[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
               FARRM ACCOUNTS: STABILIZING AND IMPROVING
                 THE ECONOMIC CONDITION OF OUR FARMERS

=======================================================================

                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON RURAL ENTERPRISES,
                      BUSINESS OPPORTUNITIES, AND
                    SPECIAL SMALL BUSINESS PROBLEMS

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 27, 1999

                               __________

                            Serial No. 106-9

                               __________

         Printed for the use of the Committee on Small Business



                    U.S. GOVERNMENT PRINTING OFFICE
59-433                      WASHINGTON : 1999



                      COMMITTEE ON SMALL BUSINESS

                  JAMES M. TALENT, Missouri, Chairman
LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
DONALD A. MANZULLO, Illinois             California
ROSCOE G. BARTLETT, Maryland         DANNY K. DAVIS, Illinois
FRANK A. LoBIONDO, New Jersey        CAROLYN McCARTHY, New York
SUE W. KELLY, New York               BILL PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio               RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania           DONNA M. CHRISTIAN-CHRISTENSEN, 
DAVID M. McINTOSH, Indiana               Virgin Islands
RICK HILL, Montana                   ROBERT A. BRADY, Pennsylvania
JOSEPH R. PITTS, Pennsylvania        TOM UDALL, New Mexico
MICHAEL P. FORBES, New York          DENNIS MOORE, Kansas
JOHN E. SWEENEY, New York            STEPHANIE TUBBS JONES, Ohio
PATRICK J. TOOMEY, Pennsylvania      CHARLES A. GONZALEZ, Texas
JIM DeMINT, South Carolina           DAVID D. PHELPS, Illinois
EDWARD PEASE, Indiana                GRACE F. NAPOLITANO, California
JOHN THUNE, South Dakota             BRIAN BAIRD, Washington
MARY BONO, California                JANICE SCHAKOWSKY, Illinois
                     Harry Katrichis, Chief Counsel
                  Michael Day, Minority Staff Director

SUBCOMMITTEE ON RURAL ENTERPRISES, BUSINESS OPPORTUNITIES, AND SPECIAL 
                        SMALL BUSINESS PROBLEMS

                FRANK A. LoBIONDO, New Jersey, Chairman
RICK HILL, Montana                   DONNA M. CHRISTIAN-CHRISTENSEN, 
JIM DeMINT, South Carolina               Virgin Islands
JOHN THUNE, South Dakota             DAVID D. PHELPS, Illinois
JOHN E. SWEENEY, New York            TOM UDALL, New Mexico
                                     BRIAN BAIRD, Washington




                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held: April 27, 1999.....................................     1

                               WITNESSES

Hulshof, Hon. Kenny, a Representative in Congress from the State 
  of Missouri....................................................     4
Nelson, Wayne, President, Communicating for Agriculture, 
  Washington, DC.................................................     9
Bergamo, Jr., Ed, Farmer, Vineland, New Jersey...................    11
Brown, Marlene, Director, Women's Committee, Iowa Farm Bureau 
  Federation, West Des Moines, IA................................    13
Appel, Stephen J., President, Washington State Farm Bureau, 
  Olympia, WA....................................................    14

                                APPENDIX

Opening statements:
    LoBiondo, Hon. Frank.........................................    20
    Sweeney, Hon. John E.........................................    20
    Hill, Hon. Rick..............................................    21
Prepared statements:
    Hulshof, Hon. Kenny..........................................    21
    Nelson, Wayne................................................    22
    Bergamo, Ed, Jr..............................................    24
    Brown, Marlene...............................................    25
    Appel, Stephen...............................................    26
Additional material:
    Statement of the National Cattlemen's Beef Association.......    27


FARRM ACCOUNTS: STABILIZING AND IMPROVING THE ECONOMIC CONDITION OF OUR 
                                FARMERS

                              ----------                              


                        TUESDAY, APRIL 27, 1999

        House of Representatives, Subcommittee on Rural 
            Enterprises, Business Opportunities and Special 
            Small Business Problems, Committee on Small 
            Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 2:00 p.m., in 
room 2360, Rayburn House Office Building, Hon. Frank A. 
LoBiondo (chairman of the subcommittee) presiding.
    Chairman LoBiondo. Welcome, everyone. I will now convene 
the hearing. This is the inaugural hearing of the Rural 
Enterprises Subcommittee, which has been added as a new Small 
Business subcommittee in the 106th Congress. Before I talk 
about the legislation before us, let me answer the obvious 
question: Why is a representative from New Jersey chairing a 
subcommittee dealing with rural issues?
    I represent the Second Congressional District of New 
Jersey, which covers a third of the Nation geographically. 
Southern New Jersey is home to a thriving agricultural 
community. We have many fresh market fruit and vegetable farms, 
nurseries and seed farms. I also grew up on a farm, so I have 
firsthand knowledge of agricultural issues.
    American farmers feed the Nation and they also help feed 
the world. Our farmers also are able to grow crops in a cost 
effective manner. Food is most affordable in the United States. 
We spend a smaller percentage of our income on food than all 
other industrialized nations.
    Our farmers perform a service and our farmers are in 
trouble. Natural disasters, extreme weather, fluctuating 
prices, uncertainties in international markets, and other 
factors have plagued our farmers the last couple of years. Now 
we are faced with farmers across the country who are in serious 
jeopardy. These farmers need assistance and there are several 
avenues the Federal Government can pursue to provide it. One 
step we can take is to pass legislation sponsored by 
Representative Kenny Hulshof and Representative Karen Thurman 
which would establish farm and ranch risk management or FARRM 
accounts. I am proud to be a cosponsor of this legislation 
which has significant bipartisan support in Congress and is 
endorsed by a broad cross-section of small business and 
agricultural groups.
    We need FARRM accounts for many reasons. Weather and 
commodity prices are beyond the control of farmers and 
ranchers, yet they can determine if agricultural producers earn 
a profit and remain in business.
    Saving for unprofitable years is difficult for agriculture 
producers because farm income is needed for operating expenses 
and to purchase supplies for the next production cycle. When 
producers earn a profit, they usually invest in farm assets 
that can't be easily sold to pay expenses during difficult 
financial times.
    Quite simply, FARRM accounts would allow a farmer to put 
away income in a good year for use in a bad year. This will 
allow farmers to stabilize their income and improve their 
economic condition. I want to thank Representative Hulshof and 
Representative Thurman for introducing this important bill. I 
hope this hearing will build some momentum for the legislation 
and we will soon find it on the President's desk.
    Before we hear from Representative Hulshof, I would like to 
yield to my ranking member, Representative Donna Christensen, 
for any comments she might have.
    [Mr. LoBiondo's statement may be found in the appendix.]
    Ms. Christian-Christensen. Thank you, Mr. Chairman. I want 
to welcome everyone this afternoon to the inaugural hearing for 
the Subcommittee on Rural Enterprises, Business Opportunities 
and Special Small Business Problems. I want to in doing so 
thank our Chair, Chairman Talent, and Ranking Member Velazquez 
for adding this subcommittee to oversee the concerns of rural 
agriculture and small businesses that are often overlooked by 
committees.
    The farmers and farming are indeed the backbone of our 
Nation and an integral part of the lives of each and every 
American family. The survival of this vital industry must be a 
priority with legislators as our farmers feed not only our 
country but the wider world as well.
    With its provisions to allow farmers to set aside up to 20 
percent of their taxable income and place it in a tax free 
interest bearing FARRM account, I believe that the farm and 
risk management bill can be an important tool in allowing our 
farmers a creative way of saving resources in good times and 
utilizing them in bad. Since money in the accounts can be 
withdrawn in lean years to smooth out peaks and valleys in farm 
income, it could well be the life preserver that many utilize 
in critical times.
    The U.S. Virgin Islands, the district which I represent, 
has a small but vital farming community that can benefit from 
this legislation, and so I want to join my chairman in 
welcoming you and I look forward to hearing the testimony from 
our colleague, Mr. Hulshof, and those representing the farm 
community this afternoon.
    Thank you, Mr. Chairman.
    Chairman LoBiondo. Thank you. We will--do any of the other 
Members wish to make any opening statements? Congressman 
DeMint.
    Mr. Demint. Thank you, Mr. Chairman. Let me express my 
thanks for holding this hearing on this important subject, and 
I am disappointed that I will not be able to stay for the 
entire hearing, but would like to thank the witnesses for 
agreeing to testify here today, especially my colleague, Mr. 
Hulshof, from Missouri.
    America's farmers and ranchers embody the entrepreneurial 
spirit of our country in exercising good stewardship of the 
land and in taking advantage of the latest innovations. They 
have not only fed their families and our country, but a great 
part of the world. As some of you may know, South Carolina 
grows more peaches than any State in the Union except 
California. Spartanburg County, which is in my district, is the 
second highest producer of peaches in the State. South Carolina 
is the fifth highest producer of watermelons in the United 
States. While farmers and ranchers can prepare for some things, 
an unexpected hurricane or early cold spell can severely damage 
crops or kill off livestock. This is especially hard for family 
farms to handle.
    I support steps that would make it easier for small 
businessmen, including farmers, to save money in good years. 
This money could be used to level out the unexpected 
difficulties of bad years. The FARRM Act is a good step in this 
process. I believe this legislation could provide a useful 
framework to look at ways to address other problems that are 
unique to small businesses. Again, thank you, Mr. Chairman.
    Chairman LoBiondo. Congressman Thune?
    Mr. Thune. Thank you, Mr. Chairman. Let me just echo what 
my colleagues said and credit my colleague from Missouri Mr. 
Hulshof for this legislation. Sometimes I wish we could grow 
peaches in our part of the world, but we grow wheat, soybeans 
and corn, and it has been increasingly difficult in the last 
few years for our producers because of the volatility of 
prices, which has also led to an incredible amount of 
volatility in their income. They need any and every tool 
available that will allow them to help manage that risk, that 
will allow them to help even out the income stream that comes 
from what can be a very erratic business.
    I have been a supporter and cosponsor of this legislation 
for some time and hope that we will advance it through the 
process this Congress and give our producers yet another tool 
that hopefully will enable them to better manage the income 
stream that comes from their agricultural production, avoid 
excessive tax bills in 1 year, and better deal with the erratic 
nature of the income stream that comes from being in 
agriculture.
    I think this is an important bill, and I appreciate the 
opportunity to hear what our expert witnesses have to say and 
look forward to the testimony. Thank you, Mr. Chairman.
    Chairman LoBiondo. Thank you, Congressman Thune.
    If there are no more opening statements, without objection 
any Member who wishes to submit a statement, it will be entered 
into the record in its entirety. So keep that in mind.
    We will move now to our first witness, and that is 
Representative Kenny Hulshof. Kenny represents the State of 
Missouri and is the sponsor of this legislation, was the 
sponsor of the legislation in the last session of Congress in 
the 105th. He has spent a lot of time and work putting this 
together. We are anxious to hear from you, and welcome.

