | |
| Farm support spending carried out through the Commodity | |
| Credit Corporation, commonly referred to as the CCC, is | |
| estimated under current law at $13 billion for 2002, down from | |
| $20 billion estimated for 2001 and $32 billion in 2000. The | |
| reduction in 2002 primarily reflects the effect of emergency | |
| supplemental appropriations that added an average of over $8 | |
| billion per year to CCC outlays for the last 3 years. Out year | |
| estimates also decline as market conditions are projected to | |
| improve and reduce the assistance provided by ongoing safety | |
| net provisions like marketing assistance loans and loan | |
| deficiency payments. | |
| Since emergency appropriations are not part of the ongoing | |
| mandatory program, they have not been projected in future | |
| years. However, I would stress that spending on farm support | |
| programs is highly variable and difficult to predict, since it | |
| is so dependent on market conditions and weather. In fact, the | |
| President's budget proposes the establishment of a contingency | |
| fund of nearly $1 trillion for use in dealing with unexpected | |
| and difficult to predict needs or necessary programmatic | |
| reforms which may emerge in the future and for which adequate | |
| resources cannot readily be found by reforming other | |
| activities. Assistance to farmers will be one of the many | |
| potential uses for this contingency reserve. | |
| In conjunction with support to farmers provided by CCC, | |
| crop insurance reforms enacted in ARPA meet the | |
| administration's objective for improving the crop insurance | |
| program. These reforms should help reduce the need for natural | |
| disaster related crop loss assistance in 2002 and beyond. In | |
| addition, as I indicated, the administration will propose | |
| legislation to allow farmers and ranchers to reserve a | |
| substantial percentage of their net farm income in tax deferred | |
| accounts known as Federal Farm and Ranch Management Accounts | |
| that could be drawn upon during the times of financial stress. | |
| With respect to other aspects of the farm safety net, I | |
| recognize that there are ongoing weaknesses in the farm | |
| economy. We are closely monitoring the situation, but we need | |
| to wait and see how crop and market conditions develop over the | |
| coming months. We are aware of concerns about farm financial | |
| conditions which may require additional assistance if uncertain | |
| market conditions worsen or do not improve soon. | |
| That's one of the many reasons the administration proposed | |
| budget reforms to include an explicit contingency reserve. We | |
| will work with Congress to assess further needs for farm | |
| assistance and will take other appropriate measures, such as | |
| pursuing an aggressive trade policy and improving the | |
| effectiveness of our current programs to move the sector toward | |
| greater reliance on the market based economy. | |
| There is currently a wide range of ideas being discussed | |
| for policy reforms over the longer term. We are reviewing the | |
| report from the Commission on 21st Century Production | |
| Agriculture and House Committee Chairman Combest has taken an | |
| important step toward establishing a framework that encourages | |
| commodity groups to work together to develop proposals for the | |
| future. | |
| We look forward to working with the Congress and other | |
| representatives of the farm sector on these important issues. | |
| Thank you very much. | |
| [The prepared statement of Ann Veneman follows:] | |
| Prepared Statement of Hon. Ann M. Veneman, Secretary, U.S. Department | |
| of Agriculture | |
| Mr. Chairman, members of the committee, it is an honor for me to | |
| appear before you to discuss the Administration's programs and budget | |
| priorities for fiscal year (FY) 2002. | |
| The administration has recently issued a blueprint document | |
| outlining its budget priorities for 2002. The detailed budget is to be | |
| submitted during the first part of April. However, today I want to give | |
| you a broad overview of our priorities. | |
| There are three over-arching considerations that shaped the | |
| administration's approach to developing the budget for 2002. These are: | |
| <bullet> Slowing the growth of Federal spending and funding urgent | |
| national priorities. | |
| <bullet> Achieving historic levels of debt reduction. | |
| <bullet> Providing tax relief. | |
| Farmers and other beneficiaries of USDA programs all have a stake | |
| in these objectives and will benefit from the President's initiatives, | |
| particularly tax relief. Farmers especially will benefit from the | |
| elimination of the estate tax and from the proposed establishment of | |
| tax-deferred risk management accounts. | |
| Restraint of Federal spending is important, since it has grown | |
| substantially in recent years. Left unchecked, this rate of growth | |
| would cause spending to far exceed the Budget Enforcement Act baseline | |
| over the next 10 years. USDA has contributed to this accelerating | |
| growth of Federal spending. | |
| Over a 10-year period, USDA outlays increased by about $26 billion, | |
| from $46 billion in 1990 to nearly $73 billion in 2001. In recent | |
| years, USDA outlays have been highly variable, largely reflecting | |
| emergency spending to address natural and economic disasters in the | |
| agriculture and rural economy. Substantial growth occurred in both | |
| mandatory as well as discretionary spending. | |
| USDA discretionary spending amounted to over $19 billion in 2001 | |
| and accounted for about a quarter of total USDA spending. The | |
| Department's discretionary programs are wide ranging and include the | |
| Special Supplemental Nutrition Program for Women, Infants and Children | |
| (WIC), the largest single discretionary program, domestic and | |
| international marketing assistance programs, conservation technical | |
| assistance, rural development, research, food safety and Forest Service | |
| programs. Mandatory spending makes up over three-quarters of USDA | |
| spending or $53.5 billion in 2001 and includes funding for most | |
| domestic nutrition assistance programs other than WIC, farm support | |
| programs and a number of conservation programs. | |
| USDA's discretionary budget for 2001 reflects a 13 percent increase | |
| over the 2000 level which, in our view, is unsustainable over the | |
| longer term. For 2002, the budget includes a more realistic level of | |
| $17.9 billion, which is about 5 percent over the 2000 level, largely | |
| reflecting the rate of inflation over the 2 years. To achieve what we | |
| believe is an appropriate level of growth in spending, the 2002 budget | |
| proposes to eliminate approximately $1.1 billion in one-time spending | |
| during 2001, most of which is emergency funding. In addition, it saves | |
| about $150 million by eliminating approximately 300 earmarked projects | |
| that were not subject to a merit-based selection process. The budget | |
| also proposes saving taxpayers an additional $200 million by reducing | |
| or eliminating programs that are not immediate priorities or need to be | |
| better targeted. | |
| The budget does fund a number of very important priorities in USDA | |
| that are part of the President's agenda. Specifically, the budget: | |
| <bullet> Carries out the President's commitment to expanding | |
| overseas markets for American agricultural products by strengthening | |
| USDA's market intelligence capabilities and the Department's expertise | |
| for resolving technical trade issues with foreign trading partners. It | |
| also expands and strengthens our analytical capabilities in a number of | |
| USDA agencies that have trade related programs. | |
| <bullet> Redirects USDA research to provide new emphasis in key | |
| areas such as improving protection against emerging exotic plant and | |
| animal diseases and pests of crops and animals, biotechnology, and the | |
| development of new agricultural products. | |
| <bullet> Maintains funding for priority activities in the Forest | |
| Service's wildland fire management plan, including hazardous fuels | |
| reduction. In addition, the budget proposes a reserve for unforeseen | |
| national emergency disaster needs. | |
| <bullet> Funds 7,600 meat and poultry inspectors without reliance | |
| on user fees, in addition to fully supporting other USDA food safety | |
| and inspection activities. | |
| <bullet> Maintains average monthly participation in the WIC program | |
| at 7.25 million individuals, which is the year end level for 2000 and | |
| the participation level projected for 2001. | |
| <bullet> Supports 60,000 low to moderate income rural families' | |
| acquisition of decent, safe, and affordable housing; and provides | |
| access to clear, safe drinking water to 1.4 million poor, rural | |
| residents. | |
| <bullet> Provides conservation assistance to 650,000 landowners, | |
| farmers, and ranchers. | |
| <bullet> Funds continuing actions to combat pest and disease | |
| infestations through direct appropriations rather than through | |
| emergency funding transfers. Emergency funding would be considered for | |
| unforeseen infestations. | |
| On the mandatory side, the largest component of spending is for the | |
| food assistance programs followed by the farm support programs. | |
| Mandatory spending in the food assistance area covers both Food | |
| Stamps and Child Nutrition. The 2002 budget proposes no major changes | |
| for either of these programs. The current services outlay estimate for | |
| 2002 is $20.9 billion for Food Stamps and $10.3 billion for the child | |
| nutrition programs. These estimates are driven by the cost of the food | |
| benefit and the number of anticipated participants in the programs. | |
| Farm support spending carried out through the Commodity Credit | |
| Corporation (CCC) is estimated under current law at $13 billion for | |
| 2002, down from $20 billion estimated for 2001 and $32 billion in 2000. | |
| The reduction in 2002 primarily reflects the effect of emergency | |
| supplemental appropriations that added an average of over $8 billion | |
| per year to CCC outlays over the past 3 years. Outyear estimates also | |
| decline as market conditions are projected to improve and reduce the | |
| assistance provided by ongoing safety net provisions like marketing | |
| assistance loans and loan deficiency payments. | |
| Since emergency appropriations are not part of the ongoing | |
| mandatory program they have not been projected in future years. | |
| However, I would stress that spending on farm support programs is | |
| highly variable and difficult to predict since it is so dependent on | |
| market conditions and weather. In fact, the President's budget proposes | |
| the establishment of a contingency fund of nearly a trillion dollars | |
| for use in dealing with unexpected and difficult to predict needs or | |
| necessary programmatic reforms which may emerge in the future and for | |
| which adequate resources cannot be readily found by reforming other | |
| activities. Assistance to farmers will be one of many potential uses | |
| for this contingency reserve. | |
| Along with the contingency provision for which it is too early to | |
| determine precise needs for any additional farm assistance, estimated | |
| CCC farm assistance under current law is projected based on the | |
| following assumptions: | |
| <bullet> Major provisions of the 1996 Federal Agriculture | |
| Improvement and Reform Act of 1996 (FAIR Act) are assumed to extend | |
| beyond 2002 in accordance with conventional budget rules. Supply/use | |
| conditions as of October 2000 are used for estimation purposes and | |
| normal weather is assumed. | |
| <bullet> Production flexibility contract payments would be reduced, | |
| as provided by the FAIR Act, by $1 billion from FY 2000 to $4 billion | |
| per year for FY 2001 and FY 2002 and beyond. | |
| <bullet> Marketing assistance loan rates are frozen at their | |
| maximum rates for the 2001 crop but are assumed to be adjusted per | |
| formula provisions for the 2002 crop and beyond. | |
| <bullet> Emergency and disaster assistance provided by the | |
| Agriculture Risk Protection Act of 2000 (ARPA) and the FY 2001 | |
| Agriculture Appropriations Act are assumed to apply only for 2001. | |
| <bullet> Dairy price support is extended until the end of calendar | |
| year 2001 and then is replaced by a recourse loan program. | |
| <bullet> The Conservation Reserve Program's 36.4 million acre cap | |
| is assumed to extend through the outyears. | |
| <bullet> The Department's major export promotion and market | |
| development activities are continued at or slightly above their 2001 | |
| levels. These include CCC export credit guarantees, the Cooperator and | |
| Market Access programs, and the Export Enhancement and Dairy Export | |
| Incentive programs. | |
| In conjunction with support to farmers provided by CCC, crop | |
| insurance reforms enacted in ARPA meet the administration's objectives | |
| for improving the crop insurance program. These reforms should help | |
| reduce the need for natural disaster related crop loss assistance in | |
| 2002 and beyond. In addition, as I indicated, the administration will | |
| propose legislation to allow farmers and ranchers to reserve a | |
| substantial percentage of their net farm income in tax deferred | |
| accounts, known as Federal Farm and Ranch Risk Management (FFARRM) | |
| accounts, that could be drawn upon during time of financial stress. | |
| With respect to other aspects of the farm safety net, I recognize | |
| that there are ongoing weaknesses in the farm economy. We are closely | |
| monitoring the situation, but we need to wait and see how crop and | |
| market conditions develop over the coming months. We are aware of | |
| concerns about farm financial conditions which may require additional | |
| assistance if uncertain market conditions worsen or do not improve | |
| soon. That is one of many reasons the administration proposed budget | |
| reforms are to include an explicit contingency reserve. We will work | |
| with Congress to assess further needs for farm assistance and will take | |
| other appropriate measures, such as pursuing an aggressive trade policy | |
| and improving the effectiveness of our current programs, to move the | |
| sector toward greater reliance on the market based economy. | |
| There is currently a wide range of ideas being discussed for policy | |
| reforms over the longer term. We are reviewing the report from the | |
| Commission on 21st Century Production Agriculture, and House | |
| Agriculture Committee Chairman Combest has taken an important step | |
| toward establishing a framework that encourages commodity groups to | |
| work together to develop proposals for the future. We look forward to | |
| working with the Congress and other representatives of the farm sector | |
| on these important issues. | |
| Chairman Nussle. Thank you, Madam Secretary. | |
| First off, before you have the opportunity to leave, | |
| there's been some concern from producers about the way that the | |
| USDA has handled responses to concerns or complaints to | |
| specific key studies. I will give you what my staff has put | |
| together, just random issues that constituents have asked | |
| about. Really, they have not felt like the Department has given | |
| them the kind of response that they need. | |
| I don't get that from so many of the other departments. | |
| That's why I want to raise it to you now while we have the | |
| opportunity to take a new look at the Department. Also another | |
| one that quite honestly my calls are running very heavily right | |
| now is on the issue of the pork checkoff and the decision that | |
| was made. It's another one of those areas, particularly in | |
| Iowa, that has been very concerning. | |
| So I throw those out to you not because you necessarily | |
| handle them yourself, but because you inherited them. And I | |
| want you to be aware of them, because I think it's important, | |
| as you begin to restructure the Department and look at some of | |
| the reforms. | |
| As you look at the reforms, let me just ask you a question | |
| that farmers ask me back home. That is, did Freedom to Farm | |
| fail? Did it fail, if it did fail, is it because it was not | |
| properly implemented, or with a full partnership on behalf of | |
| the former administration? Is it because the markets overseas | |
| just were too difficult and collapsed under the weight of the | |
| currency collapses that we saw in the Far East in particular? | |
| Was it our failure with regard to expanding our trade, tax, | |
| regulatory changes that were part of the promise of Freedom to | |
| Farm? | |
| As we go in, as we're sitting on the threshold of this | |
| debate of farm policy and the whole safety net, what is your | |
| take, as someone who has obviously carefully watched this from | |
| a number of perspectives over the last 10 plus years, just | |
| watching the last three Farm bills in particular, what is your | |
| take on what has happened with our current safety net program? | |
| Secretary Veneman. Well, Mr. Chairman, I don't believe that | |
| Freedom to Farm has failed. But I do believe that many of the | |
| factors that you mentioned were, at the time Freedom to Farm | |
| came into effect, anticipated to be part of the overall package | |
| that would assist the farm sector. As you mentioned, it was | |
| anticipated that we would be opening up markets, but we have | |
| not been able to make significant progress in furthering the | |
| next WTO round. We haven't been able to get trade negotiating | |
| authority in the last few years. | |
| We continue to have a number of trade disputes with various | |
| countries. We have some promise of opening up China's market | |
| once we get the accession agreements completed with China to | |
| move them into the WTO. You mentioned taxes. I think all of the | |
| tax initiatives that the President has proposed would be of | |
| assistance, and they were talked about during the discussion of | |
| the 1996 Farm bill as well, whether it's the farm accounts that | |
| I discussed in my opening testimony, or estate tax relief. | |
| And clearly, income tax relief, marriage penalty relief, | |
| child care deductions, all of those things help agriculture as | |
| much as they help anyone else. | |
| You also mentioned regulatory relief. Farmers are under | |
