[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
  HEARING TO REVIEW PROPOSALS TO AMEND THE PROGRAM CROP PROVISIONS OF 
           THE FARM SECURITY AND RURAL INVESTMENT ACT OF 2002

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


                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                        GENERAL FARM COMMODITIES
                          AND RISK MANAGEMENT

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 26, 2007

                               __________

                           Serial No. 110-14


          Printed for the use of the Committee on Agriculture
                         agriculture.house.gov



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                        COMMITTEE ON AGRICULTURE

                COLLIN C. PETERSON, Minnesota, Chairman

TIM HOLDEN, Pennsylvania,            BOB GOODLATTE, Virginia,
    Vice Chairman                        Ranking Minority Member
MIKE McINTYRE, North Carolina        TERRY EVERETT, Alabama
BOB ETHERIDGE, North Carolina        FRANK D. LUCAS, Oklahoma
LEONARD L. BOSWELL, Iowa             JERRY MORAN, Kansas
JOE BACA, California                 ROBIN HAYES, North Carolina
DENNIS A. CARDOZA, California        TIMOTHY V. JOHNSON, Illinois
DAVID SCOTT, Georgia                 SAM GRAVES, Missouri
JIM MARSHALL, Georgia                JO BONNER, Alabama
STEPHANIE HERSETH SANDLIN, South     MIKE ROGERS, Alabama
Dakota                               STEVE KING, Iowa
HENRY CUELLAR, Texas                 MARILYN N. MUSGRAVE, Colorado
JIM COSTA, California                RANDY NEUGEBAUER, Texas
JOHN T. SALAZAR, Colorado            CHARLES W. BOUSTANY, Jr., 
BRAD ELLSWORTH, Indiana              Louisiana
NANCY E. BOYDA, Kansas               JOHN R. ``RANDY'' KUHL, Jr., New 
ZACHARY T. SPACE, Ohio               York
TIMOTHY J. WALZ, Minnesota           VIRGINIA FOXX, North Carolina
KIRSTEN E. GILLIBRAND, New York      K. MICHAEL CONAWAY, Texas
STEVE KAGEN, Wisconsin               JEFF FORTENBERRY, Nebraska
EARL POMEROY, North Dakota           JEAN SCHMIDT, Ohio
LINCOLN DAVIS, Tennessee             ADRIAN SMITH, Nebraska
JOHN BARROW, Georgia                 KEVIN McCARTHY, California
NICK LAMPSON, Texas                  TIM WALBERG, Michigan
JOE DONNELLY, Indiana
TIM MAHONEY, Florida

                                 ______

                           Professional Staff

                    Robert L. Larew, Chief of Staff

                     Andrew W. Baker, Chief Counsel

                 April Slayton, Communications Director

           William E. O'Conner, Jr., Minority Staff Director

                                 ______

      Subcommittee on General Farm Commodities and Risk Management

                BOB ETHERIDGE, North Carolina, Chairman

DAVID SCOTT, Georgia                 JERRY MORAN, Kansas,
JIM MARSHALL, Georgia                     Ranking Minority Member
JOHN T. SALAZAR, Colorado            TIMOTHY V. JOHNSON, Illinois
NANCY E. BOYDA, Kansas               SAM GRAVES, Missouri
STEPHANIE HERSETH SANDLIN, South     CHARLES W. BOUSTANY, Jr., 
Dakota                               Louisiana
BRAD ELLSWORTH, Indiana              K. MICHAEL CONAWAY, Texas
ZACHARY T. SPACE, Ohio               FRANK D. LUCAS, Oklahoma
TIMOTHY J. WALZ, Minnesota           RANDY NEUGEBAUER, Texas
EARL POMEROY, North Dakota           KEVIN McCARTHY, California

               Clark Ogilvie, Subcommittee Staff Director

                                  (ii)


                             C O N T E N T S

                              ----------                              
                                                                   Page
Etheridge, Hon. Bob, a Representative in Congress from North 
  Carolina, prepared statement...................................    29
Goodlatte, Hon. Bob, a Representative in Congress from Virginia, 
  prepared statement.............................................    36
Moran, Hon. Jerry, a Representative in Congress from Kansas, 
  opening statement..............................................     2
    Prepared statement...........................................    32
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, prepared statement..................................    34
Salazar, Hon. John T., a Representative in Congress from 
  Colorado, prepared statement...................................    33
Scott, Hon. David, a Representative in Congress from Georgia, 
  opening statement..............................................     1
    Prepared statement...........................................    30

                               Witnesses

Buis, Tom, President, National Farmers Union.....................    25
    Prepared statement...........................................   146
Erickson, Audrae, President, Corn Refiners Association...........     8
    Prepared statement...........................................    85
Kapraun, Joseph, Financial Planning/Marketing Manager, Grain 
  Division, GROWMARK, Inc.; on behalf of National Grain and Feed 
  Association....................................................     5
    Prepared statement...........................................    67
Nicosia, Joseph T., Second Vice President, American Cotton 
  Shippers Association (ACSA); CEO, Allenberg Cotton Co..........     3
    Prepared statement...........................................    38
Schwein, Rick L., Senior Vice President, Grain Millers, Inc.; on 
  behalf of North American Millers' Association..................     6
    Prepared statement...........................................    76
Stallman, Bob, President, American Farm Bureau Federation........    23
    Prepared statement...........................................    90

              Supplemental Material for the Hearing Record

National Family Farm Coalition, prepared statement...............   158
Ryberg, Paul, President, International Sugar Trade Coalition, 
  Inc., submitted letter.........................................   170
Wise, Timothy A. and Elanor Starmer, Global Development and 
  Environment Institute at Tuft's University, submitted paper....   167

             Supplemental Questions for the Hearing Record

Etheridge, Hon. Bob, a Representative in Congress from North 
  Carolina.......................................................   172
Goodlatte, Hon. Bob, a Representative in Congress from Virginia..   174
Graves, Hon. Sam, a Representative in Congress from Missouri.....   176


HEARING TO REVIEW PROPOSALS TO AMEND THE PROGRAM CROP PROVISIONS OF THE 
             FARM SECURITY AND RURAL INVESTMENT ACT OF 2002

                              ----------                              


                        THURSDAY, APRIL 26, 2007

                  House of Representatives,
 Subcommittee on General Farm Commodities and Risk 
                                        Management,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10 a.m., in Room 
1300 of the Longworth House Office Building, Hon. David Scott 
presiding.
    Members present: Representatives Scott, Marshall, Salazar, 
Boyda, Herseth Sandlin, Ellsworth, Space, Pomeroy, Moran, 
Boustany, Conaway, Neugebauer, McCarthy, and Goodlatte [ex 
officio].