   STATEMENT OF THE HON. KENNY HULSHOF, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MISSOURI

    Mr. Hulshof. Thank you, Chairman LoBiondo and Ranking 
Member Christensen. I was not aware that this was the inaugural 
hearing, and as the initial witness for the inaugural hearing, 
I feel especially honored to be here today. Mr. Chairman, if 
you would allow me to introduce my written statement as part of 
the record and then deviate from it if I could.
    Chairman LoBiondo. Without objection.
    Mr. Hulshof. Just to echo some of the comments already 
made, I think we take for granted, Americans take for granted, 
unfortunately, our ability to walk into a grocery store or a 
supermarket and pull off the shelves essentially any product 
that we want. And that of course is largely responsible to our 
country's farmers to have that luxury, and it is some of the 
cheapest and safest food on the face of the Earth. Again our 
agriculturalists deserve that credit. Yet as you pointed out in 
your opening statement, farming is unique in that the ability 
to make a profit depends on things completely out of the 
control of the farmers. It could be bad weather, decisions that 
we make in Washington.
    One of the first political lessons, Mr. Chairman, that I 
learned on our family's farm in southeast Missouri was when the 
grain embargo was imposed back in the late seventies. I didn't 
realize what impact that was going to have on our family farm. 
We almost lost our family farm because of a decision made by a 
policy maker in Washington, and that is a political lesson that 
I have kept with me as we address this farm crisis.
    Let there be no mistake, we are in a farm crisis in this 
country. I know the gentleman from South Dakota has spoken many 
times on the floor about this issue and the ways to try to 
address the problem. I happen to think that the farmers and 
ranchers management bill, the FARRM account, that Karen Thurman 
and I worked hard to push and sponsor is maybe a silver lining 
to the dark cloud that is hovering over American agriculture 
right now.
    The idea is a simple one. That is in a good year, give a 
risk management tool to farmers and ranchers to prepare for the 
inevitable lean years. It is not the government making the 
decision. This is not talking about set-asides or loan caps, it 
is providing that management tool in the quiver of the local 
farmer to make that decision for himself or herself.
    In Missouri, we have had a couple of good years up until 
recent times, and had this legislation been in play a couple of 
years ago maybe farmers who are lamenting the fact that they 
are going to be faced with maybe selling their family farm 
operations, maybe this would have provided for them a 
management tool to avoid that tough decision that they have 
facing them.
    It is not often, Mr. Chairman, that so many segments of 
agriculture are on board a particular piece of legislation. Not 
only do we have 131 cosponsors as of today, and we welcome 
those of you not on the bill to get on the bill, but when you 
start looking at the commodity groups that are also in support, 
traditionally it is corn, wheat, soybeans, grain sorghum and 
livestock. But the reason that Ms. Thurman, I welcome her 
support on this, typically what is known as nontraditional 
agriculture, and, Mr. DeMint, you mentioned peaches, here are 
just a couple of the commodity groups that are completely 
supportive of the FARRM account, cotton, the sheep industry, 
sugar beet growers, the Nursery and Landscape Association, 
obviously wheat, beef and corn, grain sorghum, milk producers, 
pork producers, Sunflower Association, peanut growers, American 
florists, rice, canola and eggs. This is again a representative 
sample of those commodity groups which are in support of our 
legislation.
    I thank you for the opportunity to talk about the 
legislation. I would be happy to answer any specific questions 
about technical aspects of the bill if you would like to put 
those to me. But for those witnesses who are coming behind me, 
the true producers of American agriculture are the ones that I 
think have been the strongest in telling the story.
    When we first unveiled this legislation, Ms. Thurman and I 
had a press event, to hear the farmers themselves say if this 
legislation had been in effect a couple of years ago, they 
would not be in the straits that they find themselves now. I 
think that is the most compelling testimony of all.
    Let me yield to you for your questions. Thank you for 
allowing me to talk about the bill and having a hearing on this 
legislation.
    [Mr. Hulshof's statement may be found in the appendix.]
    Chairman LoBiondo. Thank you. I just have a few questions 
before I go to the Members. Are there any restrictions of what 
the farmer could spend the FARRM account income on?
    Mr. Hulshof. No. The FARRM account would establish much 
like a trust account. Some have described it like an IRA, like 
an individual retirement account. It is more like a trust 
account. The limit is that in any given year a farmer or 
rancher, an individual farmer or rancher, I know in some 
districts like mine when we talk about corporate agriculture, 
that furrowed brows come about, we are talking about individual 
farmers and ranchers being able to put up to 20 percent of 
their income in any given year into this FARRM account.
    That money could accumulate up to 5 years, but in the sixth 
year it would have to be taken out of the account. This just 
goes back to being raised on a farm in southeast Missouri, to 
have 5 good years in a row, that does not happen very often in 
agriculture, but in the sixth year the money would have to come 
out. And of course it would be taxed at that time. It is tax 
deferral. You would get to take that 20 percent that you put in 
as a deduction. Without charts and graphs, if you had in a 
really good year, let us say you had $50,000 of income in a 
good year, you could take up to 20 percent, that is $10,000, 
put that into a FARRM account and take that as a deduction and 
now you are paying taxes on $40,000 not $50,000, so you are 
able to put aside this money, as Mrs. Christensen mentioned.
    You mentioned life preserver. I might use that in my next 
speech. It is sort of preparing a rainy day fund. So there is 
really no--I mean, you get to bring that money out for whatever 
purpose that you want, and when it comes out of the account, 
Mr. Chairman, it then becomes taxable.
    Chairman LoBiondo. Just a couple of other quick questions, 
have you had any questions with the chairman of Ways and Means 
about how they might consider this?
    Mr. Hulshof. I have had several conversations with the 
chairman of the Ways and Means Committee, Mr. Chairman. And 
again we were hopeful that the bill would have made it into 
last year's disaster assistance package, and it came very 
close. I think we have more cosponsors now on today's date than 
we had in the entire session of Congress last time, so we are 
building on our efforts from last time. I really haven't gotten 
from the chairman any positive or negative response. The 
chairman of the Ways and Means Committee keeps his cards close 
to the vest and does not like to say what is going to be in the 
tax bill. The budget bill that we passed, I expect that there 
will be some sort of tax bill that comes out of the Ways and 
Means Committee by mid-July. And so we are hopeful if we get 
enough Members to cosponsor our legislation, that it would be 
inevitable that the chairman would have to include it in the 
tax bill.
    Chairman LoBiondo. Is it too early for you to have received 
any indication from the administration of how the White House 
might feel about this?
    Mr. Hulshof. We have not heard from the White House. And if 
you have any special connections to the administration, we 
welcome that as well.
    Chairman LoBiondo. Do other Members have questions? Yes.
    Ms. Christian-Christensen. Thank you for your testimony and 
for sponsoring the bill.
    I have a question on the role of interest. Withdrawals are 
on a first in, first out basis, as I understand it. For 
example, if a farmer had $50,000 in income during years 1 and 2 
of a 5-year spell, depositing $10,000 in each of those years, 
in year 3 his income would be say $35,000 and he withdraws 
$10,000 in that third year to supplement it, years 4 and 5 if 
his income was say $45,000, he withdraws $5,000 in each of 
years 4 and 5, what I am wondering is what about interest and 
how is it counted? If there is interest, does he first withdraw 
the interest attributable to year 1's deposit and only after 
that start withdrawing principal from year 2's deposit? What is 
the role of interest?
    Mr. Hulshof. The role of interest is obviously at some 
point the interest that is attributable to the contribution in 
that year. If in fact it were taken out, it too, the interest 
on the amount you put in in the first year would have to come 
out on the first in, first out basis, and it would be taxed as 
ordinary income.
    The strength of this provision is that it is a risk 
management tool for the individual producer. Again at some 
point you are going to have to pay tax. The idea was that we 
didn't want to have a scheme or a bill set up that could be 
used to avoid tax completely. So if you are able to make those 
types of contributions, and if there were interest as a result, 
then it would also be taxed as ordinary income at the time it 
was being taken as a distribution.
    Ms. Christian-Christensen. Thank you. I don't have any 
other questions right now.
    Chairman LoBiondo. Congressman Thune.
    Mr. Thune. I know last year, Kenny, you had this scored. 
Have you got it scored this year?
    Mr. Hulshof. Essentially the score is the same. In the 5-
year window it would be a loss of revenue, and again I use that 
as a term of art that joint taxes uses, $500 million over 5 
years, $900 million over 10 years.
    So again, I think that it is something that is doable. 
Again the numbers are favorable. I think the numbers are 
favorable because again we are talking about tax deferral 
rather than tax avoidance. But $500 million over 5, $900 
million over 10.
    Mr. Thune. That is an important point because it is tax 
avoidance in the 5-year window. However, someday those taxes 
are going to be paid unless a producer passes away, and then 
the government gets it through the death tax.
    It really is a tool, and it is a savings plan, too. Given 
the irregularities of farm income, in good years, if there was 
an incentive for farmers and ranchers to put money aside for 
the down years, I think they would, particularly if they can 
avoid the enormous tax liability that they get in a good year.
    Mr. Hulshof. If I can expand on your point, Mr. Chairman, 
if you were to be asked by those who oppose the legislation, 
gee, we have done a lot for American agriculture in the last 
bill----
    Chairman LoBiondo. Does anyone dare oppose this?
    Mr. Hulshof. I hope not. But what I would say and, Mr. 
Thune, building on your point, we have done some things for 
American agriculture like the net operating loss carryback. We 
changed the rules. We enacted permanent income averaging, but 
income averaging is only good in an up year, and that is when 
you have excess income you can take that excess income and 
spread it out and average it over the preceding couple of years 
to find yourself at least with a more steady income stream, and 
that is useful as well as far as risk management, but that is 
only available to farmers in a good year and there is nothing 
for farmers in a bad year. We have seen situations where we 
have conversations with agricultural economists, maybe income 
averaging in conjunction with FARRM accounts where you could 
spread some out over the preceding years for income averaging 
and put aside some money into a FARRM account to prepare for 
the down years.
    So we see the FARRM account legislation really as a 
complement to income averaging because again income averaging 
is good only in a good year. There is no management tool 
available to help manage risk in a down year. That is why we 
think that this legislation, its time has come.
    Mr. Thune. I think it does make a lot of sense. It is a 
nice complement to a lot of things that we have done 
previously. Clearly there is a need, I think, to give our 
producers and the cyclical nature of the business itself as 
many tools as we possibly can. And I think again the added 
advantage, when times are good there is a tendency to not put 
aside for the rainy day, and I think the savings plan component 
and the incentive that it provides is a very useful and helpful 
tool, and one for which I hope we can get a majority support in 
the Congress. And hopefully we can get your committee to move 
on this and get it through Congress this session.
    Thank you.
    Chairman LoBiondo. Congressman Baird, do you have any 
questions?
    Mr. Baird. No.
    Chairman LoBiondo. Congressman Sweeney.
    Mr. Sweeney. Thank you, Mr. Chairman. I apologize for being 
a little late. I was actually doing a dairy press conference. I 
have submitted a statement for the record.
    [Mr. Sweeney's statement may be found in the appendix.]
    Kenny, I just--I want to say that I think this committee 
needs to send a strong message in support of your legislation, 
and just this morning I was at a dairy farm in my district and 
had an interesting question from one of my dairy farmers and I 
would like you to answer as best you can.
    Given the volatility in dairy pricing and what is less than 
a perfect response by the Federal Government in terms of 
stabilizing that market, does this bill not provide family 
farmers, dairy farmers the opportunity to be more self-
sustaining, and why can't they do this for themselves?
    Mr. Hulshof. Both good questions. Absolutely this provides 
the ability for the producers themselves--I wasn't here, and 
some of you were here, back when the Freedom to Farm was 
initially passed, the last farm bill when it came to the 
Agriculture Committee. As we talk about phasing out or phasing 
down government subsidies and getting agriculture to make their 
own decisions, whether my father wants to plant fence row to 
fence row, that should be his decision. The corresponding 
promise was that we would aggressively market our agriculture 
products, and unfortunately we have maybe not seen that and we 
have used agriculture products and sanctions, and there is also 
discussion about sanctions reform as well, but I think we have 
a duty in Congress to provide those management tools for 
agriculturalists to prepare. The other question, Mr. Sweeney, 
you asked is--and even actually, Mr. Chairman, the editor of my 
hometown paper has shown some opposition, what is so different 
about agriculture? We would not do this for a shoe manufacturer 
or a textile plant.
    And I think the answer is that agriculture is a unique type 
of livelihood because so many things are completely out of your 
control where you have commodity markets that you have no 
input. You have political decisions, you have weather. So many 
things that are completely out of your control that this is the 
type of management tool that we really do need. Otherwise we 
will see, as we did last year, where Congress has to come back 
and provide a supplemental appropriation of disaster 
assistance. It would be great if we were in a situation where 
we would not have to do that, have acts of Congress because we 
have allowed farmers and ranchers to provide these management 
tools for themselves.
    Mr. Sweeney. And the answer my farmer gave to me, last year 
we lost money, we had a tornado that hit us, the Federal 
supplement has not arrived yet. We are on very tight margins, 
and this year with a 40 percent drop in prices in March alone, 
I am looking at a loss of $15,000 so far. How can I possibly 
save money?
    I thank you, Congressman and Mr. Chairman.
    Chairman LoBiondo. Any further questions of Congressman 
Hulshof? Kenny, thank you very much.
    Mr. Hulshof. Mr. Chairman, thank you very much.
    Chairman LoBiondo. I am going to ask the second panel to 
get ready, but before we do that, we have Congressman Baird, 
who will not be able to stay with us the entire time, and you 
would like to introduce a guest?
    Mr. Baird. Thank you. It is a real pleasure as the 
representative from southwest Washington State to introduce one 
of our friends and a person who can speak with great ability on 
the importance of this particular bill. Like the folks who 
commented earlier, I want to commend the sponsors of this 
legislation but, most importantly, I want to introduce Steve 
Appel.
    When we talk about farm challenges, here is a gentleman who 
is a third generation farmer. He is from the small town of 
Dusty, Washington. I think we have two great names, a gentleman 
Appel from Washington State from a farm town named Dusty. You 
can't get better than that, but you actually can because as a 
wheat and barley grower, Mr. Appel has been active in the Farm 
Bureau since 1974, so he speaks with great authority on having 
seen Federal proposals come and go, sometimes to the detriment 
and hopefully sometimes to the benefit of farmers.
    He sits on the board of directors of both the American Farm 
Bureau and the Farm Bureau National Bank, and he has been a 
strong advocate for exports of American agricultural products. 
Having myself grown up in a farming community, it is a pleasure 
to welcome Mr. Appel for his testimony, and I want to thank him 
for his service to farmers across the country and in our State 
of Washington.
    Chairman LoBiondo. Thank you, Mr. Baird.
    I now ask the second panel, Wayne Nelson, who is the 
President for Communicating for Agriculture, to come up to the 
witness table; and Ed Bergamo from Vineland, New Jersey, my 
hometown, a farmer in Vineland, New Jersey; Marlene Brown, from 
the Iowa Farm Bureau Federation; and Stephen Appel, from Dusty, 
Washington.
    Mr. Thune. Mr. Chairman.
    Chairman LoBiondo. Yes.
    Mr. Thune. It says here that Wayne Nelson comes from 
Washington, D.C. I happen to know better than that. He comes 
from Winner, South Dakota, which is very near my home area. 
When he speaks, his perspective is one which I am sure is with 
a great deal of authority on the subject and we would not want 
to confuse anybody to think that he is from Washington, D.C.
    Chairman LoBiondo. We will make sure that the record 
reflects that correction, Congressman Thune.
    Welcome to our second panel and to start off, I would like 
to ask Wayne Nelson to go ahead. Thank you for joining us.

