[Senate Hearing 107-715]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-715
 
                       THE NEW FEDERAL FARM BILL
=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION


                               __________

                             JULY 17, 2001

                               __________

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


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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                       TOM HARKIN, Iowa, Chairman

PATRICK J. LEAHY, Vermont            RICHARD G. LUGAR, Indiana
KENT CONRAD, North Dakota            JESSE HELMS, North Carolina
THOMAS A. DASCHLE, South Dakota      THAD COCHRAN, Mississippi
MAX BAUCUS, Montana                  MITCH McCONNELL, Kentucky
BLANCHE L. LINCOLN, Arkansas         PAT ROBERTS, Kansas
ZELL MILLER, Georgia                 PETER G. FITZGERALD, Illinois
DEBBIE A. STABENOW, Michigan         CRAIG THOMAS, Wyoming
BEN NELSON, Nebraska                 WAYNE ALLARD, Colorado
MARK DAYTON, Minnesota               TIM HUTCHINSON, Arkansas
PAUL DAVID WELLSTONE, Minnesota      MICHEAL D. CRAPO, Idaho

              Mark Halverson, Staff Director/Chief Counsel

            David L. Johnson, Chief Counsel for the Minority

                      Robert E. Sturm, Chief Clerk

              Keith Luse, Staff Director for the Minority

                                  (ii)







                            C O N T E N T S

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                                                                   Page

Hearing(s):

The New Federal Farm Bill........................................    01

                              ----------                              

                         Tuesday, July 17, 2001
                    STATEMENTS PRESENTED BY SENATORS

Harkin, Hon. Tom, a U.S. Senator from Iowa, Chairman, Committee 
  on Agriculture, Nutrition, and Forestry........................    01
Lugar, Hon. Richard G., a U.S. Senator from Indiana, Ranking 
  Member, Committee on Agriculture, Nutrition, and Forestry......    02
Baucus, Hon. Max, a U.S. Senator from Montana....................    06
Crapo, Hon. Michael D., a U.S. Senator from Idaho................    17
Lincoln, Hon. Blanche L., a U.S. Senator from Arkansas...........    08
Roberts, Hon. Pat, a U.S. Senator from Kansas....................    03
Thomas, Hon. Craig, a U.S. Senator from Wyoming..................    05
Wellstone, Hon. Paul David, a U.S. Senator from Minnesota........    06
                              ----------                              

                               WITNESSES
                                PANEL I

Denison, John, Chairman, Rice Foundation, Iowa, Louisiana, 
  accompanied by Nolan Canon, Chairman, U.S. Rice Producers 
  Association, Tunica, 
  Mississippi....................................................    14
Echols, James, Chairman, National Cotton Council of America, 
  Cordova, Tennessee.............................................    09
Tallman, Dusty, President, National Association of Wheat Growers, 
  Brandon, Colorado..............................................    12

                                PANEL II

Gamble, Wilbur, Producer and Chairman National Peanut Growers 
  Group, Dawson, Georgia.........................................    35
Jaeger, Art, Assistant Director, Consumer Federation of America, 
  Washington, DC on behalf of the Coalition for Sugar Reform.....    30
Morris, Armond, Chairman, Georgia Peanut Commission, Ocilla, 
  Georgia, accompanied by Evans J. Plowden, Jr., General Counsel, 
  American Peanut Shellers Association, Albany, Georgia..........    32
Roney, Jack, Director of Economic Policy and Analysis, American 
  Sugar 
  Alliance, Arlington, Virginia..................................    28
                              ----------                              

                                APPENDIX

Prepared Statements:
    Denison, John................................................   127
    Echols, James................................................    56
    Gamble, Wilbur...............................................   204
    Jaeger, Art..................................................   182
    Morris, Armond...............................................   192
    Plowden, Evans...............................................   199
    Roney, Jack..................................................   137
    Tallman, Dusty...............................................    78
Document(s) Submitted for the Record:
    AMTA & Marketing Loan Program for U.S. Peanuts, Dr. Ed Smith 
      and Dr. Abner Womack.......................................   210

                              ----------                              


                  HEARING ON THE NEW FEDERAL FARM BILL

                              ----------                              


                         TUESDAY, JULY 17, 2001

                                       U.S. Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:08 a.m., in 
room SR-328A, Russell Senate Office Building, Hon. Tom Harkin, 
[Chairman of the Committee], presiding.
    Present or submitting a statement: Senators Harkin, Conrad, 
Baucus, Lincoln, Miller, Wellstone, Lugar, Cochran, Roberts, 
Thomas, and Crapo.

    STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM IOWA, 
              CHAIRMAN, COMMITTEE ON AGRICULTURE, 
                    NUTRITION, AND FORESTRY

    The Chairman. The Senate Agriculture Committee will come to 
order.
    In today's hearing, the committee will receive testimony 
from the wheat, rice, cotton, peanut, and sugar industries. I 
look forward to hearing the testimony and learning more about 
these commodities, their programs and issues.
    Combined with last week's hearing, we will have heard the 
views of producers of nearly all commodities involved in farm 
programs; however, I hasten to add that we will be having all 
of the livestock people in either next week or the week after. 
Then we intend to have at least one hearing on specialty crops, 
which we have not heard from in the past because they have not 
been all that involved in farm programs, but we will have them 
also before the committee.
    Starting with wheat, wheat remains the predominant crop in 
regions of this country where rainfall is too variable to plant 
feedgrains and oilseeds. Historically, wheat is one of the top 
crops in acreage in this country, but it has lost ground in 
recent years due to foreign competition and more favorable 
prospects for some other crops.
    Cotton and rice are the other two program crops under the 
AMTA program. These crops are very important in a number of 
States represented on this committee. Cotton, peanuts, and 
sugar, as well as certain classes of wheat, also face import 
competition, which differentiates them from the feedgrains and 
oilseeds that we examined last week.
    These pressures are likely to play a continuing role in 
devising the appropriate policies.
    In particular, we already know that the current sugar 
policy is not functioning well. A combination of increased 
imports of both sugar and sugar products and increased domestic 
production have created an oversupply situation. This imbalance 
has driven down prices and forced the forfeiture of over 
800,000 tons of sugar into Government stocks.
    The peanut program faces similar challenges in responding 
to import competition and increasingly global markets.
    I look forward to the valuable testimony from our witnesses 
this morning and now turn to my friend and distinguished 
ranking member, Senator Lugar.

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

    Senator Lugar. Thank you very much, Mr. Chairman.
    I thank you for holding another farm bill hearing this 
morning. I commend you on last week's hearing, in which a 
number of commodity proposals were thoroughly considered.
    In reviewing the agenda for today's hearing, I was once 
again reminded of the significance of the trade promotion 
authority for agriculture. About 45 percent of our Nation's 
rice crop is exported. It is also interesting to note that 
previous key rice markets are countries against which the 
United States placed unilateral economic sanctions. Rice 
farmers have therefore taken a double hit in the trade area.
    By congressional inaction on trade promotion authority, the 
message to rice and other farmers is clear--you are not a 
priority in the Congress. Hopefully, we will remedy that.
    Two topics on today's agenda represent extraordinary public 
policy difficulties; they are the sugar and peanut programs. 
According to the General Accounting Office, 40 percent of the 
benefits of the sugar program go to only 1 percent of the 
growers.
    While the Farm bill envisioned a sugar program that would 
operate at no cost to taxpayers, last year's USDA purchased $54 
million worth of sugar, initiated a payment in-kind program, 
and now pays $1 million a month in storage fees for surplus 
sugar. The sugar program cost the taxpayers $465 million in 
fiscal year 2000.
    The peanut program is an example of an outdated and market-
controlled Federal farm policy. Supply is managed by an arcane 
national poundage quota and important restrictions. The price 
support feature of the program has been two tiers--one for 
domestic food and one for peanuts crushed into peanut oil and 
meal.
    The current national peanut policy is a combination of 
efforts to hold onto a quota system that benefits quota-
holders, not necessarily peanut producers.
    More than 60 percent--60 percent--of the peanut quota is 
not produced by the quota-holder. Quota rents add 12 cents per 
pound to the cost of peanuts to consumers.
    I am heartened by reports that some peanut growers are 
attempting to develop proactive peanut reform ideas, and we 
look forward to reviewing those proposals, especially if 
market-oriented.
    My personal commitment to major reform in the sugar and 
peanut programs will be vigorously reflected as the Farm bill 
develops.
    Again, Mr. Chairman, I thank you for holding today's 
hearing.
    The Chairman. Thank you very much, Senator Lugar.
    I would like to recognize the Senators who are here for any 
brief opening statements or introductions that they might want 
to make. I will start with Senator Conrad.
    Senator Conrad. Thank you, Mr. Chairman.
    Thank you for having this hearing. I have a lot of things I 
could say, but I would like to get to the witnesses, and I know 
you would, too.
    The Chairman. Thank you very much, Senator Conrad.
    Senator Cochran.
    Senator Cochran. Thank you, Mr. Chairman.
    I am pleased that the Deep South is well-represented here 
this morning with witnesses from Louisiana, Tennessee, and 
Mississippi.
    Rice and cotton producers in our States in the Deep South 
are confronted with some very challenging problems, and I know 
the witnesses will help us understand those better, and we 
welcome them all here and appreciate their attendance and 
assistance to our effort.
    The Chairman. Thank you very much, Senator Cochran.
    Senator Baucus.
    Senator Baucus. I will pass, Mr. Chairman.
    The Chairman. Thank you very much.
    Senator Roberts.

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

    Senator Roberts. Well, you have to have somebody make a 
statement, Mr. Chairman.
    I want to thank you for holding the second hearing on a 
commodity title of the next Farm bill. I am very pleased that 
we can continue this very important discussion.
    The House goes in at 10 o'clock on a markup on a draft 
bill, so we are acting in commensurate fashion.
    As the Senator from Kansas, I am especially pleased to 
welcome the National Association of Wheat Growers. As I 
indicated when I came into the hearing, I love you all, but I 
love Dusty in the morning.
    I do not intend to give a long statement today. I have 
addressed most of my concerns in the previous statements last 
week when you held the hearings. I look forward to hearing from 
the same groups today. I do want to say to them what I said to 
the others in a more succinct fashion.
    We all understand the situation that we have been facing in 
the countryside, all of us who are very privileged to represent 
our farmers and ranchers. We are not in very good shape with 
the shape we are in.
    However, I am concerned that many of the proposals that 
have been brought before us have perhaps not been written with 
too much consideration of our budget situation or the WTO 
obligations, and many of them have simply been a rehashing of 
proposals and policies from the past. That is not bad; in some 
ways, it is possibly good. I have been through six farm bills 
now.
    Mr. Chairman, I just came from a 30-member meeting of EU 
members who are over in the Mansfield Room, talking about the 
United States' position on the WTO, where they are, and where 
we are. Senator Dorgan was the host of this event, and it was 
an interesting exercise.
    I would simply say that a farm bill is no longer a bill 
about just the commodity title and how much investment we can 
put into it. A farm bill is a bill for rural America, and that 
means we should and must put funding into rural development and 
conservation programs.
    Let me simply say that we have to make some difficult 
choices. You have all brought your proposals before us, but 
again, the reality of our budget constraints and our WTO 
commitment says that we may not be able to act on all of these 
proposals. I wish we could.
    I remember when I had the duty or the cap in the House, 
that we used to shut all of you up in room 1338-A and close the 
door and say, ``If you cannot come out with some kind of 
compromise, we will see you at 5 o'clock.'' In most cases, you 
came out with a compromise.
    Finally, I have a little concern. The distinguished former 
chairman and now ranking member made this comment before in his 
comments: ``If you look at all the proposals, different as they 
are, I see all of them resulting in an ever-increasing 
capitalization of payments into land values and cash rents.''
    We are in tough times in farm country, yet if you go to the 
region of FDIC in Kansas City, you will find the land values 
have gone up 7 percent. If that is not a paradox of enormous 
irony, I do not know what is, and I worry that we are going to 
price many young people out of the ability to enter into 
farming--and that is a speech that we have often given.
    Mr. Chairman, we also have hearings in the Armed Services 
Committee on missile defense, and I am going to have to leave, 
but I am familiar with all the comments. Most of you have been 
to see me in a very fine courtesy call, as far as I am 
concerned.
    I have four questions that I would like to submit for the 
record, and if the witnesses could respond at their convenience 
in the not-too-distant future, and they are these: Without the 
flexibility of the 1996 Farm bill, where do you think wheat 
production and the wheat industry would be today? It is true we 
have come down 20 percent in Kansas, but we have gone to other 
crops, including cotton, I would inform my dear colleague and 
friend from Mississippi. We have 40,000 acres of cotton now, 
Mr. Echols. When Stephen Foster wrote the same about ``those 
old cotton fields back home,'' you did not think he was writing 
about Kansas, but that is true.
    My second question is how important is it to your producers 
that this year's market loss assistance be at last year's 
level? Mr. Chairman, we have to make that decision very 
quickly, and I know you are on top of that.
    No. 3, it is my understanding that the National Association 
of Wheat Growers believes the AMTA-based acres should remain 
unchanged in this farm bill; and, Dusty, if you could please go 
over that.
    Finally, regarding your counter-cyclical proposal--this is 
to Wheat Growers--what happens if overall crop projections, not 
just wheat, fall due to drought or flooding, et cetera, and 
thus the price would rise above the market support level--what 
happens to a producer in that situation?
    Those are the questions that I am going to submit for the 
record, and I apologize and will try to stay as long as I can, 
but we do have the other hearing.
    Thank you, Mr. Chairman, for your leadership.
    The Chairman. Thank you very much, Senator Roberts, for 
those very incisive comments and questions.
    The Chairman. Senator Miller.
    Senator Miller. Thank you very much, Mr. Chairman, and 
thank you for holding this hearing.
    I have a short statement that I would like to submit for 
the record.
    The Chairman. Without objection.
    Senator Miller. You will not be surprised that it deals 
with cotton and with peanuts.
    I would also like to thank the witnesses today, and I would 
like to especially thank and recognize two gentlemen from 
Georgia who will appear on the second panel--Mr. Armond Morris 
of Ocilla, Georgia, and Mr. Wilbur Gamble of Dawson, Georgia. 
Not only are Mr. Morris and Mr. Gamble tremendous advocates for 
Georgia agriculture; they are very strong leaders in their 
communities, and they know first-hand the difficult times that 
we are having, and I look forward to hearing from them and 
working with them.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Miller.
    The Chairman. Senator Thomas.

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

    Senator Thomas. Thank you, Mr. Chairman.
    Like everyone else, I have other hearings as well, but I am 
particularly interested in being here today and appreciate you 
calling this hearing.
    As you know, Wyoming is largely livestock and agriculture; 
however, wheat and sugar are probably our largest crops, so we 
are very much interested in that.
    The sugar industry, which I want to focus on for just a 
moment, is in trouble, with the lowest prices in 22 years. Some 
of the largest refiners are in bankruptcy. These are critical 
times certainly for producers. Last year, the sugar industry 
forfeited a great deal of production, and that is not good and 
not an action the producers wanted to take. We do not want to 
see that cycle go over again.
    Obviously, the current policy in sugar is not working. 
Ending the sugar program is not a viable answer. We have one of 
the few things where we have value-added in Wyoming where, 
instead of sending it out in first form, it goes out refined. 
We have plants in three towns. It is more than just producers; 
it is also part of the economy. Certainly, we have all been 
involved in the trade problems with the letter in Mexico and 
the molasses problem in Canada and so on.
    I hope that we can come up with some answers for the sugar 
issue. Some people have said the price goes down, but the 
product price goes up, and that is true. The products that use 
sugar go up, but the price of sugar goes down, and that is a 
difficult thing to deal with.
    I will not take any more time, but I do want to tell you 
how important it is to us and how we are focusing. Some of our 
producers are seeking to lease or buy the processing facilities 
and so on.
    This is a major issue for us in agriculture in Wyoming, and 
we look forward to working on it, and I thank you for the 
hearing.
    The Chairman. Thank you, Senator Thomas.
    Senator Wellstone.

   STATEMENT OF HON. PAUL D. WELLSTONE, A U.S. SENATOR FROM 
                           MINNESOTA

    Senator Wellstone. Mr. Chairman, I am going to do this in a 
minute so we can go forward with the panels.
    I would like to thank all of you for being here. I 
apologize that there is a debate on the bankruptcy bill that 
starts at 9 o'clock, and I have to be down there at 9:30. I 
will read all of the testimony, and I have read some of it 
already.
    The only thing I would say, Mr. Chairman, is that the 
Senator from Minnesota thanks you for the hearing. I appreciate 
the way in which you are moving forward very expeditiously.
    I view this committee--this will sound a little 
melodramatic--with a sense of history, because I think we do 
need to write a farm bill, and I do not disagree with some of 
what I have heard. Senator Roberts was saying that it is about 
commodity price, but it is also rural economic development; I 
could not agree more. We had a focus on energy yesterday, and a 
lot of people in rural America think they have part of the 
answer to that question; I am very excited about that.
    That you deserve a tremendous amount of credit for focusing 
on the environment. This could very well be a farm bill that is 
connected to environmental land stewardship and also connected 
to family farm structure of agriculture. God knows, I have a 
passion for that.
    Finally, I just want to mention my very strong interest in 
trying to put a little bit--I will say to my Republican 
colleagues that I am actually becoming more conservative now, 
and I think my battle cry--and I saw Zell Miller's head just 
switch over this way--my battle cry for the committee is going 
to be to put more of free enterprise into the food industry. I 
would like to see more competition. I would like to see us 
focus on how our producers are at such a disadvantage vis-a-vis 
all the mergers and acquisitions here and there. I am very 
interested in talking about how we can have more competition.
    Thank you.
    The Chairman. Thank you very much, Senator Wellstone.
    Senator Wellstone. I am a free enterprise guy, Pat.
    The Chairman. Senator Baucus.

   STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM MONTANA

    Senator Baucus. Very briefly, Mr. Chairman, thank you very 
much.
    Mr. Chairman, I have a few points, and I will submit my 
statement. One, sugar--it is a problem. I cannot tell you how 
important beets are to a large part of our State's economy, and 
I know this committee is going to work to be sure that we have 
a very strong sugar industry. That is very important to me, Mr. 
Chairman.
    With respect to the other commodities, and in my State of 
Montana, particularly wheat and barley and a few specialty 
crops, I have got to tell you it is tough. It is as tough as I 
have seen it. I have been talking to farmers during the last 
break, and there are several reasons. One is drought. There are 
spots in my State where there are absolutely no crops. There 
are not going to be custom cutters around for, in one area, at 
least 100 square miles. They are not going to be there; they 
are not going to cut. It is that dry.
    On top of that is the continual drumbeat of low, low prices 
with higher, higher costs. It is finally reaching a breaking 
point. As a consequence, some of the good news is that groups 
are now starting to come together a little more, and I applaud 
that. It is critical, and it is necessary, whether it is grain 
growers, Farm Bureau, Farm Union, all of them.
    I am doing what I can to help make that happen. I am 
inviting them to come and meet in my office all together at the 
same time--same date, same place, same time--because in my 
judgment, when we start to finally work together better in 
agriculture, it is more likely that we are going to get some 
results. Often, it takes a real crisis to get people to finally 
come together on all the issues--trade, literally a large 
component, safety net, risk management--there are lots of 
issues here.
    On conservation, I might say, Mr. Chairman, that in my 
State, conservation has lots of different cross-eddies. We are 
one of the largest CRP States in the Nation--some of the 
counties have met or passed the 25 percent--and the best farm 
land, the most productive land, is in CRP, and some of the 
marginal stuff as well. It is perverse. It is creating a 
situation where a lot of farmers put their place in CRP and 
then go south. It adds to the stress on the smaller towns where 
there are no implement dealers, seed, fertilizer distributors. 
It probably makes sense, frankly--and these are farmers for 
conservation; they are not at all, in any way, complaining 
about conservation needs and conservation measures, but they 
are just getting hurt perversely in a way that was unintended 
when CRP was first put together.
    I am thinking and they are thinking, Mr. Chairman, that 
when we get to the Farm bill, we have to modify some of the 
conservation provisions and maybe make CRP more regional so it 
is not so much nationwide. Maybe the payment structure needs to 
be changed so the most productive land put in CRP gets a 
disincentive or something--pretty low--and the least productive 
land gets higher payment as encouragement to put the less 
productive land in the CRP, as a thought.
    That is what I hear over and over and over again. It is 
universal among Montana farmers--again, partly because the 
situation is so dire, it is so difficult.
    I urge all of us, too, not just the groups, to come 
together and try to work better together, all of us on the 
committee as well. I know you will, and I will not take any 
more time, Mr. Chairman. I just want to thank you so much for 
holding an early hearing on this subject. It is needed.
    The Chairman. I appreciate that, Senator Baucus. Many areas 
of the country are facing the CRP problem that you have talked 
about, and it is hurting our small towns and communities, too, 
because there is not much economic activity going on there when 
people lock up all the land.
    Senator Baucus. Yes. A lot of small towns are losing 
population as a consequence of a weak agriculture policy.
    Senator Conrad. Mr. Chairman.
    The Chairman. Yes, Senator Conrad.
    Senator Conrad. Might I just associate myself with the 
remarks of the Senator from Montana? He has described the 
situation that we face in a way that I agree with every word 
that he said.
    Senator Baucus. Thank you.
    The Chairman. I recognize that problem to be one of the 
things that we are really going to have to work out in this 
bill coming up.
    I note the arrival of Senator Lincoln. We are just getting 
ready to go on to the panel, but if you have an opening 
statement, I would be more than happy to recognize you for that 
at this time, Senator.

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

    Senator Lincoln. Thank you, Mr. Chairman, and I will try to 
be very brief so we can get to the witnesses.
    I want to thank you first of all for your leadership and 
for holding this hearing, setting our committee on a path to 
complete a new farm bill, which I think is absolutely essential 
to our growers.
    I am excited that we have begun this series of hearings 
because we have a lot to cover and a lot of problems to 
resolve, and I know that the gentleman who appear before us 
today will assist in that. We owe it to our farmers and 
certainly to our rural communities to confront these problems 
as soon as we possibly can.
    I certainly know from personal experience as well as from 
my visits back to Arkansas that our farmers are facing some 
very critical pressures right now as they have been over the 
past several years--our terribly low prices, our dismal markets 
overseas, and an economic outlook that really does not offer 
much hope in the near term.
    Some of the problems are beyond the reach of a farm bill, 
trade being one. We are certainly working with Senator Baucus 
as chairman of the Finance Committee to look at ways that we 
can improve on that on behalf of agriculture and on behalf of 
our farmers, and I hope that we will continue to do that.
    As for the near term, we have talked a lot--and I hope it 
has been discussed some--about the need for an emergency relief 
package that can lift our farmers in rural communities out of 
their short-term misery. At this point, we will be looking at 
that.
    As for the Farm bill, we need to craft a policy that will 
work for all farmers and all rural communities. I know we have 
our differences due to demographics across this great Nation, 
but without a doubt, I have confidence that with the leadership 
of Chairman Harkin and those of us working toward the same end, 
we can rise above any of those differences and come up with a 
complete farm bill that will be productive for this country.
    I appreciate Senator Lugar's leadership as well and his 
hard work on this issue.
    It is not going to be an easy task that is before us. I am 
looking forward to today's hearing as well as many of the 
others that we will be holding in order to gain the knowledge 
that we need to produce the package that is ultimately going to 
benefit the agricultural producers of this country.
    Mr. Chairman, thank you again for your leadership. I look 
forward to the testimony today and certainly to working with 
all of these gentlemen, several of whom I am very familiar with 
and have worked with in the past.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Lincoln.
    The Chairman. We will now turn to our first panel today and 
welcome Mr. James Echols, Chairman of the Board of the National 
Cotton Council, from Cordova, Tennessee; Mr. Dusty Tallman, 
President of the National Association of Wheat Growers, from 
Brandon, Colorado; and Mr. John Denison, Chairman of the Rice 
Foundation, from Iowa, Louisiana, which has got to be a 
wonderful place, and he is accompanied by Mr. Nolan Canon, 
Chairman of the U.S. Rice Producers Association, of Tunica, 
Mississippi.
    We will proceed in that order. All of your statements will 
be made a part of the record in their entirety. Most of them I 
have read over in the last day. We will ask if you could 
highlight it, tell us the most important things you want us to 
absorb here today so we can get into questions, and if you 
could try to keep it to about seven minutes or so, I would 
appreciate it.
    We will begin with Mr. Echols. Welcome to the committee 
again.

STATEMENT OF JAMES ECHOLS, CHAIRMAN, NATIONAL COTTON COUNCIL OF 
                  AMERICA, CORDOVA, TENNESSEE

    Mr. Echols. Thank you.
    Mr. Chairman, on behalf of the seven segments of the U.S. 
cotton industry, I want to commend you first for holding these 
hearings on farm programs and express our appreciation for this 
opportunity to testify.
    I want to focus this testimony on the next Farm bill, but I 
cannot discuss long-term policy without emphasizing how 
important it is for the committee to provide additional 
assistance for 2001.
    The supplemental income support provided by Congress in the 
last three years has been crucial, and it is no less important 
this year. I know this committee is working to develop an 
assistance package for 2001, and we appreciate your efforts.
    We recommend supplementing existing AMTA payments with 
additional market loss assistance payments at the highest rates 
possible, or at least the 1999 AMTA rate; allowing producers to 
receive these supplemental payments on the higher of existing 
crop basis or an average of recent planting history, provided 
adequate funds are available; and continuing financial 
assistance to help offset the adverse impact of low cottonseed 
prices.
    We know that the needs of the agricultural community strain 
the budget authority provided for 2001. We want to work with 
this committee to ensure a 2001 assistance package is 
sufficient to make a difference for cotton producers this year 
and help them survive until 2002.
    Turning to our work on the next Farm bill, I think the next 
approach is to be brief and straightforward. The cotton 
industry is undergoing serious economic stress from the 
producer through to the textile manufacturer. Depressed prices, 
increased costs, and slack demand are threatening to shrink our 
infrastructure and dramatically transform our industry.
    No farm program for cotton will be complete without an 
effective marketing loan program, with redemption provisions 
keyed to the world market price. This aspect of our program is 
especially important given the low prices we have been enduring 
for the past three years.
    We believe the next Farm bill must have improved income 
support. Therefore, we have proposed that new farm policy rely 
on a combination of fixed and counter-cyclical payments. Our 
goal is income support from programs and the market that will 
provide cotton producers with a return equivalent to what they 
have received in recent years from all sources, including 
emergency assistance.
    With the objective of complying with our WTO commitment, we 
encourage as much reliance on decoupled, AMTA-like payments as 
feasible. Additionally, we recommend some type of counter-
cyclical income support that is as coupled and as commodity-
specific as practical given our budget considerations and our 
commitments within the World Trade Organization.
    Our members prefer crop-specific payments that are 
triggered when the price of a covered commodity falls below a 
specified threshold, similar to the target price concept in 
1990 farm law.
    Our members can support crop-specific payments triggered 
when revenue for a covered commodity falls below a specified 
threshold.
    All of these counter-cyclical programs share the important 
common advantages of cost-effectiveness and predictability. Our 
producers want the new program to retain as much cropping 
flexibility as possible. We support base acreage provisions 
that offer farmers the choice of keeping their current payment 
base or opting for updated payment base. We also urge 
continuation of assistance to offset low cottonseed prices.
    The National Cotton Council has consistently been opposed 
to payment limitations. We believe limits on marketing loan 
gains are particularly counterproductive as they impair 
producers' utilization of the marketing loan when they need it 
the most--namely, when prices are very low.
    Mr. Chairman, our internal discussions have not led the 
industry to a consensus on loan rates. Our producer members 
favor a somewhat higher loan than the capped 51.92 cent level 
under current law. Other segments of our industry have 
reservations about raising the loan rate. Our leadership 
continues to discuss this matter, and we believe that we will 
be able to provide a timely recommendation with respect to loan 
formulas and/or rates during the course of the new farm bill 
discussions.
    Mr. Chairman, extra-long staple crop producers in Texas, 
New Mexico, Arizona, and California have not been isolated from 
the difficult economic circumstances facing the cotton 
industry. These extra-long stable producers need improvements 
in their program as well. We support continuation of the ELS 
Non-Recourse Loan Program, frozen at the current level, and 
continuation of the ELS competitiveness provisions. We also 
support the establishment of some form of counter-cyclical 
payments for extra-long staple cotton commensurate with those 
that may be established for upland cotton.
    The U.S. continues to need a strong export assistance 
program and an aggressive trade agenda. We urge the 
reauthorization and improvement of the Export Credit Guarantee 
Program, the Foreign Market Development Program, and the Market 
Access Program. We support funding for FMD of $43.25 million 
and for MAP of $200 million.
    We are concerned with the decision to classify market loss 
assistance payments as amber box. Because of this decision, we 
need clarification from the administration concerning their 
negotiating goals in the WTO.
    We are also very concerned about the OECD negotiations 
involving the Export Credit Guarantee Program. This is a very 
valuable program for our industry. We believe these 
negotiations will undermine its effectiveness.
    The Council supports the continuation and enhancement of 
the existing conservation programs such as EQUIP, the 
conservation reserve and the wetlands reserve programs.
    We are also supportive of incentive-based programs that 
encourage and reward conservation practices and environmental 
enhancements to agricultural land in production.
    We are concerned that the current spending authority 
Congress has provided while developing a new farm bill may be 
inadequate to provide the necessary level of support. We cannot 
help but take a ``first things first'' approach to this debate. 
Without an adequate farm program, our producers will not be 
able to continue in business.
    There is another serious issue confronting the U.S. cotton 
industry. Our sector is especially vulnerable to the effects of 
an appreciating dollar because of its impact on imports of 
cotton textile and apparel products. The strong appreciation of 
the dollar has significantly lowered the price of foreign-
produced textiles and apparel in the U.S. market, causing 
dramatic increases in textile imports.
    During the first half of 2001 alone, 45 textile mills have 
closed, and almost 15,000 jobs have been lost. As a result, 
domestic mill use of cotton is expected to fall by 3 million 
bales this year.
    We need to offset the adverse consequences of a strong 
dollar with new farm policy. One adjustment we can recommend is 
elimination of the one and one-quarter cent threshold currently 
used in the calculation of our Step 2 payment rates. This 
adjustment would reduce the cost of raw cotton to domestic 
textile manufacturers and would enable merchants and shippers 
to price U.S. cotton more aggressively in the export market.
    Beyond this, we are continuing to explore other options 
that could help avert the devastating exchange rate impact on 
our industry.
    Again, Mr. Chairman, thank you for the opportunity to 
testify. I would be pleased to respond to any questions the 
panel may have.
    [The prepared statement of Mr. Echols can be found in the 
appendix on page 56.]
    The Chairman. Mr. Echols, thank you very much for a very 
fine statement.
    Now we will turn to Mr. Dusty Tallman, President of the 
National Association of Wheat Growers.

STATEMENT OF DUSTY TALLMAN, PRESIDENT, NATIONAL ASSOCIATION OF 
                WHEAT GROWERS, BRANDON, COLORADO

    Mr. Tallman. Let me begin by thanking you, Mr. Chairman, 
ranking member Lugar, and the rest of the committee for the 
invitation to appear before you today.
    My name is Dusty Tallman. I am from Brandon, Colorado, 
where my family and I operate a wheat farm. It is an honor for 
me to present testimony on behalf of the National Association 
of Wheat Growers, or NAWG.
    NAWG is a grassroots organization of 23 member State 
associations representing American producers of all classes of 
wheat from all over the Nation.
    In the brief time I have here today, I would like to share 
NAWG's views on the key elements of the next Farm bill. My 
prepared testimony is much more detailed and covers numerous 
proposals, many of which I will only summarize today.
    We believe there are nine titles in the Farm bill for a 
very good reason. Farming in today's world economy requires a 
comprehensive approach to production that relies on free 
markets, innovative research, advanced technologies, and an 
ecologically sound and productive environment.
    A top priority of the committee should be agricultural 
trade, beginning with the immediate passage of trade promotion 
authority. NAWG also strongly advocates the renewal of P&TR, 
the Export Enhancement Program, FMD, MAP, and other market 
promotion programs.
    We cannot ask our producers to compete in a world market 
without an aggressive national trade agenda.
    Our Nation's research infrastructure also plays a vital 
role in agriculture. We need to maintain and improve our 
research infrastructure in order to develop a viable, value-
added market for the wheat industry and for wheat gluten, to 
improve grain yield and quality, and to combat pests such as 
scab.
    A tragic irony of the current crop year is that many 
producers' budgets are being squeezed by escalating input 
costs, driven primarily by higher fuel and energy prices. The 
answer to fuel costs lies in farm and in the products we 
harvest. We need to further develop our farm-based resources of 
renewable energy, including biomass, biodiesel, and ethanol.
    We have heard many say that this will be the ``greenest 
farm bill yet,'' and we have heard some very intriguing 
proposals from carbon credits to conservation incentive 
payments like those proposed by this committee's chairman. NAWG 
agrees that conservation initiatives should play a significant 
role in development of the Farm bill.
    Wheat growers have never shied from their responsibility to 
the Nation's wildlife and to the environment.
    Many other issues deserve our attention, from risk 
management to rural development. All of these discussions are 
meaningless if we fail to keep our farmers on the land. Keeping 
producers on the land should be our first priority. As such, 
NAWG has the following recommendations for the commodity title 
of the next Farm bill.
    Despite economic hardships that have befallen rural America 
over the last three years, NAWG remains confident that the path 
outlined in the 1996 FAIR Act continues to serve the Nation's 
farmers well. In the case of wheat, lower prices can be 
directly traced to economic troubles in major importing 
nations, good weather, record levels of production across the 
globe for 5 straight years, as well as the unfair trading 
practices of our major competitors.
    Indeed, without the freedom-to-farm elements of the FAIR 
Act, conditions of the Nation's wheat producers would be much 
worse.
    NAWG's first recommendation is to maintain the flexibility 
afforded to farmers by the current Farm bill.
    NAWG's second recommendation is to maintain a guaranteed 
and decoupled fixed payment based on current AMTA contracts. 
These payments should be frozen at at least the 1999 level to 
ensure adequate support. Fixed payments have become an 
important financial tool for wheat producers, offering some 
financial security to our business operations.
    The third recommendation of the NAWG plan is a commodity 
marketing loan program that maintains the current loan formula. 
In an effort to meet budget limits, caps were established on 
each commodity marketing loan, including a $2.58 cap for wheat. 
NAWG believes that the next Farm bill must establish more 
equitable caps. A proposed schedule appears on page 15 of the 
prepared testimony.
    In addition to the caps, many marketing loans currently 
have a floor. No floor was established for the wheat marketing 
loan. Wheat producers continue to view this inequity as unfair 
and believe that all formulas should be reestablished to 
include a minimum guaranteed amount to better protect in years 
of low prices.
    Accordingly, NAWG has calculated the new floors and 
believes the schedule contained on page 16 of the prepared 
testimony provides equitable market support across all 
commodities.
    Our fourth recommendation is the creation of counter-
cyclical payments that would be made only when prices fall so 
low as to create real need across the agricultural economy. 
NAWG does not seek the establishment of a safety net so 
expensive and complex that it would guarantee the success of 
each producer across the country. NAWG seeks only modest 
support which would only meet producers' most pressing needs.
    The NAWG plan for the counter-cyclical payment is based on 
the establishment of commodity-specific market support levels 
for each eligible crop. A schedule of these support levels is 
on page 21 in the prepared testimony. Each was calculated by 
taking the average total gross income and program support for 
each commodity as calculated by FAPRI and dividing it by the 
average production for each commodity over the same 1995-to-
1999 period.
    Under the NAWG plan, a counter-cyclical payment would be 
calculated by subtracting the fixed payment and the higher of 
either the national average cash price or the national average 
marketing loan rate from the market support level on a 
commodity-by-commodity basis.
    NAWG is aware that other organizations and individuals have 
provided testimony to the committee regarding support for the 
creation of a counter-cyclical program based on whole-farm 
income or other non-commodity-specific criteria. NAWG opposes 
these efforts. We learned in 1997 and 1998 that forces in the 
wheat market do not always follow those that impact other 
commodities. In addition, the domestic wheat market does not 
always react the same from region to region. Income-based 
triggers may present real inequities across the country.
    Finally, on the issues of base and yield, NAWG believes 
that the existing historic bases for current program crops 
should remain in place throughout the term of the next Farm 
bill.
    In conclusion, I would like to comment on the agricultural 
economic assistance package for this year. NAWG firmly believes 
that in the face of declining PFC payments, low commodity 
prices, escalating fuel and fertilizer costs, anything less 
than a market loss payment at the 1999 level, which is 64 cents 
for wheat, would fail to offer sufficient income support to our 
producers.
    We urge the committee to take up the assistance package as 
soon as possible. On behalf of the Nation's wheat producers, I 
wish to express our sincere appreciation for this committee's 
efforts. We know that if not for your hard work and that of 
your staff, many more of us would no longer be farming.
    It has been a great honor for me to appear before you 
today. NAWG and its 23 State Wheat Grower Associations stand 
ready to provide further assistance.
    Thank you.
    [The prepared statement of Mr. Tallman can be found in the 
appendix on page 78.]
    The Chairman. Thank you very much, Mr. Tallman.
    Next we go to Mr. John Denison, Chairman of the Rice 
Foundation.