| tremendous pressure with more and more regulation impacting the | |
| way they do business. We have to take a reasonable approach, a | |
| common sense approach to regulations, and they must be based on | |
| sound science. And we have to have programs that work in | |
| partnership with producer groups and with scientists that help | |
| farmers understand the best management and the best farming | |
| practices. | |
| I want to go back to a couple of the things that you said | |
| in the beginning with regard to the complaints of delivery of | |
| services. You referred to the time I served with Secretary | |
| Madigan. During the time I was Deputy Secretary, he asked me | |
| and Congressman Stenholm and then Congressman Roberts to | |
| conduct a review of the way services were delivered to USDA | |
| constituent groups, to look at our office structure to | |
| determine how we could more efficiently and effectively deliver | |
| those services. | |
| Much of what that study contained then became the basis for | |
| what was used to determine the reorganization that was done | |
| early in the Clinton administration, while Secretary Espy was | |
| there. I still believe that there are a number of things that | |
| we still need to do to make sure that delivery of services is | |
| being done in the most effective and efficient way possible, | |
| whether it's making sure that our agencies are working together | |
| in the field, computer systems and technology, or the e-filing | |
| of forms. All of these things need to be looked at with, as you | |
| say, a top to bottom review to make sure that we are | |
| effectively delivering programs to our various constituent | |
| groups. We intend to make that a priority of this | |
| administration. | |
| Chairman Nussle. So some type of top to bottom review, | |
| similar to what we've heard from the Defense Department, | |
| certainly it's a little bit different type of national security | |
| interest. But certainly, no less important. | |
| That would not be out of the question as far as you're | |
| concerned, as you begin your tenure? | |
| Secretary Veneman. No, it would not. And as I mentioned, | |
| it's something I was very much involved with in the Madigan | |
| administration of the USDA. | |
| Chairman Nussle. Thank you. Let me ask you, too, I also | |
| have had the opportunity to talk to senators and | |
| representatives, our chairmen of the Ag Committees. There is | |
| some both public and private support for and interest in moving | |
| possibly a portion of the Farm bill reauthorization and reform | |
| as early as this year. Senator Lugar and Senator Combest both | |
| have indicated that all or part of the Farm bill debate could | |
| possibly occur and maybe even conclude this year. | |
| What would be your position on that, and would the | |
| administration be willing to assist us if we can expedite that | |
| debate? Part of the context I want you to have for this is that | |
| the emergency format that we have been under over the last 3 or | |
| 4 years is, it just can't be sustained. We can't continue to do | |
| this. Our farmers don't want it this way. And the kind of | |
| political bidding war that I can describe for you and that we | |
| can all describe that we had to go through over the last couple | |
| of years has been, I think, fiscally irresponsible. | |
| So to try and figure out a framework that is not only | |
| responsible to all taxpayers and allows them to understand the | |
| importance of agriculture in their daily lives, but also is | |
| more predictable to our farmers and our ranchers and our | |
| producers out there is something that I hope we look toward | |
| achieving. Because the current method of just putting this off | |
| and allowing the emergency or the supplemental fund, the | |
| contingency fund to work this out, I've got to tell you, there | |
| is more, and I've had the conversations, there are more | |
| requests for the contingency funds than there is money in the | |
| contingency funds. And it starts with everything from | |
| agriculture to defense to more tax cuts to you name it. And | |
| they're all worthy to consider. | |
| But in an era of surpluses, we have a mentality around here | |
| that we're going to have to come to grips with. And I would | |
| just encourage anything that can be done to push up the reforms | |
| to get our arms around this. Otherwise, the feeding frenzy | |
| that's been occurring will not be quenched by yet one more | |
| emergency supplemental. I just ask your opinion on that | |
| strategy and what the administration might be willing to do to | |
| help. | |
| Secretary Veneman. Well, certainly we're always going to be | |
| willing to assist the Congress with the legislative packages | |
| that they're working on. I have been saying that while I | |
| thought a considerable amount of work would be done this year | |
| on the Farm bill, I did not anticipate that it would get done | |
| until next year. Now, if the Congress decides that they want to | |
| move that up, certainly, as I said, we would be willing to | |
| assist. But the administration has not taken a specific | |
| position on the timing for the Farm bill. | |
| I understand, very much, the need for the farmers to have | |
| some certainty. Regarding the 1996 Farm bill, the first couple | |
| of years worked very well and I think farmers were very happy. | |
| They remain very happy, at least from what I have heard, with | |
| the ability to have flexibility in planting decisions. That's | |
| one thing that farmers seem to be very happy about. | |
| But I think this issue of certainty and predictability as | |
| we've gone through emergency bill after emergency bill after | |
| emergency bill, has become something that is a difficult issue | |
| for farmers, because they don't know how much Federal | |
| assistance they're ultimately going to receive. | |
| Chairman Nussle. Well, with both chairmen of the Ag | |
| committees, and with now the chairman of the Budget Committee | |
| and many other members, I think with our interest in this, I | |
| would hope that the administration would at least consider, as | |
| it sounds like you will, expediting that and doing whatever you | |
| can to assist in that, and maybe moving your strategy up | |
| slightly as well. Because we just, this is an issue that is not | |
| going to go away just by one budget cycle passing us by. | |
| Mr. Spratt. | |
| Mr. Spratt. Thank you, Mr. Chairman. | |
| Secretary Veneman, let me explain to you what we're | |
| struggling with. We don't have before us, in your budget, the | |
| Department of Education's budget, enough detail yet to really | |
| pass analytical judgment on the adequacy of this request. All | |
| we have are the aggregate numbers. In agriculture, the | |
| aggregate numbers are like this: for this year, the current | |
| budget year, 2001, U.S. Department of Agriculture was | |
| appropriated $19.4 billion for appropriated programs. | |
| The Bush budget, the one we have before us, requests $17.9 | |
| billion. That is a cut of $1.5 billion before you count for | |
| inflation. If you count for inflation, if you try to keep the | |
| amount appropriated constant in purchasing power, then the | |
| Department, according to CBO, needs about $19.6 billion. | |
| You're 8.6 percent below that level. And number one, we | |
| don't know where those cuts are coming from. I really doubt | |
| that the Ag Committee or the Appropriations Subcommittee is | |
| likely to make cuts of that magnitude. And number two, we're | |
| concerned that if they can indeed make those cuts, we'll see | |
| our budget beginning to edge upwards and miss the targets that | |
| we set in the budget resolution. | |
| Here's a chart that explains part of our problem. If you | |
| look backwards to recent history, it's what the Commodity | |
| Credit Corporation has paid for various program payments, loan | |
| payments and deficiency payments and flex contracts. It was a | |
| substantial amount of money, around $30 billion, as recently as | |
| the year 2000, less than that this year. And in the out years, | |
| all of the out years that are the focus of your budget, it is | |
| substantially below recent history. | |
| How do we get there, or indeed, can we get there from here | |
| without major revision in the program? | |
| Secretary Veneman. Congressman, your question really has | |
| two parts. One is about the discretionary side of the budget | |
| and one is about the mandatory side. On the discretionary side, | |
| as I mentioned in my testimony, this budget is down from the | |
| year 2001. But most of that additional money in 2001 that is | |
| not included in the 2002 budget is from emergencies and was | |
| provided in supplemental appropriations last year. The money | |
| was for specific things such as extraordinary fire fighting | |
| costs. | |
| The FY 2002 budget is about 5 percent above the year 2000 | |
| budget, which is about in line with inflation. So if you look | |
| at a chart, and I don't have one with me to show you, but if | |
| you look at a chart, fiscal year 2001 was an unusual situation | |
| because of all this additional emergency money that was | |
| included. | |
| With regard to the mandatory side or the CCC outlay side | |
| that you have displayed on the chart there, the prior years up | |
| to 2001 all include additional mandatory funding payments, CCC | |
| outlays, for farm programs that were added as emergencies. As | |
| we were just discussing with the Chairman---- | |
| Mr. Spratt. These were valid and bona fide emergencies. | |
| Weren't people struggling in farm country? Wasn't this kind of | |
| a salvation for them? | |
| Secretary Veneman. I'm not saying whether they're valid or | |
| not. They were valid emergencies. But the issue here is that | |
| the budget assumptions at this point do not assume emergency | |
| money. Rather, the emergency situation or potential is being | |
| dealt with in this nearly trillion dollar fund. So the | |
| projections for the outlays shown on your chart don't take into | |
| account what may be appropriate for emergencies that may arise | |
| from this crop year. | |
| Mr. Spratt. Our concern is that the emergency money didn't | |
| come just last year, but over the last 3 years, it's been close | |
| to $9 billion each year, $27 billion for 3 years. And it's sort | |
| of strange credulity to think that all of a sudden, we're going | |
| to drop from an $8 billion a year emergency assistance to | |
| farmers to nothing at all except for the contingency fund. | |
| So when the Chairman asked you about Freedom to Farm, I | |
| think we'd ask the same question, did we cut so deeply in | |
| Freedom to Farm that we had to come back and provide these | |
| emergency payments for whatever reason, just to help farmers | |
| make ends meet in a particular crop year? It looks to me like | |
| that's what happened. I don't think we've corrected the | |
| underlying problems. | |
| So it would seem to me that these payments are likely to be | |
| recurring, unless something dramatically improves with | |
| commodity prices. | |
| Secretary Veneman. I believe that we will have the | |
| opportunity with the next Farm bill, the 2002 Farm bill, to | |
| look at all of these issues. It's a fact that under the 1996 | |
| Farm bill, a large amount of additional emergency money had to | |
| be appropriated. So I think that is why the Chairman is | |
| suggesting that we need to look carefully at timing for all of | |
| this. | |
| But the fact of the matter is that virtually everyone who's | |
| talking about the next Farm bill is looking at ways that will | |
| avoid the need to deal with emergencies year after year after | |
| year. | |
| Mr. Spratt. Let me just comment on the contingency fund, | |
| because even if you go to 2002, if the changes in the law | |
| require more money, it's not really provided for in this budget | |
| in the out years. And you mentioned the contingency fund a | |
| minute ago as containing almost $1 trillion. | |
| On page 186 of the blueprint of the budget, there's a | |
| contingency fund of $842 billion. Last week, as we probed the | |
| derivation of that contingency fund, we found that it included | |
| $526 billion in the Medicare trust fund, the surplus net trust | |
| fund. Consequently, the real balance in that fund, if we indeed | |
| resolve not to spend the Medicare surplus, is $316 billion. | |
| Out of that you've got to provide for a probable plus-up in | |
| defense, prescription drugs under Medicare, substantial plus-up | |
| in education, as the Chairman said, there are more requests for | |
| those funds than there are funds available. So that's a concern | |
| of ours, too, that you're kind of pushing this problem forward | |
| to the future with the revision of the law, but when you get | |
| there, you'll probably need the extra funding, and it's not | |
| there. It's not there in the contingency fund. | |
| In the other reserve fund that the administration has set | |
| up, the National Emergency Reserve Fund, it's $5.6 billion | |
| provided in 2002, but this falls well short of the historic | |
| average that we've spent on emergencies over the last 10 years. | |
| Now, granted, some of that money for emergencies was not | |
| really an emergency. We called it that to get around budget | |
| strictures. | |
| But nevertheless, the average is pretty high. We've | |
| appropriated substantially more than that. | |
| So that's our concern, that you've got a very, very thinly | |
| funded program here, and if it turns out that farm needs are | |
| greater or commodity prices are less, the revision in the Farm | |
| bill costs more, the budget is out of whack. Would you agree | |
| with that? | |
| Secretary Veneman. I'm not prepared today to really get | |
| into the Governmentwide calculations that have been made. I | |
| hope that you would have that conversation with Mr. Daniels. | |
| I think it's also---- | |
| Mr. Spratt. I heard that as an appeal for help. | |
| Secretary Veneman. No, I'm not arguing that at all. I'm | |
| just simply saying that I'm not prepared to discuss the | |
| Governmentwide assumptions that were made in this budget today. | |
| I also would like to point out that what was released a couple | |
| of weeks ago is a blueprint. It does not provide at this point | |
| the specific budget details. The target date for releasing the | |
| more detailed budget is around the first week in April. | |
| Mr. Spratt. I understand that. The problem is, we are | |
| scheduled to mark up on March 21st. So we've got to make the | |
| most with the details we've got. I think from our discussion, | |
| you can understand our reservations about this particular | |
| request. | |
| Thank you very much. | |
| Chairman Nussle. Mr. Thornberry. | |
| Mr. Thornberry. Thank you, Mr. Chairman. | |
| Madam Secretary, congratulations on your post. Thank you | |
| for being here. I hope you're still glad to have the job, after | |
| having to undergo what you have to sort through over the next | |
| several months. | |
| Certainly no one, I don't believe, can be satisfied at | |
| where we have been in recent years with farm policy. From the | |
| farmers' standpoint, they are very dependent upon Government | |
| payments. I think I saw recently that more than half of farm | |
| income came from Government payments last year. They would, as | |
| the Chairman said, certainly much rather make their money from | |
| the market. They and their bankers cannot make decisions while | |
| they wait to see what we do each year. | |
| The other side of it, from this committee, it's costing a | |
| lot of money to make these payments, and we're not solving the | |
| problem. The money that we're paying out is just keeping people | |
| alive from year to year. But it is not going to really solve a | |
| problem, make it better, I don't believe, over the long run. I | |
| mean, it's better that they're staying in business, but it is | |
| not getting at some of the fundamental problems. | |
| And then, particularly in recent months, as farmers have | |
| had to cope, as much of the country has, with higher energy | |
| prices, I think a lot of farmers are starting to doubt whether | |
| there is any chance in the foreseeable future of making a | |
| living off of the market. And rather than looking at the | |
| payment side from the Government, as Mr. Spratt was just doing, | |
| I wonder if we've got some even bigger fundamental changes | |
| going on, where the world market. Because technology has | |
| improved production here, technology has improved production in | |
| all these other countries. They have lower input costs in other | |
| countries, so their prices are going to be low. | |
| You know, if can we make a living off the market is a much | |
| more fundamental question that maybe we have to think about. | |
| I hope you can make me feel better. But things do not look | |
| particularly promising for the foreseeable future, it seems to | |
| me, do you agree? | |
| Secretary Veneman. I would absolutely agree that it's been | |
| a difficult time in the sense that prices have been down, and | |
| as you indicate the cost of inputs, particularly energy, has | |
| been rising, with a significant impact on agriculture. We're | |
| seeing particularly the impacts of higher fertilizer costs due | |
| to natural gas prices increasing so much. When I was in | |
| Wisconsin last week, they were talking about the difficulty in | |
| their greenhouse industry with the gas prices. Certainly the | |
| difficulties in California with the energy shortage will have a | |
| significant impact on agriculture, whether it's irrigation, | |
| electricity, cold storage, processing capacity, whatever. | |
| So I would agree that there are a number of issues that are | |
| larger issues that we're facing in this country that are having | |
| specific impacts on agriculture. I think a lot of people don't | |
| think about this aspect of the energy problem. | |
| I think it's also important that we continue to try to open | |
| up markets. Ninety-six percent of the world's population lives | |
| outside the United States. We have some of the most productive | |
| agriculture in the world in this country. We want to make sure | |
| we have the opportunity to export and have access to as many | |
| markets as we can around the world. | |
| Mr. Thornberry. Well, I just want to join with the | |
