[Senate Hearing 106-910]
[From the U.S. Government Printing Office]




                                                        S. Hrg. 106-910

                         FEDERAL SUGAR PROGRAM

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

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY
                          UNITED STATES SENATE


                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                                   ON

                         FEDERAL SUGAR PROGRAM

                               __________

                              July 26 2000

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry

                   U.S. GOVERNMENT PRINTING OFFICE
70-294                     WASHINGTON : 2001


_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 20402


           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                  RICHARD G. LUGAR, Indiana, Chairman

JESSE HELMS, North Carolina          TOM HARKIN, Iowa
THAD COCHRAN, Mississippi            PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            KENT CONRAD, North Dakota
PAUL COVERDELL, Georgia              THOMAS A. DASCHLE, South Dakota
PAT ROBERTS, Kansas                  MAX BAUCUS, Montana
PETER G. FITZGERALD, Illinois        J. ROBERT KERREY, Nebraska
CHARLES E. GRASSLEY, Iowa            TIM JOHNSON, South Dakota
LARRY E. CRAIG, Idaho                BLANCHE L. LINCOLN, Arkansas
RICK SANTORUM, Pennsylvania

                       Keith Luse, Staff Director

                    David L. Johnson, Chief Counsel

                      Robert E. Sturm, Chief Clerk

            Mark Halverson, Staff Director for the Minority

                                  (ii)

  
                            C O N T E N T S

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                                                                   Page

Hearing:

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

Appendix:
Wednesday July 26, 2000..........................................    69
Document(s) submitted for the record:
Wednesday, July 26, 2000.........................................   213

                              ----------                              

                        Wednesday July 26, 2000
                    STATEMENTS PRESENTED BY SENATORS

Lugar, Hon. Richard G., a U.S. Senator from Indiana, Chairman, 
  Committee on Agriculture, Nutrition, and Forestry..............     8
Santorum, Hon. Rick, a U.S. Senator from Pennsylvania............    23
Conrad, Hon. Kent, a U.S. Senator from North Dakota..............    10
Kerrey, Hon. J. Robert, a U.S. Senator from Nebraska.............    22
Burns, Hon. Conrad, a U.S. Senator from Montana..................    21
Dorgan, Hon. Byron L., a U.S. Senator from North Dakota..........     1
Abraham, Hon. Spencer, a U.S. Senator from Michigan..............     2
Breaux, Hon. John B., a U.S. Senator from Louisiana..............    26
                              ----------                              

                               WITNESSES

Mink, Hon. Patsy, a U.S. Representative from Hawaii..............     7
Miller, Hon. Dan, a U.S. Representative from Florida.............     5

                                PANEL I

Brick-Turin, Carol, CBT Consulting, Annandale, VA................    15
Schumacher, Hon. August, Jr., Under Secretary for Farm and 
  Foreign Agricultural Services, U.S. Department of Agriculture, 
  Washington, DC., accompanied by, Keith Collins, Chief 
  Economist, U.S. Department of Agriculture......................    13

                                PANEL II

Estenoz, Shannon, on behalf of the World Wildlife Fund and the 
  Everglades Coalition, Washington, DC...........................    39
Frydenlund, John E., Director, Center for International Food and 
  Agriculture Policy, Citizens Against Government Waste, 
  Washington, DC.................................................    33
Hammer, Tom, President, Sweetner Users Association, Falls Church, 
  VA.............................................................    36
Jaeger, Arthur, S., Assistant Director, Consumer Federation of 
  America, Washington, DC........................................    32
Kominus, Nicholas, President, U.S. Cane Sugar Refiners' 
  Association, Washington, DC....................................    35
Perry, Mark, Executive Director, Florida Oceanographic Society, 
  Stuart, Florida................................................    38
Shapiro, Hon. Ira, Coalition for Sugar Reform, Washington, DC....    30

                               PANEL III

Horvath, James J., President and Chief Executive Officer, 
  American Crystal Sugar Company, Moorhead, MN...................    48
Kennett, Alan, President and General Manager, Gay & Robinson, 
  Inc., Kaumakani, Kauai, HI.....................................    50
Lay, Jack, President, Refined Sugars, Inc., Yonkers, NY., 
  accompanied by Jack Roney, Director of Economics and Policy 
  Analysis, American Sugar Alliance..............................    52
McLaughlin, Lindsay, Legislative Director, International 
  Longshore and Warehouse Union, Washington, DC..................    54
Orden, David, Agricultural and Applied Economics, Virginia 
  Polytechnic Institute and State University, Blacksburg, VA.....    56
VanDreissche, Ray, President, American Sugarbeet Growers 
  Association, Bay City, MI......................................    46
                              ----------                              

                                APPENDIX

Prepared Statements:
    Lugar, Hon. Richard G........................................    70
    Harkin, Hon. Tom.............................................    72
    Thomas, Hon. Craig...........................................    73
    Dorgan, Hon. Byron L.........................................    75
    Breaux, Hon. John............................................    79
    Mink, Hon. Patsy T...........................................    88
    Miller, Hon. Dan.............................................    92
    Baucus, Hon. Max.............................................   100
    Abraham, Hon. Spence.........................................   102
    Brick-Turin, Carol...........................................   116
    Estenoz, Shannon A...........................................   155
    Frydenlund, John E...........................................   133
    Hammer, Thomas A.............................................   142
    Horvath, James...............................................   176
    Jaeger, Arthur S.............................................   126
    Kominus, Nicholas............................................   137
    Kennett, E. Alan.............................................   182
    Lay, Jack F..................................................   193
    McLaughlin, Lindsay..........................................   198
    Orden, David.................................................   205
    Perry Mark D.................................................   152
    Shapiro, Ira S...............................................   120
    Schumacher, August Jr........................................   105
    VanDriessche, Ray............................................   165
Document(s) submitted for the record:
    U.S. Cane Sugar Refiners Association, List of Member 
      Companies..................................................   214
    Letter to Ambassador Barshetsky, and Secretary Glickman, from 
      Don Wallace, chairman, ASA, submitted by James J. Horvath..   216
    Editorial, The Sweet Hereafter, submitted by Mark Perry......   217
    Editorial, Buyout May be Best Way to Re, submitted by Mark 
      Perry......................................................   233
    Petition to support U.S. Sugar Policy, submitted by Lindsay 
      McLaughlin.................................................   251

 
                         FEDERAL SUGAR PROGRAM

                              ----------                              


                        WEDNESDAY, JULY 26, 2000

                                       U.S. Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 8:32 a.m., in 
room SH-216, Hart Senate Office Building, Hon. Richard G. Lugar 
(Chairman of the Committee,) presiding.
    Present or Submitting a Statement: Senators Lugar, 
Fitzgerald, Craig, Santorum, Harkin, Conrad, Baucus, and 
Kerrey.
    The Chairman. Good morning. This hearing of the Senate 
Agriculture Committee is called to order. I thank our witnesses 
and all who are participating in the hearing for coming at this 
early hour.
    I would mention that we anticipate roll call votes midway 
through the hearing, and we have been advised that we must 
leave the room by 12:45 because the Rules Committee of the 
Senate has scheduled another hearing with another committee at 
that point.
    So, with that in mind, I am going to ask if each of those 
who testify today, including our distinguished colleagues from 
the Senate and the House and those representing the Department 
of Agriculture and the panels that have various views on the 
sugar program limit their initial comments to 5-minutes.
    I will just state categorically at the beginning that all 
prepared statements will be made a part of the record. So it 
will be unnecessary to ask for permission for that to occur 
because we want the record to be as complete as possible, and 
we will ask Senators as they appear for questioning to limit 
their question periods to 5-minutes as we go through the 
rotations.
    I will give my opening statement following that of our 
distinguished colleagues from the House and the Senate so as 
not to delay their comings and goings this morning, but we are 
honored that you are here. Let me just indicate that we 
anticipate testimony by Senator Dorgan, Senator Breaux, Senator 
Abraham, Representative Mink and Representative Miller.
    Three of you are here now, and, therefore, Byron, I will 
recognize you. It is always an honor to have the distinguished 
Senator from North Dakota, Byron Dorgan, before us, and I would 
ask you for your testimony.

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

    Senator Dorgan. Mr. Chairman, thank you very much. It is a 
pleasure to be here.
    Let me say that while I am excited to be here to support 
the sugar program, a program that I think is a wonderful 
program, a program that has worked for some long while to help 
sugar producers and stabilize the price of sugar for both 
producers and consumers in this country, I recognize that, that 
program has had some difficulties recently, having to do mostly 
with the farm program, the underlying farm program in this 
country that is not working, number one, and, number two, a set 
of trade policies that have undermined our producers as well.
    I would much sooner be here, I must say, Mr. Chairman, to 
appear at a hearing dealing with the Freedom to Farm 
legislation, as you well know. You are probably tired of 
getting letters from me on that subject.
    The Chairman. Never, never.
    Senator Dorgan. But because this is a hearing on the issue 
of sugar, let me focus on that.
    First of all, there is a lot of discussion about the world 
price for sugar. The critics of this program go to the floor of 
the Senate and talk about the world price for sugar. The world 
price for sugar is a dump price. Largely, there is not free 
trade in sugar, as 75-percent of the world's sugar is sold 
under contract, at a profitable contract, and the remaining 
surplus is dumped on the world market at the current price of 
8-cents a pound. The average world cost of production is 18-
cents a pound. It is obviously, it seems to me, that the 8-
cents is a dump price, and we ought not be talking about that 
as the world price or the market price.
    Twice, we have ended a sugar policy in this country, only 
to see extremely volatile prices ranging from 60-cents to 3-
cents a pound, and that volatility has injured both producers 
and consumers in this country. We know it, we have seen it, we 
felt it, and for that reason, we should understand the value of 
a program that produces price stability for both producers and 
consumers.
    There is a Coalition for Sugar Reform, a group of good 
people who are interested in their companies and their profits, 
bakers and chocolate manufacturers and biscuit folks and 
grocery manufacturers, and they say, ``Gee, if we could get rid 
of this sugar program and collapse the price of sugar, savings 
would be passed on to the consumers.'' Of course, we know that 
is not the case.
    Sugar prices are down by a full one-third since the farm 
bill began to a 22-year-low. Chocolate and candy prices are up 
6-percent. Cookies, cakes, and bakery products are up 7-
percent. Cereal and ice cream prices are up 9-percent. I was in 
a grocery store two nights ago. The price of a bag of sugar, 
the raw product as we know it, is essentially unchanged. They 
have not even lowered the price of the raw product.
    So I think we ought to set that argument aside. This is not 
about consumers. Farmers and consumers alike, in my judgment, 
are being fleeced.
    We have got a couple of things that are working against the 
sugar program. The GATT playing field in international trade is 
tilted against our farmers. GATT left the European Union [EU] 
subsidies for sugar 40-percent higher than our loan price, and 
the EU is the world's largest producer and exporter of 
subsidized sugar. Their high subsidy fosters overproduction 
which is being dumped on a world market.
    NAFTA is a failure for sugar and also for agriculture as a 
whole. NAFTA does not address the $2 billion in subsidy that 
Mexico has pumped into sugar production, changing it from a net 
importer to a net exporter. There has been no negotiation that 
would insist on abiding by the side letters. We have got 
stuffed molasses coming in from Canada. It is unforgivable that 
is happening, just unforgivable that we have this stuffed 
molasses coming in and nobody is doing anything about it. So we 
have got the failure of the underlying farm bill, Freedom to 
Farm, the failure of trade negotiations and trade acts that 
have been agreed to by Congress, and all of that has pulled the 
rug out from under our sugar producers.
    Finally, Mr. Chairman, I represent beet producers. They are 
the most efficient producers in the world. Without the sugar 
program, they cannot survive against lopsided trade agreements 
which are tilted against them, and against the backdrop of a 
farm program that has not worked, what has happened is we have 
seen more acreage. That is true. But if we fix the trade 
problems and get a decent farm program in this country, that 
sugar program will work and work well as it has for many, many, 
many years and work for consumers and work for producers.
    That is why I am here to say today I support this program. 
This program makes sense. If we take a look at changes in the 
farm program, and we should--we ought to do that starting 
tomorrow--we ought not look at dismantling the one part of the 
program that can work if everything else is fixed the way it 
ought to be fixed.
    Mr. Chairman, thank you very much.
    [The prepared statement of Senator Dorgan can be found in 
the appendix on page 75.]
    The Chairman. Thank you very much, as always, Senator 
Dorgan, for your testimony and for your interest in our work.
    Let me ask now Senator Abraham for his testimony.

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

    Senator Abraham. Mr. Chairman, thank you, and I appreciate 
the chance to go at this time since I have another meeting as 
well.
    I also am here today to convey to the Committee my support 
for the sugar program and why I believe it is a system that is 
necessary.
    The reality of sugar in Michigan is very simple. It is 
responsible for 23,000 jobs in my State, and as is the case 
with many United States jobs created by sugar production and 
refinement, these jobs are located in rural areas where there 
is little other economic activity. That is the reality of sugar 
production in Michigan.
    Every time the sugar program is challenged, much of the 
criticism is leveled at so-called large sugar barons. That may 
be true some places, but, Mr. Chairman, in my State, nothing 
could be further from the truth. In Michigan, there are 
approximately 2,000 family farms that grow beets, and most of 
these farms average between 100- and 150-acres. So, when some 
in Congress try to kill the sugar program, what they are doing 
really is threatening the livelihood of thousands of small 
Michigan farmers.
    Michigan sugar farmers are the most efficient producers of 
sugar beets in the United States, and since U.S. sugar beet 
production is the lowest cost in the world, I proudly label 
Michigan sugar beet growers the most efficient sugar growers in 
the world.
    Unfortunately, as has been the case with other agricultural 
commodities across the Nation, low prices are also prevalent in 
the sugar industry. So, while the rest of the United States 
economy has been roaring, U.S. agriculture has not. Prices for 
most crops are at or near all-time lows in real terms. This 
body has certainly recognized that danger, as you know, because 
since 1996 we have provided over $70 billion in payments to 
U.S. farmers.
    Like other American farmers, sugar farmers are facing tough 
times. The price American farmers received for refined sugar 
has fallen to its lowest level since 1978. These low prices 
threaten to drive sugar producers out of business. Agriculture 
faces unique difficulties not experienced in manufacturing or 
finance, and I have been a staunch supporter of efforts to 
provide emergency assistance for American growers.
    The Government should provide assistance to avoid commodity 
loan failures. The Government should also protect American 
sugar production from threats it cannot counter, and that 
really is the purpose of the sugar program.
    In my view, those who are seeking elimination of the 
program should focus their attention first on the foreign 
subsidization of sugar production, much as Senator Dorgan just 
commented on. If every government around the world stayed out 
of the sugar production business, we would not need a program 
to keep our farmers competitive.
    Just look at what we are up against, whether it is from the 
EU or from Brazil. We face competitors around the world who are 
strongly supported by government subsidies, and to put it 
simply, U.S. sugar producers are among the world's most 
efficient and they welcome a chance to compete with foreign 
growers, but cannot be expected, I do not think, to compete in 
a situation where they have to go up against foreign 
governments.
    Without the sugar program, subsidized sugar from foreign 
nations would drive American sugar producers out of business. 
Our efficient, labor-conscious, and environmentally sensitive 
production would be replaced by heavily subsidized imported 
sugar grown often under deplorable conditions which are illegal 
in all 50 States. Until a level playing field can be created, 
perhaps through a new round of trade negotiations, I believe 
this Congress must work to protect our domestic market.
    Finally, Mr. Chairman, let me just speak directly about 
this much maligned program. This year alone, the Government is 
spending over $13 billion in loan deficiency payments and 
marketing loss assistance to avoid forfeitures of wheat, corn, 
soybeans, cotton, and rice. Last week, we agreed to another 
$900 million in emergency agricultural spending. Meanwhile, the 
initial purchase under the sugar program totaled $54 million. 
This was not a payment to producers. This was just the cost of 
purchasing sugar which the Government now owns and may sell. 
Thus, the initial cost of the sugar purchase is about one-half 
of 1-percent of the outlays to avoid forfeitures of other 
crops. It is clear to me that the sugar program is a cost-
effective way to help American sugar growers grow for the 
domestic market, and I am not alone.
    Just last week, an overwhelming majority of Senators from 
both parties defeated another attempt to kill domestic sugar 
production. When so many sectors of American agriculture are 
suffering, I think it is incomprehensible that anyone in 
Congress should consider eliminating the one program which 
protects U.S. growers from complete eradication.
    Until foreign sugar producers grow for the market and not a 
government, I intend to work to maintain the U.S. sugar 
program. I know I will not be alone, and I look forward to 
working side by side with my colleagues here today to protect 
U.S. sugar from misguided efforts which would harm this 
important sector of the agricultural community.
    Mr. Chairman, thanks for having the chance to be here with 
you again.
    [The prepared statement of Senator Abraham can be found in 
the appendix on page 102.]
    The Chairman. Thank you very much, Senator Abraham, for 
coming early and giving this excellent testimony. We appreciate 
it.
    Senator Abraham. Thank you.
    The Chairman. Representative Miller

STATEMENT OF HON. DAN MILLER, A REPRESENTATIVE IN CONGRESS FROM 
                            FLORIDA

    Mr. Miller. Thank you, Mr. Chairman. Let me first of all 
congratulate you for the leadership you have given over here on 
the Senate side. I have been the leader of the program to 
reform and get rid of the sugar program since 1995 on the House 
side back when we had the debate in 1996. It was a Miller and 
Schumer bill. Now he is your colleague, and so, hopefully, he 
will provide that type of support over here.
    You have also done a good job advocating the elimination of 
a program recently in Fleecing of America and It is Your Money. 
This is an embarrassment to this Congress and this country 
because agriculture is the most efficient producer in the 
world, but we are protecting one crop. It is bad for the 
consumer. It is bad for jobs in this country. It is bad for 
trade. It is bad for the environment. Now we are finding it is 
really bad on the American taxpayer. We have created a cartel, 
not much different from OPEC, to control sugar prices in this 
country and, as you know, they are about three times the world 
price.
    They talk about all the subsidized sugar. We have laws in 
the books to keep subsidized sugar out, and we should not allow 
that in. I would agree completely with that, but as I said, 
this is bad for the American consumer. We have recently 
received a report from the General Accounting Office. This is 
the independent agency that has analyzed the sugar program and 
the cost on the American consumer. They have sought the advice 
of the Agriculture Department, and the Agriculture Department 
refused to participate in this, to come up with a model on the 
cost of it.
    So they brought in some of the outstanding academic 
economic modeling experts around the country to develop a model 
to project the cost, and they came up with a $1.9-billion cost 
on the American consumer. That is real dollars.
    I know some people are going to attack the messenger 
instead of the message, but the fact is that the independent 
agency that has got tremendous credibility here in Congress and 
has brought in some of the outstanding economic modeling 
experts around the country. It is a $1.9-billion cost.
    Let's talk about jobs. Let me give you two illustrations of 
how we are losing jobs in this country. Bob's Candy in Albany, 
Georgia, makes candy canes, obviously a large user of sugar. 
They can get sugar in Canada or in the Caribbean for a fraction 
of the price in the United States. He cannot compete with 
foreign candy cane companies and sell, these being driven, his 
production, out of this country.
    The cranberry business up in Massachusetts is hurting now 
because they cannot compete with Canadian cranberries because 
sugar is needed. You need a lot of sugar to make the taste 
better. So we are losing jobs in the cranberry business. So, 
when you start managing prices, it is just bad economics. It is 
dumb economics.
    Trade. We all recognize that we have got to open up markets 
for agriculture around the world, but when you protect one 
product, how do you negotiate with other countries? You cannot 
negotiate with Canada and say, ``We want all your markets open, 
but you cannot sell any sugar to us.'' That just does not work 
that way.
    That was one of the problems when we went to Seattle. When 
we enter more trade negotiations, and I think most of us are 
free traders and want to open up trade markets, the problem is 
you cannot product one product at the expense of all the 
others. Everything has got to be on the table, and you have got 
to go to these trade negotiations with clean hands.
    I am from Florida. From an environmental standpoint, sugar 
has been horrible on the Everglades. We are getting ready to 
spend about $8 billion on cleaning up the Everglades. The 
Federal Government will pick up about half of that cost, and 
the Senate has been very active under Senator Smith in 
developing and hopefully approving the plan that is going to be 
used there, but sugar is a major contributor to the problem. 
With the high price of sugar, we are overproducing sugar in 
Florida. We are encouraging more production of sugar, and it is 
hurting.
    Finally, the cost to the American taxpayer. We heard the 
argument in 1996, ``Oh, it does not cost the taxpayers 
anything.'' Well, just a month or so ago, they just bought $54 
million worth of sugar for the first time since 1985, and they 
may buy another 150- to 200-million in the next 60-days. Next 
year, because of the increased production of sugar, we could be 
talking about a half-a-billion dollars. These are actual 
taxpayer dollars. We are buying the sugar, and we have nothing 
to do with it. We cannot give it away around the world. So we 
are going to store it, and I do not know how long we are going 
to store it. Now we are going to have to have new facilities to 
store it.
    We have got to change the program. The program does not 
belong in a free enterprise, competitive system. We need to let 
the economy work the way it was designed, and I hope with your 
leadership on the Senate side, we can get rid of this program 
in the next reauthorization the next session of Congress.
    Thank you, Mr. Chairman.
    [The prepared statement of Representative Miller can be 
found in the appendix on page 92.]
    The Chairman. Thank you very much, Representative Miller, 
for your leadership, for coming here this morning.
    We are joined by Representative Patsy Mink. It is 
delightful to have you, as always. Please proceed.