  OPENING STATEMENT OF HON. DAVID SCOTT, A REPRESENTATIVE IN 
                     CONGRESS FROM GEORGIA

    Mr. Scott. Good morning. This hearing of the Subcommittee 
on General Farm Commodities and Risk Management, to review 
proposals to amend the program crop provisions of the Farm 
Security and Rural Investment Act of 2002, will now come to 
order.
    We will proceed first with opening statements and I would 
like to just welcome everyone this morning to the hearing of 
our Subcommittee on General Farm Commodities and Risk 
Management. Our effort this morning is to review proposals to 
amend the program crop provisions of the Farm Security and 
Rural Investment Act of 2002. Unfortunately, our distinguished 
Chairman, Mr. Etheridge of North Carolina, is not able to be 
with us this morning, so I am pinch hitting for him. However, 
he does extend his regards to our distinguished panelists. We 
are glad to have you and we thank all of the Subcommittee 
Members for attending this very, very important hearing. In the 
interest of time, I will keep my opening statement very brief, 
so that we may have plenty of time to address questions toward 
both of our panels this morning.
    One issue that is of paramount importance to my 
constituents, and is therefore important to me, is the issue of 
payment limits and payment concentration. For example, in 2005, 
about 55,000 farms, with sales over $500,000, received $5.7 
billion, which is 60.2 percent of the payment farms received, 
36 percent of the payments. You all have no doubt, seen the 
series of articles in The Washington Post and my hometown 
newspaper, the Atlanta Journal-Constitution, decried wheat, 
which is perceived as a few large farms receiving the bulk of 
support payments. It certainly may be argued that limits on 
farm size or amount of payments received are unnecessary, 
because these payments are intended to buoy the entire sector, 
not individual households. It may also be said that these 
articles and the public perception are simply incorrect, and 
that they point out what are a few anomalies in an otherwise 
increasingly healthy system. Unfortunately, however, we, as 
Members of this Committee, work in a business where perception 
is reality and we must answer the questions of our constituents 
on this issue.
    It is my hope that our panelists today will touch on this 
subject and provide me with information that I can take back to 
my constituents to help improve the perception of farm sector 
support programs. Specifically, I am interested in hearing what 
you all have to say about the USDA's proposal for means testing 
or efforts to reduce the limits on payments and how that would 
play in each of our respective commodity groups.
    With this being said, I turn to the distinguished Ranking 
Member of the Subcommittee, Mr. Moran of Kansas, for his 
opening remarks.
    [The prepared statement of Mr. Scott appears at the 
conclusion of the hearing:]

  OPENING STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN 
                      CONGRESS FROM KANSAS

    Mr. Moran. Mr. Scott, welcome to the Chairman's chair. I, 
like you, continue to be a Chairman in waiting, but in the 
absence of Mr. Etheridge, I appreciate your leadership.
    Mr. Scott. Thank you.
    Mr. Moran. I am delighted to be here and welcome our 
panelists this morning. I am very much appreciative of the fact 
that we have heard from many farmers, many commodity groups and 
farm organizations over a long period of time in anticipation 
of the 2002 Farm Bill, and I think it is important that we not 
lose sight of the fact that the processing industry has a 
significant interest in the outcome of the farm bill debate. I 
hope they will remind us of the importance of developing farm 
policy that is market-oriented, that helps them establish 
markets for what we produce in the United States, but what they 
process as well. And I am also pleased--I don't want to short-
sight the fact that we have the President of American Farm 
Bureau and the President of National Farmers Union with us. 
Although they are not rarities within the Committee, I am 
interested in hearing what they have to say today, particularly 
in the light of the reality that we apparently are reasonably 
close to having some budget numbers that, in my estimation, 
actually determine much more about the farm bill than many 
other things that we continue to discuss. So I look forward to 
the testimony of both of those witnesses and I, again, 
appreciate the time that all of you are taking to try to help 
us determine what we should do in the best interest of the 
agricultural economy of the United States. Mr. Chairman, thank 
you very much.
    [The prepared statement of Mr. Moran appears at the 
conclusion of the hearing:]
    Mr. Scott. Thank you very much, Mr. Moran. The chair would 
request that other Members submit their opening statements for 
the record so that our witnesses can begin their testimony and 
to be sure that there will be ample time for your comments and 
thoughts as we get to the question and answer period.
    First, we would like to welcome our first panelists to the 
table. First, we have Mr. Joseph Nicosia--I hope I am 
pronouncing that correctly. I do not intend to butcher any 
names--who is the Second Vice President of the American Cotton 
Shippers Association of Cordova, Tennessee. Welcome to the 
panel. Next, we have Mr. Joseph Kapraun, Financial Planning/
Marketing Manager of GROWMARK, Inc., on behalf of National 
Grain and Feed Association of Bloomington, Illinois. Welcome. 
Mr. Rick L. Schwein, on behalf of the North American Millers' 
Association of Eden Prairie, Minnesota. Welcome. And Ms. Audrae 
Erickson, President of the Corn Refiners Association of 
Washington, D.C. Welcome to all of you. We are delighted to 
have you. Thank you for being with us. We look forward to all 
of your testimony. Mr. Nicosia, please begin whenever you are 
ready.

STATEMENT OF JOSEPH T. NICOSIA, SECOND VICE PRESIDENT, AMERICAN 
 COTTON SHIPPERS ASSOCIATION (ACSA); CEO, ALLENBERG COTTON CO.

    Mr. Nicosia. Chairman Scott and Ranking Member Moran and 
Members of the Subcommittee, I thank you for this opportunity 
to be here this morning. I am Joe Nicosia, CEO of Allenberg 
Cotton Company of Memphis, Tennessee. Allenberg is a division 
of Louis Dreyfus Commodities. I appear here today in my 
capacity as Second Vice President of the American Cotton 
Shippers Association. I am also a Member of ACSA's Executive 
Committee, its Foreign Policy Development and National Affairs 
Committee, and Chairman of the Committee on Futures Contracts. 
I am accompanied today by Neal Gillen, ACSA's Executive Vice 
President and General Counsel.
    I have been involved in the merchandising and futures 
trading of cotton for some 25 years and I am fully familiar 
with and have traded all of the U.S. and foreign growths of 
cotton. In my appearance today, I will review why U.S. cotton 
is no longer competitive in the world market and what Congress 
can and should do to enable the U.S. to regain its competitive 
advantage and the market share that it has lost this past year 
since the repeal of the Step 2 Program.
     The Step 2 Program masked the basic problems inherent in 
the cotton program. Since its repeal in August of 2006, U.S. 
cotton is no longer competitive in the world market, which 
accounts for 75 percent of the U.S. cotton demand. Based on 
current sales and shipments, we can expect last year's export 
level of 18 million bales to decrease to approximately 13 
million bales. Since the CCC loan has become the market of 
first and not last resort, given the excessive premiums 
inherent in the price support loan structure, we expect loan 
forfeitures to continue.
    We are in agreement with the industry to maintain the 
marketing loan and use of certificates to facilitate the 
movement of cotton from the loan. This mechanism is critical to 
the well-being of our industry. We are also united in the 
opposition to means testing.
    Given the rapid decline in U.S. mill consumption from 11.4 
million bales in 1997 to an estimated 5 million bales in 2007, 
we have become dependent on exports. The U.S. no longer has any 
choice but to be globally competitive. To do so requires a 
number of changes and reforms in the cotton program.
    If I could refer you to the PowerPoint, ``The Current U.S. 
Cotton Situation Pending New Legislation.'' The loss of the 
Step 2 Program directly diminished the competitiveness of U.S. 
cotton. Export demand for U.S. cotton has fallen sharply. The 
U.S. projected carry-out is the highest since the 1985 Act 
began. The loan is the best market for bales and major 
forfeitures are expected. This graph shows, not only the loss 
of demand, but also the loss of competitiveness of U.S. cotton 
in the world market after the loss of Step 2, which took place 
at the end of July 2006. You can see here that our exports have 
fallen off by a factor of 3 since that time.
    China is the world's largest importer and it is the United 
States' largest customer for cotton. Note how the U.S. 
percentage share of Chinese imports has dropped, again, 
reflecting a loss of competitiveness. So not only are exports 
and export demand down, but so is our market share. As our 
exports have faltered, our projected carry-out has risen from 
less than 5 million bales projected in August to more than 9 
million bales today. Here we take a look at our carry-out in a 
historical perspective. The carry-out is the largest since the 
marketing loan began back in 1985. In some cases, it is 
estimated to reach 10 million bales this year.
    So the 4 key objectives for cotton legislation are: (1) we 
propose basing the loan rate on market prices. Currently, our 
loan level is too high relative to the world market price; (2) 
lower loan premiums. Premiums paid for higher-grade cottons are 
substantially larger than what exists in the world market, 
therefore this cotton gets trapped in the loan and cannot be 
redeemed, leading to loss of exports and forfeitures; (3) we 
propose allowing loan cotton to be shipped prior to redemption. 
Currently, cotton must remain in the loan, incurring storage 
and interest charges while waiting for a profitable opportunity 
to be redeemed. We propose allowing the cotton to be shipped 
prior to redemption, thereby saving storage charges and 
capturing export opportunities that would have been lost; and 
(4) maintain current payment limitations, which includes our 
opposition to means testing.
    Again, thank you for the opportunity to present these 
views. I will be happy to respond to any questions that you 
might have.
    [The prepared statement of Mr. Nicosia appears at the 
conclusion of the hearing:]
    Mr. Scott. All right, thank you very much. Next, we will 
have Mr. Joseph Kapraun, Financial Planning and Marketing 
Manager, GROWMARK. You may begin.

