[Senate Hearing 107-136]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-136

REVIEW OF THE FINAL REPORT OF THE 21st CENTURY COMMISSION ON PRODUCTION 
                              AGRICULTURE

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

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            JANUARY 30, 2001

                               __________

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


  Available via the World Wide Web: http://www.senate.gov~agriculture

                                _______

                  U.S. GOVERNMENT PRINTING OFFICE
74-344                     WASHINGTON : 2001


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           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
PAT ROBERTS, Kansas                  THOMAS A. DASCHLE, South Dakota
PETER G. FITZGERALD, Illinois        MAX BAUCUS, Montana
CRAIG THOMAS, Wyoming                BLANCHE L. LINCOLN, Arkansas
WAYNE ALLARD, Colorado               ZELL MILLER, Georgia
Y. TIM HUTCHINSON, Arkansas          DEBORAH ANN STABENOW, Michigan
MICHAEL D. CRAPO, Idaho              MARK DAYTON, Minnesota
                                     BEN NELSON, Nebraska

                       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:

Tuesday, January 30, 2001, Review of the Final Report of the 21st 
  Century Commission on Production Agriculture...................     1

Appendix:
Tuesday, January 30, 2001........................................    00

Document(s) submitted for the record:
Tuesday, January 30, 2001........................................    00

                              ----------                              

                       Tuesday, January 30, 2001
                    STATEMENTS PRESENTED BY SENATORS

Lugar, Hon. Richard G., a U.S. Senator from Indiana, Chairman, 
  Committee on Agriculture, Nutrition and Forestry...............     1
Roberts, Hon. Pat, a U.S. Senator from Kansas....................     5
Thomas, Hon. Craig, a U.S. Senator from Wyoming..................     9
Allard, Hon. Wayne, a U.S. Senator from Colorado.................    11
Hutchinson, Hon. Y. Tim, a U.S. Senator from Arkansas............    11
Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member, 
  Committee on Agriculture, Nutrition and Forestry...............     3
Conrad, Hon. Kent, a U.S. Senator from North Dakota..............     7
Lincoln, Hon. Blanche L., a U.S. Senator from Arkansas...........    27
Stabenow, Hon. Deborah Ann, a U.S. Senator from Michigan.........    33
Dayton, Hon. Mark, a U.S. Senator from Minnesota.................    39
Nelson, Hon. Ben, a U.S. Senator from Nebraska...................     9
                              ----------                              

                               WITNESSES

Collins, Keith, Chief Economist, U.S. Department of Agriculture..    12
Flinchbaugh, Barry L., Chairman, Commission on 21st Century 
  Production Agriculture.........................................    15
                              ----------                              

                                APPENDIX

Prepared Statements:
    Lugar, Hon. Richard G........................................    64
    Cochran, Hon. Thad...........................................    00
    Crapo, Hon. Michael D........................................    00
    Daschle, Hon. Thomas A.......................................    00
    Collins, Keith...............................................    00
    Flinchbaugh, Barry L.........................................    00

Document(s) submitted for the record:
    Summary of concerns raised during Senator Crapo's 2000 
      agriculture town meetings and possible Congressional 
      actions....................................................    00
    Press release from the Commission on 21st Century Production 
      Agriculture, dated Jan. 30, 2001...........................    00
    Exchange Rates and Bilateral Trade: Examples from CUSTA, 
      MinKyoung Kim, William E. Nganje, and Won W. Koo, presented 
      by Northern Plains Trade Research Center, Department of 
      Agribusiness and Applied Economics, North Dakota State 
      University, Fargo ND, submitted by Mr. Leland Swenson, 
      Aurora, CO, member of the Commission.......................    00

 
   REPORT FROM THE COMMISSION ON 21ST CENTURY PRODUCTION AGRICULTURE

                              ----------                              


                       TUESDAY, JANUARY 30, 2001

                                       U.S. Senate,
          Committee on Agriculture, Nutrition and Forestry,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:00 a.m. in room 
216, Senate Hart Building, Hon. Richard Lugar (chairman of the 
committee) presiding.
    Present: Senators Lugar, Roberts, Conrad, Harkin, Thomas, 
Nelson of Nebraska, Allard, Lincoln, Hutchison, Stabenow, 
Crapo, Dayton, and Cochran.

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

    The Chairman. This meeting of the Senate Agriculture 
Committee will come to order.
    We are very pleased today to have the final report of the 
Commission on 21st Century Production Agriculture. The 
Commission was created by the Federal Agricultural Improvement 
and Reform Act of 1996, the FAIR Act, to identify the 
appropriate role of the Federal Government in production 
agriculture, following the expiration of the FAIR Act in the 
year 2002.
    In many respects, today's hearing and the public release of 
the Commission's final report mark the beginning of the 2002 
Farm Bill process. I want to welcome Commission Chairman, Dr. 
Barry Flinchbaugh and Commission members, Bruce Brumfield, John 
Campbell, Donald Cook, James DuPree, Charles Kruse, William 
Northey, Ralph Paige, Bob Stallman, Leland Swenson and Don 
Villwock. The Commission has taken its assignment very 
seriously and has worked hard to produce a substantial final 
report which contains a great deal of information.

    Achieving a consensus view on this issue is no easy task. I 
would note that all 11 Commission members signed the final 
report, subject, in some cases, to minority views, which are 
included as a portion of the report. We look forward to hearing 
the Commission's findings and recommendations.
    With respect to the 2002 Farm Bill process, I look forward 
to working with distinguished Ranking Member, Senator Harkin, 
of Iowa, and all Committee Senators, including many new members 
on both sides of the aisle. A good place to try to begin is try 
to gain a better understanding of the basic structure of 
farming.
    Sparks Company, Inc., for example, recently completed an 
analysis of this subject based on the 1999 census of 
agriculture. The census defines a farm as any operation with 
annual farm sales of $1,000 or more. And about 2 million such 
entities exist in our country.
    But the Sparks analysis found that of the Nation's 1.9 
million farms, as counted in 1997, only 157,000 farms, just 8 
percent, with annual sales of $250,000 or more, account for 72 
percent of the food and fiber production in this country. These 
commercial farms rely primarily on income earned from farming; 
that is, 72 percent of the income of the families who were 
involved in these farms came from farming. Only 28 percent came 
from off the farm.
    A second group of 189,000 farms, about 10 percent of all 
farms, have annual sales ranging from $100,000 to $250,000. And 
they account for 15 percent of production.
    Now, in this situation, 57 percent of the group's income 
comes from off-farm sources, only 43 percent from on the farm. 
That's contrasted to 72 percent with the larger group.
    Now, the remaining 1.57 million farms, 82 percent of all 
farms, account for only 13 percent of production. And the 
Sparks report amazingly found that on a net basis, all of the 
total income comes from off-farm sources. That is a striking 
conclusion, and one on which perhaps members will comment and 
on which we will have considerable debate, as we look at the 
structure of who is in agriculture and where income comes from.
    Virtually all agricultural economists tell us the benefits 
of production-based farming, support and risk management 
programs, are capitalized in the value of farm land. The most 
recent evidence of this is our experience in the last 3 years, 
and during that period, farmers' returns from the market place 
have fallen sharply.
    Yet agricultural land prices and rental rates have 
continued a steady rise as regular FAIR Act programs and 
supplemental farm assistance from Congress have provided 
farmers with increasingly large amounts of Government 
assistance. The impact of this assistance on individual farmers 
can be very different, depending upon whether a producer owns 
or rents the land that he or she is farming. Without doubt, our 
recent policies have helped to keep many farmers in business.
    But increasingly asked is the question as to whether many 
farmers are being hurt in that process. We need farm programs 
that will build the international competitiveness of American 
agriculture, and will help provide both producers and the 
general public with increased environmental benefits. Our farm 
programs exist because of resources provided by all of our 
Nation's consumers and taxpayers. We have a responsibility to 
provide farm support in ways that are as economically efficient 
as possible.
    Though the direct cost to taxpayers of recent farm support 
is high, a new analysis by University of Maryland Professor 
Bruce Gardner concludes that the combination of regular FAIR 
Act programs and supplemental market loss assistance is a 
relatively efficient way of supporting farmers' incomes. That 
is that the money either goes to farmers, to consumers or 
somewhere in America, as compared to pre-FAIR Act programs, 
which relied heavily on acreage reduction programs, and which 
resulted at least in Professor Gardner's calculations, to a 
dead loss of about $4 billion a year to the American economy.
    Following opening statements by Senators, we will hear 
background testimony from Agriculture Department Chief 
Economist Keith Collins on recent policy and market 
developments. And he will also be available during the 
discussion period with Commission members, who will be a part 
of the second panel, and provide additional information as 
required.
    I want to remind Senators that Dr. Collins is here, and has 
been asked to provide us with information, not to comment on 
the Commission's policy recommendations. Chairman Flinchbaugh 
will testify today summarizing the Committee's findings and 
recommendations detailed in full in the final report we have 
received. Senators may want to engage all Commission members in 
discussion following Dr. Flinchbaugh's testimony.
    I also want to recognize Commission staff, Mickey Paggy, 
Matthew Howe, and Timothy Peters, all of whom provided the 
Commission with invaluable assistance.
    It's my privilege to turn now to Senator Harkin for his 
opening statement.

     STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM IOWA

    Senator Harkin. Thank you very much, Mr. Chairman, and I am 
pleased we're holding today the first of a series of hearings 
on the future of agriculture and food policy in America. And I 
look forward to working together, as we have in the past, in 
the bipartisan tradition of our Committee, hopefully to craft a 
balanced and thoughtful, comprehensive new Farm Bill, one that 
looks not to the past, but to the future.
    Over the past several years, this Commission has done a lot 
of work. They've been meeting with farmers around the country 
and consulting agricultural policy experts and debating the 
issues preparing this report. I want to thank the members and 
the staff of the Commission for their work, and for taking part 
in the hearing today.
    In particular, I comment Bill Northey, a fellow Iowan, who 
farms near Spirit Lake, and is one of our State's agricultural 
leaders.
    The Commission's report identifies and discusses many 
issues and ideas for the Farm Bill, makes a number of important 
recommendations. The report also leaves a lot of questions 
unanswered, and as reflected in the minority views, it points 
to some strong disagreements. In short, despite its laudable 
efforts, the Commission has left us here with plenty of work to 
do on the next Farm Bill.
    There does seem to be at least an overall agreement that a 
sound food and agricultural policy is critical to our Nation, 
that we do need a policy framework. We can't just walk away 
from it.
    We have some very good programs, such as in conservation, 
some other areas. But I believe at its core, however, our 
Nation's farm policy is badly adrift. Freedom to Farm cut us 
loose from past farm policies. Then we had to change the course 
charted by Freedom to Farm to avert economic collapse in the 
farm economy.
    Now, today, this year, ad hoc emergency cash assistance 
packages are the life blood of our farm programs. I don't 
believe this is a defensible or a sustainable policy for our 
farm families, rural America or for our Nation as a whole.
    For the next Farm Bill, we must better articulate the 
underlying purposes and rationale of our farm policy, clearly 
identify our objectives, and develop consistent and cohesive 
programs to achieve them. Frankly, on that score, I had hoped 
for more creativity and innovation in the Commission's report.
    To be sure, finding agreement on farm policy 
recommendations is a tough job. But even though the Commission 
acknowledges the inadequacy of the current farm programs, it 
proposes only incremental changes.
    Let us not set our sites too low. America's farm families 
and rural communities need new directions in farm policy. Maybe 
we should start thinking out of the box, as they say, it's a 
popular phrase these days, and start thinking about farm policy 
and rural policy as more than just commodity based programs, 
but programs based upon a comprehensive set of economic 
incentives, different types of programs that will provide 
alternative sources of income and revenue, and a new focus on 
rural America to make rural America a more inviting and livable 
place for people to live and raise their families.
    That encompasses everything from rural hospitals to 
transportation, clean water, good schools, closing the digital 
divide, off-farm income, long-term care, a whole host of 
things. Whatever makes cities livable and good places to raise 
your families ought to provide the kind of dynamic that we want 
to look at, not the same, it's going to be different, because 
rural America is different than living in a city.
    But we ought to apply the same kind of thinking, perhaps, 
to the next Farm Bill. I don't know that we can continue to go 
down the road of just saying exports, exports, exports, unless 
we're prepared to send our military forces overseas and force 
food down people's throats, and tell them they've got to eat 
what we've got, whether they like it or not.
    Now, we've got to keep our exports up, we've got to think 
about how we provide the kind of food and fiber that the rest 
of the world wants, not what we want, but what they want. The 
customer is always right. So what they want is what we've got 
to grow.
    So I think there may have been some good things in the 
Freedom to Farm, flexibility, of course, we want to continue to 
have the flexibility that farmers enjoy. But I think we have to 
learn from the experience and make some improvements, 
especially trying to get rural farm income up, income, income 
up.
    We also can't forget that our farmers and ranchers are the 
stewards of our natural resources for future generations. We 
should fully support the current conservation programs, but 
adopt new ones, both to support farm income and also 
conservation on land and agricultural production.
    I'm hopeful that legislation that Senator Smith and I have 
introduced and which has been companion introduced in the House 
side, bipartisan support, is something that we will look at 
this year, as providing both the kind of conservation we need 
but the income support for farmers that we need, the kind of 
incentives that we need for farmers on a voluntary basis.
    So again, I thank the Commission for doing its job, for 
having all the hearings. I look forward to their testimony, and 
I look forward to further questions to our Commission about 
their ideas on how we're going to make rural America a more 
inviting place. I guess my bottom line question is, Mr. 
Chairman, is it possible to repopulate rural America.
    Thanks, Mr. Chairman.
    The Chairman. Well, thank you very much, Senator Harkin, 
for that important opening statement.
    I want to recognize each of the Senators who are here now 
for opening statements, hopefully of less than 5 minutes or so. 
So I appreciate your coming early and being a part of this 
Commission report.
    And then after that, our question period will be 5 minutes 
per Senator, in rounds, as we proceed. Others who have not 
appeared at this point will have to put their opening comments 
and questions together at that stage.
    I'd like to recognize now Senator Roberts.

   STATEMENT OF HON. PAT ROBERTS, A U.S. SENATOR FROM KANSAS

    Senator Roberts. Thank you, Mr. Chairman.
    I hope the obvious answer to the question by the 
distinguished Senator from Iowa is yes in regards to 
repopulating rural America. And I look forward to working with 
him as we approach not only the Farm Bill, but the many other 
issues that he mentioned, which I think are right on the mark.
    I want to thank you for holding this hearing today, Mr. 
Chairman. It's the first of many hearings that we're going to 
be holding on the Farm Bill.
    I welcome to the Committee Dr. Barry Flinchbaugh of Kansas 
State University, home of the ever-optimistic and fighting and 
successful Wildcats, who has chaired the Commission on the 21st 
Century Production Agriculture Commission. Barry is a long-time 
friend, we've worked together on many issues. We don't agree 
upon each and every one of them, but we have a pretty good 
percentage.
    Mr. Chairman, the Commission was established in the 1996 
Farm Bill with directions to review the effective agriculture 
policies since the enactment of the 1996 legislation, and to 
undertake a comprehensive review and to recommend a course for 
future agriculture policies, if anybody's interested, I have 
that language that we wrote. I think the Commission has 
fulfilled this role.
    There are not specific recommendations in regards to where 
we should go to implement the broader recommendations of the 
Commission. But then again, this Commission was never intended 
to be an independent agriculture committee, to get into that 
kind of business.
    Let me say that I think all options should be on the table 
for review and for consideration. I've often said that having 
experience in six Farm Bills myself, I can't remember a Farm 
Bill that was set in stone or that was perfect. Matter of fact, 
it seems to me that after every Farm Bill we always come back 
in with either a technical corrections bill, which usually is 
far more comprehensive.
    As the distinguished Senator from Iowa has pointed out, due 
to a lot of different causes, we have had to come in with an 
additional AMTA payment or lost income payment, however you 
want to describe it, in regards to the world price, depression. 
So no Farm Bill is set in stone, and obviously no Farm Bill is 
perfect.
    I think this report is a strong basis on which to begin. It 
is a road map, if you will. At the same time, I think my 
colleagues should understand what this report is and is not. It 
is a recommendation. It is a broad outline for the policies of 
the Commission that its members believe should be contained in 
the next Farm Bill as it relates to actual farm programs.
    It is not a recommendation, at least as I understand it, on 
how to deal with the issues such as a fluctuating dollar, the 
high energy prices we see today, rural development, although 
that certainly comes within the jurisdiction of this Committee. 
We must do everything we can to support rural development, and 
the many other issues that will all play a role in how we shape 
and write the next Farm Bill. These issues are simply beyond 
the scope of the Commission and what is was asked to do. And 
they are issues that we as a Committee and we in the Congress 
must tackle.
    Finally, Mr. Chairman, as we begin this debate, I have no 
real preconceived notions. However, whatever policies we 
eventually decide on, I believe that we must maintain the 
individual producer decision making and control, which was the 
heart and soul of the 1996 Farm Bill, and the flexibility to 
make their own planting and marketing decisions.
    I must also add that the component parts that we 
recommended that are encompassed in the Chairman's bill, and 
that of Congressman Bereuter, I am a strong cosponsor of that 
bill. And it entails all of the things that we wanted to do, 
commensurate with any Farm Bill. It was appropriate tax relief, 
regulatory reform, a consistent and aggressive export policy, 
sanctions reform, all the things that I think most of the farm 
organizations and commodity groups and members of the 
Commission have long supported.
    Seems to me we must also address the responsibility of our 
farm and agriculture groups as we begin this debate. Dr. 
Flinchbaugh and the Commission have put forth a solid benchmark 
for beginning the discussion. It is now our responsibility in 
the Congress, and quite frankly, that of the commodity 
organizations and the farm organizations and the producer 
organizations to come forth with solid proposals of their own 
for the next Farm Bill.
    I would repeat the admonition by the distinguished chairman 
of the House Agriculture Committee, Congressman Larry Combest, 
who has said that these proposals need to be based on fact and 
substance with an explanation on how they should be financed.
    I realize, having been through a great many Farm Bill 
debates, that we always get into the discussions as to a point 
of view as to whether we should rely on loan rates or other 
kinds of payments, or what kind of a counter-cyclical payment, 
and whether we go back to supply management. Those are very, I 
guess, historic debates.
    But what Larry has suggested is that we be rather specific 
and we see how it fits into the budget. And I think that's wise 
advice.
    I have long tried to be a champion of production 
agriculture. I have no greater priority in public service. But 
I think as a member of this Committee, I hope we can come 
forward with policy and spending proposals we can defend and 
justify on the Floor of the Senate and the House, rather than 
simply asking for a level of spending of what some may believe 
is what we are deserving of or entitled to.
    We need to do our part to support U.S. agriculture. At the 
same time, I think we need to do our part to support fiscal 
discipline, which will benefit everybody, as we don't want to 
slide into a real recession.
    I thank you, Mr. Chairman. I thank the members of the 
Commission for your time, for your effort, and for your very 
diligent product. I did not expect a specific road map. You've 
given us a general road map, and I appreciate it. Thank you 
very much.
    The Chairman. Thank you, Senator Roberts.
    I acknowledge again, and this Commission knows, that 
Senator Roberts, as Chairman of the House Agriculture 
Committee, was instrumental in the success of our efforts in 
1996. And it is a privilege that he is a member of this 
Committee now, assisting us as we approach that task again.
    Likewise a veteran of the last debate is Senator Conrad. 
And I would like to recognize him now for his opening comments.