    STATEMENT OF WAYNE NELSON, PRESIDENT, COMMUNICATING FOR 
                  AGRICULTURE, WASHINGTON, DC

    Mr. Nelson. Thank you, Mr. Chairman and members of the 
committee. I thank you for the opportunity to testify today on 
behalf of the members of Communicating for Agriculture in 
support of H.R. 957, the Farm and Ranch Risk Management 
Accounts legislation. I commend you for holding this hearing on 
the legislation, and especially Congressmen Hulshof and Thurman 
for introducing the legislation.
    My name is Wayne Nelson and I am President of Communicating 
for Agriculture. CA is a 26-year-old national nonprofit rural 
organization made up of farmers, ranchers, and rural small 
business people in all 50 States. I am also a grain farmer from 
Winner, South Dakota and I can tell you firsthand about the 
difficulties that farmers face in fighting the roller coaster 
ride that the agricultural economy has become. I need not tell 
you how serious the problems are facing the American 
agriculture economy right now. Virtually every commodity has 
suffered severe price declines and farmers throughout the 
country are losing money. In January of this year Communicating 
for Agriculture launched what we call our campaign for family 
agriculture. Its goals are to establish a stronger farm safety 
net, to restore competitive livestock markets, and to provide 
new financial management tools producers can use to strengthen 
their economic security. CA has several recommendations for 
Congress, such as strengthening crop revenue insurance, 
mandatory livestock price reporting, strengthening antitrust 
oversight, export development and even a unique new proposal we 
have developed called the price enhancement program that is 
beginning to generate some interest.
    But from the very beginning, our campaign has had its 
utmost goal of passing the Farm and Ranch Risk Management 
Accounts. It is fundamentally good tax policy as well as 
providing an incentive for farmers to save in good years for 
use in bad. In fact, Communicating for Agriculture has been 
very supportive of this concept for a number of years. Nine 
years ago we introduced a similar concept for tax deferred 
savings accounts with some key policymakers in Washington, D.C.
    In a nutshell, FARRM accounts would be a self-help tool 
that would help farmers and ranchers to set aside tax deferred 
income in good years and draw the money back out later, perhaps 
in years of lower income when it would be taxable.
    FARRM accounts are a prime example of countercyclical 
policy, and that is exactly the kind of public policy for 
agricultural support that many leading economists are saying 
that we need. While FARRM accounts themselves cannot replace 
the need for an agricultural price safety net, nor can they 
replace the need for a workable crop insurance program, they 
would be a management tool that farmers would welcome and would 
use.
    Some skeptics may be critical of FARRM accounts because of 
their perceived cost at a time when Congress is facing budget 
pressures for other necessary farm income supports and because 
in a year like this when prices are so low, very few farmers 
will be able to start a FARRM account this year.
    We urge you to look a little bit deeper. Number one, if 
indeed few farmers will have profitable years in 1999 and not 
be able to invest in a FARRM account this year, that also means 
that there will be correspondingly little cost in the 
government in any delayed tax revenue.
    Number two, there is no better time to pass FARRM accounts 
than now, except if Congress would have passed it 4 years ago 
when the concept was first introduced. Imagine if FARRM 
accounts would have been in place in 1996 and 1997 when grain 
prices were relatively high. My farm in South Dakota, in 
western South Dakota, last year I sold wheat for $1.89 a 
bushel, and in 1997 I sold wheat for $4.50 a bushel. So you can 
see the great differences we have from year to year in our 
prices.
    Think of what has happened with pork producers and pork 
prices in the year between 1997 and 1998 and how FARRM accounts 
could have helped.
    Income averaging was made permanent last year, which helps 
a great deal, but it is only for 2 years. FARRM would 
complement income averaging by helping farmers and ranchers to 
even out the peaks and valleys of farm income for up to 5 
years. We hope the roller coaster will start to rise again 
before too long, but the facts are the top agricultural 
economists are saying under current conditions, American 
agriculture is likely to continue to see these big swings in 
income and prices. It is dependent upon unstable, yet 
competitive world markets, susceptible to harm from currency 
fluctuations, and of course the impact of adverse weather. It 
is far less protected under the current farm policies than 
previously.
    There are few, if any, sectors of the economy that operate 
in the kind of volatile conditions as agriculture. FARRM 
accounts would give producers one tool that would help them 
weather these economic storms a bit better. Communicating for 
Agriculture has a slogan. We say, ``CA works to advance good 
ideas for rural America.'' We think FARRM accounts is a good 
idea, and we urge you to pass it. Thank you very much.
    [Mr. Nelson's statement may be found in the appendix.]
    Chairman LoBiondo. Thank you, Wayne, for your testimony. 
What we will do is go through the opening statements and 
testimony from each of the panelists and then we will go into 
questions. Second is Ed Bergamo. Ed is a fourth generation 
farmer, who is a good friend over a lot of years and actually a 
neighbor, too. Ed, thank you for joining us today. And like 
many of our other active farmers, he has taken time out from 
one of the busiest times of the year to be with us.