  STATEMENT OF JOHN DENISON, CHAIRMAN, RICE FOUNDATION, IOWA, 
                           LOUISIANA

ACCOMPANIED BY NOLAN CANON, CHAIRMAN, U.S. RICE PRODUCERS ASSOCIATION, 
            TUNICA, MISSISSIPPI
    Mr. Denison. Good morning, Mr. Chairman and members of this 
distinguished committee.
    My name is John Denison, and I am a rice, soybean, and 
cattle producer from southwest Louisiana, in Iowa, Louisiana. I 
am currently Chairman of the Rice Foundation and our National 
Research Board and past Chairman of the U.S. Rice Federation.
    I am accompanied today by Mr. Nolan Canon, a rice and 
soybean farmer from Tunica, Mississippi. Mr. Canon also 
currently serves as Chairman of the U.S. Rice Producers 
Association.
    I am pleased to appear before this committee today on 
behalf of all of the rice industry that has voted to support 
the testimony that we are presenting on the commodity segment 
of the Farm bill. Gentlemen and ladies, we are united as an 
industry on this part of the Farm bill.
    I am also pleased to thank this committee for your support 
in increasing the agriculture budget baseline to provide 
additional economic assistance for crop years 2001 and beyond.
    I also urge you to act as soon as possible with regard to 
authorizing the supplemental AMTA payments to the current crop 
year. It is absolutely necessary that producers across the rice 
industry get this in order to satisfy their loan obligations 
with financial institutions.
    U.S. agriculture in general and rice producers in 
particular are facing continued low prices and declining 
income. Prices for energy-related products, including fuel, 
natural gas, and fertilizer, have increased substantially, 
placing many rice producers in a further cost-price squeeze. 
This is occurring while aggregate rice exports remain stagnant, 
and farmers face growing costs due to increased environmental 
and pesticide use regulations.
    Our economic analysis indicates that rice is the only major 
commodity for which net market returns after variable costs for 
the 2001 crop will be negative if Government payments are 
excluded. That is a terrible situation, and we are not proud of 
it.
    Mr. Chairman, this additional financial assistance is 
critical to help rice farmers through this very, very difficult 
economic period.
    Before I go on, Mr. Chairman, I would like to strongly urge 
Congress to give President Bush Trade Promotion Authority, 
because we export, as Senator Lugar pointed out earlier, 45 
percent of our crop. Our industry's economic health absolutely 
depends on access to foreign markets, and increased market 
access will only come from further multilateral and trade 
negotiations under the authority of the President.
    Mr. Chairman, we appreciate the opportunity to recommend 
specific changes in our farm programs that will allow our 
growers to earn a reasonable return on their efforts, to 
contribute to the economic success not only of their own 
operations, but to rural communities, and provide critical 
habitat to hundreds of wildlife species in addition. In the 
rice industry, we are very proud that we make a major 
contribution, probably the largest contribution of any crop, 
toward migratory birds with our water flooding of rice fields.
    We are pleased to provide your committee with a detailed 
analysis of various issues associated with counter-cyclical 
payment--it is included in our formal testimony--which has been 
completed by Texas A & M University faculty, members of the 
Food Agriculture and Food Policy Center.
    We recommend specific changes as my cohorts here have. 
Overall and most important, we wish to recommend that you 
maintain the planting flexibility provisions in the 1996 FAIR 
Act.
    We continue to support marketing loan and loan deficiency 
payments, the LDP structure, as currently administered under 
the 1996 FAIR Act.
    We continue to want you to establish loan rates at no less 
than $60.50 per hundredweight. If loan rates for other basic 
commodities are realigned upward to what the loan rate for 
soybeans, currently at $5.26, then rice rates should be looked 
at and upwardly adjusted.
    We continue to want that basic commodity programs are not 
contingent on mandatory idle acreage programs of the past.
    We ask you to continue to provide decoupled PFC-type 
payments. We would like to see these production flexibility 
payments for rice in the next Farm bill at an average over the 
last 7-year period.
    We would like to ask you to provide a more effective income 
safety net for producers through a counter-cyclical program 
that everyone on the Hill here is talking about, particularly 
to support our farmers when we have low price periods so we do 
not have to depend on you each and every year to provide these 
additional supplemental payments.
    As we know, the current program is providing inadequate 
income supports in periods of very low prices, and that is 
where this counter-cyclical program could supplement. We 
recommend that it be established with a base period of the 
Olympic average of 1994 through 1998 receipts and a payment 
trigger of 100 percent. If there have to be any budget 
adjustments, then we would recommend that you just lower the 
amount that this formula provides.
    We encourage you to eliminate the payment limitations for 
income support and marketing loan deficiency payment limits.
    We ask you to compensate producers for current and future 
conservation and environmental practices that will enhance 
water and soil quality and wildlife habitat.
    Mr. Chairman, we have reviewed the provisions of the 
Conservation Security Act, and we commend you for your 
leadership, because we believe that the rice industry is one of 
the foremost leaders in this area already, and we support your 
efforts in moving toward a better program.
    In conclusion, Mr. Chairman, the Nation's rice producers 
collectively urge Congress to move rapidly to enact a new farm 
bill that addresses the fundamental issues of an enforced and 
improved safety net through a combination of a fixed PFC-type 
payment, extension of the current marketing loan mechanisms, 
and a counter-cyclical income support payment.
    Equally important, the new Farm bill should maintain the 
1996 FAIR Act's planting flexibility and refrain from any 
return to annual supply controls.
    The bill should also provide for incentive payments for 
wildlife habitat and other environmental benefits voluntarily 
provided by rice producers.
    It is also important for Congress to develop a new long-
term farm bill that targets payments to those who have actually 
produced or shared in the risk of producing the crop while 
maintaining consistency with our domestic support obligations 
under the WTO. We think it is possible to do both.
    Thank you, Mr. Chairman. Nolan and I will be very happy to 
answer any specific questions you may have.
    The Chairman. Thank you, Mr. Denison.
    I will just say that in your testimony where you talked 
about--and a couple of the other witnesses have already 
referred to--the fact that any conservation payments or green 
payments should be in addition to and not a substitute for 
others, I agree with that. That is our thrust in that. Also, 
the most important point you made there--that payments should 
be made available not only to producers who begin to invest in 
such habitat production but also those who have already 
implemented important wildlife protection.
    Mr. Denison. Yes indeed.
    The Chairman. That is most important.
    Mr. Denison. Thank you, sir.
    [The prepared statement of Mr. Denison can be found in the 
appendix on page 127.]
    The Chairman. Now let us turn to Mr. Nolan Canon, Chairman 
of the U.S. Rice Producers Association, Tunica, Mississippi.
    Mr. Canon. We are jointly providing this testimony, Mr. 
Chairman. We drew straws to see who would testify before each 
body, and Mr. Denison won.
    The Chairman. All right.
    Mr. Denison. He will testify before the House tomorrow.
    The Chairman. All right.
    The Chairman. Thank you all very much for your testimony.
    I note the arrival of Mr. Crapo from Idaho, and I do not 
know if you want to make any opening statement before we get 
into the questions, Mike, but I would recognize you for that 
purpose.