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

    Senator Conrad. Thank you, Mr. Chairman.
    And I'd like to welcome not only the members of the 
Commission, but the new members of our Committee. Certainly 
Senator Ben Nelson of Nebraska, an important farm State, and we 
look forward to his contributions as we work to improve farm 
policy.
    On the other side of the aisle, we want to welcome four new 
members. Senator Thomas, who we have worked with in the past on 
many issues important to our part of the country. Awfully glad 
to have him here.
    Senator Allard, of Colorado, welcome to the Committee. 
Senator Hutchison of Arkansas, another important farm State. 
And of course, Senator Crapo.
    Welcome, all. We look forward to working with you. I think 
you'll find this is a congenial Committee. And we have 
excellent leadership. And we have feisty debate. And hopefully 
this morning will be no exception to that.
    I want to thank the Commission for their hard work, and 
especially recognize their proposal on a safety net. That was a 
very important proposal and I think will be well received on 
both sides of Congress.
    I do think that you missed an opportunity to focus on some 
of the larger forces that are affecting domestic agriculture. 
As I reflect on current farm policy, I believe it is fatally 
flawed. In fact, I personally believe it's a disaster for 
domestic agriculture. And I think the record is quite clear, 
we've had to write four disaster bills in the last 3 years. And 
they have not been cheap.
    And I think that goes right to the heart of part of what 
happened the last time we wrote a Farm Bill, was in the budget 
process, which was the first place we faced a fight, 
agriculture got hammered. And as a result, we really couldn't 
write a farm policy that made much sense.
    Let me just go to a couple of charts which I think are 
important for us to reflect on as we consider new farm 
legislation. This shows what's happened to net farm market, 
that U.S. farm market income falls as Government payments 
increase. And we can see from 1996 to 2000 the blue part of the 
bar is market income. The red part of the bar are Government 
payments.
    And you can see that market income, the blue portion of the 
bar, has shrunk dramatically since 1996. Government payments 
have increased dramatically. In fact, Government payments have 
about tripled.
    And if we wouldn't have had that increase in Government 
payments, you can see what would have happened to overall farm 
income. It would have shrunk to levels that are historic lows 
in real terms.
    Let's look at key factors. Obviously, farmers are paying 
more but receiving less. The green line is what prices farmers 
paid for inputs. And that's been moving upward, ever upward. 
And we can see the red line is what prices the farmers have 
received for what they sell. And you can see that it's 
interesting, coincidentally, perhaps not coincidentally, some 
believe, 1996 Farm Bill passage was the peak of what farmers 
received. And since then, those prices have plunged. And the 
plunge continues through the year 2000.
    I believe one of the key factors affecting us is what's 
happened to our major competitors, the Europeans. You can see 
on this chart that the European Union supplies 63 percent of 
the world's trade distorting domestic subsidies, 63 percent. 
They're the red portion of the pie. Japan is the blue portion. 
The United States is the little green sliver. Europe alone is 
beating us 10 to 1 on trade distorting subsidies, 10 to 1.
    Let's look at the next chart. Because it shows what they're 
doing in terms of domestic support. This is from the 
Organization for Economic Cooperation and Development, the 
OECD. They're the international scorekeeper. This is what they 
say is happening with respect to domestic support on average. 
We're the blue bar, $38 an acre, on average. The Europeans, 
$313 an acre. They're swamping us, 10 to 1.
    And the final chart showing what they're doing in terms of 
world agricultural export subsidies. This is again our major 
competitors, the Europeans. They account for 83 and a half 
percent of all world agricultural export subsidy. The United 
States, 2.7 percent. It's not too surprising here that our 
farmers are losing this battle.
    Unless we address those imbalances in whatever Farm Bill we 
write, we're going to be handing our farmers a losing hand. So 
the question is, do we permit our farmers to fight back, or do 
we leave them in this circumstance in which the deck is stacked 
against them. I hope very much that this information can get 
out as we proceed on the Farm Bill debate and that it goes to 
the Budget Committee, where, Mr. Chairman, I'll have to leave, 
because we're holding a hearing this morning.
    The Chairman. Thank you very much, Senator Conrad.
    It's my privilege now, Senator Conrad has already welcomed 
these four distinguished Senators. But let me reiterate that 
welcome. It's a privilege to have each one of you on the 
Committee. As all of you in the audience know, we have just 
completed the selection of the Committee. This is the first 
time the 20 members of the Committee, now 10 Republicans, 10 
Democrats, have come together. So it's a privilege to recognize 
each one of these Senators for a brief opening comment and then 
for full participation and the questions to the witnesses.
    First of all, Senator Thomas.

  STATEMENT OF HON. CRAIG THOMAS, A U.S. SENATOR FROM WYOMING

    Senator Thomas. Thank you, Mr. Chairman.
    Certainly, I want to say it's a great honor for me to serve 
on this Committee. As many of you know, I have had a strong 
interest in agriculture and for a very long time, testified a 
number of times here at this Committee. So I welcome the 
opportunity to be more a part of that.
    On other committees, I've dealt with public lands, continue 
to, with energy, environment, foreign trade. So all those 
things, of course, relate to agriculture.
    As we prepare this Farm Bill, it's important, of course, to 
evaluate the current direction of agriculture. Agriculture and 
markets change rapidly, certainly. We need to have a plan to 
stay ahead of that curve, to learn from the successes that 
we've had and also learn from the things that have not been as 
successful.
    We face some tough times, but we need really, it seems to 
me, to take a look at where we want to be in agriculture, what 
our goals really are, so that as we move towards that, we'll be 
able to evaluate the things we do. Obviously there's no single 
response. There are an array of obstacles to farm programs, of 
course, tax burdens, environmental restrictions, market 
concentration, trade barriers, just to name a few.
    So I certainly look forward to this, and hope that we can 
be successful as we move forward in seeking to make agriculture 
more successful in our country. I commend the Commissioners who 
have done a lot of work, certainly, on their job, and they've 
come a long way.
    So, Mr. Chairman and members, I appreciate being a part of 
your group and look forward to working with you. Thank you.
    The Chairman. We're privileged that Senator Nelson is a 
part of our group. We welcome you again, Senator. You appeared 
in your initial appearance for the hearing for Secretary 
Veneman. We are delighted that you are here today. Please 
proceed.

   STATEMENT OF HON. BEN NELSON, A U.S. SENATOR FROM NEBRASKA

    Senator Nelson of Nebraska. Well, thank you very much, Mr. 
Chairman. And it truly is a honor and a pleasure as well as a 
great opportunity to serve on this Committee.
    I know this very often is tempting to dwell on the past 
with what was. We can learn from the past. Sometimes we learn 
from our failures and our successes equally. And occasionally, 
we have a near success. But now I believe it is in fact time to 
focus on the future to find a way to put together a program 
that will work to return agriculture, and farming in 
particular, from simply a wonderful way of life to a way to 
earn a living once again.
    I congratulate all those who have labored on this challenge 
over the years. I thank you for everything that's been done. 
It's not an easy problem to solve and the solutions, while to 
easy to discuss, are hard to crystallize into a comprehensive 
program.
    As a Senator from a rural State, I too am hopeful that we 
can repopulate many of the rural areas of our country, and at 
the very least curb the depopulation that we are incurring at 
this very time. The important thing, ultimately, is to develop 
a program that will protect income, not simply subsidize it.
    I must admit, and I'm getting used to Senator Conrad's 
charts, I think they very clearly establish what has been 
happening. I am sure he would be the first to say that it's 
easier to point out the problem than it is to find or to bring 
about the resolution.
    But farm income protection is what we must be about in some 
fashion or other. We have to recognize that trade agreements, 
while they can be helpful at times, aren't as helpful as they 
might be if agriculture could be considered as part of the main 
thrust of trade agreements, as opposed to an afterthought. I 
believe if agriculture, and particularly some of the so-called 
lesser commodities, had been considered at the time of the 
development of the NAFTA agreement we would have spelled it 
right--it would have had two Fs. You've heard me say it before, 
I don't criticize anybody for the misspelling, but I would like 
to point out that it should have not only been free trade, but 
fair trade.
    And that I would hope, as we work toward looking at the EU, 
or we look at other parts of the world, that we recognize the 
reality that we're asking our agriculture producers to compete 
in an unfair market and in a market that is highly subsidized. 
While it may be tempting to say, well, if you can't beat them, 
join them, I think we have to be careful in that approach. But 
at the same time, I don't think that we can totally ignore 
what's going on with world markets.
    Here at home, I hope this Committee will work very 
carefully as an energy policy is being worked on to include 
biofuels, additional sources of alternative markets for farm 
products, that will help us and help agriculture not only solve 
the energy crisis that we're seeing develop, but also a 
national security interest in producing more of our fuels here 
at home.
    There are a lot of things that remain to be done. I want to 
be a party to these discussions and these considerations. And I 
want to be a friend, if you will, of the process. But I think 
it is important that we work together, and that we recognize 
that the solution is not to continue what we've done in the 
past, but to find adjustments to the Freedom to Farm Act as we 
move forward, to retain the flexibility, to retain what's 
working and find solutions for what isn't. And I would hope 
that we would be able to do so in the context of protecting 
income for agriculture.
    Thank you very much for this opportunity.
    The Chairman. Thank you very much, Senator Nelson.
    Let me just mention that other Senators are arriving. At 
the beginning I indicated we would have opportunity for opening 
statements of Senators that were here at that point. And those 
who were not here at that point will have an opportunity to 
make comments, opening statements and questions during the 
question period.
    But I would like to get on, at some point, which I hope the 
Committee will appreciate, to the testimony from Dr. Collins 
and the panel. But I'm going to recognize two Senators who were 
here at the outset, and we welcome once again Senator Allard to 
our Committee.

  STATEMENT OF HON. WAYNE ALLARD, A U.S. SENATOR FROM COLORADO

    Senator Allard. Mr. Chairman, thank you. It's a pleasure to 
be on your Committee and I look forward to working with both 
sides on many important issues I think that the Committee will 
be dealing with. I think that it's a particularly opportune 
time for me to be on the Committee, because I served on the 
House Agriculture Committee at the time that we put together 
the Freedom to Farm legislation, and actually at the time the 
Commission was set up. And I'm looking forward to hear what 
they have to say in their analysis. I think it will be 
something that this Committee will probably need to rely on as 
we move forward in our deliberations.
    I hope that we can get something passed within the next 2 
years to expand markets for our agriculture producers. I think 
that's a real challenge. I think we're also going to be facing 
some real energy challenges, and perhaps maybe one of the 
greatest factors in increasing the costs of farming today may 
be the cost of energy.
    I hope to bring to this Committee kind of a special 
expertise, since I am a veterinarian. I think that animal 
disease worldwide will get to be a greater problem and probably 
more of a debate in this Congress. So I hope to bring forward 
some special understanding in that, and also some science 
issues, dealing with production agriculture. We're already down 
the road on many of those science issues, but I suspect they'll 
be brought up by certain groups. I hope to be a member and a 
spokesman of any special study that you may have in that 
regard, so that we can address some concerns, I think, out 
there about our high quality farm product that we produce in 
this country, to explain to the American public that it is high 
quality.
    Thank you very much, Mr. Chairman.
    The Chairman. Thank you very much, Senator Allard.
    Senator Hutchison, do you have an opening comment?

   STATEMENT OF HON. Y. TIM HUTCHINSON, A U.S. SENATOR FROM 
                            ARKANSAS

    Senator Hutchison. Just very briefly, Mr. Chairman.
    I want to thank you for the opportunity to serve on this 
Committee. I'm very excited about it, and I'm thrilled to be 
able to join my colleague from Arkansas, Senator Lincoln. I 
think it bears testimony to how important agriculture is to the 
State of Arkansas that both of us would desire to serve on this 
Committee. And I appreciate your leadership.
    I also look forward to hearing Dr. Collins and Dr. 
Flinchbaugh review the recommendations of the Commission. I 
think the 11 members of the Commission have worked hard and 
this final report will give us some guidance.
    I especially want to recognize Jim DuPree, a member of the 
Commission from Newport, Arkansas, who is a fixture of Arkansas 
agriculture and well respected. In his very candid and I think 
creative way he has expressed some minority views, and I want 
to thank Jim for his service.
    Agriculture is the backbone of Arkansas' economy. An I was 
listening to other opening statements, in Arkansas, we've seen 
in the delta a depopulation. We've seen a lowering of income, a 
lowering of population, and so we've also seen a loss of hope. 
So I'm excited to be able to be a part of the process by which 
we write a Farm Bill and look forward to serving on the 
Committee.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Hutchison.
    Let me just mention for all members and those who are 
witnessing the hearing that Keith Collins, the distinguished 
economist at USDA, has been asked to summarize his remarks in 8 
minutes. The Chair will be liberal in case it spills over a 
bit. That's a rather rigorous situation, but it's an important 
paper, and we'll take longer if necessary. And likewise, Dr. 
Flinchbaugh, to summarize in 20 minutes. That is even a more 
difficult task, given the volume that the Commission has 
produced.
    But at this point, I'd like to recognize Keith Collins, 
United States Department of Agriculture, for his testimony. We 
will follow on immediately then with Dr. Flinchbaugh, and then 
we'll have a round of questioning by all members of the 
Committee. Dr. Collins, great to have you back.

STATEMENT OF KEITH COLLINS, CHIEF ECONOMIST, U.S. DEPARTMENT OF 
                          AGRICULTURE

    Mr. Collins. Thank you very much, Mr. Chairman, Senator 
Harkin, members of the Committee.
    I'd like to start by saying that under the 1996 Farm Bill, 
the Department of Agriculture was directed to provide 
administrative support to the Commission. That job fell to me, 
so I had an opportunity to meet frequently with the Commission. 
And I'd like to, on behalf of the Department, compliment them 
for the intensity and the dedication that they showed during 
the development of their report.
    Regardless of the recommendations and the differing views, 
I think it's very clear that they all shared a very strong 
common bond, and that was to want to do the best they could for 
America's farmers and ranchers.
    Mr. Chairman, I thank you for inviting me on behalf of the 
Department to help set the stage for the Commission's report 
today, by commenting on some of the recent developments in farm 
policy, how we got to where we are today, and then describing 
the general condition of the farm economy. As I look back over 
farm policy history, I think farm programs grew out of concerns 
about the ability of a free market to deliver safe food at 
reasonable prices to consumers, assure farmers fair returns, 
assure farmers that they would get treated fairly in 
international markets, and provide proper management of the 
Nation's natural resources.
    Prior to the 1930s, I think most concerns about the plight 
of farmers were addressed by trying to make farmers more 
efficient. This generally meant expanding research, education 
and extension programs, goals and policies that we still pursue 
today.
    The farm legislation of the 1930s, which was driven by the 
great depression, and driven by the fact that farm per capita 
incomes in the 1930s were one-third the level of non-farm per 
capita incomes, introduced price support loans, production 
control programs, and even conservation programs to reduce 
erosion, retire land and support producer incomes.
    From the 1930s through the 1960s, programs generally 
attempted to raise prices and incomes, and that occurred at the 
same time that we had the miracle of productivity growth in 
agriculture, the productivity revolution in which yields were 
exploding. That often led to chronic surpluses and both 
mandatory and voluntary supply control programs. During the 
1970s, farm policy was pretty much benign, as we had strong 
exports and higher prices. But when we got into the 1980s, high 
supported prices and growing yields once again led to the 
largest supply control program in history in the early 1980s.
    Well, after 50 years of strong Government intervention in 
markets, important steps toward a market-oriented economy were 
taken in the mid 1980s, with the passage of the 1985 Farm Bill. 
I think that three factors contributed to this rethinking of 
the role of Government in agriculture markets, and the first of 
course was the fact that the budget deficit became a national 
priority, and farm program costs were spiraling out of control, 
hitting $26 billion in 1986.
    Second, there was recognition that the high price support 
and production control policy was doing some damage to 
consumers, doing some damage to our international 
competitiveness, also affecting the environment and also 
affecting the freedom of enterprise of individual producers. 
And third, agriculture was increasingly viewed as a sector 
where a small share of farms produced much of the output and 
this very small share of large scale producers had household 
incomes that on average were above those of non-farm 
households.
    Prior to the 1996 Farm Bill, market-oriented policy reforms 
included reducing target prices and payment acres, fixing 
program payment yields, reducing price support loan rates, 
creating the concept of marketing loans, together these changes 
decoupled payments from current production. The 1996 Farm Bill 
went further in separating payments from production and prices, 
giving farmers almost total planting flexibility and 
eliminating annual production controls. In addition to that, 
with the exception of oilseeds, price support loan rates were 
capped at the 1995 level.
    The move to a more market-oriented agriculture that we've 
seen since 1985 has been slowed somewhat by the sharp drop in 
prices since 1997, which led to four pieces of legislation that 
increased farm program costs by about $25 billion over the last 
3 years. The downturn in the farm economy, which was caused by 
large U.S. and foreign production, the global economic slowdown 
of the late 1990s and its after-effects, and the high value of 
the U.S. dollar resulted in some of the lowest farm prices that 
we've seen in the last 15 to 25 years.
    With some of these factors improving as we go into 2001, we 
are currently forecasting that the value of farm exports will 
go up about 4 percent to $53 billion this year, and that the 
volume will go up about 6 and a half percent. And we can look 
at several major commodities where we're starting to see some 
stronger markets, including wheat, corn, cotton, cattle, and a 
number of horticultural products. But with large U.S. supplies, 
price recovery is likely to be very slow.
    In addition, we're going to see, I think, continued price 
pressures for soybeans, for milk through much of this year, and 
I think during the second half of the year for hogs as well.
    Record large Government payments have helped avert a 
national farm financial crisis. We've seen farm debt rising in 
recent years. But non-performing loans have only risen 
slightly. And land values keep rising, which are helping to 
keep the farm debt to asset ratios manageable.
    For 1999, the year 2000 and for our current forecast for 
2001, if you take U.S. net cash farm income and exclude 
Government payments, those 3 years are the lowest since 1984. 
However, when payments are added in, net cash income for 1999 
and 2000 about equals the average of recent years.
    Looking at this year, for 2001, we of course do not build 
in any supplemental payments, since there is no legislation. So 
assuming no supplemental payments, net cash income is projected 
to decline about 10 percent from $56.4 billion to under $51 
billion. The major field crops, food grains, feed grains, 
cotton and soybeans, have had particular market difficulty the 
last couple of years.
    Direct Government payments to producers of those crops on 
average accounted for three-fourths of net cash income of those 
crops in 1999, and two-thirds of net cash income in the year 
2000. Absent any new legislation, regions and crops that have 
been dependent on Government payments are likely to see the 
greatest declines in farm income in 2001.
    Income is also going to be squeezed this year by higher 
prices for farm production inputs. Last year, during 2000, 
higher fuel prices, higher interest rates, along with higher 
prices for a number of other inputs, increased farmers' 
production expenses by $7.6 billion in that one year. This 
year, higher fertilizer and other costs are likely to increase 
total cash expenses another $1.5 billion on top of last year's 
level and cause total cash expenses in agriculture to reach a 
record high $180 billion.
    In the absence of new supplemental assistance, U.S. farm 
income may drop below recent levels during the next few years, 
as higher commodity price and cash receipts do not fully offset 
the drop in Government payments. Beyond the next few years, I 
think the outlook for the farm economy improves as expanding 
domestic use and exports, particularly developing countries 
around the world, strengthen farm prices, and increases in farm 
income and asset values help to contain farm financial stress.
    That completes my statement, Mr. Chairman.
    [The prepared statement of Mr. Collins can be found in the 
appendix on page 71.]
    The Chairman. Thank you very much, Dr. Collins. As 
indicated before, you will be available for questions of the 
Senators after we have heard from Dr. Flinchbaugh.
    I'd like to ask now Dr. Flinchbaugh to come to the table. 
Following his testimony, we will welcome all the members of the 
Commission to the table, all available for questions.
    Dr. Flinchbaugh, you have been introduced by the 
distinguished Senator from Kansas, and I welcome you because 
you have performed a noble service for agriculture in our 
country during this Commission's work, but for many years in 
your work in Kansas and throughout the Nation. It's an honor to 
have you here today, and will you please proceed.