   STATEMENT OF ED BERGAMO, JR., FARMER, VINELAND, NEW JERSEY

    Mr. Bergamo. Thank you, Mr. Chairman. I would like to say 
good afternoon to the other members of the committee.
    My name is Ed Bergamo, as Congressman LoBiondo said. I come 
from South Jersey, and I have been a farmer my entire life.
    I want to thank my Congressman, Frank LoBiondo, for giving 
me the opportunity to speak to you today. Congressman LoBiondo 
has been a good friend of farmers in southern New Jersey. I am 
a fourth generation farmer operating a 120-acre vegetable farm 
with my younger brother Paul as well as my father, Ed. We grow 
a variety of herbs and vegetables which we sell at our local 
produce auction. Our operation is obviously small, especially 
compared to the larger operations in other parts of the 
country, but we have a higher profit per acre ratio than, for 
instance, a 1,000 acre wheat farm.
    Like all farmers, my livelihood depends on many factors, 
weather, market fluctuations, international competition, 
distribution and supply costs, as well as many other 
circumstances. Every year is a challenge, and every year is 
different than the previous year. To run a successful small 
farm, you need to be a good grower but you also have to possess 
financial management skills. Every year I run the risk of being 
in a different tax bracket. In good years I am thrust into the 
upper brackets, essentially paying a penalty for my success. In 
bad years, I find myself in lower brackets. As a specialty 
grower, I am not eligible for many of the subsidies that are 
available to program crop producers through the U.S. Department 
of Agriculture. If I have a bad year, it is up to me to figure 
out how to pay the bills and plan for next year's crop.
    Having a mechanism like a FARRM account that would allow me 
to save some of my income for use in more difficult times would 
be extremely beneficial. It would provide an incentive to save 
for a rainy day, and it would allow me to avoid the higher tax 
penalty when I have had a successful year. Managing a 
successful farm is a delicate balancing act. You have to strike 
a balance between many uncontrollable factors such as weather 
and price fluctuations. FARRM accounts would provide a 
stabilizing force in farming. Rather than proceeding on a boom 
or bust situation, FARRM accounts allow farmers to spread out 
the success from good years to years that are not so 
successful.
    This principle will inevitably keep more farmers in 
business. I have known many farmers in our area that were 
forced into severe debt by a bad year. Eventually, they have 
had to liquidate their farms just to pay their creditors. FARRM 
accounts can lessen that phenomenon by allowing good fortunes 
to offset difficult seasons. It also reduces the tax crunch 
that inevitably results after a good year.
    I understand the reality of a graduated income tax, but for 
farmers with fluctuating income, our tax system almost provides 
a disincentive for success. The better you do, the more you are 
taxed.
    One suggestion I would make in regards to the 
implementation of the bill is to make it as flexible in regards 
to income eligible as possible. Because farm incomes vary so 
greatly from year to year, tight income restrictions could 
severely limit the number of farmers who could take advantage 
of the legislation. I understand the sponsors of the bill used 
a wide definition of agriculture for determining eligibility 
for FARRM accounts. That is encouraging. Often, specialty 
growers like myself do not qualify for traditional agricultural 
assistance provided by the USDA. A broad definition of farming 
will enable more small and specialty farmers to take advantage 
of FARRM accounts. Farmers in southern New Jersey and across 
the country are experiencing extremely difficult times. FARRM 
accounts would provide much needed relief to farmers who are 
struggling to get by.
    I want to thank Representative Kenny Hulshof and 
Representative Karen Thurman for sponsoring the FARRM account 
legislation, and I want to thank Congressman LoBiondo for 
allowing me to testify today.
    [Mr. Bergamo's statement may be found in the appendix.]
    Chairman LoBiondo. Thank you, Ed. The next panelist is 
Marlene Brown, a member of the Women's Committee of the Iowa 
Farm Bureau Federation.

 STATEMENT OF MARLENE BROWN, DIRECTOR, WOMEN'S COMMITTEE, IOWA 
          FARM BUREAU FEDERATION, WEST DES MOINES, IA

    Ms. Brown. Thank you, Mr. Chairman. My name is Marlene 
Brown. I along with my son Scott operate a 240-acre farm. We 
raise corn and soybeans. We also have a small cow/calf herd, 
and in the past we have raised hogs and we have had a dairy 
herd.
    I am here today representing the Iowa Farm Bureau 
Federation. IFBF is a general farm organization of about 
160,000 member families who produce every commodity that is 
commercially marketed in our state. Farm Bureau commends the 
Small Business Committee and the Subcommittee on Rural 
Enterprises for calling this hearing to focus attention on the 
importance of saving and investment incentives for farmers. 
This is my first opportunity to testify before a congressional 
committee, and I am pleased to be here to speak today on behalf 
of the Farm and Ranch Risk Management Accounts and their 
potential benefits to farmers.
    Farm Bureau supports the creation of the FARRM accounts to 
help farmers and ranchers manage risk through savings. Using 
the FARRM accounts, agricultural producers would be encouraged 
to save money in good economic years and to use those savings 
in the ultimate lean economic years which we experience.
    Like other small business persons, farmers and ranchers 
have predictable expenses. Each month we must pay for fuel, 
animal feed, equipment repairs, building maintenance, 
insurance, utilities, and meet a payroll. We must plan for 
seasonal expenses like taxes, seed, heat and fertilizer, and we 
also budget for major purchases like equipment, land and 
buildings.
    While many expenses can be predicted and to some degree 
controlled, farm income is neither predictable nor 
controllable. The prices we farmers and ranchers receive for 
our commodities are determined by forces over which we have no 
control: the markets and the weather. Farmers and ranchers do 
not know from one year to the next if our business will earn a 
profit, break even or operate in the red. Few other industries 
must face such a challenge year after year after year. What all 
farmers hope for is that the good years will outnumber the bad 
ones.
    Believing that better times are coming, farmers and 
ranchers get through tough times by spending their retirement 
savings, borrowing money, refinancing debt, putting off capital 
improvements and lowering their standard of living. All of 
these activities damage the financial health of a farm or ranch 
and the well-being of the family operating the business.
    The 1996 farm bill phased out government price and income 
supports to farmers through the year 2002. Farmers and ranchers 
supported this phaseout because of the promise of expanding 
market opportunities and the assurances by Congress that new 
ways would be found to help farmers and ranchers manage their 
financial risks.
    Many growers of perishable commodities, along with the 
producers of livestock, poultry and other nonprogram crops, 
have never had the benefits of a farm program safety net. We 
rely on our management skills, marketing ability and a little 
luck with the weather to make our businesses turn a profit. We 
are always looking for new and innovative risk management tools 
to help us manage our businesses successfully.
    FARRM accounts are simple and that is why they sound so 
appealing to farmers. Under H.R. 957, the Farm and Ranch Risk 
Management Act, eligible producers could choose to defer taxes 
on up to 20 percent of their income for up to 5 years. Farmers 
would decide when to save rather than to spend and when to 
withdraw and pay taxes on that money. I know that we would use 
a FARRM account as a risk management tool on our farm when our 
income allows us to do so.
    Farm Bureau asks each of you for your support on the FARRM 
accounts. We urge Congress to pass them into law as soon as 
possible. Their creation will give farmers and ranchers a 
meaningful incentive to save for a rainy day and provide a very 
valuable tool for managing financial risk.
    I thank you for being here today.
    [Ms. Brown's statement may be found in the appendix.]
    Chairman LoBiondo. Thank you, Marlene, for your statement. 
The last panelist will be Stephen Appel.