 STATEMENT OF HON. PATSY T. MINK, A REPRESENTATIVE IN CONGRESS 
                          FROM HAWAII

    Ms. Mink. Thank you very much, Mr. Chairman. I appreciate 
so much the opportunity to present the views particularly as it 
impacts on my Second Congressional District and the State of 
Hawaii and as it affects the entire agricultural rural economy 
of this Nation.
    I would like to focus my remarks on two aspects: first, the 
severity of the crisis facing the American sugar growers; and, 
second, the flawed General Accounting Office report to which my 
colleague has referred.
    The U.S. raw sugar cane prices have plunged from 22.6-
cents-per-pound last July to now less than 17-cents-per-pound 
this month. This is the lowest level that we have seen in 
nearly 20-years, since 1981 when there was no sugar policy at 
all.
    Because of flat producer prices since 1985 and rising sugar 
production costs, Hawaii's sugar industry has shrunk in the 
past 10-years from 12-sugar-companies to only three, and we are 
currently being threatened that the third will probably 
announce its closure very shortly. This is a catastrophe for my 
State, and I am sure that my views with respect to the loss of 
this industry for Hawaii would be similarly reflected in other 
places in the country.
    The lost of 10 plantations in my district represents an 
economic, social, and environmental disaster. One might think 
that these agricultural jobs could be readily absorbed by 
tourism and other industries, but, sadly, this is not the case. 
So, when we talk about revising the Nation's sugar policy, we 
have to bear in mind that in places like Hawaii and perhaps 
elsewhere, it would be a total demise of the presence of this 
important industry.
    Most of the jobs in the sugar industry in Hawaii are heavy 
equipment, industrial-type work that cannot be readily 
converted to tourism jobs. So many of these individuals who 
come from these plantations that have been closed are still 
unemployed and working very, very hard to try to find some 
other kind of employment to which they could convert.
    The second catastrophe is the loss of the green. We have 
taken great steps to try to preserve the green atmosphere of 
the State. The lush sugar cane fields have contributed to that 
general aloha impression. When the plantations close, what 
happens is you have huge dust storms. There is nothing that you 
can use the land for productively, and the vermin and other 
things contribute to the problems that the adjoining 
communities have.
    Hawaii's producers currently achieve the highest yields of 
sugar per acre. They are well-paid workers. They are in 
communities where sugar is an important commodity. So I urge 
you to consider the economic aspects of this industry upon a 
small State like Hawaii and the catastrophic impact it would 
have on the several thousand workers who remain in this 
industry.
    I think it is important to look at the GAO report very 
critically because they are talking about losses to the 
consumer based upon world dump sugar prices. I have a chart 
here which shows what the real prices of sugar are in terms of 
the retail market throughout the country, throughout the world, 
and you will see that the United States prices on the shelf in 
our supermarkets at 43-cents-a-pound is way below what the 
current prices are inmost of the industrial developed countries 
in the world.
    So, when they talk about 6-, 8-cents sugar, it is not the 
real world. There is no way in which you could base an 
agricultural policy on a world dump sugar price which could end 
in the demise of a very, very important industry in this State.
    So I urge you to look at the GAO report through the efforts 
of many of us. Critical of the last GAO report, the Department 
of Agriculture was given an opportunity to put in comments as 
well as the members of the sugar industry themselves, and if 
you will read those critical comments by the Department of 
Agriculture and by the industry, you will see that the GAO 
report really does not base its findings upon reality.
    I would like to ask unanimous consent that the entire 
statement I prepared be inserted in the record at this point. 
Thank you very much.
    [The prepared statement of Representative Mink can be found 
in the appendix on page 88.]
    The Chairman. It will be inserted in full, and we 
appreciate very much your coming this morning.
    Let me just ask for a moment if my colleague, Senator 
Conrad, has a question or comment with regard to the testimony 
of our congressional witnesses.
    Senator Conrad. Perhaps when they are concluded, I would 
have an opportunity to make an opportunity to make an opening 
statement, Mr. Chairman.
    The Chairman. Very well.
    We thank both of you for coming this morning and adding to 
our testimony.
    Ms. Mink. Thank you very much, Mr. Chairman.

OPENING STATEMENT OF HON. RICHARD G. LUGAR, A U.S. SENATOR FROM 
  INDIANA, CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND 
                            FORESTRY

    The Chairman. At this point, I will make an opening 
statement, and then I will recognize Senator Conrad. Then we 
will proceed to our first panel, the administration witness and 
the academic witness.
    Let me just say at the outset that my views on the subject 
are well known, and I approach the hearing with a feeling that 
we need reform.
    I would just say for the record that in 1978, we voted on 
the Sugar Stabilization Act really for the first time, and that 
act was passed with my position negative in each of the three 
major votes on that occasion. I worked with Senator Boschwitz 
for reform when the 1981 farm bill came up, but our efforts in 
the Committee lost by votes of 9 to 2 and 10 to 3. Finally, on 
the floor, the vote to end the sugar program failed by a vote 
of 61 to 33, not unlike subsequent votes really for the past 
20-years.
    In 1985, the same motion to abolish the program lost by 60 
to 32. One voted change in a 4-year period of time, one way or 
the other. In 1990, Senator Bradley tried a more modest reform 
on the floor suggesting that the support price be reduced from 
18-cents to 16-cents. That motion failed 54 to 44 for a 2-cent 
reduction at that point.
    In 1996, when we had another farm bill situation, my motion 
to end the program failed 35 to 61, and then for middle gain 
over 90 and 85 and so forth. Of course, we had a recent vote 
last week that was very similar to the ratios of 60 to 30-odd 
votes.
    So I appreciate the Congress. The Senate has spoken, and 
the House in a similar way, many times on the program. Yet, I 
come today suggesting that we will hear testimony about the 
status of the industry and the future role of the program, and 
I believe that events in this year indicate that the sugar 
program is becoming increasingly unmanageable and that radical 
reforms are really needed urgently.
    This spring, as has been pointed out, USDA offered to 
purchase 150,000-tons-of-sugar to stabilize prices and prevent 
sugar loan forfeitures. The Department spent $54 million to 
purchase 132,000-tons-of-sugar, but the price increases in the 
sugar market anticipated, or at least hoped for, have not 
occurred.
    In its mid-session review of the Federal budget, the 
Clinton administration estimates that the sugar program will 
cost over $140 million this fiscal year for purchases and loan 
forfeitures, proponents that a sugar program can no longer cite 
a no-cost basis, but this is just the beginning. The mid-
session review projects that the current program will cost 
taxpayers over $1 billion, result in an accumulation of over 5-
million-pounds-of-sugar in Government inventory between now and 
the year 2005.
    In announcing the offer to purchase sugar in May, Secretary 
Glickman stated, ``Something relying on continued Government 
purchases over the long term is neither feasible nor 
realistic,'' and I strongly agree with the Secretary's 
assessment. I hope that witnesses today will present 
alternatives to present policies that have failed, in my 
judgment, producers, sweetener users, consumers, and the 
taxpayers.
    It is widely rumored that discussions are underway at the 
Department even now with segments of the industry to institute 
a payment-in-kind program for sugar in an attempt to reduce the 
supply. Such a program would be ill-conceived, in my judgment, 
would highlight the desperate nature of efforts to preserve the 
program at almost any cost.
    Under our current international trade commitments, we must 
soon permit increasing imports of foreign sugar to enter the 
United States markets. Obligations under the World Trade 
Organization and the North American Free Trade Agreement 
coupled with record high domestic production projections will 
result in a sugar supply far in excess of demand. A long-term 
viable and rational solution to the matter should be 
implemented in the very new future.
    An additional perspective relates to the fact that the 
Everglades are dying. Testimony came before this committee as 
early as 1990, from my records, indicating this unfortunate 
trend. The steady natural flow of water has been disrupted. 
Water that could be used to restore this natural environment is 
being flushed to the sea, and lack of adequate water storage 
results in discharges of polluted waters and surrounding 
waterways that makes water management more difficult during 
storms and hurricanes.
    In the 1996 farm bill, our committee supported the 
inclusion of $200 million to purchase lands in the Everglades 
agricultural area to help in the process of restoring the 
Everglades. This was a thoroughly bipartisan effort and one 
which required the close cooperation of Federal and State 
officials.
    Florida Governor Jeb Bush called the recent purchase of 
these lands the linchpin of Everglades restoration. We need to 
consider the option of making further purchases of lands from 
willing sellers in the Everglades agricultural area with the 
savings that might accrue from sugar policy reform. I believe 
that sugar policy reform can play an important role in the 
Everglades restoration.
    We appreciate the witnesses who have come here today to 
present statements on the industry, on the program, and on 
behalf of consumers and taxpayers. We welcome them and look 
forward to their testimony.
    I look forward now to the opening statement of my 
colleague, Senator Conrad.
    [The prepared statement of Chairman Lugar can be found in 
the appendix on page 70.]

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

    Senator Conrad. Thank you, Mr. Chairman. Thank you for 
holding this hearing.
    I would like to turn to a couple of charts to talk about 
this industry and the myths and the facts that relate to it. We 
had a debate last week. We had, I think, a vigorous debate on 
the question of the sugar program, and we saw the result in the 
U.S. Senate, more than a 2-to-1 vote in opposition to killing 
the sugar program. I think that vote reflected the growing 
understanding our colleagues have of the consequences of such a 
proposal.
    Congressman Miller comes before us today and says that the 
sugar program is not consistent with free market economics. 
Unfortunately, the world sugar industry and the programs that 
other countries have are not consistent with free market 
economics, and the United States can make a fundamental choice. 
We can choose to abandon our producers. We can engage in 
unilateral disarmament. We can wave the white flag of surrender 
and see this industry vanish from our country, or we can stick 
up for our producers and fight for them the way other countries 
fight for theirs.
    When the reference is made to free enterprise system, as 
Congressman Miller made reference, he should understand that is 
not the rules by which world agriculture is being conducted.
    This first chart shows exactly what is happening. Our major 
competitors are the Europeans. They are playing world 
agriculture by the old rules. They are playing by the rules of 
mercantilist economics, and they are very good at it. I do not 
criticize them. They are sticking up for their producers, and 
it is very clear what they are doing.
    On average, from 1996 to 1998, the Europeans are supporting 
their producers at $324 an acre. The equivalent comparison in 
the United States is $34 an acre. They have a 10 to 1 
advantage. In effect, what we are saying to our producers is 
you go out there and compete against the Germans and the 
French, and while you are at it, take on the French government 
and the German government, too. That is not a fair fight, but 
that is precisely what is happening.
    Not surprisingly, the strategy in the plan of the Europeans 
is working very well. They are gaining world market share. In 
the last 20-years, they have gone from the biggest importing 
region in the world to the biggest exporting region in the 
world, and this year, USDA tells us they will surpass the U.S. 
in world market share. They are doing it the old-fashioned way. 
They are buying these markets, make no mistake.
    We will go to the next chart which shows what happens to 
sugar prices. Sugar prices have plummeted. We see a dramatic 
reduction here, 36-percent reduction in wholesale refined beet 
sugar prices from 1996 to the spring of this year, a dramatic 
price plunge.
    Let's go to the next chart. The fact is this does not get 
mentioned much by the opponents, but the sugar industry has 
been paying in the Government coffers, not drawing from 
Government coffers. There is no subsidy here. There are no 
subsidy payments made to sugar producers in the United States. 
I see this referenced all the time by our opponents. There are 
not payments being made to sugar producers. In fact, until very 
recently, the sugar industry was paying into Government coffers 
from 1991 to 1999, almost $280 million paid into Government 
coffers. We have ended that payment because we are now in 
budget surplus instead of budget deficits, but the fact is the 
sugar industry has been paying into Government coffers.
    Let's go to the next chart. The opponents say repeatedly, 
in fact, they chant it like a mantra, that U.S. consumers are 
paying more because of the sugar program. Well, let's compare 
what our consumers pay versus what consumers pay in other 
countries. It is very interesting. In the developed world, 
there are only two countries where consumers pay less for sugar 
than we do in the United States, Canada and Australia. If you 
look at all of the other major developed countries in the 
world, we are paying on average 19-percent less for sugar than 
the consumers in their countries.
    Let's go to the next. It is very interesting to look at 
what is really occurring because on the left you can see what 
has happened to producer prices, the prices that are paid to 
the producers of sugar. First of all, raw cane sugar, they have 
seen an 18-percent reduction in their prices in the period 
covered by the chart which is September of 1996 until March of 
this year. Wholesale refined sugar in that period of time is 
down 26-percent. You can see the prices of the products that 
sugar goes into. Those prices have not gone down. Those prices 
have gone up, whether it is cereal up 6.6-percent or cookies up 
6.7-percent or candy up nearly 8-percent or ice cream up 9-
percent. While the prices that producers receive have plunged, 
the prices of the products that they make have gone up.
    The argument that I find most frustrating to hear is that 
the world price of sugar is 8 or 9-cents a pound. We heard it 
again this morning from Congressman Miller. That is just 
absolutely false. That is not the world price of sugar. The 
vast majority of sugar in the world sells under long-term 
contract or is processed and used in the country in which it is 
produced. The average cost of producing sugar in the world 
today is 18-cents a pound. That is the cost of producing sugar.
    So these people that run around and say that the world 
price is 8- or 9-cents a pound, that is just absolute fiction. 
What they are talking about is the dump price for sugar. That 
is sugar that does not sell under long-term contract. That is 
sugar which is not being consumed and processed in the country 
in which it is produced. That is the excess sugar. That is 
sugar that overhangs the market that sells at a dump price far 
below the cost of production. That is not the world price, and 
those that make that assertion are just flat wrong.
    Let's go to the next chart, and I will conclude on this one 
if I can, Mr. Chairman. Some say the sugar program costs 
consumers money. Well, let's look at the record. If we go back 
from 1979 through 1982 during the period in which we had no 
program, the highest prices were when we had no program. The 
highest prices for consumers were when we had no program. That 
is when prices spiked.
    So, Mr. Chairman, I hope very much that those who are 
advocates of killing the program will deal with the facts and 
not the myths, and when we are talking about the GAO report, 
USDA's rejoinder was stiff and stern. They called the GAO 
report naive, arbitrary, inconsistent, a puzzlement, 
inflammatory, and unprofessional. I do not think I have ever 
seen such harsh words in reference to a report, and the reason 
is very simple. The instant experts at GAO compared the U.S. 
price to that world dump price that is a fraction of the cost 
of producing sugar and assumes that if grocery chains and food 
manufacturers could have access to the dump sugar price, they 
would pass 100-percent of their savings along to consumers. 
Wrong on every count.
    Mr. Chairman, I think the very strong vote in the Senate 
sends a signal that people understand this industry is in 
trouble, that we are being out-spent 10 to 1 by our European 
competitors, and if we do not stick up for our producers, they 
will be gone from these shores and we will wake up and wonder 
what happened.
    I thank the Chairman very much for his indulgence.
    The Chairman. Thank you very much, Senator Conrad.
    We are now going to hear from the Honorable Gus Schumacher, 
Under Secretary of Farm and Foreign Agricultural Services of 
the U.S. Department of Agriculture, accompanied by Keith 
Collins, Chief Economist of USDA, and Ms. Carol Brick-Turin, 
CBT Consulting of Annandale, Virginia, who will provide a 
historic overview of the program.
    Secretary Schumacher.

 STATEMENT OF AUGUST SCHUMACHER, JR., UNDER SECRETARY FOR FARM 
     AND FOREIGN AGRICULTURAL SERVICES, U.S. DEPARTMENT OF 
  AGRICULTURE, WASHINGTON, DC.; ACCOMPANIED BY KEITH COLLINS, 
 CHIEF ECONOMIST, U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON, 
                              DC.

    Mr. Schumacher. Mr. Chairman and members of the Committee, 
I am certainly pleased to be here this morning. I am going to 
be very brief.
    I am also joined by, of course, Keith, and I have asked 
Parks who did a lot of work on domestic programs--we have 
basically a team approach to sugar because it is complicated, 
and I have some very fine gentlemen and a lady sitting behind 
me as well who occasionally may counsel me and Keith as we have 
some questions.
    I would like to cover briefly three issues, Mr. Chairman: 
one, where we are on sugar policy; two, how we are implementing 
the program that Congress has mandated; and three, a few 
observations on some possible USDA sugar activity in this 
coming crop year.
    First, with your permission, I would discuss where we are 
in American sugar policy at this moment. Clearly, we have a 
very high-quality and very value-added product that at least in 
the past has provided farmers with a reasonable rate of return 
and particularly rural communities and certainly some States 
with an important source of income. We heard this morning we 
have an over-supply situation at the moment, and adjustments 
are occurring. Production is moving, to some extent, from a 
higher-cost to lower-cost regions, and refiners at one sugar 
cane mill and several beet processing plants may be in jeopardy 
with possible closures, as I think Congressman Mink mentioned 
this morning. Unfortunately, these possible closures include 
areas of the U.S. where sugar cane production appears to be the 
only commodity available to support an entire rural community.
    In September 1999, USDA did not believe that forfeitures 
would be likely for the fiscal year 2000. USDA's own 
projections of supply made in that month of September now 
appear to be low by about 300,000-tons. This was partly in 
response to the lower prices for other crops, the corn and 
wheat prices, I think, are roughly 30-percent below their 5-
year average. Some farmers moved from those other crops to 
sugar and increased plantings of both beets and cane, and, of 
course, the sugar recovery from beet processing was very high.
    Slippage in the tariff rate quota through the imports from 
unregulated sugar syrup, known as the stuffed molasses problem, 
also added additional unexpected sugar to the domestic supply.
    There has also been a lot of technological improvements in 
this business. Both the processors and the farmers are actually 
making a number of efficiency gains--in fact, the 
representative from Louisiana behind me had me down to observe 
them--I try to visit all the sugar areas. I have been in North 
Dakota, Louisiana, and Hawaii. Down in Louisiana, they actually 
got me on a harvester, and it was a very, very modern 
harvester. I drove it and I was fairly successful in harvesting 
a few rows of cane, and I was very impressed by the technical 
skill involved in the movement in all of our sugar. That was an 
eventful day for me. I have been on wheat combines, but this is 
a pretty sophisticated combine in Louisiana.
    Regarding cooperatives, I will just move quickly here. 
Virtually, all of the sugar is sold by members of farmers 
cooperatives. Increasingly, the processing is done, I think, 
something like 72-percent by cooperatives.
    Let me touch briefly on the world sugar market. It is 
dominated by Government intervention. The EU provides $2 
billion in subventions for sugar. $1.5 billion is on export 
restitutions, and we hope that we can move on that in the next 
round.
    Let me just conclude with two issues, how we have tried to 
administer the tariff rate quota and what we are thinking about 
in terms of options for dealing with the current growing 
surplus.
    First, on the administration of the tariff rate quota, in 
the past, the administration of the tariff rate quote prior to 
1996 has been pretty ad hoc. So what we try to do is to make it 
much more transparent and predictable. We tried to establish 
the Tariff-rate quota [TRQ] prior to the start of the fiscal 
year based on the USDA projections of domestic sugar supply and 
use. Therefore, a portion of this tariff rate quota was held in 
reserve and made available to exporting nations at established 
times during the fiscal year when USDA projections of the 
fiscal year ending stocks to use ratio was 15.5-percent or 
lower. USDA views the stocks use ratio at 15.5 as a signal that 
the domestic market needs the reserved sugar to be adequately 
supplied at reasonable prices, and for the last 3-years, by and 
large, it has provided some stability.
    We tried under the earlier decision this year to take a 
prudent course of action, but as the acreage increased, yields 
increased, and extraction rates increased. So we are now facing 
the prospect of forfeitures. We have a current supply-and-
demand problem that makes it difficult to operate the program 
without costs. We, therefore, have taken action to address 
this.
    We did purchase, as you indicated, 132,000-tons of refined 
sugar. We did this because we felt that would save some money. 
We have not gone further than that because the supply situation 
has taken us into additional supply.
    Let me just briefly, then, finally conclude on some options 
we are looking at. There are a number of ways we could try and 
deal with this, and some of them, we have not decided to do at 
the moment, but we are certainly considering a number of 
options. The one we are most seriously considering is the one 
you have mentioned, and that is to reduce marketable supply in 
the coming year. We are seriously considering a program of paid 
diversion utilizing the currently available stocks we have and 
anticipate having. There are other options, barring donations, 
ethanol, restricted-use sales, but they are either expensive or 
they reduce the price of other commodities that already have 
depressed prices.
    So, under Section 1009(E) of the 1985 act under the cost 
reduction options, we would consider this payment-in-kind or 
pay diversion for three reasons. We have not made the final 
decision, but we are seriously considering it. One, it would 
eliminate the $265,000 monthly storage cost for the sugar, Mr. 
Chairman, we have already bought. Two, it would eliminate any 
potential storage cost for possible forfeited sugar utilized 
under such a program. Three, it could possibly reduce further 
Commodity Credit Corporation [CCC] outlays next year as the 
sugar surplus is expected to be larger next year than it is 
this year. Thus, if non-recourse loans are mandated in 2001, 
this may save CCC more than the cost of direct purchases.
    In summary, we will continue to support a viable domestic 
sugar industry with reasonable support for American sugar 
producers at the lowest cost to the Government possible. 
Clearly, we would prefer a market where neither sugar purchases 
or a paid diversion were used, but these options seem at this 
moment to be the best alternative options to provide support.
    Mr. Chairman, we would like to work with this committee 
and, of course, Members of the Congress as you look at 
different options for a sustainable manner to support our sugar 
farmers which we think are, by and large, pretty efficient and 
to also ensure a stable supply to consumers.
    That concludes my oral testimony. Thank you, Sir.
    [The prepared statement of Mr. Schumacher can be found in 
the appendix on page 105.]
    The Chairman. Thank you very much, Secretary Schumacher, 
and we appreciate your coming before the Committee. In our 
oversight capacity as to what you are doing and what you are 
planning, why, this is an appropriate and timely moment.
    Ms. Brick-Turin, would you give your testimony?