STATEMENT OF BARRY L. FLINCHBAUGH, CHAIRMAN, COMMISSION ON 21ST 
                 CENTURY PRODUCTION AGRICULTURE

    Mr. Flinchbaugh. Thank you, Mr. Chairman.
    Mr. Chairman, Senator Harkin, members of the Committee, we 
appreciate the invitation to appear before you today to present 
the report of the Commission on 21st Century Production 
Agriculture. In my written statement, which is before you, I 
provide an outline of the findings of the Commission with 
regard to the role of the Federal Government in support of 
production agriculture. Today I will cover as much of the 
statement as time allows.
    The Commission relied on input from a diverse set of 
stakeholders, subject matter experts and background materials 
and analysis provided by the staff to arrive at the specific 
findings for policy initiatives or other courses of action. I 
wish to thank the staff, Dr. Paggy and his assistants, Matt 
Howe and Tim Peters. And I especially wish to thank the staff 
of the Office of the Chief Economist and Dr. Collins.
    The results of these efforts are contained in the report 
entitled ``Directions for Future Farm Policy: The Role of 
Government in the Support of Production Agriculture.'' That 
report was provided to you in advance of this hearing.
    In general, it was agreed that the role of the Federal 
Government should be limited to activities that involved issues 
that were unlikely to be solved through private sector 
initiatives.
    The Commission concluded that the proper role of the 
Federal Government should be to pursue policies and programs 
that promote the following concepts and/or accomplish the 
following outcomes: ensure a competitive agricultural economy 
through monitoring of concentration, enforcement of antitrust 
laws and related regulatory authority; ensuring transparency of 
market behavior, including contracting; develop policies and 
programs that enhance the competitiveness of U.S. agricultural 
products; reduce trade barriers, open markets, and enhance the 
ability of producers to maximize value added opportunities; 
base all policy on sound science and insist that foreign 
competitors do likewise; promote and enhance food safety and a 
clean environment; promote and enhance animal and plant health 
and safety; provide support for agriculture research and 
education; enhance the development and use of risk management 
tools; develop and fund programs that meet the special needs of 
small and limited resource farmers; and finally, provide an 
effective and adequate income safety net for farmers with 
minimal market distortion.
    To guide us in our deliberations, the Commission relied on 
input provided in a series of six public hearings held 
throughout the country. At these listening sessions, the 
Commissioners heard testimony from over 200 witnesses from 30 
States. To aid the Commissioners in their understanding of the 
critical issues, a series of informational meetings was held. 
Over the course of the Commission's tenure, there were 14 
meetings with over 60 expert witnesses providing input on the 
various aspects of each major issue.
    Within the guidelines established and given the limitation 
of time and resources, issue priorities were set. Priority 
number one, income safety net. The persistence of very low 
commodity prices has rendered existing farm program support 
inadequate to address the level of stress experienced over the 
last few years. As a result, the Congress has had to rely on 
emergency measures to provide additional support to the sector. 
The Commission has established a set of policies it believes 
will prevent the need for continued reliance on emergency 
measures, provide the flexibility necessary to address 
unforeseen changes in future market conditions, while 
continuing to provide a solid foundation of support for 
production agriculture.
    The Commission recommends a continuation of a fixed AMTA 
payment in accordance with existing baseline budget 
allocations, in addition to a counter-cyclical income support 
program. The Commission specifically recommends a program 
referred to in our report as supplemental income support or the 
SIS program. The SIS program, along with the extension of the 
fixed AMTA payment, would provide a flexible income safety net 
for agriculture producers in times of depressed farm income.
    The Commission also recommends as a part of the income 
safety net that the loan deficiency payments and marketing loan 
be retained, however adjusting the marketing loan rates to 
reflect the balance between the historical market value of 
individual crops. In addition, the Commission recommends that 
the limitation on Government payments to producers be removed.
    The Food and Agriculture Policy Research Institute, known 
as FAPRI, provided an assessment of the Commission's SIS 
counter-cyclical income support program. Their analysis 
concluded that SIS, using a 5-year moving average program crop 
gross income, as the income trigger level, would have an 
estimated counter-cyclical payment of approximately $2.8 
billion in the year 2003.
    The payments are estimated to decline due to increased 
yields and stronger prices to $558 million by 2005. This 
counter-cyclical approach would be decoupled from current 
prices and production and be distributed in a similar manner as 
the current production flexibility contracts. The decoupled 
nature of the SIS payments, along with the aggregate eight 
program crop gross income trigger, yields a program that would 
likely be categorized as green-box under the aggregate measure 
of support World Trade Organization.
    The SIS program is envisioned to provide counter-cyclical 
income support for eight major program crops: wheat, corn, 
sorghum, upland cotton, soybeans, rice, barley and oats. 
Producers of non-program crops would not receive direct 
benefits from this program. However, non-program crops could be 
added to the aggregate. Planting flexibility, as it currently 
exists, would be maintained under this proposal.
    Priority item number two, risk management. Producers have 
an array of tools at their disposal with which to manage risk. 
The Commission recommends that the possibility of creating an 
actuarially sound insurance program with coverage provided by 
private companies be studied. An actuarially sound insurance 
program is defined as one where the Government does not 
underwrite a portion of the insurance company's risk, but 
rather provides farmers with a voucher to offset the cost of 
insurance premiums.
    The Commission also recommends the implementation of a farm 
account without a time restriction on how long money may be 
left in the account, thereby allowing the account to serve as 
both a cash reserve for low income years, as well as an 
alternative retirement fund for the producer.
    Priority item number three. The Commission recommends 
continuation of the Conservation Reserve Program, and suggests 
that any possible increase in the acreage of the program be 
dedicated towards buffer strips, filter strips, wetlands, grass 
waterways and partial field enrollments. The Commission 
recommends continuation of the EQIP program at funding levels 
initially proposed in the 1996 FAIR Act, and for providing 
adequate support for the NRCS staff to administer the EQIP 
program.
    The Commission recommends that research be conducted that 
focuses on the following conservation and environmental issues: 
providing voluntary incentive-based programs to enhance 
agriculture's positive contribution to air and water quality; a 
means to provide compensation to producers who establish 
environmentally beneficial practices, with funding from a 
separate environmental program; establishing a baseline measure 
of agriculture's positive contribution to air and water 
quality; and finally, priority areas including, but not be 
limited to, carbon sequestration, control of greenhouse gases 
emissions, manure management and alternative fuels.
    Number four, agricultural trade. The Commission endorses 
the comprehensive U.S. position on trade as it was tabled with 
the WTO in June of 2000. In addition, the Commission stresses 
the need for agriculture negotiations to be part of a 
comprehensive negotiation conducted in a single undertaking 
approach. The Commission also recommends that Congress grant 
the President negotiating authority for the new round of trade 
talks. Last, it is the view of the Commission that negotiations 
on trade reform within the WTO are not the appropriate forum 
for negotiation of environmental and labor issues.
    Number five, individual commodity policies. Dairy, sugar, 
peanuts and tobacco are commodities that have evolved into 
specific and unique agricultural programs over the years. In 
reviewing each of these commodities' programs in detail, the 
Commission has identified areas of concern that will have an 
impact on the economic well-being of the producers of each of 
these commodities.
    In an effort to provide direction for inquiry, the 
Commission has outlined a set of policy options for each 
commodity it feels should be reviewed, and urges those within 
each industry to work together to develop solutions that will 
provide for a prosperous future for each of their respective 
commodities.
    Dairy. Decisions regrading the course of future dairy 
policy must address at least four issues: Federal marketing 
order reform, extension of dairy compacts, future price support 
and international market opportunities and challenges.
    Peanuts. The Commission recommends that the following 
options be examined: a phased reduction of the quota system 
with compensation to existing quota holders, allowing for 
transfer of quota across State boundaries, subsidies to 
manufacturers to stimulate purchase of domestically grown 
peanuts, a marketing loan for peanuts, a direct payment type 
program for producers of quota peanuts, and greater incentives 
for increased industry competition to reduce concentration.
    Sugar. The Commission believes that there needs to be a 
serious consideration given to developing an alternative 
program to the current sugar program. It is the view of the 
Commission that the following program options individually or 
in combination be evaluated: a marketing loan for sugar, 
domestic marketing controls, domestic production controls and 
some form of direct payment to sugar producers.
    And finally, tobacco. The options to the existing program 
the Commission feels should be examined include the following 
or some combination thereof: increasing transferability of 
quota across county lines and/or State lines; a buyout program 
designed to phase out the quota program; and a marketing loan 
for tobacco with a view to increased export competitiveness.
    Number six, small and limited resource farms. The 
Commission recognizes the importance and value of the small 
family farm in production agriculture and in rural communities. 
The Commission further recognizes the significant impact 
Government policy has on the economic condition of small family 
farms. The Commission acknowledges the work of the National 
Commission on Small Farms. Their work continues in the 
activities of USDA's Advisory Committee on Small Farms. The 
Commission believes that this Advisory Committee on Small Farms 
should be the lead group in this issue area, and that it is the 
role of the Government to develop and fund programs that meet 
the special needs of small and limited resource farmers.
    Accordingly, the Commission recommends that the work of the 
Small Farms Advisory Committee be formalized as a part of the 
United States Department of Agriculture, by Congressional 
authority, providing appropriate staff and funding.
    Commissioners Paige, Brumfield, DuPree, and Swenson wish to 
endorse the report of the National Commission on Small Farms in 
its entirety.
    That, Mr. Chairman, concludes the majority report. I now 
will attempt to summarize briefly the minority views.
    The first minority view submitted by Commissioner Swenson 
on the Farm Income Safety Net has been endorsed by 
Commissioners DuPree and Paige. Commissioner Swenson's 
recommendations are based on the fundamental belief that the 
assumptions underlying the support for the passage of the 1996 
FAIR Act have proven not to be valid, nor will they likely have 
merit in the future.
    A fundamental part of Commissioner Swenson's program is the 
change in the calculations of existing commodity marketing loan 
rates. Commodity marketing loan rates for each commodity would 
be established utilizing a uniform methodology, such as some 
minimum percentage of the 3 year moving average of USDA's full 
economic cost of production including dairy.
    The program proposed by Commissioner Swenson would also 
include implementation of an inventory management program. The 
elements of this program would include efforts to expand demand 
for and the use of agricultural products; incentives for 
management of existing inventories through farmer-owned 
reserves program and producer-stored reserves dedicated to 
renewable energy production and humanitarian food assistance 
and a voluntary acreage setaside program where participants 
would benefit from increased marketing loans for the balance of 
program crops produced.
    The voluntary setaside would also provide authority for the 
reduction of marketing loan rates for non-participants if 
stocks to use ratios exceed specific levels. The program as 
envisioned would also include mechanisms to provide for 
targeting of benefits, such as a limitation on the level of 
gross benefits from marketing loan receipts.
    Last, the program would provide a set of incentives that 
encourage the application of long term stewardship practices 
including authority to create and implement a multi-year land 
and soil rehabilitation program.
    A minority view on the income safety net submitted by 
Commissioner Campbell. In Commissioner Campbell's view, the SIS 
program offered by the majority of the Commission would prevent 
adjustment in land prices and land rates attributable in large 
part to the recent Congressional emergency assistance payments. 
As a result, in Commissioner Campbell's view, larger producers 
are able to optimize production at lower variable costs, are at 
an advantage over smaller operations, and are increasing the 
rate at which these smaller operations are absorbed by the 
larger operators.
    The policy alternatives proposed by Commissioner Campbell 
are made in large part with a view to remove Government 
incentives for farming operations to increase in size. In 
addition, Commissioner Campbell emphasizes that while the farm 
economy has changed significantly over time, agricultural 
programs and policies have not. Commodity marketing loans, 
income support decoupled from production, and planning 
flexibility have been policy improvements. The difficulty is 
finding a non-distortive direct income support mechanism.
    It is the view of Commissioner Campbell that three types of 
programs can be economically and socially justified in the 
future. Number one, safety net programs for commercial 
producers to protect against catastrophic markets or weather 
situations, including market-oriented marketing loans, and a 
market-oriented risk management program.
    Number two, social and/or credit programs that help farmers 
on the edge transition to larger commercial operations, smaller 
specialty operations, or to off-farm employment. And number 
three, environmental stewardship programs.
    A minority view on trade submitted by Commissioner Swenson 
and endorsed by Commissioner DuPree. Specific recommendations 
provided by Commissioner Swenson include a call for some 
mechanism to allow a nation whose agriculture producers suffer 
injury due to changes in relative currency values to offset 
those effects through border and export measures as well as 
domestic programs; elimination of the use of direct and 
indirect export subsidies; international harmonization of 
environmental, labor, intellectual property and competition 
policies and regulations; elimination of non-tariff barriers 
not based on scientific principles; increased transparency in 
reporting of support to agriculture prices in industry 
concentration; international cooperation and economic 
development and inventory management; and a streamlined and 
expedited dispute settlement mechanism.
    And finally, a minority view on antitrust and industry 
concentration offered by Commissioner Swenson and endorsed by 
Commissioner DuPree. While the Commission clearly stated that 
it is the role of the Federal Government to ensure a 
competitive agriculture economy, Commissioner Swenson provided 
additional views on these issues. Commissioner Swenson provided 
several suggestions to revitalize the U.S. effort to ensure and 
maintain that the level of market and sector concentration 
promotes open, competitive efficiency throughout the system, 
and encourages market and transactual transparency.
    The main thrust of these recommendations are to increase 
the review and enforcement capacity of agencies charged with 
antitrust responsibilities, provide for an ongoing review 
process of both past and present mergers, and provide 
additional authority to ensure that antitrust competitive 
practices that fall outside current or traditional antitrust 
regulations of enforcement are continuously reviewed and 
appropriate avenues for redress provided.
    Mr. Chairman, members of the Committee, on behalf of the 
Commission, I would like to extend to you our appreciation for 
allowing us to present you with our report. This concludes my 
testimony, and I would be pleased to respond to any questions. 
Thank you.
    [The prepared statement of Mr. Flinchbaugh can be found in 
the appendix on page 89.]
    The Chairman. Thank you very much, Dr. Flinchbaugh, for 
that excellent summary of the majority and the minority views.
    I'm going to ask all members of the Commission now to come 
to the table, and likewise Dr. Collins, and ask staff to make 
there are chairs available for each member of the Commission, 
so that we can all be seated.
    Gentlemen, thank you all for coming to this hearing, and 
for the enormous contributions you already made to our 
understanding. As previously announced, we will have a round of 
questioning, limited to 5 minutes, and then we'll proceed again 
if Senators have additional questions. We have a good 
attendance and that will take us well into the morning and 
maybe into the early afternoon. But this is a very, very 
important time of coming to an understanding.
    Let me begin by expressing two thoughts. This is not a 
critique of anything the Commission has said, but simply an 
observation from census data that there are now 2,312 counties 
in our country, out of some 3,000, that 2,300 are non-
metropolitan. But of these non-metropolitan counties, only 
about 30 percent have agricultural activity or income that 
represents 10 percent of what goes on in those counties, 
meaning the other 1,700 are non-metropolitan but do not have 
significant agricultural activity.
    As a matter of fact, even the 300 and some which do have 
from 10 to 20 percent of activity from agriculture, this is the 
high water mark. I make that point because frequently the 
comment is made, we don't want to depopulate America, and 
obviously we don't. Demographic policy is tremendously 
important. Agriculture might affect 680 some of these counties 
in a significant way, but that is about it.
    So as we try to take a look at a Farm Bill, it seems to me 
we want to be careful in terms of outlining our demographics 
and knowing exactly where it is that we might have some effect, 
which I think we can.
    Another comment I would want to make is that the comment is 
made from time to time about the importance of exporting. And 
clearly, that is something the Government can help. As a matter 
of fact, perhaps the major thing that can occur. There simply 
is a case with 40 percent of our rice, cotton, soybeans, more 
or less 20 percent of our corn in foreign trade. But the 
expansion of those markets is virtually impossible on domestic 
consumption alone.
    In the event we are not successful in our foreign policy 
and our trade, we are going to have a very constrained 
situation of feeding ourselves, but having a market that is not 
much larger than that. So this is not a question of exports or 
something, we really have to succeed in this. And likewise, in 
all of our efforts in this Committee, we will try to push that 
to happen.
    I want to ask just rhetorically, because there's no way 
that this can be answered, really, in this hearing, but I've 
commented before, Senator Grassley used to be a member of our 
Committee, and we will miss him. He's now moved on to the 
chairmanship of the Finance Committee. And there may be other 
members of the Committee who have agricultural land. I'm not 
aware of that, but if so, they will respond. I have 604 acres 
in Indiana, which I've been responsible for for 44 years. I 
mention this anecdotally, because perhaps I'm the only one who 
has any stake in what you're talking about today. That is, some 
of my income really depends upon how all this turns out. So I 
admit a conflict of interest or enthusiasm, as the case may be.
    Senator Lincoln. I'll join the Chairman on that. 
Absolutely.
    The Chairman. All right. Now, let me just say, in the past, 
I've mentioned, over the 44 years, we have not lost money in 
any year. This brings a great deal of criticism for anybody for 
mentioning it is possible to be profitable in agriculture. But 
it is.
    Having said that, marginally so. I've admitted that my 
calculations are we've made about 4 percent on invested 
capital. Now, when I mention that at agricultural meetings, 
many people say that sounds too high.
    Now, taking a look at the chart on page 86 of the 
Commission's report, that doesn't fit exactly the question of 
return on equity. But it does say farm profitability measured 
by return on assets. Which comes reasonably close, my farm does 
not have debt, so essentially we're dealing with the value of 
the land, the barns, improvements and what have you on that.
    Now, the idea in this chart is that there's a prediction 
that we'll have only 2.1 percent return on assets in the coming 
year, or in 2000, I guess as it's calculated. And that's lower 
than the average of 3.4 percent from 1990 to 1999.
    This raises a question for anybody who is not in 
agriculture. And that is, if the average return on assets 
decayed, that includes 1996 in the boom times, 1997 and the 
downward, is in the nature of 3 or 4 percent, throughout this 
period of time an investor having an asset, say, of a 
Government bond could have received 6 percent every year, 
without benefit of weather, Government programs or anything 
else involved.
    Now, this is a fundamental question this Committee and 
hopefully some of you on the Commission, from your wisdom, can 
help us on. Is there anybody in America, during any period this 
time, making money on agriculture that is commensurate with 
other activities that people have in our country, such as 
retail stores, machine tool shops, quite apart from the more 
exotic dot-coms that have come and gone in the process? The 
dot-coms come and go. But as many of you pointed out, the 
number of people involved in farming has continued, has 
increased.
    Now, my earlier comments were to say that much of the 
increase comes from people who derive really on a net basis 
almost 100 percent of their income from something else. And in 
fact, 82 percent of all farms on a net basis apparently have 
off-farm income, when offset by the losses on the farms in that 
group, come out to a wash. So we're dealing, even in the 
category of farms in which I'm involved, the 604 acre variety, 
this is in that group of 10 percent behind the 8 percent that 
are really the true commercial farms, described as farms in 
transition, because the 57 percent of the income on our group 
comes from off the farm, only 43 percent from on.
    Now, we're going to have to come to grips at some point 
with who is a farmer in America, who is making money, as 
opposed to having an interesting avocation. Are there 
prospects, even among those who are trying to make money, to do 
so, in a significant enough way to have even a lower middle 
class income in America?
    I would finally mention that in the demographics I started 
with, in these counties that have significant farm income, most 
of these were found to have per capita incomes higher than the 
other non-metropolitan counties that don't have farming. These 
are not the poor counties. The agricultural counties are the 
better counties in this group, with the exception of some 
mountainous areas and some very geographically challenged parts 
of our country that have very severe weather or topographical 
problems.
    In taking a look at agriculture as one whole cloth, one 
Farm Bill fits all, we are unlikely to come up with a very 
satisfactory situation. I admit having gone through this 
process I think five times, we broker all of the attitudes and 
ideas of America the best we can, by State, by category, by 
crop and by weather and so forth.
    But we're down now to a point, and I think the Commission 
has highlighted it, at which the American public is asking, and 
we appreciate agriculture, we are supporting agriculture, as a 
matter of fact, we've had a large transfer of payments from 
those who are not in agriculture to those of us who are. But 
why? What are the significant things that the Federal 
Government uniquely can do or should do in this process? And 
who are farmers and do they make money? I know there are 
prospects they might make money if the proper programs and 
encouragements were given.
    Dr. Flinchbaugh, do you have any comment, and be brief, 
because I've taken my 5 minutes and I don't want to impinge 
upon others.
    Mr. Flinchbaugh. Well, Mr. Chairman, I would like to 
comment on your statement that one size fits all. I think 
that's the peanut. A one size doesn't fit all. And as the 
Commission deliberated, we clearly understood that. And we have 
come up with what I would call a four wheeler, or a four legged 
stool or whatever you want to call it. And that is the income 
safety net, the counter-cyclical assist program, the marketing 
loan, crop insurance, revenue insurance and the farm savings 
account.
    And that gets at this problem of one size doesn't fit all, 
so that with that four wheeler plus conservation programs, you 
may want to call that the spare tire, we try to get at this 
differentiation and these unique sets of problems as we move 
from region to region, etc. So clearly, one size doesn't fit 
all.
    The Chairman. Well, I appreciate that comment, because I 
think your report does attempt to differentiate, and obviously, 
in the best of all worlds, I would want to do some more. We 
might have a long conversation with all of you in which we 
would glean more, and hopefully we will do that, that you will 
be available for our questions and to participate in further 
conversations as we try to enhance our understanding.
    Senator Harkin.
    Senator Harkin. Thank you, Mr. Chairman.
    Again, I want to thank all of the Commission members for 
your years of diligence and hard work and traveling all over 
and going to meetings and coming up with this report.
    I guess I want to start, Mr. Flinchbaugh, by just saying, I 
like what I hear when you say one size can't fit all, doesn't 
fit all. But I look at the proposed SIS or whatever you want to 
call it, is that not what it is? I mean, for example, SIS 
payments would be made to producers with aggregate program 
crops, wheat, corn, soybeans, sorghum, rice, upland cotton, 
oats and barley. Gross income falls below some percentage of 
the historical income level calculated over fixed base period, 
whatever you want to figure that out to be.
    Well, let's say king corn has a good year. Let's say corn 
has a darned good year and that income's up. But my rice 
farmers down there, they don't have such a good year, or the 
wheat farmers don't have such a good year. But when you 
aggregate it, one size fits all. What do you square this with?
    Mr. Flinchbaugh. Well, that's one leg of the stool. And you 
will note in the report that we clearly state that other crops 
could be added to the program. And then we go on and talk about 
a marketing loan, we go on and talk about studying a voucher 
system for crop insurance, a farm savings account, etc. So 
that's where we come, where I come to the comment that we've 
tried to come up with a package that gets at individual, unique 
problems, crop to crop, region to region, etc.
    The SIS program, just one leg of the stool, could be 
designed on a regional basis, for example.
    Senator Harkin. That seems to me like the biggest leg, the 
fattest, strongest leg of that stool right there.
    Anybody else have any thoughts on this at all? Mr. DuPree. 
Mr. Swenson. Mr. DuPree.
    Mr. DuPree. Yes, sir. Looking at SIS and SID both, two 
different kind of programs, when those were applied against the 
farmer profiles at Texas A&M, where they actually have 
histories of farmers out there and know something about their 
economic--they're not projected numbers or anything like that, 
these are actual farmers in the United States of all sizes. 
This left holes in the safety net for those fellows that was 
almost a little better than no program at all.
    This harks back to something, Mr. Chairman, that I kind of 
want to make a statement about. The mistake I think sometimes 
made of using aggregated numbers to draw too many conclusions 
about agriculture. I asked a farm economist that I know and 
like a great deal about the use of that, and he warned about 
it. He said usually they're not accurate enough to be useful, 
very useful, in policy work. And you're going to have to get 
more specific. There's just too much diversity in agriculture, 
the way it's done in the United States. And for that reason, 
try to draw too much from any of those numbers, you have to be 
very cautious that you don't leave someone out of the situation 
or the program doesn't aptly fit.
    Senator Harkin. Mr. Swenson.
    Mr. Swenson. Thank you, Senator Harkin.
    Mr. Chairman, I did not sign the majority report, and the 
point you raised is one of the reasons. It's that when you lump 
it into an aggregate, and if you're tying it to where the 
market revenue has been, you're on a slippery slope down. And 
the pressure would be for you as members of the Ag Committee to 
come in with additional supplemental income as SIS payments 
went down, just as we have seen under the current farm program.
    That is why in the nature of how I addressed and was 
supported by Mr. DuPree and Mr. Paige in the minority report, 
we chose a different avenue of which to provide the counter-
cyclical support. And if you take a look at the minority 
report, what we did is try to address what are the issues that 
are impacting producers that are beyond their control. And you 
have heard already this morning talking about what happens to 
interest rates, what happens to energy prices, and that's why 
we felt it was important to take a look at tying the support 
mechanism, or the counter-cyclical support mechanism, to that 
of a cost of production factor, some percentage. And then you 
treat all farmers on an equalized basis, and you leave planning 
and flexibility in place.
    So that to me then directs the payments to those farmers, 
what they're producing today, what kind of yields they're 
getting today, what kind of yields they may get tomorrow. If 
you look at the minority report, we also included some other 
elements, which interestingly enough, was raised by Committee 
members in their comments earlier.
    One of the unique things I hope you would look at is the 
limited Farm Loan Reserve that we call for. What that does is 
allow farmers who really right now are left bare in the first 
25 or 35 percent loss they must suffer before crop insurance 
kicks in, Congress does a great job of protecting the interests 
of the bank and the interests of the insurance companies and 
agents that are selling crop insurance. But they do very little 
to help subsidize that first 25 to 35 percent loss that the 
farmer must endure.
    One of the concepts we're laying before you in the Farm 
Loan Reserve is that if farmers voluntarily participate in 
that, they could draw out of that if they suffer a crop loss in 
that next year. So it's a way for them to voluntarily 
participate in a limited reserve of which then to protect their 
interests in the future. It's that idea we'd like to see you 
sort of delve into.
    The other is an energy thing, to be able to have an energy 
reserve. We have an oil reserve. We think that we also, in the 
support of developing alternative sources, especially as we 
take a look at the sugar problem we've had, take a look at what 
we can do with corn and many other commodities.
    But we throw those out because of some of the concerns we 
had in the majority report. Thank you.
    Senator Harkin. I see my time has run out. But on my next 
round, I want to get into that, also, that aspect of why the 
Commission didn't look at the other uses of agriculture in 
terms of energy production in this country. Thank you.
    The Chairman. Senator Cochran.
    Senator Cochran. Mr. Chairman, thank you very much. I'm 
glad to be here today to welcome the Commission and to thank 
all of you for your hard work in compiling a report that can be 
very helpful, I think, to the Committee as we proceed to 
consider the options for supporting the efforts of those 
involved in production agriculture and helping make sure that 
we continue to have as vibrant and healthy as possible 
agricultural economy.
    I particularly want to thank my friend, Bruce Brumfield, 
for serving on this Commission. He's a blue ribbon member of a 
blue ribbon commission and a leader in our State for a long 
time in agriculture organizations such as the National Cotton 
Council and the Delta Council and many others. We've come to 
look to him for dependable advice and counsel over the years, 
so I'm glad he had a part in developing this report.
    There are a couple of observations I guess I would make, 
and one is that there seems to be an underlying fundamental 
conclusion in this report, and that is that there should be a 
market orientation to farm policy and to legislation that 
endeavors to support production agriculture. Is that a correct 
conclusion? Should I ask Dr. Flinchbaugh or Bruce if that's a 
correct conclusion?
    Mr. Flinchbaugh. The majority report clearly comes to that 
conclusion. And as you read, the minority reports, of which 
there are several, there's various degrees. But yes, overall 
clearly, market orientation, when we came up with the role for 
Government, the report says clearly, we're looking at 
activities that cannot be solely done in the private sector.
    Senator Cochran. One other aspect of your report deals with 
conservation programs. You seem to support without question the 
Conservation Reserve Program, the EQIP program, you call upon 
the Congress to expand those programs, as I understand it. You 
don't mention specifically some of the other conservation 
programs. Do you mean by leaving them out that you don't think 
they should be continued? Such as the Wetlands Reserve Program, 
Wildlife Habitat Incentives Program, and others, that are 
designed to encourage land owners to use their lands and set 
aside those lands, in effect, under a lease arrangement in some 
cases, so that it's not added to the problem of over-
production.
    Mr. Flinchbaugh. Do not draw the conclusion that because 
something is not in here that we didn't look at it favorably. 
We had to set priorities. We could have worked 5 years and 
produced 1,000 pages and we would have scratched the surface. 
Senator Harkin mentioned rural hospitals. They are not 
mentioned in here. Obviously they are important, especially as 
this Commission gets grayer hair, you understand. [Laughter.]
    Obviously, there's nobody that doesn't support a strong 
system of rural hospitals. But the charge to this Commission 
was very specific: the role of Government in production 
agriculture. Given our limited resources, given the complexity 
of the multitude of issues, we had to set some priorities, 
which we did. But do not draw the conclusion that you don't 
read something in here that you think should be in here, we're 
not interested, we don't care. That's certainly not the case.
    Senator Cochran. We have been confronted in the last couple 
of years with requests from the agriculture community for 
emergency assistance in a wide variety of descriptive titles, 
counter-cyclical aid, emergency assistance, disaster 
assistance, restructuring crop insurance program so it's more 
responsive to the real needs out there, and the problems of 
getting value for the investment you make in that program.
    What, in the opinion of the Commission, if you touched on 
this, is your view about the future of emergency assistance? 
Should we limit ourselves to any particular kind of emergency 
assistance, or should we continue to try to assess it on an ad 
hoc, case by case assessment of the needs and try to respond 
when the Congress feels that response is necessary, on an 
annual basis?
    Mr. Flinchbaugh. At the beginning of the section on the 
income safety net, we clearly state that it was our goal to 
develop a mechanism that was flexible enough to take care of 
emergency situations so that we didn't have to come back in on 
an ad hoc basis. So specifically, we attempted to produce a 
mechanism that would relieve you from doing that, that would 
formalize it, that would provide a safety net under farm 
income. And we further state that we attempted to do that with 
minimal market distortion.
    So you've really hit on the key point, in the majority 
report, at least.
    Senator Cochran. Thank you very much. That's very helpful.
    The Chairman. Thank you very much, Senator Cochran.
    Other members of the Committee have introduced members of 
the Commission from their States. I've been neglectful in 
failing to mention one of the best farmers in Indiana, Don 
Villwock, who has been a distinguished member of the 
Commission, but beyond that, a personal friend of mine and an 
advisor on agriculture in Indiana for the last 24 years.
    So I appreciate, Don, your service, and it's great to have 
you here today.
    I'd like to call now on Senator Lincoln.