STATEMENT OF STEPHEN J. APPEL, PRESIDENT, WASHINGTON STATE FARM 
                  BUREAU, OLYMPIA, WASHINGTON

    Mr. Appel. Thank you, Mr. Chairman. My name is Steve Appel. 
I come to today's hearing from Dusty, Washington, where my 
neighbors know me as a third generation family farmer who 
raises wheat and barley. And I would like to thank Congressman 
Baird for the glowing introduction. I even impressed myself.
    I do want to set a couple of things straight. My name is 
Appel. I raise no apples. I raise wheat. And Dusty is a well 
named town. I invite you all to come there sometime during the 
summer, and you will know why it is called Dusty, Washington. 
One other thing, I and my fellow citizens from Washington State 
like to refer to that as the real Washington.
    Thank you for inviting me to speak at today's Small 
Business Rural Enterprises Subcommittee hearing. My statement 
is made on behalf of 4.8 million member families of the 
American Farm Bureau Federation. I sit on AFBF's board of 
directors, a distinction made possible because of my post as 
president of the Washington State Farm Bureau. It is especially 
fitting that the Small Business Committee is now focusing on 
agriculture because these are especially hard times for many 
farmers and ranchers.
    Last year, in some parts of the country, extreme weather or 
disease destroyed the fall's harvest or made feed scarce for 
livestock. Others were blessed with good crops last year, but 
faced low prices because of troubled markets overseas. And now 
agricultural forecasters are predicting that 1999 will be just 
as difficult a year for farmers as was last year.
    Farm Bureau is most appreciative of the legislation passed 
by Congress last year to provide immediate relief to farmers 
and ranchers. However, if similar emergencies are to be 
minimized in the future, farmers and ranchers must have new and 
innovative ways to deal with uncertain incomes caused by 
weather and markets. Congress must act to give producers the 
risk management tools they need to manage their financial 
jeopardy. Farm and risk management accounts, FARRM accounts, 
are exactly that kind of risk management tool. Using these 
accounts, producers will be encouraged to save up to 20 percent 
of their net farm income in the higher income years by 
deferring the taxes on that income until the funds are 
withdrawn. The program is targeted at real farmers, contains 
guarantees that the funds will not be at risk, and prevents 
abuse by limiting how long savings could be held in an account 
to 5 years time.
    I can't help thinking how different things would have been 
if FARRM accounts had been put on the books 5 years ago and 
farmers like myself could have had farm savings to use in this 
last year. Legislation to create FARRM accounts, H.R. 957, has 
been introduced by Representatives Kenny Hulshof and Karen 
Thurman. These are two smart representatives because when they 
have written their bill, so producers of all commodities from 
all size operations who come from all parts of the country can 
take advantage of FARRM accounts. That is the reason over 30 
agricultural organizations and more than 125 representatives 
support the bill. A list of those agricultural groups who join 
Farm Bureau in supporting the FARRM accounts is attached.
    We know that members of the Small Business Committee 
understand the need for FARRM accounts, but I must tell you 
that many of my fellow farmers wonder why it is taking Congress 
so long to get them passed into law. When agriculture agreed to 
support the phase out of farm programs in 1996, it was with the 
full expectation that Congress would make good on the promises 
that it made to reduce regulations, expand markets, and provide 
risk management tools. Frankly, we are still indicating waiting 
for some of the freedoms that were to come with Freedom to 
Farm.
    I have been told that the passage of H.R. 957 would cost up 
to $500 million in 5 years and up to $900 million in 10 years. 
But rather than talking about the cost, I think we should be 
talking about the benefits of the legislation. Would it not be 
better to say that FARRM accounts will provide an important 
safety net for farmers and ranchers worth just short of a 
billion dollars?
    My position as president of the Washington State Farm 
Bureau gives me responsibility for the grass roots process that 
our organization uses to develop policy positions. I listen to 
hours of debate on farm policy in Washington State, and I can't 
think of another idea that has more enthusiastic support than 
the Farm and Ranch Risk Management Accounts program. Farmers 
like the idea that the government wants to make it easier for 
them to save for a rainy day.
    I ask each and every member of the Small Business Committee 
to get behind FARRM accounts, please. Cosponsor H.R. 957 if you 
haven't already. Speak to your fellow representatives about the 
wisdom of doing something to improve the farm economy long 
term. The future of production agriculture is dependent on new 
and innovative tools like FARRM accounts, to help us as farmers 
manage our financial risks.
    Thank you.
    [Mr. Appel's statement may be found in the appendix.]
    Chairman LoBiondo. Thank you, Steve, very much. We will now 
go to questions.
    I want to start off, I have a question that really could 
apply to each one of the panelists if you want to take a shot 
at it. Why do you think farmers would utilize, if this 
legislation were passed, FARRM account as opposed to if they 
had the money in a particular year investing in machinery or 
spending it in some other way on the farm? Wayne, do you want 
to start off?
    Mr. Nelson. Sure. Farmers got in the habit, I guess, in the 
1970s and early 1980s of using investment tax credit. Your only 
tax tool at that time was to buy more machinery or livestock 
facilities in order to use the investment tax credit, and that 
became their way of reducing their taxes.
    In an upward swing in the agricultural economy, that works 
well. But what happened in the middle 1980s, was this great 
downfall in income, and a lot of this machinery was not needed 
any more and there were still payments to pay for the 
machinery. Instead, this seems to be a much better plan looking 
at it from my standpoint as a farmer and also our farmer 
members. Let us have this credit, set it aside, have it tax 
deferred, and better manage it with just money and not having 
to purchase the equipment. That is an important point. So this 
would be very useful to farmers and ranchers all over the 
United States.
    Chairman LoBiondo. Ed, what is your take on our part of the 
country with our type of farming, with the folks that we know? 
Would they utilize this, do you think, as opposed to spending 
the money on other needs?
    Mr. Bergamo. I think so. If it were available, I think 
people would find a way to work it into their tax and financial 
planning and their general operation.
    If it is available, you find ways to use it. There are very 
few--as Wayne said, there are very few tools left as far as 
ways to manage your finances. Buying equipment is a good thing, 
but it is only good if you need that piece of equipment. We 
have done it before. But depreciation or leasing, you have to 
spend money to try to save money, and it has gotten to the 
point--people were buying equipment as a way to avoid taxation 
and to enhance their operations, but it is a vicious cycle and 
you still have to pay for it, and you better need the 
equipment.
    I think that it would be a good opportunity for farmers to 
be almost forced to save because it would be an attractive way 
to do so. When they did find a year that was not so good, the 
money would be there. It is a self-help thing. It is better 
than a government program.
    As Mr. Appel pointed out, the majority of the farmers in 
our area had a good year, but the majority of the farmers in 
his area did not have a good year. Next year the situation 
might be reversed. Different areas of the country experience 
different weather conditions, and what have you, or different 
products that they produce are affected differently.
    This would be across the board. It would be fair for 
everyone. You would be able to utilize it using your own 
situation as the guide. Your experience and your understanding 
of your business rather than having someone come in and try to 
put--we are not really--don't have many opportunities of aid 
availed to us, but when they are, they are not black or white 
tailored to every niche of agriculture. This is across the 
board, and every part of the country would get treated evenly 
and it would seek its own level. Where people have good years 
and others don't, it would work itself out. I think even if 
people were not aware of it and its benefits, they would find 
ways to use it and be happy that it is available.
    Ms. Brown. I can only echo the comments made about the 
benefit of FARRM accounts being across the board for the people 
of the United States. I think it is a wonderful plan and it 
does help out everyone. And as far as saving to use something 
in a coming year, we put drainage tile one year because we had 
extra money. The next year we could have used the extra money, 
but you sure can't dig up tile and sell it to raise cash. This 
sounds like a wonderful plan.
    Mr. Appel. I concur with what everybody has said. We have 
all done it. Many times, our tax accountants have come to us 
and said ``you have had a good year this year. It is time to 
buy something. Go buy a new combine, or tractor because we have 
to reduce this tax bite that you were going to have.''
    One of the people who traveled to Washington, DC with me is 
a part-time farmer and a part-time tax accountant. I was 
putting this whole idea past him and he became very excited 
over the prospect that there is another option that he could 
recommend to farmers that wasn't a buy now, pay later situation 
because that has gotten so many people into trouble.
    It is not uncommon for a farmer to go out in that good year 
when he has a lot of disposable taxable income, and buy a 
combine because he can deduct all of this money. But most of us 
don't have money to pay 100 percent right then, so we go to the 
bank and borrow the money. What do you suppose happens 3 years 
down the road, like this year, when you are going to be paying 
for that combine, and you don't have the dollars to do it. So 
actually this is a tool that is tremendous for the accountants 
to recommend to the farmers.
    Chairman LoBiondo. Let me move on to other members for 
questions. Does the ranking member have a question?
    Ms. Christian-Christensen. I don't really have a question. 
I want to thank you for your testimony and just to let you know 
that everyone has said the biggest problem with this bill is 
that it didn't come several years ago, and that message has 
come across quite clearly. And as your representatives for 
farmers and rural businesses, we will do our very best to see 
about getting it through.
    Mr. Baird. I want to thank all of you for your outstanding 
testimony and hard work on farmers. Part of our mandate in this 
committee is to deal with a broad spectrum of rural 
enterprises. This kind of legislation, which I am proud to 
cosponsor, not only will help the farmers, but it will help the 
farm communities because when the farms have downturns and they 
don't have resources to draw upon, everybody in the community 
from the local cafe to the feed store, they all suffer as well. 
And I think this is one of the many steps we need to do. 
Inheritance tax reform and other steps to help out also make 
sense.
    I have had a chance to read the bill and the one concern I 
would have is making sure that we choose the financial 
institutions in which the trusts are placed well, lest we run 
into a time where a sort of broad economic downturn hits and 
the institutions that are holding your money at just the time 
you need it don't have that money. I want to ensure that, and I 
am sure no encouragement is needed, but I am sure you will 
inform your members well when this opportunity arises because I 
think it is a superb bill, and I am proud to cosponsor it. 
Thank you for your excellent testimony.
    Chairman LoBiondo. Thank you, Congressman Baird.
    Ed, can you give us an example of price fluctuations that 
you have experienced from 1 year to the next with crops that 
you are involved with in our part of the world?
    Mr. Bergamo. Yes. There are price fluctuations and there 
are demand fluctuations. For example, last spring due to bad 
weather on the West Coast, spinach that we have very early in 
the spring, for example, that grows over the winter and it is 
one of the first crops to come to market, the movement on it 
was well and the price was reasonable where we were able to 
make a profit on it. This year there is an oversupply of 
product, so that not only is the price low, but it is just at 
the point where you can make a small profit on it, but there is 
no demand.
    So those factors both play against one another. So you get 
situations where maybe a year ago a product was worth say 10, 
12 or 15 dollars a box. Once you are in double digits you are 
doing very well in the type of farming that we do. That same 
item this year might be 4 or 3 dollars, clearly under the 
threshold of profit. And you do have growers who for whatever 
reason will produce and intensify the problem by putting more 
product into the market stream and therefore creating a further 
glut.
    So there are a number of factors that come into play. 
Demand and price go hand in hand, and you are really at your 
own wits to try to come out ahead. The biggest thing that we 
try to do on our farm is if we can't make something and sell it 
for a profit, we leave it in the field. You can go broke while 
you are working because you add additional costs of labor and 
packaging and transportation and everything else. Sometimes you 
are better cutting your losses right off the bat rather than 
trying to chase something that is not there.
    Chairman LoBiondo. So after planting, fertilizing, 
irrigating, cultivating, everything that has to be done, the 
market isn't there and you have to just let it go?
    Mr. Bergamo. Right. It is especially bad when you 
experience dry weather conditions and then you have to irrigate 
it to keep it marketable until the last possible minute. And 
sometimes something breaks and the quality might be not nearly 
what it should have been 2 or 3 weeks earlier on some items 
that can stand in the field, and then you sell something that 
is not what in terms of quality you would like to sell. You can 
drive around our area and see fields of spinach that are being 
chopped up just because there is no demand and there is no 
price. That is just an example.
    Maybe another commodity it will reverse the other way. 
There are times when you happen to catch a lot of situations 
like that in a given year. And by the time Thanksgiving rolls 
around and our season starts to wind up, you realize that you 
did a lot of work and you could not have worked any more hours, 
and yet you didn't have the financial result that you expected. 
That is just the nature of the business. You have good years 
and bad years, and that is what this bill is designed to try to 
give you some recourse, some stability there so you can plan 
for it without taking a real financial shot.
    You can plan for it now, but you are going to pay the 
income tax on it, and you have to have the money to plan for 
it. This will give you a little easier way to do it. The 
government is not going to lose any money because they are 
going to get the money eventually.
    Chairman LoBiondo. Do any of our other panelists have 
anything to add on the crop price fluctuation?
    Mr. Nelson.
    Mr. Nelson. Yes. There is also the great weather risk in 
many areas of the country, so you have the production highs and 
lows as well as the price highs and lows. A few years ago we 
had a freeze in western South Dakota that killed much of our 
winter wheat crop. We had a 4-bushel average. The 
corresponding--the next year we had terrific weather, good 
rainfall and little disease. We had a 42-bushel average. So 1 
year difference between 4-bushel and 42-bushel, and not just in 
South Dakota, but in Dusty, Washington, and many other areas of 
the country. There is a good deal of production variability due 
to the weather.
    Chairman LoBiondo. Steve.
    Mr. Appel. One final comment in that area. We have another 
factor that keeps entering into our market situation, and that 
has to do with access to foreign markets and things that 
influence that access. Our own unilateral sanctions that we 
have placed on ourselves at times, and unfair trade practices 
or tariffs placed on us by other countries. And in this case I 
am thinking specifically of Washington State and Washington 
State apples.
    We actually had a situation where the Mexican Government 
increased the tariff on Washington grown apples by 100 percent 
overnight. It devastated our market, and last fall literally 
hundreds upon thousands of boxes of apples hung in the trees 
and went to waste in the orchard. It was just pathetic, and it 
was exactly what these folks were describing. It costs about 
$20 a bin to pick a box of apples and the highest price was $15 
a bin, and that was just the picking cost.
    So that is an example of outside influence that can cause a 
disaster to agriculture in this country, and this would help 
also protect or give us an out. It gives us a way to live 
through those situations. Thank you.
    Chairman LoBiondo. We will have the opportunity for 10 days 
if there are any members of the committee who wish to submit 
additional comments on the record. I want to thank the 
committee members for their strong statements of support for 
the legislation. I would like to thank our panelists for taking 
time out of their busy schedules to be with us.
    I will convey to Chairman Talent the strong support that we 
have heard today, and I am sure that he will be reviewing the 
testimony and the transcript, and hopefully we will be able to 
report back to you that there will be some additional positive 
action which will be taken. With that, the meeting is 
adjourned.
    [Whereupon, at 3:10 p.m., the subcommittee was adjourned.]