    STATEMENT OF HON. MIKE CRAPO, A U.S. SENATOR FROM IDAHO

    Senator Crapo. Thank you very much, Mr. Chairman. I will be 
very brief.
    I know the hard work that we have put into pulling this 
hearing together, and I appreciate your efforts as well as the 
time that everybody has put in to come before us today and 
testify.
    It is my hope that we will be able to work quickly and in a 
bipartisan manner to develop a strong bill that will serve as a 
national domestic food policy.
    There is an immediate need in farm country, and I hope that 
we can provide the safety net that our producers deserve. Most 
pressing right now is the need to pass an economic assistance 
package, Mr. Chairman. There is much need in my State, as there 
was last year, and the need is becoming increasingly severe. 
From water loss to power interests to droughts to persistent 
low prices and rising input costs, Idaho farmers need help.
    I look forward to working with you and the committee to 
pass a fair and reasonable bill as soon as we can possibly take 
action.
    Thank you very much.
    The Chairman. Thank you very much, Senator Crapo.
    I thank you all for being here and for excellent 
testimonies and for excellent summations of some very lengthy 
testimonies which you gave.
    I particularly want to thank Mr. Tallman. The way you 
presented your paper I thought was very concise in terms of 
your summations and recommendations and tabulations; I thought 
it was very well-done.
    Mr. Tallman. Thank you.
    The Chairman. I have a question for all of you. It is a 
question that I asked a couple of weeks ago when we started 
this series of hearings, picking up where Senator Lugar left 
off in his hearings.
    The question is this. The broader question is why do we do 
what we do. The subset of that question is should we continue 
to support every bushel and every bale produced in this 
country--actually, I should add ``pound'' also--every bushel, 
bale, or pound. Should we continue to support every one 
produced, because if we do, does that not send signals to 
producers that they can produce more than the market can bear?
    However, I recognize at the same time that farmers are in 
dire straights financially. How do we weave through this and 
find some kind of a rational policy that also enables farmers 
to remain in business?
    That is the essence of my question. Should we continue to 
support every bushel, bale, and pound that is produced, or is 
there some other rational way of doing this that helps our 
farmers, keeps them in business, and tries to get more money 
from the consumer?
    My feeling is simply this. The AMTA payments and 
supplemental AMTA payments, you are right, have kept us afloat. 
They sure have--and I can speak about that for Iowa. I can tell 
you that. God help us, that cannot be our policy for the 
future. We just cannot go on like that. I do not know if the 
Congress will let us go on like that--I do not think the Budget 
Committee will let us go on like that--in fact, I know they 
will not; I have seen the budget we have to work with here.
    Somehow, when you look at the situation right now, the 
farmers' share of the consumer dollar is at the lowest point 
ever in our history. We have got to find some way to get more 
of the consumer dollar back down to the farmer.
    That is why I have proposed an energy title. Maybe we have 
had blinders on, looking at it only from the standpoint of food 
and fiber. Maybe there is a way of getting some of that 
consumer dollar on the energy end of the spectrum and shifting 
some of our production into that energy area. The other way, of 
course, is through conservation--not just taking more land out 
of production, but to actually start paying farmers who are 
already being good practitioners on their own land.
    I ask that question. Should we continue to support every 
bushel, bale, and pound that is produced?
    I would welcome any response from any of you--Mr. Echols, 
Mr. Tallman, Mr. Denison.
    Mr. Echols. From a cotton perspective, certainly I would 
not want to turn my back on any farmer and say we need not 
support any pound or bale of cotton that is produced, but I 
think one of the most serious problems that has really impacted 
us in the last couple of years is the appreciating dollar. When 
you look at a Pakistan textile mill that can produce, because 
of their currency being so weak, at about 60 percent cheaper 
because they can bring it in here and sell it for good, old 
hard currency U.S. dollars, it has impacted us tremendously, 
and I think that is one of the real challenges that we have. We 
know that we are not going to have a lot of impact on the 
Treasury Department or the Administration in trying to weaken 
the dollar, and that is not necessarily in our long-term 
benefit. We need to look for some way that we can mitigate the 
impact because that not only effects urban areas but it also 
goes to rural America, because most of these textile mills 
where we have lost thousands and thousands of workers are in 
rural areas. The value of the dollar impacts a broad spectrum, 
across our industry, and I think that is one of the real key 
challenges that we have. How do we compete with the strong 
dollar? We have made one recommendation of eliminating the 1.25 
threshold from our competitiveness provisions, but that is not 
going to be nearly enough, and there are some other 
considerations being given as far as indexing currencies to try 
and mitigate the impact in some way. The strong dollar is 
impacting rural America as well as our cotton farmers and our 
textile mills and our entire industry.
    The Chairman. Thank you.
    Mr. Tallman, the question being should we continue to 
support every--in your case bushel produced.
    Mr. Tallman. All of the other programs you mentioned, from 
conservation to energy, everything else is extremely important 
to the wheat industry. Wheat has not been one of the crops that 
has done a lot of research in the last 20 or 30 years. We have 
gotten some of that started in the last 4 or 5 years, and I 
think there are chances for that to be important, and also try 
to get, again, some of those consumer dollars going directly to 
producers instead of in between.
    We are faced right now with 5 years of very low prices, 5 
years of enormous crops. We have to find a way to get the guys 
and ladies to the next 2 or 3 years, and at that point, I think 
we can work a little harder at developing different styles of 
programs.
    The Chairman. Senator Roberts raised a really good point. I 
watch this all the time, too--prices are going down and land 
values are going up, and something is just not connecting 
there.
    Mr. Tallman. Yes, sir. That has been the way it has been in 
Eastern Colorado and Western Kansas--well, throughout the Wheat 
Belt.
    The Chairman. Again, I wonder if the fact that we are still 
in the position of supporting every bushel, bale and pound has 
something to do with that.
    Mr. Denison.
    Mr. Denison. Senator Harkin, in response to your question 
should we support all of agriculture, I would start by 
responding that currently, Congress is not supporting 100 
percent of agricultural poundage, bales, and bushels, because 
the AMTA and the market loan assistance payments are based upon 
85 percent of a base back in 1975 to 1980 and yields that were 
established in that period.
    You are supporting 100 percent of the production on the 
LDP, and should you continue that practice, I would answer the 
question this way. It depends upon how much you want the 
consumers to depend on foreign supply food, because I can 
promise you, as has been said here today, that all parts of 
agriculture are having extreme financial difficulties except 
for perhaps portions of the livestock industry. I can assure 
you that if you start cutting back on any kind of income safety 
net, you are going to reduce the size of the domestic 
production sector in my opinion. You will not have a shortage 
of food, but it will simply do the same as oil--it will come in 
from foreign countries.
    It just depends upon where you want to rely upon for your 
food sources and let that guide you on budget exposure, just 
like you do on defense. You determine how important is defense 
to the national policy and move accordingly. That would be my 
answer to you. It just depends on how much you want to have a 
secure domestic production of food and fiber--because I can 
assure you I do not know of many people who are making much 
money, and I do not know of many young people in my area who 
are wanting to come into agriculture.
    The Chairman. I am not talking about cutting back.
    Mr. Denison. No--I understand.
    The Chairman. I am talking about is there a different way 
of doing it out there that does not pay every bushel, bale, and 
pound, but gets the support out in a different way. That is 
what I am talking about. I am not talking about cutting back on 
the support.
    Mr. Denison. Oh, I see. That as long as the money stream 
continues into production agriculture, that is what is 
important, how it is delivered; we depend upon you go guide us 
on that.
    The Chairman. We depend upon you to help inform us, too.
    Mr. Denison. We are happy to be here, Mr. Chairman.
    The Chairman. I have a few more questions of a general 
nature that I want to ask, but I will yield now to my 
distinguished ranking member.
    Senator Lugar. Thank you very much, Mr. Chairman.
    I have many of the same questions that chairman has raised, 
and I suspect these are the same questions we are going to be 
raising with each of our hearings.
    I do not think there is a good way that we as a committee 
can mitigate the effect of a strong dollar, and I think you 
recognize that, and you are suggesting, however, that that is 
another problem, as it is for manufacturing, steel, 
automobiles, our whole economy.
    In the past, when times were not so good in this country, 
things picked up abroad. The great danger that many of you 
would point out as economists is that things are doing so 
poorly abroad that this country is about the last hope of this 
side, and as a result, we are a large consumer nation because 
we are picking up the gap for what otherwise might be a 
devastating international spiral downward. That is not helpful 
to many of you who are testifying today or to any of us who are 
farmers, but nevertheless that is a very big problem from which 
we pray that somehow or other, the world will recover and we 
will recover and have good policy to do that.
    I pick up your point, Mr. Tallman, because you are correct, 
there have been 5 years of low prices for many commodities 
including wheat and most commodities represented here today and 
the ones we will be hearing from. Some would point out that 
this is to be expected in large part because our policies have 
been ones of attempting to keep every farmer in business.
    In that respect, we are promoting supply in this country, 
and as farmers stay in business, some produce more and learn 
how to do it better and utilize resource. The rest of the world 
has had pretty good weather. Some periods of 5 years have not 
been as good as this one.
    The dilemma here, I suppose, is one in which you ask the 
unmentionable question--should the policy of the country be to 
keep every farmer in business. This is the only industry in the 
country in which that is the policy. There is no safety net for 
people in retail stores at the county square or for people in 
dot-com business and so forth. Unhappily, people fail all the 
time, lots of them.
    This is a unique situation in which, as a matter of 
national policy, we hope that we will keep everybody in 
business. To do that, maybe our policies have been correct, and 
the chairman is astute in asking how we are distributing the 
money. Essentially, we have distributed it in ways which should 
not be surprising that land values go up. Many economists have 
come before this committee and pointed out that we are 
capitalizing these payments into land values. The land values 
for my farm have gone straight up throughout the nineties, and 
I have enjoyed that, and we have gotten a pretty good 
assessment every year that details precisely how the wealth 
effect is occurring. The net worth of the farm increases every 
year.
    Some have pointed out that that is OK if you own your land 
and even better if you have no debt, but if you are a young 
farmer or a young farmer who has debt, this is not so good. The 
policy clearly works in favor of those of us who own the land 
and have no debt.
    Should it? The chairman is raising the question obliquely 
in this way. If we were to follow the same policies we have 
presently, the AMTA, the LDP, and the other situations are 
likely to increase the situation indirectly the way we now have 
it, and yet each of you have testified that we should not 
mitigate that, as I understand it. There has not been an 
original suggestion today as to how you revamp the sites or 
shake up the batting order. These are questions which we hope 
you will continue to think about with us, because they are 
serious ones.
    Finally, how important is it that we have a secure domestic 
production of food and fiber? Of course, it is absolutely 
essential. I do not know of anybody who reasonably anticipates 
that we will not have an adequate supply of food and fiber.
    The interesting question is should some of it come from 
abroad. We take the position with regard to other countries 
that it certainly should--namely, American wheat or American 
rice or American cotton ought to be a part of their economies, 
largely because it will benefit their consumers. People will 
have a higher standard of living and perhaps better quality, as 
a matter of fact.
    It is difficult to argue against that in the reverse 
process as we get into serious trade negotiations. To suggest, 
for example, as I suspect will hear from some, that even if 
American consumers should pay more--after all, it is American 
grain or American sugar or what-have-you--it seems to me to 
stretch credibility, which consumers mostly think of. By and 
large, they have not thought of it a lot. Essentially, we have 
low food cost and we have a higher standard of living because 
that is the case, and many of us are trying to figure out how 
more of the food dollar goes to farmers. Most of us would not 
be in favor of increasing food costs for all Americans and 
diminishing the consumer benefits.
    The reason I raise these questions is that in your 
testimony today, I would not say that it is predictable, but 
nevertheless it is predictable--it tries to do the best you can 
for the clients that you have--but it does not really address 
these questions or at least these thoughts that I think are 
important if we are to fashion a farm policy that is good for 
agricultural America and good for the rest of the country.
    I do not ask all of you to comment about this, but if you 
could not revise your testimony but additionally think through 
some of these questions, I think it will be at the heart of 
what we finally decide, at least in the Senate. Our House 
colleagues are now working on an outline, a draft concept, and 
maybe some of these questions will introduce likewise into 
their thinking. If you can in due course give us the benefit of 
additional wisdom on this, I would appreciate it.
    With that, Mr. Chairman, I yield the floor.
    The Chairman. Please do not pay any attention to the timer.
    Senator Lugar. That is all right. I simply wanted to just 
raise these issues rather than ask for responses. I would like 
more preparation of the witnesses for that.
    The Chairman. I appreciate that. Thank you very much, 
Senator Lugar.
    Senator Miller.
    Senator Miller. First, I would like to thank all the 
witnesses, and I would especially like to thank Mr. Echols for 
what he had to say about the exchange rates and how that 
relates to the textile industry which, as we know, is in so 
much trouble. I thank you for bringing that to our attention in 
a good and forceful way.
    As you know, the 1996 Farm bill gave certain planting 
flexibility, and also, there are economic factors that drive 
planting decisions. Because of both of those, many farmers have 
made significant changes in their planting histories from the 
way that they used to do.
    My question to you is how does the National Cotton Council 
feel about allowing farmers to update or modify their base 
history to reflect more recent planting history?
    Mr. Echols. We certainly support the ability of farmers to 
update or maintain. We think producers should not be penalized 
by exercising the freedom-to-farm options that were given to 
them or to punish them in any way for their planting decision. 
We strongly support the options to update or maintain base.
    Also, I would like to comment, I realize that I did not 
answer the chairman's previous question directly, but one thing 
that can mitigate having to continually subsidize agriculture 
is if we can increase consumption and off take to levels that 
will raise commodity prices. That is one of my concerns with 
our domestic textile industry and the reason exchange rate 
comments I made--not to try to dodge the question but to find a 
way that we can mitigate those problems and raise the price so 
that we will not have to come to Congress every year.
    Senator Lugar [presiding]. In the absence of the chairman, 
I will recognize Senator Crapo.
    Senator Crapo. Thank you very much.
    I will focus my questions on you, Mr. Tallman, since we do 
not have cotton or rice in Idaho, but we do have a lot of wheat 
and grain.
    You are aware, I am sure, of the administration's recent 
decision to classify supplemental AMTA payments in the amber 
box. In light of that decision by the administration, could you 
expand a little bit on your proposal for a counter-cyclical 
proposal and whether you believe that it would be classified as 
an amber or green box proposal?
    Mr. Tallman. We were very disappointed when those were 
classified as amber, because we had fairly well been assured 
all along that they were assumed to be green box.
    We have looked at all the counter-cyclicles that everybody 
has proposed. We have been told that none of them is green box, 
some of them are green box. We feel that even though ours is 
driven off of price, it is driven off of 85 percent of acres, 
it is a guaranteed fixed decoupled payment. That was the main 
test for the AMTA to be green box.
    What we would like to see the Senate and the House do is 
tell the administration that this is something we need to fight 
for, that we need to fight to prove to the WTO that these are 
green box or that they are at least not amber.
    Like I said, we heard the other day that all of them were 
going to be classified amber from different people, so I guess 
it is just going to come down to that we are going to have to 
implement one of them and see what kind of test comes out of 
it.
    Senator Crapo. You have anticipated my second question 
here, and in fact, I will ask each member of the panel to 
respond to the second question. I agree with the point--I was 
disappointed in the determination that these proposals were 
amber box proposals. As I said, I disagree with that 
determination and hope we can find some way to resolve it 
better so that we can move forward with these types of 
proposals which I support and not find ourselves violating WTO 
requirements.
    The question comes down, however--and it may be a tough 
question that this Congress has to address in crafting this 
farm bill--if it turns out that we are not able to win that 
war, and either the administration or, on a broader scale, the 
entire determination under WTO is that these counter-cyclical 
proposals are amber box proposals--and this is what I would 
like each of you to give me your thoughts on--should this 
Congress proceed with counter-cyclical proposals that support 
our producers, or should we proceed in crafting proposals that 
we know are WTO-compliant?
    Mr. Tallman. Well, to the degree that we have to stay 
within our amber box commitments, there is quite a great deal 
of leeway, $19 billion or so that we can put within amber box 
every year. We need to maximize that allowability to use our 
amber box commitment, and one of the advantages of a counter-
cyclical program, to answer Senator Lugar's concerns, is that 
if you tie it back to current production to farmers, it rewards 
those farmers who are the most productive and penalizes those 
who are least productive, and also when prices return to a 
normal level, that level of support would be diminished.
    Senator Crapo. Are there any other thoughts on the panel?
    Yes.
    Mr. Denison. The first thing that I would like to say is 
that we have got to go back to the trade round and recognize 
that Europe and Japan and the major protectionist countries 
gave up far less than we did. That is the first thing we have 
to realize when we talk about domestic support.
    The second thing we need to recognize--and I served on the 
APAC Committee to the last U.S. Trade Representative and the 
last Secretary of Agriculture--if we were able to base domestic 
supports on a straight percentage of our gross domestic product 
value of agriculture in each country, then, basically, 
everybody else would have to come down substantially just to 
meet where we are.
    The third point I want to make is that there is another 
blue box in the current trade-negotiated pie that fits only 
Europe, and I think that if the House version gets any 
momentum--and I am not necessarily declaring whether we are 
totally in support or whatever--but if that gains momentum, and 
you go back to a target price system, it is possible that you 
might be able, with some ingenuity of our trade lawyers, to 
utilize that blue box in whatever domestic support Congress 
chooses to come forth with.
    We do need to persevere in our trade negotiations, because 
for the rice industry, we are probably the most discriminated 
commodity in world trade. Japan as a 1,000 percent tariff on 
our products; Europe, 150 percent; many of the Southern 
Hemisphere countries, as much as 45 to 50 percent. If we are 
going to transfer our income from the Treasury to the 
marketplace, we absolutely in the rice industry, as Senator 
Lugar pointed out so well and Chairman Harkin, have got to have 
more trade access. Cuba, with 350,000 tons annually, 90 miles 
away from the rice country, we totally have no access to.
    That is the first place where Congress can go if you want 
to redirect the income coming into farming. I know that I am 
preaching to the choir.
    Senator Crapo. Mr. Tallman.
    Mr. Tallman. We will attempt to stay under WTO limitations. 
We think it is more important to keep growers in the field, on 
the farm. every one may not, but we have got to try to protect 
as many of them as we can. I agree with a lot of what he said, 
that if we do not pass a strong agricultural policy, we go to 
the WTO negotiations with nothing to negotiate, because we have 
already given much too much of it away, in our opinion.
    Senator Crapo. Thank you.
    Mr. Echols. I would agree exactly with Mr. Tallman.
    Senator Crapo. Thank you very much.
    The Chairman. Thank you, Senator Crapo.
    Let me pick up on the trade issue. I have supported all the 
trade bills that have come before Congress and believe in the 
globalization of trade as long as it is fair. As Senator Conrad 
has pointed out many, many times with his charts, I think that 
if you lock in a trade agreement where you have huge imbalances 
between what Europe is doing for its farmers and what we have 
done, and you lock those into a trade organization, then we are 
always at a disadvantage.
    I do not necessarily worship at the altar of this World 
Trade Organization. It is OK, and I know that we have got to 
proceed down that path, but not blindly and not just agreeing 
to keep in these distortions that we have had in the past, 
especially with Europe and a few of our other trading partners 
and especially when they have been so hard on accepting any of 
our new biotech crops that we are producing in this country, 
and they have no scientific basis for that whatsoever. They are 
purely dragging their feet on it and causing us a lot of 
consternation because we can grow more effectively and 
efficiently using biotech, yet they will not accept it.
    Again on the trade aspect, we have two programs that many 
of you spoke about in your testimony--the Foreign Market 
Development Program, the cooperator program, and the Market 
Assistance Program, both about which I feel strongly and 
hopefully, this committee will look upon favorably as we 
develop the farm bill and try to increase the level of support 
for those two programs.
    Let me ask a question about some more pertinent things to 
what we are talking about in terms of crop commodity programs. 
If I am not mistaken, Mr. Tallman, you basically argue to 
maintain our historical bases; Mr. Denison, you talked about 
updating our bases. I do not know what you said at all, Mr. 
Echols.
    Mr. Echols. We need the flexibility to either update or 
maintain base.
    The Chairman. I want to ask you a question about these 
bases, because if we maintain, Mr. Tallman, the historical 
bases, you are locking in planting processes and patterns that 
are almost 25 years old, and that has no relevance to what 
people are doing today.
    I hear more and more from my farmers in the Midwest that we 
need to update our base acreage, because it is just not 
relevant to what is happening today.
    I will just throw that out again for any comments that you 
have, because I want to know why there is this discrepancy. 
More than anything, I hear from farmers that we have to update 
our bases to reflect what we are doing today.
    Mr. Tallman. Part of our concern when we ask to remain with 
the historical basis is because we feel that over the last 4 or 
5 years, both crop insurance and the loan rate have influenced 
planting decisions. We think that some of the wheat ground that 
has been switched to oilseeds has come about because of loan 
rates, and also crop insurance is very favorable to some crops 
as opposed to others.
    Our biggest concern with updating them was that if we just 
use the last 5 years--we have 30 to 40 years of history that 
are good planting history--if we just update them to the last 4 
or 5 years, or I guess it is 5 or 6 years now, that is a very 
short snapshot of planting decisions by producers. We at least 
think that if we are going to update them, it ought to be a 
weighted average taking into account some of those past years.
    The Chairman. Other thoughts or comments?
    Mr. Canon.
    Mr. Canon. We agree with Mr. Tallman that you should not be 
penalized for operating under a system over the last Farm bill 
that allows you to have flexibility and then, at this date, 
penalizes a man for exercising that flexibility.
    Senator Harkin. I agree with that. That is a good 
observation.
    I have just a couple of last things for all of you. Do you 
believe that marketing assistance loans and LDPs have had a 
price-depressing effect in your commodity market? I have heard 
a lot about that. In other words, if you have a good position 
in the market, the lower the prices go, the bigger the LDP you 
get, and if you get that big LDP, you can market your grain 
leaders. It has a price-depressing effect. I have heard that 
from many, many producers.
    Again, Mr. Echols, Mr. Tallman.
    Mr. Denison. Mr. Chairman, I will react to that. 
Unfortunately, I think many of our farmers still do not 
understand the mechanism of the marketplace. For the rice 
industry, particularly in the last two years, we have worked 
very closely with USDA, and we believe that that lower market 
price that is being set accurately reflects the world market 
price out there. Had it not been for the lowering of the world 
market price and the increasing of the LDP, we would have had a 
lot more rice going into commodity credit and further 
depressing prices to the farmer.
    Yes, you are right, some farmers believe that, but no, the 
market reality is I do not believe that it does. It 
accomplishes the original goal that Senator Cochran and some of 
the earlier leaders had--generally, it makes us competitive 
with the world, and I think it is an important tool for the 
rice industry. We strongly support it.
    Mr. Tallman. I do not think it has been price-depressing in 
wheat. We still feel that just good wheat years has been price-
depressing in wheat. We have grown an awful lot of wheat 
worldwide. It has probably actually made most producers a 
little more acquainted with the market; it gives them something 
else to watch. A lot of people do not market with an awful lot 
of strategy. They get to play a little game at the local 
elevator of who can get the highest LDP, not just who can get 
the highest price.
    It has helped clear the market; it has put a floor under 
the market basically at the loan rate, so I do not think it has 
been depressing to the price.
    Mr. Echols. I agree. I do not think it has been depressing 
on price, especially not this year. For most of the producers 
this year, the LDP was very small in cotton earlier--it was 
something like 2 cents--and then, after our domestic industry 
fell apart, it has gone to 20 cents, but they did not benefit 
at all, and that was not the reason why that happened.
    The Chairman. Again, Mr. Echols, there was an article in 
The New York Times just yesterday about cotton--maybe you saw 
it--but it is buzzing around. It quotes a farmer who says, 
``'God, I hated growing soybeans, hated it with a passion,' 
said Vern Pruitt, who farms 3,000 acres of rich loam here in 
Mississippi's Delta region, 'but I love growing cotton.' This 
year, the numbers finally clicked back into position, and for 
the first time in 37 years, there are more acres of cotton 
planted in Mississippi than soybeans.'' Then, it says ``But 
there is little pride in farmers' voices as they explain why 
they collectively gave up on beans and sowed cotton this year. 
As much as they love growing cotton, farmers are almost ashamed 
to admit the reason for their choice is that soybean prices 
have plunged because of foreign competition, while cotton 
prices, though just as low, are being propped up by Federal 
farm subsidies.''
    ``Cotton prices in fact have sunk to a 15-year low of about 
38 cents a pound, a bit more than half of what it costs to 
grow.'' Yet we have more acres planted to cotton. This bedevils 
us.
    Mr. Echols. That bedevils all of us. We need to examine the 
insurance program; There are some potential problems there. 
Granted, cotton does have a program that is a little more 
favorable than perhaps beans were, but I think I am as 
bedeviled as the writer of that article as to why this has 
happened.
    The Chairman. I just raise this because--and I do not swear 
by it just because it is in The New York Times, I want you to 
know that--but things do tend to bounce around here a lot.
    That is really all that I wanted to bring up. Senator 
Lugar, do you have anything else?
    Senator Lugar. Just a quick comment. I appreciate your 
mention of the cotton article. I would just say, not in behalf 
of cotton, but that the bean loan rate in Indiana is $5.46. The 
market price for beans has not come close to that for ions. I 
know that on my farm, every bushel of beans that I can produce 
this year is going to get $5.46. That is quite an incentive.
    I would just say that our whole structure of these payments 
is bedeviled by these anomalies in which people are obviously 
making choices, usually for beans as opposed to corn in 
Indiana, because LDP is $1.89. Even there, and following up on 
the chairman's question, there is a good number of corn farmers 
in Indiana who are very good farmers, and they have the right 
kind of soil and so forth. In terms of their marginal cost for 
each additional bushel, it is an incentive for them to produce 
a lot more just to get their $1.89. Others are lamenting that 
this is a floor and a very sad situation. Some who are very 
good at it are saying this is an incentive.
    However you look at it, the Crop Insurance Program--and I 
supported that as did the chairman--we think is a very 
important safety net for American agriculture. As one of you 
pointed out, a good number of our farmers are still just 
discovering the crop insurance business. They cannot find 
agents, I suppose, or people who can explain it to them, but it 
is amazing the percentages of farmers in America who might have 
that benefit of a highly federally subsidized insurance who are 
not signed up for it, or if they were signed up, presumably, 
the subsidy would be even higher--it may be at $3 billion as it 
stands this year. To say the least, a lot of marginal land in 
various parts of our country is being planted with the thought 
that if it fails, they are a pretty good safety net for it even 
at 85 percent of anticipated revenue.
    How we work all of this through, I do not know, but we need 
your expertise in trying to think through it, because very 
clearly, we are seeing the capitalization, as has been pointed 
out, of payments into land; we are seeing more problems for 
young farmers; the elderly farm population is retiring, not 
failing, but retiring, and the young farmers are trying to rent 
this land essentially from people who have estates who are 
leaving the land. These are serious human problems in addition 
to the ones of price that we have been talking about.
    If you can, as I said, give us a second effort, we would 
appreciate it, because these anomalies are not going to go 
away; either that, or the Congress in sort of broad brush 
strokes will simply send the money. It will have ricochets in 
each of your industries without sophistication as to why people 
choose and why overproduction might occur which depresses 
prices, and if they have been depressed for 5 years, they will 
be depressed for 5 more if we do the wrong things--encourage 
overproduction even when we are trying to save every farmer.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Lugar.
    Senator Miller, did you have any followup?
    Senator Miller. No, Mr. Chairman.
    The Chairman. How about set-asides? Do you any of you have 
any thoughts on set-asides as a condition for program 
acceptance, entrance, set-asides?
    Mr. Tallman. Yes, Senator. The National Association of 
Wheat Growers is opposed to a mandatory set-aside. We have had 
some discussions among the States of different types of 
voluntary set-asides.
    Supply management has not worked the best in the past. We 
seem to have exported wheat acres to other countries rather 
than exporting wheat when we have reduced our acreage here in 
this country. That would be something else that I guess could 
be discussed.
    The Chairman. I want to thank you all very much for your 
excellent testimony. As you can see, we do have a bit of a 
problem to work through with the budget that is facing us and 
with world trade, so we ask for your continued involvement and 
your continued observations of what we are doing and your 
continued suggestions and advice. We appreciate it very much.
    Thank you all.
    The Chairman. I now call forward our second panel.
    Mr. Jack Roney is Director of Economic Analysis for the 
American Sugar Alliance.
    Mr. Art Jaeger is Assistant Director of the Consumer 
Federation of America, on behalf of the Coalition for Sugar 
Reform.
    Mr. Armond Morris is Chairman of the Georgia Peanut 
Committee, and he is accompanied by Evans Plowden, Jr., General 
Counsel of the American Peanut Shellers, from Albany, Georgia.
    Mr. Wilbur Gamble is a producer and Chairman of the 
National Peanut Growers Group.
    We welcome all of you to our continuing hearings on the 
development of the next Farm bill and, as I said with the other 
panel, your statements will be made a part of the record in 
your entirety.
    I will ask that you try to keep your testimony to 7 
minutes, and we will start with Mr. Roney, with the American 
Sugar Alliance.