   STATEMENT OF HON. BLANCHE L. LINCOLN, A U.S. SENATOR FROM 
                            ARKANSAS

    Senator Lincoln. Thank you, Mr. Chairman.
    I first would like to welcome my friend and colleague from 
Arkansas, Senator Hutchinson, to the Committee. I'd certainly 
like to echo his comments that agriculture is so important to 
Arkansas that it takes two of us on the Committee. I'm looking 
forward to working with him and with you, Mr. Chairman. To all 
the other members, certainly Senator Thomas and Senator Allard 
and Senator Crapo as well, we welcome them to the Committee.
    I want to thank you, Mr. Chairman, for bringing up the 
issue you did. As a matter of fact, we have a family farm as 
well. I have visited with both my siblings and my cousins over 
the holidays, and they pointed out that they could be making a 
great deal more money in other industries, which caused me a 
great deal of concern, because I enjoy the family farm, and I 
don't want to lose it.
    I want to thank the Commission for all of their hard work. 
Dr. Flinchbaugh and Dr. Collins, in particular, thank you for 
all of your leadership and hard work.
    I'd also like to say a very special and personal thanks to 
Jim DuPree, who has been involved in farming for a long time, 
and he's also participated in ag policy debates for many, many 
years. I depend on Jim for a lot of insight into what's going 
on, and I really appreciate his expertise. The farmers of 
Arkansas are fortunate to have his voice and his experience 
present on this Commission and I thank him for all of his work.
    I'm also delighted that we're finally here having this 
discussion. I've served on the House Ag Committee and now the 
Senate Ag Committee, and I'm delighted that we are bringing 
forth some of the concerns and the problems that we have seen 
over the past 5 or 6 years, and that we're really beginning to 
look and visit with individual farmers about how we can address 
those concerns. My phone lines in my office have been lit up 
with calls not only from farmers, but also from our bankers at 
home, who are trying to cash flow loans for the upcoming 
growing season, our car dealers, our grocery store operators, 
our furniture store owners, and everybody else out there in 
this rural economy whose businesses are based on agriculture. 
They are a part of that economy in their own businesses.
    So I think this is an important issue that we have to deal 
with. Without a doubt, farmers do need to know ahead of time 
what they can expect from their Federal Government, and we need 
a sound policy in place. And now is the time. Time is a 
critical issue here, and unfortunately, agriculture, for too 
long, has not been the glamorous or glitzy issue here in 
Washington that it perhaps should be.
    I think the energy crisis, fertilizer crisis, and 
everything else that's going to come knocking at our door in 
the next 18 months definitely warrants the movement on this by 
the Committee.
    Just a couple of questions if I may. In reviewing your 
report, I see that the Commission does recommend removing 
limitations on all Government payments to the producers. The 
payment limitations are certainly an area that can be a 
politically sensitive one, as we've found on this Committee and 
on the Floor. And I'd certainly like just to ask you all to 
expound on the need for raising or eliminating those payment 
limitations, if you would.
    Mr. Flinchbaugh. Well, we certainly concur with your 
comment about the political sensitivity.
    Senator Lincoln. Yes, sir.
    Mr. Flinchbaugh. We attempted to look at it from a 
practical standpoint, and if you look at the record, at least 
historically they haven't been effective. They penalize 
efficiency. They assume that there's a very strong correlation 
between size and profitability.
    There are efficient family operations that would get 
eliminated from the program if we had an effective payment 
limitation, especially the last 3 years. I'm most familiar, of 
course, with the State of Kansas. But I can show you wheat 
farms in western Kansas with a $30,000 or $40,000 payment 
limitation the last 2 years, and they're total family 
operations, right out of Americana, that would not have 
survived.
    And you all recognize that, because you repeatedly 
increased those payment limitations.
    We can wire around them pretty effectively. They provide 
all necessary paperwork, etc., etc. But as a Commission, we can 
say all that, because we're not subject near to the degree that 
you are of the political sensitivity of eliminating them.
    Senator Lincoln. We appreciate your backup. [Laughter.]
    Quickly--yes?
    Mr. Villwock. Senator, let me comment to that, too. In my 
previous life, I was also our State ASCS director, now would be 
FSA director. We spent a tremendous amount of time in oversight 
and payment limit work. And I guess all the dealings that I had 
in my tenure there, we spent more in administrative costs 
dealing with payment limits and what we saved the Government.
    I know it is a political issue for you, and it is a 
sensitive issue. I'm a 2,000 acre farmer that just lost some 
land to a 7,000 acre farmer, so I'm starting to question this 
payment limit thing myself, whether or not maybe that 7,000 
acre farmer shouldn't do that. But I consider myself a family 
farmer.
    But to look at the cloud from an administrative side is, 
payment limits, our farmers are very intuitive and very 
creative in the way they find their way around that. And even 
though the political favoritism that payment limits might 
receive, there is no way that I think we will ever create, or 
at least to date, we have found any way to make payment limits 
an effective mechanism to target revenue.
    Senator Lincoln. Thank you.
    Mr. Paige. I'd like to make a comment on it. I'm more 
concerned with the fairness of payments, you know, in the FAIR 
Act, limited resource funds, minority funds, especially 
African-American small farmers, did not receive a proportionate 
share of these payments to them. In fact, most of them were too 
small or did not have payment histories and other things.
    So the question is, how do we make limited resources fair 
and put it on a level playing field. And I think we have to 
look at those kinds of things.
    Senator Lincoln. Thank you, Mr. Paige.
    Mr. Swenson. If I may, just quickly, because not all 
Commission members necessarily agree that we need to eliminate 
total payment limitations from this standpoint. It's sad that 
we get in a debate over payment limitations. All it is is an 
indication that farmers are relying more and more on direct 
Government assistance in order to survive. What we've really 
lost sight of is the purpose of the farm program intended to 
which to elevate greater returns for the commodities in the 
market, or is it designed to which to totally depend upon 
Government in order to survive.
    If the intent of the farm program is only to hand out 
money, then unlimited payments will only drive greater 
concentration in the structure of agriculture. And that's what 
my concern is. And I don't advocate necessarily going back to 
the old concept of payment limitations, but I do charge this 
Committee with having to deal with the issue of payment 
limitations. Unless you've got unlimited funds with which to 
work with, then it's a different issue. But if you've got $25 
billion a year to work with, then you don't need payment 
limitations.
    Senator Lincoln. But if we craft a program that's going to 
be one that fits everyone, I don't think that we'll have as 
much of a problem with that, or certainly an abuse of a program 
without limits.
    Mr. Chairman, can I ask one quick question, please? I think 
it will just be a yes or no answer. I just would like to ask, 
would the AMTA program that you described continue to be based 
on the 1990 basis, or would they need to be updated? Did you 
indicate in there?
    Mr. Flinchbaugh. We didn't indicate either way, except that 
when the analysis was done, the answer to your question would 
be yes.
    Senator Lincoln. Yes to update them?
    Mr. Flinchbaugh. No, yes to keep the current base.
    Senator Lincoln. Oh, to keep the 90.
    Mr. Flinchbaugh. But we didn't make a recommendation on 
that. But the tables in the back that make the analysis assumed 
that.
    Senator Lincoln. Okay, thank you, sir. Thank you, Mr. 
Chairman.
    The Chairman. Thank you, Senator Lincoln.
    Senator Roberts.
    Senator Roberts. Mr. Chairman, I have some questions of Dr. 
Collins and Dr. Flinchbaugh and Mr. Swenson. But I think before 
we head out on the trail to corral the next Farm Bill, it's 
good always to take a look at where you've been and avoid any 
box canyons. Or put another way, there's a lot of cactus in the 
world, I don't think we have to sit on every one of them. 
[Laughter.]
    And I'm a little concerned about what I've heard for the 
past 3 years. On occasion I have taken the Floor of the Senate, 
very few times, to say, well, now, wait a minute, that isn't 
exactly my recollection of what happened and why in regards to 
the Freedom to Farm Bill. And since I'm described in the press 
and others as the godfather of that critter, when we let him 
out of the chute, I'd like to say that the goal of the Freedom 
to Farm bill was not to march our farmers off any kind of a 
free market cliff, more especially when we all know that a 
total free market doesn't exist without any appropriate 
support. That's not the case.
    Maybe somebody in the House of Representatives at that 
time, who I affectionately now call the Khmer Rouge, thought 
that that was the case, but it wasn't. It was to do our part to 
try to achieve a balanced budget and reduce interest rates, 
which we did, more than any other entity of Government, with 
the help of the distinguished Chairman. I think it was $8 
billion in savings in regards to farm programs over the life of 
the bill, and also a tremendous savings with regard to food 
stamp reform. We kept food stamps, but we reformed them.
    The biggest thing we wanted to do was restore the decision 
making back to the individual producer. I can remember these 
days, everybody sitting here talking about a more consistent 
farm program. You remember those days, when you couldn't figure 
out what the setaside was until June, July, August, September? 
Stood outside the ASCS filling out the paperwork and the 
Congress was changing loan rates and changing the target price 
deficiency payment year after year after year?
    I mean, this isn't exactly, or that bill wasn't exactly a 
paragon of consistency. We wanted to provide an adequate safety 
net, but we wanted it to be consistent. And we made a contract 
with farmers and said over a period of years that they could 
have a guaranteed AMTA payment. That was the transition 
payment.
    All the talk about the lack of a safety net, I don't hear 
many people talking about the AMTA payment. Doesn't exist in 
regards to those kind of arguments and that kind of rhetoric. 
We have an LDP program, never thought we'd have to use it. Had 
hoped during those years that obviously we wouldn't into a 
world of market depression that we've experienced.
    But it does exist and it is counter-cyclical and it's $8 
billion worth, for goodness sake. Then we added on an 
additional AMTA payment because of the lost income that we've 
all experienced. And I think that's appropriate in regards to 
the real causes of what the farmer is facing. We wanted to make 
it WTO friendly, didn't want to have it to be market 
distorting, because we had hoped all the countries in the world 
would meet under the WTO umbrella, barn, whatever, and achieve 
some progress. Boy, that didn't work out very well.
    And so under the banner of consistency and the WTO and the 
safety net and the decision making which is the biggest thing, 
you restore that back to the farmer and not have the command 
and control decisions being made in Washington, that was the 
goal. It was not, I repeat, to go into the ocean of the free 
market that may not exist.
    I don't think it's been a disaster. I think farmers have 
appreciated the flexibility. I think if there has been a 
disaster, I'll tell you where that responsibility lies, and 
that's the component parts that we said had to be part of any 
farm program. Some of you represent some of the farm 
organizations, and some of the commodity groups. And every 
meeting that you have in every county and every State in this 
country, they said, here's the laundry list of things that we 
think we ought to be doing. You know what they are, they're tax 
relief, State tax reform, greater deduction on your health 
care, regulatory reform.
    Not to mention the farmer savings account. If we had passed 
that like we tried to do for the last 4 years, the situation 
would be better than it is today. No, it wouldn't have answered 
the whole thing. And that's an editorial we in terms of our 
responsibility. Both Republicans and Democrats and yes, the 
President, and yes, the distinguished chairman of the Finance 
Committee and Ways and Means Committee, bless their hearts. And 
they're gone now, so maybe we can get a little bit of progress.
    Export policy. I know we hear a lot about exports and we 
can't rely on it too much. We wanted a consistent and 
aggressive export policy. We wanted sanctions reform, the 
Chairman's worked for that as long as he's been in the 
Congress. We wanted fast track legislation, we wanted success 
with the WTO. Zero for three.
    Regulatory reform. All of you want the regulatory reform. 
And now we need a comprehensive energy policy, which we tended 
to ignore for the past 8 years. If we put those component parts 
together, I would wage to you that the situation would be 
serious because of the world depression in market prices, but 
not as serious as before.
    Why are prices low? Well, you know, you check Canada, same 
thing. You check Australia, same thing. You check Brazil, same 
thing. And all throughout the European Union. Argentina. As the 
distinguished Dr. Collins has pointed out, this is a worldwide 
depression. Guess what? None of those countries ever passed 
Freedom to Farm.
    I don't think that Freedom to Farm added to the problems in 
terms of the price depression in the EU. Everybody talks about, 
well, maybe we had the over-production. Keith, you've 
mentioned, we've had large production in the United States. 
Well, I checked back, let's see. In the height of the land 
retirement days and the days of PIC in the 1980s, when John 
Campbell was aboard down there at the Department, we had one-
fourth of our production set aside and we had a PIC program. 
And we rolled out the money from the CCC, doors were wide open, 
$26 billion.
    And we had 325 million acres in production at that time, 
with one-fourth of our production simply taken out. Do you know 
how much we have today? We have 328. Three million acres more. 
Only 3 million. That's a drop in the bucket.
    Now, what happened? Well, the farmer increased his 
productivity. Are we saying we're going to have a Farm Bill to 
deny the farmer the productivity advances? Now, come on. 
Farmers made the decision in regards to land retirement. You 
don't have to plant anything under this bill. You can get a 
payment and have zero in regards to crop production. They made 
the decision.
    And in Kansas, 25 percent of the acres that were planted to 
wheat are no longer planted to wheat. We have 40,000 acres of 
cotton. Thad Cochran doesn't realize it, but when Stephen 
Foster wrote the song, Those Old Cotton Acres Back Home, hey, 
that was Kansas. [Laughter.]
    And so they enjoy the flexibility, and it is their 
decision, not somebody waiting in Washington to figure out 
where all of this is going to be in terms of budget exposure 
and then finally telling the farmer in regards to September.
    Safety net. Oh, there's not enough safety net. Have to have 
a counter-cyclical safety net. LDP, $8 billion, AMTA, and an 
additional AMTA payment, all under the architecture, under 
Freedom to Farm, has put the wheat guarantee around 4 bucks. 
There's never been a farm program that guaranteed the wheat 
farmer $4 before, and I will wager never again.
    All under the architecture of this bill that has been so 
pilloried.
    John, am I right when I'm saying $2.7 billion more each 
year under this bill than under the old farm program? Is that 
right, is that what you told me?
    Mr. Campbell. No, sir, it's actually $3.6 billion. That 
farm income average above the last Farm Bill.
    Senator Roberts. Well, on one hand, the critics say that's 
not enough. And on the other hand, they say it's too much, has 
to come from the marketplace. But when they say it's too much, 
all the critics of the farm programs, they do not take into 
consideration what's happened to us in terms of the real causes 
out there, the value of the dollar, the lack of an export 
policy, world depression in our markets. It seems to me that 
there are some things that we ought to consider.
    I remember, there seems to be a situation here where in the 
old Farm Bills, we never got into the situation of changing 
anything. And oh, all these disaster payments that we've had to 
make. Well, let me see. There was the Disaster Bill of 1988, 
the Disaster Bill of 1989, the Disaster Bill of 1991, the 
Disaster Bill of 1992, the Disaster Bill of 1993, thank God for 
Thad Cochran, and the Disaster Bill of 1994 and the Disaster 
Bill of 1994, and on and on.
    I remember during the ag crisis of the late 1970s, where we 
moved the target price from 242 to 290, we thought it was the 
biggest deal in the world. And Republicans actually proposed 
that, and Tom Foley, the former chairman of the House Ag 
Committee, found it on the Floor and said, guess what I found, 
and we passed it. In the 1980s, we had the PIC program, and as 
I said, we opened up the doors.
    So when we get in trouble in farm country because of the 
high volatility and in regards to the roller coaster, hey, we 
respond. And we've had to respond. But at least we've responded 
under architecture where the farmer got a payment, money. And I 
know people say, oh, my gosh, we don't want to give them money, 
that's terrible, a cash payment. I've got news for you. It's 
way ahead of whatever's in second place or standing in line 
waiting for paperwork and loan rates and whatever else that you 
could come in.
    Mr. Chairman, I'm going on a little bit long here, but I'm 
going to keep going. [Laughter.]
    It's not so much as to whether or not the payment, and I 
will finish this and I'll come back with my questions in just a 
minute, there will have to be a payment because of the 
volatility. But what kind? Do we do loan rates and setasides? I 
don't know how we can do setasides when we only have 16 percent 
of the world grain market. That's 84 percent of the grain 
market by the other fellow. We only have 16 percent, we're 
going to cut back on our production and that's going to answer 
the thing with the world market as opposed to other people 
coming in and taking our markets, more than we set aside?
    So I would just say that with a little bit of blood 
pressure and hearing all of the comments by my colleagues, I'll 
make a prediction to you. I think with the members who come 
from the States who have been most critical of this bill, they 
have received more income assistance under this bill than any 
other bill we've ever had and ever will have again.
    Is it perfect? No. Is it set in stone? No. Can we do 
better? You bet. But nothing hurts the truth like stretching 
it. And there's been a lot of stretching in regards to this 
Farm Bill debate. I thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Roberts.
    Senator Stabenow.