   STATEMENT OF JOSEPH KAPRAUN, FINANCIAL PLANNING/MARKETING 
 MANAGER, GROWMARK, INC.; ON BEHALF OF NATIONAL GRAIN AND FEED 
                          ASSOCIATION

    Mr. Kapraun. Mr. Chairman, Ranking Member and Members of 
the Subcommittee, good morning and thank you for the 
opportunity to appear before you today. My name is Joe Kapraun. 
I am the Financial Planning Manager of the Grain Division at 
GROWMARK, based in Bloomington, Illinois.
     GROWMARK is regional agricultural supply and grain 
marketing network of cooperatives owned by nearly 250,000 
farmers in the Midwest United States and Ontario, Canada. I am 
testifying today on behalf of the National Grain and Feed 
Association, on whose Board I serve. The NGFA's market 
philosophy is derived from its mission statement, which commits 
our organization to foster an efficient free market environment 
that achieves an abundant, safe and high-quality food supply 
for domestic and world consumers. Further, our statement of 
purpose notes that Association activities are focused on growth 
and economic performance of U.S. agriculture.
    To this end, the NGFA has identified 4 major priority areas 
for the next farm bill: farm programs that provide opportunity 
to take advantage of market potential while minimizing 
potential trade disruption; to craft policies that foster 
production to meet the demand without sacrificing other 
markets, including livestock and poultry feed and grain export 
markets; adjusting the Conservation Reserve Program to provide 
opportunities for U.S. agricultural growth while continuing the 
protection of environmentally sensitive lands and minimizing 
government involvement in grain stocks-holding, except for 
humanitarian purposes.
    The NGFA has a longstanding position that Congress and farm 
organizations are in the best position to recommend the 
appropriate level of Federal funding to allocate the farm 
program payments. The NGFA has 3 specific concerns relative to 
the farm program payments. First, such payments should minimize 
market distorting signals that allow the competitive 
marketplace to drive efficient production decision making by 
farmers. Second, we believe that Congress should avoid major 
and abrupt shifts in funding levels and program implementation 
that can create near-term disruptions. And third, we believe 
the U.S. farm program payments should be structured and 
implemented in a way that minimize exposure to World Trade 
Organization challenges.
    With respect to USDA's Farm Bill proposal, we commend them 
for issuing a thoughtful and comprehensive set of proposals. 
However, among the most serious concerns we have is a proposal 
to change the way posted county prices are calculated and 
utilized to determining marketing loan gains and loan 
deficiency payments under the Marketing Assistance Loan 
Program. While we appreciate the Administration's efforts to 
explore creative alternatives for addressing this issue, we 
believe that the proposal would be highly disruptive to the 
efficient operation of the cash grain marketplace, and the 
proposal would greatly disrupt cash grain movement and hedging 
efficiencies, particularly in inverse markets or during periods 
of significant flat price changes by encouraging producers to 
delay marketing decisions until they are able to determine the 
applicable monthly PCP average at the start of each succeeding 
month.
    To comment on a few other related issues, by far the single 
most important development that will affect supply and demand 
balance sheets, commodity prices and the pattern of growth for 
various U.S. Ag sectors in the next 5 years will be the 
developmental rate of the biofuels industry. U.S. resource 
capacity will be challenged to provide grain supplies for both 
ethanol as well as traditional grain customers. We need both 
yield growth as well as expanded land committed to corn 
production.
    The NGFA supports the development of public policy which 
facilitates opportunities for growth in grain and oilseed 
production to supply traditional and new market demand. 
Adjusting the CRP is one potential tool to meet a portion of 
the anticipated land capacity constraints. The NGFA supports 
conservation programs that foster sound farmland conservation 
and environmental stewardship practices, while minimizing the 
idling of productive land resources, thereby strengthening the 
economies of rural communities while achieving environmental 
and other policy goals.
    The 2002 Farm Bill contained unprecedented authorizations 
for conservation spending, particularly for the working lands 
programs, which is EQIP and CSP. The NGFA strongly supports 
directing the scarce Conservation Resources Programs like these 
that enhance conservation of working farmlands, coupled with 
the shift away from land-idling schemes.
    Finally, I would like to comment on other tools producers 
utilize for managing risk. Given the competitive and 
transparent nature of the grain markets, the NGFA supports 
giving producers the opportunity to engage in a wide array of 
risk management techniques to supplement the income and price 
support received through government programs. The NGFA 
appreciates this opportunity to provide its views on the 
commodity title of the next farm bill, as well as some general 
recommendations.
    Thank you and I look forward to answering any of the 
questions you may have.
    [The prepared statement of Mr. Kapraun appears at the 
conclusion of the hearing:]
    Mr. Scott. Thank you very much. Our next panelist is Mr. 
Rick L. Schwein, on behalf of North American Millers' 
Association of Eden Prairie, Minnesota. You may begin.

  STATEMENT OF RICK L. SCHWEIN, SENIOR VICE PRESIDENT, GRAIN 
MILLERS, INC.; ON BEHALF OF NORTH AMERICAN MILLERS' ASSOCIATION