  STATEMENT OF CAROL BRICK-TURIN, CBT CONSULTING, ANNANDALE, 
                            VIRGINIA

    Ms. Brick-Turin. Chairman Lugar, members of the Committee, 
good morning. I am honored to be here today to share with you 
my thoughts on the U.S. sugar program. I am Carol Brick-Turin, 
president of CBT Consulting, the company I formed 1-year ago 
this month, having worked in both the public and private 
sectors on agricultural issues for the past 25-years, 15 of 
which were spent on U.S. sugar policy.
    In my remarks today, I would like to highlight the 
following three points in setting the stage for the policy 
debate. First, adversities faced by the domestic sweetener 
industry today are the culmination of public policy and private 
sector initiatives that have evolved over the past two decades.
    Second, the U.S. Department of Agriculture is no longer 
able to carry out the intent of its congressional mandate, and 
as a result, the collision between free market forces and 
Government controls is nearing.
    Third, it is, therefore, crucial to begin the debate on the 
future direction of the sugar program and, in so doing, the 
complexity of current Government policy and the industry 
response to such policy must be acknowledged and understood.
    As shown in the attachment to my written testimony, the 
Federal Government has been involved in the sugar market for 
more than 60-years. The price support program has been the only 
domestic program for sugar since 1981 with the exception for a 
brief period of the use of marketing allotments.
    However, in 1982, the Federal Government also began to use 
a whole host of import policies in order to meet its domestic 
policy objectives. Since President Reagan established a 
country-by-country quota that year, the Federal Government has 
issued and reissued dozens and dozens of related rules, 
regulations, Presidential proclamations, executive orders, and 
administrative decisions creating a complex web that 
constitutes the sugar import program.
    Sugar policy set and administered by the Federal Government 
has been the single most important influence on the evolution 
of the sweetener industry over the past 20-years. Yet, many 
changes in the dynamics in the sweetener marketplace have also 
occurred as the result of normal industry practice to maintain 
a competitive edge by cutting costs and increasing 
efficiencies. This interplay between public policy and private 
sector initiatives almost always results in the use of 
qualifiers when discussing the U.S. sugar program.
    I know that President Truman once said that all of his 
economists say on the one hand and on the other hand and asked 
for a one-handed economist. I did not mean to take him quite so 
literally this morning because I would like to share with you 
some of the program tradeoffs.
    On the one hand, a U.S. sugar policy has protected sugar 
growers from volatile price movements in the world market with 
guaranteed minimum price supports and restricted import levels. 
On the other hand, the same policy by elevating prices has 
encouraged displacement of sugar by HFCS, stimulated a rate of 
sugar production that has outstripped consumption, reduced U.S. 
import needs, and advanced an extraordinary level of 
consolidation in the refining and beet processing industries.
    On the one hand, current industry rules may be attributed 
to external factors such as imports of certain syrups from 
which non-quota sugar is extracted, threats of Mexican imports 
overhanging the market, and from time to time tariff rate quota 
mismanagement. On the other hand, the industry itself must take 
responsibility for creating the current oversupply situation 
through increased acreage and output.
    On the one hand, opponents argue that lower loan rates will 
help the consumer. Clearly, grower prices exceed levels that 
would be expected in the free market scenario. On the other 
hand, the contention by GAO that the sugar program costs 
domestic sweetener users almost $2 billion in 1998 
unrealistically assumes 100-percent pass through of cost 
reductions by refiners and industrial users to the final 
consumer.
    In fact, my point is that when it comes to U.S. sugar 
policy, there is always another hand. There is simply no more 
ways for the USDA to help the grower processor within the 
framework of the current sugar title. The administration's 
hands are tied by the congressional mandate that sets the loan 
rate and requires recourse loans if imports drop below 1.5 
million-tons, a WTO obligation to permit imports of at least a 
million-and-a-quarter tons, and a NAFTA commitment that will 
ultimately establish the freeflow of trade between U.S. and 
Mexico. It is, therefore, vital to begin the debate on the 
long-term direction of sugar policy.
    In summary, while I take no side in this debate, I do 
believe that the potential free form is undermined by 
oversimplified criticism or applause of the U.S. sugar program; 
that the current sugar program is a patchwork of statutes, 
rules, regulations, executive orders, and administrative 
decisions that have been pieced together over the past two 
decades. When crafting a long-term policy, both program 
opponents and supporters must recognize its complexity in order 
to move forward towards a unified constructive approach that 
accommodates the changing dynamics of the sweetener 
marketplace.
    This concludes my prepared remarks, Mr. Chairman. I would 
be pleased to answer any questions the Committee has for me. 
Thank you.
    [The prepared statement of Ms. Brick-Turin can be found in 
the appendix on page 116.]
    The Chairman. Thank you very much. As the Chair announced 
earlier, Senators will try to restrict themselves to 5-minutes 
of questions in interrogating our panelists.
    Let me start by saying, Secretary Schumacher, Ms. Brick-
Turin has described the box in which you are in, and you are 
describing potential options, all of which are difficult. I 
think both of you have indicated, as have journalists writing 
about this problem, that in some ways producing sugar in this 
country has become a more lucrative option than producing corn 
or wheat in some instances. There appears to have been a shift 
of acreage to sugar.
    This is despite the fact that throughout all of this 
debate, it has been apparent that an oversupply of sugar in 
this country and throughout the world was apparent, but 
nevertheless market signals at least to farmers who made these 
planning decisions were that given the Government's sugar 
program, it was a more lucrative option. We have that set of 
circumstances.
    Perhaps a change in prices of corn, wheat, and soybeans 
would shift that back, but, nevertheless, that will not be in 
the cards this year, and many would forecast, I think, 
including Mr. Collins, maybe not next year.
    So the oversupply thing is there in a big way. Our foreign 
policy has suffered through many ups and downs with the 
Caribbean, with the Philippines and others, as we have shifted 
roughly from a 55/45, that is, domestic import for sugar supply 
to about 87/13 now, domestic as opposed to import, but as Ms. 
Brick-Turin has pointed out, we have obligations under WTO, 
under NAFTA. Clearly starting about the 1st of October, those 
come in, in a big way. So the supply thing dictated by price in 
our own situation here, that is, better price for sugar than 
for corn, say, or acreage return, plus the export thing means 
that we have a bigger problem come the fall and a much bigger 
problem come next year and without changes, I have suggested, 
an overhang of sugar that is really impossible to manage.
    So it appears to me that program changes are going to be 
required. The problem of the hearing right now is that people 
come embattled as sugar growers are hanging on for dear life to 
whatever is there. My colleague, and I respect him, Senator 
Conrad, is suggesting this world price idea of 8-cents, 9- or 
10-cents is totally fiction, but others would say that is sort 
of the clearing price. That is what happens, even given all the 
restrictions in the world. The fact is that sugar comes cheaper 
than 18-cents or what is effectively in many of our USDA 
programs more like 21, verging to 26 by the time you add in 
interest rates and carrying charges and various other things.
    So consumers may not complain. Maybe they do not lose 2-
billion. Maybe they lose only 1-billion-a-year depending upon 
the pass through, but that has been a pretty effective tax on 
American consumers for quite a while, and that continues on.
    My prayer, I suppose, is that somewhere coming from this 
hearing or the stimulus of this is that there is an outline of 
how all of these interests are better met. I do not have one 
off the top of the head. I feel the present situation as being 
described is not only a collision, but impossible and 
ultimately will lead to all kinds of either evasions of the law 
or stretching it to the ultimate, as all the parties try to 
gain what they want.
    My own inclination would be to say that probably the 
support price should be less so that there are fewer 
inducements to plant more, that people finally shift their 
emphasis to something else, or as I suggested during the 
tobacco debate, we have a buyout of small growers who are hurt 
and are hurting. That, I think, would have been a good idea. 
During the tobacco debate, it faltered for various other 
reasons, although I noted Maryland is adopting a program very 
similar to the one that I suggested for small tobacco growers 
and the might be useful for sugar growers because we keep 
getting into this rundown that there are some that are very 
small and some that are very large, more large in the cane 
business than perhaps in the sugar business, and there are 
needs for transition here. So perhaps that ought to be a part 
of the policy likewise.
    You are thinking of a paid diversion of sorts or a payment-
in-kind that accomplishes that, a sort of a limiting of the 
planting efforts so it does not increase an even more supply, 
but somewhere in the Department, are there any planners taking 
a look at this thing as to what would be a better option? You 
have spent a lot of time figuring out how to deal with the 
current situation, the political pressures of that, but in the 
back room somewhere, are there people theoretically trying to 
think about a better world for sugar and consumers and foreign 
policy?
    Mr. Schumacher. Frankly, Mr. Chairman, we are working to 
administer the program that Congress has mandated to deal with 
this increase in supply right now. That is why in my testimony, 
I outlined a number of the options we did consider and one that 
we are seriously considering at the moment. Clearly, we will be 
looking in the future, but I think right now----
    The Chairman. Those are things you have to follow what we 
have done. So that sort of passes the ball back here, and maybe 
that is where it belongs. In other words, we try to find some 
economists and some theorists and get a better outline. I am 
just asking. I suppose, from the standpoint of the 
administration, are you trying to think ahead to a better world 
for all of this?
    Mr. Schumacher. Certainly, this hearing has focussed my 
mind on this a bit more, but I think right now, we are really 
trying to look at the different options, as I indicated, to 
minimize cost to CCC, look at our projections a little more 
carefully, and we see where the cost potential forfeitures are 
coming and how we might deal with those through the next 18-
months or next 15-months to minimize the cost to the CCC and 
the taxpayers.
    The Chairman. Let me just ask, then, with regard to the 
policy already adopted. I wrote to the Secretary suggesting he 
not buy the sugar, and he has bought the sugar and may buy some 
more, largely because I did not think it would make any 
difference. I think it is throwing good money after bad 
already. In essence, it has not really affected the forfeiture 
situation. It is still just as grim as it was before, after the 
expenditure of tens of millions of dollars, and I presume if 
you buy some more, it will have much the same effect, largely 
because the inducements to plan more are still there, even 
while we are busy trying to get rid of the surplus. The signal 
is given by the sugar program that people ought to do more of 
this, and they probably will, and all around the world, they 
are doing so. So there is just no end to the difficulty of 
heading down this trail, whatever the pressures.
    I read in The Wall Street Journal that 11 Senators went 
down to see the Secretary. The USDA people were amazed at such 
a delegation, all waiting upon the Secretary to buy more, to 
try to bail out. So there are some problems, but why not have 
forfeitures at this point? Why not have a signal that enough is 
enough, that finally you have stopped this and that it is not a 
good idea to plant more beet sugar or cane sugar or any other 
kind of sugar right now? As a matter of fact, you ought to try 
something else, and that is why I come to the idea is it 
necessary perhaps for somebody to help some people out of this 
market, to offer some transition payments or is sugar so 
lucrative that there really is no option for these farmers.
    Mr. Schumacher. Sugar, as I indicated in my testimony, Mr. 
Chairman, compared to corn and alternative crops in the areas 
where sugar is grown--and I visited the different areas--sugar 
is certainly more profitable to farmers when they run their 
pencils pretty carefully, whether it is to the South, certainly 
Louisiana, as they expand along the coast a little bit and use 
some of these new modern technologies and certainly in the beet 
growing areas in the Northern Plains and in the West.
    The Chairman. I just simply repeat, it is lucrative because 
of the program we offer. If we did not have a program, people 
would have different sorts of pencils and come to different 
conclusions.
    Senator Conrad?
    Senator Conrad. Thank you, Mr. Chairman.
    Maybe I could go to Secretary Schumacher and ask the 
question. We hear repeatedly that the world price of sugar is 
8- or 9-cents a pound. Do you believe that, that affects the 
world price of sugar?
    Mr. Schumacher. We have looked at this pretty carefully, 
and that is why I put in my testimony, Senator Conrad, the EU. 
I think Congressman Mink and yourself put up the charts on the 
retail price of sugar. Of course, what we focus on is how it 
affects trade and the next round of WTO and the amount of money 
the EU is putting into its sugar export restitutions which we 
have called for in Seattle to be eliminated.
    I think the sugar program in the EU is a classic case where 
if they did not have those huge export restitutions, we might 
have a little different world sugar price because they have 
been the main influence, in my opinion.
    In my previous career, I did a lot of work internationally 
on sugar, whether it was Jamaica or other countries, in the 
cane business, and the way that EU has taken market share from 
the Caribbean and from other islands is really quite 
extraordinary. We are going to work very hard in the next round 
to eliminate the export subsidies in the classic cases, such as 
in the EU.
    So the direct answer to my quick----
    Senator Conrad. What are----
    Mr. Schumacher. Go ahead.
    Senator Conrad. No, go ahead.
    Mr. Schumacher. The direct answer to your question is, 
clearly, if you looked at the cost of production in a number of 
countries, it is closer to 17-, 18-, 19-cents-per-pound, if you 
average it out over a number of countries.
    Senator Conrad. Cost of production, 17-, 18-, 19-cents?
    Maybe we could put up that chart that shows cost of 
production.
    You know, it is just amazing to me that this fiction gets 
restated over and over and over that the world price of sugar 
is 8-cents-a-pound. It is not 8-cents-a-pound. It is just 
nonsense.
    The cost of producing sugar, the average world production 
cost, just as you stated--you said 17-, 18-, 19-cents.
    Mr. Schumacher. In that range, yes.
    Senator Conrad. This is the world survey of sugar, 1997 
report, just over 18-cents a pound. So, obviously, sugar is not 
selling for 8-cents a pound in the world. Sugar is not selling 
for 10-cents below its cost of production or half of its cost 
of production, less than half its cost of production, or the 
entire sugar industry worldwide would be bust. Sugar is selling 
for something above its cost of production, and these people 
that continually refer to the 8-cents are referring to a dump 
price because the vast majority of sugar in the world sells 
under long-term contract. It does not count in this calculation 
that others are making, the opponents of the sugar industry are 
making, and that is the hard reality here.
    The fact is this is the relationship, average cost of 
production in the world, and the world dump price, which is not 
the world price of sugar at all. I think that is a key point 
that needs to be repeated.
    Let's go to what the Europeans are doing because it is very 
instructive. It is not just in sugar. It is in every 
agricultural commodity that they support, and you made the 
point very well. $2 billion a year, that is what our chief 
competitors are doing in terms of support for that industry. 
Overall, they are spending close to $50 billion a year to 
support their products. That is what the Europeans are doing, 
$50 billion a year, and they are doing it because they want to 
gather world market share.
    In my discussions with the Europeans, they have said to me 
repeatedly, ``Senator, we see ourselves in a trade war with the 
United States on agriculture. We believe at some point there 
will be a cease-fire in this trade war, and we want to occupy 
the high ground. The high ground is world market share.''
    You would think we would figure this out at some point. 
These guys have a strategy. They have got a plan, and their 
plan and strategy is to dominate world agricultural trade, and 
they are doing it the old-fashioned way. They are buying these 
markets. These are the numbers from the Organization for 
Economic Cooperation and Development [OECD]. These are not Kent 
Conrad numbers. European Union supporting their producers at 
$324 an acre. We are supporting ours at $34 an acre. That is a 
very simple question that is before us. Do we give in and let 
them take these markets that have long been ours, or do we 
fight back? That is the question before us.
    If we want to engage in unilateral disarmament, we will 
find that they are successful, they are victorious, and we are 
out of business. Let me ask you what your observation is.
    The Chairman. I am reluctant to call time, but give your 
observation if you will, and then we will need to proceed to 
Senator Santorum.
    Mr. Schumacher. One of the things I was most pleased about 
in the last month or so is the presentation that this 
administration made before Geneva calling on a very radically 
different approach so that we can address this issue by 
simplifying and getting away from what I call the crayon or the 
color or the Crayola approach to amber and green and blue and 
all these different colors for exempt and non-exempt support 
programs, and that sugar would go into the non-exempt category. 
Then we will see how we get along with our European friends.
    The Chairman. Thank you.
    Senator Santorum?
    Senator Santorum. Thank you, Mr. Chairman. I will defer to 
my colleague who has to leave, if he has a comment or question, 
and I will take it after Senator Kerrey, if that is all right 
with the Chairman.
    The Chairman. We are pleased to have Senator Burns here.

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

    Senator Burns. I will be very brief, Mr. Chairman, and I 
thank you for your kindness.
    When I look at the policies of WTO and the NAFTA and the 
enforcement of these agreements, I am not so sure we are 
adequately supporting our domestic programs, although I am very 
supportive. Currently, we have got this problem of stuffing 
molasses to circumvent trade agreements.
    I have got 20-years refereeing football. Right now, the 
only reason that game is a success, because it is a violent 
game, where you can keep law and order among 22 of the most 
heavily armored folks in the world, cranky with each other, 
mobile and hostile, is that a rule book. We must have a rule 
book. Right now, I have a feeling that when it comes to our 
trade policies the referees that are supposed to be watching 
are not doing a very good job.
    I am just astonished. Right now, I am asking them to make 
the call where there are violations of the WTO or the 
violations of NAFTA. Make the call and then walk off the field 
because that is the way we must do it in our way of life. I 
would like to see that happen with the sugar situation. I do 
not think we would find ourself in a situation that is as dire 
as it is today. I am not saying we would not be in a negative 
situation, but we wouldn't be in a situation that is as dire as 
it is.
    I would just suggest to my good friends down at the Ag 
Department and my good friends at the Federal Trade Commission 
and the International Trade Commission [ITR] to make the call, 
and for this administration through the ITR to make the case. 
That is my message this morning. The only way we can get out of 
this thing is to provide a little bit of protection for our 
producers. I think the consumer wants a consistent supply at a 
consistent price. This program has supplied that for them.
    I thank you, Mr. Chairman, for this time.
    The Chairman. Thank you for your participation, Senator 
Burns.
    Let me just mention our colleague, Senator Breaux, has 
arrived. I am going to ask if it is all right with you, John, 
for us to complete our questioning of this panel. Then we will 
hear from you, and then we will hear from the next panel.
    Senator Kerrey.
    Senator Kerrey. Thank you, Mr. Chairman.

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

    Ms. Brick-Turin, I hope you did not break your arm 
examining the sugar program. I find your testimony to be very 
balanced, though I would like to press you a bit on making some 
recommendations to me.
    I tend to favor the free market and trying to decide what 
works and what does not work. I like the marketplace, and 
indeed, in domestic sugar, we have got pretty much a 
marketplace operating, but I quite agree with you, there is a 
collision going on here between the international market and 
our patchwork of Government policies. The question that I have 
got in my mind is what kind of policy should we put in place to 
replace the current program. What do we do?
    I am not convinced that throwing the program out is a good 
idea or that a buyout is a good idea. In my homestate, I see 
the benefits. I have got 555-farm-families, and that is the 
ultimate objective for me. I have got 555 families that are on 
the land, and I would like for them to feel even better about 
farming than they currently do.
    I would say to you, Mr. Chairman, they are not going to 
grow corn and wheat right now. They are not making money in any 
of those. Their choice really right now is do I stay in farming 
or do I go and do something else. Those 555 families produce 
about 1,000-metric-tons. We have two refiners that have about 
14 or $15 million in payroll, another 600 good family jobs in 
our community. So that is what I see as the ultimate. I do not 
see it just that we are producing sugar for processors to use 
for cereal and candy, etc.. I know that is all important, but I 
see these families as the ultimate objective in addition to 
economic objectives.
    So I want our policies to provide opportunities for farm 
families to stay on the land throughout the United States of 
America, and that is what we have done over 150-years of 
intervening in the marketplace with land-grant college 
assistance and the transcontinental railroad--etc., etc.. We 
have tried to create more market opportunities by good 
Government intervention.
    I wonder if you have thought about somebody like myself 
that likes the marketplace, but as well wants whatever Federal 
rules we have to create opportunities for families and jobs 
here in the United States of America for people who choose to 
make a living of working on the farm. I wonder if you have 
given some thought of what you think would work as a good 
balance between what the market could do, but what the market 
will not do, especially given the presence of other government 
efforts, not just the European Union, but throughout the 
Caribbean Basin as well.
    Ms. Brick-Turin. Yes, I have, Senator. I do not mind being 
pushed, by the way. I still have one good arm.
    I understand that the marketplace does work. In fact, the 
sugar market is unique because while on a day-to-day basis 
buyers and sellers work within a free marketplace, the overall 
parameters of supply and, therefore, price are still set by the 
Federal Government.
    I by no means meant to suggest that we throw out the 
program. What I would suggest is that we end the Band-Aid 
approach to policy.
    Certainly, over the past 10-years, I think that the 
administration of sugar policy has reflected this Band-Aid 
approach. Policy makers would stick a finger in one hole and 
there would be leakage elsewhere. I think that the overall 
program, both the domestic program and import policy, needs to 
be thoroughly reexamined and, if necessary, rebuilt.
    I think that clearly, Congress and the administration need 
to weigh the importance of maintaining a domestic industry. I 
do not think that anybody would argue with the fact that it is 
important to do so. But I think that the program needs to be 
examined in the overall context of Ag policy, budgetary policy, 
and international trade policy, to create an overall policy 
approach that gets away from the piecemeal types of decisions 
that we have had in the past.
    I know that there will be other witnesses testifying as to 
specific approaches or specific policies. I want to underline 
is the general approach, the general strategy that I think both 
program opponents and supporters need to take.
    Senator Kerrey. Thank you.
    The Chairman. Thank you, Senator Kerrey.
    Senator Santorum.
    Senator Santorum. Thank you.