  STATEMENT OF HON. DEBORAH ANN STABENOW, A U.S. SENATOR FROM 
                            MICHIGAN

    Senator Stabenow. Well, thank you, Mr. Chairman. I 
appreciate very much being a part of this Committee, and I 
appreciate the work of the Commission and the hours that you 
have put in. I certainly hesitate to follow my colleague, who 
is knowledgeable and certainly passionate on the issue of 
Freedom to Farm, and look forward to debating and discussing 
the impacts around the country, and certainly in Michigan, 
where I represent what is one of the top two industries for 
Michigan. People think of Michigan, they think of cars. But 
agriculture is critical to us, as you know. We are second only 
to California in terms of the variety of crops.
    So everything you're talking about except for rice, 
peanuts, tobacco and some citrus, everything else really is 
Michigan. And we're very concerned about what's happening.
    The bottom line for me in looking at Freedom to Farm is 
that in the time that I've been in the Congress, 2 terms in the 
House, after passing Freedom to Farm, I saw us passing 
supplemental emergency funding bill every year, I believe. And 
so there really is a question, I think, about what's happening 
in terms of the inadequate support for our farmers. And we've 
seen, as you've mentioned, that while the incomes are going up 
for farmers, it only counts if you include the emergency 
funding coming from Congress. If you extract that, in fact, we 
are seeing incomes going down.
    And I am very concerned about the swings in the market and 
the low commodity prices and frankly, the incredible pressures 
on family farmers in Michigan and around the country, and I 
think that we all have a stake in helping them to be able to 
survive and thrive.
    I'm very concerned that Michigan's share of total acreage 
of farm land since 1995 has declined 300 percent. I'm very, 
very concerned about what's happening. I realize there are many 
complicated reasons for that. But we have a lot of challenges 
in front of us in addressing your recommendations and the 
realities of Freedom to Farm and its real impact on the 
agricultural community.
    I wanted to ask one question as it relates to specialty 
crops. I notice that those are not listed as part of the SIS 
program that you propose. And as a House member, I was very 
involved in efforts to expand our crop insurance efforts, to 
begin to move in that direction. Because they also were not 
included in crop insurance.
    And as someone who represents many specialty crops, I'm 
concerned about whether or not you see the SIS program covering 
specialty crops and what kind of a timetable you would see in 
that happening, so that we might broaden, if in fact we were to 
take your recommendations on this program, would we in fact 
under your recommendations be broadening that to crop 
insurance.
    I welcome anyone's response.
    Mr. Flinchbaugh. Well, Senator, that's up to you, frankly. 
That's up to the Congress.
    Senator Stabenow. I'm asking what you recommend. Do you 
envision that, as you made your recommendations?
    Mr. Flinchbaugh. No. We took the eight program crops that 
are now included, and we developed the program around those 
crops. But we have a statement in the report that if the 
Congress so wishes, they can add additional crops. 
Theoretically, you could add livestock. But we did not make a 
recommendation. We just simply analyzed the eight program crops 
to show an example of how this would work.
    Mr. Paige. Most of the farmers that I work with grow a lot 
of specialty crops, fruits and vegetables and small livestock 
and so forth. This is something we've advocated for a long 
time, to get it in there. And I think, given the language 
that's in the report, I think you should look at that as you 
deliberate the Farm Bill. It would help them.
    Also on crop insurance and so forth, this is one thing 
we've recommended and tried to get to happen from the last Farm 
Bill, to get it expanded to cover specialty crops. A lot of the 
farmers who did not receive payments under the Freedom to Farm, 
they were in fact in that. A lot of people who suffered from 
drought after drought or specialty crops, and there's no relief 
for them. And I think it should certainly be considered as you 
deliberate. And that's an option of yours, but I would say, you 
need to do that.
    Mr. Villwock. Senator, I take a little different view, and 
I appreciate the reforms we made in crop insurance to include 
some of those crops. We have heard some discussion on livestock 
and some discussion of specialty crop inclusion in the farm 
programs. But I want to make the point that 60 percent of net 
farm income that we look at today is not farm program affected 
in any way.
    Until recent times, until the collapse of the world economy 
in certain big areas, most of these areas have been pretty 
profitable, and in fact, more profitable than program crop 
areas. And I question, and we have had testimony at our field 
hearing from specialty crop producers, saying, don't include me 
into this mish-mash of farm programs and dictation from 
Washington on how to run our programs.
    The point that I think that hits home with me that I try to 
remember is, the more risk, the more profit. And if we take all 
the risk out of some of these crops, everyone tends to want to 
get in them, and we take away their profitability. There is no 
such thing as a big niche market.
    I have a neighbor who is a tomato producer. It is a very 
expensive crop to be in. His production costs are three to four 
times per acre more than mine. But they're also very profitable 
in good years, when times are good.
    My banker, when I go say, well, maybe old farmer Don ought 
to get to raising tomatoes, and he says, well, what's your 
guarantees, and what's the farm program payments, or what's 
your risk, and I say, it's a $1,000 an acre risk, plus or 
minus. And he'll say, well, you'd better stay to those program 
crops.
    If I would start raising tomatoes because the guarantee is 
there, and my next door neighbor starts raising tomatoes, guess 
what? There's no money left in raising tomatoes.
    So specialty crop producers, the one that testified to us, 
and the practicality of the economics say, do we really want to 
get in this Pandora's box. And I think most of them want to 
stay away from it. And I challenge you to visit with your 
producers and make sure that's their consensus as well.
    Mr. Northey. Certainly one of the values, Senator, of the 
farm savings accounts, is to be able to include those that are 
not just in program crops now. So as we heard testimony and 
comments, there were those that expressed some desire to be 
able to get through those years that were very profitable, save 
some of that money for those years they knew were coming, 
rather than be subject to any kind of limitations, any kind of 
other rules and regulations that go along with the commodity 
programs, to be able to do it on their own through a farm 
savings account.
    Mr. Swenson. If I could, Senator, make a couple quick 
comments. Separating out the specialty crops, just in the issue 
of risk management, I do think it's a challenge that faces this 
Committee of how to develop an insurance program that may cover 
production loss. Either that, or as Senator Roberts has pointed 
out, it will be the responsibility of this Committee to deal 
with an ad hoc economic or disaster program every year. Every 
year. Not just once in a while.
    Because as you take a look, just in the last number of 
years, you've had potato disaster, both economic as well as 
production loss. You have had economic situations face wool 
producers that has come before this Committee, and economic 
assistance provided. You name the commodity, it's come before 
this Committee either on an economic front and/or disaster 
front.
    So if we're going to deal with it only in the risk 
management area, that I want to talk about, is developing an 
insurance program that might fit that commodity. And that will 
be challenge, and be an interesting debate. Because being 
outside of the farm program area, which is a separate issue and 
a debate in itself, the other crops had an historic production 
history of which to sort of use to develop the insurance 
program around, and you had a lot of other information of which 
doesn't necessarily exist in the public arena on the specialty 
crops. I think it exists more in the private sector through 
their marketing structures. Not that information cannot be 
obtained, but it doesn't exist currently in the public sector.
    Senator Stabenow. Thank you, Mr. Chairman.
    I look forward to working on these issues as we sort 
through the Freedom to Farm bill and where we go from here.
    The Chairman. Thank you very much.
    Senator Thomas.
    Senator Thomas. Several of you have mentioned, and 
certainly there are some questions there about fairness in 
trade, foreign trade. Tell me where you think that unfairness 
occurs and what do you suggest we do about it?
    Mr. Flinchbaugh. The Commission basically endorsed the 
protocol that was submitted to the WTO in June of 2000. And it 
had a list of areas to address the fairness situation. And 
basically, that is a more market-oriented approach, reduction 
in tariffs, reduction in tariff trade barriers, reduction in 
export subsidies, etc., etc., to more level the playing field, 
move to a more open trade situation.
    Fairness is in the eyes of the beholder. It's a very 
difficult concept. If you read the section in the report that 
looks at the role for Government, we clearly state up front 
that it is the role of Government to ensure a competitive 
environment for agriculture, not only domestically, but 
internationally. So that gets at the fairness concept. But to 
specifically define what it ought to be is certainly beyond the 
scope of this Commission.
    So it's a matter of degree in moving that direction----
    Senator Thomas. Well, I don't know that it's beyond the 
scope of it. Several of you have indicated, you mentioned a 
world economic disaster. Is that what we've had?
    Mr. Villwock. I don't think we've had a world, maybe that 
was too strong, but surely our largest customers of agriculture 
have been in an economic decline, in especially the Asian 
community.
    Senator Thomas. But it's hardly a world, what you mentioned 
a moment ago.
    So what do these payments have to do with having a fairness 
in trade?
    Mr. Flinchbaugh. Are you referring to the SIS program?
    Senator Thomas. Any program where the Government assists 
agriculture, and then we go into the market and want fairness 
in trade.
    Mr. Flinchbaugh. Well, there is a protocol that the WTO 
has, basically operates under. And we attempted, as we 
developed our report, as we developed the SIS program, to stay 
within those rules. That's why we came forth with an aggregate 
base that throws those eight crops all in the same pool. So 
that we think we'd have at least a fighting chance to get it in 
the green-box. That was the thinking behind that, to not only 
provide the income safety net for farmers, but also meet the 
rules and regulations of WTO.
    And after all, we said it was the function of the Federal 
Government to ensure a competitive environment not only for us 
but around the world.
    Senator Thomas. Okay. Good. Yes?
    Mr. Stallman. Your question brings up a point that sort of 
ties in comments from many of the Committee members with 
respect to our SIS proposals. Specifically, you're asking what 
we should do, and the chairman has outlined one of those 
factors. The other thing is, the reason we had the SIS as the 
primary leg of the stool in the form that we did, it is 
decoupled, and as a rice producer, I understand the potential 
dynamics that could occur if different crop prices were 
different relative to each other.
    It's been an easy decision for the past 3 years, with all 
crop prices being down, for Congress to allocate more money to 
solve a problem. Now, I question what would have happened had 
corn been up and rice been down, or rice been up and corn was 
down, what the Congress would have had to deal with then. And 
it would have been a lot more difficult.
    The SIS program institutionalizes sort of the concept that 
when net farm income is reduced overall, in the aggregate, then 
some assistance can be provided. It addresses the uncertainty 
issue that Senator Cochran raised with respect to, what is our 
program and what can producers depend on.
    But one of the most important things we can do for trade, 
given the fact that we're trying to start another round of 
multilateral negotiations, is to use every dollar, if you will, 
up to the limits. We need to observe our WTO commitments. But 
we don't want to exceed our caps under the amber-box, because 
that has some consequences which I don't think agriculture 
wants to deal with.
    Senator Thomas. Yes, that's good.
    Mr. Stallman. So sort of tying it all in, that's why we 
structured the SIS program the way we did, because if it's 
coupled, we would probably exceed those. But on the other hand, 
we need to keep the pressure on our international trading 
competitors out there to get them to come to the table and deal 
with a lot of these multilateral trade issues.
    Senator Thomas. Well, it's important, because we obviously 
produce more than we're going to consume domestically. And that 
has to be it.
    Tell me a little bit about the concentration area. Do you 
think concentration, say, of packers or any other processors, 
is it under control? Is there a concentration? And again, what 
do you propose to do about it, if you say there is?
    Mr. Flinchbaugh. Senator, when I answered a question 
earlier, I stated that we had to set priorities. And we didn't 
rank priorities, we didn't say this is important and this 
isn't. We simply tried to get our arms around issues that we 
had the resources and the time to do. Concentration was 
initially on the list.
    The majority finally concluded that we would open the 
statement on the role of the Federal Government with a very 
clear statement of what the real role ought to be. We said 
clearly, it is the role of the Federal Government to ensure a 
competitive economy. And therefore, the Government should 
enforce the antitrust laws, should look at those laws, 
modernize them if necessary. We talked about transparency, 
monitoring, including contracts.
    And we chose to handle that issue with that statement, and 
we did no go further.
    Senator Thomas. So you just suggested if that's the case, 
it should be handled, but you didn't suggest that that was 
necessarily true.
    Mr. Flinchbaugh. That's right. That's the majority opinion 
in the report.
    Senator Thomas. Well, it just seems, one of the things 
that's been so obvious in the years is that the difference 
between the producers price and the retail price seems to have 
gone substantially higher. And one wonders why that is.
    I think I've used my time, Mr. Chairman.
    Mr. Paige. If I could make one statement on concentration. 
As the larger factory farms and large farms get bigger and 
bigger, smaller farms, especially minority farmers, are being 
driven out of things that have been cost effective to them, 
such as hog production and small animals and so forth. I think 
some attention needs to be paid to that. Because that trend has 
contributed to the limited number of minority farmers, that is 
African-American farmers that we have on the land today.
    And it's back to your issue on the trade. You know, 
peanuts, if they are allowed to move in from Mexico without any 
tariffs or restrictions, and south Georgia specifically, if you 
take away, if we destroy quota, it's going to drive 
communities, and it's going to cause loss of jobs and farmers 
are going to go out of business wholesale. I just wanted to 
make that comment.
    Mr. Swenson. If I can make a short comment on two points. 
One on trade. One of the reasons that I submitted a minority 
report, though it was mentioned in the majority report, I think 
the biggest challenge facing us in international trade, both in 
our opportunity to procure markets, but as well as what's 
impacting our domestic market and prices, is currency values. 
And I just think that's an issue. I know that many people say 
we can't address it. I believe it's an issue we have to 
address.
    And Mr. Chairman, I would offer, because I just got this 
Friday, a copy of a study done by the Department of 
Agribusiness, Applied Economics, at North Dakota State 
University, Northern Plains Research Center, that did an in-
depth study of the currency value between Canada and the United 
States, especially since CUSTA was passed. In summary, it just 
points out one thing real clear, and that is that currency 
differences have made a huge impact on tarde. And I just think 
it's an issue of which we must spend more time on.
    The second element I would mention, that stands out to me, 
is the dispute resolution process, especially the livestock 
sector, has been impacted, I think in the price, over the 
years, volatility in price, over how the issue has been treated 
on international trade, from the hormone issue to other issues 
in relevance to livestock. Producers have been impacted, and 
yet there's no way to compensate them for that volatility in 
the market that I think comes about because of our inability to 
get a dispute settled in a timely manner.
    And so I want to emphasize that the dispute resolution 
process I think needs a higher priority in the nature of our 
trade negotiators.
    And the other is the area of transparency. I am really 
concerned at the lack of transparency in our market, but the 
public market as well as what's happening in the contract 
market, and how those prices are not reported into the public 
sector in a timely manner, both on the domestic side as well as 
international side. So on trade, I share those points with you.
    On the consolidation, I couldn't emphasize more, and that's 
why I submitted a minority report. But I truly believe, from 
the retail sector all the way down to the control of genetics, 
concentration is becoming probably second to price as the issue 
of concern to farmers. That includes transportation concerns, 
who's handling trade versus who's handling domestic processing, 
are they global in concentration, not just domestic in 
concentration. I think it's the second priority of concern to 
farmers across this country.
    [The information referred to can be found in the appendix 
on page 130.]
    Senator Thomas. Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Thomas.
    Senator Dayton.