    Mr. Schwein. Mr. Chairman and Members of the Committee, 
thank you very much for the change to be here this morning. My 
name is Rick Schwein. I am the Senior Vice President with Grain 
Millers, Incorporated. We are a privately-owned oat processor 
headquartered in Minnesota. We own and operate 2 oat mills in 
the U.S., one in St. Ansgar, Iowa, near Austin, Minnesota, and 
the other in Eugene, Oregon, as well as having a mill up in 
Canada. We are one of the world's largest suppliers of milled 
oat products to the food industry and our products are used all 
around the world. I am here today representing the North 
American Millers' Association. NAMA is comprised of 48 wheat, 
oat and corn milling companies operating 170 mills in 38 
states. Together, we produce more than 160 million pounds of 
product every day, which is more than 95 percent of the total 
industry capacity.
    Let me, before I get to my thoughts on suggested changes, 
set the stage a little bit. U.S. wheat plantings the last 3 
years have been the lowest we have seen since 1972. The U.S. 
last year harvested fewer acres of wheat than we did way back 
in 1898 when we were still using horses for the harvest. 
Kansas, the Wheat State, now grows more corn than wheat. And 
the situation in oats is even worse. Oat production last year 
was at the lowest level since the USDA began keeping those 
records back 1866, shortly after the Civil War when President 
Lincoln created that Department.
    What has been the impact of this precipitous decline in 
production? Not many years ago, the thought that the U.S. would 
import cereal grains was unthinkable. Now, however, in most 
years, U.S. production of hard red spring wheat for bread and 
durum wheat for pasta is insufficient to meet total demand. 
Millers have no choice but to rely on imports to augment the 
short wheat crop. While, for the oat mills, the industry 
already imports almost 100 percent of the oats we mill for food 
products every year. This dramatic production loss has also led 
directly to major relocation in the last 15 years of much of 
the value-added milling capacity to Canada, taking hundreds of 
industry jobs with it.
     Ironically, while this exodus in production capacity has 
occurred, the demand here in the U.S. for oat and other whole-
grain products has been rising. These imports have caused 
regrettable friction between millers and growers. As millers, 
our first choice is to buy American grain whenever possible, 
but I can tell you today, for sure, imports of these grains 
into the U.S. will continue and absent action by Congress, will 
likely increase. Our country is working diligently to reduce 
its dependence on foreign oil. I ask, is it in our strategic 
interest to be dependent on foreign sources for basic 
nutritious commodities like wheat and oats?
    Now, how did this happen? First, beginning in 1986, the 
creation of the CRP program took 36 million acres out of 
production, much of which today could be farmed in 
environmentally sustainable ways. Much of the CRP land is 
concentrated in traditional wheat and oat-growing territory. 
Second, some of the inequities in the farm program have caused 
Uncle Sam to say loudly to the growers, ``don't plant wheat or 
oats.'' At the same time, the government is encouraging them to 
grow other crops like corn and beans, which really don't need 
much encouragement today, given the President's biofuels 
mandate.
     An example of inappropriate encouragement in the farm 
program is what we think are artificially high loan rates that 
have distorted producer planting decisions, leading to a 
950,000 acre increase in peas and lentils in just the past 5 
years, crops for which there really isn't even much of a 
domestic market to speak of. We find it very frustrating that 
program payments have provided huge incentives for growers to 
produce crops for which there is little domestic demand, while 
discouraging them from growing crops the U.S. consumes, like 
wheat and oats.
    Third, total investments in wheat and oat research 
significantly lags behind investments in corn and beans, 
limiting producer alternatives. And next, the ethanol push has 
already dramatically altered farmers' production decisions, but 
we think we are only seeing the tip of the iceberg. Other 
problems, we think, are looming on the horizon. We have all 
known for decades that growing corn after corn after corn is 
not desirable, either for environmental or disease issues or 
for insect management reasons, but this is what we are 
encouraging today. We believe that is the height of irony that 
the U.S. Government in the 2005 dietary guidelines and the food 
guide pyramid, encourages consumers to eat more grains, but at 
the same time is very directly discouraging growers from 
producing those very same grains.
    In conclusion, NAMA believes Congress has a significant 
opportunity here to improve conditions for the wheat and oat 
milling industry, from grower through miller and consumer. That 
can be achieved through reforming the CRP to responsibly allow 
sustainable acres back into production, re-balancing the farm 
program to reduce government-caused inequities distorting 
production decisions and investing in research to give growers 
better crop options.
    Thank you for the opportunity to speak this morning and I 
will look forward to your questions.
    [The prepared statement of Mr. Schwein appears at the 
conclusion of the hearing:]
    Mr. Scott. Thank you, Mr. Schwein. Now we will hear from 
Ms. Audrae Erickson, President of the Corn Refiners 
Association. You may begin, Ms. Erickson.