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

    In comment to Senator Kerrey's comments, I, too, am 
concerned about farm families. I also am concerned about the 
families of folks who work in industries that consume sugars, 
that use sugar. We have lost a lot of jobs in Pennsylvania in 
the confection industry to Canada and Mexico where products are 
being produced there instead of employing people in 
Pennsylvania, and other places around the country, because of 
the high cost of sugar.
    Now I understand, in fact, most of the members of the 
Pennsylvania delegations and I, sent a letter to you regarding 
a proposal to require import licenses for sugar-containing 
products. We expressed our concern about that, about what that 
would mean. Can you give me an update? We did not get a 
decision on that. I guess it has not been forthcoming, but if 
you can give me an update on what your thinking is on that?
    Mr. Schumacher. What I would like to do is respond to you 
in writing on that one so we have it clear and on the record, 
Senator, because we have some changes in the rules in Canada 
that would affect that. Of course, Senator Burns has counseled 
us on the stuffed molasses issue as well. We are trying to put 
this altogether, and we will get back to you in a more formal 
and timely way--I want to get that out very shortly.
    Senator Santorum. Some discussion has been made. I 
appreciate that, number one. A second issue, discussion is here 
about NAFTA and the fact that sugar imports are expected to 
increase as a result of that. Can you tell me how you are 
approaching the situation with respect to the interpretation of 
this side agreement of NAFTA and what you plan to do about it 
this fall?
    Mr. Schumacher. I think one of the things that--we have now 
a new ambassador-designate, Greg Frazier, who is actually in 
Mexico right now and I think is going to be coming back the 
next few days and discuss these issues, and he has indicated to 
the Committee that he will be coming up here and giving the 
members and the staff a detailed briefing in executive session 
on the results of his discussions in Mexico that are currently 
ongoing as we speak.
    Senator Santorum. But you cannot give us any update as to 
what is going on?
    Mr. Schumacher. I am going to wait for Greg to get back and 
tell me, and then maybe he can quickly come up to discuss this 
with----
    Senator Santorum. Or send us another letter or something 
like that.
    Mr. Schumacher. No, no. He is going to come up and discuss 
this personally with you.
    Senator Santorum. I would like to ask Ms. Brick-Turin--to 
sort of follow up on Senator Kerrey's question. I think Senator 
Kerrey, at least I thought, was trying to get some sort of 
specific recommendations, and I think you said we need to look 
at it. Can you give us some more specific things that you would 
suggest changing that could be made or should be made? 
Obviously, I make no secret. I am not a fan of the sugar 
program. I make no secret it costs us jobs in Pennsylvania and 
costs consumers in this country money. You may question the 
amount of subsidy that goes to producers as a result of this 
program, but I think the Chairman pointed out very correctly, 
this is one of the few remaining programs on the books that 
provides support out there, a price that guaranteed some level 
of profit. When you have the uncertainty that is in the 
agricultural economy today, when you have a program like this, 
it encourages people to get into that commodity which results 
in the oversupply situation.
    So I think the Chairman is absolutely right on. You may be 
for or against this program, but if we continue with this 
program in its current state, matters are only going to get 
worse for everybody concerned and cost the taxpayer as well as 
the consumer a lot more money. I think that is something that 
needs to be addressed.
    I am not sitting here saying I know the answer, although I 
voted for the answer that I think was as good, which is to 
eliminate the program, but short of that, which only got--I see 
Senator Breaux out there chuckling. His 66 votes in the Senate 
last week showed that, that was not going to happen at any time 
soon. So what sort of recommendations would you make that could 
alleviate the problem?
    Ms. Brick-Turin. Thank you, Senator, for the question.
    I think that policy needs to be looked at in both the short 
term and long term. Certainly, in the short term, I would 
support another CCC purchase or Payment-in-kind [PIK] program. 
I think that the Department should be given a chance to see if 
its initial approach for this year's oversupply situation will 
work. But I do think, tying it to the longer term, that any 
short-term emergency program needs to be based upon a 
commitment for structural reform.
    The oversupply situation, as the Secretary discussed, needs 
to be addressed because the problem is not going away.
    Any reduction in the loan rate, for example, will allow 
free market forces to have a greater impact on the market. 
Certainly, producers with higher production costs will continue 
to go out of business. Facilities will continue to close; that 
is the natural course of free market forces taking over.
    I do not support the dismantlement of the overall program, 
but I cannot stress enough the approach that I would take--to 
take apart the overall program, both domestic and import 
policies, and then rebuild the program. It needs some type of 
basic structural reform.
    I am not prepared to give a specific answer. I know that 
other witnesses will. But I do think that it is vital to look 
at the long term as we address the short term.
    The Chairman. Thank you very much, Senator Santorum.
    Mr. Schumacher. Senator, may I just respond? I do not want 
to take time, but my staff has updated me quickly. I will still 
get the letter back, but could I respond to Senator Santorum's 
question on Canada?
    The Chairman. Of course, yes.
    Mr. Schumacher. On June 20th, Senator, what happened, as I 
said, the Canadian government amended its export permit system 
to rescind the requirement that exporters of sugar-containing 
products increase the proportion of the export in retail form. 
So, of course, the U.S., on these products, has been seeking, 
as your letter indicates, some new licensing requirements to 
require Canada to continue to export bulk for products to be 
packaged in the United States.
    So we are working on a rule that will impose such a 
licensing requirement, but now that rule is we have to 
reevaluate it, given this new June 20th--I will get that letter 
to you, but I want to just on the record respond to your 
question.
    Senator Santorum. Thank you, Sir.
    The Chairman. Let me just comment in thanking this panel. I 
think Senator Kerrey's observation that there are 555 farm 
families in Nebraska who are apparently now involved in 
production of sugar because it is a better option, given lower 
prices of corn, wheat, or what have you, is a factor that leads 
to some sympathy for not only the sugar program, but other 
programs.
    When the Senators were asked to vote last week on the sugar 
program, they confront the fact that in our Ag policy this 
year, in commitments this committee has made and have been 
ratified by the Senate, 91 to 4, we are really trying to save 
every family farmer in the country, to put a safety net on 
every single one. So you could very well raise the question why 
not the 555 who are in sugar cane. I think we all understand 
that because we are in a transition in agriculture that is very 
significant.
    At the same time, even while we are attempting to help 
these 555 farmers, the facts are that the sugar supply of the 
world is increasing and we have monumental problems simply 
dealing with this, and you have tried to touch on these 
briefly, Secretary Schumacher, but obviously to dump the sugar 
in various ways around the country, around the world is not 
very acceptable. So not to dump it is to have it pile up.
    The question then you have to face is whether you use some 
of this sugar to buy people out of the idea of producing some 
more of it, and that is sort of where you are headed, I gather, 
even as we think about this, this morning.
    As Ms. Brick-Turin has pointed out, this is another sort of 
patchwork, finger in the dike, before the whole thing flows 
over. I am hopeful that the Department and likewise in the 
private sector that there are innovative people trying to think 
through this because we will have to return to this next year. 
It will not go away. Perhaps absent an election and absent 
pressures of the current situation, we can do better, but we 
appreciate your coming before us now and sort of updating what 
you feel you must do, and we would like to stay closely in 
touch.
    Mr. Schumacher. We will do that. Thank you very much for 
having us here.
    The Chairman. I thank the panel.
    I would ask now for Senator Breaux to come forward to give 
his testimony.
    Senator Kerrey. Mr. Chairman, if I could while he is coming 
forward, just to clarify since you have referenced my remarks. 
Nebraska beet producers are actually producing fewer metric 
tons a day than they did 10-years ago. So we are not seeing 
people respond to the sugar program, producing more sugar, the 
options that are there. In fact, the strongest signal from the 
Government right now is to produce soybeans for the LDP. If you 
want to take the full look at this thing, that is the signal 
they are getting at.
    What I am suggesting is that the program has a purpose 
beyond the economic purpose, and we have achieved that purpose.
    The Chairman. Thank you very much.
    Senator Breaux, would you please summarize in 5-minutes. 
Your something will be made completely a part of the record, as 
was the case with each of your other colleagues who have 
testified before.

STATEMENT OF HON. JOHN B. BREAUX, A U.S. SENATOR FROM THE STATE 
                          OF LOUISIANA

    Senator Breaux. Thank you very much, Mr. Chairman and 
Senator Santorum and Senator Kerrey. We must be doing better. 
We are now in the big room. I am delighted to be here.
    The Chairman. There is more interest in your testimony.
    Senator Breaux. Yes.
    Senator Kerrey. As opposed to the big house.
    Senator Breaux. The big house.
    Senator Kerrey. Yes.
    Senator Breaux. Well, thank you very much. I am always 
delighted to discuss the sugar program.
    If the Committee is looking to determine whether we need a 
program, I think the answer is pretty straightforward. The 
answer is yes. We need a sugar program like we need a program 
for cotton or rice or wheat or any of the other agricultural 
commodities. It should be fair. It should be reasonable, and it 
should be workable. So I do not think we are here today to 
determine whether we need a sugar program unless you want to 
single out one commodity and say every other agricultural 
commodity has a program except one. I think we need one, and it 
also should be fair.
    I think the question is not really whether sugar 
contributes to the economy. It contributes many billions of 
dollars to the economy in terms of small workers and family 
farmers and refiners and people who work in our industry, like 
they work in all of the other industries around the country. 
The answer is yes, it does contribute to the economy in a 
major, major way.
    If the question before the Committee is to understand 
better how it operates, I think that is a very legitimate 
question because a lot of the discussions on the floor of the 
Senate, I think, quite frankly, have not been totally accurate 
in how the program operates.
    We heard debate on the floor this past week about all of 
these subsidies to sugar growers. Well, there is no direct 
subsidy to sugar growers. As I think this committee 
understands, there is a loan program, a commodity loan program 
for sugar farmers which is the same type of program that is 
also authorized for cotton, for rice, for wheat, and feed 
grains. There are no Agricultural Marketing Transition Act, 
AMTA, payments for sugar.
    We have had an 18-cent loan program since 1985. It has not 
been increasing every year. It has not gotten a cost-of-living 
adjustment. It has not been increased since 1985. It has been 
18-cents since 1985.
    If the farmer puts the crop on the loan and he cannot pay 
off the loan, he forfeits the crop. That is the essence of a 
commodity loan program, but in addition, back in 1996, we made 
some major changes and imposed upon the sugar program something 
that is not in any of the other commodity programs. If the 
sugar farmer forfeits his crop because he cannot pay for the 
loan, unlike any other commodity, he has a 1-cent reduction if 
his crop is in fact forfeited to the loan program. No other 
commodity has that. He is penalized if he has to in fact put 
his crop under loan and forfeit it under the loan program.
    We also provide for 40 nations to import sugar into this 
country, they do.
    If we are here today to determine whether elimination of 
the program will benefit consumers, I think the answer is very 
simple. No, it is not.
    The chart I have on the right contains USDA figures, Mr. 
Chairman. I used it on the Senate floor this past week. It 
shows what has happened since 1996 to the price of sugar. The 
figure on the left is the price to the sugar cane farmers. The 
one on the right is the price to the sugar beet farmers. It has 
dropped 14.6-percent and 31.9, almost 32-percent. So you would 
say if the price of sugar is dropping, all of these industries 
that use sugar must be reducing their prices as well. Of 
course, it is not true. The retail refined sugar price on the 
shelf has increased by a half-a-percent. Candy is one of the 
biggest users in the country. You would think if the sugar 
price was falling like this, candy prices would fall. Instead, 
they have gone up 6.4-percent, cookies and cake, 6.6-percent, 
cereal, ice cream, all respectable, but very certain increases 
in the price that they charge for their product while one of 
their main ingredients has crashed 32-percent and 14.6-percent 
in the last years since 1996, over the last 4-years. These are 
not the industry's figures or my figures. These are USDA 
figures.
    So I think that if you say all right, let's get rid of the 
sugar program and all the consumers will be better, I think 
history tells us that is not the case.
    I think, Mr. Chairman, in all areas, it is a program that 
has worked, that has been stable. There has been a lot of 
misinformation about it, but I am certainly not for not looking 
a ways to improve this program or any agricultural program. 
Hopefully, when the time comes, we will be looking at ways to 
improve it, bearing in mind that what we have has worked very 
well, especially since we modified it 4-years ago.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Senator Breaux can be found in 
the appendix on page 79.]
    The Chairman. Thank you, Senator Breaux.
    Senator Kerrey, do you have a question or a comment?
    Senator Kerrey. Yes.
    Senator Breaux, you were here along with Senator Lugar and 
I when NAFTA was being debated, and one of the things that was 
a concern with NAFTA was whether or not Mexico would seek to 
avoid doing what we had to do here in the United States of 
America in the sugar industry, which is we had to restructure 
in our industry as a consequence of consumers picking a 
different product in soft drinks, almost 100-percent of 
displacement that occurred as a consequence of a preference for 
high-fructose corn sweeteners that displaced the sugar market. 
We lost a lot both on the refining side and on the acreage 
side. We had significant restructuring.
    The fear was that Mexico would want to avoid having to do 
that, and so I wonder if you could talk a bit about the 
production, this side letter that was supposed to assure us 
that this was not going to occur; that Mexican negotiators were 
saying this kind of displacement will not happen in Mexico, our 
tastes are different. Well, their tastes are not different. 
What has happened is that these sweeteners have done the same 
thing in Mexico as has happened here. They have displaced 100-
percent of the market, and Mexico does not want to restructure.
    Now they are saying this side agreement, this letter that 
they had, was not binding. I wonder if you could talk about how 
that influenced your vote in 1993 and your attitude towards 
NAFTA as a consequence.
    Senator Breaux. A couple of points, Senator Kerrey. You 
have really outlined the situation quite accurately.
    I think Mexico has as much a political problem as they have 
anything else. They have greatly increased their reliance on 
fructose corn syrup, corn sweeteners, which has replaced sugar 
in a lot of their commodities, like we have done here in the 
soft drink industry. So now they have a lot of sugar that has 
been not used because it has been replaced by the corn 
sweeteners. So they are trying to say, ``All right. What do we 
do with all of this sugar?'' It is a political problem as much 
as an economic and agricultural problem.
    Back when we were considering NAFTA, one of the concerns 
among many, many people in the sugar beet and cane producing 
areas was that NAFTA was going to unleash a flood of dumped 
sugar into this country, and we could not handle that type of 
dumping. So a side letter was negotiated which I participated 
in and felt that it did provide the relief that was important 
and that was a guarantee that Mexico would not be allowed to 
arbitrarily just dump whatever they did not need into this 
market. That letter is typical of many, many side letters and a 
lot of international trade agreements. They are binding. They 
have to be lived up to by both countries, and they cannot be 
denied.
    I think that our administration is trying to make sure that 
the Mexican government lives up to the signed letters and 
agreements that they entered into. NAFTA would not have passed 
had it not been for that. It is just that simple. Mexico has 
benefitted tremendously by NAFTA, and for them to now say that 
we got the benefits of NAFTA, but we are going to deny 
something that led to the adoption of NAFTA, I think, is 
totally incorrect and not the right policy.
    Senator Kerrey. I appreciate that. I would also say that I 
think as people scratch their head and try to figure out why 
trade agreements have become unpopular, why we have been unable 
to muster a majority to give this President trade-negotiating 
authority, why PNTRs are controversial, why these kinds of 
trade agreements are controversial, I cite the failure to live 
up to this side agreement as an example. People do not trust 
these trade agreements as a consequence.
    I will continue to press for trade negotiating and 
authority, etc., but I think it is really one of the reasons 
that in the countryside people say these trade agreements are 
not what you promised them to be.
    Senator Breaux. Yes. Clearly, NAFTA would not have passed 
in the absence of that agreement.
    The Chairman. Thank you very much, Senator Breaux, for 
coming this morning.
    The Chair would like to recognize now a panel to be 
composed of: the Honorable Ira Shapiro, Coalition for Sugar 
Reform; Mr. Arthur S. Jaeger, Assistant Director of the 
Consumer Federation of America; Mr. John Frydenlund, the 
Director of the Center for International Food and Agriculture 
Policy, Citizens Against Government Waste; Mr. Nicholas 
Kominus, President of the U.S. Cane Sugar Refiners' 
Association; Mr. Tom Hammer, President of the Sweetener Users 
Association; Mr. Mark Perry, Executive Director of the Florida 
Oceanographic Society; and Ms. Shannon Estenoz, World Wildlife 
Fund and the Everglades Coalition.
    We are grateful to each of you for coming today to enhance 
our hearing. As perhaps you have heard earlier on, we have 
asked each of our witnesses to summarize initial comments in 5-
minutes. All of your statements will be made a part of the 
record in full so that this hearing will be as valuable to 
others who read the record as those of us who have the 
opportunity to hear you personally, and I will recognize you in 
the order that I called your names to begin with.
    First of all, Mr. Shapiro, would you please give your 
testimony.

     STATEMENT OF IRA SHAPIRO, COALITION FOR SUGAR REFORM, 
                        WASHINGTON, DC.

    Mr. Shapiro. Thank you, Mr. Chairman.
    I appear today on behalf of the Coalition for Sugar Reform, 
which is an umbrella organization representing U.S. trade 
associations, consumer and environmental groups, and taxpayer 
advocates who are united in the view that the sugar program 
needs fundamental reform.
    The panel includes an array of witnesses here that can give 
you valuable insight into the various issues, but as a former 
U.S. Trade Official, I would like to focus my testimony today 
briefly on the international trade aspects of the sugar 
program.
    I believe that maintaining the sugar program in anything 
like its present form will undercut our ability to open foreign 
markets for a whole range of U.S. products and services, 
particularly agricultural commodities and value-added products. 
In that regard, Mr. Chairman, I believe the sugar program is 
the Achilles' heel of U.S. trade policy.
    Why do I say that? Looking at the record in international 
trade and the central challenges facing us brings me to that 
conclusion.
    I think history will mark the years since 1993 as an 
extraordinary period of trade expansion and market opening, 
beginning with NAFTA and the Uruguay Round, continuing right up 
to this year with the PNTR vote in China and bilateral 
agreement on Vietnam. By any measure, world markets are more 
open than they were a decade ago, thanks to U.S. leadership, 
and that opening of markets has undeniably extended to 
agricultural products and food products as well.
    The Uruguay Round began the process of bringing agriculture 
trade under rules, opening markets and reducing the distortions 
imperfectly, of course. NAFTA also did this, and we have had 
numerous bilateral agreements that Ambassador Barshefsky and 
Secretary Glickman have championed, with the strong support and 
the prodding of this Congress, and particularly this committee 
and your House counterpart.
    Yet, despite those achievements, all over the world, 
agriculture remains the most sensitive sector: politically, 
economically, and culturally. Barriers have come down, but 
agriculture trade remains substantially restricted and 
distorted. Tariffs average 50-percent worldwide for 
agricultural products. TRQs give some access, but they continue 
to maintain restrictive conditions.
    We have the EU, as Senator Conrad has pointed out, using 
something like 85-percent to 90-percent of the world's export 
subsidies, and State trading enterprises still play too large a 
role.
    For all of these reasons, before Seattle and since, every 
U.S. official has made it crystal-clear that liberalizing 
agriculture trade further is the number-one priority of the 
U.S. in trade. We have set forth our ambitious objectives 
recently in the comprehensive proposal--and in my view, there 
is no doubt of the commitment of this administration or the 
next administration, Democratic or Republican, in that regard, 
as well as this Congress.
    But the real question, Mr. Chairman and Senator Kerrey, is 
how do we accomplish that objective? Where do we find the 
leverage, where do we find the allies to bring about more open 
world agricultural trade, and against that background, I would 
submit that the sugar program is a principal impediment to our 
efforts.
    First, it makes our calls for a fair and market-oriented 
system sound hollow and hypocritical. If we saw this program in 
any other country, we would label it as a major distortion of 
trade. We cannot really expect other countries to end 
protection or Government management of sensitive commodities if 
we are not prepared to do so.
    Second, we need to build allies with the Cairns Group and 
with the developing world if we are going to bring about the 
kind of world that the Administration's bold proposal talks 
about, and yet, sugar drives a wedge between us and many of our 
likely allies. In this sector, it puts us essentially in the 
camp of the European Union and Japan as the major distorters of 
world trade.
    Third, there are very few issues, if any--and I cannot 
think of any--that matter more to more nations than sugar 
trade. It is at the top of the agenda for the largest 
developing nations India and Brazil, and for developing 
economies like Chile, Thailand, and the Philippines. But it is 
also the high priority for the most struggling economies in the 
world: Central America, the Caribbean, and Africa.
    We know many of these countries think they got too little 
out of the Uruguay Round. In terms of access to the markets of 
the developed world. I think the inequities in the sugar 
program compel the conclusion that on this issue, the 
grievances of the developing countries are well justified, and 
not just deeply felt.
    I will conclude, Mr. Chairman, by saying that every Nation 
has its sensitive commodities, and certainly sugar is one of 
ours. But when our sensitive commodity is vitally important to 
the economic well-being of so many other countries, it becomes 
a major source of imbalance in the global economy. I think we 
have to think carefully about it in terms of the next round and 
regional trade agreements recognize its possibility for helping 
us to open markets for virtually everything else we want to 
export.
    Thank you.
    [The prepared statement of Mr. Shapiro can be found in the 
appendix on page 120.]
    The Chairman. Thank you very much, Ambassador Shapiro. We 
appreciate your testimony.
    Mr. Jaeger.

  STATEMENT OF ARTHUR S. JAEGER, ASSISTANT DIRECTOR, CONSUMER 
             FEDERATION OF AMERICA, WASHINGTON, DC.

    Mr. Jaeger. Thank you, Mr. Chairman. I am pleased to be 
here today on behalf of the Consumer Federation of America.
    CFA has long opposed the Federal sugar program as costly to 
consumers, and we appreciate your leadership over the years on 
this issue.
    As we have heard repeatedly this morning, the sugar program 
does rely on a system of price supports and import restrictions 
to keep prices paid to U.S. sugar producers well above the 
world market.
    Unfortunately, much or all of this increased cost for raw 
sugar is passed on to consumers by those who buy sugar from the 
producers--that is, the food processors and the retailers. Now, 
we may not like that, but the major studies down through the 
years have repeatedly shown that it is economic reality. It may 
not be 100-percent pass through, but it is a substantial pass 
through.
    Consumers pay this, what I call a hidden subsidy, each time 
they buy a food product containing sugar at the grocery store. 
It amounts to a regressive hidden food tax. It is regressive, 
of course, because poor people spend a disproportionate share 
of their income on food.
    The General Accounting Office, as we have heard, has 
repeatedly found the sugar program to be costly to consumers 
and other sugar users. GAO is an independent body. It is well 
respected. It is an arm of Congress. It has no ax to grind 
here. In 1993, it put the cost of this program at $1.4 billion 
a year to consumers and sugar users. In the past year, it took 
an even more exhaustive look at this program, and it found, 
once again, the cost to be $1.5 billion in 1996 and nearly $2 
billion in 1998. Without the sugar program, GAO estimated 
consumers would pay $600-to $800 million a year less for table 
sugar alone. That is not addressing other processed foods.
    These estimates would be less troubling to my organization 
if most of what consumers were paying in extra food costs was 
helping struggling family farmers, the farmers that Senator 
Kerrey and Senator Conrad referred to. Unfortunately, since the 
benefits under this program accrue on a per-pound basis, the 
bulk of the money goes to those who least need--it, the 
largest, most financially secure growers. GAO brought this 
point out in 1993. It said out that more than 40-percent of the 
benefits from the sugar program go to the top 1-percent of 
growers. Benefits, of course, are particularly concentrated 
among cane sugar growers 33 of them, GAO found, reaped in 
excess of a million dollars a year from this program. These 
beneficiaries are not Senator Kerrey's family farmers. The 
money they receive could be used by consumers to buy additional 
food or clothing, to help pay their mortgages, and to 
supplement their savings.
    In addition to the consumer cost, taxpayers are bearing an 
increasing burden under the sugar program. The next witness, I 
believe, will address that in more detail.
    Defenders of the sugar program dispute many of the numbers 
I have cited. In particular, they say consumers would never see 
any benefit if the sugar program were eliminated. Processors 
and retailers would simply pocket any savings from lower raw 
sugar prices.
    But, contrary to some of the numbers we have heard this 
morning, consumers have already benefitted from the recent 
freefall in the farm price of sugar. The retail price of table 
sugar--and that is what you need to look at to see the impact 
of this program--hit a 4-year low in April. It was down 4-
percent from a year earlier. That is despite rising energy 
costs.
    Admittedly, this retail price drop is small compared to the 
producer price decline over the same period, and for that 
reason, my organization is watching these numbers very 
carefully. We will not hesitate to speak out if it appears 
processors and retailers are taking advantage of the recent 
sharp decline in producer prices and not passing savings on to 
consumers.
    I should also say, while we object to the sugar program, 
CFA is concerned about the continuing decline in the number of 
small family farms in this country. Clearly, some small sugar 
beet farmers in the upper Midwest, in Nebraska, and elsewhere 
are facing serious financial problems. They deserve Federal 
help. We simply feel price supports are an inefficient way to 
do this because they concentrate benefits on the wrong 
producers.
    In lieu of the sugar program, we suggest a targeted 
assistance package specifically designed to help small sugar 
producers and other producers that need help to survive.
    Thank you.
    [The prepared statement of Mr. Jaeger can be found in the 
appendix on page 126.]
    The Chairman. Thank you very much, Mr. Jaeger.
    Mr. Frydenlund.

     STATEMENT OF JOHN E. FRYDENLUND, DIRECTOR, CENTER FOR 
  INTERNATIONAL FOOD AND AGRICULTURE POLICY, CITIZENS AGAINST 
               GOVERNMENT WASTE, WASHINGTON, DC.