         STATEMENT OF JACK RONEY, DIRECTOR OF ECONOMIC 
         POLICY AND ANALYSIS, AMERICAN SUGAR ALLIANCE, 
                      ARLINGTON, VIRGINIA

    Mr. Roney. Mr. Chairman, Senator Lugar, members of the 
committee, thank you for the opportunity to testify here today. 
I am Jack Roney, Director of Economics and Policy Analysis for 
the American Sugar Alliance. I am proud to speak on behalf of 
American Growers, Processors and Refiners of sugarbeets and 
sugarcane--172,000 farmers, workers, and their families, in 27 
States, employed directly and indirectly by the U.S. sugar-
producing industry.
    I would like to describe to you the current plight of 
American sugar farmers, the financial and policy crises we are 
facing, and the legislative remedy that will work best for 
American sugar farmers, consumers, and taxpayers.
    Producer prices for sugar began to decline four years ago 
and plummeted in the past two. Wholesale refined sugar prices 
have been running at 22-year lows. Since 1996, 17 beet and can 
processing mills have closed or announced their closure. Other 
mills threaten closure. The Nation's largest seller of refined 
sugar is in bankruptcy.
    As a result of these low prices, last year for the first 
time in nearly two decades, sugar producers forfeited a 
significant amount of sugar to the Government. The forfeited 
sugar is overhanging the domestic market. Additional 
forfeitures are likely this summer, unless prices recover.
    American consumers have received no benefit from the 
disastrously low producer prices for sugar. In fact, grocers 
and food manufacturers have continued to raise retail prices 
for sugar and sweetened products. I am sure the consumer 
representative on this panel will address the issue of grocers 
and food manufacturers converting lower producer prices for 
sugar entirely into higher profits for themselves rather than 
into any savings for consumers.
    Trade policy problems are at the core of our oversupply 
problem. The Government is no longer able to limit sugar 
imports sufficiently to support prices and avoid sugar loan 
forfeitures.
    International trade commitments--the WTO and the NAFTA--
require the United States to import as much as 1.5 million tons 
of sugar per year, essentially duty-free. That is about 15 
percent of our consumption. We must import this foreign sugar 
whether we need it or not. Mexico wants more--Mexico is 
disputing NAFTA sugar provisions and demanding unlimited duty-
free access to the U.S.
    To make matters worse, U.S. borders no longer effectively 
control the entry into the U.S. market of subsidized foreign 
sugar outside the quota. These non-quota imports are rising and 
are out of control.
    There are two main problems. First, a sugar syrup called 
stuffed molasses, concocted solely to circumvent our import 
quota, continues to enter through Canada and from other 
countries despite a U.S. Customs Service ruling to stop it. 
Second, the NAFTA reduces the so-called second-tier tariff on 
Mexican sugar and Mexican sugar only to zero by 2008. Second-
tier entries from Mexico have occurred and virtually unlimited 
amounts are possible.
    We ask the committee members to support legislation to 
resolve the stuffed molasses circumvention--the Breaux-Craig 
bill, S. 753--and to support administration efforts to 
negotiate a workable solution with Mexico.
    The policy path we are recommending can be effective only 
if the United States regains control of its borders through 
resolution of the stuffed molasses and Mexican access problems.
    The policy that we recommend has four basic elements: No. 
1, continue the non-recourse loan program; No. 2, retain the 
Secretary's authority to limit imports under the tariff rate 
quota system, consistent with WTO and NAFTA import obligations; 
No. 3, operate the program at little or preferably no cost to 
the Government; No. 4, resume and improve the permanent-law 
sugar inventory management mechanism. Such a mechanism would 
balance domestic sugar marketings with domestic demand and 
import requirements, would provide stable market prices at a 
level sufficient to avoid sugar loan forfeitures, and can be 
administered by the Government at little or no budgetary cost.
    Since the Government requires us to reserve such a large 
share of our market for foreign producers and is currently 
unable to limit overall sugar and syrup imports, and because 
American sugar farmers remain committed to earning their 
revenues from the marketplace rather than from Government 
payments, it is essential that the Government regain control of 
our borders and resume potential limits on our sugar 
marketings.
    An inventory management mechanism for sugar can be designed 
in a manner that does retain planting and production 
flexibility for farmers and processors; that does not provide 
producers an incentive to increase marketings to maximize 
market shares should the control measures be imposed; and that 
does ensure that only producers who expand marketings in excess 
of the rate of growth in domestic demand would be required to 
curtail marketings when the program is in effect.
    The sugar industry is working diligently with the Congress 
and the administration to solve the immediate sugar policy 
threats--stuffed molasses and Mexico--and to address the 
current surplus sugar situation.
    We are eager to work with Congress and the administration 
on the basic changes to U.S. sugar policy that will restore 
long-term economic viability to American sugar farmers with 
ample benefit for our consumers and at little or no cost to 
American taxpayers.
    We thank you again for the opportunity to testify.
    The Chairman. Mr. Roney, thank you very much for your 
testimony.
    [The prepared statement of Mr. Roney can be found in the 
appendix on page 137.]

         STATEMENT OF ART JAEGER, ASSISTANT DIRECTOR, 
 CONSUMER FEDERATION OF AMERICA, WASHINGTON, DC, ON BEHALF OF 
                 THE COALITION FOR SUGAR REFORM

    Mr. Jaeger. Thank you very much, Mr. Chairman.
    I am pleased to be here today on behalf of both the 
Consumer Federation of America and the Coalition for Sugar 
Reform. CFA is a nonprofit association of approximately 285 
pro-consumer organizations nationwide. The Coalition for Sugar 
Reform includes trade associations representing food companies 
and cane sugar refiners. In addition, it includes taxpayer 
advocacy groups, consumer organizations like CFA, and 
environmental groups.
    Our coalition opposes the Federal sugar program and has for 
many years, for reasons that have been detailed before this 
committee many times. We do not oppose sugar producers. The 
distinction is important at this point, because today's sugar 
program, as we have heard from Mr. Roney, is not just 
overcharging consumers and food companies; it is not serving 
the growers well, either.
    Much has changed since Congress last addressed the sugar 
program in a farm bill--that was 1996. As we heave heard this 
morning, domestic sugar production is up almost 25 percent--or, 
we have heard that it is up--it will be up 15 percent this 
year. Meanwhile, imports have fallen by 40 percent. Growers' 
comments to the contrary, imports are not the problem here. The 
problem is our high sugar price support which has led to an 
unmanageable surplus of sugar.
    In 1996, the Government owned no sugar. Last year, USDA 
acquired more than a million tons of sugar. It purchased sugar 
in the spring and then acquired much more through forfeitures 
later in the year.
    As we have heard, today the Government is spending more 
than $1 million a month--that is $1 million a month--simply to 
store this surplus sugar. In 1996, there had been no recent 
forfeitures, and there was little likelihood of forfeitures. 
Today forfeitures are a given--fewer this year than last, 
probably, but still a substantial cost to taxpayers. In 1996, 
the sugar program resulted in no direct outlays of taxpayers' 
dollars; last year, taxpayers spent $465 million, almost half a 
billion dollars, on the sugar program.
    Finally, in 1996, the sugar program's effect on employment 
was not as evident as it is today. In the past year, the cane 
sugar refining industry, again as we have heard, has been 
devastated by the collapse of refining margins. In addition, 
Chicago's candy industry has been threatened by plant closings 
that are partly the result of the high Federal support price.
    In the face of these developments, supporters of the sugar 
program, I think somewhat incredibly, suggest increasing the 
price support, both directly and indirectly. There has been a 
suggestion for rebalancing of the sugar loan rate and a 
suggestion that we get rid of the one-cent per pound 
forfeitures penalty. The forfeiture penalty reduces Government 
costs by reducing the price at which a rational processor would 
forfeit his sugar. Abolishing the forfeiture penalty will 
increase the support price by one cent.
    The Coalition for Sugar Reform has to ask how can the 
solution be a higher price support that will only trigger more 
sugar production. The problem that we have already is too much 
sugar. Despite lower than normal prices--and the prices are 
down--sugarcane acres are forecast to rise 3 to 5 percent this 
year. What will happen if supports are even higher?
    Growers and processors also propose marketing allotments. 
Congress repealed allotments in 1996 along with production 
controls for almost all other commodities. Allotments too will 
only make things worse by widening the spread between the U.S. 
and the world price.
    The Coalition for Sugar Reform strongly supports H.R. 2081, 
the so-called Miller-Miller bill, which would phaseout the 
sugar price support and expand the tariff rate quota. H.R. 2081 
was introduced by 53 House Members representing a range of 
regions and ideologies.
    This bill does not exhaust the possibilities for reform. 
Our Coalition has four principles that it would suggest for any 
changes in sugar policy this year. First, policy should allow 
the market to operate in a manner that supplies are adequately 
balanced. Shorting the market through production controls 
should be off the table.
    Second, our markets need to be more open to world supplies. 
Imports are important to meeting our trade obligations and 
encouraging expanded markets for our agricultural exports, as 
we have heard this morning.
    Third, our policies should not provide incentives for 
overproduction. The current support system clearly has 
encouraged too much sugar production. That needs to change.
    Finally, market prices must be better able to fluctuate 
with supply and demand. Too often in the past, the price 
movements have been the result of Government policy changes, 
not the marketplace. That too must change.
    Thank you very much, Mr. Chairman. I will be happy to 
answer questions at the appropriate time.
    [The prepared statement of Mr. Jaeger can be found in the 
appendix on page 182.]
    The Chairman. Thank you very much, Mr. Jaeger.
    Now we turn to Mr. Armond Morris, Chairman of the Georgia 
Peanut Commission, from Ocilla, Georgia.
    Welcome.

     STATEMENT OF ARMOND MORRIS, CHAIRMAN, GEORGIA PEANUT 
                  COMMISSION, OCILLA, GEORGIA,

ACCOMPANIED BY EVANS J. PLOWDEN, JR., GENERAL COUNSEL, AMERICAN PEANUT 
            SHELLERS ASSOCIATION, ALBANY, 
            GEORGIA.
    Mr. Morris. Thank you, Mr. Chairman.
    Mr. Chairman, members of the committee, I am Armond Morris, 
Chairman of the Georgia Peanut Commission, from Ocilla, 
Georgia. Today I am representing a coalition of State peanut 
organizations from across the country: The Georgia Peanut 
Commission, the Georgia Peanut Producers Association, the 
Florida Peanut Producers Association, and the Panhandle Peanut 
Grower Association, the Western Peanut Growers Association, and 
the North Carolina Peanut Growers Association--approximately 
two-thirds of the peanuts produced in the United States. Thank 
you for allowing us to testify before your committee on our 
plan for the future of the peanut program.
    In 1993 and 1994, the passage of the NAFTA and the GATT 
trade agreements, respectively, changed the way peanut growers 
have conducted business. Minimum access for other peanut-
exporting countries caused reductions in our poundage quotas. 
The export market for U.S. growers is virtually nonexistent. 
Export and domestic marketing promotion moneys are the right 
strategy for the peanut industry but have little chance for 
success with our current pricing structure.
    This is just the beginning of the problem. As tariffs 
decline under NAFTA and with the very real prospect of a Free 
Trade Area of the Americas Agreement by 2005, we will see a 
continued increase in access to our markets by foreign-produced 
peanuts. The current peanut program's effectiveness will 
continue in its current downward spiral. This spiral must be 
stopped.
    Evidence of this downward trend occurred in the last few 
appropriation cycles. Peanut growers came to Congress for help 
to offset peanut program costs for our ``no net cost'' program. 
If the no net cost program remains in its current form, growers 
will have to come back to Congress to ask for help. The losses 
will increase year after year due to increased imports. This 
die has been cast. Our coalition of the largest peanut growing 
areas of the country, producing the majority of U.S. peanuts, 
wants to break this trend. To save the peanut industry in the 
United States, we have to develop a peanut program that 
responds to the marketplace. The Congress made sweeping changes 
to farm programs in 1996, but the peanut program remained 
structurally intact.
    Now it is time to transform our program to meet the 
variables of the future. Are these trade agreements to be 
reversed? Will Congress reject the Free Trade Area of the 
Americas initiative? I think not.
    We believe that we have a plan that keeps American 
producers competitive in America and the world marketplace. Let 
us compete. Let us reverse a trend that does not allow our sons 
and daughters to come back to the farm that breeds depression 
among growers and prevents any form of long-term business 
planning. Our proposal is a plan for the future.
    On transition payments, the first part of our plan is to 
establish transition payments based on the historical quota. 
The quota would be suspended just as bases were in the last 
Farm bill. Payments would be made to the quota-holder for the 
life of the Farm bill, not less than 5 years, at a level of 14 
cents per pound. Peanut quotas have been capitalized into farm 
values, and in many cases, producers carry debt based on the 
purchase of these quotas. These quota-holder payments need to 
be made exclusive of payment limits. The 14-cent annual payment 
is an approximate average peanut lease rate in the State of 
Georgia, the largest peanut-producing State.
    For our cost estimate, we used the 2001 quota level of 1.28 
million tons of farmer stock peanuts. This results in a 
projected annual Government cost of approximately $358,400,000 
per year. Since these payments would be decoupled from 
production, they would not be subject to any WTO constraints. 
For purposes of this transition payment, the quota should be 
held at the 2001 level for the life of the Farm bill.
    The second component of our plan is to establish a 
marketing loan program for peanuts, the same structure 
developed by this committee for other commodities. After grower 
meetings in counties across the country, we suggest a $500 loan 
rate. We feel, based on a Texas A & M study, that this is a 
reasonable level in comparison to other commodity program 
prices. This level of support providers growers with a safety 
net while allowing growers to compete in the market with 
foreign imported peanuts.
    Payments resulting from the marketing loan should not be 
subject to payment limitations. Farmers have to get larger to 
survive. Still, these farms are family farms that need some 
form of safety net on all the commodities they produce. The 
current payment limit structure inhibits farmers from obtaining 
adequate financing at local banks in many cases. If the 
elimination of payment limits cannot be accomplished in this 
farm bill, we propose that the payments would be in the form of 
generic certificates that allow the grower marketing options to 
manage the payment limits.
    Because we are significantly reducing our support rate, we 
request that the committee consider an annual escalator based 
on the increase or decrease in the cost of production that 
would be applied to the marketing loan rate. This would be tied 
to the Consumer Price Index with a maximum increase or decrease 
of two percent per year of the total loan rate.
    We have included a chart with the potential Government 
exposure using data from the University of Georgia and the U.S. 
Department of Agriculture. In developing these cost estimates, 
production figures from each peanut-producing State have been 
based on that State's maximum annual production during the 
period 1978 to 2000. The total U.S. production based on these 
figures amounts to 2.7 million tons, which reflects a 50 
percent increase in production over the current production 
level.
    The peanut production of many States today is significantly 
below the maximum it attained in the past that has been used in 
our cost estimates. The estimated cost of our proposed 
marketing loan program should be approximately $350 million per 
year. The repayment price would be based on the world market 
price using Rotterdam as the reference point. This does not 
reflect any increase in the marketing loan rate over the life 
of the legislation.
    We understand that in making this transition to a more 
market-oriented program, there are some questions that will not 
be answered until the new program is in place. For that reason, 
we are suggesting a safeguard against excessive Government 
costs.
    Currently, we are charged with $347 million for our level 
of support under the Uruguay Round of the GATT. We suggest that 
if loan deficiency payments exceed $350 million, the Secretary 
of Agriculture is given the authority to limit loan eligibility 
based on prior production history. This would involve 
structuring an incentive based, proven recent production 
history, that only becomes active in the event the Secretary 
determines that it is necessary for the U.S. to stay within its 
GATT commitments.
    Mr. Chairman, as peanut leaders, this has been a difficult 
road in determining the best program proposal for the future of 
the peanut industry. We believe that we are on the right track 
in developing a program that works for growers.
    We recognize the investments in quota over the years, and 
we have sought a remedy to protect those investors. Our highest 
priority is the future of the industry. We will gain back the 
consumption lost to imports and at the same time will be more 
competitive in the export market. This program will put money 
back into our rural communities as our growers prosper.
    Again, I appreciate you allowing us to present our 
testimony this morning. We are glad to answer any questions at 
the appropriate time.
    Thank you.
    The Chairman. Mr. Morris, thank you very much for your 
testimony.
    [The prepared statements of Mr. Morris and Mr. Plowden can 
be found in the appendix on page 192 & 199.]
    The Chairman. We will now turn to Mr. Wilbur Gamble, 
producer and Chairman of the National Peanut Growers Group, 
from Dawson, Georgia.

