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




               HELPING AGRICULTURAL PRODUCERS ``RE-GROW''


                   RURAL AMERICA: PROVIDING THE TOOLS

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                     WASHINGTON, DC, MARCH 15, 2000

                               __________

                           Serial No. 106-47

         Printed for the use of the Committee on Small Business


                    U.S. GOVERNMENT PRINTING OFFICE
65-507                      WASHINGTON : 2001




                      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
JOHN E. SWEENEY, New York            DENNIS MOORE, Kansas
PATRICK J. TOOMEY, Pennsylvania      STEPHANIE TUBBS JONES, Ohio
JIM DeMINT, South Carolina           CHARLES A. GONZALEZ, Texas
EDWARD PEASE, Indiana                DAVID D. PHELPS, Illinois
JOHN THUNE, South Dakota             GRACE F. NAPOLITANO, California
MARY BONO, California                BRIAN BAIRD, Washington
                                     MARK UDALL, Colorado
                                     SHELLEY BERKLEY, Nevada
                     Harry Katrichis, Chief Counsel
                  Michael Day, Minority Staff Director




                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 15, 2000...................................     1

                               Witnesses

Kruse, Charles, President, Missouri Farm Bureau Federation.......     3
McDavid, J. Gary, Chair, Legal, Tax & Accounting Subcommittee on 
  Tax Legislation, National Council of Farmer Cooperatives.......     5
Vallery, Rick, Executive Director, South Dakota Wheat, Inc.......     8
Hurst, Brooks, Vice President, Missouri Soybean Association......     9
Haverhals, John, Former President, South Dakota Cattlemen's 
  Association....................................................    11
Tumbleson, Gerald, Past-President, Minnesota Corn Growers 
  Association....................................................    12

                                Appendix

Opening statements:
    Talent, Hon. James...........................................    21
Prepared statements:
    Kruse, Charles...............................................    24
    McDavid, J. Gary.............................................    27
    Vallery, Rick................................................    30
    Hurst, Brooks................................................    32
    Haverhals, John..............................................    35
    Tumbleson, Gerald............................................    39



 
HELPING AGRICULTURAL PRODUCERS ``RE-GROW'' RURAL AMERICA: PROVIDING THE 
                                 TOOLS

                              ----------                              


                       WEDNESDAY, MARCH 15, 2000

                          House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 2:20 p.m., in room 
2360, Rayburn House Office Building, Hon. Jim Talent [chair of 
the Committee] presiding.
    Chairman Talent. Well, I want to open the hearing and 
apologize to everybody for the delay. I was over in the House 
handling a bill, and then we had this vote. The Ranking Member 
told me that she needed to stop at her office very briefly, and 
then she would be here. I am going to go ahead and open up the 
hearing.
    I want to welcome the participants here today for the House 
Committee on Small Business hearing on helping agricultural 
producers regrow rural America, providing the tools.
    Last September, the Small Business Committee held the first 
``helping agricultural producers regrow rural America'' hearing 
which focused on the current crisis in the agricultural 
community, what could be done to lift rural America out of 
recession, and how agriculture could prepare itself to weather 
any future downturn in prices and production and conditions. 
The agricultural leaders at that hearing painted a clear 
picture of the need and desire of producers to become the 
vertical integrators, capturing more of the consumer dollar by 
adding value to their commodities.
    I continue to be impressed by those in the agricultural 
community who during these darker times for producers are still 
optimistic for the future. I am pleased their entrepreneurial 
fire continues to burn.
    Agricultural leaders at September's hearing described the 
current value added movement in agriculture and described 
various policy recommendations to the committee that could be 
accomplished to help the hardworking visionary producers in 
their efforts to build a stronger agricultural economy as well 
as a stronger rural economic base.
    Charlie Kruse who is back with us today suggested one-stop 
shops be established to provide the necessary business, 
marketing, engineering, and legal expertise to assist producers 
as they move to establish their own processing and 
manufacturing facilities. Every agricultural organization 
presented at the hearing echoed Charlie's recommendations. I 
assure you, Charlie, your voice was heard.
    Mr. Thune and I with the help and expertise of the 
agricultural community introduced the Value Added Agriculture 
Development Act for American agriculture. This legislation 
would create agriculture innovation centers that would provide 
the business, marketing, engineering, and legal assistance 
needed to begin a producer-driven value added revolution in 
agriculture.
    The Committee heard additional recommendations for specific 
policy tools that could be provided to assist this movement. 
Dale Ludwig, the executive director of the Missouri Soybean 
Association, which Brooks Hurst is representing today--well, we 
have a lot of great agricultural leaders from Missouri. Have 
you ever noticed that coincidence, how many we have here. Mr. 
Hurst advocated the creation of a producer-investment tax 
credit for up to 50 percent of the producer investment. The tax 
credit would help level the playing field for producers as they 
compete in markets that have been traditionally consolidated 
into a handful of multinational corporations. In my meetings 
with agricultural leaders, I have shared this concept and the 
idea has been received with great interest and support. Of 
course, any attempt to work with tax code is always a 
complicated process, and understanding on the ground 
effectiveness of any tax incentive is crucial as legislation is 
developed.
    I encourage the witnesses to provide the committee with 
their views on these and other legislative initiatives.
    Over the last few months, I have had the opportunity to see 
firsthand the innovative entrepreneurial spirit that America's 
farmers and ranchers share. Their enthusiasm about the concept 
of value-added agriculture is overwhelming. I have become more 
convinced than ever that the future of rural America in our 
agricultural system is bright.
    Missouri Soybean Merchandising Council research committee 
and soybean utilization researchers at the University of 
Missouri at Rolla, the MSMC, the sister organization to Brooks' 
group is the soybean checkoff board in Missouri. On behalf of 
soybean producers, the MSMC has made a major commitment to 
developing soy-based products to help increase the demand for 
soybeans. The researchers at UMR demonstrated numerous 
innovative technologies from which such products as plastics, 
composites, lubricants, and solvents have been synthesized from 
raw soybean materials.
    Tom Green explained the vision of Missouri soybean farmers 
and the MSMC and how these new technologies could be best 
utilized by the producers of Missouri. You know, we are living 
through a crisis right now which could have been substantially 
alleviated had we been further along with these value-added 
soybean products because we have the opportunity through that 
kind of research, if applied properly, to create new kinds of 
products that will enable us to move away from our dependence 
on petroleum, which of course is hurting the country right now.
    The opportunity I have had to work with the agricultural 
community on this issue of value-added agriculture has 
reaffirmed a core observation I made many years ago as I began 
working with farm organizations at the State level. There is 
great sense of pride and satisfaction shared by the hardworking 
men and women who have chosen to provide the food and fiber for 
our Nation. Often, especially in years such as the past 2, 
these men and women work for the equivalent of less than $3 per 
hour in wages. Yet they remain engaged by the fact that they 
produce the safest, most abundant, and cheapest food supply our 
world has ever known.
    I am glad the group such as the Farm Bureau who have been 
gracious enough to attend this hearing as part of the annual 
president's D.C. Trip take the time to come to Washington to 
remind me and my colleagues that the future of agriculture in 
rural America is safely in the hands of the family farmers who 
shed their blood, sweat, and tears in the pursuit of feeding 
the world. I believe these family farmers who are often second, 
third, fourth and even fifth generation on their farms deserve 
the opportunity to build a stronger tomorrow for themselves.
    These tools for the future of value-added agriculture I am 
convinced are a positive step towards helping the family farmer 
regrow rural America.
    When the Ranking Member comes, we will defer to her for any 
comments she may wish to put in the record, and I will without 
objection keep the record open for any opening statements that 
other Members may wish to submit. We will, however, go right to 
the witness panel and Members will be coming in as you all are 
testifying.
    First, I would like to recognize for his testimony Charles 
Kruse, the President of the Missouri Farm Bureau Federation, 
and I am grateful to all the witnesses for being here today. 
Charlie, please give us your testimony.