           Statement of U.S. Representative Frank A. LoBiondo

    Welcome everyone. I will now convene the hearing. This is 
the inaugural hearing of the Rural Enterprises Subcommittee 
which has been added as a new Small Business Subcommittee in 
the 106th Congress. Before I talk about the legislation before 
us, let me answer the obvious question: why is a representative 
from New Jersey chairing a subcommittee dealing with rural 
issues? I represent the Second Congressional District of New 
Jersey which covers a third of the state geographically. 
Southern New Jersey is home to a thriving agricultural 
community. We have many fresh market fruit and vegetable farms, 
nurseries, and seed farms. I also grew up on a farm, so I have 
first hand knowledge of agricultural issues.
    American farmers feed the nation and they also help feed 
the world. Our farmers also are able to grow crops in cost-
effective manner. Food is most affordable in the United States. 
We spend a smaller percentage of our income on food than all 
other industrialized nations.
    Our farmers perform a service and our farmers are in 
trouble. Natural disasters, extreme weather, fluctuating 
prices, uncertainties in international markets, and other 
factors have plagued our farmers the last couple of years. Now 
we are faced with farmers across the country who are in serious 
jeopardy. These farmers need assistance and there are several 
avenues the federal government can pursue to provide it. One 
step we can take is to pass legislation sponsored by Rep. Kenny 
Hulshof and Rep. Karen Thurman which would establish Farm and 
Ranch Risk Management (FARRM) accounts. I am proud to be a 
cosponsor of this legislation which has significant bipartisan 
support in Congress and is endorsed by a broad cross section of 
small business and agricultural groups.
    W need FARRM accounts for many reasons. Weather and 
commodity prices are beyond the control of farmers and 
ranchers, yet they can determine if agricultural producers earn 
a profit and remain in business.
    Saving for unprofitable years is difficult for agriculture 
producers because farm income is needed for operating expenses 
and to purchase supplies for the next production cycle. When 
producers earn a profit, they usually invest in farm assets 
that can't be easily sold to pay expenses during difficult 
financial times.
    Quite simply. FARRM accounts would allow a farmer to put 
away income in a good year for use in a bad year. This will 
allow farmers to stabilize their income and improve their 
economic condition. I want to thank Rep. Hulshof and Rep. 
Thurman for introducing this important bill. I hope this 
hearing will build some momentum for the legislation and we 
will soon find it on the President's Desk.
    Before we hear from Rep. Hulshof, I would like to yield to 
my ranking Member Rep. Donna Christian-Christensen for any 
comments she might have.
            Statement of U.S. Representative John E. Sweeney
    Chairman LoBiondo, thank you for giving me the opportunity to speak 
about H.R. 957, the Farm & Ranch Risk Management Act (FARRM). I am co-
sponsor of this legislation and believe it is essential for farmers.
    H.R. 957 creates FARRM accounts which allow farmers to deduct 20% 
of their net farm income. FARRM accounts provide an incentive for 
farmers to save money and be prepared for economic downturns.
    Farming is an uncertain business. Much of farmers' profits are 
always fluctuating depending upon the volatility of prices, reduced 
export demand, changing costs, a strong dollar relative to other 
currencies, and crop disasters.
    When the Asian financial crisis hit in 1997, farmers felt the 
effects since Southeast Asia has been a large market for agricultural 
exports, comprising 37% of the total amount exported. Each and every 
region can cite many down years.
    H.R. 957 would ensure that farmers would be financially stable in 
times of financial strain. It is good business practice that farmers 
are given the opportunity to stabilize their profits and keep reserves 
without being penalized by the tax code.
    It is important that Congress is committed to help farmers before 
disaster or troubled times occur. Sure, financial assistance is made 
available after disaster strikes and disasters cannot be wholly 
avoided, but FARRM accounts would go a long way to mitigating the 
severity of troubled times.
    The USDA has failed to successfully tailor a crop insurance program 
to benefit farmers and has neglected to act effectively on Congress' 
disaster relief. Last year in New York, USDA failed in its efforts to 
address severe storm damage to apples where some growers lost over 80% 
of their apple crop.
    My district in upstate New York includes a large number of farmers 
who are struggling to make a living. New York's largest industry by far 
is agriculture. In 1996-1997, the net farm income for New York State 
decreased by 52.5%, the 4th largest drop in the country!
    I am willing to assist my constituents any way I can and we must 
give them tools to manage their uncertainty with FARRM accounts.
    Let me relay an example of the need for FARRM accounts. Last year 
dairy farmers in the Hudson Valley (and most other places) had a good 
year. Unlike 1997, they made some money.
    They should be allowed to save some of it for a year when the price 
is going to be down. In fact this spring on-farm milk prices have 
fallen nearly 40%.
    I visited a farm in my district just this morning and I heard 
firsthand that cash reserves would surely come in handy as my farmers 
take to their fields to plant their new crops this month!
    I thank the Chairman for bringing this matter before the attention 
of this subcommittee and I call on the committee to strongly endorse 
this concept of FARRM accounts and work to ensure that the Congress 
follows through and provides this important tool to our farm families.
               Statement of U.S. Representative Rick Hill
    Mr. Chairman and Members of the Subcommittee: I would like to thank 
you for holding this hearing today--the first of many hearings in the 
very important Subcommittee on Rural Enterprises. I am proud to be the 
Vice Chairman of this Subcommittee and look forward to working with you 
Mr. Chairman and the ranking member to make it a very productive 
session. I am the original cosponsor of H.R. 957, the Farm and Ranch 
Risk Management Act. The number one industry in my state of Montana is 
agriculture, outpacing the number two industry, tourism, by around $800 
million. In my state of Montana, when agriculture hurts, Main Street 
suffers.
    In the last session of Congress, we passed meaningful tax reforms 
that benefit agriculture. Some of the more important tax reforms 
include a reduction in the capital gains rate, which will allow a 
farmer or rancher to keep more profit from the sale of assets. We also 
increased the exemption on estate and gift taxes, making it more 
affordable to pass a lifetime of hard work to your heirs. In the last 
session we also enacted income averaging which allows farmers to lower 
their tax burden by ``averaging'' a more profitable year with less 
profitable years. As you know, farmers and ranchers have been without 
income averaging since 1986, when Democrats eliminated that provision.
    While I recognize that the tax accomplishments of last year are a 
good start, those victories do not go far enough. I believe that we 
must work to ease the tax burden on American farmers and ranchers. And, 
in difficult times like these, we must look for ways to give producers 
a wider array of risk management tools.
    That in a nutshell is what FARRM accounts will do. By allowing 
producers to set aside up to 20% of their gross income tax-free during 
good years, we provide a tool to better manage the inevitable bad years 
when they come. Of course given the hard times in ag country, at least 
for Montana producers, we have not picked a particularly appropriate 
time in the cycle to start these accounts.
    Although H.R. 957 will not provide much relief in today's 
agriculture crunch, I believe we must have this tool in place for the 
time when agriculture is once again profitable. I support H.R. 957 not 
as a solution for today's crisis, but as a tool for better managing 
future difficult times.
    So many times agriculture producers are forced to cope with 
circumstances beyond their control. Weather conditions, and sadly, 
government policy, are two of the biggest factors over which farmers 
and ranchers have little or no control. During the past couple of 
years, drought and flood wrecked havoc on farms and ranches nationwide. 
Combine these tough weather conditions with the current 
Administration's failure to protect our farmers against unfair trading 
practices, and you have the recipe for the tough economic situation 
facing many producers. By allowing farmers to save up to 20% of their 
gross farm income during good times, we are allowing them to prepare 
for times like these that are beyond their control.
    Given the opportunity, I believe there are many ways that producers 
can reduce their risk to fluctuating income. Tax deferments, insurance, 
expanding exports, and tax reduction are all tools that can be utilized 
to reduce risk. While this bill is not the lone solution to risk 
reduction and is not a quick fix for today's ag problems, I believe 
that it is one more tool that can benefit Montana ag producers.
    I am proud to cosponsor H.R. 957 and look forward to enacting 
further tax reductions in this Congress.
             Testimony of U.S. Representative Kenny Hulshof
    I would like to thank Chairman LoBiondo, Ranking Member Christensen 
as well as the members of the Rural Enterprises, Business Opportunities 
and Special Small Business Problems for holding this hearing on the 
Farm and Ranch Risk Management, or the FARRM Act, legislation I have 
introduced with my colleague U.S. Representative Karen Thurman (D-FL). 
It is a pleasure to be here with you today.
    Since our nation's inception, agriculture has been the cornerstone 
of our economy. Today, our nation's farmers feed the world. We all take 
for granted the ability to walk into a grocery store and choose 
whatever product we want from shelves filled with American farm 
products. We owe a debt of gratitude to our country's farmers and 
ranchers for this luxury that we have come to take for granted.
    As any farmer and rancher can attest, those who make a living in 
agriculture are faced with unique challenges. Everything from weather 
conditions to a commodity price swing to subtle changes in a market 
abroad have real-life consequences for our nation's farmers and the 
rural economies that depend on their success. Having grown up on a 
family farm in Southeast Missouri, a farm my parents still operate 
today, I can attest first-hand to the risks and rewards of farming.
    To help handle the risks of farming and ranching, Representative 
Thurman and I have introduced the FARRM Act. The idea behind FARRM 
Accounts is very simple. We should make it easier for farmers to put 
away some money in a good year to use down the road in the bad years 
that inevitable come. To accomplish this, the FARRM Act will allow a 
farmer or rancher to make tax free contributions of up to 20% of their 
income from farming to a FARRM Account. They can keep the money in the 
FARRM Account for up to five years, and take the money out at any time 
during this time period. The money would be treated as regular income 
for tax purposes when withdrawn.
    The past few years have been tough for farmers. Natural disasters, 
low prices and economic downturns in vital foreign markets have caused 
distress in rural America. Let me give you an example of how FARRM 
Accounts would benefit rural economies. In the three years prior to the 
current downturn, farmers and ranchers in my home state of Missouri 
were profitable. Had FARRM Accounts been in place in 1994, those that 
are feeling the economic pinch of the farm crisis today could have 
access to the equivalent of 60% of a year's income. Talk to any farmer 
or rancher and they will tell you that this nest egg or rainy day fund 
would be extremely beneficial.
    Those Americans who earn a living in agriculture are hard-working, 
self-reliant entrepreneurs. However, they need the risk management 
tools to help them use their own money to plan for their future. Making 
FARRM Accounts available will help empower the people who feed America 
and the world.
    Once again, I thank the subcommittee for allowing me to testify 
today and for holding this important hearing. I would be pleased to 
answer any questions you may have relating to the FARRM Act.
 Testimony of Wayne Nelson, President of Communicating for Agriculture
    Mr. Chairman and members of the committee, I thank you for the 
opportunity to testify today on behalf of the members of Communicating 
for Agriculture in support of H.R. 957, the Farm and Ranch Risk 
Management Accounts legislation. I commend you for holding this hearing 
on the legislation.
    Farming and ranching are small businesses that make up the 
backborne of rural America. They are also inherently volatile 
industries. The experts tell us, and recent experience confirms, that 
they are becoming increasingly economically volatile. This is indeed a 
special problem that merits your committee's attention. The FARRM 
Accounts legislation is specially designed to help agricultural 
producers deal with this increased volatility.
    My name is Wayne Nelson and I am President of Communicating for 
Agriculture (CA). CA is a 26-year-old national, non-profit rural 
organization made up of farmers, ranchers and rural small business 
members in all 50 states. I am also a grain farmer from Winner, South 
Dakota and I can tell you first hand about the difficulties farmers 
face in fighting the roller coaster ride the agricultural economy has 
become largely due to price sensitive international markets.
    I needn't tell you how serious the problems are facing the American 
agricultural economy right now. Virtually every major commodity has 
suffered severe price declines and farmers throughout the country are 
losing money. In northwest Minnesota and eastern North Dakota there are 
unprecedented numbers of auctions taking place.
    In January of this year Communicating for Agriculture launched what 
we call our ``Campaign for Family Agriculture''. It's goals are to 
establish a stronger farm safety net, to restore competitive livestock 
markets, and to provide new financial management tools producers can 
use to strengthen their economic security. CA has several 
recommendations for Congress--strengthening crop revenue insurance, 
mandatory livestock price reporting and meat labeling changes, 
adjusting loan rates, strengthening anti-trust oversight and 
enforcement in key industry sectors, export development, and even a 
unique new proposal we have developed called a Price Enhancement 
Program that is beginning to generate interest.
    But from the beginning, passing Farm and Ranch Risk Management 
Accounts legislation has been a key goal of the campaign because it 
represents fundamentally sound tax policy as well as providing an 
incentive for farmers to save in good years for use in bad. In fact, 
Communicating for Agriculture has been very supportive of the concept 
embodied by the FARRM Accounts legislation going back as far as nine 
years, when CA introduced a similar concept for tax-deferred savings 
accounts for agriculture to key policy makers in Washington. CA 
supports H.R. 957 and S. 642 and we strongly encourage Congress to pass 
them.
    FAARM accounts would allow farmers and ranchers to set aside tax 
deferred income in good years and draw money back out of the FARRM 
account in the lower income years offering a better opportunity to 
balance income from year-to-year. These accounts would let qualified 
individual farmers and ranchers set aside up to 20 percent of their 
farm income each year. These individuals would have to materially 
participate in farming with the amount to be set aside calculated from 
their scheduled F portion of their tax return. The contribution would 
be tax deferred but any interest earned on the account would be 
included in the individual's annual gross income. There would be a 5-
year limit on deposits to the account so a distribution would have to 
be made. Distributions would be treated as taxable income in the year 
they were received. Any money left in the account over the 5-year limit 
would be subject to 10 percent penalty. Individual farmers that don't 
meet the participation guidelines for two consecutive years would have 
to immediately distribute the funds in the FARRM account.
    In a nutshell, FARRM accounts would be a self-help tool that would 
help farmers and ranchers to set aside tax deferred income in good 
years and draw the money back out later, perhaps in years of low 
income, when it would be taxable. FARRM accounts are a prime example of 
``countercyclical'' policy, and this is exactly the kind of public 
policy for agricultural support that many leading agricultural 
economists are saying we need to get back to.
    While FARRM accounts themselves cannot replace the need for an 
agricultural price safety net, nor can they replace the need for a 
workable crop insurance program, they would be a management tool 
farmers would welcome and would use.
    Some skeptics may be critical of FARRM accounts because of their 
perceived cost at a time when Congress is facing budget pressures for 
other necessary farm income supporters; and because in a year like this 
when prices are so disastrously low, very few farmers will be able to 
start a FARRM account this year.
    We urge you to look a bit deeper.
    Number one--if indeed few farmers will have profitable years in 
1999 and not be able to invest in a FARRM account this year--that also 
means there will be corresponding little cost to the government in any 
delayed tax revenue. Cost-wise, FARRM accounts simply use tax deferral.
    And number two--there is no better time to pass FARRM accounts than 
now . . . except if Congress would have passed it four years ago when 
the concept was first introduced as legislation.
    Imagine . . . if FARRM accounts would have been in place in 1996 
and 1997 when grain prices were relatively high. Think of how many 
farmers would have welcomed the opportunity to set aside some of that 
long needed profit in a tax-deferred rainy day account. Even more 
importantly, think of how welcome that savings would have been this 
past year when grain prices fell to their lowest levels in decades. 
Think of the difference in pork prices between 1997 and 1998 and how 
FARRM could have helped. Income averaging was made permanent last year 
helps, but it is only for two years. FARRM would complement income 
average helping farmers and ranchers to even out the peaks and valleys 
of farm income for up to 5 years.
    Dairy farmers represent a more recent, but just as good an 