| Chairman. I think if we can look at rewriting the Farm bill in | |
| a way this year that can help us break out of this cycle that | |
| we've gotten ourselves into, I think we ought to take advantage | |
| of it. | |
| Let me ask just about one other area. As someone who is | |
| personally involved in the cattle business, obviously food | |
| safety is a key interest, not just for those of us involved in | |
| agriculture, but obviously, everyone who consumes agricultural | |
| products as well. Can you talk a little bit about where we are | |
| with some of the food safety concerns that are going on, the | |
| ban on imported meat that we've seen recently, and is the | |
| Department's budget adequate to ensure that American consumers | |
| and American industry have a safe supply of food? | |
| Secretary Veneman. I appreciate very much that question. | |
| Food safety is a very, very important question and issue in our | |
| Department, and we work closely with HHS and the Food and Drug | |
| Administration. We want to continue to work closely with them | |
| to make sure that our policies are very closely coordinated, | |
| because we do have one of the best food safety systems in the | |
| world in this country. And we want to maintain it. | |
| As far as what has been happening recently, I think it's | |
| important to point out the issue that has been in the news in | |
| the last 2 days, our temporarily banning the import of live | |
| animals and meat products from the European Union, is related | |
| to a disease called foot and mouth disease. It is not a food | |
| safety issue. It is an animal disease issue, but a very, very | |
| serious one. We have not had foot and mouth disease in this | |
| country since 1929. | |
| It can be devastating to livestock herds. It spreads very | |
| quickly, and it's a very, very serious animal disease. We want | |
| to make sure that we take every measure to ensure that it does | |
| not come into this country. | |
| In addition to the 20 veterinarians we already sent to | |
| assist Europe in combatting this disease, we're sending another | |
| 20, for a total of 40. We are beefing up our inspection at the | |
| airports and the ports to ensure that we do not have any | |
| breaches of the security. Because this can be carried on | |
| clothes of people that have been on farms or particularly their | |
| shoes, we are increasing public awareness about this problem. | |
| We're working with the airlines to make sure they will have | |
| information on airplanes, so that travelers will understand | |
| what the issue is all about, that it's a risk to our livestock | |
| and not a risk to human health. | |
| That raises, I think, another issue in addition to food | |
| safety, which is how important our animal and plant health | |
| inspection systems are in this country. We have continued to | |
| maintain levels of funding that will ensure that we can fight | |
| pest and disease programs for any kind of threats or any kind | |
| of infestations that we have. That's been a big issue. | |
| We've also heard a lot of discussion about BSE, another | |
| animal disease that has impacted Europe quite substantially, | |
| which is also a human health issue. Both on the food safety | |
| side and on the animal and plant health inspection side, we | |
| have increased our surveillance. We have increased our testing, | |
| and we are working very closely with our research organizations | |
| to ensure that we don't get BSE in this country as well. | |
| There are a number of other food safety issues that we | |
| continue to work on, but both of these issues, both the food | |
| safety side and the animal and plant health inspection, the | |
| prevention and eradication programs are extremely important in | |
| the mission of the USDA. | |
| Mr. Thornberry. Thank you. | |
| Chairman Nussle. Mr. Moore. | |
| Mr. Moore. Thank you, Mr. Chairman. | |
| Madam Secretary, I appreciate your being here to testify | |
| today before this committee. I'm from Kansas, which is out in | |
| the center. On September 27th, 2000, the Farmers Cooperative | |
| Association, which is the largest agricultural cooperative in | |
| the State of Kansas, filed for bankruptcy. This action left 875 | |
| farmers facing considerable losses, farmers who had placed | |
| their product in these elevators. | |
| We discovered that in 1984, Congress authorized a limited | |
| priority in bankruptcy proceedings for grain producers, and | |
| under the provision, unsecured creditors are conferred fifth | |
| priority for priority claims, capped at $4,300 per producers. | |
| For claims exceeding that amount, the farmers have a general | |
| unsecured claim and most likely would suffer a loss. | |
| This is the worst case scenario, and is what happened to | |
| most of the farmers in our State that delivered the grain to | |
| the elevators and have not yet been paid. These farmers again, | |
| in excess of the $4,300 cap, are totally unsecured. This is a | |
| problem I believe Congress should address. | |
| The situation has improved since the buyout plan to FCA | |
| that at this time includes payment to the Kansas farmers. But | |
| it will likely take several months for that to happen. In the | |
| meantime, the farmers are kind of left hanging out. They are | |
| operating under extremely tight budgets due to low commodity | |
| prices and soaring costs for energy and fertilizer. I think | |
| everybody is aware of the plight of farmers in this country. | |
| They need help now. They need funds now in order to meet their | |
| cash flow needs. | |
| On February 27th of this year, Representative Jerry Moran | |
| of western Kansas and I wrote a letter to you and the | |
| Department, seeking assistance and emergency loans for seed | |
| producers program, funds or other loans that will be vital to | |
| help these farmers remain in production. | |
| Madam Secretary, I just was now handed by my staff a note | |
| that we got a call from USDA today, I believe, and according to | |
| the Farm Service Agency, our farmers are not eligible for the | |
| ELSPP loans. There are not specifics that are known to us at | |
| this time, and the person who gave us that information did not | |
| say why they're not eligible. | |
| I wondered if you would be willing to check, or people at | |
| the agency to check, to see if there might be other interest- | |
| free or other loans available to help the farmers who really | |
| are in a desperate situation in Kansas. I would ask that you | |
| look into that for us. | |
| Secretary Veneman. I am not familiar with the particular | |
| situation in Kansas, but we will certainly do anything we can | |
| to assist in trying to determine what programs might be | |
| available for these farmers. Although I don't know about this | |
| issue, I do know about the farmers that are experiencing a very | |
| similar thing in California with the bankruptcy of the | |
| TriValley Cooperative. So this is an issue, I think, where | |
| farmers really face a lot of hardship when this happens. I've | |
| talked to a lot of farmers in California personally about some | |
| of the hardships that they're facing. | |
| Mr. Moore. Thank you very much. | |
| Thank you, Mr. Chairman. | |
| Chairman Nussle. Thank you. | |
| Mr. Hastings. | |
| Mr. Hastings. Thank you, Mr. Chairman. | |
| Madam Secretary, welcome to what I hope will be a very | |
| fruitful time for you as Secretary. | |
| I want to start right off by thanking your Department, if | |
| the indication of the way you started with a particular concern | |
| that I had is any indication of how you'll govern in the next 4 | |
| to 8 years, you're going to be very successful. I'm talking | |
| about the apple Market Loss Program that unfortunately was not | |
| even started with the last administration. By the time you got | |
| on board, your Department moved extremely fast to get this | |
| program put into place. That was very important to the growers | |
| in my district, and I want to thank you publicly for that as | |
| this process moves through. | |
| I was also very pleased to hear you emphasize on several | |
| occasions in your statement but also in response to members' | |
| inquiries regarding the need for expanded trade, the growers in | |
| my area, and I might add, my district is in Central Washington, | |
| I dare say it has probably as diverse an agricultural mix as | |
| the Central Valley in California. We say that very proudly. | |
| We'll never catch up with you with premium wine grapes, but | |
| when I say premium, we're right there. | |
| Nevertheless, all the growers in my district, they're non- | |
| program products. But they're hurting, and they're trying to | |
| find other avenues to try to take the pressure off. Obviously, | |
| one of them is trade. Once you talk about trade, that's generic | |
| in nature, but you get down to specifics, and we have one | |
| specific one that is probably an example that a lot of them | |
| face, and that's with apples in South Korea. | |
| Specifically, they have the phytosanitary arguments that we | |
| can't get our product in there, yet we allow them unfettered | |
| access to our markets. Even if they were to raise or eliminate | |
| the phytosanitary arguments, you'd still be facing a barrier of | |
| about 48 percent of tariffs. I mean, this is a very unlevel | |
| playing field. | |
| So I want to commend you for keeping the pressure on as far | |
| as expanding markets. I would invite you to look at a bill that | |
| I've introduced, Market Access Program. It's H.R. 98, it | |
| expands that program with more funding, which has been very | |
| successful, especially with a smaller crop. | |
| Finally, I just want to talk, again going back to these | |
| specialty crops, and some of the different needs that arise | |
| that aren't covered in a broad sense within USDA. One of them | |
| is, as I mentioned, apples. Apples are hurting. I have one | |
| particular county in my district where they anticipate over a | |
| third of the acreage in apples will be pulled out. | |
| Now, they're being pulled out because obviously the grower | |
| can't make any money. If they can't dispose of those trees that | |
| are pulled out or if they're left abandoned, then those trees | |
| become agents for pests that will invade other healthy | |
| orchards. The counties obviously can't pick up the tab on that. | |
| And we've been exploring ways that maybe, you mentioned in your | |
| testimony some programs to help in areas like that. | |
| I would just ask you if you'd be willing to pursue | |
| something like that. Because this is a huge, huge cost to not | |
| only the local governments there, but to the growers that | |
| obviously can't pull out their orchard. Would you care to | |
| comment on that? | |
| Secretary Veneman. I was not familiar that that amount of | |
| acreage was being pulled. | |
| Mr. Hastings. It's one county. I don't want to say it's a | |
| whole--just in one county. | |
| Secretary Veneman. Oh, one county. | |
| Mr. Hastings. Just one county. I don't want to say it's the | |
| whole industry. | |
| Secretary Veneman. Obviously people don't recognize that | |
| when you pull permanent crops, it does have an economic impact. | |
| I know, I just heard 2 or 3 months ago that the pear growers in | |
| California are undergoing a similar program. I believe, I'm not | |
| certain this is exactly the way it's working, but I believe | |
| that they're putting together a pool of money from all the pear | |
| growers to assist in the payment for the tree pull and disposal | |
| of these trees. Obviously that's a self-help way to do it. | |
| I am not familiar with specific Government programs that | |
| would assist the local governments in dealing with this | |
| disposal program, but we'd be happy to explore what may be | |
| available. | |
| Mr. Hastings. OK, good. Well, obviously, this is something | |
| that I haven't experienced and I daresay many counties in my | |
| area have not experienced either, because you don't want to see | |
| an industry leave. | |
| Finally, one way to alleviate the pressure of specialty | |
| crops is to purchase excess commodities. Do you anticipate, | |
| within the Department, of purchasing any excess commodities for | |
| food relief in other areas that would take some of the pressure | |
| off? Is that being planned? | |
| Secretary Veneman. Well, certainly the AMS has | |
| traditionally purchased more of the specialty products and | |
| processed foods for the school lunch program, and those | |
| programs are continuing to operate. I don't anticipate change | |
| in those programs. So I would say those programs will continue | |
| to purchase excess commodities. | |
| Mr. Hastings. OK, good. Well, thank you very much. You | |
| certainly have a challenge ahead of you. I am one that again, | |
| represents a rural area where people involved in agriculture, | |
| all they want is a level playing field. And I am doing | |
| everything I can. That is long-term. It's the short-term | |
| problems that we have to address. | |
| So I certainly look forward to working with you, if we can | |
| resolve some of those problems. Thank you. | |
| Thank you, Mr. Chairman. | |
| Chairman Nussle. Thank you. | |
| Before I recognize Ms. Hooley, let me welcome our newest | |
| Budget Committee member, Mr. Matheson from Utah. We welcome | |
| you. We are now at full strength on the ice, as they say. So we | |
| appreciate your service, look forward to working with you. | |
| Welcome. | |
| Ms. Hooley. | |
| Ms. Hooley. Thank you, Mr. Chairman. | |
| Madam Secretary, welcome. I look forward to working with | |
| you. | |
| I too come from a rural community, Mid-Willamette Valley in | |
| Oregon, some of the best farming land in the entire world. It | |
| seems like every year, we have a new crisis of one sort of | |
| another. And I looked at this budget, and knowing how much we | |
| have spent on emergency funds in the last 3 years, the last | |
| couple of years it's been almost $20 million. | |
| My question is, before you get to reauthorization, what was | |
| the thinking of not including additional money in the | |
| agriculture budget, not including that emergency fund that's | |
| been ongoing? I mean, it may be one emergency 1 year, the next | |
| year it's another emergency. At least in my district, anything | |
| from grass seed growers to this time where you now have some of | |
| the food processing plants that have gone out of business | |
| unexpectedly. Particularly for those farmers that have the soft | |
| berries, the small fruits, strawberries, raspberries, | |
| blackberries. I mean, this just kills them. | |
| There's no way you can safely ship, I mean, you can | |
| blueberries, but you can't ship those small berries. So again, | |
| we have another dilemma on our hands. | |
| And you look at the almost depression-like prices for all | |
| of the commodities. I am really surprised that they didn't fold | |
| that emergency money into the budget. And do you expect to be | |
| submitting some kind of supplemental budget to this Congress | |
| shortly? | |
| Secretary Veneman. Well, again, the more detailed budget | |
| will be released in early April. However, on emergencies, it is | |
| difficult to predict them. I think the Congress has generally | |
| acted on the emergency legislation in the late summer, they've | |
| begun to look at that to see what the emergencies are, what's | |
| going to be necessary. | |
| I might also add that, as I mentioned, there is money | |
| included in this contingency fund, this nearly trillion | |
| dollars, and it is anticipated that for ag emergencies of the | |
| type I think you're discussing, that would be addressed by that | |
| fund. | |
| The other kinds of emergencies that often affect specialty | |
| crops, of course, are some of the things that I talked about in | |
| response to my previous question, which is pest and disease | |
| prevention and eradication. And we have fully funded the | |
| ongoing situations that we have, whether it's citrus canker or | |
| medflies or so forth in the budget itself. We also have the | |
| ability to take money from the CCC on a temporary basis for | |
| true emergencies that may come up in that regard as well. | |
| Ms. Hooley. And I guess the real question, one of the | |
| things I just puzzle over is, when it's been consistently | |
| running around $9 billion a year, and the last couple of years | |
| I think it's been $10 billion a year, that's been consistent. | |
| And I guess what I have a problem with is why we haven't looked | |
| at some of those issues and built that into the budget. | |
| Secretary Veneman. I understand what you're saying. As I | |
| discussed before, it is difficult to anticipate a disaster this | |
| early. Therefore it was not built into the budget at this point | |
| in time. | |
| I might also add, regarding some of the kinds of crops that | |
| you're talking about, that this budget does anticipate the full | |
| funding of crop insurance reform. Some of the types of products | |
| you're talking about would be eligible for some of the crop | |
| insurance provisions under the reforms. | |
| Ms. Hooley. So you don't see President Bush intending to | |
| change the crop insurance program? | |
| Secretary Veneman. The budget includes the crop insurance | |
| reforms that were passed last year, and fully funds them. | |
| Ms. Hooley. OK. Couple other just quick questions. Our | |
| USDA, our county offices, you talk about reforming those. One | |
| of the problems has been that, right now, there are not enough | |
| people in those offices to do the job. | |
| And again, as each issue and problem comes up, they have a | |
| larger, larger workload and less and less people. As you look | |
| at reforms, what are you talking about that would help that | |
| situation? And are there going to be further cuts, so that you | |
| have fewer people to deliver the services to farmers? | |
| Secretary Veneman. I do understand that we have had, in the | |
| last few budgets, more and more disaster type programs, which | |
| require signups, require additional workload on FSA employees. | |
| And we know that there has been tremendous pressure on those | |
| employees, and we certainly appreciate all the hard work that | |
| they've had to put in. | |
| There has been provision allowed for temporary work force | |
| to help with some of these emergencies. But some of the reforms | |
| that we're talking about extend beyond just looking at the FSA, | |