  STATEMENT OF CHARLES KRUSE, PRESIDENT, MISSOURI FARM BUREAU 
                           FEDERATION

    Mr. Kruse. Thank you, Mr. Chairman. As you mentioned in 
your comments, we have a large number of Missouri Farm Bureau 
people here this week, about 115, and several of them are here 
for the hearing today; and on behalf of all our Missouri Farm 
Bureau people, I want to thank you for having this hearing. And 
I also want to thank you for the emphasis you have placed as 
chairman of the Small Business Committee on agriculture.
    My name is Charles Kruse, and I am a fourth generation 
farmer from Stoddard County. My wife Pam and I raise corn, 
soybeans, and cotton on our farm. I also serve as President of 
Missouri Farm Bureau, the State's largest general farm 
organization.
    It is indeed a pleasure to appear before this committee and 
share the views of Missouri Farm Bureau members on 
opportunities for adding value to U.S. agricultural products. I 
commend you, Mr. Chairman, for your continued interest in this 
issue and determination to address the hurdles farmers face as 
they attempt to capture a larger percentage of the consumer's 
food dollar. We appreciate your leadership and stand ready to 
assist this committee in whatever way possible.
    Last September, as you mentioned, I was invited to share 
some general thoughts relative to value-added agriculture and 
the outlook for new generation cooperatives. Today almost 6 
months later, I am pleased to report both growing interest and 
knowledge in value-added opportunities. Yet the problems 
plaguing U.S. farmers and ranchers have changed very little.
    In Missouri, spring crops have not even been planted, but 
many economists project another year of commodity prices that 
are far below the cost of production. Agricultural exports are 
expected to grow only marginally this year, and now farmers 
have to deal with skyrocketing fuel costs and rising interest 
rates. These factors coupled with the growing regulatory burden 
and continued consolidation pose serious threats to the future 
of many family farms. According to the U.S. Department of 
Agriculture, 14 percent of our Nation's farmers are expected to 
experience debt repayment problems this year.
    Enhanced demand for agricultural products is the key to our 
future success. Overseas, it is important that Congress approve 
permanent normal trade relations status for China and pave the 
way for implementation of the U.S.-China bilateral trade 
agreement. Also, we remain hopeful that agricultural 
negotiations within the World Trade Organization will move 
forward in upcoming months.
    Domestically, while rising fuel costs are a tremendous 
problem, they have also generated renewed interest in 
alternative fuel sources. We welcome the interest in renewable 
fuels such as ethanol and bio-diesel. Farmers and consumers 
alike will benefit from a national commitment to expand the 
research of development of bio-based fuel technologies. We are 
pleased that the administration recognized the potential 
benefits of bio-based fuels in its proposed FY 2001 budget. 
Many farmers believe strongly in the concept of value-added 
products but are unsure how to turn their interest into action. 
The learning curve is steep but climbable.
    It is the financial requirements that can be 
insurmountable. For this reason, we support legislation 
developed by Chairman Talent and Congressman Thune that would 
authorize a Federal tax credit for producers investing in 
value-added endeavors. A Federal tax credit would be an 
important tool for farmers and their lenders. Given the 
weakness of the U.S. farm economy, we have heard all too often 
that a producer lacks the capital to join a cooperative and the 
family's lender is wary of additional exposure. State and/or 
Federal tax credits can help bridge this gap.
    In addition, we support legislation introduced by you, Mr. 
Chairman and Congressman Thune, that authorizes centers to 
provide producers with much needed technical assistance related 
to value-added ventures. Access to information relative to 
engineering, legal services, business planning, and market 
development via these one-stop shops is absolutely critical if 
these cooperative ventures are to succeed. We applaud the 
bill's focus on competitively awarded State projects and 
believe the grants could be extremely helpful to farmers 
throughout the United States.
    Finally, we commend the sponsors for including a provision 
authorizing $300,000 per year to develop the quantitative tools 
necessary to evaluate the impact of these centers on local 
economies.
    Last year, Missouri Farm Bureau conducted a series of 
regional meetings to ask our members what we should be doing to 
help restore long-term profitability. More farm program 
assistance was not the sole answer. We learned that farmers 
want to learn more about forming cooperatives, becoming price 
makers rather than price takers. Today, farmers are looking 
beyond market trends and focusing instead on the creation of 
entirely new markets for their processed products.
    During the meetings, we surfaced a number of ideas that 
warrant further consideration, including: The development of 
educational programs for producers interested in forming new 
generation cooperatives and directors of new generation 
cooperatives; the ability for new generation cooperatives to 
solicit outside equity from investors who are not required to 
commit agricultural products and do not have voting privileges; 
and also access to additional State or Federal funds for 
initial marketing assistance; and finally reducing the 
regulatory burden and expense associated with forming new 
generation cooperatives, especially those that include more 
than one State. For example, and Mr. Chairman, I think you are 
aware of this, a newly formed pork processing cooperative in 
Missouri has already spent $15,000 to comply with Securities 
and Exchange Commission requirements.
    In closing, let me just say it is important that you know 
that Farm Bureau does not blame the woes of the U.S. farm 
economy on the 1996 farm bill or any other single factor. 
Likewise there is no simple solution to our problems. We now 
have freedom to farm. We must focus on improving our ability to 
have freedom to market.
    Thank you, Mr. Chairman. I appreciate the opportunity to 
testify.
    Chairman Talent. Thank you, Charlie. I have a list of 
value-added start-ups in Missouri, some of which have already 
broken ground, others of which are in the exploratory stage, 
and without objection I will have that put into the record.
    [Mr. Kruse's statement may be found in appendix:]
    Chairman Talent. Our next witness is J. Gary McDavid, and 
Gary McDavid joins us today representing the National Council 
of Farmer Cooperatives. Gary is the chair of the legal, tax and 
accounting subcommittee on tax legislation of the NCFC.