    Mr. Frydenlund. Mr. Chairman and members of the Committee, 
on behalf of Citizens Against Government Waste, thank you for 
the opportunity to testify on the Federal sugar program.
    CAGW is a nonprofit, non-partisan organization with 1-
million members and supporters which grew out of President 
Reagan's private sector survey on cost control, better known as 
the Grace Commission. The organization's mission is to work for 
the elimination of waste, mismanagement, and inefficiency in 
the Federal Government, with the goal of creating a government 
that manages its programs with the same eye to innovation, 
productivity, and economy that is dictated by the private 
sector.
    The Center for International Food and Agriculture Policy 
institutionalized CAGW's longstanding goal of dismantling 
Depression-era agricultural price supports and regulations.
    In addition to a belief that Congress should build on the 
accomplishments of the 1996 Freedom to Farm bill and achieve a 
truly free market for agriculture, the Center advances the 
philosophy that the best way to assure America's farmers a 
prosperous and secure future is to promote a more open, global 
food economy by dismantling barriers to free trade.
    CAGW applauds Chairman Lugar for holding this hearing 
particularly at the present time, in advance of congressional 
consideration of a new farm bill. For years, the sugar lobby 
has successfully deceived the public into believing that the 
sugar program has no cost. However, the truth has finally come 
out. The Clinton administration's decision to purchase sugar to 
prop up domestic sugar prices finally debunks the greatest myth 
that producers have perpetrated on the U.S. public that the 
sugar program does not cost taxpayers anything.
    In fact, there was always taxpayer cost to the sugar 
program, roughly $90 million annually, and increased costs of 
sugar purchases that went to Government feeding programs, etc..
    The Clinton administration's mid-session budget review 
shows that from 2000 through 2005, the sugar program will cost 
taxpayers--not consumers, but taxpayers--a cumulative $1 
billion. The White House agreed in May to purchase 132,000 tons 
of sugar which will cost taxpayers approximately $54 million. 
However, this is only the beginning.
    The Clinton administration acknowledged that this purchase 
would not help strengthen sugar prices. In fact, according to a 
report in the highly respected Pro Farmer, USDA budget analysts 
expect the Government to spend $140 million on sugar this 
fiscal year. Indeed, the sugar lobby is already pushing for 
still more assistance that would cost at least as much as the 
sugar purchase.
    The U.S. Department of Agriculture made this situation 
worse by mismanaging the tariff rate quota for sugar. Although 
USDA is supposed to announce the TRQ allocations prior to the 
beginning of each new fiscal year, this year the TRQ was 
announced late, over a month after the fiscal year began. If 
the TRQ is more than 1.5-million-tons, the U.S. sugar 
processors are eligible for non-recourse loans, which do not 
have to be repaid, but if the TRQ is less than 1.5-million-
tons, the loans become recourse.
    Since sugar processors would rather not have to repay their 
loans, they used their clout to pressure USDA to announce a TRQ 
that would permit them to forfeit sugar to the Government if 
they wished.
    USDA came up with a novel approach of announcing an 
essentially fictional TRQ and simultaneously announcing a real 
TRQ that would actually be enforced. The fictional TRQ was just 
over 1.5-million-tons, just enough to give sugar processors the 
right not to repay their loans, but at the same time, USDA also 
announced that only 1.25-million-tons of the quota could 
actually be imported.
    In other words, USDA perpetuated a sham by putting the 1.5-
million in a press release, which gave the sugar processing 
industry the right not to repay loans made with taxpayer money, 
and by ensuring that the real TRQ was significantly less than 
this, 1.25-million-tons, USDA further restricted imports. In 
fact, the only reason USDA did not shrink the 1.25-million-ton 
figure even more is that the United States has an international 
obligation under the WTO not to import any less than this 
amount.
    If USDA had followed the intent of the law last fall, the 
taxpayers would not be paying for sugar purchases now. If USDA 
had announced the TRQ at the true 1.25-million-ton level, then 
price support loans would have been recourse. The big 
processors could have still gotten the loans, but they would 
have had to pay them back with real money, not sugar.
    USDA's administration of the TRQ has been marked by a 
short-term political focus and a bias in favor of the large 
domestic sugar interests that have historically wielded 
influence at the Department. Even before this year's fiasco, 
the General Accounting Office found that USDA raised sugar 
costs for users and consumers, $400 million higher than would 
have been necessary. In other words, USDA has not just imposed 
the annual cost of the program on users and consumers recently 
estimated by GAO at 2-billion, which was a 40-percent increase 
since its last report, but it has added another $40 million to 
the consumer tax for sugar.
    In conclusion, for the good of U.S. taxpayers, consumers, 
and the rest of the agricultural industry, it is long past time 
to get rid of the U.S. sugar program.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Frydenlund can be found in 
the appendix on page 133.]
    The Chairman. Thank you for that testimony.
    The Chair at this point is going to call for a short 
recess. The roll call vote that was anticipated is occurring on 
the floor, and I will return as rapidly as possible. We will 
proceed, then, with the rest of our witnesses.
    [Recess.]
    The hearing is called to order. Again, we would like to 
proceed with our next witness, Mr. Kominus.

   STATEMENT OF NICHOLAS KOMINUS, PRESIDENT, U.S. CANE SUGAR 
             REFINERS' ASSOCIATION, WASHINGTON, DC.

    Mr. Kominus. Thank you, Mr. Chairman.
    I would like to begin by commending you for calling this 
hearing. Lord knows the sugar program needs a good look-see. 
Our cane sugar refining industry has suffered under the program 
since it was adopted in 1981, and now our producer friends in 
other segments of the industry are starting to share our pain.
    Today, sugar is a mess. The Secretary of Agriculture has 
lost control of the situation, and it is largely of his own 
doing and that of his immediate predecessors. He can no longer 
support the price of sugar for domestic producers by regulating 
imports. So now the Secretary must resort to other steps such 
as purchases and perhaps plowing up planted acreage.
    Over the years, our calls for more reasonable import quotas 
have gone unheeded. Tight import quotas have forced up the 
price of raw sugar to unreasonable levels well above the 
forfeiture levels and thereby stimulated unbridled domestic 
production. I believe the current mess could have been avoided 
or at least delayed had the Secretary responded to three 
changes you made in the sugar program in the 1996 farm bill.
    The so-called no-cost provisions were dropped, and a 1-cent 
forfeiture penalty was adopted. Clearly, those changes would 
permit less restrictive import quotas, but despite our pleas 
and the pleas of others, the Secretary chose to ignore those 
changes.
    He also chose to ignore the third change which attempted to 
restore balance to the program by denying non-recourse loans if 
imports continue to slip. Although everyone in the sugar trade 
knew that imports would be nowhere near the 1.5-million-ton 
trigger, the Secretary went ahead with non-recourse loans last 
year. All of this has resulted in the current mess. Where do we 
go from here?
    We believe that the burden for correcting the oversupplied 
market should fall on those who created the problem by 
expanding acreage. A strong message should be sent to them. The 
Secretary should not further aggravate the situation by taking 
them off the hook. In this regard, we have five recommendations 
that we believe will help the situation.
    First, the Secretary should announce and allocate the 
tariff rate quota well before the beginning of this coming 
marketing year. The 6-week delay in announcing the quota last 
year created all sorts of costly problems for refiners and 
others in the sugar trade and should not be repeated.
    Second, if the quota allocated is less than 1.5-million-
tons, the Secretary should, as the statute directs, provide 
resource loans. If the quota announced is greater than 1.5-
million-tons, the 1.5-million-tons should actually be made 
available for import.
    Third, if the Secretary is going to purchase more sugar, it 
should be refined sugar and not raw sugar, as low refined sugar 
prices are driving the low raw sugar prices. Purchasing raw 
sugar will not result in any increase in refined sugar prices, 
and, thus, will not act to avert refined beet sugar 
forfeitures.
    Fourth, require that any increase in the quota for Mexico 
be imported as raw sugar for further refining. Cane sugar 
refiners should not be further disadvantaged by the program.
    Fifth, and perhaps most importantly, Mr. Chairman, whatever 
short-term steps the Secretary takes to alleviate the current 
situation should be designed to facilitate a long-term solution 
to the problem.
    Thank you.
    [The prepared statement of Mr. Kominus can be found in the 
appendix on page 137.]
    The Chairman. Thank you very much, Mr. Kominus.
    Mr. Hammer.

      STATEMENT OF TOM HAMMER, PRESIDENT, SWEETENER USERS 
              ASSOCIATION, FALLS CHURCH, VIRGINIA

    Mr. Hammer. Mr. Chairman, partly because a lot of what I 
was going to say has been said and because of your 5-minute 
rule, I will just make a few remarks here.
    Mr. Chairman, a lot has changed since I sat before you 5- 
or 6-years ago or so and we discussed the sugar program, and I 
dare say that my message at that time was not particularly well 
received by other members of your committee, or at least all 
the members to say the least. I was often politely dismissed 
and sometimes not so politely dismissed by saying that the 
sugar program was not broken and why in the world would I be up 
here offering suggestions to fix it, and that was generally 
followed with the comments that the sugar program was a great 
example because it cost no money.
    I think that those two statements today do not meet at 
least today's reality test, and I would like to make a few 
comments about that.
    For many years, we were concerned that the rigidness of the 
domestic sugar policy was not only unfair, but, more 
importantly, it would not be able to be sustained in a dynamic 
global economy. The answers to our problems are not simple. We 
are not in an isolated economy, and we are in the global 
economy and we must compete in such.
    We are not dealing with one variable equation such as 
sugar. If you are a manufacturer of a product, it is rare that 
sugar is your only ingredient cost.
    Also, we are not competitors. We are ultimately in a supply 
chain with the refiners, with the processors, along with the 
industrial users and the growers as we try to market our 
product to the ultimate consumer.
    I would also say the TRQ plan is not working. It is not 
easy to administrate. There are many herky-jerky responses that 
are occurring. The so-called administrative plan that was 
discussed that was put in place in 1996 is impossible to 
administer for the very simple reason, Mr. Chairman, that we 
have always used as our import policy tool the import quota on 
raw and refined products to operate the sugar program.
    Over the years, U.S. import of sugar declined from around 
5-million-tons to its currently 1.25-million. Due to these 
highly restrictive sugar quotas, domestic sugar prices 
generally average more than two to three times above world 
prices.
    Until recently, the operative element of the sugar program 
had been the tariff rate quota. The domestic sugar program is, 
therefore, not truly a farm program. Sugar rarely went into CCC 
loan programs and was almost never forfeited. There was no need 
for acreage controls or marketing constraints, although we did 
dabble in them for a year or so, because they could use the 
import quota to reduce supply. However, as a result of the WTO 
minimum commitment of 1.25-million, we are now at that level. I 
dare say two things. The WTO agreement was a very powerful 
agreement from the standpoint of the industry because we would 
be below the minimum import level that today if we had not done 
that, but as a result, we can no longer reduce sugar imports. 
So we are looking for other ways, like domestic sugar purchases 
and PIK programs. So we do need to look at this because the 
tools are no longer available to us.
    Finally, if I may just say something from the 
manufacturer's position, and I would ask anyone to step into 
our shoes for a moment, if you saw higher sugar prices, you 
would be concerned for several reasons. If you have low world 
sugar prices and high domestic prices, four or five several 
problems can occur. One, we encourage imports, imports of 
sugar-containing products. Two, you encourage the ability or 
the desire for sugar-containing product manufacturers to look 
for sweetner substitutes at lower cost. We saw that in the soft 
drink industry. We are seeing it more and more daily in other 
products. Three, it makes it difficult for us to export into 
world markets where world prices are combined in those product 
costs. Finally, it makes it difficult for us to increase growth 
to our consumers. They are not wed to sweetened products. They 
are able to buy other products, and we would like to be 
competitive on the shelf with other consumer items.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Hammer can be found in the 
appendix on page 142.]
    The Chairman. Thank you very much, Mr. Hammer, for your 
testimony.
    Mr. Perry.

     STATEMENT OF MARK PERRY, EXECUTIVE DIRECTOR, FLORIDA 
             OCEANOGRAPHIC SOCIETY, STUART, FLORIDA

    Mr. Perry. Thank you, Mr. Chairman and Honorable 
Congressmen. I would like to submit my written report for 
inclusion in the record today and take a few minutes here just 
to give you a brief presentation on it.
    We focussed on Florida. We took a look at Florida which we 
are familiar with. Just north of Lake Okeechobee is the 
Kissimmee River and the Kissimmee Lake and chain of lakes which 
used to gradually flow down into a very slow river flow into 
the Lake Okeechobee which then periodically would flow down in 
through this broad area of about 40 to 60 miles wide down 
through into the 10,000 Islands area. It is very visible in the 
satellite imagery here, but it also was adequately described 
back in 1947 by author and conservationist Marjory Stoneman 
Douglas as the river of grass. This was very slow-moving system 
which fluctuated according to the inflows from rainfall and 
seasonally.
    What occurred back in the 1900's when Florida and the 
Congress were interested in reclaiming the Everglades, that is, 
to drain the Everglades down and make it more ``valuable land'' 
for agriculture and other purposes, they began building canals 
south of the lake. There were four main canals that were built 
south of Lake Okeechobee which went down south and then 
southeast to the ocean. Those canals in the 1920s were very 
effective at draining that land.
    Also, around in 1930, the Army Corps of Engineers built the 
Hoover Dike around Lake Okeechobee which surrounded the entire 
lake, 32-to-40-foot-high dike, and effectively stopped any of 
that flow to the south. The Corps also constructed canals to 
the east to the St. Lucic Estuary on the East Coast and to the 
Caloosahatchee River Estuary on the West Coast. Those are the 
two major outlets that are used for controlling the lake level.
    Since that time, the Corps over the past 50-years and the 
water management districts have been controlling that lake as a 
means of flood protection, but also for the effective use for 
the south area which is the 700-acres known as the Everglades 
Agricultural Area, or the EAA, which is south of Lake 
Okeechobee.
    In that area, the majority, or about 80-percent or so, is 
sugar cane. There is about 460,000-acres, or about 50-percent 
of the domestic supply, producing about 2.1-million-tons-of-
sugar annually.
    About 440,000 tons is basically under the sugar program, 
but sugar has been used to really effectively control that 
water south of the lake. We talk about a subsidy here that is 
economic, and I know you are focussed on that, but if you could 
focus for a minute also on the hydrology of the area and how 
effectively sugar has used the water to control south Florida.
    What has happened since that control is basically they have 
water when they need it for irrigation, and they pump it off to 
properties when they do not need it and drain the land so it is 
2-feet below the surface which is ideal for sugar.
    What has happened since that control has begun is the 
Everglades system and the Everglades has been completely 
interrupted and is now seeing devastating effects to the 
Everglades. The water is discharged east and west and really 
the demise of these estuaries is incredible. There is fish 
disease outbreaks which I have documented and other problems in 
the estuaries, and the lake has been kept artificially high 
which then produces a critical time for the lake. Just this 
past year, they have had to dump massive amounts out of Lake 
Okeechobee just to bring the lake down environmentally to save 
Lake Okeechobee.
    So what happens here is a complete control over this area 
south of the lake. You mentioned that there was farm bill money 
that was helped to buy back about 200-million, and 133-million 
of that was used last year for the Talisman tracts south of the 
lake in the EAA, but that tract is now also being leased back 
to sugar cane in order to continue to farm it for sugar cane 
for the next 3- to 5-years.
    So we need to continue, though, to look at--and I urge you 
instead of buying the sugar back and oversurplus supply--is to 
take that money and apply it to buying the land itself that is 
in production underneath Lake Okeechobee and turning that land 
back into the saw grass communities and restoring the 
Everglades, saving Lake Okeechobee, and also saving these 
estuary systems. I think it is very critical for the 
environment, but also critical for the water in south Florida 
if we are going to have a sustainable south Florida.
    Thank you for the time, and I will be available for 
questions.
    [The prepared statement of Mr. Perry can be found in the 
appendix on page 152.]
    The Chairman. Thank you very much, Mr. Perry, for coming 
this morning to offer that very important testimony.
    Ms. Estenoz.

 STATEMENT OF SHANNON ESTENOZ, ON BEHALF OF THE WORLD WILDLIFE 
       FUND AND THE EVERGLADES COALITION, WASHINGTON, DC.