           STATEMENT OF WILBUR GAMBLE, PRODUCER, AND 
    CHAIRMAN, NATIONAL PEANUT GROWERS GROUP, DAWSON, GEORGIA

    Mr. Gamble. Thank you, Mr. Chairman, for this opportunity 
to discuss options for a new farm bill. Peanut producers want 
and need your support.
    My name is Wilbur Gamble. I am a farmer from Dawson, 
Georgia. I will summarize my written comments.
    I am here today representing the National Peanut Growers 
Group, and my purpose is to help sustain thousands of active 
farm families in peanut production. Our organization is the 
only national peanut producer organization and represents all 
of the Nation's peanut-producing families. All growing areas 
are represented on the NPGG.
    The peanut program is absolutely necessary to peanut 
producers. U.S. producers are dependent on this program. 
Additionally, consumers and manufacturers are dependent upon a 
program that provides a safe and economical supply of peanuts.
    We are told that about 80 percent of all U.S. peanuts are 
sold to only two processing companies. One of these companies 
is owned by one of the Nation's largest agribusiness 
processors. What marketing ability does a small family farmer 
have in this situation? The clear answer is very little without 
the peanut program.
    As compared with the program before the current law, peanut 
producers have lost 10 percent of the peanut support price, 
resulting in a loss in income of millions of dollars to peanut 
producers. Growers also lost the escalator provision in this 
current program. Thus, the peanut support price and thus, farm 
income from peanuts, have been frozen since 1996.
    There has been essentially no benefit to the housewife from 
these losses to producers. Consumer peanuts and peanut butter 
price are higher today than they were in 1955.
    Mr. Chairman, we have two recommendations for this 
committee, short-term and long-term.
    Short-term, peanut producers must receive market loss 
payments as have been made available the last two years. Again, 
we are deeply appreciative to you and to this committee for 
helping to make those payments available to peanut producers.
    In the long term, Mr. Chairman, despite the value of the 
peanut program, peanut producers realize the political 
realities in Washington involving budgets, trade agreements, 
and anti-program proponents. The National Peanut Growers Group 
has voted on various options for consideration as a new farm 
bill begins and present to you today a description of the 
option we feel is best for the taxpayer, consumers, processors, 
manufacturers and, most important, the farmers.
    In reviewing the options to make producers competitive with 
imports and at the same time offering the consumer a product 
with no domestic price disadvantage, the Step 2 concept/market 
competitiveness option, similar to cotton, is viewed as the 
most viable option by the National Peanut Growers Group.
    Under this option, producers are offered a price support 
level that will allow them to keep up with the cost of 
production. Additionally, the processor will be afforded a 
peanut that is priced competitively to imports. This will also 
answer consumer advocacy organizations that wrongly contend 
that U.S. peanuts artificially drive up retail prices, although 
we believe that this is not the case. Finally, we believe the 
cost associated with this option will be below the current WTO 
support levels attributed to peanuts. This option would allow 
the domestic poundage to be bought at a price competitive with 
other origins.
    The quality of U.S.-produced peanuts continues to be 
generally superior to imported peanuts. A domestic 
competitiveness option for peanuts would be helpful to 
processors and would ensure that U.S. consumers continue to 
have high-quality peanuts available. The processor would be 
buying based upon quality and delivery. The marketing option 
for any production above the domestic consumer level then could 
be enhanced by an increased lower level for additional or 
export production.
    As is mentioned in the written testimony, this is the only 
proposal that keeps total cost under control, estimated well 
below the attributed AMS level of $347 million.
    The competitive revision is also a cost-containment 
provision. By limiting domestic supply to domestic average 
consumption, the cost of this option is limited through supply 
management. This is based upon the only official measurement of 
support. In a USDA referendum, 94.8 percent of all peanut 
producers supported a supply management program. Also, about 85 
percent of producers oppose the marketing loan concept 
according to responses to a recent peanut growers' magazine 
poll.
    In addition to providing the producer a cost-of-production 
adjusted support rate, the processor is buying on quality and 
delivery. Therefore, there would be no price incentive to 
purchase foreign peanuts, and it would reduce the need for 
tariffs that are currently being reduced under trade 
agreements. At the same time, this would not be considered 
trade distortion, because there is only leveling of the market 
and not undercutting the market.
    We feel that the best containment tool is the use of a 
supply management mechanism. This is not to control the amount 
of peanuts grown, but to control the amount eligible for 
domestic support. There would be no planting restrictions.
    We also believe that the Federal-State Inspection Service 
is a pivotal part of delivering quality peanuts to the 
processor.
    The NPGG supports a farmer stock price support adjusted for 
inflation.
    Additionally, we support a cost of production adjustment 
provision that would be adjusted annually at a rate of not less 
than 2 percent, using the Consumer Price Index. We recommend 
that peanuts grown for export be allowed to move into the 
domestic market if a shortage occurred.
    The market competitiveness Step 2 option brings about a 
condition enabling the producer to stay viable and keep up with 
the cost of production. This option also creates minimal 
Government outlays with positive returns for the producer, the 
processor, the manufacturer, and the consumer.
    Mr. Chairman, on behalf of the National Peanut Growers 
Group, we thank you for this opportunity and would be happy to 
try to answer any questions that might be asked.
    Thank you.
    [The prepared statement of Mr. Gamble can be found in the 
appendix on page 204.]
    The Chairman. Thank you very much, Mr. Gamble. I appreciate 
your testimony. I am trying to weave through it and figure out 
what you are proposing. I am going to start with you because I 
just want to know a little more about your proposal.
    You say there would be no planting restrictions, and that 
only an amount of peanuts equal to domestic consumption would 
be eligible for the domestic support rate. How does the quota 
fit into that?
    Mr. Gamble. You could move the quota system to a base 
system similar to other crops, and you would have your base, 
and that would be the same as what the quota is, and the farmer 
would receive a price that could be set, I would suggestion 
somewhere around $6.80. If it were set at $6.80, and the lower 
price were $500, that price between the two prices would be the 
cost to the Government. If you had 1,280,000 tons at $180 ton, 
you would have approximately $230 million, and that would be 
the total cost. There would not be any other cost incurred. 
That would enable the manufacturer to buy peanuts at grower 
price, so there should not be any reason for them to want to 
buy an excessive amount of foreign peanuts, which we should 
gain back part of the market we have already lost; plus, to us, 
it would be a far cheaper program than any other program that 
we could come up with.
    On the national board, we had a vote between the marketing 
loan and this concept, and the vote was 12 to 4 in favor of 
this concept, and it would have been 13 to 4 had the chairman 
voted. That is what it is in a nutshell.
    The Chairman. You move off a quota to a base, and then, 
someone who raised more peanuts than were allowed under the 
domestic support price, how would they market those peanuts?
    Mr. Gamble. There would be a marketing loan, but it would 
set prices similar to what additional peanuts are now, which 
should be--you would have to set it somewhere in the 
neighborhood of what oil is to be assured there would be no 
cost to the Government. Then, those peanuts could also be moved 
in the domestic market if need be.
    The Chairman. Mr. Morris, let me ask you now about peanuts. 
You suggest that a 14 cent annual payment would be the 
transition payment level. How did you come up with 14 cents? Is 
that for all sizes of peanut producers in all States? Is that 
what you are suggesting?
    Mr. Morris. Yes. That is for the base or the quota that the 
farmers have now and a lot of those people--if you go back to 
the years that they were developed, back in the forties, I 
reckon, the World War II years, peanuts was basically an oil as 
well as a staple for our soldiers abroad, and that was back 
when you had the allotment system, and that is when it was a 
developed acreage system. Then, it transitioned in around 1977 
into a quota system.
    If you go back to the family farmers and those who have 
developed the quota and peanut basis and those who have bought 
peanut bases, and this would be a decoupling or a buyout-type 
program because of the moneys that are loaned to these peanut 
farms and these farmers who have loans on their farms, and this 
would be a transition to help them recover the costs because of 
the fact that they had to buy this peanut quota or they 
developed it through their family farm.
    The Chairman. On the sugar side, Mr. Jaeger says that 
imports have fallen 40 percent, yet, Mr. Roney, I was under the 
impression that imports from Mexico and stuffed molasses were 
increasing in this country. How am I going to square these two 
testimonies?
    Mr. Roney. Mr. Chairman, had we been able to reduce imports 
adequately to rebalance our market, we would not be in the 
crisis that we are in now. Our imports have fallen from about 
2.25 million tons just as recently as four years ago to the WTO 
minimum. What would have balanced our market would have been to 
reduce our imports further to about three-quarters of a million 
tons. Our imports have varied over the last 20 years from 3 
million tons to about three-quarters of a million tons, with 
variations in domestic production and consumption. What we are 
up against now is the problem that WTO and NAFTA commitments 
force us to import one and one-quarter to one and a half 
million tons each year whether we need that sugar or not.
    The drop in imports that you mentioned has been related to 
some unusually large production during the 1998-1999 crop and 
the crop before that.
    I would note an error in Mr. Jaeger's remarks. He said that 
production is up 15 percent this year. In fact, production this 
year is down 7 percent and is expected to be flat for the 
coming year. Sugarbeet acreage is off 13 percent because of the 
closure of sugar mills in California. It is possible that our 
imports will be rising again above the minimum because of this 
further shakeout in domestic production with more of our 
producers going out of business.
    The Chairman. You said that the wholesale refined sugar 
price has plummeted nearly 30 percent since 1996, and yet you 
point out that consumers have not benefited from this.
    Mr. Roney. Yes, Senator. In fact, Mr. Jaeger's presentation 
includes a chart that shows the widening gap between the 
wholesale refined sugar price, which is the blue line in his 
chart, and the retail price, the red line.
    What we are seeing is a dramatic drop in our producer 
prices but absolutely no passthrough to consumers. The retail 
sugar price has risen 1.5 percent during the same period that 
the producer price--that is the wholesale price that grocers 
and food manufacturers are paying for their sugar--has dropped 
by nearly 30 percent. Mr. Jaeger referred to the desire to see 
more fluctuation in sugar prices. What we have seen since the 
import quota was first put into place in 1982 is fluctuation in 
domestic sugar prices only down, as far as producers are 
concerned, because every time there would be the prospect that 
we might have a short crop and market prices for producers 
might begin to rise, we have simply imported more. We have 
continually had a ceiling. Traditionally, we had a floor until 
we got into the problem in the last two years of not being able 
to reduce imports adequately to compensate for larger 
production. We have had the price fall through the floor, but 
we have always had an effective ceiling on it. Unfortunately, 
consumers have not seen any benefit in passthrough from the 
lower wholesale prices, but they have, however, enjoyed retail 
sugar prices that are essentially unchanged for 10 years. That 
one percent increase that I mentioned is pretty modest, and 
that holds for a 10-year period.
    In addition, our retail consumer prices are 20 percent 
below the developed country average. In terms of minutes of 
work to buy a pound of sugar, our sugar is about the most 
affordable in the world; only two countries have lower minutes 
of work to buy a pound of sugar--Switzerland and Singapore.
    The Chairman. Thank you very much.
    Mr. Jaeger, I have a couple of questions, but my time has 
run out, so I will come back on my second round.
    I yield now to Senator Lugar.
    Senator Lugar. Thank you very much, Mr. Chairman.
    Mr. Chairman, I have wrestled with questions regarding 
these two programs during the entirety of the time I have 
served on this committee, and the dilemma--and I hesitate to 
mention this, because my colleagues, Senator Miller and Senator 
Thomas have constituents, and they have to do the best they can 
for them--but the problem is, with both sugar and peanuts, the 
cost of production around the world in many countries is 
substantially lower than in our own.
    Leaving aside all the formulas that we have today, the fact 
is that the American people as consumers of sugar and peanuts 
as a whole, the 250 million of us, would be better off in fact 
if we were paying the lower prices for sugar and peanuts that 
would result from the worldwide competition if it were allowed 
to occur.
    There are all sorts of arguments as to why the price of 
sugar worldwide is roughly one-half what we are paying sugar 
producers in the United States, and some have said in fact that 
if we did not support our local industry, and someone abroad 
were to jack up the price and have a sugar OPEC or some cartel 
of that variety that did offer peanuts, the differentiation has 
never been as great. As we have heard today, the difference 
between 500 and 680 is sizable, and that remains to be the 
case.
    Throughout the 24 years I have served on the committee, I 
have had one success in the early eighties in the Farm bill 
with regard to peanuts. There was modest reform--it was so long 
ago, I can hardly remember what the argument was about, because 
these reforms come along so seldom. With regard to sugar, we 
have had zero throughout the entire 24 years and attempt to 
reform each time without visible success.
    In large part, I appreciate that the dynamics of this 
committee are that coalitions of support would gather among 
groups that felt threatened and circle the wagons to protect 
what was left. The public as a whole has never quite understood 
any of the formulas of the programs or the public interest, at 
least as I see it.
    Now, having said all that, there are real problems for 
human beings involved in these occupations. The quota business 
and the peanut thing is serious in the same way as when we were 
discussing tobacco reform a while back, and some of us 
suggested a buyout of quota-holders, many people who are no 
longer producing tobacco but who do have need for pensions or 
money for their children's schooling or what-have-you. It was 
really an attempt to bring closure to a chapter of American 
life in that respect.
    It might have worked except that the tobacco bill failed. 
It cost a lot of money to buy people out, even though there was 
some equity in doing that. A good number of States are now 
attempting that. Kentucky, near us in Indiana, is actively 
seeing if they can get money to these people who are in need, 
and somehow divorce the production situation from the history 
of quotas that were offered in the 1930's and remain in our 
farm programs.
    I do not know what we can do in this bill with regard to 
that. I am interested in your testimony, Mr. Morris, because 
you have made an earnest attempt with the growers to wrestle 
through this. What I would hope you would try to do more of is 
figure out how we get the differential between the world price 
and the domestic price closer so there is not what I perceive 
to be an economic loss to the United States as a whole.
    I suppose the fact is in the sugar situation there have 
been the additional environmental issues that we are wrestling 
with in a different field, and that is trying to provide money 
for restoration of the everglades. Now, this is not entirely a 
sugar cultivation problem, but that has been a large 
contributor to it. On the one hand, we have tried to boost the 
production of sugar in Florida, and there has been an 
environmental cost to that that is very substantial. It is now 
recognized as a large issue in Florida in their referendum just 
a few years ago.
    It offers still another reason for being thoughtful as to 
how much we want to promote, at least under those conditions.
    I am hopeful that the committee and the Congress as a whole 
will come to at least some movement toward the overall good of 
the country and consumers as a whole in addition to trying to 
protect the individual farmers, the quote-holders and what-
have-you who are involved, and that is a serious political 
problem.
    That is going to be my quest as we get into these 
particular titles. I am going to do the best I can to offer 
what I think are constructive ideas in this respect, but they 
will be at variance with the testimony you have given today, 
and that is why, up front, I want to indicate that, that there 
is some history of study of this and maybe a different point of 
view.
    At the end of the day, you could argue--and you may, or 
Senators may argue in your behalf--that after all, a lot of 
money is going to wheat farmers in this country, corn farmers, 
soybean farmers. We have never gotten into too much money for 
livestock producers, but even that may come along, specialty 
crops; in the last year, we had money for a whole list of 
people. You could ask, why be so fastidious about this. After 
all, we are farmers, too. Granted, we have a troubled history 
of how these programs came about, and we are always trying to 
reform them, but what is in it for us?
    I understand that. If there is a big pot of money here, the 
equities of how it goes out State by State, crop by cop, are 
difficult to fathom, leaving aside the economics of this.
    I do not know how much money there is. I am not sure how 
much the taxpayers of the country want to spend on farm 
programs as opposed to Social Security reform or prescription 
drugs for the elderly or various other things that come in this 
budget picture from the same emergency box as we take a look at 
it. That, only the political system can finally decide. We are 
dipping into that, clearly, with the farm programs that we have 
now and the ones that are being suggested.
    I will try to keep equity for peanuts and sugar in mind as 
we take a look at the equity for other groups. I appreciate, 
Mr. Chairman, this opportunity simply to make a comment, 
because I think the proposals and the sophistication of what 
has been presented are very fine and helpful to our 
understanding of the programs, but I wanted to offer a 
different view.
    The Chairman. Thank you very much, Senator Lugar.
    Senator Miller.
    Senator Miller. I welcome my friends from Georgia. It is 
good to see you, and I appreciate your testimony.