    STATEMENT OF J. GARY McDAVID, ESQ., CHAIR, LEGAL, TAX & 
ACCOUNTING SUBCOMMITTEE ON TAX LEGISLATION, NATIONAL COUNCIL OF 
                      FARMER COOPERATIVES

    Mr. McDavid. Thank you, Mr. Chairman, other Members of the 
Committee. On behalf of America's farmer cooperatives and their 
nearly two million farmer owners, we want to take this 
opportunity to express our appreciation for the steps you are 
taking in bringing to the forefront the needs of rural America, 
especially with regard to the availability of technical 
assistance and tax incentives that will help farmers help 
themselves and the communities in which they live.
    Additionally, we recognize and appreciate the efforts over 
the past 2 years by this Congress in approving much needed 
economic and disaster assistance in response to low commodity 
prices and adverse weather conditions in many parts of the 
country. For many farmers and ranchers, the emergency 
assistance has been the difference between survival and going 
out of business. However, it appears that given the current 
economic outlook, similar assistance may again be needed this 
year. Accordingly, we strongly support such action as may be 
necessary.
    At the same time, we believe that it is critical that 
action be taken that will lead to a sustained long term 
economic recovery, improved farm income and risk management, 
increased market opportunities and growth in exports for U.S. 
agriculture. It is within this framework that current farm 
policies and related programs should be reviewed and evaluated, 
as well as strengthened.
    Furthermore, we strongly recommend a number of additional 
actions that can and should be taken to address not only the 
near-term challenges facing U.S. agriculture, but also to 
achieve the long-term objectives outlined above. Critically 
important is strengthening the ability of farmers to join 
together in cooperative self-help efforts to improve their 
income, manage their risk, and compete more effectively in a 
rapidly changing global economy. A high priority should be 
given to ensuring that public policies and programs relating to 
agriculture are directed toward achieving this goal.
    Federal programs relating to farmer cooperatives should be 
revitalized and funding for research, education, and technical 
assistance similar to the legislation resubmitted yesterday by 
Chairman Talent and Congressman John Thune from South Dakota. 
Other actions are needed to help farmers through cooperative 
efforts become more involved in value-added production, 
processing and marketing activities beyond the farm gate and to 
capitalize on new market opportunities. Not only would this 
help farmers capture a larger share of the consumer dollar, 
thereby strengthening their income and providing greater 
economic stability in the communities in which the farmers and 
cooperatives are located, it would also promote needed 
competition.
    To achieve this, farmers and their cooperatives must have 
in place policies and programs, including adequate tax 
incentives, to help attract needed capital and investment. 
Equally important is the need to maintain access to a strong 
and competitive cooperative farm credit system. Current loan 
guarantee programs should be expanded to provide financing for 
both new as well as existing farmer cooperatives seeking to 
become more involved in value-added activities. Other 
initiatives also should be considered to further meet capital 
requirements.
    On the issue of tax incentives that are very important to 
us, the National Council of Farmer Cooperatives supports and is 
working for the inclusion of H.R. 1914 into an upcoming tax 
bill. H.R. 1914 was included last year in the Tax Refund and 
Relief Act of 1999 that was vetoed by the President. H.R. 1914 
would allow farmer cooperatives to bypass the dividend 
allocation rule, a regulatory rule which negatively impacts the 
amount of the patronage dividend deduction taken by a 
cooperative.
    As cooperatives look to the 21st century, it is important 
for the industry to have the appropriate tools so it can 
continue to give value to its farmer owners. In today's world, 
businesses need to be adequately capitalized if they hope to 
remain competitive. Farmer cooperatives have a difficult time 
raising capital. The reason is that they generally only have 
two sources of capital, their farmer owners and borrowing from 
a lending institution. Farmer cooperatives do not raise capital 
from financial markets by issuing voting common stock because 
their members hold this stock.
    However, farmer cooperatives are allowed to issue a class 
of nonvoting preferred stock that can be used to raise equity 
from sources other than farmer owners. When issuing a dividend-
bearing class of nonvoting preferred stock on which dividends 
payment is made, a cooperative must now comply with the 
dividend allocation rule which has adverse tax effects on the 
cooperative and has been one reason why cooperatives today rely 
heavily on debt financing.
    The effect of the dividend allocation rule is a third tax 
on this portion of the cooperative's income. The dividend 
allocation rule is technical in nature and is explained in our 
written testimony. NCFC has been working with Representative 
Bill Thomas in attempting to change this regulation. 
Congressman Thomas has introduced H.R. 1914 that, if enacted, 
would modify the dividend allocation rule.
    The benefits of this legislation for cooperatives could be 
substantial. Among other things they could more easily raise 
capital from outside investors without giving up any ownership 
or control by the farmers who own the cooperative, could 
increase the amount of patronage earnings paid to farmer 
owners, create a class of nonvoting preferred stock that could 
be traded on capital markets thereby providing liquidity to 
cooperative interests, create a preferred-stock program for 
management and employees that would improve incentive programs, 
allow a cooperative to repurchase a departing member's interest 
for dividend paying stock rather than through debt. In a 
nutshell, this proposal would give farmers a useful tool when 
attempting to raise capital for their cooperatives.
    For this reason, the National Council of Farmer 
Cooperatives supports and is working for the inclusion of H.R. 
1914 into an upcoming tax bill, and we look forward to working 
with this Subcommittee and the Ways and Means Committee on this 
issue.
    Mr. Chairman, we appreciate this opportunity to testify and 
look forward to taking your questions. Thank you very much.
    Chairman Talent. Thank you, Mr. McDavid. I guess that 
dividend allocation rule is a kind of triple taxation; isn't it 
when you work it all out?
    Mr. McDavid. Yes, it is. It is very unfortunate.
    [Mr. McDavid's statement may be found in appendix:]
    Chairman Talent. I will recognize the gentleman from South 
Dakota for the next introduction.
    Mr. THune. Thank you, Mr. Chairman, for holding the hearing 
in the first place because I think this is a very timely 
hearing and for giving voice to this issue and shining a light 
on this issue because this is something that I believe really 
is about the future of agriculture, and we have had a good 
amount of success already in our State in the area of value-
added enterprises. The legislation which you have taken 
leadership on and helped move forward here is critical in terms 
of what it can do to further bolster those efforts.
    I am honored today to have a couple of gentlemen from my 
home State, first of which I will introduce right now, to 
testify on this issue. Rick Vallery is here today on behalf of 
South Dakota Wheat, Inc. He has also formerly farmed with his 
family in western South Dakota raising cattle and irrigated 
corn and alfalfa and wheat. In 1984 he went to work for the 
South Dakota Farm Bureau; and 3 years ago left the Farm Bureau 
to go to work for South Dakota Inc. Rick is very knowledgeable 
regarding value-added agriculture, and I believe his testimony 
will be a great asset to the Committee as we begin to consider 
how we might expand opportunities for value-added endeavors.
    So, Rick, thanks for coming; and with that we are happy to 
listen to what you have to say to us.