    Ms. Estenoz. Yes, Mr. Chairman. Good morning.
    I want to thank you for the opportunity to represent the 
Everglades Coalition this morning on this issue that we 
consider to be so central to the question of Everglades 
restoration.
    The Everglades Coalition is a consortium of 42 civic, 
environmental, and recreational organizations dedicated to the 
preservation and restoration of America's Everglades. I want to 
in particular thank you, Mr. Chairman, for your personal 
leadership and dedication that you have shown in support of 
Everglades restoration over the years.
    I want to straighten out a small, but I think important 
detail. I notice on the witness list that it indicates that I 
am from Washington, D.C., and though I love our Nation's 
Capital and enjoy my visits here, I have had the privilege of 
living and working within a few miles of the Everglades my 
entire life.
    A fundamental point, I think, made by Mr. Perry is that the 
Everglades Agricultural Area, as we know it today, was not just 
a part of the historic Everglades like any other. It was the 
central water storage feature of the system. Its primary 
ecological function was to store water.
    When it was drained for agriculture, the Everglades lost 
this enormous 700,000-acre natural storage reservoir. The only 
way to restore the Everglades is to build water storage back in 
the system. We have got to take that fresh water that we 
currently discharge out to tide. We have got to capture it, 
clean it, redistribute it to the remaining Everglades and to 
the built environment, and we have got to figure out a way to 
do it that meets the needs of a restored Everglades, but that 
is also fair and equitable to the public.
    From an ecological perspective, it makes sense to restore 
this water storage in places that it existed historically. To 
the extent we can do that, to the extent that it makes fiscal 
sense and technical sense, we should be putting the storage 
back where it existed historically, and that is true throughout 
the system, not just in the EAA, but, unfortunately, the 
economics of growing sugar in south Florida is distorted by 
subsidy and price supports.
    Large-scale sugar production in south Florida exists as a 
result of a vast and complex system of publicly subsidized 
flood protection, drainage, and water supply that combine to 
provide enormous benefit to the growers in the region. Sugar 
producers in south Florida are essentially immune to weather-
related adversity, and this is no small boon in a region that 
is characterized by the extremes of drought and flood.
    On top of all of the advantage that the publicly subsidized 
water management system provides, growers in South Florida also 
benefit significantly from the Federal price support program. 
They benefit not only at a cost to consumers, but at a 
significant and direct cost to the Everglades and a 
disproportionate cost to the Florida taxpayer.
    The price support program obviously did not create the EAA 
as we know it, but it certainly has come to define its size and 
maximize its impact on the Everglades. The Everglades Coalition 
proposes to restore rationality to the economics of growing 
sugar in south Florida and to the economics of restoring the 
Everglades by urging Congress to phase out the sugar program 
when it considers reauthorizing the farm bill.
    The program has significant and direct impacts on the 
Everglades. By eliminating risk and guaranteeing profit, the 
program encourages overproduction. It keeps marginal lands that 
are only profitable because of price supports in production. 
These lands contribute directly to phosphorous pollution in the 
Everglades ecosystem. As it is, Florida taxpayers are paying 
70-percent of the cost to clean up EAA runoff.
    Lands that are in production because of the program 
contribute directly to the water management conflicts that Mr. 
Perry described. He also described the devastating impacts that 
those conflicts have on the surrounding estuary systems and on 
the central Everglades. The value of these lands is kept 
artificially high, distorting the economic analysis that goes 
into determining the smartest and best and least expensive way 
of restoring water storage to the system. It distorts our 
ability to decide to what extent and how we should be restoring 
water storage in the EAA. The Everglades Coalition urges the 
Congress to phase out the program and put an end to these 
distortions.
    In closing, Mr. Chairman, I want to leave you with a final 
proposal. Unless or until the sugar program is phased out, the 
Federal Government will be periodically faced with a decision 
of whether to buy sugar or face loan defaults. Decisions to buy 
sugar simply encourage the growth of more sugar and so on in a 
continuous cycle of misplaced incentive, cost to consumers, and 
devastating impact to the Everglades.
    As an alternative to buying sugar, the Government could 
choose to buy land in the EAA taking it permanently out of 
sugar production and thereby ending the cycle of overproduction 
and buyback that is so destructive to the Everglades.
    In short, Mr. Chairman, the Coalition urges Government to 
buy land, not sugar. Again, I thank you for the opportunity to 
address you this morning.
    [The prepared statement of Ms. Estenoz can be found in the 
appendix on page 155.]
    The Chairman. Thank you very much.
    Ms. Estenoz or Mr. Perry, either one of you might have a 
response to this question. In November of 1995, I offered 
legislation co-sponsored by the distinguished ranking member 
then of our committee, Senator Leahy, to assess Florida's sugar 
at 2-cents a pound in order to provide money to purchase the 
land and to in fact clean up the Everglades. That had some 
debate here, but it resonated in Florida politics, and as you 
know, referenda occurred in the election of 1996 in which, as I 
recall, by about a 52- to 48-percent margin, such an idea lost.
    What are the dynamics of Florida politics, or why would 
such a good idea have lost? Obviously, this was a very large 
issue in Florida, a very conspicuous issue in 1996, and I just 
query from your own response, since both of you are from 
Florida here today, what is going on there.
    Ms. Estenoz. That is an excellent question, Mr. Chairman.
    That initiative did fail by a very close margin in Florida, 
and I think as some of these initiatives often go, they often 
turn on sort of last-minute information and kind of public 
campaigns that include commercials, very well-funded campaign 
to fight that initiative, and I think that, that was absolutely 
central in defeating that proposal.
    I think what we are seeing in Florida now is the debate 
among the people of Florida about Everglades restoration has 
really reached a new level, and it is primarily because the 
restoration plan is moving through Congress as we speak and 
people are talking about it, and they are looking at how much 
it is going to cost us.
    It is going to cost the Federal Government $4 billion to 
restore the Everglades, but the other $4 billion is going to 
come from the State of Florida. I think folks are really now in 
the year 2000 looking at that, looking at that bill square in 
the eye, that bill to fix the Everglades. They are realizing 
that we really need to make public policy decisions that make 
sense and that fit with this larger goal to restore the 
Everglades.
    I think the other thing I would say is that I think the 
public understands better now than they ever have before that 
as goes the Everglades, so goes south Florida. South Florida 
cannot exist--we cannot maintain our quality of life. We cannot 
maintain our water supply without a healthy Everglades 
ecosystem, and I think people are looking much more critically 
now in south Florida at ways to make that happen.
    The Chairman. I was impressed with the fact that although 
we discussed these programs in Agriculture Committee and it is 
one of the many programs that we have and obviously helps farm 
families and what have you, the ramifications when you have the 
concentration that occurred in the industry in Florida on the 
environment are very, very substantial, in fact, finally tragic 
and devastating to the economy of a large portion of a major 
State. So the ripple flows out.
    We have had testimony from all of you that the 
ramifications on our foreign policy--and once again, this is 
not the purview of this committee, but I know from my own 
experiences in the Philippines and trying to build democracy in 
Latin America throughout the 1980s that this issue was a 
tremendously important issue, and it had devastating impact 
upon those who were attempting to bring about democracy and 
free market economics in those countries.
    You might wish they were dealing with something in other 
than sugar, but they were dealing in sugar. It was extremely 
important. As we have heard earlier on, this is a very 
important and emotional subject for lots of countries.
    So, on the one hand, we were advising them to head toward 
democracy and market economics, and on the other hand we had a 
program that debilitated many of those efforts and continues to 
really even today. So they are big issues outside this 
committee, but we sort of bring them in here.
    I just come back to the fact that we have a program now 
that stimulates more supply. The fact is that the loan rates 
and the policies being administered encourage people in the 
United States for whatever reason, to produce more sugar, even 
as we sit here and as we try to decide how we are going to 
dispose of it. That is not a good idea. It is intuitive that 
somehow we need to change the supply-and-demand equation, and 
the question is how to do so with the most positive effects for 
all the people who are involved. So we are continuing to 
search, really, for how to do this.
    We have these votes from time to time on whether to end the 
program, and they fail routinely by 2 to 1 because people say 
there are all kinds of problems in just eliminating cold 
turkey, and there are, but incremental attempts--I cited the 
attempt of Senator Bradley, 10-years or so ago, to even make a 
2-cent change also failed 54 to 44 at that time. Maybe the 
Congress has changed, but, essentially, this is a program that 
has been very durable, whatever its effects upon the 
Everglades, on world trade, on democracy in the hemisphere, on 
American consumers, and, therefore, it is sort of curious for 
somebody who is outside the loop of people who come to a sugar 
hearing as to how in the world such a thing could have started 
and be allowed to persist. You have offered good testimony in 
terms of some of the problems we must face. I hope you will 
work with the Committee in terms of constructive solutions. We 
will try to find some.
    Let me call now on Senator Conrad.
    Senator Conrad. Mr. Chairman, I appreciate this panel. 
Obviously, there are many issues that have to be considered 
that relate to different parts of the country. I noted that 
Ambassador Shapiro made the statement that having a program 
makes hollow our request to other countries to abandon their 
support measures. I would simply say the hard reality is other 
countries have these support measures, and those who advocate 
unilateral disarmament, I think, are misguided.
    Those who believe that if we end our programs, thereby 
supposedly setting a good example for other countries, will be 
sorely disappointed. That is precisely what we did in the last 
farm bill, which proved to be a disaster. That is why we have 
had to write three disaster bills in the last 3-years because 
some had this notion--I think it is naive--that if we just cut 
our support for farmers, other countries would follow our good 
example. That is not what happened. The Europeans did not cut 
their programs. Instead, they went full speed ahead. The result 
is they have gobbled up market share, establishing a stronger 
position in world agriculture than we have. USDA now tells us 
for the first time, Europe will surpass us in world market 
share.
    So my own conclusion is the only way you get a result is if 
you have leverage, and the only leverage you have is to match 
our competitors in terms of the programs that they have to 
support their producers, and if we fail to do that, we simply 
are abandoning our producers and consigning them to failure. 
That is a disaster, too.
    I go in the small towns, the farms of my State and see real 
economic hardship because, as I have indicated in the chart I 
have put up before, our major competitors are outspending us 10 
to 1 in support for their producers. The only way that I can 
see that you get both sides to back off is if you have leverage 
and if you are in a position to negotiate a more favorable 
result.
    The hard reality is we do not have any leverage. When the 
other side outspends you 10 to 1, they win and you lose. So my 
own view is we have got to rearm in agriculture. We have got to 
rebuilt our defenses.
    As I said to some of my colleagues, if we were in a 
military confrontation with the Russians and they had 50,000 
tanks and we had 10,000 tanks, would our first move be to cut 
our tanks in half? I do not think so. That is exactly what we 
did in the last farm bill in agriculture. The Europeans were 
spending $50 billion a year to support their producers. We were 
spending 10. In the last farm bill, we cut our support for our 
producers in half to $5 billion, and then we wonder why they 
are gaining world market share and moving into a superior 
position.
    We go to Seattle, and they are unwilling to move. They are 
unwilling to back off their massive export subsidies. Why? 
Because we have no leverage to negotiate a better result.
    So, Mr. Chairman, I hope all of these facts are kept in 
mind as we move forward because I think we have adopted a 
losing proposition in terms of a strategy for American 
agriculture, and the result will be the ruination, the economic 
ruination of tens of thousands of farm families who do not 
deserve that result.
    The Chairman. Thank you, Senator Conrad.
    Senator Kerrey?
    Senator Kerrey. Thank you, Mr. Chairman.
    First of all, I want to thank the witnesses for taking your 
time, including an interrupted testimony with the vote, to 
appear before us. Thank you, Mr. Chairman, as well for holding 
these hearings because I do think that we have a program that 
is a mess.
    We have got serious problems, and it is embarrassing, to 
put it mildly, to have to get into considering things like a 
PIK or a buyout and doing the various extraordinary things we 
are considering right now.
    My own thinking is that some sort of structural change is 
needed. Senator Roberts, a week before last, and I held a 
hearing on the issues of trade and how do we promote 
agricultural trade, and I would say to you, Mr. Chairman, there 
are a number of structural impediments that make it very, very 
difficult to get decisions made. As a consequence, I think we 
have missed huge opportunities to constructively assist Russia, 
for example, in making the transition to free markets. Instead, 
we have supported and stabilized corrupt government structures 
instead of encouraging the private sector.
    We have, I think, an opportunity, if we can do it in a calm 
way, to examine the sugar program and perhaps connect it to 
some other trade issues and get the bureaucracies of Government 
to start working in a more constructive way.
    I am compelled, however, to say in listening to the 
witnesses that in 12-years of operating, working, and serving 
the people of Nebraska in the Senate, I have seen the United 
States of America time and time again take the lead in opening 
our markets. Nobody has lower tariffs and trade barriers than 
the United States, and I do not think we have to apologize. You 
may not like the sugar program, but it is certainly relative to 
the rest of our trade programs. I am not embarrassed by it 
given the willingness of the United States of America to lead 
and put our workers at risk. Do not tell me it does not put our 
workers at risk.
    I would say one of the reason that issue may have been 
defeated in Florida is people like jobs. They sort of think it 
is an important thing to have. I have got real job security. I 
do not have to worry about the damn marketplace, and I get paid 
$132,000 whether I perform or not, but 137-million-Americans do 
not. They have got to work out there in that marketplace, and 
trade can play a nasty trick on somebody at the age of 55. 
Please do not tell me I have got to go and learn computer 
software when I am 55-years of age if my job goes south, or 
move someplace else. There are all these theories of 
comparative advantage and so forth, and I have voted for free 
trade things. I have said that the United States has got to 
lead, and as to democracy, my God, consider the price that 
Americans have paid in blood and in money in the last 60-years. 
Please do not tell me that the United States of America has not 
led in trying to help the rest of the world become more 
democratic.
    I have listened without success to fight back tears to 
Vaclav Havel, Nelson Mandela, Kim Dae-Jung of South Korea. We 
have paid a big price, America has, and we do not have to 
apologize for that as we are trying to examine how to make the 
sugar program work.
    I voted to help restore the Everglades. It is not in 
Nebraska. My ecosystem is the Missouri River, and we worry and 
try to figure out how to balance the needs of the Missouri 
River as well, trying to protect that ecosystem, redevelop that 
ecosystem. We recognize we made mistakes, but I have got a 
million people that work at home and they want jobs. They have 
got to produce something and earn something. They are trying to 
earn a living.
    Mr. Chairman, I apologize for making a philosophical 
statement here, but it seems to me that in the presentation of 
the case against the sugar program, we are arguing somehow the 
United States of America is a protectionist Nation. We are not. 
Point to me another Nation on earth that would allow itself to 
develop the kind of deficits that we have. We bailed Asia out. 
We responded responsibly when the BOT declined in Thailand and 
Asia was in the toilet. We did not protect our marketplace at 
that time. We allowed enormous amounts of imports to come in 
the United States.
    I think these hearings can lead to some constructive change 
in this program. I do think it is a mess. I do think as well 
that it connects to the problems that Senator Roberts and I saw 
when we had our witnesses coming up and talking to us about the 
barriers and problems and frustrations.
    I hope I do not mispronounce Mr. Kominus' name. Somebody 
like yourself that is actively involved in the business laid 
out some very concrete suggestions of ways that we perhaps 
might make this program work better. I appreciate all the other 
suggestions as well. I think we have got to find a way to 
improve this program rather than just beating ourselves to 
death saying there is something wrong with America as a 
consequence of, one, to produce a program that creates jobs for 
our people.
    The Chairman. Thank you very much, Senator Kerrey. I pay 
tribute to you again for supporting our committee's attempt to 
get into complex problems. We had a very good hearing on energy 
policy in the country last week that I thought was an 
extraordinary opportunity to explore that and to put on the 
record for our colleagues a whole host of both problems and 
alternatives. I am hopeful this hearing will have a similar 
effect.
    I would just announce for all who are interested, we will 
have a hearing tomorrow on the proposal by Senator McGovern, 
Senator Dole, and others for a school lunch program worldwide. 
The ramifications of that might be another complex and 
important issue that the President has focussed on recently and 
others have.
    But for the moment, we thank each one of you for coming and 
for your patience and waiting through our roll call vote 
situation.
    Yes. Ambassador Shapiro, do you have a comment?
    Mr. Shapiro. Mr. Chairman, thank you.
    Because Senator Conrad--I am sorry he is gone--and Senator 
Kerrey's statements were so strong, I just wanted to make a 
couple of comments.
    The first is that nothing in my statement should suggest 
that this is not a hellaciously difficult problem. It is. 
Everything I learned about trade started when I worked in the 
U.S. Senate, in the 1980s and 1970s--where every job and every 
farm matters. So I take that as a given.
    What I was trying to say is that a full accounting of the 
costs and benefits of this program includes trying to figure 
out how it fits with our other agricultural trade objectives. 
This Government has been committed to opening markets around 
the world, and if you look around the world, you will find that 
agricultural barriers are still very high.
    In my view, you change that in the next multicultural 
negotiation or regional negotiation by finding allies, having 
leverage, and essentially asking others to open their sensitive 
markets by being willing to open your own.
    I wanted to say to Senator Conrad--and we have worked 
together before--I have never believed in unilateral 
disarmament.
    I do believe that the sugar program undercuts our ability 
to isolate the European Union. I believe we are in something of 
a worldwide competition as to how we approach agriculture 
around the world, and I think the sugar program has the 
unfortunate effect of undercutting our position in that regard, 
but nothing any of us has said should suggest this is not a 
hellaciously difficult problem.
    The Chairman. Thank you very much.
    The Chair would like to call now a panel composed of: Mr. 
Ray VanDriessche of the American Sugarbeet Growers Association; 
Mr. James J. Horvath, President and Chief Executive Office of 
the American Crystal Sugar Company; Mr. Alan Kennett, President 
and General Manager of Gay & Robinson, Incorporated, in Kauai, 
Hawaii; Mr. Jack Lay, President of the Refined Sugars, 
Incorporated, of Yonkers, New York, accompanied by Jack Roney, 
Director of Economics and Policy Analysis of the American Sugar 
Alliance; Mr. Lindsay McLaughlin, Legislative Director of the 
International Longshore and Warehouse Union; and Professor 
David Orden, Agricultural and Applied Economics at the Virginia 
Polytechnic Institute and State University.
    Gentlemen, we thank you for coming, and I will ask you to 
summarize your testimony as we have asked the other witnesses 
in 5-minutes. Your full statements will be made a part of the 
record, and then we will have questions by our Senators and our 
panel.
    Mr. VanDriessche.

 STATEMENT BY RAY VANDRIESSCHE, PRESIDENT, AMERICAN SUGAR BEET 
            GROWERS ASSOCIATION, BAY CITY, MICHIGAN

    Mr. VanDriessche. Good morning. I just would like to let 
everybody know that we have the opportunity here to have a 
sugar beet here for those who have never had a chance to see 
one. So this is a sugar beet.
    Mr. Chairman, my name is Ray VanDriessche. My brother and I 
are sugar beet, corn, soybean, and dry bean farmers from Bay 
City, Michigan. As president of the American Sugar Beet Growers 
Association, I represent over 12,000 family farmers who grow 
sugar beets in 12 States.
    Mr. Chairman, it is critical to set the record straight on 
three basic points. First, the U.S. sugar industry is efficient 
and globally competitive. Beet sugar produced in the U.S. is 
the lowest cost among beet sugar producers worldwide, as seen 
on chart one. In fact, over half of the sugar produced in the 
world is produced at a higher cost than U.S. beet and cane 
sugar, as seen on chart two, and 75-percent of the world's 
sugar is produced in developing countries that have 
substantially lower health, safety, and labor standards, and 
environmental standards and costs than what we do. Our sugar 
and our sweetener industry has a comparative advantage and an 
economic right to produce the essential ingredient for our 
market.
    Second, the world's sugar market is a dump market. The 
price of sugar on the world market does not reflect its cost of 
production. Chart three shows that the average price of sugar 
on the world raw market for a 10-year period is about one-half 
of the average worldwide cost of production of raw sugar during 
that same period.
    Sugar policy in the U.S. has been a proper response to the 
predatory trade practices of our competitors. U.S. consumers 
pay 20-percent less for refined sugar than the average consumer 
in other developed countries. Comparing U.S. sugar prices 
against the world market price is ignorant, foolish, or is an 
attempt to deceive those who are not informed of the facts.
    Third, lower sugar prices are not passed onto consumers. 
Industrial users purchase the majority of sugar in this 
country. The evidence is clear that their savings on lower-
priced sugar is not passed onto the consumer. Chart seven shows 
the decline in U.S. prices since the beginning of the 1996 farm 
bill and the continued increase in the price of sugar-
containing products. There has never been any evidence of pass 
through of savings to the consumers.
    Mr. Chairman, let me tell you why there is so much 
controversy over sugar. Big corporate users attack sugar policy 
because they actually have to pay for what it cost to produce 
the commodity, but you never hear them whine about the billions 
of dollars that Government spends on other commodities that are 
necessary and are appropriate to rescue those farmers from 
economic disaster. Such policies allow them to purchase 
commodities below the farmer's cost of production, shifting the 
cost to the taxpayer. In the end, the farmer is blamed for 
Government cost. It survives, but does not prosper, and the big 
user reaps the benefit of commodities priced below the farmer's 
cost and does not pass the savings onto the consumer. An 
economic crisis is plaguing our industry and affecting every 
grower throughout the country because every grower's income is 
directly tied to the price of refined sugar.
    Chart eight shows the collapse of the refined sugar market 
since late last year. Refined sugar prices have dropped by 34-
percent since the beginning of the 1996 farm bill, and now 
prices in every production region are well below the forfeiture 
price. The current market conditions have not only put our 
farmers at risk, but also our processing factories, their 
workers, and our real communities.
    The price collapse is a result of three factors: quota 
circumvention by stuffed molasses from Canada; the threat of 
increased Mexican imports under the NAFTA; and increased 
domestic production due to the lack of profitable alternative 
crops, three consecutive years of good weather that produced 
excellent crops, and companies attempting to maximize 
efficiencies by greater throughput.
    For 15-years, the U.S. sugar policy has run at no cost to 
the taxpayer, and in the last decade, sugar producers 
contributed $279 million in marketing taxes to help reduce the 
Federal deficit. This was achieved because we had a balanced 
market and both the legislative authority and the 
administrative tools to properly balance supply and demand. The 
major reforms of the 1996 farm bill and the effects of the 
NAFTA and Uruguay Round import commitments have thrown our 
industry into our current crisis.
    Congress has appropriately stepped in over the past 5-years 
with billions of dollars to assist other commodities. We 
believe our industry is equally threatened and deserves some 
form of relief, also.
    Mr. Chairman, four things need to be fixed immediately to 
save our farmers and our industry. First, the administration 
must buy more sugar to avoid massive forfeiture. Second, we 
must retain non-recourse loans for the crop we are about to 
receive. Third, the circumvention of our tariff rate quota from 
products like stuffed molasses must be stopped. Finally, we 
need to resolve the dispute with Mexico over the NAFTA 
provisions.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. VanDriessche can be found in 
the appendix on page 165.]
    The Chairman. Thank you very much, Sir.
    Mr. Horvath.

 STATEMENT OF JAMES J. HORVATH, PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, AMERICAN CRYSTAL SUGAR COMPANY, MOORHEAD, MINNESOTA

    Mr. Horvath. Thank you, Mr. Chairman and members of the 
Committee. I appreciate the opportunity to appear before you 
today.
    I am going to summarize my comments, as you requested, Mr. 
Chairman, because I have submitted my testimony for the record. 
My name is Jim Horvath, and I am president and chief executive 
officer of American Crystal Sugar Company, based on Moorhead, 
Minnesota. American Crystal is the largest sugar beet company 
in the United States with five factories in the Red River 
Valley of Minnesota and North Dakota. As a cooperative, we are 
owned by 3,000 family farmer shareholders, and we have about 
1,500 employees.
    The subject of today's hearing, the sugar policy is 
unsustainable given the current circumstances, is simply not an 
accurate conclusion. To analyze it, let's review some facts.
    The first fact is that sugar prices have been flat for 15-
years. Here is a chart showing nominal and real sugar prices 
since 1985. As the trend lines show, nominal sugar prices have 
been stagnant, while the real prices have dropped 
precipitously. The chart also shows that since the 1996 farm 
bill, prices are down dramatically taking a nosedive of 30-
percent just since last year. This is the lowest level of price 
in the last 22-years. Prices now stand below the forfeiture 
level in all regions of the country.
    Some people argue that flat prices mean high prices. Let me 
assure you it does not. Otherwise, we would not have seen seven 
sugar beet factories close since 1993, with two more slated for 
closure for next year. Profitable factories, Mr. Chairman, do 
not close. Those that cannot offset inflation do.
    Under flat prices, one of the few ways to fight inflation 
is through growth. Without a strategy of growth to continually 
seek efficiencies, it is very likely that American Crystal's 
factories would have closed by now, also. Growth is not a 
strategy to raise havoc. It is a strategy to survive, plain and 
simple.
    Some people blame the current price collapse on growth. 
Well, that is not so plain and simple. It is a fact that the 
terrible farm economy has forced shifts in acreage from program 
crops to sugar beets and sugar cane. More obvious contributors 
to our current situation are our trade agreements. Quite 
frankly, the sweetener provisions of the North American Free 
Trade Agreement are shortsighted and disastrous. The agreement 
gives Mexico guaranteed and, in some cases, unlimited access to 
our market, and it ensures that any access would have occurred 
fairly, as though the billions of dollars of subsidies the 
Mexican government is providing its sugar industry to exploit 
this agreement had not occurred. Unless it has changed, Mr. 
Chairman, NAFTA will destroy an efficient and productive United 
States sugar industry.
    The Uruguay Round of GATT also contributes to the current 
crisis in sugar. It requires the United States to import about 
12-percent of our domestic consumption whether we need it or 
not.
    Another factor is the egregious case of stuffed molasses. 
The London-based sugar trading corporation, ED&F Man, has 
continued to blatantly circumvent our harmonized trade schedule 
in a manner that should cause all Senators, supporters and 
opponents alike, to bristle. This sneaky scheme offends our 
customs laws, our sugar policy, and our common sense. It is 
flat-out circumvention, and it must be stopped.
    So, Mr. Chairman, these facts explain the real reasons of 
sugar price collapse we are experiencing. To rectify the 
situation, the sugar industry has been seeking USDA assistance 
in the form of sugar purchases. We are seeking this because of 
the dramatic stress in the industry and because it will 
actually save the Government money.
    On May 11th, Secretary Glickman announced a modest purchase 
of 150,000 tons of sugar, although the final purchase amount 
was less. While we greatly appreciate the Secretary's action, 
it is simply not enough. Forfeitures under the loan program are 
not only possible this year, they are inevitable.
    Anticipating this, the Secretary made a clear 
recommendation that he expects the sugar industry to come 
forward with additional measures to address sugar supply. We 
took the Secretary's message seriously. As you, Mr. Chairman, 
and the Committee have heard from Mr. Schumacher, a payment-in-
kind program for the current crop year is under consideration 
by the USDA.
    At American Crystal, we are supportive of this concept. We 
believe it achieves several worthwhile objectives for the 
industry and the Government. It quickly reduces the current 
oversupply. It relieves the USDA of the responsibility of 
managing large amounts of sugar, and it returns balance to the 
oversupplied market, and, again, it saves the Government money.
    Mr. Chairman, in conclusion, I was chief financial officer 
at American Crystal Sugar Company for 13-years before I became 
CEO 2-years ago. I know how to run a sugar company. The farmers 
who own our cooperative know how to do that, too. The fact is I 
still think it is remarkable that we have been able to do this 
and do the things right in our industry in spite of flat prices 
for the last 15-years.
    Having done what is right, we believe it is also right to 
implement measures in the short term to restore an economic 
environment in which shareholder investments and logical 
business strategies can fairly operate. For issues beyond that, 
we look forward to the 2002 farm bill debate which, as you 
know, is not that very far away.
    Again, thank you for the opportunity to testify, Mr. 
Chairman.
    [The prepared statement of Mr. Horvath can be found in the 
appendix on page 176.]
    The Chairman. Thank you very much, Mr. Horvath, for your 
important testimony.
    Mr. Kennett.