illustration. Last year dairy prices rose to very high levels. It was 
the only major commodity sector to enjoy good profits last year, while 
all others were depressed. Then a few weeks ago, the price of milk 
dropped $6 per hundredweight--the largest one month drop in history. 
Dairying suddenly became unprofitable again with producers facing 
possible loses. Had FARRM accounts been in place, there is no doubt 
many dairy farmers would have used them to set aside income from a 
profitable year to bring the deferred income to be taxed in the 
probable lower income year of 1999.
    We hope the roller coaster will start to rise again before too 
long. But the facts are, the top agricultural economists are saying 
under current conditions; American agriculture is likely to continue 
riding the wild side. It is dependent upon unstable, yet competitive 
world markets; susceptible to harm from currency fluctuations and the 
impact of adverse weather; and is far less protected under current farm 
policies.
    Dr. Abner Womack, one of the country's leading agricultural 
economists from the University of Missouri and the head of the Food and 
Agricultural Policy Institute (a leading agricultural econometric 
forecasting institute), recently outlined for the National Council of 
State Agricultural Finance Programs both the near term dangers, as well 
as long term strengths of the world economy and global demand for U.S. 
farm products. Dr. Womack's central message, however, was, the future 
is likely to bring more volatility for the agricultural economy, with 
``higher highs and lower lows.''
    There are few, if any other sectors of the economy that operate in 
the kind of volatile conditions as agriculture. FARRM accounts would 
give producers one tool that would help them weather these economic 
storms a bit better.
    Communicating for Agriculture has a slogan . . . we say CA works to 
advance ``good ideas for rural America.'' We think FARRM accounts is 
one of them, and we urge you to pass them.
    Thank you.
                      Statement of Ed Bergamo Jr.
    I want to thank my Congressman Frank LoBiondo for giving me the 
opportunity to speak to you today. Congressman LoBiondo has been a good 
friend of farmers in Southern New Jersey. I am a fourth generation 
farmer operating a 120 acres vegetable farm with my younger brother, 
Paul. We grow a variety of herbs and vegetables which we sell at our 
local produce auction. Our operation is obviously small especially 
compared to the larger operations in other parts of the country, but we 
have a higher profit per acre ratio than for instance a 1000 acre wheat 
farm.
    Like all farmers my livelihood depends on many factors--weather, 
market fluctuations, international competition, distribution and supply 
costs, as well as many other circumstances. Every year is a challenge 
and every year is different than the previous year. To run a successful 
small farm you need to be a good grower but you also have to possess 
financial management skills. Every year I run the risk of being in a 
different tax bracket. In good years I am thrust into the upper 
brackets essentially paying a penalty for my success. In bad years, I 
find myself in lower brackets. As a specialty grower, I am not eligible 
for many of the subsidies that are available to program crop producers 
through the U.S. Department of Agriculture. If I have a bad year, it is 
up to me to figure out how to pay the bills and plan for next year's 
crop.
    Having a mechanism like a FARRM account that would allow me to save 
some of my income for use in more difficult times would be extremely 
beneficial. It would provide an incentive to save for a rainy day and 
it would allow me to avoid a higher tax penalty when I have had a 
successful year. Managing a successful farm is a delicate balancing 
act. You have to strike a balance between many uncontrollable factors 
like the weather and price fluctuations. FARRM accounts would provide a 
stabilizing force in farming. Rather than proceeding on a boom or bust 
situation, FARRM accounts allow farmers to spread out the success from 
good years to years that are not so successful. This principle will 
inevitably keep more farmers in business. I have known many farmers in 
our area that were forced into severe debt by a bad year. Eventually 
they have to liquidate their farms to pay their creditors. FARRM 
accounts can lessen that phenomenon by allowing good fortunes to offset 
difficult seasons.
    It also reduces the tax crunch that inevitably results after a good 
year. I understand the reality of a graduated income tax but for 
farmers with fluctuating income our tax system almost provides a 
disincentive for success. The better you do the more your taxed. One 
suggestion I would make in regards to the implementation of the bill is 
to make it as flexible in regards to income eligibility as possible. 
Because farm incomes vary so greatly from year to year, tight income 
restrictions could severely limit the number of farmers who could take 
advantage of the legislation.
    I understand the sponsors of the bill used a wide definition of 
agriculture for determining eligibility for FARRM accounts. That is 
encouraging. Often, specialty growers like myself do not qualify for 
traditional agricultural assistance provided by the USDA. A broad 
definition of farming will enable more small and specialty farmers to 
take advantage of FARRM accounts.
    Farmers in Southern New Jersey and across the Country are 
experiencing extremely difficult times. FARRM accounts would provide 
much needed relief to farmers who are struggling to get by. I want to 
thank Representative Kenny Hulshof and Representative Karen Thurman for 
sponsoring the FARRM Account legislation and I want to thank 
Congressman LoBiondo for allowing me to testify today.
    Statement of Marlene Brown, Iowa Farm Bureau Federation Women's 
                           Committee Director
    My name is Marlene Brown. I, along with my son, Scott, operate a 
280 acre, corn, soybean and hay farm in Brandon, Iowa. We also have a 
cow-calf herd. I'm here representing the Iowa Farm Bureau Federation. 
IFBF is a general farm organization of 160,000 member families who 
produce every commodity commercially marketed in our state.
    Farm Bureau commends the Small Business Committee, Subcommittee on 
Rural Enterprises for calling this hearing to focus attention on the 
importance of saving and investment incentives for farmers. This is my 
first opportunity to testify before a Congressional Committee and I am 
pleased to be here today to speak on behalf of Farm and Ranch Risk 
Management Accounts and their potential benefits to farmers.
    Farm Bureau supports the creation of Farm and Ranch Risk Management 
Accounts (FARRM), to help farmers and ranchers manage risk through 
savings. Using Farm and Ranch Risk Management Accounts, agricultural 
producers would be encouraged to save money in good economic times for 
the ultimate lean economic years.
    Like other small business persons, farmers and ranchers have 
predictable expenses. Each month they must pay for fuel, animal feed, 
equipment repairs, building maintenance, insurance, utilities, and meet 
a payroll. They must plan for seasonal expenses like taxes, seed, heat, 
and fertilizer. They must also budget for major purchases like 
equipment, land and buildings.
    While many expenses can be predicted and to some degree controlled, 
farm income is neither predictable nor controllable. The prices that 
farmers and ranchers receive for their commodities are determined by 
forces they can't control, commodity markets and the weather. Farmers 
and ranchers do not know from one year to the next if their businesses 
will earn a profit, break even, or operate in the red. Few other 
industries must face such a challenge year after year after year.
    What all farmers hope for is that the good years will outnumber the 
bad ones. Believing that better times are coming, farmers and ranchers 
get through tough times by spending their retirement savings, borrowing 
money, refinancing debt, putting off capital improvements and lowering 
their standard of living. All of these activities damage the financial 
health of a farm or ranch and the well being of the family operating 
the business.
    The 1996 farm bill phased out government price and income supports 
to farmers through the year 2002. Farmers and ranchers supported this 
phase-out because of the promise of expanding market opportunities and 
assurances by Congress that new ways would be found to help farmers and 
ranchers manage their financial risks.
    Many growers of perishable commodities along with the producers of 
livestock, poultry and other nonprogram crops have never had the 
benefits of a farm program safety net. We rely on our management 
skills, marketing ability and a little luck with the weather to make 
our businesses turn a profit. We are always looking for new and 
innovative risk management tools to help us manage our businesses 
successfully.
    FARRM accounts are simple and that's why they are so appealing to 
farmers. Under H.R. 957 the Farm and Ranch Risk Management Act, 
eligible producers could choose to defer taxes on up to 20 percent of 
their income for up to five years. Farmers would decide when to save 
rather than spend and when to withdraw and pay taxes on the money. I 
know that we will use a FARRM account as a risk management tool on our 
farm when our income allows us to do so.
    Farm Bureau asks each of you for your support for FARRM accounts. 
We urge Congress to pass them into law as soon as possible. Their 
creation will give farmers and ranchers a meaningful incentive to save 
for a rainy day and provide a very valuable tool for managing financial 
risk.
               Marlene Brown, District 1 Women's Chairman
    Marlene Brown is a member of the Iowa Farm Bureau Federation state 
women's committee. She represents District 1, which consists of 11 
counties in northeast Iowa.
    Marlene previously served as chairman of the Buchanan County Farm 
Bureau women and was board president from 1993 to 1996. She is 
currently a member of the county legislative committee and voting 
delegate.
    She manages a diversified crop and livestock farm with son Scott 
near Brandon.
    Marlene has served on the Buchanan County Sesquicentennial 
committee, the Iowa State University Extension council and past 
president of the Brandon United Methodist women. She is an Iowa Master 
Gardner, currently serves as a United Methodist women district officer 
and is an active member of the Brandon Area Community Club and the 
Buchanan County Homeless Council. She also participates in the local 
farmers market and works part time for Brandon Electric Motor.
    The Iowa Farm Bureau Federation participates in the following 
agreements that have been funded in part by the Iowa Department of 
Natural Resources through a grant from the U.S. Environmental 
Protection Agency under the Federal Nonpoint Source Management Program 
(Section 319 of the Clean Water Act):
    (1) Agreement Number 99-7148-11 Iowa Farm A*Syst/Home*A*Syst 
Program. Funding is for $108,500 for the term of October 1, 1998 to 
October 31, 1999. Funding for this contract is made available under 
``Catalog of Federal Domestic Assistance'' No. 66.460.
    (2) Agreement Number 98-7147-08 Iowa Farm*A*Syst/Home*A*Syst 
Program. Funding is for $41,900 for the term of April 20, 1998 to 
October 31, 1998. Funding for this contract is made available under 
``Catalog of Federal Domestic Assistance'' No. 66.460.
    (2) Agreement Number 96-7146-01 Iowa Nonpoint Source Pollution 
Information and Education County Grant Program. Funding is for $52,000 
for the term of April 1, 1996 to April 1, 2000. Funding for this 
contract is made available under ``Catalog of Federal Domestic 
Assistance'' No. 66.460.
    Statement of Steve Appel, President Washington State Farm Bureau
    My name is Steve Appel. I've come to today's hearing from Dusty, 
Washington, where my neighbors know me as a third generation farmer who 
grows wheat and barley.
    Thank you for inviting me to speak at today's Small Business Rural 
Enterprises Subcommittee hearing. My statement is made on behalf of the 
4.8 million member families of the American Farm Bureau Federation. I 
sit on AFBF's board of directors, a distinction made possible because 
of my post as president of the Washington State Farm Bureau.
    It's especially fitting that the Small Business Committee is 
focusing on agriculture because times are especially hard for many 
farmers and ranchers. Last year, in some parts of the country, extreme 
weather or disease destroyed the fall's harvest or made feed for 
livestock scarce. Others were blessed with good crops, but faced low 
prices because of troubled overseas markets. Agricultural forecasters 
are predicting that 1999 will also be a difficult year for farmers and 
ranchers.
    Farm Bureau is most appreciative of legislation passed by Congress 
last year to provide immediate relief to farmers and ranchers. If 
similar emergencies are to be minimized in the future, farmers and 
ranchers must have new and innovative ways to deal with uncertain 
incomes caused by weather and markets. Congress must act to give 
producers the risk management tools they need to manage financial 
jeopardy caused by unpredictable weather and markets.
    Farm and Ranch Risk Management Accounts (FARRM accounts) are 
exactly the kind of risk management tool that farmers and ranchers are 
looking for. Using these accounts, producers will be encouraged to save 
up to 20 percent of their net farm income in higher income years by the 
benefit of deferring taxes on the income until the funds are withdrawn. 
The program is targeted at real farmers, contains guarantees that the 
funds will not be at risk, and prevents abuse by limiting how long 
savings could be in an account to five years. I can't help thinking how 
different things would be now if FARRM accounts had been put on the 
books five years ago, and farmers and ranchers had FARRM savings to use 
this year.
    Legislation to create FARRM accounts, H.R. 957, has been introduced 
by Reps. Kenny Hulshof and Karen Thurman. These are two smart 
representatives because they've written their bill so that producers of 
all commodities, from all sizes of operations, who come from all parts 
of the country, can take advantage of FARRM accounts. That's the reason 
over 30 agricultural organizations and more than 125 representative 
support the bill. A list of agricultural groups who join Farm Bureau in 
supporting FARRM accounts is attached.
    We know that members of the Small Business Committee understand the 
need for FARRM accounts, but must tell you that many of my fellow 
farmers wonder why it's taking Congress so long to pass them into law. 
When agriculture agreed to support the phase-out of farm programs in 
1996, it was with the full expectation that Congress would make good on 
its promises to reduce regulations, expand markets and provide risk 
management tools. We're still waiting for some of the freedom that was 
to come with ``Freedom to Farm.''
    I've been told that passage of H.R. 957 would ``cost'' $500 million 
over five years and $900 million over 10 years. Rather than talking 
about cost, I think we should all be talking about the benefits of the 
legislation. It would be better to say that FARRM accounts will provide 
an important safety net for farmers and ranchers worth just short of a 
billion dollars.
    My position as president of the Washington State Farm Bureau gives 
me responsibility for the grassroots process that our organization uses 
to develop its policy positions. I listen to hours of debate on farm 
policy in Washington State and I can't think of another idea that has 
such enthusiastic support as Farm and Ranch Risk Management Accounts. 
Farmers like the idea that the government wants to make it easier for 
them to save for a ``rainy day.''
    I ask each and every member of the Small business Committee to get 
behind FARRM accounts. Please cosponsor H.R. 957 if you haven't 
already. Speak to your fellow representatives about the wisdom of doing 
something to improve the farm economy long-term. The future of 
production agriculture is dependent on new and innovative tools, like 
FARRM accounts, to help farmers and ranchers manage their financial 
risks.
    Thank you. I'll be glad to take your questions.
  Organizations Supporting Farm and Ranch Risk Management Act (FARRM 
                    Accounts) in the 106th Congress
    Agricultural Retailers Association; Alabama Farmers Federation; 
American Cotton Shippers Association; American Crop Protection 
Association; American Farm Bureau Federation; American Mushroom 
Institute; American Nursery and Landscape Association; American Sheep 
Industry Association; American Society of Farm Managers & Rural 
Appraisers; American Soybean Association; American Sugarbeet Growers 
Association; Black Farmers and Agriculturists Association; 
Communicating for Agriculture; Farm Credit Council; The Fertilizer 
Institute; National Association of Wheat Growers; National Barley 
Growers Association; National Cattlemen's Beef Association; National 
Corn Growers Association; National Cotton Council of America; National 
Council of Farmer Cooperatives; National Grain Sorghum Producers; 
National Grange; National Milk Producers Federation; National Pork 
Producers Council; National Sunflower Association; North American 
Export Grain Association; North Carolina Peanut Growers; Peanut Growers 
Cooperative Marketing Association; Society of American Florists; 
Southeast Dairy Farmers Association; Southern Peanut Farmers 
Federation; USA Rice Federation; U.S. Canola Association; U.S. Rice 
Producers Association; United Egg Producers; United Fresh Fruit and 
Vegetable Association; Virginia Peanut Growers Association.
      Biography of Steven Appel, President Washington Farm Bureau
    Steve Appel is a family farmer from Whitman County, in southeast 
Washington, He owns and operates a wheat and barley farm near Dusty.
    Next to his family, Steve loves farming and the Farm Bureau. And 
like most farmers today, he realizes that if you want to farm, you have 
to invest time to protect the family farm from being plundered by a not 
so benevolent government.
    That is why he is here today.
    Steve has been active in the Farm Bureau since 1974, serving as 
chair of the Whitman County Young Farmers and Ranchers Committee and 
later as President of the Whitman County Farm Bureau for three terms.
    Mr. Appel was elected to the Washington Farm Bureau board in 1987--
served as First and Second Vice Presidents--and in 1994, was elected 
President--a position he holds today.
    He was elected to the American Farm Bureau board of Directors last 
month and sits on the Farm Bureau national bank board of directors.
    For those of you who don't know, the Washington Farm Bureau 
represents family farmers and presently has more than 18,000 member 
families.