  STATEMENT OF RICK VALLERY, EXECUTIVE DIRECTOR, SOUTH DAKOTA 
                          WHEAT, INC.

    Mr. Vallery. Thank you, Mr. Chairman and members of the 
Committee. My name is Rick Vallery. I am the executive director 
of the South Dakota Wheat, Incorporated which is a producer 
group located in Pierre, South Dakota. Currently, South Dakota, 
Incorporated is working on two valued-added projects, and we 
have two value-added projects that are kind of waiting in the 
wings. One project is a proposed flour mill that has a niche 
market. It is a very specialty-type flour, and so we are 
working on that.
    Another project that we are just putting together and we 
are not sure how far we are going to get with it, but it is a 
Web site where you buy and sell commodities. We think we have 
some potential for that, and we are very interested in seeing 
how that may work out.
    A year ago, the South Dakota legislature through the work 
of us and some others established a value-added subfund account 
of $3.4 million. This is a one-time fund. We only get it once. 
This account is designed to handle feasibility studies and/or 
marketing plans for value added, and that is all that it is to 
do. To date, there have been five projects that have been 
funded and approved for these moneys. Two of those studies are 
nearing completion. If either one of these studies become 
feasible or are proven to be feasible, then this legislation 
that Congressman Talent and Congressman Thune have proposed 
becomes very important.
    Also around a year ago, South Dakota commodity 
organizations and interested businesses such as the association 
of co-ops and rural electric and rural water systems 
established a nonprofit organization with a board of directors, 
and this is their mission statement verbatim: To foster 
creation of producer-owned, value-added agriculture by offering 
technical and staff support and championing value-added 
agriculture publicly by educating producers, lenders and the 
public on value-added concepts.
    So for the last couple of years, we have become very 
serious about value-added agriculture in South Dakota. There 
are two keys to a successful value-added project. One is 
organizational and the second is financial, but the key that 
brings it together, it is the finances during the 
organizational phase of start up that is needed most, and that 
is what the Talent-Thune bill does. It provides that 
organizational assistance in the legal, in the research, in the 
consulting, in the engineering, all areas that are extremely 
important once the feasibility marketing plan has been proven 
successful. It is the next step. It is a perfect fit.
    During that organizational phase, you will have questions 
or producers will have questions that are asked and answered 
concerning about the legal structure of which entity should we 
be making, should it be an association, should it be a 
corporation, should it be a cooperative. If it is a 
cooperative, what kind of cooperative? Should it be open, 
should it be closed, should it be a 521? All those decisions 
need to be done, and this allows for some financial assistance 
in the legal side of that.
    Another scenario is if it is a cooperative, is it going to 
be in one more than one State. If it is in more than one State, 
then we have the securities we need to go through which is 
additional legal entity work which is important. It is very, 
very important.
    Questions will be asked concerning the markets. Questions 
will be asked concerning the by-products of the entity that is 
being focused or the value-added product. Questions will be 
asked concerning real estate or building procedures or building 
structures. Location, all those things are handled through the 
engineering, through the infrastructure that is available in 
whatever State, and those are things that are covered in the 
proposed legislation.
    The Talent-Thune bill offers you a niche in starting and 
organizing value-added agriculture. It is an extremely 
important opportunity to provide assistance in legal 
engineering and consulting aspects of value-added projects 
wherever they may be.
    The second part of that, which is the tax credit portion, 
is a concept that is needed in the agricultural industry and 
would be welcome. We just view that from a producer's 
standpoint as just a wonderful opportunity to take advantage to 
provide that incentive to be a part of a value-added 
agriculture, and so we think both bills have tremendous value.
    With that, that closes my testimony. Thank you for the 
opportunity and the time for allowing me to share my beliefs.
    Chairman Talent. Thank you, Rick. When we complete the 
testimony, we will have an opportunity for questions. I don't 
want our witnesses to think we don't have questions, but by and 
large, I restrain myself and wait until all the witnesses are 
done.
    [Mr. Vallery's statement may be found in appendix:]
    Chairman Talent. Our next witness is Brooks Hurst. Brooks 
farms with his father and brothers in Missouri, in the far 
northwest corner of Missouri. So we have the southeast and the 
northwest of Missouri represented today. Brooks is vice 
president of the Missouri Soybean Association which has taken a 
strong lead in value-added agricultural development; and I 
should state, particularly given my comment before, that one of 
the reasons Mr. Thune and I got into this is that our two 
States, South Dakota and Missouri, while certainly not the only 
States to be active in value added, are two of the leaders and 
the ag leaders from our States really have probably as much 
experience that exists in the country in applying this concept. 
Mr. Hurst, please go ahead.