STATEMENT OF ALAN KENNETT, PRESIDENT AND GENERAL MANAGER, GAY & 
            ROBINSON, INC., KAUMAKANI, KAUAI, HAWAII

    Mr. Kennett. Thank you, Mr. Chairman and Members of the 
Senate Agriculture Committee.
    My name is Alan Kennett. I am the president and general 
manager of Gay & Robinson. G&R is a family-operated sugar cane 
farm and cattle ranch. I have been involved in the sugar 
industry for 35-years, beginning my sugar career in England. I 
have worked in Africa, the Caribbean, and now fortunately in 
Hawaii.
    Today, I speak for the sugar cane farmers of Hawaii. The 
Hawaiian sugar industry began commercial operations 165-years 
ago on the Island of Kauai. For many years, beginning in the 
1950's up through 1986, Hawaii's annual production exceeded 1-
million-tons-of-sugar. Today, Hawaii produces only 330,000 tons 
of sugar annually from far-operating factories.
    In 1986, there were 13 operating factories, and sugar was 
grown on all of the four major islands, Hawaii, Maui, Oahu, and 
Kauai. Today, sugar is grown only on Maui and Kauai.
    Earlier this month, AMFAC Sugar on Kauai announced plans to 
furlough 100 of its workers immediately, and I am afraid this 
is an indication that they may be finally getting out of the 
business.
    Unfortunately, since the demise of sugar on the big island, 
nothing has replaced sugar as a viable agricultural crop, and 
the former cane lands remain idle, overgrown with weeds. 
Unemployment is high, and drug usage, marijuana growing and 
drug trafficking, have increased dramatically, as have the 
social problems that are created by high unemployment and drug 
usage.
    Maui and Kauai could see the same occur should we lose our 
sugar industry. Our company, G&R, employs 270 people. We also 
provide housing for 350 families of both current and former 
employees. I promised our workers that I would do my best to 
impress upon you the importance of this issue. I pray to God, I 
do not let them down.
    Try and imagine what it must be like to wonder if you have 
a job tomorrow, next week, next month, next year. On the Island 
of Kauai, that is what many of our employees of sugar wake up 
contemplating each morning.
    One of my workers suggested to have the Senate Agriculture 
Committee come and visit and see firsthand these rural 
communities and witness what is going on and see for yourself 
the despair that exists in places where sugar was once grown.
    Because of Hawaii's isolation relative to our market, 
Hawaiian producers incur high freight costs, which puts us at a 
disadvantage relative to other sugar-producing areas. Clearly, 
Hawaii has not received congressionally approved returns from 
the sugar program, nor have many U.S. sugar farmers whose 
livelihoods are being threatened by the dramatic fall in prices 
over the past year.
    When Congress passed the 1996 farm bill, we were lead to 
believe that we had an 18-cent price for 7-years. We went out 
and we invested money in our business. We have not seen 
anything like the 18-cent price we thought we would have. This 
is not fair.
    Oversupply and loss of market confidence in the ability of 
USDA to maintain a viable program have resulted in some fairly 
depressed producer prices for raw and refined sugar. The U.S. 
raw sugar cane prices have fallen about 22.5-cents a pound to 
17-cents, the lowest in 18-years. To put this in perspective 
for Hawaii, if you take the 17-cent price level, you need to 
take 3.62-cents off for handling, transportation, and a refiner 
discount. We in Hawaii are presently only receiving 13.38-cents 
a pound, and we do not have the benefit of the price flow 
protection because we cannot use the loan program.
    Sugar has been overlooked in Government market loan 
assistance efforts during the farm crisis for the past several 
years. Net CCC outlays for other program crops exceeded 10-
billion in fiscal 1998 and 19-billion last year. Sugar revenues 
totaled 30-million in 1998 and 51-million last year. Nearly 30-
billion is budgeted for other program crops this year.
    Government action to address this problem is appropriate 
because so many of the factors leading to the price drop of 
sugar are more closely related to Government action and 
inaction than to producer decisions. Furthermore, the 
Government has responded to similar price drops for other 
program crops by providing tens of billions of dollars in 
assistance over the past several years.
    I see my time has run out, Mr. Chairman. I would like to 
just conclude.
    Sugar farmers in Hawaii are in serious danger. If sugar was 
no longer grown in Hawaii, that would have a devastating effect 
on the Hawaiian economy. We have done much to look for ways to 
survive the changing economics of the U.S. sugar industry. We 
have made significant efforts to become more efficient by 
continued investment in our farming operations. We have pursued 
alternative sugar cane byproducts to provide additional and 
independent sources of income to the plantation. The U.S. 
Government has shown compassion to other farmers in crisis. Why 
not for sugar farmers?
    Please remember that sugar farmers want what all other 
program crops want, a fair opportunity to farm and make a 
reasonable living. American sugar producers' competitiveness 
and the disastrously low prices parallel the plight of other 
American farms. Sugar farms do not want to be treated more 
favorably than other farmers, just equally.
    Thank you.
    [The prepared statement of Mr. Kennett can be found in the 
appendix on page 182.]
    The Chairman. Thank you very much, Mr. Kennett, for coming 
all the way from Hawaii to give this testimony. We appreciate 
it.
    Mr. Lay.

    STATEMENT OF JACK LAY, PRESIDENT, REFINED SUGARS, INC., 
   YONKERS, NEW YORK ACCOMPANIED BY JACK RONEY, DIRECTOR OF 
     ECONOMICS AND POLICY ANALYSIS, AMERICAN SUGAR ALLIANCE

    Mr. Lay. Mr. Chairman and members of the Committee, I 
appreciate the opportunity to appear before you today to offer 
a perspective on what I believe to be a needed change in the 
direction for both U.S. and international sugar policies. I am 
currently serving as president of Refined Sugars, Inc., in 
Yonkers, New York. I recently returned to the sugar industry 
after 7-years of retirement, having been employed by Domino 
Sugar for 39-years and ultimately as president.
    Reference was made previously as to 12-sugar-cane-refiners 
closing. As one who had direct responsibility for closing two 
of those refineries, the reason was not because of the sugar 
program, but rather because of the high fructose corn syrup 
displacement of sugar in soft drinks.
    Many of the refineries that have closed would have closed 
regardless of whether it was high fructose or not, in my 
opinion, because they were inefficient.
    Mr. Chairman, the structure of the sugar industry in every 
country of the world is cumbersome and complicated. The United 
States is no exception to the general rule. Sugar requires a 
dedication of large numbers of acres of land as well as 
substantial capital assets to grow beets and cane as well as to 
provide beet processing, cane-milling and cane-refining 
facilities to produce raw and refined sugars.
    Rotation of the crop on a yearly basis to reflect or 
anticipate swings in general commodity prices does not occur in 
sugar. Stability is what all sugar producers hope to achieve, 
so long as the price they receive is above their cost of 
production, or in the case of the cane refiner, the cost of raw 
sugar acquisition plus a refining margin sufficient to cover 
refining cost and provide a reasonable return on investment.
    The uniqueness of sugar is the primary reason that 
Government agricultural policies support sugar to the extent 
that they do. In many countries, this direct support leads to 
overproduction. Overproduction then leads to dumping of sugar 
on the world market, and ultimately the world market price 
bears no relation to the actual cost of producing sugar.
    In the United States, we support producers indirectly. We 
limit imports in the hope that domestic prices will settle at 
levels that yield a fair and reasonable return to growers. Many 
decry the intervention of the U.S. in the domestic sugar market 
through the USDA's administration of the import quota. However, 
the United States imports roughly 15-percent of its 
requirements, and is the third largest importer of sugar, 
second only to Russia and Indonesia, and most of this comes in 
tariff-free. Whereas, most of the larger world producers are 
subsidized exporters.
    It has been the position of the U.S. Government and the 
U.S. sugar industry in international trade negotiations that 
all government supports of sugar be phased out. However, 
European Union, a large exporter, has shown little interest in 
further internal reforms and has recently concluded several 
regional free trade agreements that specifically exclude sugar.
    Mexico has reacted to tough times by rolling over large 
Government loans to privatize sugar groups. Even Australia, the 
supposed free trade paragon in agriculture, has relapsed in the 
last 2-years into more traditional patterns of conduct coming 
to the financial aid of its sugar industry.
    The U.S. sugar policy that was adopted by Congress in the 
1996 farm bill presumed that the global march towards free 
trade would take a predictable path. The 1996 farm bill 
repealed supply management policies that attempted to limit 
U.S. sugar production. It also reinforced the premise that the 
U.S. would continue to import more than our Uruguay Round 
commitment of 1.2-million-tons-of-sugar from abroad.
    In 1996, producer prices in the U.S. were at stable levels. 
With marketing controls repealed, sugar growers planted more, 
confident that the import quota would be ratcheted down to 
maintain a constant domestic price support.
    AMTA payments to producers of other crops allowed them to 
begin to grow sugar as an alternate crop, and, consequently, 
domestic production grew and the import quota was cut until it 
hit the WTO floor and then prices collapsed in both raw and 
refined sugar. It is not a pretty picture, but it is the 
culmination of a cycle that had its origin in 1996 legislation. 
We took the restraints off of domestic production. It was 
assumed that our efficient producers would grow for the U.S. 
market as well as for world markets. The policy assumption was 
that world markets would rationalize as a result of global 
elimination of Government subsidies. This has not happened. As 
evidence to this, one need only look at the world price levels 
of sugar which until recently have been substantially below the 
cost of production, of even the lowest-cost producer. This 
reflects increasing levels of Government support around the 
world for sugar industries, not less support.
    We now have too much sugar grown in the United States. We 
also have international trade obligations that require us to 
import large amounts of sugar whether we need it or not.
    You have heard reference to the stuffed molasses here today 
which bypasses the TRQ and results in 132,000 tons of sugar, 
refined sugar-equivalent, coming into the United States duty-
free.
    The large subsidizers in the world are not going to 
suddenly eliminate their internal supports and subsidized 
exports. If the United States wishes to maintain any sort of 
defensive support for its sugar industry in this environment, 
we must find a way to limit U.S. production of sugar cane and 
beets to levels that balance the supply with demand in our 
domestic market.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Lay can be found in the 
appendix on page 193.]
    The Chairman. Thank you very much, Mr. Lay.
    Mr. McLaughlin.

    STATEMENT OF LINDSAY MCLAUGHLIN, LEGISLATIVE DIRECTOR, 
  INTERNATIONAL LONGSHORE AND WAREHOUSE UNION, WASHINGTON, DC.

    Mr. Lindsay. Good morning, Chairman Lugar and members of 
the Agriculture Committee. It is an honor to be here today to 
represent the International Longshore and Warehouse Union, or 
the ILWU. The ILWU is the largest private sector labor union in 
the State of Hawaii. We represent longshore workers, hotel 
workers, general trades, and agricultural workers, and all of 
these workers are consolidated into one large local, ILWU Local 
142. We also, by the way, represent about a hundred workers in 
Crockett, California, at the C&H Sugar Refinery there.
    Mr. Chairman, ILWU members at the three remaining sugar 
operations on Hawaii asked me to present a petition for you 
which I have attached to my written testimony. These are hard-
working decent citizens who live in constant fear that their 
livelihoods will be stripped from them. They believe, as I do, 
that without a sugar program, there is no hope for their 
industry in Hawaii.
    Mr. Chairman, we are proud of what we have accomplished for 
sugar workers in Hawaii. During the 1950's, the sugar workers 
made great gains in their struggle for economic justice. The 
ILWU established an industry-wide medical program, sick leave, 
and paid vacation and holidays, all unique in the agriculture 
industry. The ILWU also won the first pension plan ever 
negotiated for agricultural workers in the United States and 
established the 40-hour work week for the first time ever in 
agriculture.
    But the story of sugar workers in Hawaii in the last few 
decades has been one of just attempting to survive. The union 
and the workers have cooperated to combat chronic low prices 
for raw sugar with productivity gains. Periodically, throughout 
the last 20-years, the union members have agreed to accept 
little or no wage increases and flexibility of work rules, all 
in the name of keeping the Hawaiian sugar industry alive.
    Despite these joint labor-management efforts to keep the 
Hawaiian industry alive, we have seen the shutdown of seven 
sugar companies in the last 9-years and the loss of 3,000 jobs. 
The president of Local 142 said this in 1995 about the death of 
sugar on his island, the Big Island of Hawaii, ``Last year, my 
home on the Big Island of Hawaii, Hamakua Sugar Company and 
Hilo Coast Processing Company shut down because of low, 
declining sugar prices. The shutdown has caused devastating in 
my community, the likes of which I have never seen in my 
lifetime. Even the devastation caused by Hurricane Iniki could 
not rival what I have witnessed. Close to 1,200 workers lost 
their jobs. These jobs are not easily replaced, and most of the 
displaced workers have not found other employment. Their 
unemployment benefits either have been or are soon to be 
exhausted. They are finding themselves in desperate situations 
resulting in more stress in the home, increased substance 
abuse, and crime, and more incidence of domestic violence.''
    Recently, as Mr. Kennett said, 100 workers out of 450 at 
AMFAC Sugar Plantation were furloughed while the company 
assesses its future in the sugar operations. These employees 
are drawing unemployment insurance while they wait for a phone 
call that may never come to go back to work.
    The State of Hawaii is very concerned about sugar leaving 
the Island of Kauai and say that it would be an enormous cost 
ranging from $4.7 million to $8 million for the first year 
alone. The direct and indirect impact of losing the sugar 
industry on Kauai would cause the unemployment rate on the 
island to skyrocket from 6-percent to 9-percent, then higher as 
indirect job losses occurred. There are no jobs for these 
people to transfer to.
    Local 142 vice president, Bobby Girald, said, ``All I see 
in the local newspaper in the Employment Section is part time, 
part time, part time. That is not good enough to take care of a 
family.''
    I wanted to let you know, Mr. Chairman, that our members 
are concerned that abandoning the U.S. sugar program would mean 
a certain loss of their jobs because they cannot compete with 
heavily subsidized European sugar or sugar that is produced by 
cheap labor. The ILWU has offered assistance and solidarity 
with struggling sugar workers and their unions in developing 
countries, but change is slow. An ILWU delegation to the 
Philippines found conditions to be very poor. Workers work long 
hours for little pay and begin work at a very young age.
    According to the Department of Labor report, ``By the Sweat 
and Toil of Children,'' which I am sure you have seen, young 
people are cutting cane at age 12, which is a very dangerous 
job. What kind of message does it send to American sugar 
workers who have struggled to achieve a decent standard of 
living that we will abandon them in favor of heavily subsidized 
European sugar or in favor of plantation owners in countries 
that rely on cheap oppressed labor?
    We believe sugar is an area where the inclusion of labor 
standards and environmental standards in trade treaties could 
make a difference.
    I see my time is up, but I just wanted to conclude by 
saying that our union is not the only union interested in this 
program. In the past, I have worked with the International 
Association of Machinists. They represent workers in the State 
of Florida. I have worked with the Food and Allied Service 
Trades Department of the AFL-CIO, the Grain Millers and the 
Distillery Workers. I appreciate your allowing me to testify 
today.
    Thank you.
    [The prepared statement of Mr. McLaughlin can be found in 
the appendix on page 198.]
    The Chairman. Thank you, Mr. McLaughlin. Your testimony is 
very important from the perspective of the longshoreman and 
likewise Hawaii, as is the case with Mr. Kennett.
    Professor Orden.

 STATEMENT OF DAVID ORDEN, PROFESSOR, AGRICULTURAL AND APPLIED 
ECONOMICS, VIRGINIA POLYTECHNIC INSTITUTE AND STATE UNIVERSITY, 
                      BLACKSBURG, VIRGINIA