    STATEMENT OF AUDRAE ERICKSON, PRESIDENT, CORN REFINERS 
                          ASSOCIATION

    Ms. Erickson. Mr. Chairman and Members of the Committee, 
thank you for the opportunity to present the views of the Corn 
Refiners Association on the next farm bill. The Corn Refiners 
Association represents the corn wet milling industry. Our 
Members produce highly specialized starch products for both 
food and industrial use, corn sweeteners, corn oil and other 
food ingredients, animal feed products like corn gluten feed 
and corn gluten meal, ethanol and bio-plastics. We support a 
strong farm economy and applaud the efforts of the National 
Corn Growers Association in proposing a revenue assurance 
program. We hope this Committee will actively review that 
proposal with a view to supporting its important concepts.
    One of our top priorities for the next farm bill is to 
ensure sufficient acreage planted to corn, given the growing 
demand for this versatile starch source. We support efforts in 
the next farm bill that will bring additional acres into the 
production of corn, including adjusting the CRP. It is also 
important to ensure that the efforts of this Committee to 
provide a safety net for producers are not inadvertently 
undermined by another title in the farm bill.
    Despite the best intentions of Congress to assist growers, 
there is one program that has resulted in unintended 
consequences for the corn industry and that is the sugar 
program. The sugar program is designed to support the price of 
sugar in part by limiting imports into the United States and 
allocating how much sugar is supplied to the domestic market 
through marketing allotments. As you know, we will no longer be 
able to limit imports of sugar from Mexico effective January 1, 
2008, when we go to free trade with Mexico. If imports of 
Mexican sugar are restricted in any way, exports of corn 
sweeteners will be held hostage, and the next commodities in 
the firing line will be Mexico's import-sensitive commodities, 
which happen to be our export engines, beef, pork, poultry, 
corn, soybean meal, dairy, rice, dry edible beans, and apples. 
All of these commodities consider Mexico to be their top or 
second most important export destination.
    One of the leading uses for corn is the production of corn 
sweeteners. The manufacture of high fructose corn syrup, or 
HFCS, has accounted for approximately 5 percent of U.S. corn 
production in recent years. Historically, our top export market 
has been Mexico. Regrettably, we have been embroiled in a 10 
year dispute with Mexico, in large part because the United 
States limited Mexico's sugar access during this period. In 
short, corn sweeteners became the victim in a tit-for-tat trade 
challenge. The corn industry has already experienced 10 years 
of either restricted exports or complete closure of our top 
export market, Mexico, at a cost of more than $4 billion in 
lost sweetener sales and more than 800 million bushels of corn. 
As a result the CRA has no higher priority than the long-term, 
permanent resolution of the decade-long HFCS dispute with 
Mexico.
    The next farm bill is crucial for our industry. If Mexico 
stops imports of our high-quality sweeteners, because we are 
limiting their sugar imports through the farm bill, it will 
come at significant cost and loss of jobs to our industry. 
Given the importance of this issue, the CRA would like to have 
a seat at the table when decisions are being rendered about the 
structure of the sugar program in the next farm bill.
    We understand that some stakeholders may be considering a 
market balancing mechanism to ensure that the supply and demand 
for sugar in the United States is not out of equilibrium. One 
such mechanism may divert all excess supply of sugar, 
principally imported sugar, into ethanol. This approach is 
inconsistent with NAFTA and it is economically impractical, 
because Mexico's sugar is priced higher than our own. No 
provision in the farm bill should stand in the way of or limit 
full implementation of 2-way trade in sweeteners with Mexico. 
If it does, the CRA will not be in a position to support it.
    We thank you for the opportunity to testify before this 
Committee and urge that the next farm bill brings additional 
acreage into the production of corn and ensures free trade in 
sugar with Mexico. Thank you.
    [The prepared statement of Ms. Erickson appears at the 
conclusion of the hearing:]
    Mr. Scott. Thank you. Thank you very much. We have been 
joined by our Ranking Member, Mr. Goodlatte. Mr. Goodlatte, 
would you like to have an opening statement?
    Mr. Goodlatte. Well, thank you, Mr. Chairman. I will just 
submit my opening statement for the record and thank all of 
these witnesses for their testimony today. There is absolutely 
no doubt that processors and handlers play an absolutely 
critical role in the functioning of our agricultural economy 
and they should have a significant input, and we should listen 
carefully to what they say is needed, to keep what is a great 
system for bringing America's farmers, and ranchers, products 
to market and how we could help them accomplish that in the 
farm bill. So thank you very much for recognizing me. I will 
just put my statement in the record.
    [The prepared statement of Mr. Goodlatte appears at the 
conclusion of the hearing:]
    Mr. Scott. Okay, very fine. Thank you very much. I thank 
the panelists for each of your presentations. They were very, 
very thoughtful and well presented. Thank you. The chair would 
like to remind Members that they will be recognized for 
questioning in order of seniority for Members who were here at 
the start of the hearing. After that, Members will be 
recognized in order of arrival and I would certainly appreciate 
each of the Members understanding that and we will have ample 
time for that.
    I would like to start off, if I may, with 2 thoughts. As I 
mentioned in my opening statement, there has been great 
concern, certainly in my area in Georgia, concerning the 
exports of cotton and as well as the payment limits and the 
payment concentrations. As I mentioned, for example, in 2005, 
about 55,000 farmers' with farm sales over $500,000 received 
$5.7 billion, which is 6.2 percent of the payment farms 
receiving 36 percent of the payments. In other words, there is 
a perception that just a few very large farms are receiving the 
bulk of the support payments.
    And Mr. Nicosia, I hope that I pronounced that right. I 
apologize if I am butchering your name, but accept those 
apologies, please. Would you comment on that? And I guess the 
fundamental question is, is that a perception? What is the 
understanding for that? Would you like to shed some light on 
that to give a better understanding of that? And the other part 
is that the depressing or dropping so much by export into some 
of these foreign markets where we depress the price and are 
driving some of those farmers, particularly in North Africa, 
and I am sure you may have read the articles in both The 
Washington Post and the Atlanta Journal-Constitution that 
referred to those 2 major problems. Would you take a moment and 
expand on that?
    Mr. Nicosia. Sure. Let me handle the one about exports 
first. Obviously, the world has changed a little bit with the 
conversion of agricultural products into energy, as we have 
seen with the prices of grains, and that has an impact around 
the world on acreage distribution, nowhere more so than the 
United States, which is going to lose roughly 3 million acres 
to corn, beans and wheat.
    However, in reaction to what you read in The Washington 
Post about what you referred to as us dumping or selling cotton 
at lower prices and hurting growers around the world, what I 
would like to show you is that, in response to higher grain 
prices, the world is going to grow slightly less than 3 million 
acres of cotton around the world. All of that and more than 
that is only in the United States. The 4 largest producers in 
the world, Pakistan, India, China, West Africa, are actually 
increasing cotton acres, even though prices are low and grain 
prices are high there; totally non-responsive to the market. So 
the United States is the only area that is actually responding 
to market forces; and yet they say we are the ones that have 
distorted the price level. Nothing could be further from the 
truth.
    In regards to the payment limitations, our organization is 
very much against them and the means testing. It makes little 
sense to us to see why someone in a 2,000 acre farm should not 
get benefits while someone in a 800 acre farm should, 
especially in cotton, in a situation where the cost of 
production is substantially higher, 2 to 3 times that of grain. 
To penalize an individual because of their own success in 
growing their business; where 5 years ago maybe they qualified, 
today they don't; again, it seems to make no sense to me. And 
to deny someone benefits upon their own personal situation or 
whether they have personal finances, investments or other 
earned wages, again, it doesn't seem to make much sense, in 
relation to their farming operations. And to the U.S., why 
should that matter? Because the benefits of all the producers 
in the United States go to many of the people and the consumers 
that live here. They enjoy the benefits of large-scale farming 
operations, the promotion of lower prices, of reliable supply 
and the security that is provided to this country, and yet to 
deny the benefits to those people is to promote inefficiencies. 
So, to turn around and say the country is better off by having 
a higher cost of producing these goods and having lower 
quantities, I think, is probably not the goal that we are 
after. So we say, to all segments of our industry support 
eliminating means testing and continuing with the current 
payment limitations.
    Mr. Scott. Thank you. Thank you very much. My final 
question was probably directed to Mr. Kapraun or Ms. Erickson. 
It is on the ethanol issue, especially on the downward pressure 
that apparently our policy seems to be heading with the 
overemphasis, I think, on corn. Could you share with us what 
you feel, from the corn perspective, what the limits are? How 
much can we bear? In your estimation, what percentage of our 
thrust to make ethanol should we rely on corn, and especially 