  STATEMENT OF BROOKS HURST, VICE-PRESIDENT, MISSOURI SOYBEAN 
                          ASSOCIATION

    Mr. Hurst. Thank you, Chairman Talent. I would like to 
thank you and your fellow Committee Members for the opportunity 
to testify before you today. I would also like to thank you, 
Mr. Talent and Mr. Thune, for the introduction of the Value-
Added Development Act.
    My name is Brooks Hurst. I serve as vice president for the 
Missouri Soybean Association and farm with my two brothers and 
father in northwest Missouri raising soybeans and corn. Mr. 
Chairman, I have written testimony; but for the sake of time, I 
would just submit it for the official record.
    You are all familiar with the tough times in the farm 
economy today; but as a farmer, I am inherently optimistic as I 
believe all farmers are. I believe the future of farming holds 
great opportunities and the technical assistance provided for 
in this act will allow farmers to capture these opportunities.
    Some of the things, biotechnology will bring such as 
nutraceuticals are truly exciting. Currently, Monsanto has 
beta-carotene they can put into rice to provide vitamin A for 
third-world countries, and this is just the first of many new 
technologies that are going to allow niche marketing, and I 
believe that farmers will be able to capture some of these 
markets.
    One of the future trends is identity preservation, and a 
system is needed to keep track of these different technologies 
and keep them in a separate pipeline. Northwest Missouri is 
starting a soybean processing plant right now, and we have got 
a farmer board that is just entering into discovery of business 
plans, and a technical assistance center such as proposed in 
this act would be very beneficial to building marketing plans, 
help with legal assistance, an engineering assistance.
    Soybeans are processed into meal and oil. Soybean meal is 
primarily used for feed. The oil has many uses, such as bio-
diesel that has been mentioned several times here today. We 
believe we have found a more efficient, smaller-scale process 
for separating the meal from oil in this small added-value 
processing plant that we are working on in northwest Missouri. 
If we can find an efficient, environmentally-friendly way that 
is just as cheap as the mass production processing plants that 
the current processing corporations use, then we have an 
opportunity to gain a huge market in identity-preserved 
soybeans. We can clean out this plant in less than a day and 
switch to a different variety of soybeans with different traits 
for different customers.
    AGP has talked about identity-preserved soybeans and they 
said it would take them 2 days to shut down the plant and 
totally clean it out to run a different type of soybeans 
through. So we would have a great advantage as a small 
processing plant in this market. If we had one place to go for 
all the technical assistance, we would have an advantage in 
marketing these soybeans and getting the production process 
started.
    We also need all kinds of technical assistance. For 
instance, we can also make plastic out of soybeans and if we 
can find a way to harden plastic in 2 hours instead of 3 days, 
it makes it a lot more viable opportunity for us.
    Continuing on in the identity-preserved focus of things, 
there are several businesses in Missouri that sell directly to 
Japan. One of the things that Japan is really interested in is 
knowledge of where their food products come from. They like to 
know where it was raised and who raised it, and if we have a 
system set up providing information for these consumers, that 
will be a great benefit to Missouri and American farmers.
    You know, I feel I am an expert in farming, and I know how 
to raise soybeans and corn, but I don't know how to set up a 
business structure. I don't know how to engineer a soybean 
processing plant, and this act would lend great benefit to 
myself and fellow farmers when we start these value-added 
businesses. My father was on the founding board of an ethanol 
plant in northwest Missouri. He came home late many nights 
frustrated because he didn't have the expertise to start a 
business plan, and he didn't know where to go.
    I don't know how many oil wells there are in Missouri, but 
I don't think there are a whole lot. Processing corn into 
ethanol is one way to get energy from a renewable, 
environmentally-friendly source. Soy-diesel is another, and I 
feel farmers will benefit greatly from these opportunities.
    Touching on the tax credits, I think that that is a vital 
instrument. Other businesses have received them, and it is a 
vital interest and levels the playing field with large 
corporations so the small farmer can capture these added values 
and maintain a viable business.
    I would like to thank you for the opportunity to testify 
once again, and if there are any questions afterwards, I would 
be happy to answer them.
    Chairman Talent. Thank you, Brooks.
    [Mr. Hurst's statement may be found in appendix:]
    Chairman Talent. I will recognize again the gentleman from 
South Dakota for another introduction.
    Mr. Thune. Thank you, Mr. Chairman. The other witness from 
South Dakota, another friend of mine, is John Haverhals; and I 
want to thank him for appearing before the committee today as 
well. John is the past-president of the South Dakota 
Cattlemen's Association and is currently a director on the 
South Dakota Beef Industry Council's board. John and his family 
also run a cattle feedlot there in Hudson, South Dakota; and as 
a cattle producer and partner in a value-added agricultural 
business, John knows his subject inside and out. I very much 
look forward to his testimony here today. So John please share 
with us your thoughts on value-added agriculture.

  STATEMENT OF JOHN HAVERHALS, FORMER PRESIDENT, SOUTH DAKOTA 
                    CATTLEMEN'S ASSOCIATION

    Mr. Haverhals. Thank you, Mr. Chairman, and thanks to the 
Members of the Committee for the opportunity to testify.
    My name is John Haverhals. I am from Hudson, South Dakota, 
and we do have a cattle feedlot. So the entire time that I have 
been in beef production, I guess I have always been involved 
with value added as we took feed stuffs and processed them 
through the live animals and created protein meats. So from the 
day I started as a young child feeding cattle, I think I have 
always been involved.
    I want to relate a story that I have with starting our 
business that we started 7 months ago. It is in Overland Park, 
Kansas. It is a gourmet meat store where we sell some of our 
meat through that process. The biggest opportunity that comes 
along with that, instead of receiving a dollar eight or a 
dollar fourteen that I would receive from a traditional 
harvesting facility, I am now selling product at $19 a pound. 
With that dramatizes the value that can be captured by creating 
these entities. That also is a stimulus for others to want to 
enter into these things.
    As the testimony that was given prior to me, many things 
have been said of what helps and doesn't and what is needed so 
I am not going to reiterate that; but I can truly say as a 
person who has just started this process 7 months ago, there 
isn't a single item in your legislation that I couldn't have 
used dramatically. And when it comes to the tax credit, that is 
also a major part of not entering into these things. We had 
several people that did not enter into our joint agreement 
because of the capital outlay. Right now, the capital outlay I 
have in our store, it is on our balance sheet; but it is a 
nonrenewable asset because we won't receive a return on our 
investment for 3 or 4 years. I can't use it as a tax break, and 
it is not being used in my general business. So I have taken 
capital from my general business and moved it over into this 
new venture, which actually is a deterrent to my income in the 
short term. Long term it will be of benefit.
    In summary, these pieces of legislation are a win-win for 
those involved. Farmers and ranchers will have the opportunity 
to become more profitable through the development of new and 
existing products. The communities in which they live will 
benefit from their success. The economy will see enhanced 
competition; and in the end, the consumer will enjoy a larger 
variety of products from which to choose. For these reasons, I 
ask you to continue to work on the legislation, and I thank you 
for the opportunity to testify.
    Chairman Talent. Thank you, John.
    [Mr. Haverhals' statement may be found in appendix:]
    Chairman Talent. It is a pleasure now to introduce Gerald 
Tumbleson, who is the past president of the Minnesota Corn 
Growers. And let me just say that I think we have on this panel 
three States' representatives who have been the lead in value-
added enterprises. And not to spark a competition, but 
Minnesota may be at the forefront. And I am a big believer that 
when you have a working model some place you try and duplicate 
it rather than reinvent the wheel. So Gerald, please tell us 
how you are doing it in Minnesota and thank you for coming.