  STATEMENT OF HON. MARK DAYTON, A U.S. SENATOR FROM MINNESOTA

    Senator Dayton. Thank you, Mr. Chairman. I certainly want 
to commend all the members of the Commission for taking on a 
herculean task, and particularly for your forward looking 
orientation. I think that's, obviously these are complex issues 
and ones, as you say, that affect different parts of the 
country differently. So I think what you've undertaken is 
extraordinary.
    I don't want to try to debate the history, because I don't 
think that's productive, but I also believe that if we don't 
recognize or aren't willing to acknowledge all the forces that 
have brought us to this present point in time, that we're not 
going to make an accurate diagnosis, and therefore, an accurate 
prescription for what we might try to do. I'm aware that the 
experience of administrations and committees and bi-partisan 
efforts throughout the decades should make anybody humble about 
the task of trying to direct agriculture policy from 
Washington.
    But I'm concerned, the record shows, at least the 
Commission's majority report, that really the only sentence 
that I find that directs itself to what has occurred in the 
last few years in agriculture is one on page six that says, 
these price levels, the market prices, succumbed to 
international economic events and began their current slide in 
1998.
    I don't disagree with that, but I think that's an 
incomplete analysis, in my view. And I guess I am concerned 
that since we have been saying to American farmers, at least 
many have been saying for the last couple decades, that, 
increased international trade, increased exposure to world 
markets, is going to be the solution to prosperity, that then 
we complain when the international market conditions aren't 
exactly the way we would like them to be to serve our 
interests. I think it's naive to assume that other countries 
are going to act accordingly, or that we are going to be able 
to rely on that segment alone of the agricultural economics to 
produce our salvation.
    And I particularly point out that I don't see anything in 
the report looking at these levels of U.S. production. 
Certainly our increased productivity is one of our strengths, 
but at least in some of the major commodity groups that affect 
my State of Minnesota, corn, nationally, wheat, soybeans, milk 
have been record high levels of domestic production in the last 
year or 2, and not surprising, to the basic law of supply and 
demand. Therefore, market prices have dropped to very low 
levels, and as others have noted, therefore, the Federal 
Government payments have increased in order to avert market 
disasters.
    So we're left in this paradoxical situation where we have 
market prices at record low levels, and we have taxpayer 
subsidies at record high levels, which if they were to 
continue, I suppose, might obviate the problem. But that wasn't 
the purpose of the program, and shouldn't be.
    So I guess I go back to my question, if our goal is to get 
the Government out of agriculture rather than put it foursquare 
as the sole basis of financial support for agriculture, how are 
we going to achieve that by extending the current program, 
really I'm simplifying your report, essentially as large an 
extension of the current program, lifting the limit on 
payments? I don't see how we get anywhere other than 
continuation of over-production relative to market demand, low 
prices that are so low that farmers cannot survive except by 
the Government payments and are going to be increasingly then 
dependent, and we're going to be increasingly called upon to, 
as others have noted, avert every disaster.
    I mean, where are we going with--and then we're hoping that 
international conditions improve so that we can get the 
salvation that we haven't gotten yet. I don't see where we're 
going with this, and I wonder if you, Mr. Chairman, would like 
to comment on that, or other members.
    Mr. Flinchbaugh. Well, clearly speaking, when you talk to 
farmers, they prefer their income out of the marketplace. But 
in a dynamic, global, political economy, there are periods when 
that isn't going to happen. It hasn't in the past, and I don't 
think it will in the future. It's not a perfect world.
    So the Commission then concluded that it was the role of 
the Federal Government to come in with an income safety net to 
basically provide a foundation under farm income. Now, the 
distinct departure from the past is the counter-cyclical income 
program, as we call the SIS program, provides a mechanism, a 
formal mechanism, to do just that, where we have relied up 
until now on a program, and you can go back to 1933, that does 
not have a mechanism in place, and therefore, the Congress had 
to come in with emergency payments and so forth.
    Now, the program we have proposed, is it foolproof? I doubt 
it. But at least it provides a mechanism that can react to 
future problems that aren't anticipated. And that's the 
distinct change.
    Mr. Campbell. Senator, your question was the same question 
I asked myself, and is the reason I wrote minority comments, 
where are we going with all this. Because we're changing it at 
the margin, but essentially, we're continuing it. And there are 
some glaring omissions, I think, here in the report.
    I find myself hearing echoes of Senator Harkin's words back 
in 1996 when he said, this program's too much. I couldn't 
believe it at the time. And here we are, where essentially it's 
proven correct, that the windfall of 1996 and 1997, billions 
and billions in windfall, have now become the high water mark 
that you all are expected to defend. That in fact has been 
inflationary, and that is why the 2,000 acre farmer down on the 
end of the table is being squeezed out by the 7,000 acre 
farmer.
    These programs are based on bushels, bales and pounds. 
Whether you call them decoupled or not, they are. And bushels, 
bales and pounds don't experience financial stress, farmers do. 
Very, very few of these payments go to farmers experiencing 
financial stress. Very few commercial farmers are experiencing 
financial stress, according to USDA and the Federal Reserve 
Board.
    So what can we do different? We tried supply controls. They 
didn't work. We tried coupled supports. They didn't work. We 
tried decoupled supports. Now we have built ourselves a huge 
beast that needs fed.
    We've tried everything, at least in my lifetime experience 
working with this Committee. And to Senator Harkin's point 
again, we've got to think outside the box. And there's two 
areas where we can do that, where we can begin to take some of 
this money, and instead of putting it into the same old 
programs, we could put them into different programs for 
different reasons. One of those is stewardship programs.
    For example, USDA estimates that there needs to be 2 
million miles of grass waterways and filter strips. That's 7 
million acres. We should be paying $300 an acre to get that 
done instead of $150. We need to have a program, a pilot 
program, to begin the greenhouse gas emission reductions for 
agriculture, not only carbon, but methane, nitrous oxides and 
the other greenhouse gases. Tremendous economic benefit there 
that farmers can receive compensation for that's based on how 
they farm, not what they farm.
    Another area that Senator Lugar and Senator Daschle and 
Senator Harkin and others, and Senator Nelson, have worked on, 
is the renewable fuel standard. We can double, with the stroke 
of a pen, the use of corn, sugar and soybeans for energy. Never 
before have the needs of our national energy policy coincided 
with the needs of agricultural policy like they have today.
    Senator Lugar's bill would add 15 cents to the average 
price of corn, and would therefore reduce by $1.5 billion the 
cost of farm programs. This Committee could reimburse the 
Highway Trust Fund $500 million and still be ahead by $1 
billion.
    The same is true in oilseeds. Five hundred million pounds 
of oil off the market through biodiesel costs $70 million and 
saves you hundreds of millions of dollars in oilseed LDP 
payments. Those are the things that we didn't deal with, and 
those are the things that I think, if we want to get out of the 
same old worn-out stuff, we're going to have to come to terms 
with.
    Senator Dayton. Thank you, Mr. Campbell. Well said. My time 
is up, Mr. Chairman. I don't know if other members want to 
respond, of the Commission, want to respond.
    Mr. Swenson. Thank you, Mr. Chairman.
    Senator very shortly, I would agree with your comments very 
much. And it's another reason why we submitted a minority 
report.
    The comments made by Mr. Campbell, I agree with many of 
them, not all of them. But if you take a look at the section in 
the minority report on conservation, some of the points that he 
raised are submitted, the carbon sequestration, supporting 
additional wetlands areas and those types of efforts. So some 
of those ideas are expressed. But I think he was right on with 
many of the points that he made.
    Mr. Paige. Under the small farm section, we asked for 
special session on the minority register, on which minority 
farmers would register voluntarily and get incentives to 
participate in programs. What you've just heard from Mr. 
Campbell and parts of the other minority reports is, these are 
programs that they could get incentives to.
    One reason, on the conservation side, that many small 
farmers don't participate, is because they're restrictive 
because of different payment limitations. People don't have the 
amount for cost reimbursement. Cost share should be raised.
    This is the intent of the minority register put in, that 
people register voluntarily and get incentives to programs to 
participate in that. And that would increase, that would really 
help a lot of farmers to stay on and do different things. 
Otherwise, it's out there and we need to look at these type 
programs very strongly. Thank you.
    Mr. Kruse. Mr. Chairman, if I could very quickly. Senator 
Dayton, I'm a fourth generation farmer from Missouri and raise 
many of the same crops on my farming operation that your 
farmers do in Minnesota. And I think it's important that we not 
in any way by anything any of us individually or collectively 
say, that we leave the impression that this current Farm Bill 
is all bad. I would go back to what Senator Roberts said a few 
minutes ago, there are some very good features that I 
personally like in this Farm Bill. And as I talk to my 
neighbors, get the same reaction.
    Clearly, there are some things, as Senator Roberts said, 
can we make this Farm Bill better? Absolutely we can. That's 
part of what we have to do. But I do think, too, sometimes we 
don't spend enough time talking about, as Senator Roberts, 
said, there are basically three main categories, that, if we 
look at a report card, looking back now, whether it's trade 
policy, whether it's tax policy or whether it's regulatory 
policy, there are a lot of missing things in there.
    We could spend a lot of time just this morning talking 
about things we haven't done in terms of trade. Because I 
personally believe that trade is absolutely important. I think 
we all do. So I think again there are some very good features 
of this Farm Bill, and I certainly as a farmer don't think it's 
correct to characterize all the problems we have in agriculture 
today as just simply a result of this Farm Bill. I disagree 
with that very strongly.
    And I think as we move forward we have to find ways to make 
it better. But we really need to continue to emphasize trade 
and tax policy and regulatory policy and all the things 
associated with those issues.
    Mr. DuPree. Senator, I'm kind of the old man on this 
Commission, from appearance and also experience. This is my 
48th farm crop I'll be making, it's my total income, it's what 
I do and what my family does, an operation that began in 1832. 
My farmers know I'm up here, and I get questions from not only 
them, but bankers and all about what I think the outcome is 
going to be, because they're all vitally interested.
    In Arkansas, this whole thing, agricultural income is 25 
percent of the total resource, income resource, of the State. 
And therefore, although all counties don't have agriculture to 
the same extent, to the extent that that 25 percent is impacted 
with low incomes and economic problems, it affects the whole 
State very dramatically.
    And my people tell me you know, if we can do anything in 
the world, we need some sort of comprehensive, long range food 
and agriculture policy that tells us what we can do, not only 
what is expected of us but what we can expect in return for 
doing those kinds of things. Some of the burdens that are 
placed on agriculture, in the absence of some of this, is so 
overpowering that agriculture, the fragile nature of its 
business, that's the reason it's having these throes that it's 
in and the depression that's out there.
    I don't have any small farmers left in Arkansas. We got rid 
of those back in the 1980s. Therefore, everything is large 
scale commercial agriculture. And yet it's having real 
difficulty. Forty-nine percent of net farm income last year 
came as direct result of these payments. And yet when they were 
analyzed, the return on agriculture in Arkansas is only 1 
percent. That's not going to be good enough to satisfy 
creditors and all. That's going to have a real influence on 
structure.
    What you're doing by these programs, Senators, is you're 
defining the kind of agriculture this Nation is going to have 
as we go into future years. Don't mistake you're not. And to 
the extent this Nation has always, in trying to rationalize 
these, and I think we should somewhat, the Nation has always 
had a history of moving into areas where a sector is important, 
and yet cannot do things for itself collectively. And 
therefore, the Government plays an influence on that.
    That's the reason for Government programs, and has been. 
And surely, our difficult has been sometimes that they were not 
adequate to address the real problem, which in my area down 
there is simply low prices. And there are better ways to get at 
it than the tools we've been using in the past.
    Hence, that's the reason I signed on the minority report 
using the market loan is that I think it's directly coupled and 
is responsive to need directly and therefore, who can beat that 
kind of tool? It has its shortcomings but all the rest of them 
do as well. But you can do it for a whole lot less than AMS $19 
billion that we're talking about. We think $12 billion would 
give you market loans at prices that farmers can get along 
with, particularly if you couple them to cost of production.
    The Chairman. Well, thank you very much, Senator Dayton, 
and likewise the responses your questions brought.
    Let me start a second round of questions by just observing 
things that I've heard. I thought a comment that very few 
payments go to farmers who are in distress is an interesting 
point. Clearly, distress is a value judgment, likewise, as to 
how much distress.
    I would start by saying, as I did in the beginning, that 
whether it's the 1 percent farmers are making, as you said, Mr. 
DuPree, in Arkansas, or 2 percent which annually may come in 
the prediction of the Commission, or the 3 or 4 percent that I 
mentioned glibly from my own operation, this is very little 
money. In other words, what fundamentally we have to come to 
grips with is why people in America are still farming. Each one 
of you would be able to give a commencement speech on that 
subject. [Laughter.]
    And you would inspire young farmers to go out and do the 
job. And I understand that. The question you raised is, why 
have I been at it for 44 years, if I could have got the money. 
And there are good, emotional, family, quality of life, all 
those sorts of reasons. Plus the fact that I had other sources 
of income, as do almost everybody in my category of farming. In 
fact, a majority of the income comes from something else.
    So maybe with the 8 percent at the top of this, they 
receive 72 percent, we're told, of their income from farming. 
So this is very serious, because there's not everything else.
    But I'm trying to come to grips in my own mind's eye with 
exactly who it is we're trying to help. Now, essentially, 
everybody, because the return for almost everybody is very low. 
There's very little we could do in sending money in any of 
these directions that would not help somebody have a higher 
return. And my guess is, a good number of people are below 
zero. So they are very distressed. And in fact, the whole 
safety net idea of the last Farm Bill, in a way, is to keep 
everybody in the game. Everybody. We may not have succeeded, 
because people do become tired of receiving these low returns 
and what have you. But that's the idea.
    Now, you can do it by crop, and Mr. Villwock's comment in 
response to Senator Stabenow I thought was very interesting, as 
to why he believes you should not try to get crop insurance or 
risk management into the specialty crops. But what Mr. Villwock 
is saying in essence is, leave us alone, because this is some 
part of agriculture that still could be profitable if not 
everybody is in it.
    But once you begin to have risk insurance, and you 
stabilize, say, corn, wheat, cotton, rice, then everybody is in 
it. In fact, we're keeping everybody in it by definition, as we 
get better at it, in terms of yields per acre, there will be 
more of it.
    Now, one strategy is of course that the world must still 
have hunger needs, and it does. And maybe we will be successful 
politically in moving the product and reducing tariff and non-
tariff barriers, so people eat better around the world. But it 
is a fact that many governments, as a matter of policy, would 
rather starve certain sectors of their population, or are so 
protective of their farmers that the rest of the population 
doesn't eat very well.
    We hopefully will finally come to a more humane set of 
governments with whom we're dealing, and maybe that will be an 
outcome that will lead to higher prices. But I just have not 
seen the end of the rainbow at this point, as to how any Farm 
Bill achieves, really, the kind of income levels that I believe 
are required for a normal family, husband and wife and some 
children, to have a middle class income and send their children 
to college and have upward mobility in our society without 
having other income, and a lot of it, and with the agriculture 
as a piece of this action.
    Now, you know, you finally boil this down, there are very 
tough circumstances in some parts of the country. Challenges 
that are very formidable with regard to whether, and the soils 
that you have to deal with and all of that. Maybe we target 
those situations. We do ultimately in terms of most of our 
emergency legislation. And these are people who are just sort 
of outside the box of any program we have.
    There has been suggestion that as opposed to crop by crop 
we deal with total income on the farm. And that's an 
interesting idea, certainly, for economic theorists to take a 
look at. And that does get to the specialty crop business in a 
way. It gets into livestock in a big way, which is not really 
on the charts now in terms of the stabilization program.
    On the other hand, this is an intrusion, of physically, how 
the local ASCS officer or anybody gets into the income tax 
returns, is able to quantify precisely what the net income of 
that operation is, has defied many people in agriculture, long 
before we came along. Although conceptually, there's something 
to be said for the whole farm idea and for the whole income 
business in this thing.
    I raise these questions just simply as a part of the 
record, because I think that we and hopefully you helping us in 
your testimony, may help us wrestle out a solution that is a 
better one than we have now. But I would say that for the 
moment, the Farm Bill that we have, with all of its 
infirmities, has at least maintained, as has been suggested, a 
fairly high level of income for the country as a whole. Even in 
the midst of this, the speeches on the Floor, if you had a 
dollar for every one that's establishing the crisis, the 
turmoil, everything falling in the drink, you'd be a wealthy 
person. This is a part of our life, to both give these speeches 
and to listen to them. [Laughter.]
    But here we finally have to come to grips with how to make 
any difference. And I don't know whether in American 
agriculture everybody will stay, and whether they find the 
returns or whether maybe the emotional content overwhelms this. 
But I'm intrigued by this whole idea: why do we have so many 
farmers, why do they stay in the business, why, for instance, 
in the dot-com business, where people are routinely leaving 
every day because they run out of money, and there is no 
stabilization of this at all, is this substantially different?
    So does anybody have a philosophical comment, because it 
would have to be that, I suspect. Mr. Swenson.
    Mr. Swenson. Thank you, Mr. Chairman.
    Dot-coms will come and they will go, movie theaters will 
come and they will go. But they aren't a necessity of life, as 
food is. And I think if there's one reason why this debate 
needs to maintain the priority and the level of consideration 
and intention that it deserves, the same as energy, look at the 
debate we're now giving to the energy situation, because of the 
situation we find ourselves in, and dependency of the world for 
our energy source, and the lack of commitment we've made in the 
past to develop our own domestic energy sources.
    So I think it's significantly different than other sectors, 
and deserves that attention.
    The other thing I want to emphasize is that I think the 
world will consistently change. We've talked about our own 
productivity increase. The world's productivity and agriculture 
will increase as well. And I think probably more rapidly, as we 
look to the future, than what we've seen in the past. Because 
the globalization of the chemical companies and the seed 
companies and the equipment companies will be able to apply 
that technology to the world, where in the past, a lot of that 
was developed internally here, and then went from the United 
States to other parts of the world. That's changing and I think 
will continue to change.
    So those are factors that I think require us to maintain 
the discussion and the debate of agriculture providing food at 
the level of consideration that I believe we should give it.
    The Chairman. Let me just ask, though, granted that we have 
to have farms, we have to have food production, is there any 
reason why we have to have each person doing this? And if you 
suggest around the world that people are going to do it better, 
this is of small comfort. We're at that point squeezed even 
further. In other words, at what point do we grant that we 
ought to have these acres tilled, but the question is by whom, 
and does agricultural policy determine that?
    Mr. Campbell. Senator, there's some very interesting USDA 
data that go to your question. And it's derived from the 
census, as well as their own surveys. Every sales category of 
farm size has a household income above the American median 
household income, the smallest and the largest. They also have 
net worth many, many times above that of the average household. 
Only until you get to that 8 percent that produces 72 percent, 
those above $250,000 in sales, do you get to what we know as 
commercial farms, who earn most of their income on the farm.
    Most farmers earn most of their income off the farm. That's 
why we have as many farms as we do today. In 1970, had we 
continued the trend that we had then, we would have only had 
600,000 farms instead of the 2 million that we do today.
    But to the challenge of this Committee, only 36 percent of 
farms get payments. Only 36 percent. And only one-fifth of the 
total cash receipts is affected by the AMTA payments, the LDPs 
and those sorts of things.
    So for example, when Senator Conrad shows the charts, it's 