as it relates to the higher prices that would occur for the 
feed stock element of that, and poultry and beef and those 
products? And the other thing is that we recently came back 
from a trip to Brazil and to South America and I was very 
fascinated with your comments, Ms. Erickson, on the sugar, and 
now 84 percent of their automobiles are manufactured with what 
is called flex fuel and the usage of ethanol made from sugar. 
What has been the impact in Brazil? Have they had an equal 
problem with the downward pressure on sugar, which I didn't 
pick up at that time. Could you both just comment on where we 
are in terms of our movement into ethanol and the impact that 
that would have on our grain?
    Mr. Kapraun. I would just talk briefly on your ethanol 
question and corn. I think, as long as we let the farmers have 
a choice of what they raise, the market should dictate through 
price what they produce and I think they have answered that in 
the March report on planting intentions. We saw a huge shift of 
acres into corn and I think a lot of that is driven by price 
and some of that might be driven by the growth we see in 
ethanol.
    Mr. Scott. Ms. Erickson?
    Ms. Erickson. Mr. Chairman, with respect to ethanol, we 
agree with the statement that market forces ought to drive the 
decisions and we understand clearly that today it is corn and 
sometime down the road, as research and development allows, 
there will be other opportunities for feed stocks, including 
cellulosic. With respect to sugar, Brazil has a different 
pricing structure, clearly, for sugar than the United States 
does. Brazil's price of sugar is much, much lower and cost 
production is much, much lower, so they haven't had the impact 
on their feed stock sugar that we have had on corn in terms of 
price. And there is a lot at stake in the international market 
today in sugar growing around the world and how much is being 
put on the international market, so much so that when we 
encountered the hurricanes last year, at the same time, the 
price of sugar was rising dramatically in the United States. It 
was also coming up on the international market because the 
European Union was getting out of the export business of sugar 
because Brazil was diverting more of its sugar production into 
ethanol. And what that did and what will happen over time, of 
course, is the price is slowly going up, when it has been very, 
very low internationally before for sugar. And that could have 
tremendous implications for our industry, which we believe 
should not be shielded from the international marketplace, that 
there are opportunities for efficient sugar growers in the 
United States, many of whom are looking at the Mexican market 
to start exporting, which we think is a good development. 
Market forces ought to be the dictating factor, whether it is 
for ethanol, whether it is for corn, whether it is for sugar 
and other commodities as well.
    Mr. Scott. Thank you very much. I will recognize the 
gentleman from Kansas, Mr. Moran.
    Mr. Moran. Mr. Chairman, thank you. Let me just ask a 
general question and I apologize for stepping out and not 
hearing your testimony, although I have read, in parts last 
evening, much of what you had to say this morning. Could you 
highlight for me any specifics that you have as far as concerns 
with the current farm bill, the 2002 farm bill that we are 
operating under, in ways in which the markets are distorted 
that disadvantage your businesses, your processing industry or 
American agriculture? Are there specific things that we ought 
to be looking for as we try to improve upon the 2002 Farm Bill? 
Mr. Schwein?
    Mr. Schwein. Mr. Moran, yes, I will share with you the 
perspective from the oat milling industry. North Dakota and 
northern North Dakota have historically been major, major oat 
producing regions. There are climatic conditions that make oats 
a superior crop in that territory. During the 2002 Farm Bill, 
there was a significant loan rate established for dry peas and 
lentils through that territory and the same producers that 
could grow oats or barley or spring wheat have jumped all over 
growing dry peas through that territory. The loan rates and the 
historic yields in a particular county, a county called Burke 
County, North Dakota, just north of Minot. The producer can 
look at his average yields and what he is guaranteed through 
the loan program and receive nearly 10 times higher net return 
per acre than he can when he looks at the loan rate for oats. 
We have seen significant rises in oat prices. Production in 
Canada, where their producer decisions are unfettered by a farm 
program, we are seeing 36 percent increase this year in oat 
production in Manitoba and Saskatchewan, the biggest provinces, 
in responding to those higher prices.
    But the influence of a producer's banker, his partner in 
his business in this area in North Dakota, while the producer 
may want to grow oats because the current price looks 
attractive, there is always concern that those prices won't 
hold and so the banker discourages him from growing oats even 
if he chooses to. So we think there are inequities that result 
in swaying producer planting decisions as opposed to planting 
for the market. We are delighted to compete with the ethanol 
industry or corn or beans, with other processors. Let the 
market set the rates. But we can't compete with government 
distortions of those decisions.
    Mr. Moran. Thank you. Anyone else?
    Mr. Nicosia. In response to your question about the 2002 
Farm Bill, without a doubt, we need to make some changes in 
that for cotton. The main thing is we have to address the loan 
rates. Both the overall loan rate and the loan premiums have to 
be addressed to lower it down towards market values, towards 
world values, otherwise cotton is going to stay trapped in the 
loan and forfeited. We will be uncompetitive, so we do need to 
address that.
    Ms. Erickson. I have one comment and that has to do with a 
program that, although it is not the jurisdiction of this 
Subcommittee, it is clearly a program that you will get to vote 
on and it has a tremendous impact on the corn industry and that 
is the sugar program. As you know, it is not at all subjected 
to market forces through limiting of imports, which has had an 
impact on production agriculture and processing agribusiness, 
as we try to open new trade agreements and export to other 
countries around the world. And it has also had an impact on 
our inability to solve this long-standing sweetener dispute 
with Mexico, because we are limiting sugar imports and Mexico 
is limiting corn sweetener exports to its market. And nothing 
is going to be more of a perfect storm than when we go to free 
trade with Mexico under the NAFTA in 3 months after the farm 
bill is written, when we may be putting in place the same 
program on sugar, which stands in direct opposition to 
international forces.
    Mr. Kapraun. Just a couple comments. We believe that the 
U.S. farm program payments should be structured in a way and 
implemented in way that would minimize any exposure to WTO. At 
the same time, the NGFA also supports limiting any dramatic 
swings in farm program funding levels and delivery that would 
create short-term disruptions.
    Mr. Moran. I am surprised, sir, that you don't mention CRP. 
I will have to tell Mr. Tunnel that I have never had a 
conversation with anybody from the feed and grain industry in 
which CRP is not the topic of conversation. Thank you, Mr. 
Chairman.
    Mr. Scott. Thank you.
    Mr. Moran. I yield back the balance of my 5 seconds of my 
time. Oh, I am over 5 seconds.
    Mr. Scott. Thank you, Mr. Moran. I now recognize the 
gentlewoman from Kansas, Mrs. Boyda.
    Mrs. Boyda. Thank you very much. I just had a question on 
when we are making our, and looking at, decisions on payments 
to farmers and we are currently talking about direct payments 
may be in more places than some of the counter-cyclical 
payments. How do you all feel about those kinds of payments, 
with regard to conservation and more direct payments as opposed 
to the counter-cyclicals? And I will open that up to anyone.
    Mr. Nicosia. Well, I think the more direct payments are 
fine. It gives more assurances to what is happening out there 
in the community, to the grower to base his decisions on. 
Obviously, it lends itself to more free market decisions on the 
planning side. However, I don't think it is the only answer, 
because it will still leave the producer with exposure to 
certain things that he cannot control, whether it be weather, 
whether it be import tariffs, or price changes that are there. 
So I think the movement that way, especially in response to how 
it is treated under WTO, it seems to be a more advantageous way 
to move benefits, but I don't think we can use it in place of, 
whether it be counter-cyclical and/or revenue or price 
assurances as well.
    Mrs. Boyda. Anyone have any additional thoughts on that? 
All right. I yield the balance of my time. Thank you.
    Mr. Scott. Thank you very much, Mrs. Boyda. I would now 
recognize the gentleman from Louisiana, Mr. Boustany.
    Mr. Boustany. Thank you, Mr. Chairman. First of all, thank 
you all for your testimony. It was very informative and I 
certainly appreciate it. Ms. Erickson, if I could start with 
you. I come from a district in South Louisiana and obviously, 
we have a lot of sugar cane down there and I am certainly well 
aware of the market structure differences between corn and 
sugar. And maybe my question is either naive or mischievous, 
but I am just curious as to whether or not there have been any 
discussions between the corn refiners and the sugar industry to 
come forward with perhaps a common proposal as we move toward 
the farm bill?
    Ms. Erickson. Thank you, Congressman. There were attempts 
by the Sweetener Users Association to bring everybody together. 
Unfortunately, there were reasons why the sugar industry wanted 
to restrict that discussion to sugar only. We did have a 
participant at that meeting and we very much support a dialogue 
between the users of sugar, all of the stakeholders in the 
sweetener industry, which would include the Corn Refiners 
Association and the sugar growers and processors.
    Mr. Boustany. Okay. Well, certainly, if I could be of 