 STATEMENT OF GERALD TUMBLESON, PAST-PRESIDENT, MINNESOTA CORN 
                      GROWERS ASSOCIATION

    Mr. Tumbleson. Thank you, Mr. Talent and also Mr. Thune for 
inviting us here. It is quite an honor for us to come off the 
farm out there and come in here and speak with you today. Not 
only being with the Minnesota Corn Growers, I am on the board 
of the National Corn Growers. And Minnesota does have a lot of 
ethanol plants as we go through this; but as we see it 
happening, you sometimes think of it as a farmer-owned thing 
and farmer controlled.
    I am going to not follow my script--you will be able to 
read that--because some of the things have been repeated, and 
we don't have to go through those again. But first of all, I 
want to thank you for the foresight of coming along with this 
bill and the bill for the tax credit at this time. It is so 
amazing that it happens to be surfacing now.
    I remember great grandfather who was a farmer, what he did 
is he took horsepower which was four legged at that time. He 
put a seed in the ground; he let it grow; he nourished it. And 
he harvested it, and he sold it. You know what I am doing 
today? I am putting a seed in the ground with horsepower. It 
might be on rubber tires or something. I nourish it, and I sell 
it.
    And as I look across the United States and in the world, I 
see every business has made a drastic change. And here I am 
farming similar to what my great grandfather did. And I am 
thinking, why are we doing that? Why hasn't agriculture today 
taken the technology and the things and moved into a different 
direction? If you think about the technology in agriculture 
over the last 10 years, starting 10 years ago and where it is 
today, we have started that. There is IP grains, the identity-
preserved grains. There is other forms of things that we are 
putting together.
    And as we do that in Minnesota, we have some 30 farmer-
owned cooperatives or venture-together cooperatives up there, 
and we are working very hard on that. But it is amazing as you 
get farmers together the way you have to do it; you need to 
join in an alliance. Now there is a 21st century alliance that 
many of you are familiar with from down in Kansas. There is an 
alliance in Illinois. Minnesota has not had an organized 
alliance in the past. We had farmers get together. Now we are 
organizing an alliance called Farm Connect in Minnesota. We are 
going in there where farmers can put in $500 to join this 
alliance, and every year they add another hundred dollars for 
membership.
    What it does, it puts farmers together. If you get 1,000 
farmers together and now you want to do some processing or 
something, or value-added thing, you send a letter out to all 
of them and say would you like to invest into this or would you 
like to get more information. The ones that want it write back. 
Now, you might only have a hundred of them or 200 of them, but 
you have the organization that puts it together.
    From then on what your bill does--and I commend you 
wholeheartedly for this bill, like I say it is prime time, it 
is perfect. What we can do is now we can get money to go out 
and find out where we have to go. The feasibility studies, as 
farmers, as was mentioned before, we don't have the expertise. 
So why do we have to be stubborn farmers like we have been all 
our life? Why can't we say let us hire that expertise? Let us 
join together and do this, and that we can do in these 
organizations that get together.
    We have corn-processing plants in Minnesota. Somebody said, 
well, why do you need more if you have the processing plant. 
The processing plants today are basically working with starch. 
We have protein; we have oil; we have fiber. We are going to 
take that all out of the kernel before it goes into the starch 
processing. Okay. Now, look at where we can go, where we can go 
with those processing plants in the next step if we have the 
Farm Connect working together so that we can go out and do 
that.
    And what happened is agriculture is really in a pretty 
tough time. As you know, the prices are down; and we don't have 
a lot of money. But there is other things going on here in 
Congress, and I appreciate what you are doing. And like crop 
insurance, income protection, it is not a profit thing out 
there, but it is a protection. What that does is frees up a 
little money. I don't have a reserve in a back pocket in a 
savings account in case I have a bad year to keep farming. That 
frees that up. Now, look at what the farmer can do with that 
money. Now it opens up. He has a little cash. He joins--if he 
has 50,000 or a hundred thousand, joins with a hundred other 
farmers, then you are talking millions. Then you go to the 
banker with three or four million and you leverage that three 
to one, you are six to eight. Now we can move and with your 
bill so that we can get the expertise and work in that 
direction--besides your tax bill, that is gravy on top of this. 
If you can get that done, invite me back; I will fight for you 
on that one, too.
    As you do this, think of where we can go out there. This is 
not just farmers. I have implement dealers, I have hardware 
store owners, I have grain builders in my area that are really 
hurting because we don't make enough money. This opens it up 
and makes rural United States prosperous. Now we are not here 
just as farmers. I am not here just as farmers because those 
friends go to church with me. They have kids in school with my 
kids. That is very important, and what you are doing under this 
thing is you are opening up rural development even though it 
looks like it is farmer-owned value added. It is rural 
development when you think about what it does, and I am going 
to quit now because I think we have everything wide open for 
us, but I am so excited that you have come with these pills at 
this time. If you need help, call.
    Thank you for this opportunity.
    [Mr. Tumbleson's statement may be found in appendix:]
    Chairman Talent. I appreciate that, Mr. Tumbleson, and you 
said, I think, better than John and I have said it so far. And 
I am grateful for your passion on behalf of this.
    In fact, it leads into my first question because I was 
going to ask Charlie, you were talking about the impact even 
beyond producers. Charlie, I know that there are three value-
added enterprises under consideration just in southeast 
Missouri, and maybe you would talk a little bit about them. And 
I wanted to ask you the impact they would have on the economy 
in general, in Stoddard County and in southeast Missouri if we 
can get these up and running. Maybe you can follow up on what 
Mr. Tumbleson was saying.
    Mr. Kruse. Yes, sir. I think Brooks Hurst made a good point 
a while ago when he said we know how to farm, but we don't 
necessarily know all the things we need to know in order to get 
involved in some of these value-added enterprises. I think one 
of the most exciting things we have going on in southeast 
Missouri is we have a group of rice farmers that have joined 
together and they have found that there is a real demand from 
the country of Turkey for a medium-grained rice.
    We had never grown this rice. In fact, it has never been 
grown anywhere in the United States until this past year. And 
they sold every bit of the rice they produced, and the 
government or the company in Turkey that they worked with has 
come back to them and told them that they want to buy a whole 
lot more rice next year than they had this year. And I think 
this is exactly the kind of thing we are talking about. Farmers 
coming together, finding a new market or finding a new niche, 
if you will, for something that we produce, adding value to it, 
and whether we are talking about livestock, whether we are 
talking about any of the other issues that have been talked 
about here today, I think it is absolutely essential that we do 
this.
    And then I think, Mr. Chairman, as you pointed out, not 
only are we going to help farmers, we are going to help the 
agricultural economy and we are going to help everybody from 
implement dealers to automobile dealers to everybody on main 
street in all the communities in rural America. When 
agriculture is thriving, our economy thrives in rural America.
    Chairman Talent. Thank you, Charlie. You talked about niche 
marketing, and one of the reasons I wanted to do this and do 
this in this committee is we have seen in this committee in 
other contexts how this kind of technical assistance helps 
people, entrepreneurs in particular get going. And for a very, 
very small amount of money up front, you produce an awful lot 
of economic activity.
    Now you mentioned niche marketing, we have something in the 
St. Louis area called produce row, which is a row of fruit 
distributors, and I go down and talk to them. They are very in 