| but also looking at how our programs integrate in the field. Do | |
| we have NRCS programs and Farm Service Agency programs that are | |
| integrating, and are people working together in the delivery of | |
| those services, and risk management programs as well? | |
| We also want to look at ways that we can use technology to | |
| more efficiently deliver our programs, whether it's online | |
| forms and signups and use of the computer systems. But I think | |
| there's great opportunities there that would help with the | |
| workload that you're talking about in some of our county | |
| offices. | |
| Ms. Hooley. I look at some of our farming communities and | |
| the workload that they have, and there's one person in the | |
| office and then some temporary help. I mean, even if you've got | |
| the best technology in the world, you still have to have people | |
| in the office willing to talk to people and using the | |
| technology. I just worry, as you look at streamlining these, I | |
| don't know how you can cut any more people from some of these | |
| offices. And again, that's a concern of mine. | |
| Thank you. | |
| Chairman Nussle. Mr. Gutknecht. | |
| Mr. Gutknecht. Thank you, Mr. Chairman. | |
| I want to come back to a couple of points that have been | |
| made. I do like this chart over here and I think it's very | |
| accurate. Mine isn't as big, but I do want to call attention to | |
| the fact that essentially that chart is correct. But if you | |
| went back just a few years pervious to that, I'm told, and I | |
| thought I was correct in this and I confirmed it with Dr. | |
| Collins, Dr. Keith Collins, Chief Economist for USDA, who is | |
| here, in 1995, the total CCC outlays dropped to as low as $4.5 | |
| billion. | |
| Frankly, if you look at that chart, Madam Secretary, and | |
| this is why, I don't know, the more I've learned about | |
| agricultural policy, the more confusing it becomes. The one | |
| thing that comes through crystal clear is that the great farm | |
| economist Johnny Cash was correct. He said, everything changes | |
| as well it should, the bad ain't forever the good ain't for | |
| good. | |
| And it does strike me that long term, what we really need | |
| to do is come up with a farm program that is counter-cyclical, | |
| that will take some of those bumps out, which is why I've come | |
| to the conclusion, about the only thing you can really do long | |
| term that makes sense, at least to me, now, I'm just an amateur | |
| here, but it seems to me, we've got to come up with some kind | |
| of a revenue insurance program, where the farmers participate, | |
| the Federal Government participates. Because we can all sit | |
| around and say, well, the farm program failed, the farm program | |
| failed, and we've had all these, since 1934 we've had something | |
| like 17 different Farm bills. All of them worked well for a | |
| couple of years and all of them, the market figured out a way | |
| to beat them. | |
| But it does strike me that, there's got to be a better way | |
| to come up with a more predictable program in terms of the | |
| overall cost to the taxpayers of having a farm program that | |
| guarantees that we have an adequate supply of food at | |
| reasonable prices, and that also allows farmers, the efficient | |
| and the productive ones, the ones who deserve to make a good | |
| profit at it, should have a right and an opportunity to make. | |
| I agree with Mac earlier, he said that the problem with our | |
| farm program right now is we're hanging on by the fingernails, | |
| an awful lot of our producers. We ought to have a farm program | |
| long-term that allows people to thrive. It's not enough. And a | |
| strategy that's built around just having a survival mentality, | |
| it seems to me, it's not a good one. | |
| So I mean, I agree with Mr. Spratt's chart and I hope that | |
| we can come up with a better plan. I guess my real question for | |
| you would be, in the last administration, I don't mean this be | |
| partisan or political, but as we talked about the Farm bill, | |
| the administration was really more like passive observers to | |
| discussion rather than helping to lead the debate. My question | |
| for you is, do you intend to be an active participant in | |
| developing the next Farm bill, or do you intend to react to | |
| what the Congress presents? | |
| Secretary Veneman. I was in the administration and worked | |
| on the 1990 Farm bill. The administration was a very active | |
| participant in the discussions around that Farm bill. And I | |
| would hope that we could do that again. | |
| But certainly, I agree that we need to look at various | |
| kinds of opportunities to make farm policy that makes sense for | |
| the future, that takes into account a changing structure of | |
| agriculture in this country, that takes into account all of the | |
| different kinds of issues that we are now dealing with, whether | |
| it's animal diseases or food safety. These are not new issues | |
| but they've come to the forefront much more. We hear a lot more | |
| about the environmental issues and the regulations. | |
| I think as we debate farm policy, we just can't look at it | |
| in the context of the budget for farm programs, but in the | |
| whole context. We need to look at what we're going to do about | |
| opening up markets and trade, and how the trade programs | |
| interact with all of this. | |
| So I think that the debate on all of this needs to include | |
| a discussion of all of the issues and not just the farm | |
| programs in and of themselves. | |
| The other thing that I think we need to recognize, and I | |
| talked a little bit about this in my outlook speech this year, | |
| is the fact that we have traditionally, as people in | |
| Government, whether it's the administration or the Congress, | |
| had various interests coming to us and saying, we want this, we | |
| want this, we want this. I encouraged in that speech that the | |
| food chain ought to be working more closely together to come up | |
| with comprehensive policies that are in the best long term | |
| interest of our food and agriculture systems in this country. | |
| So I've sort of challenged people, both in the food | |
| processing sectors and the retailing sectors as well as in | |
| agriculture, to try to work together to look at some of the | |
| farm policy issues. I say this with examples such as livestock | |
| price reporting last year, where the producers and the | |
| processors got together and came out with a compromise that was | |
| acceptable to both. Or biotechnology, where you've seen the | |
| whole food chain working together on these issues. Or the group | |
| that got together that included most of the producer groups and | |
| the processors and a variety of other groups, input groups on | |
| the position they wanted agriculture to take prior to the | |
| Seattle meeting that took place in December 1999. | |
| So I think there's great opportunity in this regard. I | |
| would hope that we can all encourage the so-called food chain | |
| to come together and really look at these farm policy issue, | |
| it's something that impacts everyone, and find solutions that | |
| are those that will be the most beneficial for the future. | |
| Mr. Gutknecht. Mr. Chairman and Madam Secretary, my yellow | |
| light is already on, and I want to at least publicly welcome, | |
| we've got a group from Minnesota, the Minnesota Agricultural | |
| Rural Leadership Program is here today. On behalf of | |
| particularly some of those younger dairy farmers back in | |
| Minnesota, we strongly support opening markets. But one of the | |
| real thorny subjects we're going to have to resolve here in the | |
| next year is the idea of opening markets to places like | |
| Vermont. [Laughter.] | |
| The notion of dairy compacts, and my friend from New | |
| Hampshire here takes a somewhat different view. | |
| But it seems to me if we're going to really be serious | |
| about opening markets, and I think we have to, because | |
| ultimately, America's farmers can compete with anybody in the | |
| world. But we've got to be honest with the way we deal with | |
| markets here in the United States as well. | |
| I do believe we as a Federal Government have a | |
| responsibility to open new markets, both internationally as | |
| well as domestically, and that's also part of research. So we | |
| want to work with you. We want to come up with a plan that | |
| levels out those bumps for those of us in the Budget Committee. | |
| I think it can be done if we will look outside of the box a | |
| bit. Thank you very much. | |
| Chairman Nussle. Thank you, Mr. Gutknecht. | |
| Let me just report to members that the Secretary has asked, | |
| and I have tried to do this with others as well, to leave here | |
| in about 15 minutes. She has a plane to catch, she has business | |
| to attend to. We have a number of members that would like to | |
| inquire. What I would just ask is that you do the best you can | |
| to keep within not only the 5 minutes, but even if you could do | |
| less than that so members can ask questions. | |
| Mrs. Clayton. I always do this right when it comes to you, | |
| and I apologize. | |
| Mrs. Clayton. Yes, it's good you recognize that. I'll keep | |
| in time. But thank you, Mr. Chairman. I appreciate the time. | |
| Welcome, Secretary Veneman. I am delighted to have you | |
| before the Budget Committee. I must say, as a woman, I'm | |
| delighted to see you there. It is evidence that women are | |
| indeed in agriculture. Sometimes we don't think of women in | |
| agriculture. | |
| And as someone said earlier, I think you will like your job | |
| as well as you like it now after a year or two from now. | |
| Agriculture is indeed demanding, and appreciated, but it's | |
| also complex. I believe some of the background you are hearing | |
| is that the appreciation from those of us who are on the | |
| Agriculture Committee, as I am, also, those who are from rural | |
| communities, as others may be, have an appreciation for the | |
| Farm bill, which I think people look too much to this is true | |
| because it sometimes is not the planning document that it could | |
| be or should be. Nevertheless, it is a tradition. As a | |
| tradition, the farm community will look toward that as the kind | |
| of bible or guide. So hopefully, we can put some things in | |
| perspective. That is so critical. | |
| I have written to you on the subject, and you should not be | |
| surprised, that I will be talking to you about it, the black | |
| farmers. African-American farmers have not traditionally | |
| benefitted well in the loans and programs that the Agriculture | |
| Department has administered. It is the department that was | |
| considered to be the people's department. That's what President | |
| Lincoln said of it. Yet, it is found that we're denying black | |
| farmers. | |
| The issue I bring before you is certainly not of your | |
| making. But, it is one that you are inheriting. It's called | |
| Pigtord v. Glickman, I guess it if goes back in court it will | |
| be Pigtord v. Veneman. But, it is an issue that will continue. | |
| It has both policy issues and budgetary issues. | |
| Would you comment as to how you plan to resolve this issue | |
| and assist those who still have legitimate complaints? I'm | |
| getting mail from people who are being foreclosed on as of now, | |
| put out of their homes, have $250,000 in loans that they have | |
| to pay back, with the promise of, almost 5 months ago, that | |
| they would have gotten their supplement. Now, they are having | |
| to live with their relatives. | |
| What are the plans for funding USDA's Office of Civil | |
| Rights. Would you comment on that, please? | |
| Secretary Veneman. Civil rights in the Department is a very | |
| difficult issue, and as you say, it's something I came into and | |
| inherited, and certainly it is not an easy issue. | |
| We want to get all of the complaints in the Department | |
| resolved as quickly as possible. One of the things that I hope | |
| we can do is accelerate the process under which these things | |
| are looked at. I know we have a number of people on temporary | |
| assignment, complying with the agreement in the case you | |
| mentioned in an attempt to get all these cases resolved. It is | |
| a huge undertaking. | |
| But I do want to assure you that we will not tolerate | |
| discrimination in the Department of Agriculture. We are making | |
| that clear. We intend to pursue the resolution of the cases | |
| that exist as quickly as possible. | |
| Mrs. Clayton. Thank you. I do have a couple of other | |
| questions. However, I'm going to follow my Chairman's lead and | |
| do it very quickly. | |
| The other concern is about food stamps. As you indicated, | |
| the nutrition part is the mandatory part as it relates to food | |
| stamps. In 1994, in reference to food stamp participation, we | |
| had 27 million households. In the year 2000, we have just over | |
| 17 million. Part of that obviously, is because we've had a good | |
| economy and we are thankful and celebrate that. | |
| But clearly, the drop in the food stamp participation | |
| outpaced the drop in poverty rate as the census has reported | |
| it. For instance, only 59 percent of the eligible Americans are | |
| receiving food stamps. Those who are eligible, not 59 percent | |
| of people, but 59 percent of the eligible are not receiving it. | |
| Then when you look at those who are eligible and are | |
| working families, then it gets to be that additional safety net | |
| of that mother who's working and has two or three children. Of | |
| that, the percentage is even less, and that's 47 percent of | |
| working families receiving food stamps. | |
| Can you comment on what you will outreach to people who so | |
| desperately need food for sustenance that they would know about | |
| it in terms of the eligibility, in terms of the administration? | |
| Let me put on one other part, real quickly so you can answer | |
| both of those. The difficulty we have imposed upon poor people | |
| to get pittance from our Government food, we should be ashamed. | |
| Not you, but we should be ashamed of it. When we consider this | |
| is just the applications process, in terms of how much they | |
| have to fill out to get $40 and in some instances, $50 or $100. | |
| In comparison, take the Federal home mortgage application. | |
| If I'm trying to get a home from the Federal home mortgage, I | |
| have to do one-fourth of the paperwork that I would have to do | |
| if I was trying to get food stamps. If I'm trying to get a | |
| $250,000 home, it takes four pages at best. | |
| On the other side, we can get to that information very | |
| quickly. Now, the Chairman and I co-chaired trafficking, in | |
| terms of food stamps. We were trying to determine how to | |
| monitor that. So we're on record saying we want to find ways | |
| where those who don't need it shouldn't get it. We wrote your | |
| predecessor a letter asking if he would put it in annual review | |
| rather than every 3 years now. Every 5 years. | |
| First, I want to know how we can make it simple. How indeed | |
| can we instruct the States on an annual basis to reduce the | |
| trafficking and not put artificial barriers for poor people | |
| getting food assistance, when we say we want to help. | |
| Secretary Veneman. Congresswoman, I don't have good answers | |
| to either of your questions today, because I simply haven't had | |
| the chance to get deeply into these issues. I've only been | |
| there less than 60 days, but I have heard this issue about the | |
| participation rates. I've seen it in the media stories, I've | |
| read it in the letters and so forth. Certainly we will look at | |
| that. | |
| I was not aware of this issue with the applications, and | |
| we'll take a look at that as well. | |
| I might add that the food stamp budget has increased in | |
| this budget. In the detailed budget that will be out in the | |
| next couple of weeks, you will see that there is an increase in | |
| the food stamp budget. | |
| Mrs. Clayton. So we have something to look forward to. | |
| Chairman Nussle. Thank you. | |
| Mr. LaHood. | |
| Mr. LaHood. Thank you for only taking 6 minutes, Eva. We | |
| appreciate it very much. [Laughter.] | |
| I'd be happy to give you my 5 minutes if you need it, you | |
| know that. | |
| Madam Secretary, I don't think there's anybody that's come | |
| to the job that you have that has the broad breadth of | |
| experiencing, having served in one of the most diverse States, | |
| California, and then having served in our own Government. So we | |
| have high hopes for you and what you'll be able to do. | |
| I'm going to be very brief, because I know you'll be coming | |
| before the Ag Committees, both Authorization and | |
| Appropriations. I hope that if, I guess let me put it this way. | |
| If I had your job, I would get up every day and figure out we | |
| can improve trade. You can talk all you want about the faults | |
| with Freedom to Farm, the ag economy has been in recession for | |
| 3 or 4 years. In my opinion, the answer is trade. We need to | |
| open up markets, we need to pass Fast Track, which our previous | |
| administration never would do, we need to lift sanctions | |
| against countries, we need to start looking at countries where | |
| we've never traded before, particularly food and medicine. | |
| Trade is the ultimate answer. And I voted for all these | |
| additional payments. And I've had so many farmers tell me, I | |
| don't want to receive them, but I wouldn't be here today if we | |
| didn't get them. Trade is the key. And I hope you'll push this | |
| administration. | |
| When I was down to the White House with a group that talked | |
| to the President, he talked about Fast Track. And I know he | |
| knows the importance of trade. I don't think he would have made | |
| his first trip to Mexico if he didn't believe in trade. And I | |
| know you believe in it, too, coming from a State like | |
| California and having worked in the previous administration. | |
| I hope that from time to time, when you think about what we | |
| need to do, you'll think about trade. | |
| I yield back. | |
| Chairman Nussle. Thank you. | |
| Mr. Brown. | |
| Mr. Brown. Thank you, Mr. Chairman. | |
| Madam Secretary, glad to have you here before the | |
| committee. I'm just going to ask you a couple of basic | |