    Note: Pursuant to Rule XI(2)(g)(4) of the U.S. House of 
Representatives in the 105th Congress, neither the American Farm Bureau 
Federation, the Washington State Farm Bureau, nor Steve Appel receive 
any federal grants or contracts.
         Statement of the National Cattlemen's Beef Association
    Chairman LoBiondo, Members of the Committee: The National 
Cattlemen's Beef Association commends you and the Committee for all of 
its hard work to protect the interests of America's small businesses. 
We are particularly grateful to you and your staff for the effort 
expended to call today's hearing on H.R. 957, ``The Farm and Ranch Risk 
Management Act,'' (FARRM) introduced by Representatives Hulshof and 
Thurman, and cosponsored by you and several members of the Full 
Committee.
    The business management tools provided for in this legislation will 
go a long way today helping beef producers better manage the cyclical 
nature of farm and ranch income, and is strongly supported by NCBA. 
Annual variations in income are a major problem for farmers and 
ranchers. Unpredictable weather and markets make long-term financial 
and tax management planning difficult and often threaten the 
continuation of a ranching or beef feeding operation. In addition, 
recent changes in federal farm policy are requiring agricultural 
producers to be more attentive to market conditions across all 
commodity sectors. Add to that the current economic instability in many 
of our key export markets and the combined effect results in an 
increasingly volatile income outlook for ranchers and feeders.
    Without the ability to even out the swings in income, farmers and 
ranchers end up paying more taxes than individuals with stable incomes 
because peaks are taxed at a higher rate than if the same income were 
evened out over several years. This problem has been accentuated since 
the income tax brackets were widened over a decade ago. Income 
averaging and carry back tax provisions certainly help, and we 
appreciate the efforts in the last Congress to improve those tools.
    However, the FARRM legislation provides an additional tool that 
cattlemen and women believe would significantly improve their ability 
to manage income--it would allow them to establish an easily accessible 
tax-deferred ``rainy day'' fund that would provide a safeguard for 
revenue shortfalls in the tough years. NCBA joins the commodity and 
farm groups testifying today in endorsing FARRM, in thanking you for 
your leadership on this legislation, and in looking forward to working 
with you to provide this tool to America's beef producers.


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