assistance as we go forward on that, I would be happy to try to 
play that role. Mr. Kapraun, in your testimony, you describe 
the disruption to marketing that would occur if the USDA 
transitioned to a monthly posted county price for the purposes 
of getting loan deficiency payments. Can you further explain 
the impact of the USDA's proposal and what that impact would be 
on cost, transportation efficiencies, delivery time tables, and 
give me an indication of what the ripple effect might be if we 
went forward there?
    Mr. Kapraun. Absolutely. As we move to a monthly LDP rate, 
if the producers would watch the market during the month and 
try to predict what those LDPs are going to be before the end 
of the month, rather than seeing a marketing system where the 
producer could make that decision on a daily basis, we believe 
that if there are LDPs involved, you would probably see the 
need to not make those decisions until about once a month, 
either right towards the end of the month when the LDP rates 
were about to come out, or the beginning of the next month. 
What that would do, especially during the harvest season when 
we see a lot of LDPs, we would be having farmers hold on to 
their stocks. Elevators would not know if the grain is going to 
be sold or not. We would have trains that we didn't know if we 
could fill or not, as those deliveries are short at that time 
of the year. And we feel like that would be the disruptive 
portion of it, having the farmers delay those decisions until 
those couple of days of the year that they can get the most 
benefit out of the LDP.
    Mr. Boustany. Thank you. So what is your recommendation? 
What alternatives do you recommend?
    Mr. Kapraun. Even though I don't know that we could say 
that the current system is perfect. I think given the choice of 
where we are at today and even the proposal of even a weekly or 
monthly, we prefer what you have currently got versus one of 
those other 2 options.
    Mr. Boustany. Thank you. Mr. Nicosia, you talked about the 
Step 2 Program and the impact; we are beyond that now. Can you 
talk a little bit more, elaborate a little more about the 
factors that are keeping U.S. cotton from being competitive 
now. You did mention, I think, what is going on with Pakistan, 
India and China not being subject to market forces and I would 
like you to elaborate a little more on that.
    Mr. Nicosia. Well, I think the most glaring example of that 
is really what is taking place in their planning decisions. 
China is the largest producer, the largest consumer, the 
largest importer of cotton in the world. I don't think any 
other commodity has this type of situation in any one country. 
And their market is protected. They control it by import quotas 
that are allocated. The ones that were negotiated under WTO are 
so small that they essentially mean nothing. So they can 
control their interior prices by how much quota they allow and 
when they allow it. So it may be that a farmer, for example, 
inside China is going to expand cotton acres when, as we know, 
cotton prices are extremely low and the rest of every other 
agricultural price is high, but the price of cotton in China is 
extremely high.
    Imports would probably be double what they are if they 
didn't have those controls inside of China. From the U.S. 
standpoint, the problem that we have is that, again, the 
premiums that we have on high-grade cotton in the majority of 
cotton today, as technology is advanced, is much above the base 
quality grade that we have. Because of that, they receive a 
premium and when you receive a 6 cents premium in the loan and 
the marketplace only pays you a 3 cents premium for those 
qualities that are grown from around the world, it is not going 
to come out of the loan because it just doesn't work to 
profitably redeem those cottons and sell them.
    And so what happens? The other countries, whether it be the 
West Africans, Indians, Australians, Uzbekistans, all turn 
around and take our marketplace from us. It is not the U.S. 
cotton that is driving world prices down. The U.S. is the only 
one that is curtailing production. It is the continued over-
production in Brazil, people who have gone ahead and moved 
forward with the complaint in the WTO, whose cotton production 
has expanded rapidly. It is the continued production and non-
switching in West Africa, massive growth and production in 
China and India that has put the pressure on world prices.
    Mr. Nicosia. Thank you very much. My time has expired. 
Thank you, Mr. Chairman.
    Mr. Scott. Thank you very much. I now recognize the 
gentleman from Ohio, Mr. Space, and I apologize for missing you 
the first go-around.
    Mr. Space. No problem. Thank you, Mr. Chairman. Ms. 
Erickson, I wanted to ask or enquire concerning acreage 
currently devoted for the production of corn. I understand that 
one of your top priorities is to ensure sufficient acreage, 
given the growing demand. My question is, in a general sense, 
how does this farm bill establish that and for a more specific 
sense, are you proposing either a release of current acreage 
devoted under the conservation programs or are you advocating 
for a reduction in the total acreage allotted under the current 
conservation programs? I would be interested in your thoughts 
on that.
    Ms. Erickson. Thank you, Congressman Space, and I will 
share my time a bit with NGFA, who also has views with respect 
to CRP, but we are generally supportive of bringing additional 
acreage out of CRP where it makes sense. I know there are a lot 
of factors that go into that decision making, but clearly, 
there is a lot of pressure right now on the corn industry and 
the corn complex broadly speaking. And with respect to policy 
levers, clearly Congress has to facilitate more corn coming 
into production, that would really be the one. It would be a 
close working relationship with the USDA and how acres come 
out, could those acres feasibly be put into corn production, 
and that is clearly the concern of many, including our 
industry.
    Mr. Space. And just for clarification, when you say acres 
coming out, are you talking about reducing the acreage level 
for CRP or are you talking about taking existing CRP acreage 
and bringing it back out of conservation into production?
    Ms. Erickson. Mostly taking existing acreage that which can 
come out, retire out of the program.
    Mr. Space. So in essence, a premature or early retirement. 
And have you or your organization given thought to how that can 
be equitably accomplished given the structure of the CRP 
program right now?
    Ms. Erickson. We don't have specifics in that regard, but I 
would like to yield some time, if I could, to NGFA and their 
views on CRP.
    Mr. Kapraun. The time on the CRP, we realize that the land 
is environmentally sensitive, that the CRP is a good 
opportunity to protect that land. However, we also would like 
to see that those acres do not get increased where they 
currently are. We have the view that maybe we can see some 
shifting of acres or there may be some lands that are more 
environmentally sensitive than acres currently that are in the 
program, that those acres could be switched, get them out of 
the program. We also support the Working Lands Program.
    Mr. Space. And pardon me for dwelling on this subject, but 
I am curious as to whether you are suggesting a buy-in or a 
buy-out for a particular farmer who currently has his ground in 
a CRP program? Is there going to be a compensatory obligation 
in order to take land back out or is this something you 
envision as just being applied on a universal scale with due 
consideration of the land uses and values?
    Mr. Kapraun. I don't know that I have personally given any 
thought to the compensation of getting those acres that are in 
CRP that are contracted out. We do appreciate the opportunity 
for a farmer to have the flexibility to take acres out if he 
feels like the market dictates that he raise crops on those 
acres rather than having them in the CRP. Also having the 
ability to maintain yield bases; updating those, as well.
    Mr. Space. Thank you. I yield back the balance of my time. 
Thank you, Mr. Chairman.
    Mr. Scott. Thank you. Mr. Neugebauer of Texas.
    Mr. Neugebauer. Thank you, Mr. Chairman. Mr. Nicosia, you 
gave a chart that showed the exports for U.S. cotton and I 
think you showed a date there of the date that Step 2 was, the 
last day of that program, the remarkable drop in the amount of 
U.S. cotton being shipped. Has your industry given some 
thoughts, number 1, what was the Step 2 doing and what are some 
things that we can do to replace Step 2 that would maybe help 
additionally stimulate U.S. cotton exports?
    Mr. Nicosia. Well, the most important thing that Step 2 did 
is it made us relatively competitive on every day. When you 
removed Step 2, the only way to become competitive was to 
become competitive in an absolute basis. So whether prices were 
60 cents, 70 cents, 50 cents, Step 2 allowed us to be 
competitive every day. Today, without the use of Step 2, which 
was an adjustment that was used, we can only be competitive on 
an absolute basis, so what that means is that the only way to 
do it is for U.S. prices to fall to a level below the rest of 
the world.
    When that happens, it triggers a whole spiral effect where 
then someone else cuts their price, you cut your price, they 
cut their price. At some point in time, prices go down and they 
do until what happens? Until the U.S. cotton gets caught in the 
loan. It gets caught, it gets trapped in the loan, the rest of 
the world can under-price us right underneath them, they grab 
the market share and we can't spiral any lower than being 
trapped in the loan. We remove ourselves from the game and the 
foreign countries take all of the export market that is there. 
That is essentially what happened with the loss of Step 2.
    So how do we move forward, how do we address that? One way 
is we have to make sure that the cotton no longer gets trapped 
in the loan. That means we have to make the loan levels more 
competitive, both the absolute level and again, the premium 
levels, to bring them down so that they can compete in the 
world market again. We do have to make some tweaking to the 
adjusted world price formula. The industry is coming together, 