| questions, I know our time is about to expire. But how many | |
| employees are totally in the Agriculture Department? | |
| Secretary Veneman. I think we have roughly about 100,000-- | |
| we have 106,000 including the county office employees, I'm | |
| told. | |
| Mr. Brown. And how many of those reside here in Washington? | |
| Secretary Veneman. Nine thousand five hundred. | |
| Mr. Brown. And how many farms do we have? | |
| Secretary Veneman. We have about 1.9 million farmers, | |
| according to the 1997 census of agriculture. I understand where | |
| you're going with this, and I might just add that about 35,000 | |
| of the employees are in the U.S. Forest Service, which really | |
| doesn't have much to do with the production agriculture side. | |
| Mr. Brown. I see. Thanks for sharing that. | |
| I know you mentioned briefly in your opening remarks, and I | |
| would just ask you, if you would, to expand a little on your | |
| thoughts about a market driven agriculture economy versus price | |
| support. | |
| Secretary Veneman. Well, as I talked about earlier, I think | |
| that clearly, the goal is to get a more market oriented and | |
| market driven policy in agriculture. The 1996 Farm bill went a | |
| considerable way in doing that, by decoupling the payments, the | |
| AMTA payments, as they're called, and allowing planting | |
| flexibility. I think farmers have responded well to those | |
| concepts. The question is, how do you address some of the other | |
| issues that have come along with it. | |
| I certainly think tax reform is an important component. | |
| Trade is an important component. Common sense regulation is an | |
| important component. So I think it's a combination of policies, | |
| it's not just farm policies looked at in a vacuum. It is a | |
| combination of policies that we need to look at to move | |
| agriculture in a market oriented direction. | |
| Mr. Brown. One final question, if I might. I know in South | |
| Carolina a lot of the farming economy is based on tobacco. I | |
| know that's sort of a diminishing return. I've listened to some | |
| of the other members question about apples, whatever else, some | |
| of those commodities. Trying to find alternative crop | |
| replacements, is that sort of a high priority under this | |
| administration? | |
| Secretary Veneman. I think alternative crop replacements | |
| are an important issue. I think that certainly, we want to find | |
| ways to assist farmers making transitions in the marketplace | |
| through rural development programs, extension programs, other | |
| kinds of assistance programs that we have. That may be | |
| alternative crops, it may be better business planning practices | |
| that we can assist farmers with. It may be assistance with ways | |
| to wire rural America, so that they aren't left behind in this | |
| new technology age. | |
| But I think all of those concepts must be considered as we | |
| move forward and look at rural policy for the future. | |
| Mr. Brown. Thank you. | |
| Chairman Nussle. Thank you. | |
| Mr. Putnam. | |
| Mr. Putnam. Thank you, Mr. Chairman. | |
| Madam Secretary, I welcome you and I want you to know how | |
| much we're all looking forward to working with you for the | |
| betterment of all American agriculture. I'm particularly | |
| excited that you're from California and had some experience in | |
| the fruits and vegetables business. Hopefully we can address | |
| some issues that I think in the past have been neglected in | |
| that particular aspect of American agriculture. | |
| To follow up somewhat on what the Chairman's remarks were | |
| about in terms of a comprehensive review of the Department's | |
| role and responsibilities, when you really look through the | |
| list of things that your department does, from home loans to | |
| school lunches, to animal and plant health, to ecotourism in | |
| our national forests, research, nutrition, farm support, trade, | |
| it's all over the map. Has anyone in the past ever conducted a | |
| strategic review, or do you intend to conduct a strategic | |
| review to really look at what the core mission of the U.S. | |
| Department of Agriculture is, and whether or not there are some | |
| programs that this body has added to that mission that may or | |
| may not be relevant or timely in 2001? | |
| Secretary Veneman. Well, Congressman, I think that's a very | |
| good question. I have certainly been involved, in my previous | |
| position in California, with a hard look at strategic direction | |
| of the California Department of Agriculture. I think that as we | |
| go forward we need to continually, in any organization, look at | |
| strategic direction. | |
| I believe, and again, I've only been here less than 60 | |
| days, but I believe that a lot of our agencies within the U.S. | |
| Department of Agriculture have been involved in strategic | |
| planning and looking at how to best administer their programs | |
| for the future. That is a priority of mine, to make sure that | |
| we continue to look very strategically at what we do. | |
| You do point out something. I think we are one of the most | |
| diverse departments in all of Government in terms of mission. | |
| People are shocked when I tell them that the Department of | |
| Agriculture runs the food stamp program, or the national | |
| forests and that Smokey Bear works for us. But the fact of the | |
| matter is, it is a very diverse department with multiple | |
| missions. | |
| And it sometimes makes a complete strategic look a little | |
| more difficult in terms of a single mission. Because I do think | |
| we have multiple missions, many of which are very | |
| interconnected. | |
| One of the things that I want to make sure that we do is to | |
| recognize that many of our programs have been operated in a | |
| stovepipe type of structure. Yet many of our programs really | |
| have overlapping responsibilities, whether it's research, with | |
| almost every area of the Department, or it's the working | |
| together of rural development programs with other programs that | |
| assist in rural America, or it's NRCS and FSA and risk | |
| management. All of these things are interconnected. | |
| As I've talked with people who may potentially come to work | |
| in our Department, I've had discussions about the importance of | |
| teamwork, working together and finding better ways to | |
| administer programs in a way that makes them more integrated | |
| and consumer or constituent friendly. | |
| Mr. Putnam. I appreciate that, and I just want to draw one | |
| line of distinction, that there is a difference between a | |
| strategic review of doing what you do better and reviewing | |
| things to determine if some of the things that you do, and | |
| probably do very well, may not be best done by your Department, | |
| and there may be other appropriate folks. | |
| Secretary Veneman. I understand that. | |
| Mr. Putnam. With that I'll close, Mr. Chairman, and just | |
| say, I appreciate, on a personal note, all the support the | |
| Department has been to Florida on the citrus canker issue. | |
| Thank you. | |
| Chairman Nussle. Thank you. | |
| Madam Secretary, I did the best I could. I came within | |
| about 4 minutes. That's not bad. Hopefully your plane's on time | |
| and everything will work out fine. | |
| We appreciate your testimony and your time here today, and | |
| we look forward to working with you on some of the issues that | |
| we just discussed. | |
| Secretary Veneman. Thank you, Mr. Chairman. I appreciate | |
| the opportunity and I do appreciate your adhering to my rather | |
| tight time schedule today. Thank you all very much. | |
| Chairman Nussle. Thank you. | |
| We'll recess for about a minute here while we're changing | |
| the witness table. | |
| [Recess.] | |
| Chairman Nussle. This is the resumption of the Budget | |
| Committee hearing on the Department of Agricultural Fiscal Year | |
| 2002 Budget Priorities. We are fortunate to have today | |
| Representative Charlie Stenholm of Texas and Bruce Gardner of | |
| the Department of Agricultural and Resource Economics of the | |
| University of Maryland. | |
| Mr. Gardner has been involved in a number of different | |
| endeavors throughout his career. I was just reviewing your | |
| resume, curriculum vitae, and you have been involved with the | |
| Department of Agriculture, you've been a professor at Texas | |
| A&M, you grew up on a dairy farm in Illinois, which is maybe | |
| even more important to the discussion here today. | |
| We welcome you to the Budget Committee and look forward to | |
| your testimony. | |
| But first off today is the very distinguished ranking | |
| member of the Agriculture Committee and a good friend of this | |
| committee, former member of this Committee, as I understand, | |
| and someone who is very well known, not only on budget issues | |
| but also on agriculture issues throughout this Congress, and is | |
| well respected. We really appreciate the fact that you would | |
| take some time, we understand the Ag Committee is organizing | |
| today and you have to leave here shortly. So we'll let you go | |
| first. Your entire statement will be part of the record, and | |
| you may summarize as you see fit. | |
| The gentleman from Texas. | |
| STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN | |
| CONGRESS FROM THE STATE OF TEXAS | |
| Mr. Stenholm. Thank you, Mr. Chairman. | |
| I appreciate very much your kind remarks and I appreciate | |
| this opportunity to testify before this Committee. Mr. | |
| Chairman, Mr. Spratt, I am delighted to be here. | |
| I think it is very fitting that agriculture continues to be | |
| the focal point in our budget discussion. The current farm | |
| recession is now entering its fourth year and ranks among the | |
| deepest since 1915. This includes the agricultural recessions | |
| the Nation experienced during the Great Depression, World War | |
| II and the 1980's farm financial crisis. | |
| I know that many of you are familiar with these figures. | |
| Net cash income over the last 3 years fell in real dollars to | |
| the lowest point since the Great Depression. Put another way, | |
| last year's prices were a 27-year low for soybeans, a 25-year | |
| low for cotton, a 14-year low for wheat and corn, and an 8-year | |
| low for rice. With essentially no improvement in commodity | |
| prices over last year, farmers are left with tighter cash flows | |
| and serious questions about how they are going to make ends | |
| meet. | |
| Farm debt this year will surpass $180 billion for the first | |
| time in 16 years. Farm production costs are expected to | |
| increase $1.5 billion. The impact of the skyrocketing costs of | |
| natural gas is now rippling through the farm sector in the form | |
| of higher costs for fertilizer and irrigation. Repercussions | |
| are still being felt from the Asian economic crisis. | |
| In addition, 3 years of good weather worldwide have created | |
| bumper crops all around the globe. This has driven down prices | |
| and cut into potential markets for U.S. producers. Compounding | |
| this situation for American producers is the strength of the | |
| U.S. dollar, which has contributed to a substantial increase in | |
| relative costs of U.S. commodities. Despite some progress in | |
| lowering trade barriers through the World Trade Organization, | |
| the fact remains that the average tariff on U.S. farm products | |
| in other countries is 62 percent, while the average U.S. tariff | |
| on goods coming into the United States is around 12 percent. | |
| Additionally, the European Union continues to outspend the | |
| Untied States on agriculture, having spent $47 billion last | |
| year alone. | |
| It is precisely these conditions that have led Congress to | |
| provide $18.1 billion in emergency income assistance over the | |
| last 3 years. This assistance was clearly needed, and there was | |
| no question about whether or not Congress would act. That is | |
| why the Agriculture Committee has begun the process of | |
| developing legislation to provide multi-year additional income | |
| assistance. The Agriculture Committee is currently holding | |
| hearings during which commodity and producer groups make | |
| specific recommendations on what Congress can do to bolster the | |
| farm safety net. These hearings are laying the groundwork for | |
| future farm policy and will help us as we write the next Farm | |
| bill. | |
| Given our experience, however, over the last 3 years, it is | |
| my view, Mr. Chairman, that the budget allocation for | |
| agriculture should be permanently increased, rather than | |
| providing additional assistance on an emergency, ad hoc basis. | |
| The reasons for doing so are two-fold. The first rests on the | |
| need for certainty in farming, and the second on budget | |
| discipline. | |
| Ad hoc assistance is by its very nature unpredictable. | |
| Producers and lenders alike are understandably nervous about | |
| including any dollar figure for ad hoc assistance as they | |
| prepare cash flow calculations. The current unpredictability of | |
| assistance affects not only producers and lenders, but ripples | |
| throughout the rest of the agricultural sector. When farmers | |
| and ranchers are unsure about income, they don't spend money | |
| with retailers, input suppliers, equipment manufacturers, or | |
| anyone else. | |
| Everyone who has testified before the Agriculture Committee | |
| thus far has requested additional amounts for agricultural | |
| spending. I am working with Chairman Combest, and I am hoping | |
| that we will eventually be able to introduce legislation that | |
| will ease the crisis. This is dependent, however, upon the | |
| provision of additional resources for agriculture. Many of you | |
| have seen the letter from the commodity and farm groups | |
| requesting $9 billion for 2002 and $12 billion for each year | |
| thereafter in the baseline. | |
| Let me pose a question, Mr. Chairman, to members of the | |
| Budget Committee who also represent agricultural interests. Do | |
| you believe that we will provide additional spending this year | |
| for agriculture? If your answer is in the affirmative, then now | |
| is the time to budget for it. | |
| The second reason for increasing the allocation for | |
| agriculture is the recognition of a need for a more predictable | |
| and disciplined approach to budgeting. The past 3 years have | |
| shown that Congress has the will to provide necessary | |
| assistance when existing programs are inadequate. But emergency | |
| waivers of the Budget Act have led to greater spending than | |
| might otherwise have been necessary. | |
| For example, when included in the fiscal year 2001 budget | |
| resolution, the Committee on Agriculture spent $7.1 billion in | |
| 2000. In subsequent years, funding was provided by resolution. | |
| That was not the case 6 months later, however, when another | |
| $8.9 billion was spent under emergency declaration. | |
| I see two major deficiencies with the administration's | |
| fiscal year 2002 budget for agriculture. One, it fails to | |
| provide a realistic budget for agriculture, given the | |
| additional ad hoc spending Congress has provided during the | |
| last 3 years. And two, the budget relies upon an overall | |
| contingency fund that includes agriculture when the amounts in | |
| the fund are already oversubscribed. | |
| Mr. Chairman, members of the committee, I would ask you to | |
| sincerely look at not only what I have just mentioned, but to | |
| realize that once you have allocated all of the projected $5.6 | |
| billion in so-called projected surpluses over the next 10 | |
| years, once you have allocated them, there will be no way under | |
| any circumstances that there can be emergency spending without | |
| dipping into the Social Security and Medicare trust funds. | |
| Therefore, I appeal to you to seriously consider what all | |
| of the farm organizations, and I mean from the Farm Bureau up | |
| and down, Farmers Union up and down, have said recognizing, as | |
| I'm sure you'll hear from Dr. Gardner and others who have | |
| testified before the Committee, that the outlook for farm | |
| prices is not good. Therefore, it is predictable. | |
| Therefore, it makes a lot of sense for us, not only in this | |
| particular area, but in the conservation programs, the wetland | |
| preserve programs, the Environmental Quality Incentives | |
| Program, as you heard Mrs. Clayton talking about the food stamp | |
| program, rural development and all of these areas, it is clear | |
| that rural America is not benefiting from the boom that the | |
| rest of America has participated in for the last 10 years. | |
| Therefore, the administration has stated, we may need to | |
| increase spending for our farmers and maintains that a portion | |
| of the contingency fund could be used to help farmers. But | |
| claims again on the contingency fund may exceed the money | |
| available. Those of us who insisted Congress act on a budget | |
| resolution before acting on tax or spending legislation are not | |
| arguing about process or arcane budget rules. This argument is | |
| about acting responsibly to balance priorities important to our | |
| constituents. | |
| Just as the American people deserve to know what impact the | |
| tax cut will have on the priorities that are important to them, | |
| America's farmers and ranchers must be able to predict with | |
| some degree of certainty what their income assistance will be, | |
| so that they can work with their bankers to make plans for the | |
| next 5 years. The producers of our Nation's food and fiber | |
| should not have to scramble for a piece of an over-tapped | |
| contingency fund at a time when they are at their greatest | |
| need. | |
| Thank you, Mr. Chairman. | |
| [The prepared statement of Charles Stenholm follows:] | |
| Prepared Statement of Hon. Charles W. Stenholm, a Representative in | |
| Congress From the State of Texas | |
| Mr. Chairman, thank you for this opportunity to testify today as | |
| the Committee on the Budget considers USDA's budget for FY 2002. | |
| It is fitting that agriculture continues to be a focal point in our | |
| budget discussions. The current farm recession is now entering its | |
| fourth year and ranks among the deepest since 1915. This includes the | |
| agriculture recessions the nation experienced during the Great | |
| Depression, World War II, and the 1980's farm financial crisis. | |