the charts for all of agriculture. But when hog prices go to $8 
or cattle prices go to $80, those numbers get put into those 
net farm income figures. But when you look at the eight program 
crops, and I'm excluding dairy, but when you look at the eight 
program crops, the last 5 years, the net, net farm income for 
those eight program crops has been $3.6 billion per year 
average higher than the previous farm bill. And that is what's 
driving land prices for those crops.
    So even though you might say aggregate income or net 
profits is only 4 percent, the fact is, they've been high 
enough to drive land prices higher, drive rents higher, and 
therefore drive the less efficient or the smaller producer into 
doing something else.
    So we have kind of a tale of three cities, actually, here. 
We have the commercial farmers who, on average, are doing 
extremely well. That's that 8 percent. We have the small 
farmers, who earn most of their income off the farm, in fact, 
lose money on the farm but still make up for it with enough 
farm income to have incomes higher than the average American 
family.
    And then we've got a group in the middle that call 
themselves or consider themselves to be full-time farmers. But 
they are not earning enough from those operations to keep 
going. And that, when you start to slice it and dice it, you 
come to some interesting conclusions. And Keith Collins has got 
some information which I think is very interesting about what 
percent of those people are experiencing financial stress.
    In my recommendations, what I try to say is that we need to 
zone in on those producers. Those producers either need to get 
bigger and more efficient in order to achieve their objective 
of full-time income from full-time farming, or we need to have 
some credit programs or some transition programs so they can 
earn off-farm employment.
    When we continue to look at agriculture as one big glob, we 
can't get there from here. We've got to begin to look at it in 
its individual pieces and design policies that fit each of 
those pieces.
    The Chairman. My time is up and I want to--Mr. Paige.
    Mr. Paige. I want to make one last comment on it, more 
philosophical for me, but it's true that now the African-
American community only owns a little over 2 million acres of 
land, when it comes to that. And that in itself is sad. Then 
with about 18,000, 19,000 black farmers, at one time over a 
million farmers were receiving life and livelihood. What 
happened to them? They're in the inner city now, unemployed, 
underemployed, and perhaps on other types of services. So we 
pay now, we pay later.
    There's opportunities in the small farm section to do 
things with beginning farmers. There are farmers who want to go 
in to do that in other incentive type programs that would 
encourage this, that would encourage niche markets and other 
kinds of things. But resources have to be put there. Technical 
support for minority farmers has by and large not been there 
like other farmers have enjoyed over the years.
    Just putting money into that, there's a program called 2501 
that we've tried to get funded for the last two Farm Bills. We 
have not done it. Congress has only put up $3 million, and 
we've had to fight for it which means that we've not been given 
the opportunity for survival on the farms. We're talking about 
life and livelihood. We're talking about communities. We're 
talking about families. There are several reasons that folks 
want to stay on the farm and want to own land. And it has been 
proven, the best stewards of the environment, of land, has been 
small family farmers.
    So I think it's something that we have to take a serious 
look at, and find a means to do that. And I think the small 
farm portion off of that, and also we need to find those types 
of incentive programs as you deliberate over the next Farm 
Bill. Thank you.
    The Chairman. Thank you.
    Senator Harkin.
    Senator Harkin. Well, very interesting discussion. But I've 
got to get back to your question, with this kind of return, why 
do we have farmers? I might answer that with a question: why do 
we have history teachers? You're not going to get rich unless 
you write a book, you know, maybe if you're one of those few 
that write a book. Why do people go to college to become 
history teachers? You get a decent income, but you're not going 
to get very wealthy.
    I think people like to do it. And in agriculture, people 
like the independence of it. They like living out on the land, 
owning some land, people like to do it, and they're willing to 
trade off a lot of things to do that.
    But what I've sensed in the last 25 years is that it's 
gotten to the point where they've traded just about everything 
they can off. And it used to be, the neighbor was across the 
road, maybe down the road a few hundred yards and your kids 
could play together and stuff. Now the nearest neighbor is 2 
miles away. Can't even get groceries unless you drive another 
15 miles, or you can get maybe a small Casey's store or 
something like that, out our way.
    So the whole infrastructure has broken down in rural 
America. And even though people would like to live there, I 
mean, they've got to have neighbors, they've got to have some 
social support. Our churches are closing down because they 
can't even keep the congregations up. Schools are consolidated, 
not unusual in my State, and I'm sure a lot of yours, kids get 
on that bus in the morning and they're going an hour to go to 
school--and that's in good weather--and coming back.
    So when this happens, people say, yes, I'd like to farm, 
I'd like to do this, but I've got to have something else out 
there. That's why, when I opened my comments, I think we have 
to break out of the box and start thinking. I like what you 
have to say, Mr. Campbell. I think you're right on target.
    I was making notes when you were talking there, talking 
about, you know, we've raised this thing up, now we can't go 
back. In Iowa, in 1999, Government payments were 130 percent of 
net farm income. Explain that to somebody, they say, how can 
that possibly be, that Government payments were more than net 
farm income. Well, go figure when they paid their debt and 
expenses, they had some more.
    But obviously, Mr. Campbell, you're right, individual 
pieces. Look, we're a technologically advanced society. And 
that's when I get back to where I started with this one size 
fits all type of things. We have the wherewithal, I think, to 
begin to break this down into individual components, and maybe 
to do something a little bit different than what we've been 
doing.
    Again, I will take you all to task. I am disappointed in 
this report. There isn't one word in here on energy. Not one 
word. Now, Mr. Flinchbaugh, I read the law, I was involved in 
it when we wrote it. Production agriculture. That's what we 
talked about, production agriculture, an assessment of economic 
risk to farm--oh, but to continue, production agriculture, and 
I had another thing here I wanted to talk about, too. An 
assessment of economic risk to farms delineated by size of farm 
operation, small, medium, or large, what Mr. Campbell was 
talking about there. I'm not certain that we got that 
assessment. Delineated by small, medium and large. Mr. Campbell 
talked about it a little bit in his minority report.
    But not one word in there on energy. That's production 
agriculture. If we just replace all the MTBE with ethanol, I 
hate to get on this kick again, what a boon that's going to be. 
That's going to help every farmer in America, corn, sugar 
farmers, things like that. Biodiesel, biomass, one pound of 
switchgrass has more BTUs than one pound of coal. True. The 
only problem, a pound of coal is this big and a pile of 
switchgrass is this big.
    But we do have some interesting programs going on now about 
biomass production. Now, will it replace all the energy in this 
country? No. No one's saying that. But it could be a 
substantial part of it.
    Production agriculture, value added energy, a lot of things 
like that. Drugs, we already know that pharmaceuticals are 
looking at the new biotech regime and genetic engineering to 
begin using crops to actually grow drugs. We ought to be 
thinking about that, and how that's going to help small 
farmers, who could specialize on a small area of using 
biotechnology to grow a specific type of a drug or 
pharmaceutical for a company. You don't need 7,000 acres to do 
that. You might only have, Ralph, 40 acres. You might make a 
pretty good living off that. Maybe that's something our tobacco 
farmers ought to start looking at, when we've got to wean them 
off of that.
    So I am really disappointed that you didn't look at the 
whole aspect of production agriculture as being outside the box 
of food and fiber, food, feed and fiber.
    And in international programs, Senator Dole and Senator 
McGovern, I think the former Senators had something I never 
thought about before, I thought it was a great concept, 
international school lunch and school breakfast program. Why 
not? Why not take this great program that we've had in this 
country and internationalize it. Does that mean we're going to 
supply every ounce of every food to every kid in the world for 
school lunch and breakfast? No, but we should do some of it. We 
can do a lot of it. We could be the instigator of that, 
worldwide, to get this kind of process going around the globe. 
That would help also.
    I just think we've been too long with accepted orthodoxy. 
Mr. Villwock, I've got a comment on the risk aspect. When you 
were talking, I thought about it in a different contextual 
framework. If you've got all these big payments out there, and 
they go to the bigger farmers, and it takes away the risk of 
getting larger, then big farms become stronger, better able to 
out-bid their neighbors for that extra bit of land that's 
coming up.
    So our policies engender that, if we take that risk away, 
by having these big payments out there. Mr. Campbell's right, 
we have had a generalized orthodoxy of, we pay pound, bushel 
and bale. Well, maybe we ought to think of some other way of 
focusing on those payments, because it is, I believe it's 
factual. We can debate it, I suppose.
    But I believe our farm programs really have promoted farm 
getting bigger in this country, because it does take away that 
top end risk. So you can go and out-bid your farmers for that 
extra bit of land.
    Well, I don't know, I guess everybody's giving speeches, 
why can't I give mine. Anyway, there are a lot of questions I 
have, I know the hour is getting late. The Commission 
recommended eliminating all payment limitation provisions, yet 
you say we should recognize the importance and value of small 
family farmers. You oppose raising loan rates, but you want 
relative loan rates rebalanced. Well, then, are you suggesting 
we lower soybean rates? Anybody suggesting that?
    Well, how can you have it both ways, if you want the 
relative to close, but you don't want to raise the bottom, 
you've got to bring the top down some way. Am I missing 
something here?
    So anyway, and the natural environment, again, I take the 
Commission to task for viewing a farmer's role and preserving 
the natural environment as a crucial policy goal that we ought 
to have. Not the old hit them on the head, but what can we do 
policy-wise out there that would encourage, again, as Mr. 
Campbell said, more grass waterways, more buffer strips, more 
switchgrass, a lot of different conservation crops, which can 
be carbon sequestering also, and help our farmers with an 
income there.
    Well, so those are some of my questions. Maybe I might, as 
we come back later, these and in the future, I hope in the 
future that all of these gentlemen sitting here in front of 
us--why aren't there any women on this Commission? Just thought 
about that. Why aren't there any women on this Commission? I 
mean, women are a part of agriculture, unless I missed 
something here.
    Senator Roberts. Well, we have one for Secretary, though.
    Senator Harkin. We have one for Secretary of Agriculture 
now. But anyway, that's enough of my speechifying. I hope, Mr. 
Chairman, as we move ahead on the next Farm Bill, these people 
have a lot of expertise, they've been involved, I hope we can 
ask them to come back either individually, as groups or 
something like that, to help us in our thought processes on 
this.
    The Chairman. I think there are two comments from Mr. 
Swenson and Mr. Paige, so we'll take those before we move on.
    Mr. Swenson. I would just urge Senator Harkin to make sure 
he reads the minority report of the farm safety net, including 
the conservation section.
    Senator Harkin. That's what I mean. I said the Commission 
didn't. I said they were in the minority sections. I'm sorry, 
if I didn't say that, I meant that. The Commission didn't, but 
they were in the minority section, two minority sections.
    Mr. Paige. On the small farm section, both the minority 
report and the regular report, we referred to a document, the 
National Commission on Small Farmers. In that commission, a 
couple of things that were pointed out in that commission 
report, research and extension. And conservation is another 
one, beginning farmers.
    But the research that's certainly what you've said, looking 
at niche, looking at different types of research, looking at 
markets, looking at research for value added type products that 
small farmers can use, and certainly that is the intent of 
that, and the talk about that, doing that. Research being 
biased towards large farmers and large agriculture interests. 
That's what this report talked about.
    And one of the things we tried to do, and certainly in the 
minority report, is get you to look at it, and continue this as 
an advisory committee or put a budget to it, put some resources 
in it, where it could have an ongoing concern with small 
farmers, whereas they did spend a lot of time talking about 
conservation, lots of time and energy in there looking at 
extension, looking at research and this type of thing. And they 
did take those to task, that's why we suggested that we look at 
these things. And those are just a few.
    There was a report given out on these things, and I'll go 
through it very quickly. On some of the things, such as 
research and extension for farmers, they've got C. 
Conservation, C. Credit, C. Farm workers, D. Civil rights, C. 
Not taking on any of those things that's concerning small 
farmers. And I would say, and I would hope that after you look 
at that, you would see fit to continue this Commission and let 
them work on issues of that kind.
    Now, grant you, we had a lot of things to do at the 21st 
Century Commission, and we decided to put, that was one of the 
things, put this in there where you could look at that. And 
those things were thoroughly discussed in there. And here 
again, a lot of meetings were held, just like we had meetings 
around the country. And money should be put in it, and a 
continuation of that, where that dialogue can be continued.
    And I could talk to you a lot about different initiatives 
that are going on in the field around small farms and around 
niche markets, around even the pharmaceutical you're talking 
about, we are doing that with small cooperatives. We need money 
in this. We talk about funding for cooperative development, 
2501 research and technical assistance, that's exactly what 
you're talking about, Senator, that we are trying to do.
    But there was nothing in the last Farm Bill that really 
dealt with that, that really dealt with it. In fact, the 2501 
didn't even get any money for it. And we have 1890 land grant 
universities, organizations, depending on $10 million to 
provide research, technical assistance, value added and other 
kinds of things for small farmers. That is not fair and we need 
to look at that.
    The Chairman. Thank you. Senator Roberts.
    Senator Roberts. Thank you, Mr. Chairman.
    I think on your philosophical question, we should have the 
former chairman of the House Ag Committee, the Honorable Kika 
de la Garza, come in and make his submarine speech. That takes 
you back a little bit, but it does indicate the value of 
agriculture.
    And I might say, sir, that when I was zooming around to 12 
States and talking to all the editorial boards that I could 
shake loose in regards to the value of agriculture and where we 
were headed with the 1985 Act, which was passed in 1986, I was 
meeting with the Wall Street Journal. And I had a young man ask 
the question which is often posed: why are farmers any 
different from, say, somebody who has a manufacturing plant and 
makes widgets. And I asked him if he had ever put a widget 
between two pieces of bread and tried to eat it. I said it 
would be high fiber but might not really work so well.
    Then I asked him about all of the folks who were on fixed 
income and all of the minorities who live in our cities who 
only spend 11, 12 percent out of their disposable income dollar 
for that market basket of food, if in fact we put agriculture 
in the same basket or the same category as any other 
manufacturing entity or any other business entity, I suspect 
that price would rise rather dramatically. That has always been 
one of the rationales that we have used when we talk about farm 
bills, that it is not only a farmer subsidy, if you will, or an 
investment, it is a consumer subsidy as well.
    Mr. Swenson, thank you for your concentration on 
concentration. I would report to you in Kansas that, while 
we're concerned about price, we are also concerned about the 
merger and concentration issue. But it's throughout our 
economy. My gosh, look at the Daimler-Chrysler issue, and 
Tysons-IBP. I just put down here U.S. Air and what happens 
there, since I go to Kansas City on U.S. Air. Banks, all the 
communications, all the dot-coms. This is a development that is 
affecting our entire economy.
    But I detect a sense of fear among our agriculture 
producers about losing control of their destiny. And I think 
you've hit on that. I'm not sure which antitrust provision, 
Senator Harkin has had several bills in that regard, Senator 
Grassley, others. Obviously we're going to have to monitor that 
very closely.
    I also want to pay credit to my colleague from Iowa for his 
plan in regards to conservation. You get a double benefit there 
not only from conservation but also from investment in 
agriculture. But I've been adding up these payments that 
everybody's been talking about here. We had a conservation 
payment, a supply management payment, a transition payment, 
stewardship payment, CRP payment, LDP payment, SIS payment, I 
have to add in Charlie Stenholm's SIP payment. It could be a 
gulp by the time we're through. An energy payment, a carbon 
sequestration payment, and then let's see, a social welfare 
payment, I'm not trying to perjure that term, there's nothing 
wrong with social welfare. Look at the food stamp program.
    Mr. Chairman, we add up all these payments in place of the 
current payment criteria, we're going to have to get a lot 
bigger mailbox, it seems to me, out on the farm, or a CD-ROM 
for somebody at the Department of Agriculture to figure out 
who's going to administer all this, how much paperwork, 
whatever. But I do think at least it is a good suggestion.
    Let me say that one of the reasons that we stuck with the 
AMTA payment, even though the Administration declared that it 
was not the best way to do things, and that's the mildest way I 
can describe that, was that the payments went out, and in 2 
weeks, where they got to farmers. And they were hard pressed, 
we were going through a lot of weather problems, we were going 
through planting or harvesting cycles.
    I can recall the other payment that was made on a different 
basis took 6 months to 1 year. So expeditious handling of these 
payments without all the paperwork is a consideration.
    Let me ask Keith Collins a question--no, I'm not going to 
do that. I am going to do it.
    But, farm numbers and size, and this is from the directions 
for the future of farm policy here, the National Agriculture 
Statistics Service indicated there were about 947.3 million 
acres of land divided among the Nation's 2.19 million farms in 
1999. Since 1995, over the past 5 years, the number of farms 
has increased from the 2.07 million, and the amount of farmland 
has decreased from the 970.2 million acres. The increase in the 
number of farms in 1995 is attributable to a continued rise in 
the number of small farms.
    Oops. Where are we off base here? I suspect it's because of 
where you come from. As I look at the States that you 
represent, there is a decrease, not much. In Kansas, we lost 
300. We went from 47,800 to 47,500. Let's see what Iowa owes 
me, or Indiana owes me here. No, I owe Indiana and I owe Iowa.
    But at any rate, it seems to be, what is your definition of 
a small family farmer? I always got into that argument over in 
the House when we were trying to determine of farm program 
payments would be adequate. And I finally deduced that a small 
family farmer is somebody 5 feet 2 inches from Vermont who is 
an airline pilot who has 40 acres in orchard, quite a bit of 
holdings and a three-legged dog named Lucky. [Laughter.]
    But the guy in Kansas who's now 2,000 and now 6,000 acres, 
he produces the food and fiber for this country. So you've got 
to figure out, where are we here on the criteria.
    Keith, your statement states, the recent reduction in farm 
prices and returns from the market reflects large U.S. 
production, large production in key countries such as China, 
Argentina, Brazil, the global economic slowdown of 1998, 1999, 
its after-effects on the continuing high value of the dollar. 
In your opinion, do these facts have a greater impact on farm 
prices and income and the well-being of farmers and ranchers 
than the actual underlying farm bill, whether it is, whether it 
was the past bill, the current bill, or the bill down the road? 
The answer's yes.
    Mr. Collins. I think those facts have a greater influence 
on market prices than the underlying Farm Bill. The answer is 
yes.
    Senator Roberts. Where are we headed? You have a whole 
paragraph. Where do you think we're headed? You say now we're 
going through a tough time, but things down the road are going 
to improve a little bit, if we get our exports cracking and all 
the rest of it.
    Mr. Collins. Well, I think we're already starting to see 
some signs. As you know, agriculture is cyclical. Within 
agriculture, there are sub-cycles, like cattle. When you're at 
the top, you don't see the bottom very well. When you're at the 
bottom, you don't see the top very well. And we've been at the 
bottom for the last 2 years, but we're starting to see some 
signs. The dollar exchange rate has been coming down some, it's 
still quite a bit higher than it was in the mid-1990s. But it's 
coming down.
    We've seen some adjustments in production, both in the U.S. 
and around the world. Wheat is a good example. Our winter wheat 
plantings this fall are down 5 percent, 2 million acres. In 
addition to that, the world economy, which was fairly slow in 
1998 and 1999, is starting to grow pretty well. It will be down 
a little bit this year, mainly because of the United States.
    But I think we're looking at world GDP growth of 3 percent 
or more, consistently over the next several years. And if you 
look back over the last 20 years, whenever we've had GDP growth 
in the world of 3 percent or more, that's when we've had our 
peak export periods.
    So I'm beginning to see some things turn. If you look at 
specifically some of our markets like corn, we had a 10 billion 
bushel demand this year in corn. If we get a little bit of 
cutback in acreage, maybe because of high fertilizer prices, we 
get a normal yield, we have every prospect of running down our 
corn stocks in the United States by a couple of hundred million 
bushels.
    Our stock situation in the world wheat market is 
extraordinarily tight. We've had several consecutive years of 