    You all are not exactly together on this thing, are you?
    [Laughter.]
    Senator Miller. When I sit here at this committee table and 
get into a situation like this, I always kind of glance up 
there over my shoulder at Herman Talmadge and wonder what he 
would do in a situation like this. I was thinking a while ago 
about that story they used to tell about Herman, when they 
asked him his position on a very difficult issue, and he said, 
``Well, some of my friends are for it, and some of my friends 
are against it, and I am for my friends.''
    You all have given me--if you do not mind my using this 
analogy in the Agriculture Committee--a tough row to hoe. I 
mean, how am I, a freshman Senator, with some wonderful people 
on this committee whom I respect and have affection for, but to 
tell you the truth, whenever I bring up peanuts, they begin to 
groan--how am I supposed to come up with what I am supposed to 
do for the industry when you all cannot come up with how best 
to advise me on what to do for the industry?
    Do you appreciate my position?
    Let me ask you this, Armond. I have read all of your 
testimony--in fact, I have read it twice. I am not sure that I 
understand exactly--it is a complicated program; I knew it was, 
and it is. If I were to meet up with you down the street in 
Ocilla--about where Charlie Harris' department store is, God 
rest his soul--and I said, ``Armond, you all are trying to take 
the peanut program in a new direction. Why are you doing 
that?'' How would you answer that, just you and me talking 
there on the streets of Ocilla? Why this new direction?
    Mr. Morris. Why the new direction?
    Senator Miller. Why the new direction--so I can understand 
it.
    Mr. Morris. The new direction being, I believe, that 
whenever the last bill was implemented and the trade agreements 
and looking at the future and where we are going and the 
tariffs being taken off of the imports coming in, I feel that 
it is going to take my peanut program with it; that my quota 
will continue to be reduced at whatever the level might be 
priced--if it is 16 or 550 or 500 or whatever. It might be that 
if there is no mechanism to be able to put my peanuts in the 
domestic market that they will continue to import those 
peanuts, those cheaper peanuts, and take my market.
    Senator Miller. Let me ask you this, Mr. Gamble. If the 
current quota peanut program does remain throughout the next 
Farm bill, and peanut imports do move in the U.S. markets as 
forecasted and as we think they are going to during those 
years, what options will the producers have if the quota 
poundage is continually reduced?
    Mr. Gamble. The program I just outlined should stop that. 
If you brought that price down to the manufacturer so that he 
could buy the peanuts at a lower price, there would be no 
incentive for him to buy them from an export market, and it 
would certainly be much, much cheaper than the marketing loan 
concept if you had a price set at, say, let us just use $680, 
but you could use a different figure--the lower the figure, the 
less the cost--but if it is $680 against $500, you would have 
$180 per ton, and you would have the same protection you have 
now in additional peanuts, and that would keep us in the 
business of competing, and it should help all parties.
    I just cannot believe that Congress is going to be ready to 
support this program, a marketing loan program that would be 
adequate to give us a proper peanut program at a cost of three-
quarters of a billion dollars a year. That is about what it 
would cost, and this other program would be around one-quarter 
billion or less. It just seems to me that we have a program 
that has worked so well for so many people for so long, and the 
people that I talk to throughout Georgia and other States in 
the national growers group, they are happy with it. If we could 
keep it, I think everybody would be happy. I would just hate to 
see us with a marketing loan program, and all of a sudden, we 
find ourselves not with a 14-cents-a-pound bite but a 2-cents-
a-pound bite, and not with a $500 support price but with a $250 
support price. Where I live, we would be out of business.
    When you get to the cost figures, it is going to be very 
clear. I believe it would work. I would think that the 
manufacturers should support it, because they would be able to 
buy the peanuts at the world price, and it would help a lot of 
our communities. When this money ripples through these 
communities where I live, we live in the lowest income-
producing area in the whole United States in Southwest Georgia, 
and it looks like peanuts follow the poorest areas of this 
Nation. I just wish you all would give it a thorough review and 
look at it, and I think you will not find it unacceptable.
    Senator Miller. Evans, you are sitting there in the middle, 
and I am sitting here in the middle. Do you have anything to 
say on it?
    Mr. Plowden. Our folks are always in the middle, Senator, 
but everybody has recognized that the trade agreements have put 
enormous pressure--both the agreements and the world trade--
there are a lot of peanut-containing products that come into 
this country that the trade agreements have not really 
affected. They increase manufacturing with peanuts of other 
origins.
    The trade agreements are driving this concern. Our people 
support the marketing loan concept. We think it supports our 
competing with other origins. In addition, it will open up 
production somewhat to younger farmers and give them an 
opportunity to get into this business, and it will be a less 
regulated environment.
    Senator Lugar has alluded to the complications involved in 
the current program and perhaps in any farm program, but the 
peanut program has developed a fairly byzantine set of 
regulations, perhaps necessary under the old program, but those 
things are costly, and they prevent innovation.
    We believe that a marketing loan concept would allow 
growers and shellers to solve problems that exist in a free 
market environment and would eliminate costly and inefficient 
and sometimes counterproductive regulations. We think the 
marketing loan will solve the import problem and will solve a 
lot of other problems as well.
    Senator Miller. My time is about up. This place is not 
exactly overflowing with people who are advocates of the peanut 
program any way you describe it. You all really need to get 
together before this thing goes much further. It is a difficult 
enough problem as it is, but to have people back in your home 
State in the industry, and one wants to go in one direction and 
one wants to go in the other, and I am up here like the ``Lone 
Ranger'' on this committee for peanuts, I really wish you could 
get together and give me a little bit better idea of what you 
all want to do.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Miller.
    Senator Crapo.
    Senator Crapo. Mr. Chairman, I would defer to Senator 
Thomas, since he has a time problem.
    The Chairman. Senator Thomas.
    Senator Thomas. Thank you. I have a little something going 
on over in my new committee today. I appreciate it.
    I wanted to question just a little bit on the sugar 
program. I listened to the ranking member's comments and need 
to have a little further discussion about it.
    The sugar program has been in effect for a good long time, 
and the last year has been one of the most difficult ones. How 
much involvement has this molasses thing and the letter in 
Mexico had in terms of the overall activity and program?
    Mr. Roney. Senator Thomas, the amounts of sugar entering--
and I believe Senator Harkin was asking about this as well--the 
amounts of sugar entering from Mexico so far are not that 
great, but what we are concerned about there is that the 
amounts could increase very dramatically over the next several 
years, and that is why we are looking at renegotiation with 
Mexico on the provisions of the NAFTA for their sugar access to 
the U.S. There is the potential that we could be swamped with 
subsidized Mexican sugar unless we have some successful 
resolution of those negotiations.
    The quantity of stuffed molasses coming in from Canada, the 
greatest year so far has been 125,000 tons. Again, that is not 
an enormous amount, but we are seeing evidence that mimicked 
products are being created as stuffed molasses was, for the 
sole purpose of circumventing the quota. We are getting 
evidence that mimicked products are coming in from Mexico and 
Brazil. We fear that unless the Breaux-Craig bill passes, 
manufacturers who see the opportunity to exploit this loophole 
will continue to grow.
    Senator Thomas. Well, if those were relatively 
insignificant numbers, how did we end up with 800,000 tons of 
excess sugar?
    Mr. Roney. The problem, Senator Thomas, is that we could 
not really adjust our import quota adequately to compensate for 
increased production. The increased production that has been 
alluded to as a result of support prices that are too high is a 
far too simplistic way to look at the increase in production 
that we have had.
    Our support price had been the same from 1985 until the 
1996 Farm bill, which reduced it effectively with the 
forfeiture penalty, and was the only commodity to have a 
support price reduction.
    Many producers dropped out of business. We had enormous 
contraction in the industry. Hawaiian production, for example, 
dropped by two-thirds and California by one-half.
    The producers who stayed in business did so by increasing 
their efficiency, enormous investment in technology to improve 
their yields, to improve the efficiency with which they remove 
sugar from cane and beets, and those technology improvements 
began to kick in.
    We also had a shift in acreage from other program crops to 
beet and cane, because those other crop producers under 
freedom-to-farm were given flexibility to plant any crop they 
wanted.
    Senator Thomas. As you know, I am a great fan of this 
program and want to continue it. If that is the case, and the 
production goes up, and there is a support price that 
encourages production, how do you begin to manage production 
with demand?
    Mr. Roney. Well, that is exactly what our proposal is, 
Senator Thomas, and that is to return to the inventory 
management program that is a permanent part of U.S. law. It was 
not repealed, as Mr. Jaeger said, but rather suspended in the 
1996 Farm bill. What that will do is restore to the Secretary a 
tool that had been taken away, and that was to limit domestic 
marketings to balance the market.
    Senator Thomas. What is your analysis of the efficiency 
comparison, domestic versus foreign?
    Mr. Roney. Thank you for raising that, and Senator Lugar 
alluded to it, and I would be very happy to comment on that. 
Senator Lugar is absolutely right--there are some countries 
that can produce sugar at a lower cost than we can. However, 
those are in the minority. There are about 130 countries that 
produce sugar. A study was done on the 102 biggest producers. I 
have the results of that finding at Figure 8 in my full 
testimony, which shows that we are the 28th lowest cost out of 
102 producers. Senator Lugar is right; there are 27 countries 
that are lower cost. I would just note two things. One is that 
most of the sugar produced in the world is produced at a higher 
cost than in the United States. Further, I would note that the 
vast majority of these countries are developing countries with 
extremely low labor and environmental standards. Mr. Jaeger 
referred to candy operations going to Mexico. That is the 
factor there. Mexican sugar prices are higher than here, but 
their labor costs are about one-tenth of ours.
    Senator Thomas. The world price, then, is not necessarily a 
world price based on production; it is a world price on 
dumping, if you please.
    Mr. Roney. Yes, sir. Those 130 countries all intervene in 
their sugar markets in some way, and classically, what they 
want to do is maintain domestic supplies, and they tend to 
overproduce. The surpluses are then dumped on the world market 
for whatever price it would bring. Figure 9 shows how low that 
dump market price has been--little more than half the world 
average cost of producing sugar.
    Senator Thomas. I am not sure I know how to pronounce your 
name, sir.
    Mr. Jaeger. Jaeger.
    Senator Thomas. With a ``J''.
    Mr. Jaeger. Correct. It is German.
    Senator Thomas. You indicated that you are not against 
sugar farmers, but your proposal would basically put them out 
of business. How do you justify that view?
    Mr. Jaeger. Well, I do not think that what we would propose 
would put all sugar farmers out of business, although that 
comment is often made by the other side.
    You have identified in your comments earlier and in the 
exchange with Mr. Roney the relevant issues here. We have a 
program that is not working anymore. It has not worked for 
consumers for years. It raises food prices--and I am happy to 
get into that with Mr. Roney in a minute----
    Senator Thomas. You are going to get into it with me, too, 
because I do not think that that is true. The difference 
between the final product and the sugar cost that goes in does 
not reflect----
    Mr. Jaeger. I will be happy to address that in a minute.
    Senator Thomas. Do not go too long, please.
    Mr. Jaeger. This program is not helping the farmer at this 
point, either. That clearly, something has to change. Our 
solution, of course, is a phaseout of the sugar program. I am 
aware of two studies that have looked at what would happen if 
we scaled back or completely eliminated the sugar program. One 
was done by FAPRI in the last Farm bill cycle. It projected 
that if you did away with both ends of the sugar program, both 
the support price and the import restrictions, the U.S. price 
would float down not to the world level but to about 15 cents a 
pound. That would generate in our view substantial savings for 
consumers and users in the range of what the General Accounting 
Office has projected for many years. At the same time, it only 
projected modest decreases in production--I think it was 11 to 
12----
    Senator Thomas. Try not to give your whole statement again, 
please. I have a few more questions that I would like to ask.
    Mr. Jaeger. --11 to 12 percent over 10 years. More 
recently, an ERS analysis just out looked at what would happen 
with a 50 percent increase in imports. It said the loan rate 
again would float down to about 14 cents, or the loan rate 
would have to float down to 14 cents to accommodate that 
increase. At the same time, production would decline only 10 to 
15 percent over 10 years.
    This does not sound like destruction of an entire industry 
to those on this side of this issue.
    Senator Thomas. Now I have forgotten what I was going to 
ask you.
    Mr. Jaeger. Would you like me to----
    Senator Thomas. No. You have indicted that you do not like 
the corn program or the soybean program or the other programs. 
Why do you focus on sugar as being inappropriate--if you were 
going to just let things go at the market cost.
    Mr. Jaeger. I am sorry?
    Senator Thomas. If you are dedicated to the market cost, 
how can you promote and support corn and ethanol and soybeans 
and the other programs?
    Mr. Jaeger. My organization has concerns about all these 
farm programs. We are particularly concerned about the sugar 
program and the dairy program because those costs are, instead 
of taxpayer costs, costs paid by the consumer through the 
marketplace. They are basically, in our view, a subsidy paid at 
the supermarket checkout counter.
    Senator Thomas. I see. Well, I disagree with you, but thank 
you so much.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Crapo.
    Senator Crapo. Thank you, Mr. Chairman.
    Mr. Roney and Mr. Jaeger, I also have some questions on the 
sugar program. Mr. Jaeger, you just referenced the GAO study 
that assumes there would be a significant passthrough of 
savings to the consumer. Do you know what percentage of 
passthrough to the consumer the GAO study assumed?
    Mr. Jaeger. It assumed a 100 percent passthrough.
    Senator Crapo. We have had some experience in this last 
little while of significantly reduced sugar prices--I think it 
was a 28 percent or so reduction in sugar prices. Could you 
tell me what passthrough to the consumer has actually occurred?
    Mr. Jaeger. Well, it is important to look at this in a 
broader perspective, and I would draw your attention to the 
line graph that is attached to my testimony. It shows the raw 
cane sugar price versus the retail price going back as far as 
1977, and I think a couple of things are evident from this.
    First, I think that over time, in general, the retail price 
does rise and fall with the raw price. You do see also over 
time--well, several things are evident here. First, as Mr. 
Roney said, the raw price is basically flat going back many 
years. The retail price does slowly creep up. There is a slow 
widening of the gap between the two prices. This is easily 
explained. While the wholesale price is flat--and here, we are 
looking at refined sugar, basically, a 5-pound bag of sugar--
the sugar price is basically flat over time, but everything 
else that goes into producing that 5-pound bag of sugar is 
subject to an inflationary factor--the cost of the bag that the 
sugar goes in, the cost of the ink that goes on the bag, the 
cost of labor for the person who runs the machine that puts the 
sugar in that bag----
    Senator Crapo. Electricity.
    Mr. Jaeger [continuing]. Right--the cost of energy for the 
truck that delivers that bag to the supermarket.
    It is understandable that over time, that gap will slowly 
widen even though the wholesale price is flat.
    Senator Crapo. You are saying that the sweetener industry 
actually did pass through the reduction in cost of sugar to the 
consumers--is that your testimony here today?
    Mr. Jaeger. I am saying that if, over time, that happens, 
and if this program were eliminated, we are convinced that 
consumers would see a definite benefit from it.
    Senator Crapo. Mr. Roney, did you have a comment on that 
issue?
    Mr. Roney. Well, Senator Crapo, I believe that Mr. Jaeger's 
own charts indicate just the opposite--that there is no 
passthrough and that over time, there is no passthrough; that 
the reason why the grocers and food manufacturers oppose U.S. 
sugar policy is not from any altruistic sense of passing some 
benefit along to consumers, although they would contend that 
that is their reason, but rather to create a profit opportunity 
for them. As businessmen, I suppose they are entitled to do 
that. To reduce their input costs and raise the price they 
charge for their product, that is a terrific opportunity for 
profits.
    What we chafe at is the cynicism of that approach, that 
they are willing to put efficient American sugar farmers out of 
business to get access to subsidized foreign sugar as a way to 
increase their profits, with absolutely no evidence of any 
passthrough to consumers whatsoever.
    When they talk about the $1.8 billion consumer cost of U.S. 
sugar policy, as you pointed out, Senator, and as Mr. Jaeger 
acknowledged, that assumes a 100 percent passthrough, when in 
fact all of our history shows that there is no passthrough 
whatsoever, which makes that figure from the GAO completely 
bogus.
    Senator Crapo. It seems to me that the key issue here is a 
policy issue that we have to determine in Congress and as a 
Nation which way we want to follow. The situation in Mexico is 
sort of an example of that.
    Mr. Roney, the sweetener concerns are very interested, as 
you know, in more access to the Mexican sugar. I just want to 
get a few facts out on the table. Are the Mexican sugar prices 
higher or lower than American prices?
    Mr. Roney. Their wholesale price--that would be the price 
that users would pay for their sugar--is running about three 
cents higher than ours and has been since the beginning of 
2000.
    Senator Crapo. Are their producers more efficient than 
ours?
    Mr. Roney. We have no evidence that they are. Their 
industry is in complete disarray. They are worse off than we 