| I know that many of you are familiar with the figures. Net cash | |
| income over the last 3 years fell, in real dollars, to its lowest point | |
| since the Great Depression. Put another way, last year's prices were a | |
| 27-year low for soybeans, a 25-year low for cotton, a 14-year low for | |
| wheat and corn, and an 8-year low for rice. | |
| With essentially no improvement in commodity prices over last year, | |
| farmers are left with tighter cash flows and serious questions about | |
| how they are going to make ends meet. | |
| Farm debt this year will surpass $180 billion for the first time in | |
| 16 years, and farm production costs are expected to increase $1.5 | |
| billion. The impact of the skyrocketing cost of natural gas is now | |
| rippling throughout the farm sector in the form of higher costs for | |
| nitrogen fertilizer and irrigation. | |
| Repercussions are still being felt from the Asian economic crisis | |
| that began 3 years ago. In addition, 3 years of good weather worldwide | |
| have created bumper crops all around the globe. This has driven down | |
| prices and cut into potential markets for US producers. | |
| Compounding this situation for American producers is the strength | |
| of the US dollar, which has contributed to a substantial increase in | |
| the relative cost of US commodities. | |
| Despite some progress in lowering trade barriers through the World | |
| Trade Organization, the fact remains that the average tariff on US farm | |
| products in other countries is 62 percent, while the average US tariff | |
| on goods coming into the US is around 12 percent. Additionally, the | |
| European Union continues to outspend the US on agriculture, having | |
| spent $47 billion last year alone. | |
| It is precisely these conditions that have led Congress to provide | |
| $18.1 billion in emergency income assistance over the last 3 years. | |
| This assistance was clearly needed and there was no question about | |
| whether or not Congress would act. This is why the Agriculture | |
| Committee has begun the process of developing legislation to provide | |
| multi-year additional income assistance. | |
| The Agriculture Committee is currently holding hearings during | |
| which commodity and producer groups make specific recommendations on | |
| what Congress can do to bolster the farm safety net. These hearings are | |
| laying the groundwork for future farm policy and will help us as we | |
| write the next farm bill. | |
| Given our experience over the past 3 years, it is my view that the | |
| budget allocation for agriculture should be permanently increased, | |
| rather than providing additional assistance on an emergency, ad hoc | |
| basis. The reasons for doing so are twofold: the first rests on the | |
| need for certainty in farming, and the second on budget discipline. | |
| Ad hoc assistance is, by its very nature, unpredictable. Producers | |
| and lenders alike are understandably nervous about including any dollar | |
| figure for ad hoc assistance as they prepare cash flow calculations for | |
| producer financing. The current unpredictability of assistance affects | |
| not only producers and lenders, but ripples throughout the rest of the | |
| agricultural sector. When farmers and ranchers are unsure about income, | |
| they don't spend money with retailers, input suppliers, equipment | |
| manufacturers, or anyone else. | |
| Everyone who has testified before the Agriculture Committee thus | |
| far has requested additional amounts for agricultural spending. | |
| I am working with the Chairman and I am hopeful that we will | |
| eventually be able to introduce legislation that will ease the crisis. | |
| This is dependent, however, upon the provision of additional resources | |
| for agriculture. | |
| Many of you have seen the letter from the commodity and farm groups | |
| requesting $9B for 2002 and $12B for each year thereafter. Let me pose | |
| a question to the members of the Budget Committee who also represent | |
| agricultural interests: Do you believe that we will provide additional | |
| spending this year for agriculture? If your answer is in the | |
| affirmative, then now is the time to budget for it. | |
| The second reason for increasing the allocation for agriculture is | |
| the recognition of the need for a more predictable and disciplined | |
| approach to budgeting. The past 3 years have shown that Congress has | |
| the will to provide necessary assistance when existing programs are | |
| inadequate, but emergency waivers of the Budget Act have led to greater | |
| spending than might otherwise have occurred. | |
| For example, when included in the FY 2001 Budget Resolution, the | |
| Committee on Agriculture spent the $7.1 billion that the resolution | |
| provided. That was not the case 6 months later, however, when another | |
| $8.9 billion was spent under emergency declaration. | |
| I see two major deficiencies with the administration's FY 2002 | |
| budget for agriculture: | |
| (1) It fails to provide a realistic budget for agriculture, given | |
| the additional ad hoc spending Congress has provided during the last 3 | |
| years. | |
| (2) The budget relies upon an overall contingency fund that | |
| includes agriculture, when the amounts in the fund are already | |
| oversubscribed. | |
| The reliance upon ad hoc spending for agriculture is simply | |
| unacceptable. As I indicated earlier, producers can't reliably set a | |
| budget, and bankers don't like the uncertainty. In addition, | |
| undisciplined budgeting results in deficit spending or dipping into the | |
| Social Security or Medicare trust funds; funds which we are all pledged | |
| to protect. It also creates additional pressure on other important | |
| programs. | |
| For example, conservation programs have greatly decreased soil | |
| erosion from wind and water. These programs are not a one-time | |
| investment; they are influenced by the weather and must be maintained | |
| year after year. We spend far less today on conservation programs than | |
| we did 50 years ago. Consider these unmet conservation needs: | |
| The Wetlands Reserve Program has 3,153 applications pending to | |
| enroll another 562,000 acres; this is nearly 60 percent more than is | |
| currently enrolled. | |
| The Environmental Quality Incentives Program (EQIP) has 197,000 | |
| applications to enroll an additional 66.6 million acres. The net cost | |
| to meet this demand would be over $1 billion. | |
| The Wildlife Habitat Incentives Program has 3,017 applications | |
| pending to improve an additional 564,000 acres over the current 1.4 | |
| million acres. | |
| These programs deliver services and benefits that the private | |
| sector cannot provide. While the private sector would realize few | |
| benefits by carrying out these programs, the public benefits are | |
| enormous. The question then becomes whether such benefits are best | |
| gained through incentive-based programs or through government | |
| regulation. Without public expenditure, however, there could be | |
| enormous public and private costs. | |
| Rural development spending is another example of well-considered | |
| public spending in one area that forestalls greater spending in | |
| another. The strong economy that our nation has enjoyed these past | |
| several years has created improved employment in rural areas, as well | |
| as in cities and suburbs. The opportunity for off-farm income is | |
| helping many smaller farm families survive, when they might not | |
| otherwise do so. | |
| Survey data from 1999 shows that farm households where the primary | |
| occupation was farming, but where sales were less than $250,000, | |
| comprise about 30percent of all farms. Off-farm income provided 85 | |
| percent of total average household income for farms with sales less | |
| than $100,000. Off-farm income provided 37 percent of total average | |
| household income for farms with sales from $100,000 to $250,000. | |
| In spite of the $18.1 billion that was spent in emergency income | |
| assistance during the past 3 years, President Bush's budget fails to | |
| provide additional money for income assistance for farmers, and leaves | |
| the baseline for agriculture unchanged. The administration has stated | |
| that ``we may need to increase spending for our farmers'' and maintains | |
| that a portion of the contingency fund could be used to help farmers. | |
| Claims on the contingency fund, however, may exceed the money | |
| available. | |
| Those of us who insist that Congress act on a budget resolution | |
| before voting on tax or spending legislation are not arguing about | |
| process or arcane budget rules. This argument is about acting | |
| responsibly to balance priorities important to our constituents. While | |
| we all support enacting the largest tax cut we can afford, we have a | |
| responsibility to consider what impact the tax cut will have on our | |
| ability to meet agriculture's needs before we enact a tax cut. | |
| Just as the American people deserve to know what impact the tax cut | |
| will have on the priorities that are important to them, America's | |
| farmers and ranchers must be able to predict with some degree of | |
| certainty what their income assistance will be so that they can work | |
| with their bankers to make plans for the next 5 years. | |
| An over-tapped contingency fund provides no certainty for our | |
| producers. At the time when they are in the greatest need, producers of | |
| our nation's food and fiber should not have to concern themselves with | |
| the adequacy of contingency fund monies, with competing needs of other | |
| programs, or with points of order against the use of Social Security or | |
| Medicare trust fund monies. There is no other fiscally prudent or | |
| rational alternative than to provide permanent authority to address | |
| agriculture's needs in the budget resolution. | |
| Chairman Nussle. Thank you, Mr. Stenholm. | |
| Let me ask you, are you as optimistic as I am that we might | |
| be able to come up with a reauthorization of the Farm bill this | |
| year? Is that something you believe is an attainable goal, and | |
| not wait until next year, when the reauthorization comes due, | |
| but actually complete consideration this year, so that whatever | |
| reforms we can come up with, you from the Ag Committee and we | |
| in the Congress, together with the administration can be put | |
| into effect as quickly as possible, from a policy standpoint, | |
| even before we talk about money for one moment? | |
| Is that a reasonable time frame for your committee and for | |
| the Congress to be on, in your judgment? | |
| Mr. Stenholm. I wish I could say yes. Because I share your | |
| desire and the importance of accomplishing that goal. I think | |
| certainly Chairman Combest has established a very optimistic | |
| and progressive and ambitious hearing process to do just that. | |
| But I think practically speaking, given the difficulty of | |
| the task that you have outlined for us, it will be very | |
| difficult to complete work this year. We'll try. I agree we | |
| should try. But I think more probably early next year will be | |
| more likely. | |
| And I would also say, and I say this in deference to the | |
| administration, as you heard Secretary Veneman a moment ago. | |
| She's only been on board for 60 days. She doesn't have her full | |
| team in place, as yet. It's not realistic to expect the kind of | |
| guidance and the input that I believe she will be providing in | |
| a very active role as Secretary for us in time to do it this | |
| year also. But we're going to try. | |
| Chairman Nussle. Let me put it a different way. You know | |
| the rules as well or better than I do when it comes to the | |
| budget. Would an instruction, a reconciliation instruction, | |
| assist us in this regard, some type of an instruction that can | |
| help expedite this process? Would that be a consideration that | |
| you would advise? | |
| Mr. Stenholm. Without much time to think on that question, | |
| I guess my first answer would be, I do not believe that that | |
| would be the kind of process that would be the most helpful to | |
| us for this year. But certainly, whatever this committee would | |
| choose to do, we will do our best, as the Agriculture Committee | |
| has always done. Whenever the Budget Committee has given | |
| instructions to us, we have taken the amount of money that you | |
| have set and we have done the best we could do with it. | |
| I would encourage you to take a good, hard look and sleep | |
| on it twice before you go down that path, unless you have a | |
| policy in mind to accomplish that which you are suggesting with | |
| the dollars that we're talking about. | |
| Chairman Nussle. Well, and that brings me to the second | |
| part of my question. That is, which comes first, the chicken or | |
| the egg? Part of my frustration with this whole discussion, and | |
| I share your concern as you may know, about the unrealistic | |
| nature of budgets that don't anticipate that which we know is | |
| about to occur. I mean, if we know it's coming, let's do | |
| something about it now. | |
| But the same is also true for knowing that not only may | |
| there be a 2001 emergency, but there very likely, based on | |
| testimony that we've heard and that you've heard, there may be | |
| a 2002 emergency, if nothing changes and if there's no farm | |
| policy adjustment in the meantime. | |
| Part of the frustration we have here is while, yes, from | |
| your standpoint and even if you look at the administration | |
| budget you could say, well, there's not enough money there. But | |
| who says? Who says there's not enough money there? Under what | |
| policy are we comparing it, to say there's not enough money | |
| there? | |
| In other words, how much money do you need from us to write | |
| a Farm bill? And I don't think it's good enough to say, oh, I | |
| don't know, $9 billion, just because that's what the commodity | |
| organizations are suggesting. I've heard their plea as well. | |
| But their plea comes without underlying policy | |
| consideration to the degree that it is necessary for us to | |
| write a Farm bill, any more than it's there for us to write a | |
| budget. So similar to the Defense Department, where the | |
| President said the strategy should determine the budget, not | |
| the budget should determine the strategy, I would suggest that | |
| the same holds true here. | |
| We need a policy to write this Farm bill. Otherwise, we're | |
| putting money into a baseline that, with all due respect, and | |
| coming from farm country as well, may not be appropriately | |
| applied under responsible budgeting matrix, without the | |
| consideration of the policy. I'm very worried about what comes | |
| first here. | |
| That's why I would really encourage, and I'm encouraged by | |
| what I've heard so far, but I would desperately encourage my | |
| friends on the Ag Committee that, as fast as we can, I don't | |
| want to move without careful consideration, but boy, as quickly | |
| as we can get this thing resolved in a bipartisan way, the way | |
| we used to write Farm bills around here, the better off I think | |
| we're all going to be. | |
| I don't know what your response is to that, but that's my | |
| concern, is putting the money before the policy. | |
| Mr. Stenholm. I would briefly respond, Mr. Chairman. I | |
| share your concerns. But I would point out that my request | |
| comes under the policy that we are operating under, under the | |
| 1995-1996 Farm bill. If I had another hat on, if I were the | |
| chairman of the Ag Committee or if I were the Secretary of | |
| Agriculture, then I think it would be a very pertinent question | |
| to ask me. | |
| But I think here, I defer to my chairman and to the | |
| Secretary. And we will be ready on our side of the aisle to | |
| work with the Secretary. And I'm certainly working with the | |
| chairman to develop those policies. | |
| But until we do and until we have a clear signal of the | |
| direction we need to go, I'm here today asking the committee to | |
| provide the resources that I believe are going to be necessary | |
| under the policy we're now operating under. And we will work | |
| very closely with both sides of the aisle to develop a new set | |
| of policies that I agree are much needed. | |
| Chairman Nussle. Thank you. | |
| Mr. Spratt. | |
| Mr. Spratt. Mr. Stenholm, I wanted to clarify about what | |
| you said about $9 billion to $12 billion. Is this a request for | |
| CCC programs, for commodity programs? | |
| Mr. Stenholm. That's correct. | |
| Mr. Spratt. And that's an increment to what is in the | |
| budget already? | |
| Mr. Stenholm. Over the so-called baseline. | |
| Mr. Spratt. We've got a chart up here, CCC outlays, | |
| Commodity Credit Corporation outlays. Have you seen this chart | |
| before? | |
| Mr. Stenholm. Yes, sir. | |
| Mr. Spratt. If you look backwards, just a few recent years, | |
| we've got outlays that run up as high as $30 billion. If you | |
| look forward from 2002 onward, we've got a precipitous drop and | |
| then a level of spending that is well below the recent past. Do | |
| you think that's realistic? | |
| Mr. Stenholm. Not if we continue the current policy. But | |
| just as I responded to the chairman, if we in fact change | |
| policy, then you can make those numbers work on certain policy. | |
| But they are not realistic to be budgeted for, based on current | |
| policy. Because we had the experience, since 1995 and 1996, of | |
| what that has brought to us. And we have no indication from any | |
| of the experts who have testified before the Ag Committee as | |
| yet that it is going to change. | |
| Mr. Spratt. Well, do you have any confidence that we can | |
| rewrite the farm program such that you can get it down to these | |
| levels? And if so, what would be the implications for family | |
| farmers across America? | |
| Mr. Stenholm. That's the subject of the hearings that we | |
| were in fact having just today, 2 hours before, on the House | |
| Agriculture Committee. It requires some changes in philosophy. | |
| I could not agree more with Mr. LaHood's comment, and point out | |
| that when we start talking about embargoes, last year, the | |
| Congress voted to lift an embargo on food and medicine. The | |
| House did, on Cuba. Even though it was a 300 to 100 vote in the | |
| House of Representative, the leadership of the House saw fit | |