touch with where consumers are coming from. People in terms of 
the domestic market are more and more interested in certain 
kinds, I don't want to call them exotics, but food-specialty 
items; and it is the small producers who are in a position to 
understand that market and react quickly to it and get way out 
ahead.
    John, you were mentioning the beef, what you are doing in 
terms of gourmet beef, and you get $19 a pound for that as 
opposed to a dollar a pound, right? It is really out there to 
do and it is the small value-added enterprises who can react 
quickly and create IPB products. It is a classic example of 
that.
    Let me see if I had any other questions. Okay. Rick, you 
mentioned a $3 million program that South Dakota has for 
feasibility studies. Is that a grant program?
    Mr. Vallery. It can be a grant, or it can be a loan 
program. It is based on the profitability of the project. If 
the project goes through, it can be called in as a loan. If the 
project does not go through, then it will be considered a 
grant.
    Chairman Talent. We may want to talk with you more about 
that because we are pushing this tax credit legislation, and 
the problem is complicated when you create tax credits. I mean, 
can they be sold? Who exactly can qualify for them? You know, 
all that sort of stuff and I think we will figure all that out, 
but we have to be open to all different kinds of ways of 
getting extra financing because the tax credit is complicated. 
And believe me the Ways and Means people can come up with all 
kinds of questions when you take a bill over to them.
    Here is another example, if any of you want to comment on 
this, in terms of applied research, as we develop for example 
new value-added soybean products. I saw at University of 
Missouri at Rolla, the kinds of products that are being 
developed and a small-value added enterprise can take that and 
market it much more quickly than a larger, huge corporate 
outfit can.
    Any of you want to comment on that? Brooks, you want to 
make a comment on that?
    Mr. Hurst. Sure. Yes, they can move into the market a lot 
quicker; and I would just like to go back and address the 
economic impact on the communities a little bit, too. The town 
that the ethanol plant is going into is small. The plant is 
going to hire 22 people and that is a 15 percent increase in 
the population of the town, which is a big impact on the 
economy. And the surrounding communities will be greatly 
impacted, too; and so any of these small value-added processing 
plants increase the tax base and the population--around the 
turn of the century the population in our county was about 
twice what it is now which is 7,000 people. So we need jobs in 
rural America. The farm economy is the only economy in our 
county, and so any value-added processing plant that we can 
bring into that town would be a great benefit.
    Dr. Virgil Flanagan in the University of Missouri at Rolla 
has done a tremendous amount of work with soybean products and 
processes. And the possibilities are limitless. Some of them 
are, as you mentioned getting brought to market quicker, and 
some of them are going to be very hot commodities and will be 
produced rapidly and have a huge market in a short time.
    Chairman Talent. The only other comment I want to make 
before I recognize Mr. Thune is dealing with the issue of 
costs, and we are talking about legislation which will cost in 
the millions of dollars. Certainly our VETA bill costs that 
much. We are fixing out the tax credit right now.
    Well this year, we are considering another safety net bill 
which I will fully support on the order of six or seven billion 
dollars or more. When you consider that for an up-front 
investment in the order of tens of millions of dollars, we may 
empower producers to diversify and get into value added so the 
next cycle of low-commodity prices--I mean if that cuts in 
half, which is probably conservative, the amount of the safety 
net bills we are going to have to pass then, you see the 
difference in terms of savings for the tax payers. You all can 
comment on this if you want to, but not doing this now would be 
a classic case of being pennywise and pound foolish and we are 
emphasizing that. And I would encourage you all and the other 
commodity groups to emphasize that as you talk to your 
congressmen about the bill.
    I am happy now to recognize my friend and cosponsor of the 
legislation Mr. Thune.
    Mr. Thune. Thank you, Mr. Chairman. And if I might just 
note a couple of observations. One being which I think some of 
the panelists noted and that is a--I have a tendency and this 
is kind of the crossroads of agriculture and small business, 
and I appreciate again the leadership that you have taken. I 
hope we can generate interest on the ag committee in this 
because I have a tendency to look at a lot of these issues in 
terms of the impact it will have on individual producers and 
what a great benefit that will be. But the bigger picture is as 
well is how do we preserve the rural economy.
    In my State we are talking about a lot of small businesses, 
a lot of small main streets and downtown areas that are dying 
slowly and don't know what to do. And this is a perfect 
opportunity not only to improve the bottom line for our 
producers but also to provide some improvements in downtown 
main streets, and like all the ancillary businesses that you 
mentioned that also benefit from this. And I think that is 
really important when we talk about it, that is--you know, I 
think that is an aspect we need to keep in mind.
    And the second observation would be as you just noted, it 
is really important, I think, for the producer organizations 
who are represented here today as well as others to get out and 
do the grassroots and start, I think, raising this issue, 
raising the awareness level, the education level that is out 
there because it is going to be critical for us to move this 
forward.
    The Chairman mentioned, we are dealing with Ways and Means 
on tax issues. There is no easy feat. We have got our work cut 
out for us. I think this is the right approach in my opinion, 
and I credit everybody at the table today for efforts that have 
already been made that are underway and want to encourage you 
to continue that, but I think we need to be looking at ways we 
can partner and provide the incentives to take this further 
down the track.
    It seems to me that the operative state of agriculture 
today, if you look at it at least in the last couple of years 
is we lose a little bit on each sale, but we make up for it in 
volume. You can only do that for so long before you end up in 
the red, and part of the problem is--is again we have become 
very efficient on the production side of it. We are producing 
wonderfully. We have got great efficiencies and great 
technology that is serving us extremely well, but the other 
side of the issue is we have got to open markets.
    I think part of the solution to the whole crisis we are 
facing in agriculture today is markets, and it is trade. It is 
risk management. It is crop insurance, and other things that we 
are working on here. And as you mentioned, Mr. Chairman, the 
House budget which we will adopt, hopefully, sometime next week 
will include emergency provisions to provide again assistance 
this year to address the ongoing cycle of low prices.
    But this is such an important, I think, component part of 
the solution; and I appreciate again those who have testified 
today and think that it is important that we continue to 
highlight not just the impact on individual producers as 
important as that is but also how important this is to rural 
economies. And our State is a perfect case in point.
    A couple of questions I might ask, I guess; and Rick, you 
had mentioned that South Dakota Wheat is working on two value-
added projects today and has two more in the wings. Could you 
elaborate a little bit briefly on what those projects entail?
    Mr. Vallery. Certainly. Project one is a $50,000 
feasibility study for a specialty flour mill. We are also--I 
call it specialty. Identity-preserved, it is the same type of 
thing. Major problems that we are facing are infrastructure, 
transportation to the markets. When you are working with value 
added from South Dakota--and this is a South Dakota issue, we 
know that, it has usually been told to the producers that it is 
cheaper to ship the commodity than to ship the finished 
product.
    Well, how do we know that? We are being told that. How do 
we know that? Part of the $50,000 was a $10,000 transportation 
study which has not been completed but has found a couple of 
switches, which is railway terms, where we basically can ship 
the finished product cheaper than the raw product. But without 