    Mr. Orden. Chairman Lugar, Senator Kerrey, and Senator 
Conrad, thank you for the opportunity to testify at this 
hearing.
    I am David Orden, Professor of Agricultural and Applied 
Economics at Virginia Tech and an author of the recent book, 
``Policy Reform in American Agriculture.''
    This morning, I am here to suggest several possible reforms 
to the sugar program. Sugar policy is at a crossroad at the 
turn of the millennium. The traditional form of program 
management has run out of room to operate. A new approach to 
sugar policy is required.
    To achieve this new policy, we must look behind the two 
main options that have dominated past debate. The reforms that 
are required are steps that will do three things, allow greater 
market flexibility within the domestic market, retain the terms 
of our existing border measures and our international trade 
commitments, provide some direct support to producers.
    Similar steps have been taken progressively for other field 
crops since the 1960's, a period of almost 40-years. It will in 
fact take courage to apply these measures to sugar, but the 
time to do so has arrived.
    My first observation is that current policies are out of 
room to operate, and I think there has been quite a bit of 
discussion and comment about this in previous testimony and the 
discussion about that testimony. This year, domestic supply has 
expanded compared to demand putting downward pressure on 
prices. The domestic policy has run out of room to operate. 
Farmers face enormous uncertainty in the market, and 
traditional policy instruments are indeed under stress.
    One option for sugar policy is to attempt to hold the price 
level up through constraints on domestic supply. Stocks can be 
accumulated by the CCC, and if that is not enough, we can have 
a plowdown PIK or marketing allotments or acreage reductions 
can be re-legislated, but these are the types of Government 
storage and supply control measures that Congress has 
progressively abolished for other crops. They will be 
detrimental to the American sugar industry if they are now 
applied in this sector.
    The alternative to current programs offered by critics of 
the sugar program is likewise ill-advised. To unilaterally 
eliminate all domestic support and simultaneously increase 
imports until U.S. prices fall to world price levels is too 
draconian a short-term shift from past rules.
    Let me turn to the objectives of a direct payment policy 
broadly. There are five positive objectives. These are to free 
up prices to allow the domestic market to clear in response to 
supply-and-demand considerations; to avoid outdated 
interventions through Government involvement in purchases, 
forfeitures, stockholding which will necessarily then imply 
stock disposal or domestic marketing allocations; to reduce 
incentives for oversupply relative to demand, and this applies 
both to domestic producers and also to foreign producers who 
have access to the U.S. market under our existing international 
commitments; to provide adjustment compensation to farmers in 
the short run; and to create a sustainable long-run policy that 
eventually has more open trade and a reasonable safety net for 
producers.
    Senator Kerrey, you asked for a balanced approach to future 
sugar policy and have pointed out the need for something 
different from what we have done, and these are the kinds of 
directions I am trying to point us.
    Let me talk about two options. These are options for 
domestic policy reform that can be carried out within the 
context of current international commitments with no change in 
border measures. For this reason, they are not subject to the 
objection that domestic producers would be exposed to unfair 
competition from abroad. Moreover, they may help address the 
coming impasse over recourse versus non-recourse loans. I am 
surprised this morning there has not been more discussion of 
the difficulty the Secretary of Agriculture will have 
announcing non-recourse loans for next year after a PIK 
piledown has occurred this year.
    The first direct payment approach would be implement 
marketing loans that would allow consumer prices to fall while 
providing a price guarantee to producers. It would lower 
domestic market prices when supplies are large. Sugar use would 
expand, helping bring supply and demand into balance. This 
change in policy would help restore market equilibrium in 
circumstances like this year.
    The cost of a marketing loan program for each penny of 
payments per pound of sugar is around $180 million, assuming 
full participation, and because of the concentration in sugar 
production, the distribution would be skewed unless there are 
payment restrictions applied. Nonetheless, for each penny of 
taxpayer cost, more than that penny is saved by consumers, and 
this shift in support from consumers to taxpayers yields a net 
gain and distributional gains that have been mentioned by a 
previous speaker.
    The introduction of marketing loans would provide support 
for domestic producers, but would reduce production incentives 
abroad. In particular, it would reduce the incentives for 
production in Mexico as they gain access to the U.S. market. 
Marketing loans would also ease the adjustment to future 
multilateral trade liberalization. Domestic producers would be 
assured of some compensation if as part of a general package of 
agricultural trade liberalization, increased sugar imports were 
agreed to by the United States. Thus, marketing loans achieve 
many of the objectives of a direct payments policy while 
providing a guaranteed price to producers and should appeal to 
producers for this reason.
    Senator Lugar, if I can indulge in having one more minute, 
I would like to mention a second alternative in the direct 
payments arena. It may be impossible in fact to maintain 
through a marketing loan program current prices that American 
farmers, American sugar producers have been receiving and are 
expecting. If the principal market force putting downward 
pressure on prices is farmers' increasing ability to supply 
sugar when current loan rates set the price incentive for 
production, then a marketing loan program with current loan 
rates will prove expensive every year. An alternative to this 
approach is fixed direct payments based on historical 
production and lower loan rates. Under this approach, farmers 
would have a choice about whether to continue to produce sugar 
and would receive payments regardless, and production decisions 
would be market-based, with loan rates lowered below expected 
market prices.
    These are not, as you were well aware, new policy 
instruments, but their application to sugar would be new. In a 
State like Nebraska, Senator Kerrey, where farmers are 
producing a variety of crops, it would bring, if you will, all 
of the agricultural policies that they face under one umbrella.
    One option Congress could consider, and this is the last 
point that I will make, would be what I call a 25/50 proposal, 
to reduce loan rates by 25-percent and provide fixed 
compensation payments of 50-percent of the change in loan rate. 
Loan rates would be reduced from 18-cents to 13.5 for raw cane 
sugar and from 22.9 to 17.2 for refined sugar. Payments based 
on average U.S. production during 1997 and 1999 would have an 
estimated cost of around $450 million. If these compensation 
payments were made on an emergency basis next year, they could 
be reconsidered in the 2002 farm bill and either eliminated or 
converted to a more permanent basis.
    Mr. Chairman, I am out of time. I will not reiterate the 
main points that I made except to say that it is possible and 
it is probably essential that we now do reformed domestic 
policy within the constraints of both our current border 
measures and our international commitments.
    [The prepared statement of Mr. Orden can be found in the 
appendix on page 205.]
    The Chairman. Thank you very much, Professor Orden. I 
appreciate the specific policy recommendations you have made 
which are amplified in your overall statement. This is, I 
think, a very important contribution as to how we meet the 
dilemmas that many have described today, and I think you have 
offered considerable balance by pointing out that in the past, 
the two polls of policy have been supply control. Then we plow 
it under and restrict farmers somehow or another to do the 
impossible, despite the fact that we try to stop imports. This 
country is not an armed fortress, and we found that to be a 
very difficult policy, quite apart from the fact that we have 
already trade obligations. We have signed treaties. Other 
people depend upon our word, and we are trying to negotiate 
greater openness, sometimes with great difficulty.
    So the supply control situation does not appear to me to be 
a very promising one, and I would agree with you that simply to 
repeal the sugar program as a draconian step, it has all kinds 
of ramifications that are difficult, given the predicament that 
we are in, so what to do. You have suggested at least we might 
move in an incremental way recognizing that we already are 
paying a fairly heavy price as a society. We can argue whether 
USDA is paying it or American consumers or somebody, but you 
are suggesting that essentially a marketing loan business that 
finally affects supply and decisions, but at the same time some 
compensation to people who are in this transition may be a fair 
way to go, and then to try to see in the next farm bill where 
that led us, what sort of modifications we need to make to 
that, but that the current situation is basically unsustainable 
in large part, as you point out, however fudged the situation 
was with regard to expectations of imports this year, whether 
the Secretary waited 6 weeks beyond the proper time or found 
some fictitious level. That will be even harder to do next 
year, even if this committee is not watching or the rest of 
society omits any inspection.
    As a result, we probably have to do something in the next 
year, but I appreciate your outlining these alternatives 
because I suspect that somewhere in that area, if we are to 
make any change, lies the potential solution, either optimistic 
or pessimistic about whether we will find a solution. It could 
very well be that this is such an intractable problem, people 
are so emotionally involved, that we do nothing, but that will 
lead to all sorts of things that each of you have described, 
and I think in a very articulate way. There will be a lot of 
pain for workers. There will be more mills shut down, a lot of 
farmers going out of business, all supposedly why we kept the 
thing propped up and it simply will not work for anybody's 
benefit that I can perceive, largely because we have a problem 
now in which we are producing much more than this country 
consumes and the world consumes and offering incentives to do 
more of the same. This is simply an unsustainable structure. It 
will collapse, if it is not already in process of 
disintegration.
    I appreciate the focus each one of you have given. From the 
standpoint of management, Mr. Horvath has described very 
accurately the problems that are involved there. Certainly, 
there are differences between the beet sugar people and the 
cane people and even our programs that apply to that, and we 
have to be thoughtful about that, regional differences, the 
historical point of how we got there, but each one of you in 
your own way have made a very, very important niche 
contribution as well as an overall collective statement.
    Senator Conrad.
    Senator Conrad. Thank you, Mr. Chairman. Thank you for 
holding this hearing, and thank you for the panels that we have 
had. It has certainly been a good discussion.
    I want to especially welcome Jim Horvath of American 
Crystal Sugar, one of the outstanding citizens of my State. I 
think he did an exceptional job here defining the problem.
    If I could, Mr. Chairman, I would like to take this back to 
the broader question of farm policy because I personally 
believe we have got to reconsider the direction that we have 
taken.
    As I analyze it, as I diagnose it, we are in a circumstance 
in which our major competitors support their producers at a 
level ten times ours. That creates an unlevel playing field. 
That puts our producers at a substantial disadvantage, and the 
question is how do we respond.
    We responded in the previous farm bill by what I call 
unilateral disarmament. We substantially cut our program on the 
theory that others would follow our good example. It did not 
work. It has been a disaster. That is why we have had to write 
three disaster bills in the last 3-years.
    My own conclusion is the only way you lead to a more 
rational world agricultural policy is through negotiation, but 
the only way you get a result in negotiation is with leverage, 
and we have given up ours.
    My own belief is that we have got to rearm in agriculture 
in order to go to the table to get a negotiated result that 
leads to a more rational outcome; in other words, build up to 
build down. It is exactly what worked in a military 
confrontation with what was then the Soviet Union. We built up 
in order to build down.
    After being in Seattle, I am absolutely persuaded we are 
not going to get a rational response from the Europeans absent 
substantial leverage, and the only leverage that they will 
respect is if the United States reverses course and adds 
resources to agriculture so they can see that their long-term 
goal of world agricultural dominance is going to be 
disappointed. It is only in that context that I believe that we 
will be able to negotiate a rational world agricultural policy, 
and that is why I have introduced the FITE bill, farm income 
and trade equity, because I think we have got to say to the 
Europeans, we are going to take you on, we are going to meet 
you head to head, and then we are willing to negotiate to 
eliminate export subsidies and to try to fashion a strategy for 
world agriculture that is fair and one that is economically 
rational.
    I thank the Chairman.
    The Chairman. Senator Kerrey?
    Senator Kerrey. I, too, Mr. Chairman, want to thank you 
both for holding the hearings and for the witnesses coming 
forward.
    I do think we have an urgent problem here that calls for 
action. As always, we have got to find areas where we can reach 
bipartisan agreement. I would hope that we could reach 
bipartisan agreement on the idea that when you sign an 
agreement with another Nation, they ought to honor that 
agreement, and Mexico is unquestionably circumventing that with 
actions that basically say, ``I know you guys restructured your 
refining industries as a consequence of a shift to a different 
product from sugar to high fructose corn sweeteners. We do not 
want to do it. We are not going to do it. So we want to dump.'' 
We ought to at least hold their feet to the fire on that issue 
and communicate in a bipartisan way to President-Elect Fox that 
it is vital that Mexico lives up to that agreement. We ought to 
find ways to stand up to this circumvention that is occurring 
with stuffed molasses. That is a clear violation of an 
agreement. It is going to be very difficult for us to have much 
of an impact if we cannot find some bipartisan area where we 
can move, but also find some area that reinforces things that 
generally this committee has supported, which has been the 
advancement of free trade agreements and the use of free trade 
agreements to assist agriculture.
    I asked Senate Breaux. NAFTA would not have passed--would 
not have passed the House of Representatives without that 
agreement, and you are not going to get trade negotiating 
authority. If you are looking for a reason why trade 
negotiating authority has not been provided at present, you 
have to look no further than that side agreement that has been 
dishonored. So it is vital that we do.
    I would like to ask Mr. VanDriessche and perhaps Mr. Lay as 
well, because both of you have commented on this--and, Mr. 
Orden, I appreciate the constructive suggestions. I do not know 
in the short term if we are going to be able to act on those, 
but if you look at the existing farm program--and I would just 
like to get your comment on this--what we have got is a 
decoupled farm program payment that was signed in a 7-year 
contract in 1996. It was projected to cost $43 billion over 7-
years. We are going to spend close to $35 billion just this 
year because we have modified the contract in 1998, 1999, and 
this year as well putting out additional AMTA payments. Indeed, 
I think it would be about $10 billion of AMTA payments this 
year.
    The LDPs have been shockingly expensive, and by the way, 
Mr. Orden, one of the issues you have to examine on the 
marketing loan is look at what has happened with the current 
LDP program. We set the LDP very high for soybeans in order to 
get some additional support for Freedom to Farm, just as 
Freedom to Farm was enacted as a consequence of an agreement to 
bring on the Northeast Dairy Compact, which is not exactly 
Freedom to Farm.
    What we see is about $3 billion now in soybean payments in 
LDP versus almost the same amount for corn. We may spent more 
on the LDP for soybeans than we do for corn. In both cases, 
what we have got is a situation, Mr. VanDriessche, that you 
described that essentially any processor can buy at much lower 
prices, and then the taxpayer comes in and picks up the 
differential with a direct payment out to the producer.
    I am wondering if, relative to what we have in sugar, if 
either one of you see this as essentially corporate welfare. Do 
you see this as a payment that benefits the processors as well? 
Do you have ideas, either philosophically or specifically, 
because that is where Mr. Orden is going, to modify Freedom to 
Farm so that it could work for sugar growers as well?
    Mr. VanDriessche. I would say because of the level that is 
paid on those AMTA payments, it actually sets a low level for 
those processors to be able to buy their commodity.
    Essentially, it is more of a benefit to the users than it 
is to the farmer because really what it does for us it allows 
us just to survive. It is just enough of a payment where 
growers can continue to raise those particular commodities 
and----
    Senator Kerrey. Except for soybeans which we have said 
above the cost of production. You would have to look at 
soybeans as almost a special case because we have set that 
price higher, and we got a lot more acreage in it as a 
consequence.
    Mr. VanDriessche. There is a result of that, that with the 
price of soybean support being where it is, there is more acres 
that has gone into soybeans. So I do agree with you on that.
    Senator Kerrey. Do you see ways to modify, either you or 
Mr. Lay, the existing Freedom to Farm Act, perhaps even in the 
short term, that would be of assistance to producers, to beet 
producers?
    Mr. Lay. As I understand it, the AMTA allows a farmer to 
take acreage out of production and then put it back into 
production in some other crop, and I believe----
    Senator Kerrey. No. Actually, the AMTA payment is made--
there is no acreage reduction program at all. The AMTA payment 
is made independent of what is being produced.
    Mr. Lay. OK. Well, maybe if they are producing soybeans or 
cotton on land in Louisiana and they take that out of 
production and get AMTA payment and then put it into sugar 
cane, that is one of the--of course, Louisiana is one of the 
areas where production of sugar has just skyrocketed in the 
last 10-years, and it is going to continue.
    Senator Kerrey. That is what I am saying. I think the 
Freedom to Farm has had an impact. Both of you have asserted, 
and I think correctly so, that Freedom to Farm has had a 
negative impact upon the price of sugar----
    Mr. Lay. Yes.
    Senator Kerrey.--and created part of this situation. So the 
question is whether or not some modification could be made. You 
can see this as a modification of Freedom to Farm since you are 
paying the consequence. You are paying the price for it that 
would be of assistance to producers.
    Maybe you can think about that over lunch and come back to 
the Committee later.
    Again, Mr. Chairman, I thank you very much for holding 
these hearings.
    The Chairman. Thank you, Senator Kerrey.
    Just picking up your thought, I suppose one of the 
anomalies of Freedom to Farm, as the witnesses have pointed 
out, farmers have the ability to plant whatever they want to 
plant on their farms, and that is one of the appealing aspects 
of that, to utilize their land and their resources that way, 
but as Mr. Lay has pointed out, if market signals indicate it 
is more profitable to plant sugar cane than cotton or rice or 
wheat or whatever, farmers will do that.
    I suppose one of the arguments here could go either way. I 
suppose as the incentives to plant sugar now are sufficiently 
lucrative, given the program we have, that people would go in 
that direction. So this is increasing the oversupply, given 
both the freedom to do it. In the old days, you had to plant 
whatever you had there in order to keep the quota. So you went 
the corn route or wheat or cotton or rice. You did not have 
that option. Now, under Freedom to Farm, you can plant whatever 
you want to plant. So people plant sugar. Why? Because they do 
better with sugar.
    But one of the consequences of this is, of course, an 
oversupply which our own program creates, just as the Senator 
has pointed out with soybeans. An anomaly of that program is 
the LDP for soybean, clearly out of line with corn. So the 
farmers have found that out, and they have planted more 
soybeans for a variety of reasons, but one of them is the LDP.
    Each time, we jigger with the program, we create some 
unintended effects, as people find in a market system, and if 
they have the freedom to do so, where is the advantage?
    I do not know how we stop that except, as Professor Orden 
pointed out, one way, of course, is supply control. You move 
the other way sharply, and you just simply plow it under or 
offer incentives to do that, such as giving people payment-in-
kind, sugar, to plow it under, so that they will not produce 
more sugar.
    But, as I think he points out correctly, we have been down 
that road from the time of the New Deal and killing of little 
pigs and plowing under of corn and so forth a good number of 
times, and it has some real problems in terms of both freedom 
for farmers as well as supply and demand which USDA has never 
been able to gauge particularly well.
    So the marketing loan thing, as the Senator points out, has 
its problems in that however you set this marketing loan thing, 
maybe we will make a mistake, maybe as we did, with soybeans, 
sort of get it out of whack.
    It is sort of hard when you are arbitrarily setting these 
things to find out really how the world works and where markets 
might wind up, but on the other hand, it is sort of a halfway 
home between the draconian step of scrapping the whole program 
and doing supply control and trying to figure out how much you 
plow under now, how much sugar you give somebody not to produce 
sugar, and figuring out how long that can be sustained in a 
world that is producing even more sugar all the time.
    I think Senator Conrad makes a good point in terms of 
analogy to the cold war, and he often does this in our 
committee about unilateral disarmament and gearing up, but 
taken to its extreme, the Europeans arguably are going to spend 
from 65- to 75- or $80 billion to make their program work.
    Even at the Senator's estimate of $30 billion for our 
program--that may be a little high, but maybe not too far off--
we are still a long way from 75 or 80. Conceivably, the 
American people may say in order to beat the Europeans at this 
game, we are prepared to invest $50 billion more of taxpayer 
money in agriculture to show the Europeans what we think of 
them, but in the meanwhile, farmers in this country might pick 
up some market signals and produce a whole lot more. So we 
would say, ``Well, you cannot do that. We are going to put 
supply control on you. We are going to put this money into the 
economy somehow to beat the Europeans, but we do not want to 
throw it out of whack altogether, the supply-and-demand 
situation, but a tough thing to do,'' even if you want to go 
head to head on these things.
    I think we all are frustrated in this committee, I would 
share with you, with the fact that we are not making good 
headway in our exports. We were stymied in Europe. We still 
have a recession in Asia. We are unable hardly to even get a 
bilateral treaty with getting Chile into NAFTA. Even when the 
King of Jordan came over and said it is vital for peace in the 
Middle East to have a free trade agreement with him, even to 
move a bilateral one, with or without fast-track authority, 
this is a situation that is terrible, and it will not work, 
because otherwise we are going to produce more and we cannot 
send it anywhere, whether it is sugar or beans or corn.
    Mr. VanDriessche. Mr. Chairman?
    The Chairman. Yes.
    Mr. VanDriessche. I wonder if I might have a minute to 
comment here.
    The Chairman. Sure.
    Mr. VanDriessche. I think we have to be careful that we do 
not compare sugar production with other commodities. For one 
thing, we do not have the flexibility that soybeans, corn, and 
other commodities do because we are tied to a processor.
    As you know, I have stated I raise corn and soybeans and 
sugar beets, and as a matter of fact, I plant them all with the 
same drill, the same 12-row drill, but I have a lot more 
flexibility with those other commodities because, if I decide 
that one particular elevator or company or whatever does not 
work for me, I will go to another one. That is not the same 
with sugar. We are tied to a contract to a processor, and there 
are many elevators that I could take my product to.
    With sugar, if we lose our processor, we are essentially 
out of business, and with some of the things that are being 
talked about here, we could very easily do that. We are at 
sustainment levels right now.
    It is not one of these things you can get in and out of, as 
we talked about, ``Well, if soybeans look good, we will get 
into soybeans. If corn looks good, we will get into corn,'' or 
whatever, but sugar beets is not the case that way. If we lose 
our processor, we are out of production with that particular 
crop.
    Senator Kerrey. Specifically, does that mean it is 
important for us, whatever we do in the short term, that we do 
not force USDA into having to go from non-recourse to recourse 
loans?
    Mr. VanDriessche. We have to look at that. That is a very 
important point.
    Senator Kerrey. In other words, we do not force USDA into a 
policy option that would require them to shift from recourse to 
non-recourse because it is difficult to approach a processor 
unless you have got a non-recourse loan, isn't it?
    Mr. VanDriessche. Correct.
    We want to be very careful how we formulate this policy, 
and we want to look at the whole picture, not just at what 
production has done here in the United States because of all 
the other trade implications that come in along with that.
    There was reference made that if we look at doing some type 
of things with sugar as we have done with the other 
commodities, is this going to be lucrative, are we going to 
have that much more in production, and is it lucrative right 
now. Well, I do not think it is lucrative right now when we 
have a number of factories that are closing, and as a matter of 
fact, I should not be sitting here right now. The person that 
should have been president of this organization called us at 
Christmas time. He was supposed to assume his responsibilities 
as of February 1st, and he had to let us know that he was going 
out of business.
    He is a very sharp individual, a very promising young 
farmer that would have done a great justice for this 
organization, but he is out of business.
    Senator Kerrey. Mr. Chairman, do you mind if I put some 
additional detail on this?
    The Chairman. No, go right ahead.
    Senator Kerrey. One of the things that I hear as well when 
I talk to, whether it is beet or corn or wheat or soybean, 
farmers in Nebraska is when they hear that we have got to 
increase quotas in sugar and we have got a lot more product 
into the United States, they immediately say, ``Senator, 
understand that the structure of agriculture in Mexico or 
Brazil or one of these other countries is completely different 
than ours.'' You are not going to be shifting production to 
small-scale family farms in these countries. These are larger 
processors with much different environmental regulations and 
much different cost on the labor side as well. So they do not 
see a level playing field, and they certainly do not see the 
comparative advantage shifting over to something that 
necessarily is going to be viewed qualitatively as an 
improvement.
    Mr. VanDriessche. Well, I think that is what is frustrating 
to us as growers when we talk about the import quotas that are 
here. We have to work with them. They are part of our trade 
agreements. But let's face it. We are the third-largest 
importer of sugar in this world, and when we as growers are 
looking at what we need to do to solve our problems, we have to 
consider the fact that we are importing this much sugar and we 
are talking about the problem that we have and what we are 
doing as producers. It is very frustrating for us on the farm.
    Senator Kerrey. Mr. Chairman, I just want to say there will 
be some things that we have talked about today, some views 
where it is impossible for us to reach agreement in the short 
term, but my guess is you can find four or five things where 
you could get broad agreement from the Committee and I hope you 
do because, with your leadership, I think we could do some 
things that would be constructive.
    The Chairman. This is what we will try to do. We are not 
going to have success on this policy any more than any other 
without broad bipartisan support which ultimately about all the 
Committee agrees, and when we have that, we have some success. 
Otherwise, we just have a discussion.
    I just want to raise one more question because of the 
expertise here. In addition to the problems abroad, mention has 
been made of the high fructose syrup situation. If we were in a 
different forum, either privately or publicly, in the past many 
people who are corn producers or people representing that 
interest have been very much in favor of high sugar supports, 
however they came, with the thought that somehow that gave them 
some room to maneuver under that. So it has been an unusual 
alliance of what seemed to be a competitive source of 
sweetener, but in fact there was a partnership of effort.
    That may still be the case, although it is less so, as I 
understand the current situation, but what about the fact that 
if sugar has been more expensive, apparently, to candy makers 
or cookie makers or what have you, they have gone another route 
to corn? That is a free market system and very possible. 
Therefore, how do we work that out internally in the country? 
Do you just observe that, that is the case? Clearly, if the 
demand for sugar declines because people are finding 
substitutes in terms of sweeteners, this is another facet of 
the problem, even while we are busy trying to maintain the cane 
or the sugar beet industries.
    The corn people say, ``We have an interest in this, too,'' 
as a matter of fact, competitive product, and a lot of the 
dispute with the Mexicans comes from the corn people in a way 
saying we have been frustrated altogether by the trade dodges 
that are occurring there in Mexico so they could go together 
with sugar people and all the rest of us. The Mexicans try to 
get relief.
    Do any of you have any thoughts about this sort of 
sophisticated nuance of the problem?
    Yes, Sir.
    Mr. Horvath. Yes, Mr. Chairman. I would like to comment on 
that.
    I think the conversion that has occurred in the United 
States of converting from the use of sugar in many products to 
high fructose corn syrup started about 20-years ago, mainly in 
the soft drink industry, and has basically from our perspective 
been, more or less, complete. There continue to be minor 
changes, and the reason that there is not more, from my 
perspective, is that functionality differences exist between 
our two products.
    I think that we have a situation where we probably will not 
see much continued conversion to high fructose corn syrup.
    As far as the consumption of sugar itself is concerned, 
sugar consumption continues to rise in this country basically 
in relationship to the increase in population.
    I have a couple other comments, Mr. Chairman, I would 
appreciate if I could make.
    The Chairman. Yes.
    Mr. Horvath. On Senator Kerrey's comment concerning 
recourse loans, from my perspective, recourse loans for next 
year, any policy changes that would reflect a direction to go 
in that direction would be quite disastrous for this industry 
and could in fact start the process that Mr. VanDriessche talks 
about where you start to see more and more processors closing 
and, therefore, more and more of our folks on the farm going 
out of business.
    Second, I think an important point relative to the 
profitability of sugar versus other crops, I do not think we 
are talking here about sugar making a lot of money. I will 
quote an article from the Minneapolis Star Tribune that 
reflected the fact that last year, the average Minnesota farmer 
made $47,000, and $48,000 of that 47 came from the Government. 
So we are looking at, for all other crops, basically our 
farmers are trading dollars while sugar provides a modest 
return and has for some time, but at today's prices, we are not 
seeing that in the sugar business either.
    Half of my shareholders will be losing money in the next 
year based `upon what we are seeing in the marketplace today. 
So this is really a significant change.
    I have one more point, Mr. Chairman, if I may. Relative to 
the whole issue of the sugar industry's support about foreign 
trade, this industry has been united for many years in support 
of finding a level playing field as far as foreign trade is 
concerned for sugar, and we continue to support that. Recently, 
last week in fact, we sent a letter to Ambassador Barshefsky 
and Secretary Glickman reflecting our support of their recent 
statements as far as the direction of future trade talks as far 
as sugar is concerned. So we are very much supportive of 
finding that level of fair playing field for sugar in world 
trade.
    I would ask, Mr. Chairman, if we could please submit that 
letter for the record.
    The Chairman. Yes. We would be happy to enclose that in the 
record.
    [The information referred to can be found in the appendix 
on page 216.]
    Mr. Horvath. Thank you, Mr. Chairman.
    The Chairman. I think your point you have made there is an 
important one.
    Let me just say with regard to the food processing or 
manufacturing side, the testimony we are getting from almost 
everybody in that area is they are not doing very well. 
Sometimes we have a byplay between producers and people from 
manufacturing with the assumption that one is doing well and 
the other is not, but, nevertheless, the people from the stock 
market come and point out that everything involving food is out 
of favor, which is very, very low ratings by the market as 
opposed to other things that Americans are doing. This is not a 
high-flying business in any aspect of it, which sort of gets to 
Mr. VanDriessche's point.
    If people who are involved in the processing of the sugar 
go out of business, there is not a lot of flexibility for 
people who are growing it either. This is an interchangeable 
situation, or for workers who are employed by all of this.
    Let me just ask as a technical point, though. We heard 
early on the fact that the non-recourse or recourse loan 
situation sort of recurs next year at this point of $1.25 
million or what have you that was either fudged or ignored or 
somehow this year, but given the supply situation that we are 
discussing, it is very difficult to see how the Secretary is 
going to make a finding there. Unless there is a deliberate 
change in policy or some discussion of this, why, we are going 
to reach a crossroads in a few months, which all of you have 
pointed to, and that is one reason we are holding the hearing 
now as opposed to at that moment, so we all sort of understand.
    Yes, Professor Orden.
    Mr. Orden. If I could comment on that for just a minute, 
Chairman Lugar. I think you are right that it will be very 
difficult for the Secretary to in good faith announce under the 
current circumstances sufficient imports to have a non-recourse 
loan, and by the letter of the law, that then leaves the 
Secretary with a recourse loan which is a very serious problem 
for domestic producers.
    One suggestion would in fact be to implement early next 
year a marketing loan program associated with that recourse 
loan so that there was some cushioning of the lower prices that 
might occur next year in the marketplace by some compensatory 
payments. I just wanted to point that out as an option because 
otherwise we are going to be in the same plow-down situation 
next year, and it looks like for some number of years in the 
future.
    The Chairman. We thank each one of you for staying with 
this hearing. It has been, I think, an important hearing for 
the Committee, staff, and for the public, and you have made it 
so. We thank you for coming.
    [The prepared statement of Senator Harkin can be found in 
the appendix on page 72.]
    [The prepared statement of Senator Baucus can be found in 
the appendix on page 100.]
    [The prepared statement of Senator Thomas can be found in 
the appendix on page 73.]
    The Chairman. The hearing is adjourned.
    [Whereupon, at 12:27 p.m., the Committee was adjourned.]
      
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                            A P P E N D I X

                             July 26, 2000



      
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                             July 26, 2000



      
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