| not to implement that particular piece of legislation. | |
| It is also fair to make the statements that Mr. LaHood made | |
| about trade. | |
| But again, I would be reluctant to say realistically, to | |
| put the burden on my chairman to say that we can accomplish the | |
| kind of in-depth agricultural policy changes this year under | |
| reconciliation instructions. But if you decide to do it that | |
| way, if that's the wish of the majority, then we'll bust a gut | |
| doing it. | |
| But I would rather take a little bit more time and have a | |
| little bit more discussion about it, and accept this chart and | |
| other charts right now as being realistic and provide that | |
| additional budget. We can always change, as you know. | |
| What I'm suggesting in terms of budget numbers, I want to | |
| make very clear, this fits within the so-called Blue Dog | |
| budget. And you're going to hear more this week about our | |
| dedication to restraint of spending. This is in the category of | |
| the \1/2\-\1/4\-\1/4\ that we've been talking about, or the \1/ | |
| 3\-\1/3\-\1/3\ you've been talking about regarding budget | |
| applications. | |
| Mr. Spratt. Thank you very much. | |
| Chairman Nussle. Mr. Watkins, the gentleman from Texas has | |
| to go organize the Ag Committee. With all the to-do list we | |
| just gave him, he may need to go. | |
| Mr. Stenholm. The Agriculture Committee is formally | |
| organizing the democratic side today. | |
| Chairman Nussle. I follow. But that's an important side, | |
| too. So Mr. Watkins, if you've got a question or two. | |
| Mr. Watkins. Mr. Chairman, I have the deepest respect for | |
| my friend from Texas, and also Mr. Spratt. I know we can | |
| probably work a lot of things out. | |
| I'd just like to say that I am really concerned, Charlie. I | |
| think you know that. You know this, I'm genuine in what I'm | |
| saying. It's not political. Because my background in | |
| agriculture, the love I have for agriculture goes deep. Suffice | |
| to say that, I missed the Secretary, Mr. Chairman, because of a | |
| constituent problem out there in agriculture, I went outside | |
| and all of a sudden she was finished up. | |
| But I don't think, just to point out, in 1965 we had about | |
| 15 percent of our population in this country, John, that were | |
| in production agriculture. That's about the time I was state | |
| president of the Future Farmers of America. A few years later, | |
| we had about 12 percent, when I graduated from the college of | |
| agriculture up on the State. | |
| Today we have only 1.5 percent of our people in production | |
| agriculture. That shows the erosion. We're going to have to do | |
| something to pay the price, like they're saying in France, | |
| we're going to pay whatever the price to keep the farmers in | |
| Europe. And they're doing it in exporting, Charlie, on the | |
| supply and demand side, and we're not competing. I'm for trade, | |
| free and fair trade, but we don't have the policies in place, | |
| Mr. Chairman, to save the American farmer. We've got to try to | |
| save him. But we do not have it in place today. | |
| So Charlie, maybe you and I will have a chance over a | |
| prayer breakfast table or somewhere to talk some more about | |
| this. Thank you very much, and I'll respect the time. | |
| Chairman Nussle. Thank you. | |
| Thank you very much for coming today, Mr. Stenholm. We look | |
| forward to working with you on this. | |
| Mr. Stenholm. Thank you, Mr. Chairman. We look forward to | |
| working with you. I know of your keen interest in agriculture, | |
| and I never speak for my chairman, but Mr. Combest and I have a | |
| serious interest in the policy changes required. We look | |
| forward to working with you and Mr. Spratt and Mr. Watkins and | |
| other members of the committee. Thank you. | |
| Chairman Nussle. Thank you very much. | |
| Dr. Gardner, we appreciate your patience in allowing a | |
| member to organize his committee. We would enjoy hearing your | |
| testimony now. Your entire statement will be in the record, and | |
| you may summarize as you would like to proceed. | |
| STATEMENT OF BRUCE L. GARDNER, CHAIRMAN, DEPARTMENT OF | |
| AGRICULTURE AND RESOURCE ECONOMICS, UNIVERSITY OF MARYLAND | |
| Mr. Gardner. Thank you, Mr. Chairman. | |
| I will just briefly summarize what I have to say in the | |
| testimony. It's basically trying to get at a somewhat narrower | |
| issue that does get at this question of strategy of where it is | |
| that it would be most promising to go with agricultural policy. | |
| Because we all, I think, feel somewhat at sea with the | |
| situation as it is, and would like to consider alternatives. | |
| I want to address three areas of Federal spending on farm | |
| programs that have been important since 1996: the production | |
| flexibility contract payments, marketing loan costs, which are | |
| principally loan deficiency payments, and the crop insurance | |
| program costs. All three of those are in a chart, Figure 2 at | |
| the back of the testimony, show how they have all expanded over | |
| the course of the 1996 Act. | |
| The production flexibility, or Freedom to Farm payments, | |
| are the most costly budget item, and of course, they're the | |
| ones that have been most troubling to many observers. Some have | |
| argued that the FAIR Act has failed, pointing especially to | |
| those payments and what they have done and not done. But we | |
| have to recognize that there are pros as well as cons to what | |
| the Freedom to Farm Act has done. | |
| The pros are first that the program has, as advertised, | |
| allowed farmers more freedom to farm. Since 1996, we've seen | |
| about 10 million acres go out of wheat, and at the same time, | |
| about a 12 million acre increase in soybean acreage. This | |
| reflects in part the end of restraints on incentives that the | |
| former programs had created. | |
| The second pro is that the payments themselves have been | |
| largely non-distorting in the sense that whether a farmer uses | |
| more or less inputs or switches acreage among the program crops | |
| or leaves land fallow, these things make no difference in the | |
| amount of payments received. | |
| The cons of the 1996 Act, are first: that the payments have | |
| not been targeted to situation where they're most needed, | |
| either in terms of the most depressed commodities or the lowest | |
| priced years. Nor have they been targeted to the farmers who | |
| are at most economic risk. And the same is true of the market | |
| loss assistance supplementary payments of 1998, 1999 and 2000. | |
| The second con is that the receipt of market loss | |
| assistance payments for the last 3 years and their gradual | |
| expansion to cover additional crops has led to an expectation | |
| extending almost to a sense of entitlement that the payments at | |
| higher levels should continue, as we've already heard. Of | |
| course, the producers of the commodities that haven't been | |
| covered or only partially covered so far are increasingly | |
| wondering why they're left out, leading to the problems that | |
| you've described quite eloquently, Mr. Chairman. | |
| Turning to the marketing loan program, it wasn't created by | |
| the FAIR Act, but the lower prices of recent years, together | |
| with the decisions in the executive branch to maintain loan | |
| rates at the maximum levels the 1996 Act permitted, those | |
| decisions have made loan deficiency payments a large budget | |
| item. And the problem here is that these payments have | |
| overridden the market signals that were telling farmers to | |
| produce less. The market mechanism is missing that permitted | |
| hog prices, for example, after the disastrously low prices of a | |
| couple of years ago, to recover without Government intervention | |
| in any significant way. | |
| USDA estimates that U.S. grain output now is something like | |
| 2 to 3 percent higher than would have been the case if we | |
| wouldn't have had the loan deficiency payment program. So very | |
| much unlike the Freedom to Farm payments, the loan deficiency | |
| payments do affect what farmers do. | |
| And because the programs are encouraging over-production, I | |
| estimate that of the roughly $7 billion that the loan program | |
| is providing the farmers, $2 billion is being taken back again. | |
| That $2 billion goes to consumers or others on the grain buying | |
| side of the market through the lower prices that this over- | |
| production generates. Such distortion of markets is a real | |
| problem, and loan rates should be reduced to fix it. | |
| Third is the crop insurance programs. These have been | |
| expanded to forestall the need for ad hoc disaster assistance, | |
| as we've already heard. What is new under the FAIR Act is the | |
| unprecedented levels of subsidy for crop insurance, not just | |
| the FAIR Act, but the other crop insurance legislation since. | |
| And expansions of the programs to cover economic hazards as | |
| well. Some of these experiments I think are well worth looking | |
| at, such as revenue insurance. In the State of Maryland, we're | |
| now trying the pilot program on adjusted gross income | |
| insurance. | |
| The problem here, though, is that even though the budgetary | |
| costs of crop insurance are in the neighborhood of $3 billion | |
| annually, or it looks like they will be for 2001, the program | |
| still has not attained sufficient coverage to forestall the | |
| need for ad hoc disaster assistance. Moreover, the subsidies | |
| for those who participate are becoming large enough to create | |
| significant incentives to grow crops in more drought-prone | |
| areas or otherwise less favorably situated areas. | |
| But where does that leave us with the policy options as we | |
| look out? I think that's what we have to be thinking about, as | |
| you've been discussing. What alternatives make sense? | |
| I'd like to consider one tempting possibility that I'm sure | |
| will come up, although I didn't hear anything about it today. | |
| One way to support farm incomes and farm prices without a lot | |
| of budgetary expenditures is returning to some kind of acreage | |
| controls or supply management program, while maintaining or | |
| even raising loan rates. Then you attempt to generate higher | |
| market prices in that way. | |
| What are the pros and cons of that approach? The pros are | |
| the higher market prices can be obtained and thereby, farm | |
| incomes can be supported, with a smaller budget outlay. The | |
| cons are that the cost is shifted to consumers and other buyers | |
| of commodities, and that the total costs of consumers and | |
| taxpayers together will be higher to support a given level of | |
| farm income. The total costs will be higher just because in | |
| these supply management programs, farmers have to be | |
| compensated for the cost of holding valuable acreage idle, and | |
| that's a cost to us as a society, as well as to the farmers. | |
| I have an overall estimate that the sum of gains to | |
| producers and landowners, taking away the losses to consumers | |
| and taxpayers, under the current Freedom to Farm programs for | |
| the grains and cotton, what is called in some of the economic | |
| literature a deadweight loss, amounts to about $200 million a | |
| year, basically from the overproduction that's being generated. | |
| But if we try to achieve the same level of farm income, | |
| that is, an addition of about $20 million going to farmers | |
| through acreage controls, the overall social loss or deadweight | |
| loss would be $2 billion to $3 billion a year. That's because | |
| of the idled acreage. | |
| Moreover, over the longer term, the supply management | |
| approach becomes less and less capable of delivering benefits | |
| to farmers. I would express the basic issue as follows. We can | |
| all see that when there's a bad crop year in the United States, | |
| prices rise sharply, because demand is inelastic. So there are | |
| big gains for farmers to be had. Therefore, it's natural to | |
| think that if we can create this kind of scarcity through | |
| policy, we will make our farm community better off. | |
| But the problem is that the supply and demand responses in | |
| the longer run are larger. If you keep managing supply year | |
| after year, and all market participants believe that the U.S. | |
| will take steps to forestall lengthy periods of low prices, | |
| then foreign producers are going to discount the prospect of | |
| low prices, they will produce more than they otherwise would, | |
| and the main thing the U.S. will accomplish is to lose markets. | |
| That's the problem with this approach, the supply | |
| management approach. It's the difficulty we got into with the | |
| pre-1990 programs, and even to some extent in 1990 to 1995. I | |
| believe it's what we would get into again if we go down the | |
| supply management route. | |
| So comparing the pros and cons that I just mentioned for a | |
| supply management approach with the FAIR Act Freedom to Farm | |
| approach that we've had, I wouldn't want to say that the FAIR | |
| Act has been a sterling example of policy at its finest. But I | |
| do say it's an improvement over what we had before, and it | |
| would be a serious mistake to go back to those former policies. | |
| I think overall, the preferable, forward looking approach | |
| is to continue with the phaseout of payments that was begun | |
| under the FAIR Act and to focus Federal spending on policies | |
| that in the past have reaped the greatest rewards for our | |
| Nation, including both food consumers as well as producers and | |
| all involved in the agricultural industry. | |
| These are the policies that help make the United States the | |
| world's leader in agriculture and food production. These | |
| include continuing efforts in research, technology development, | |
| technical education. I believe it's important to maintain these | |
| efforts, and to continue the turn in these investments toward | |
| things like improving water quality, conservation programs, and | |
| to keep supporting biotechnology development, including things | |
| like alternative fuels and other alternative uses of | |
| agricultural products. | |
| It's especially important, as I have heard several people | |
| mention, to make progress on international trade agreements, to | |
| reduce protectionism in agricultural trade. A key practical | |
| step in this last area is the congressional granting of Fast | |
| Track negotiating authority to the President. And I think these | |
| policies could be supplemented with a kind of market oriented | |
| safety net policy, like a broad based risk management approach | |
| where farmers essentially ensure against their own losses maybe | |
| with some Government help, but try to keep the incentives to | |
| invest in unduly risky activities down. | |
| And also, more broad based rural development policies, that | |
| are aimed at taking the people who really are in trouble in | |
| agriculture, and there are a lot of them, and giving them | |
| assistance in a way that doesn't lock them into losing farm | |
| enterprises, but gives them other alternatives if that's what | |
| works best for them. That whole scheme of things I call broad | |
| based rural development policies. | |
| I think one reason it would take a while to think about | |
| alternatives to what we have now in the Agriculture Committee | |
| is that a whole range of things ought to be considered as an | |
| alternative to the kind of ad hoc payments that we're making | |
| now. | |
| Thank you very much. | |
| [The prepared statement of Bruce Gardner follows:] | |
| Prepared Statement of Bruce L. Gardner, Chairman, Department of | |
| Agriculture and Resource Economics, University of Maryland | |
| Mr. Chairman and members of the committee, I appreciate the | |
| opportunity to appear before you to address issues of Federal spending | |
| on farm policy. I am not going to attempt to cover the whole | |
| agriculture budget, but instead will briefly address two central issues | |
| in commodity policy: first, assessment of the FAIR Act's ``freedom to | |
| farm'' approach to commodity programs as they have been implemented; | |
| and second, policy options for the immediate and longer-term future. | |
| assessment of the fair act | |
| The Agricultural Market Transition Act (AMTA) title of the 1996 | |
| FAIR Act is a novel departure in farm policy. Its fixed payments, no | |
| acreage set-asides, and avoidance CCC commodity stockpiles provides a | |
| possible means of transition to a market-based agriculture that would | |
| not require governmental intervention to prop up the agricultural | |
| economy. Some now argue that the FAIR Act has failed, on the grounds | |
| that we have spent too much, while at the same time this spending is | |
| not effectively targeted at situations and people where help is most | |
| needed. As Figure 1 shows, outlays on agricultural support are at near | |
| record highs.\1\ What should be done, in the view of some critics, is | |
| to scrap the FAIR Act approach and replace it with a different | |
| approach, such as going back to payments that go up or down inversely | |
| with market prices, and annual acreage set-asides if needed to support | |
| market prices. | |
| --------------------------------------------------------------------------- | |
| \1\ Figure 1 shows both budget spending and payments received by | |
| farmers. The two series are closely related but differ in that some | |
| budget spending does not result in payments to producers (for example, | |
| CCC acquisitions of dairy products). The much higher budget outlays | |
| shown for FY2000 are in part the result of market loss assistance | |
| outlays for both 1999 and 2000 crops occurring in FY2000. Adjusting for | |
| this would lower the 2000 outlay value by about $5.5 billion. It should | |
| also be noted that producers get some benefits from commodity programs | |
| apart from payments, such as higher sugar prices because of U.S. import | |
| restrictions. The budget data are CCC budget outlays plus estimated | |
| crop insurance program costs as estimated by Jerry Skees, ``The Bad | |
| Harvest,'' mimeo, University of Kentucky, 2001. CCC outlays in recent | |
| years omit USDA's personnel and other costs of administering the | |
| programs which would be about $600 million annually if included. | |
| --------------------------------------------------------------------------- | |