the $10,000, we would have never known that; and we still might 
not be successful. But at least we have an opportunity to 
continue to look into that area and maybe be successful.
    The second project we have is an interesting concept. It is 
basically putting together the commodity groups and selling 
commodities via the Web site. The idea is to post on a Web site 
a commodity that a farmer-producer has tested. For the 
soybeans, it will be tested for certain oil; or for wheat, it 
will be tested for protein or test weight of the wheat or 
possibly flour millability characteristics or dough 
characteristics for the bakers or ash content. For sunflower, 
it will be oil. For corn, it will be starch or whatever. Those 
will be tested--and might be a white corn let us put that in 
there. Those will be tested by the producer themselves and then 
will be put on a Web site for purchasers to surf.
    If they find something they like, they can then go to that 
purchaser. It is simply a clearinghouse idea. It is in the very 
conceptional stages. We are not exactly sure where this is 
going to go, but it is a good idea. It is something that has 
not been done. I shouldn't say has not been done. I just read 
just the other day there is a Web site that is trying to do 
very similar to us called CyberCrop, but this is going to be 
tried to be producer owned and producer driven.
    Those are the two we are working on right now. We have had 
some discussions about wheat straw boards. That has been 
ongoing. We have had some things that haven't quite worked, and 
so those are kind of waiting in the wings.
    I would like to add one thing that is so important with the 
assistance that this bill provides. For every co-op or 
project--value-added project that fails, whether it is because 
of funding or legal or market or whatever, you create yourself 
a higher hill to sell the next project. And it is so important 
to keep that hill low so that the next project has a good 
opportunity as well, no matter what the commodity or what the 
crop.
    Mr. Thune. I guess I think the thing--you do have to keep 
in mind is we are not going to hit pay dirt on every one of 
these deals, but to me this is sort of--the legislation that we 
have proposed in many respects is like a kind of R&D fund. You 
know, if you don't do research and development you are not 
going to find those little gems out there that are really going 
to make it big, and I think that providing the technical 
assistance and expertise that is necessary to at least get this 
process underway and develop a system where you can gauge and 
measure whether or not a project is going to be successful is 
really important. And so I think this again is the right 
approach.
    I also believe that, you know, ultimately long term some 
things that we did last week on the bill that we passed, the 
tax relief deductibility of health insurance premiums, relief 
on the death tax, expensing provisions increased. Farmers and 
ranchers are small businesses. Those are things that are going 
to be critical, I think, in terms of lessening the load that 
you all carry; but I am delighted that we were able to at least 
begin the process here in hopefully filling in the blanks in 
terms of the value-added concept because the concept is one 
that needs to be fleshed out. I think the timing is right.
    And one of the other issues that I would say I know is a 
concern in our State has to deal with the whole issue of 
concentration. In fact, we are going to be introducing 
legislation here soon. We are in the process of drafting a bill 
which will address concentration in the ag industry, and I 
would just direct this question to John--Mr. Haverhals.
    You indicated at the end of your testimony that value-added 
projects can enhance competition. And with the, you know, 
stepped up level of concentration mergers and large agri-
business firms within the ag sector being a serious concern to 
producers, do you think that development of value-added 
endeavors can aid producers as they try to compete in what has 
become an increasingly vertically-integrated industry?
    Mr. Haverhals. Absolutely. As you have the more 
opportunities to select where you are going to sell your 
products, you can move away from your traditional three or four 
markets as we have in beef today. So as I produce animals, 
whether I buy them in South Dakota or Missouri, as I buy those 
animals and feed them, I can target them to the different 
markets. Some of them are now targeted to go to our own store. 
But with that comes great rewards, and I wholeheartedly think 
it would defer concentration.
    One comment I would like to make, if I may, Congressman, is 
as we go and build all these value-added processing for corn 
and soybeans and wheat, and et cetera, never forget to create 
co-companion products. And at our feedyard today, we feed--60 
percent of our ration is coproducts for food processing, 
ethanol plants, et cetera. One of the greatest harvesters of 
those co-products is the ruminate animal which is a beef animal 
or a sheep. So never forget about the beef animal and its 
integral part of completing the cycle as we reprocess and 
recycle those products back.
    Mr. Thune. I have a feeling if I ever forget you will let 
me know about it, John. So, Mr. Chairman, I can keep asking 
questions but I yield back.
    Chairman Talent. Your addressing the concentration issue 
which was the only other point that I wanted to make; that this 
was a way of dealing with the concentration of mergers of large 
agri-business firms that I think concern all of us in the 
agricultural sector and allows producers to participate and 
concentrate upwards instead of having it always come back down 
to them.
    Mr. Tumbleson, I thought your comments were maybe an 
appropriate way to conclude about how everything has changed 
and agriculture needs to change as well. It isn't good enough 
anymore just to be a better and better producer. You have to be 
a better and better businessperson at the same time. Do you 
want to comment on that?
    Mr. Tumbleson. That is very true. Thank you, Chairman. The 
thing I want to stress as we look into that is many people 
don't realize that if you have to have vision, and farmers 
sometimes get caught without vision because they aren't making 
enough money, but we know the carbohydrate ion is going to 
overtake the hydrocarbon ion in the future. The hydrocarbon ion 
being the petroleum ion and the carbohydrate ion being the 
renewable ion that is degradable. We know it is going to 
happen, and with your concentration issue here, if we can get 
ahead of that step in farmer owned, not totally owned, maybe 
assisted owned into part of this, do you realize what--I am 
going to die. You are going to die. Everybody is going to die, 
but my love for agriculture is too great to have agriculture 
die.
    If we can get this value added bringing some of that profit 
back to our future generations through that carbohydrate ion 
which we can through value added, we will be in a position in 
time, as it replaces the hydrocarbon ion, to have a solid 
footing. And I am really excited that we can do it, and these 
bills you have are going to push us toward that. And we in 
Minnesota are working very hard at that, and there are other 
States, you talk about Missourians and South Dakota. I have a 
State right south of me in Iowa going strong at it, and we will 
move across the country with this concept with your help. And I 
want to thank you very much.
    Mr. Thune. Would you move across the country and move to 
South Dakota? We would like that, too.
    Chairman Talent. I want to thank all the witnesses. Let me 
close by saying that there is something here which I have heard 
described as the 7-year rule which means that once a good idea 
is introduced and floated, it takes 7 years for it to sink into 
the consciousness of Congress enough to pass. And John and I 
are hoping to shorten that to 1 year and get it done this year; 
and in order to do that, we really need the help of producer 
groups.
    We have had very good conversations with some of John's 
colleagues on the agriculture Committee, and we can catalyze 
this whole process if when there are hearings there on the 
general situation, make sure that your witnesses testify in 
favor of these kinds of value-added ag innovation centers and 
the tax credit and be sure and talk to your Members of Congress 
about it. We are really counting on you. We will do our share 
up here, but we need your help.
    With that without objection I will leave the records open 
for 5 days for any further questions that Members may wish to 
submit; and with that, adjourn the hearing. Thank you all.
    [Whereupon, at 3:25 p.m., the committee was adjourned.]
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