are in many ways, with many mills going bankrupt and enormous 
problems. The government has been bailing them out with 
literally billions of dollars in debt reduction to try to keep 
the industry afloat.
    Senator Crapo. That was my next question. Is the Mexican 
sugar industry subsidized by its government?
    Mr. Roney. Yes, sir, very strongly. We have been doing a 
lot of work on this, and the evidence suggests that just since 
the NAFTA was passed, there has been about $2 billion in 
subsidy for Mexican sugar producers just to keep them afloat.
    Senator Crapo. It seems to me that the broad question that 
we have to ask ourselves with regard to what the U.S. policy on 
sugar should be, which is the same question, in my opinion, 
that we have to answer with regard to almost every commodity, 
is this: An argument can be crafted to allow subsidized 
commodities to be dumped into U.S. markets that would benefit 
the consumer. One could argue that it may or may not be a 
short-term benefit and that if we drive our producers out of 
business, we will ultimately see prices go up, as you do in 
situations in which you have monopoly or oligopoly impacts. The 
argument can be crafted that we as a Nation should adopt a 
policy of allowing other countries to subsidize their 
commodities to the detriment of our producers. It would benefit 
our consumers. I believe that is the argument that the groups 
who are opposing the sugar program are basically making.
    The responsive argument is that the United States should 
protect its producers against anticompetitive conduct, or 
subsidies, and that means we are going to have to get engaged 
in some kind of program ourselves which would protect our 
commodities--which is then attacked in the United States as a 
subsidy.
    It is an interesting dilemma, but it is a very direct 
question that we have to face. In my opinion, the proper policy 
is for the United States to protect its producers. Ideally, we 
should negotiate in our trade negotiations and should aim in 
our trade policy to get to a point where there are no tariffs 
and no subsidies, and we have a truly free and fair market 
operating, at which point we do not have a need for protective 
programs.
    It seems to me that when we are not operating in a free 
market, fair market climate globally, it is proper for the 
United States to protect its producers.
    Now I would like to ask both of you if you would like to 
comment on that, and I see that I have only about a minute 
left, but I would like to get your perspective from both of you 
on that basic issue.
    Mr. Roney. Thank you, Senator Crapo.
    Just very quickly, because we are efficient by world 
standards, with cost of production below the world average, we 
do support the goal of genuine global free trade in sugar. We 
have supported that goal since 1986 at the start of the Uruguay 
Round, and we do so because we believe that in the absence of 
subsidies globally, the world price would rise to reflect the 
cost of producing sugar, our costs are below the world average 
cost of production, and we could survive.
    I agree with you completely, though, that until other 
countries eliminate their subsidies, we have got to maintain 
some kind of a U.S. sugar policy, some limits in the amount of 
subsidized sugar coming into this country. Otherwise, our 
efficient producers will be replaced by foreign producers who 
are not more efficient but more heavily subsidized.
    Senator Crapo. Mr. Jaeger, your perspective?
    Mr. Jaeger. Well, as Senator Lugar first mentioned and as I 
think Mr. Roney acknowledged, there are countries that produce 
sugar at substantially less cost than we do in this country, 
and many of those countries do not heavily subsidize their 
producers. I would toss out Australia as one example.
    From our perspective, we want to see more foreign sugar 
brought in as a benefit to consumers. There are, of course, 
anti-dumping laws on the books. The best example of heavily 
subsidized sugar, of course, is Europe, and we do not import 
sugar from Europe right now as I understand it, and it seems to 
us that our anti-dumping laws would protect us from heavily 
subsidized sugar in the future.
    Senator Crapo. Would you support an approach which would 
prohibit any subsidized sugar from being brought into the 
United States and only allow unsubsidized sugar to be brought 
into the United States?
    Mr. Jaeger. We would support vigorous enforcement of the 
anti-dumping laws, yes.
    Senator Crapo. I have no further questions.
    The Chairman. Thank you very much, Senator Crapo.
    Well, Mr. Jaeger, I have a lot of respect for the Consumer 
Federation of America. You do a good job; I think you do a good 
job in representing consumers in many, many areas. There may be 
reasons to examine the sugar program and maybe new approaches, 
but I have got to tell you that benefit to consumers is not one 
of them. There may be other reasons, but not benefit to 
consumers.
    I looked at your chart, the one you referred to, where you 
have the wholesale price and the retail price going back to 
1977 and how it closely follows. I wish I had seen a chart from 
the Consumer Federation of America that showed the wholesale 
price of sugar and the retail price of commodities that 
shoppers buy and that we buy and that we consume that use 
sugar--not the retail price of a 5-pound bag of sugar. We do 
not do that. You go to the store, and sugar is cheap. You might 
buy a little bit of sugar for your coffee or something else. 
Let us face it--most of the sugar that we eat is in cereals, 
candy, cookies, baked goods, things like that. It is not a 5-
pound bag of sugar that you go to the grocery store to buy.
    The more realistic comparison would have been the wholesale 
price of sugar compared to the retail prices of those items 
that use sugar. When you do that, you come up with Mr. Roney's 
chart at Figure 12, and you see the producer prices of raw cane 
and wholesale sugar down 30 percent, cereals up 25 percent, 
candy up 25 percent, ice cream up 29 percent, cookies up 31 
percent, other bakery products 35.9 percent.
    It seems to me that that is the more realistic comparison 
rather than wholesale and retail prices.
    Mr. Jaeger. I certainly do not dispute Mr. Roney's numbers 
as you have cited them, but in our view, the percentage of the 
cost in the items you cite, cereal in particular, the 
percentage cost in a box of cereal that goes for sugar is 
relatively small, so you are not going to see a dip in the cost 
of a box of cereal when the wholesale price of sugar dips.
    What you would see in our view over time, if you reformed 
or phased out the sugar program, is a lessening in future 
increases in the price of that box of cereal.
    The reason why we focus on a 5-pound bag of sugar is 
because that is the easiest way in our view to see the direct 
relationship between the wholesale price and the retail price, 
and there is----
    The Chairman. You would agree that for the average consumer 
in America, that the lowest usage of sugar is buying a bag of 
sugar in the grocery store.
    Mr. Jaeger. Right. We certainly buy more candybars and 
boxes of cereal than we buy bags of sugar.
    The Chairman. Cookies and cakes and ice cream--everything 
we buy--sure----
    Mr. Jaeger. Correct.
    The Chairman [continuing]. That is where we get the bulk of 
our sugar intake, not from a cube or a packet of sugar.
    Mr. Jaeger. Yes. Mr. Roney's charts do not suggest to us 
that there will not be a consumer benefit if you phaseout the 
sugar program.
    The Chairman. Say it again.
    Mr. Jaeger. We argue that there will still be a consumer 
benefit in the price of that box of cereal over the long haul, 
over the future, if you phaseout the sugar program.
    The Chairman. Wait--you just said two things, Mr. Jaeger. 
Just 90 seconds ago, you said there is so little sugar in the 
box of cereal that, of course, you could have these big 
increases in prices, and it would have nothing to do with 
sugar, you said, because there is such little sugar in it. Now 
you are telling me that if we reduce the wholesale price of 
sugar, we will see some reduction in price in the box. You 
cannot have it both ways.
    Mr. Jaeger. You will see a lessening of future increases.
    The Chairman. Pardon.
    Mr. Jaeger. You will see a lessening of future increases in 
the price of that box of cereal.
    The Chairman. Well, if the past is any indication, that 
just cannot be so, because we see the price of sugar going 
down, yet the prices going up. How far does it have to go--100 
percent?
    What if we asked the sugar producers to give it to us free? 
Would that reduce it? Would that reduce the price of that box 
of cereal if we just gave it to them free?
    You have a 30 percent reduction, and in cereal, you have a 
24.8 or 25 percent increase in price. You are saying that if we 
reduce this wholesale price even further, the rate of increase 
will be less in cereal.
    I am just asking you to give me some ball park figure. If 
we have had a drop of 30 percent, how much lower do we have to 
go before we see the price of cereal come down a little bit?
    Mr. Jaeger. I cannot give you an exact figure, Senator.
    The Chairman. I know you cannot; it is a rhetorical 
question. I am just making my point. I have been through this 
sugar program with five farm bills, and I hear the same 
arguments time after time after time. A few years ago, I 
challenged people on how expensive sugar was. I said go to any 
restaurant, and you will see packets of free sugar sitting 
there. It cannot get much cheaper than that. It is free--you 
just pick up a packet of sugar and put it in your coffee or on 
your cereal--it cannot get much cheaper than that. You do not 
pay more in a restaurant. They do not say, ``We are going to 
charge you for that sugar you used,'' do they? They do not add 
it onto your bill. It cannot get much cheaper than that.
    As I said, there may be some reasons, and there may be 
valid reasons, to look at the sugar program we benefit to the 
consumer--as I said, I have a lot of respect for the Consumer 
Federation of America, but I think you are barking up the wrong 
tree on this one on the benefit to consumers on the sugar 
program.
    I will say a couple of other things on sugar and on trade. 
You mentioned Australia. I have been to Australia, and I have 
looked at the sugar production in Australia. One person's 
subsidy is another country's interest in land use and land 
preservation, that kind of thing, so what is a subsidy and what 
is not? Australia has different ways that they promote their 
sugar industry, and they have for years. It is just different 
than how we do it. It is a subsidy nonetheless. I have looked 
at it. They just do not call it that.
    The third thing on this deal on sugar--I do not think that 
is our biggest problem. Our biggest problem is some of the 
countries that produce sugar at very low labor rates. While I 
am all for enhanced trade negotiations or whatever fast-track 
is called these days, and I have supported fast-track in the 
past, I have come to the point in my career here where I am 
saying wait a minute--I am all for enhanced trade, but if 
countries are using things like child labor, which is anathema 
to us and to most of the civilized world, to produce items that 
come in here and compete with our farmers and our producers, I 
am drawing the line. Many of these countries that produce this 
sugar are doing exactly that. They are using child labor, they 
are keeping the kids out of school, they are working them 
ungodly hours in terrible conditions, yet they are sending that 
sugar here to compete with our farmers.
    That is why I am saying I am drawing the line. If you want 
to have fast-track, if you want to have enhanced trade 
negotiations, fine, but I believe there should be some 
provisions in there dealing with labor--and I would not cover 
all labor, because some of it gets into gray areas, but when it 
comes to child labor, I think that that should be in there. The 
use of child labor to make any products or goods that come into 
this country should be actionable under our trade agreements--
should be actionable. Just like a CD--if you make a CD, and you 
violate intellectual property, that is actionable. If you use a 
kid working in a sugarcane field with ungodly working 
conditions and ungodly hours, and you ship that sugar in, and 
that is not actionable--I am sorry, I do not buy that.
    Then, environmental conditions--our sugar farmers, peanut 
farmers, all of our farmers in this country, livestock 
producers, everyone, are asked--not asked, but told--by this 
Government that they have got to adhere to strict environmental 
standards. That does benefit us, but it benefits the rest of 
the globe as well. Yet we are going to let other countries 
thumb their nose at that and say that they can go ahead and 
dump things and foul the water, foul the land, foul the 
atmosphere, but that is OK, and we will bring it into this 
country--I do not think so.
    Those are two areas where I think we have got to at least 
level the playing field in terms of child labor and 
environmental conditions.
    I have two other things on both sugar and peanuts. My 
knowledge on peanuts is a little bit lax here, but as you know, 
I am promoting the inclusion of an energy title into the Farm 
bill. Most people think of that as ethanol, but there are also 
things like diesel. Obviously, I am from soybean-producing 
country, so I am talking about soy diesel, but you can make it 
from peanut oil, too--as well as from cottonseed oil, I would 
say to my cotton friends who are here. I do not know what is 
leftover--when you take the oil out of peanuts, there must be 
some protein feed left from that, and I do not know what it is. 
Could you inform me--or, if you do not want to today, at least 
get that information to me. I need to know what happens when 
you extract the oil out of peanuts. I know what happens to 
soybeans and corn, but I do not know peanuts.
    Mr. Gamble. Peanut meal can be used for feed purposes.
    The Chairman. It has got to be good feed.
    Mr. Gamble. Yes.
    The Chairman. You must do that, right?
    Mr. Gamble. Yes, Senator.
    Mr. Morris. They even developed a peanut flour that was 
used after the extraction of the oil.
    The Chairman. I would like to take a look at that aspect, 
too, if there is a possibility that we can use oil in that 
regard also, from peanuts and cottonseed, too, for energy 
production.
    Of course, sugar is great for ethanol. I know that we have 
taken some of the Government stock and put it into ethanol 
production, and quite frankly, I think that is a great outlet 
for some of our sugar production in this country; again, it is 
energy production.
    I am also aware that some sugar producers in some parts of 
the country--not sugarbeets, but sugarcane producers--are using 
the residue to burn in boilers to make electricity. What is 
that called?
    Mr. Roney. Bagasse. It is the fiber from the cane.
    The Chairman. Yes. They are using the bagasse to make 
electric energy. That seems to be a good source, a stock 
source, for energy production.
    Mr. Roney. In its heyday in Hawaii, when sugar production 
was still relatively high, the bagasse was used to generate as 
much as 12 percent of Hawaiian energy. Now, with the decline of 
the sugar industry, production is down about two-thirds from a 
decade ago, and they are having to rely more on imported oil. 
They did have a very aggressive program for using the bagasse 
not only to run the cane mills, but it generated so much 
surplus energy that they could sell that to the electrical 
grid, and in the outer islands, it became a critical source of 
energy.
    The Chairman. I wonder what that means for their energy 
production in terms of cost of importing the oil compared to 
the bagasse that was used before? I do not know the answer to 
that; I am sure somebody has done a study of that. I would like 
to find out.
    It just seems to me that, again, in both sugar and peanuts, 
we ought to be thinking about other uses, other ways we can use 
these products, rather than just for the food use that we have 
had in the past.
    I want to echo what Senator Miller said. I have been a 
supporter of the peanut program for a long time. I recognize 
the value of peanuts. I happen to be a strong believer in 
peanut butter as being a great source of protein use in our 
schools, our school lunch programs, our feeding program. You 
cannot find a better source of good protein. I have always felt 
that peanuts play a very integral part in our food supply in 
this country, and I am hopeful to be able to work with you and 
your industries to try to figure out how we can keep a viable 
peanut industry. I am talking about the whole thing, from the 
farmers on through the shellers and the processors of peanuts.
    We have to keep in mind--and I would say this to you, Mr. 
Morris, maybe more than I would to Mr. Gamble--that the budgets 
are not like we used to have in the past. If you do not mind--
Senator Miller was talking about Senator Talmadge--and I hope 
his health is good; I hear he has been having some problems 
lately--but in that day, if there was a problem, we would have 
just given more to both. That was before we had a Budget 
Committee. Now we have a Budget Committee that gives us our 
marching orders, so we no longer have the freedom to do that.
    I hope that we can work this out in a good manner.
    Senator Lugar, I do not know if you have anything further.
    Senator Lugar. Let me just add one comment to supplement 
your last thought, Mr. Chairman. That is, there probably is 
considerable promise in the energy area and the research that 
this committee has tried to foster at the cutting edge. This is 
not to negate for a moment the nutritional value of either 
sugar or peanuts. That to the extent we really get into the 
economics of what is in the best interest of this country, it 
may very well be that alternative uses of these products will 
offer some hope as they have with regard to other products. As 
long as our thinking is less rigorous, and we simply push along 
the same program on the basis that it is just very difficult to 
change it, we will not really get into these alternative 
situations, but we have been forced to do that in other areas, 
and I think we probably should here.
    Ultimately, I do not want to get into an argument as to 
where the consumer benefit lies with any of these situations, 
but it occurs to me that our best bet is always to try to find 
the best quality, the most efficient, low-cost producers, that 
our trade in this country, domestically as well as abroad, 
really rests on that. Now, others may violate that principle in 
almost every different direction, but in essence, we usually 
come out best because we are the most efficient and the most 
competitive, and once we begin to make excuses for our own 
situation, we give that latitude to all of our foreign 
competitors, our trade advantage is gone, and that is a mess.
    Leaving that aside, we look forward to working with you and 
appreciate very much your testimony, as I know the chairman 
has.
    The Chairman. Thank you very much, Senator.
    I am remiss in not recognizing the great leadership of 
Senator Lugar in the research bill that he has offered and we 
have adopted and passed to move us in the direction of trying 
to get more research into how we can change some of our 
products and make more energy out of our products. We are well 
on our way, I really do, and I think you have been a great 
leader in that, and I appreciate that very much, Senator Lugar.
    Senator Lugar. Thank you.
    The Chairman. Thank you all very much for your testimony.
    The committee will stand adjourned until Thursday morning 
at 10 o'clock.
    [Whereupon, at 12:10 p.m., the committee was adjourned.]
      
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                   DOCUMENTS SUBMITTED FOR THE RECORD

                             July 17, 2001



      
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