world consumption exceeding production in wheat as we have had 
for coarse grains as well. So I think that those markets are 
going to be stronger over the next couple of years.
    Look at cattle. We started liquidating our cattle herd in 
late 1995. We're now down to 97 million head in the United 
States. And I think that that's going to start to turn, as 
heifers are retained. I think that we're going to see cattle 
prices, we've already seen them at $79, $80 for fed cattle here 
recently. I think we could see that consistently in the second 
half of 2001 and beyond.
    So I think there's a lot of little markers that are 
starting to tick up and are a little promising for the farm 
economy. But I still think there are other sectors like 
oilseeds, for example, where it's hard to see where we're going 
to get much price strength over the near term.
    Senator Roberts. I guess my point is, I think it would be 
wise for us to take that into consideration, at least to some 
extent. I hope that the good Lord is willing and that the 
creeks don't rise, or that there is something in the creeks, 
and that our demand factor picks up as these economies occur. 
But so many times, you know, Congress arrives late to the issue 
and then proposes something, only to find out that it could be 
actually counter-productive. And I think we have to keep that 
in mind.
    Dr. Flinchbaugh, you just didn't have the Commission meet 
in Washington, you went out around the countryside and talked 
to a lot of producers. Tell me what they said in regards to 
maintaining the flexibility of the Farm Bill.
    Mr. Flinchbaugh. Well, if there's anything that there's 
almost total unanimity--too big a word for a professor--on 
which there's consensus, you hear very little negative about 
planting flexibility. And if you look at the minority reports, 
they don't propose we move away from planting flexibility, at 
least not in total.
    So if there's one item out there on which there's 
consensus, it's planting flexibility.
    Senator Roberts. Let me ask you, on CRP, you made the 
comment, I think, a continuation of the current CRP program 
with increases in size being directed toward buffer strips, 
filter strips, wetlands, grass waterways and partial field 
enrollments, all part of the basis of Senator Harkin's bill. Do 
you suggest fitting this within the current cap, that's 36.4 
million acres, or an increase in CRP?
    Mr. Flinchbaugh. Basically within the current cap.
    Senator Roberts. Since we don't have the sign-up up to the 
cap yet, then we would go on beyond that.
    Mr. Flinchbaugh. Right.
    Senator Roberts. Mr. Swenson, I had a question on crop 
insurance. I'm not going to ask it, just take a look at 
allowing our producers to plug in 60 percent of their T yield 
in any year that they suffer a loss that falls below this 
level. Senator Kerrey and I worked very hard on that bill. It's 
$8 billion, it's not everything that we had hoped. But I noted 
in the minority report, you were a little critical of the crop 
insurance bill. Also on the revenue side, we think we made some 
progress. We'd welcome your suggestions. But I do think we've 
made some progress.
    Let me ask you something. There was a fellow back there, 
he's still there, has his coat off, Mr. Bill Lescher, used to 
be with the Department of Agriculture. The first amendment that 
I ever had in the Farm Bill, way, way, way, way, way back, was 
a farmer cost of production board. And Bill met with those 
folks for the better part of 1\1/2\, 2 years. And the chairman 
was from Kansas, a guy named Bill Turrentine, we called him 
Bill Turpentine.
    And we had all sections, all regions, all commodities, just 
like this. And we tried to come up with a uniform, flexible 
whatever, comprehensive cost of production, and couldn't, 
because of the regional differences and wherewithal of farmers 
and the Senator's cost of production on his farm might be 
different from somebody else's in terms of that operation.
    How do we do that? And if you know, whisper in Bill's ear 
and my ear, because it may be a criteria that we can use. You 
and Mr. DuPree indicated that there's a yardstick to determine 
a cost of production. We used to do that, sort of, with the 
deficiency payment, depending on what happened. I remember the 
marketing loan vote served back in 1985 or something in there, 
and we fell 31 votes short from going to a marketing loan, 
which by the way is very expensive, if we really fall off.
    But how do you determine the cost of production?
    Mr. Swenson. In the development of our report, we used USDA 
statistics. That was our method of development.
    Senator Roberts. That's why we had the farmer cost of 
production board, because most farmers didn't think the USDA 
stats really measured their cost of production.
    Mr. Swenson. That's a political decision you have to make 
if you----
    Senator Roberts. I mean, one fellow doesn't have a friendly 
home town banker, he's got a heck of a higher cost of 
production than the other fellow.
    Mr. Swenson. Well, costs of productions are going to vary. 
If a farmer's out there and got 80 percent debt, his costs are 
going to vary in productions of commodity of the same producer 
that has a 20 percent debt ratio. So there's no doubt that 
costs of production for every producer in this country, even of 
the same commodity and different commodities, will vary. So you 
have to use an average. All I did in my report was try to come 
up with an analysis of saying, here's something for you to look 
at.
    Senator Roberts. Mr. Chairman, my time has expired a long 
time ago, and I apologize. I again want to thank every member. 
I don't think you've fallen short at all. I think you've done a 
damned fine job. Thank you.
    Mr. Swenson. If I could comment, Mr. Chairman, real 
quickly, in regard to the crop insurance. When this report was 
developed, we had not yet seen the implementation of the action 
taken. And we worked very hard from the organization I also 
represent, in working with the members in trying to advance 
reforms of the crop insurance. We look forward to seeing how 
they are achieved.
    Senator Roberts. So you're ready to give Bob Kerrey and I a 
little attaboy or a little pat on the back?
    Mr. Swenson. Oh, absolutely. Absolutely. But we would like 
you to consider what we do to help farmers ensure themselves on 
that first 25 to 35 percent loss area and would like your 
consideration.
    Senator Roberts. Thank you, Mr. Chairman.
    The Chairman. Senator Dayton.
    Senator Dayton. Mr. Chairman, thank you. I have a number of 
questions, but in deference to the time, I'm just going to ask 
one of them. That's regarding dairy, since Minnesota's lost 
6,000 dairy producers in the last decade, you make your 
reference to four areas of reform. I wondered if you'd like to 
elaborate on any of those. And again, in deference to the time, 
Mr. Chairman, if anyone would like to submit a written 
response, I'd welcome them, because the Minnesota dairy 
producers are in serious economic straits today.
    Mr. Flinchbaugh. Well, the frank answer to your question 
is, Senator, no, I don't want to elaborate on them. [Laughter.]
    The Commission discussed these four commodities that are in 
the report. And we simply concluded that there is so much 
disagreement within those industries that it would be very 
presumptions on our part to try to come to any kind of 
consensus. So we basically have said to those industries, get 
your act together. What do you want, where are you coming from? 
And I, frankly, as the chair of the Commission, am not going to 
go any further than that, because the Commission didn't go any 
further than that.
    Senator Dayton. Mr. Swenson.
    Mr. Swenson. Thank you, Senator.
    In the minority report, we touched very briefly on dairy. 
And that was in offering for your consideration, looking at 
establishing the same type of support program that we advocate 
for the other commodities to be researched and looked at for 
dairy. Since I've served on the Commission and we've developed 
that kind of scenario because of the interesting element when 
we plugged it into USDA's cost of production, if you tie it 
into support it comes up to 1250, which many dairy producers 
across the country say, that's not a bad target for support 
price to be looked at.
    We've shared it with dairy producers from California to New 
York to Texas, throughout the country. And dairy producers have 
a lot of interest in that concept.
    Now, if you talk to the industry, which has different goals 
and different objectives, you're going to get a different 
answer. So I think it's important, when the Committee begins 
its deliberation, be it in dairy policy or grain policy or 
whatever, is the argument brought forward in policy that 
representative of producers or that representative of industry. 
They have different goals, different objectives. And I hope 
that the Committee will recognize those in the deliberations. 
Because you're not going to get a unified voice.
    Mr. Cook. I think as this discussion goes forward that it's 
important to recognize some of the realities that have to be 
dealt with. And one of those is that a Farm Bill can't be all 
things to all people. And I would hope that we'd be able to 
identify those things that maybe can be influenced and spend 
our energy and our resources on that. And an example of that 
relates to your dairy question. There are so many circumstances 
far beyond governmental control that are influencing the 
concentration of farms these days that in our community there 
are three new 5,000 head dairy operations being developed right 
now. First one will be on-line this summer.
    Those are situations that technology, machinery, 
efficiency, need for less labor, a whole lot of things that are 
beyond the influence of a farm bill. The same thing relates to 
the repopulation of small communities. I think it's very 
unlikely that whatever comes out of the Farm Bill can have a 
very major significance on repopulating rural communities with 
farmers.
    Now, a lot of the smaller communities in our area are 
growing some through industrialization, small and sometimes not 
so small businesses. But there are a lot of circumstances out 
there that you just aren't going to influence that much through 
the farming community. And I think it's important to recognize 
that and not spend a lot of time and energy and maybe resources 
on something that isn't going to happen because of 
circumstances beyond anybody's control. That's our free market 
system working.
    Senator Dayton. Thank you. Thank you, sir. Thank you, Mr. 
Chairman.
    The Chairman. Thank you very much, Senator Dayton.
    Senator Nelson.
    Senator Nelson of Nebraska. Thank you, Mr. Chairman. Now 
that Senator Harkin has left, I feel comfortable commending you 
on your work. [Laughter.]
     I know it's difficult work, and I'm sincere when I say 
that if you didn't know before, and I'm sure you did, that we 
talk about the agricultural business, though it's a unitary 
industry, it's not, this is a part of the discussion, and that 
there might be unanimity, I'll try that, Doctor, I tried the 
word unanimity, I got it out. But people will speak as though 
there is agreement, and it's a single industry. And I think the 
fact that it's come out in this discussion as on so many other 
occasions that we have segments of agriculture that are 
altogether different. They may have some similarities. They are 
in fact agriculture. But that may be where the similarity ends 
for a lot of the commodities and the programs.
    I commend you for trying to identify what you can in 
separating out so that we don't continue to make that kind of 
an error.
    I want to commend my good friend, John Campbell, from 
Nebraska, who has been back here in Washington and has been in 
the U.S. Department of Agriculture, and has fought many of the 
wars that we continue to fight today, and recognizes that a lot 
of the topics are similar. What seems to be an ongoing source 
or a search for solutions probably thought would have been 
solved by now.
    But we're not going to solve it, but I think we can improve 
it. And they need to continue to work for improvement.
    I want to address one issue, and that's the recommendation 
of the Commission on moving to an actuarially sound crop 
insurance program without the risk sharing agreement that now 
exists between the Federal Government and the private 
companies. As a former insurance commissioner in Nebraska, and 
having been around the business of insurance all my adult life, 
when I haven't been Governor or Senator, I would say that that 
would generally appeal to me.
    But there are a couple of concerns that I have. One, are we 
aware that doing that and eliminating the subsidy, if you will, 
or the risk sharing agreement, could raise the price, the 
premium, up to the point where it's then unavailable to many of 
the farmers that we're trying to protect, as Mr. Campbell 
points out, that middle group. We don't want to see the program 
priced out of the reach. We don't want to get adverse 
selection. We don't want to see the program not succeed.
    I commend Senators Kerrey, my predecessor, and Roberts, for 
their strong work, and Senator Lugar, for working through that, 
over the last several years, to make sure that we have a 
program. I would be very concerned about anything that would 
tend to weaken it. As tight as I am about not having the 
Federal Government involved, inasmuch as I emphasize and 
support private industry and the insurance business, I am very 
concerned about what the implications are, whether you would 
have an exit of companies from this business, whether or not it 
would be supportive on an actuarial basis. I'd like to say that 
that could happen, but I question. Did you spend much time 
going into that aspect?
    Mr. Flinchbaugh. Well, Senator, first of all, we recommend 
a study of the voucher system. We're not recommending the 
voucher system until it's studied.
    Several factors brought us to that conclusion. Number one, 
you just mentioned the bill that Senator Kerrey and Senators 
Roberts sponsored and that was finally adopted, just passed. We 
think it's premature to recommend an overhaul when the bill 
just passed. We don't know how well it's going to work, we hope 
it works.
    So that's why we thought it was prudent to come up with the 
idea of a study. We also think we need to bring more market 
discipline to the insurance program, enhance competition. So 
we're looking at an alternative program. And I think your 
questions or your concerns are certainly valid. And that's why 
we recommend studying the voucher system. We didn't go any 
further than that. We didn't outline the value of the voucher, 
etc.
    So we certainly share your concerns. But we think we ought 
to take a look at a voucher system, and then 3 or 4 years down 
the road, when we've had a chance to evaluate the Act that was 
passed this summer, we'd be prepared.
    Senator Nelson of Nebraska. I appreciate it.
    Mr. Villwock. Mr. Chairman, just briefly, to your earlier 
comments to the Commission, and before we take off here, we've 
have 11 people together for 3 years here, and we've brought all 
the kings horses and all the kings men together to try to give 
us the silver bullet to fix farm policy.
    We worked without any partisanship. I was very pleased with 
this group. I don't think one time that partisanship raised its 
head, that we were thinking along those levels. We had 
disagreements on policy and how to get or solve policy. But I 
don't think any partisan views got in our way. And we realize 
you and the Committee deal with that. I guess I want to say 
publicly, I admire the Committee and their ability in their 
deliberations to be able to deal with that and the complexity 
of farm policy, how difficult it is.
    Of course, we didn't meet with the regularity that you do. 
But come together with all of us in good spirit, to try to come 
with the silver bullet, to try to come here today and say, do 
thus and so and net farm income is solved for producers all 
across the country, and we're going to keep all farmers and 
every farmer that wants to farm in business. We couldn't do it. 
And we understand that's difficult for us.
    But we also want to say to you, it's very difficult for you 
and you have our respect on a greater level, after going 
through this process. Because farm policy is very difficult, at 
best. And I want to say thank you for your patience and your 
deliberation and thought on behalf of American agriculture, 
that you work trying to fix these problems that we bring to 
your attention.
    Senator Nelson of Nebraska. Thank you, Mr. Chairman.
    The Chairman. Well, thank you very much, Senator Nelson, 
and thank you very much, Mr. Villwock, for that commendation to 
the Committee. I will pass it along to the other members.
    I just wanted to touch upon a point that Senator Nelson 
mentioned with the crop insurance. Clearly, the policy we 
adopted last year would not work if it were simply a free 
market affair. The idea was for deep subsidy, underlying, very 
deep, with the thought that almost every crop that is covered, 
and every farmer having that crop, would find value in using 
the program. We have found in our hearings, for instance, in my 
home city of Indiana a couple of years ago, only 40 percent of 
farmers had any crop insurance, even the most basic level. The 
other 60 percent did not.
    Now, as someone who testified indicated that that's right, 
they didn't have any and they didn't want any. And essentially 
we were off on the wrong course. And as a matter of fact, 
charged that crop insurance is specifically very valuable to 
North Dakota, South Dakota, the plains, other places where 
people were using it already in fairly large percentages, found 
value in doing that, and thus skewed the policy.
    It's impossible to solve any of these problems in a 
national sense with perfect equity, State or county by county, 
and this is a good example of that, I think. But in any event, 
as a Senate, we resolve to have another safety net. The problem 
still is one of education. Many farmers that I visit with do 
not understand the agatype of these policies. They need 
consultants and interpreters and what have you even to come to 
grips with the basic aspects of the thing.
    And so we all are encouraging them to get that advice, and 
certainly trying to get supplementary educational material, so 
that the policy we adopt, that we thought would help them, will 
help them because they will use it. But as Dana said, the jury 
is still out on this one. We're coming into a planting season, 
we shall see. But for the moment, that was designed literally 
to try to bring about a safety net and to stave off 
emergencies, disaster payments, the appropriate committee at 
the end of the session, this sort of thing.
    The LDP question did not arise in this form, but one 
question often arises, why would the price of corn really sort 
of, at $1.89, given the LDP, do people continue to produce a 
lot of it. Many people say, well, you have rocks in your head, 
the cost for many farmers is less than $1.89. Mr. Swenson and 
others have testified on occasion that probably the price of 
corn for some farmers in production costs more than $1.89. But 
for a lot of farmers, it's lower than that.
    So if you have $1.89, why do people produce? Because there 
are incentives to do so. The Federal Government almost 
guarantees you're going to get $1.89 for every bushel you can 
produce, at least if you have low production costs.
    That is not an argument for lowering the LDP. But the fact 
is, our policies, whether they be crop insurance, which takes 
away a lot of risk, an LDP, which is higher than marginal costs 
for many people to produce, for example, are incentives to 
produce more. If people are wondering why the rich get richer 
and the poor get poorer, those two policies help a lot. And so 
studies indicate furthermore that if you are pretty good in 
figuring out crop insurance, you might also be pretty good as a 
marketer. You might have a consultant for that. And that large 
farmers predictably sell their corn for 25 cents more than do 
small farmers because of marketing expertise.
    So once again, this is compounded. We've got an interesting 
debate today, who should these payments really go to? And the 
Commission has said, no limits. And Senator Roberts suggested 
that's exactly right. Senator Harkin is more skeptical. But the 
fact is that the payments to go where the production is. If the 
8 percent of the farmers do 72 percent of the business, predict 
that about three quarters are there.
    Now, you can say, the fact that you're big doesn't mean 
you're necessarily profitable. You may be running it very 
badly. There are always people in life who do big things badly. 
But on the other hand, that's not a lead pipe sense. It occurs 
to be the other way around frequently.
    So here this Committee has this kind of a problem. We're 
paying a lot of money in very different sorts of ways to the 
beneficiaries, it's fairly clear. But then Mr. Paige raises a 
very important point, and that is, what about 18,000 to 19,000 
minority farmers in America with just 2 million acres? Where do 
they fit into this situation? And that's a very important 
question. And I'm not certain any of us have a very good 
solution.
    But you suggested a reasonably good one, that is the small 
farms commission, the emphasis upon trying to really zero in on 
particular situations. That's the only way I can think of, and 
will be much more sensitive. The Commission as a whole has 
mentioned the small farmers commission, and Mr. Paige has 
outlined that, it seems to me, today, in ways that are very 
important.
    But these are all situations that your report has brought 
to our attention. You quite correctly said you could not solve 
or even take up in detail everything. But you have covered a 
lot. And the charts and the data that you have, they are 
subject to all of us to interpret, to try to be more thoughtful 
in raising further questions.
    Now, at the end of the day, we have some intractable 
problems, and you were brave enough to touch upon those. The 
sugar program, for example, an unmitigated disaster, in my 
judgment. But that's simply an editorial comment. And that is 
sort of one of a kind. I've been trying to offer reforms for 
the peanut program for 24 years. I served on the committee 2 or 
3 years, it had some success. Most years we did not.
    Tobacco, a case all by itself that's sort of being dealt 
with generally in other committees, other issues sort of 
tangentially impinging upon our own. Dairy in vast change. In 
my State, a remarkable dairy operation in the northern part of 
the State, I visited there at some length this summer. Probably 
18,000 cows, and an operation that has no relationship to the 
dairy program at all, or any aspect of this Farm Bill.
    But it is juxtaposed to herds with a father and son of 60 
cows, 100 cows, people trying to decide, do we stay in the 
business, what kind of support is required for us to handle 
this. And all these things exist in our own constituency, side 
by side, arguing with each other, quite apart from this 
Committee in a general way. So we are cognizant of each of 
these special things that you mentioned that have really 
important implications for a lot of lives and communities.
    But I thank you again, I thank you for your patience. 
You've been stalwart to last almost 4 hours through one of our 
Committee hearings, and we will have many more, and we hope 
that you will contribute as you can.
    Thank you very much, and the hearing is adjourned.
    [Whereupon, at 12:40, the committee was adjourned, to 
reconvene at the call of the Chair.]
      
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                            A P P E N D I X

                            January 30, 2001



      
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                            January 30, 2001



      
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