| In order to evaluate this argument, I want to consider three | |
| important areas of Federal spending on farm programs since 1996: | |
| production flexibility contract payments, marketing loan costs | |
| (principally loan deficiency payments), and crop insurance program | |
| costs. Figure 2 shows these costs, along with predecessor deficiency | |
| payment program costs, since 1992. | |
| Production flexibility, or freedom-to-farm payments are the biggest | |
| item and the most troubling to many observers. As Figure 2 shows, they | |
| started at a level about equivalent to what deficiency payments had | |
| been on average in 1992-95, but have ended up higher. As contemplated | |
| at the time, the 1996 Farm bill was being debated, freedom-to-farm | |
| payments were a mechanism to phase out a long history of commodity | |
| programs for grains and cotton which had come to be seen as having | |
| outlived their usefulness. But as implemented they proved to cost more | |
| than the preceding deficiency payment programs would have cost during | |
| 1996-2000, and are no longer seen as a mechanism leading to an end to | |
| traditional commodity programs in 2002. I see the pros and cons of the | |
| FAIR Act as implemented as follows: | |
| Pros: (1) The program has, as advertised, allowed farmers more | |
| freedom to farm, and resulted in production choices more attuned to | |
| market conditions than the old deficiency payment and set-aside | |
| approach had done. Since 1996 we have seen about 10 million acres go | |
| out of wheat and, at the same time, about a 12 million acre increase in | |
| soybean acreage, reflecting in part the end of restraints on incentives | |
| that the former programs had created. (2) The payments themselves have | |
| been largely non-distorting, in that whether a farmer uses more or less | |
| inputs, switches acreage among program crops, or leaves land fallow | |
| makes no difference in the amount of payments received. That is to say, | |
| the FAIR Act has generated less deadweight loss to our economy than | |
| previous agricultural programs. | |
| Cons: (1) The payments have not been targeted to situations where | |
| they are most needed, either in terms of most depressed commodities or | |
| lowest-price years, nor have they been targeted to farmers who are most | |
| at economic risk. (2) In response to farm distress when prices fell in | |
| 1998, 1999, and 2000, market loss assistance payments were made to | |
| supplement contracted payments, but these too were not directed at | |
| states or farmers where problems were greatest. (3) The receipt of | |
| market loss assistance payments for the last 3 years, and their gradual | |
| expansion to cover additional crops, has led to an expectation, | |
| extending almost to a sense of entitlement, that payments at the higher | |
| levels should continue. | |
| The marketing loan program was not created by the FAIR Act, but the | |
| lower prices of recent years, together with the decisions of the | |
| executive branch to maintain loan rates at the maximum levels the 1996 | |
| Act permitted, have made loan deficiency payments a large budget item | |
| and have caused economic distortions. With loan rates set at their | |
| legislated maximum, and the administration of the loan deficiency | |
| payment program generating expected market returns to farmers that | |
| exceed loan rates by 10 to 15 percent, the loan program is overriding | |
| market signals. The market mechanism is thus missing that permitted the | |
| hog prices, for example, to recover without government intervention | |
| after the extraordinarily low prices of 1998 and 1999. The exact amount | |
| by which the loan program is fostering overproduction is difficult to | |
| estimate. Reasonable estimates are those of the Economic Research | |
| Service that indicate 2000 output of grain was perhaps 2 to 3 percent | |
| higher than would have been the case if producers had not received loan | |
| deficiency payments. This means market prices of grains and oilseeds | |
| would have been about 3 percent higher, with a bigger increase for | |
| cotton, if the loan programs were not encouraging overproduction. | |
| Consequently, of the roughly $7 billion annually the loan program is | |
| providing to farmers, $2 billion is being taken back again--actually | |
| given to consumers and others on the grain buying side of the market-- | |
| through lower prices caused by the program.\2\ Such distortion of | |
| markets is a real problem, and loan rates should be reduced to fix it. | |
| --------------------------------------------------------------------------- | |
| \2\ The ERS background for the preceding estimates is in P. | |
| Westcott and M. Price ``Analysis of the U.S. Marketing Loan Program,'' | |
| draft, August 2000; and details of the calculations are spelled out in | |
| B. Gardner, ``Agricultural Policy: Pre- and Post-FAIR Act | |
| Comparisons,'' prepared for a Senate Agriculture Committee staff | |
| briefing, December 2000. | |
| --------------------------------------------------------------------------- | |
| Crop Insurance and Disaster Assistance Programs. Attempts to | |
| forestall the need for ad hoc disaster assistance by having farmers buy | |
| crop insurance are of course not new with the FAIR Act. What is new | |
| since 1996 is unprecedented levels of subsidy for crop insurance and | |
| expansions to cover economic hazards as well. The problem here is that | |
| even though the budgetary costs of crop insurance are in the | |
| neighborhood of $3 billion annually as of the 2001 programs, the | |
| programs still have not attained sufficient coverage to forestall the | |
| need for ad hoc disaster assistance. Moreover, the subsidies for those | |
| who participate are becoming large enough to significantly affect | |
| farmers' production decisions. In particular, there is an incentive | |
| that cannot be ignored to grow crops in more drought-prone and | |
| otherwise less favorably situated areas. | |
| policy options for the situation in 2001 and beyond | |
| What alternatives make sense to consider in formulating the Federal | |
| budget for 2002? One tempting possibility might be to save outlays by | |
| scrapping the freedom to farm approach, and re-introducing acreage set- | |
| asides. The idea would be to drive up commodity prices, thereby | |
| reducing loan deficiency payments. However, acreage idling is a very | |
| wasteful use of our agricultural resources, and I believe the costs of | |
| this option to our economy far exceed the benefits. | |
| Another option for reducing budget outlays from levels of the last | |
| 2 years would be simply to limit AMTA payments to the originally | |
| contracted amounts and not supplement them with market loss payments | |
| for the 2001 crops. Although commodity prices are likely to remain low | |
| this year, the idea that the U.S. farm economy is in a state of | |
| financial crisis that requires such payments is overdrawn. The best | |
| evidence of this is that cropland rental rates and prices continue to | |
| rise. It is true that some farms are in deep financial trouble. The | |
| problem with market loss assistance payments in this respect is that | |
| the vast bulk of them go to farms that are not in financial trouble, | |
| and the sums that do go to farms in financial trouble are generally not | |
| sufficient to restore them to solvency. | |
| With respect to the longer term, the necessity to make changes in | |
| policy is greater because the FAIR Act's AMTA program expires next | |
| year. Possibilities will again be considered of returning to acreage | |
| controls, while maintaining or raising loan rates, and attempting to | |
| generate higher market prices through supply management. What are the | |
| pros and cons of this approach? The pros are that higher market prices | |
| can be obtained and thereby farm income can be supported for a smaller | |
| budget outlay. The cons are that the cost is shifted to consumers and | |
| other buyers of commodities, and that the total costs of consumers and | |
| taxpayers together will be higher to support a given level of farm | |
| income. The total costs will be higher because farmers will have to be | |
| compensated for the costs of holding valuable acreage idle. | |
| My overall estimate is that the overall sum of gains and losses | |
| under current AMTA programs for the grains and cotton is a deadweight | |
| loss of about $200 million per year. But if we tried to achieve the | |
| same level of farm income through acreage controls, the deadweight loss | |
| would be $2 to 3 billion per year.\3\ Moreover, over the longer term | |
| the supply management approach becomes less and less capable of | |
| delivering benefits to farmers. I would express the basic issue as | |
| follows: we can all see that when there is a bad crop year in the | |
| United States, prices rise sharply. Demand is inelastic. There are big | |
| gains for farmers to be had. So it is natural to think that if we can | |
| create such scarcity through policy we will make our farm community | |
| better off. But the problem is that supply and demand responses in the | |
| longer run are larger (``more elastic''). If you keep managing supply | |
| year after year, and all market participants believe the U.S. will take | |
| steps to forestall lengthy periods of low prices, then foreign | |
| producers will discount the prospect of low market prices, produce more | |
| than they otherwise would (as U.S. farmers would if were not for | |
| acreage restrictions), and the main thing the United States will | |
| accomplish is to lose markets. That is the problem. That is the | |
| difficulty we got into in pre-1990 programs, and I believe it is what | |
| we will get into again if we go down the supply management route. | |
| --------------------------------------------------------------------------- | |
| \3\ Details of the analysis leading to this conclusion are in | |
| ``Agricultural Policy: Pre- and Post-FAIR Act Comparisons,'' cited in | |
| the preceding footnote. | |
| --------------------------------------------------------------------------- | |
| In short, while I would not say that the FAIR Act has been a | |
| sterling example of policy at its finest, I do say that it is an | |
| improvement over what we had before, and it would be a serious mistake | |
| to go back to former policies. | |
| The preferable forward-looking approach in my opinion is to | |
| continue with the phase-out of payments that was begun under the FAIR | |
| Act, and to focus Federal spending on policies that have reaped the | |
| greatest rewards for our nation, including food consumers as well as | |
| producers, policies which have helped make the United States the | |
| world's leader in agriculture and food production. These include | |
| continuing efforts in research, technology development, and technical | |
| education. I believe it is important to maintain these efforts, and to | |
| continue to turn these investments toward remedies for market failures, | |
| for example protecting water quality, and to keep supporting | |
| biotechnology development. It is especially important to make progress | |
| on international agreement to reduce protectionism in this and other | |
| areas of agricultural trade. A key practical step in this last area is | |
| congressional granting of fast-track negotiating authority to the | |
| President. These policies can be supplemented with market-oriented | |
| safety net policies having only modest subsidies, and financial | |
| assistance targeted at people in trouble without locking them into | |
| losing farm enterprises--that is, broad-based rural development | |
| policies. | |
| <GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT> | |
| Source: USDA and Skees (cited in text). | |
| <GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT> | |
| Source: USDA and Skees (cited in text). | |
| Chairman Nussle. Thank you, Doctor. | |
| I'm interested in your last couple of comments there. You | |
| would then therefore advocate for or at least be willing to | |
| consider some type of a program of income assurance or | |
| insurance through, as opposed to our current program? | |
| Mr. Gardner. That's something I would want to put on the | |
| table for consideration, yes. I'm not saying I'm advocating | |
| that today. My main point today was just to compare the supply | |
| management with the Freedom to Farm approach. | |
| Chairman Nussle. And we appreciate that. That's what we're | |
| looking for right now, is alternatives. | |
| Let me ask you this. The Farm Bureau has, together with a | |
| number of other commodity organizations, has put a number on | |
| the table of somewhere between $9 billion and, as Mr. Stenholm | |
| reported here, maybe as high as $12 billion over and above what | |
| we're talking about, $9 billion for 2002 and $12 billion | |
| annually thereafter. | |
| Is this advisable, in your opinion, based on your | |
| testimony? I'm getting the impression that it may not be. Let | |
| me start with that. What's your impression of the increased | |
| funding request? | |
| Mr. Gardner. Again, the strategic point I wanted to make is | |
| that you don't want the policies that you put in place to | |
| create any efficiencies, to create overproduction or to have | |
| underproduction. The nice thing about Freedom to Farm payments | |
| is that they don't do that, they just go into the farmer's | |
| pocket pretty much whatever the farmer does. | |
| Now, the question of the $9 billion to $12 billion is, how | |
| much money do you want to devote to this purpose. For me as an | |
| economist, it makes a big difference how you spend that money. | |
| To me, that's the most important issue. The question of how | |
| much to spend is a more political issue. And there, I'm not | |
| running for anything and I don't have a view. | |
| Chairman Nussle. We'll put the number at $9 billion and | |
| what would be your advice on how best we should spend that | |
| money? Let's take their number. What would be your advice on | |
| how we should allocate that? | |
| Mr. Gardner. Well, first, I would say that's a big number, | |
| to me. Even over the kind of numbers that are in red on the | |
| chart. So you could do a lot with that kind of money. With that | |
| kind of money, no matter how you spend it, you're likely to | |
| have some effects on what farmers do, so you want to be careful | |
| about how you do it. | |
| I think a good way is to consider some kind of revenue | |
| insurance or some broader kind of risk management tool. I | |
| wouldn't want actually want to limit it to revenue insurance. I | |
| actually like the ideas that Senator Lugar was putting forth on | |
| the Senate side last year, where you allow farmers a lot of | |
| options with what to do with money that the Government puts up | |
| to support this kind of activity. | |
| I definitely would not want to spend any of this money | |
| raising loan rates. I think that would be the worst way to do | |
| it, because it would just intensify the overproduction problems | |
| that we have. I think that these rural development ideas that I | |
| talked about, which I admit are extremely vague, should be | |
| looked at, but that takes time. And in fact, I would say that | |
| you shouldn't try to put something through this year. | |
| I understand it's very difficult, all these pressures on | |
| how to react to the demands that are put on the Congress for | |
| funds. But I would much rather be careful about this, and if it | |
| came to spending $9 billion this year, I would rather just | |
| spend it the way it was spent in previous years than to | |
| precipitously set up a new kind of program that really hadn't | |
| been tried before. | |
| I guess I'd leave it at that, except, let me say one thing | |
| about the market situation. I agree with all the pessimistic | |
| statements that have been made about prices, where they are now | |
| and that the prospects aren't high that they're going to | |
| improve much this year, although I do think the likelihood is | |
| they'll improve a little this year. | |
| If you look at history and how the farm commodity prices | |
| have behaved in the past, we've had this pattern of long | |
| periods of very low commodity prices, farmers are just barely | |
| getting by, and then something unexpected happens and we have a | |
| boom. We had this in World War II, we had it in the Korean War, | |
| we had it in the 1970's, we had a taste of it in 1995 and 1996. | |
| And none of those cases were predicted. When it happens again | |
| it won't be predicted, either. | |
| So there's always the possibility that something will, as | |
| Mr. Micauber says in Dickens, something will turn up. It has | |
| happened from time to time in the past. So in that respect, | |
| it's worth sometimes waiting to see what's going to happen in | |
| the next year. Because one thing to think of, stocks are not | |
| high right now. It wouldn't take that much of a reversal. The | |
| dollar being less strong, a number of other things happening. | |
| Chairman Nussle. I understand it's complicated. And I'm | |
| certainly not suggesting that the entire Farm bill needs to be | |
| reauthorized by the end of this year, but the commodity portion | |
| of it I think needs serious consideration. I'll tell you the | |
| biggest demand or the biggest deterrent from this, I would | |
| suggest, is not market driven but politically driven, more than | |
| anything else. When Congress wants to move, as you saw us move | |
| the tax legislation last week, we can move pretty fast when we | |
| want to. When we don't have the demand or the deadline or the | |
| political demand, sometimes we can put things off, well, | |
| forever. | |
| So I certainly understand, we don't want to move so | |
| precipitously that we make a mistake. All I would just observe | |
| is that hasn't stopped us before. | |
| Mr. Collins, do you have any questions? Mr. Brown, do you | |
| have anything? | |
| Thank you very much for coming today and giving us your | |
| advice. We appreciate that and look forward to any more words | |
| of wisdom you might have in the future. | |
| Thank you. | |
| If there isn't anything else to come before the committee, | |
| we'll stand adjourned. | |
| [Whereupon, at 3:19 p.m., the committee was adjourned, to | |
| reconvene at the call of the Chair.] | |
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