I believe, on that. You will see a pretty united front in 2007 
to address that. There are different ideas on how to handle 
that for 2006. But for going forward for next year's crop, I 
think the industry will come together on it.
    Mr. Neugebauer. And when you talk to the producer groups 
about changing the loan rate, obviously many of those folks 
probably are pushing back some. What are the ways, if we did 
lower the loan rate, that we could still provide the safety net 
for those producers?
    Mr. Nicosia. The Administration's proposal that came out 
did have an increase in the direct payments that was there to 
help compensate. What they did miss, however, is that when we 
lower the loan rate and cotton being in the situation where 
prices are down towards the loan rate versus grain, we are 
increasing the counter-cyclical exposure for the cotton grower. 
I think he is willing to take that if it wasn't for the risks 
of the payment limitations that they would have to impose. 
Cotton farms tend to be, from an efficiency standpoint, they 
are more expensive to grow and they tend to be larger scale, so 
the payment limitations affect them more directly.
    So if we could address the counter-cyclical payments, 
either through a direct relationship of lowering the loan to 
compensate or through direct payments, I think they would find 
very little pushback. We have found that producers understand 
it is broken. They realize, when they can't sell their equities 
and cotton is caught in the loan, that something is wrong. So I 
think they are fairly open to ideas, but the payment 
limitations are a major problem in our industry.
    Mr. Neugebauer. In my remaining time, to the rest of the 
panel, when we have farm policy and we sit down, writing the 
farm bill, what are some of the challenges you see as to making 
our farm bill more compliant with WTO provisions and how much 
of a factor should this group consider as we move forward in 
trying to make this farm bill as WTO compliant as we can? Mr. 
Kapraun.
    Mr. Kapraun. I don't know that I have a list of the exact 
requirements right now for WTO, but I would be more than happy 
to get back to you and the Committee with some of our opinions.
    Mr. Neugebauer. Okay. Mr. Schwein.
    Mr. Schwein. I would say, with a great deal of comfort, 
that our group would definitely encourage compliance with WTO. 
I do not believe we have made any attempt internally to come up 
with a list of recommendations, but we will certainly undertake 
that effort and reply, as well.
    Mr. Neugebauer. Ms. Erickson.
    Ms. Erickson. Mr. Congressman, thank you. We are concerned. 
As you know, Canada has begun the process of a challenge to the 
corn program, but there are elements of that potential 
challenge, should it go forward, that have broader implications 
beyond corn and really, it has to do with our overall domestic 
support spending. We would hope that the Committee would look 
seriously at ensuring that our trade obligations are met with 
respect to the WTO and the NAFTA, that we are not subject to 
challenge and that, in fact, we can take advantage of these 
trade agreements which have so benefited U.S. agriculture.
    Mr. Neugebauer. Thank you. Thank you very much.
    Mr. Scott. The gentleman from California, Mr. McCarthy.
    Mr. McCarthy. Thank you, Mr. Chairman. I wanted to touch on 
Mr. Nicosia's PowerPoint, if I could. First, if China is the 
largest purchaser, and I have seen, in California, less cotton 
being planted and grown, who are they buying their cotton from 
right now?
    Mr. Nicosia. Well, the biggest change in the last 12 months 
has been India, by far. India has gone ahead and taken actually 
30 percent of the market share this year alone, but they 
continue to buy from the United States, West Africa, Australia 
and then the CIS areas.
    Mr. McCarthy. If I could just touch on and have you 
elaborate a little more, you gave 4 key objectives for cotton 
legislation. We talked about the loan rate base. I was 
wondering if you would elaborate a little on the loan cotton to 
be shipped prior to redemption, the strategy there.
    Mr. Nicosia. Sure. Currently, because of the way cotton is 
cycled through the loan and is redeemed, there is a tendency 
for cotton to remain in the loan for a longer period of time, 
looking for an opportunity for redemption. So that can happen 
anywhere within the 9 months. When this time period goes 
through, if you have a small opportunity in the first month, 
you are going to tend not to grab it until such later period 
because you have 8 more months to wait for a better opportunity 
to come. So as this time passes and as this cotton remains off 
the market, you are missing export opportunities that other 
countries are taking from us.
    And since we cannot ship the cotton, we cannot make the 
sale because we can't divorce redemption from shipment, we tend 
to lose all early export opportunities. So what our proposal 
is, is to allow us to redeem, not to redeem, but to actually 
make foreign sales, ship that cotton, put up collateral with 
CCC to protect their interest in the loan and yet allow us to 
still redeem it at another point in time. The benefits of that 
is one that is going to stop storage, which the government 
currently incurs; and it allows us to capture export markets 
and opportunities earlier in the year that we otherwise would 
miss.
    It will lower our carry-out, which will have a tendency to 
raise prices in the United States, which will lower, whether it 
be LDPs or counter-cyclical payments; and allow us to then go 
ahead and price that cotton or redeem it on paper at a later 
point in time. Now, people will argue and they will say whether 
that is cost effective or not because you will have the 
tendency to have larger payment schedules later in the year at 
advantageous prices. But the alternative is, it is happening, 
so all we are going to do is have those same opportunities to 
redeem them later, except the government is going to bear the 
cost of carrying that cotton until such time, therein losing 
the markets.
    Mr. McCarthy. So that would save the government from 
warehousing, the cost of warehousing?
    Mr. Nicosia. Absolutely.
    Mr. McCarthy. Okay. I will yield back the balance of my 
time.
    Mr. Scott. Thank you very much. Again, I try and try again. 
I am sorry that I missed you on that one, Mr. Ellsworth, but I 
will make up for that by having 2 Democrats go this time. We 
will now have Mr. Ellsworth.
    Mr. Ellsworth. Thank you, Mr. Chairman. Don't give it a 
second thought. I learned as much from Mr. McCarthy's excellent 
questions that I might from my own, so I only have 1 question. 
I think Mr. Kapraun, it is for you. Could you discuss your 
organization's position, and the reasons why, if your 
organization thinks the fruit and vegetable planting 
prohibition on program base acres should be repealed?
    Mr. Kapraun. I don't know that we have a strict position on 
that. Could you re-ask what provision it is, again?
    Mr. Ellsworth. On the fruit and vegetable planting 
prohibition on program base acres and whether that should be 
repealed.
    Mr. Kapraun. I don't think that we have a specific position 
on fruit.
    Mr. Ellsworth. Anybody on the panel that has a position? 
Ms. Erickson.
    Ms. Erickson. Mr. Congressman, I will just note that 
although Brazil cannot challenge us on that particular measure 
today, under the cotton challenge, under the corn challenge 
that is being levied by Canada, should that proceed, that could 
have serious implications for our overall domestic support 
spending because those direct payments, of course, would no 
longer be green box and would have to be put in an amber box 
category and that would be the challenge, then, that would put 
at risk our overall domestic support spending, so it is a 
difficult situation. We don't have a specific view, but we 
wanted to highlight the important implications of that 
decision.
    Mr. Ellsworth. Thank you. Mr. Chairman, I don't have 
anything further. I yield back.
    Mr. Scott. All right. The gentleman from North Dakota, Mr. 
Pomeroy.
    Mr. Pomeroy. Thank you, Mr. Chairman. I would just ask, 
maybe Ms. Erickson. What is the price of corn today?
    Ms. Erickson. It is very high, Mr. Congressman. It is a 
good situation, as you know, for the corn growers, but for our 
industry----
    Mr. Pomeroy. About $4 a bushel, right?
    Ms. Erickson. It is right about that.
    Mr. Pomeroy. Now, it seems to me like your beef and Mr. 
Schwein's beef, principally, are with the legitimate market 
dislocation issues of concern to your focused industries coming 
from high corn prices. Mr. Schwein, I find it rather 
implausible that you contend the government is somehow 
responsible for the decline in oat acreage when the fact of the 
matter is, is there are alternative applications for this 
cropland that previously was oat and wheat that are going to 
give the farmer a little better return. I also think that your 
statement failed to put in perspective where oats has been 
relative to a domestically produced product.
    It is my 15th year in Congress and oats has never, during 
the time I have been here, been a particularly important crop 
in North Dakota. It is, for example, looking at the acreage 
from the National Ag Statistic Service shows that in 2005 we 
had 490,000 acres. That sounds like a lot, but when you 
consider the fact that North Dakota has 26 million acres of 
cropland, 490,000 acres is a pretty small deal; 420,000, you 
know, 6 may be proving your point. You see a drop in acreage. 
But planting decisions, reported in the Ag Statistics Service 
for 2007, show 530,000 acres out of 26 million.
    Another thing that I think is, aside from the fact that 
people are going to be looking at corn and soybean because they 
can get better value. They can get more money into their 
farming operation from higher value crops, and you do note the 
agrimony advances that allow that opportunity in areas we 
didn't have it before. There are other issues about other crops 
beyond the government programs. Yes, there is a loan program 
now supporting dry pea and lentil. But dry pea and lentil also 
have some particular characteristics that make it desirable to 
a farmer. They are nitrogen infusing crops at a time when 
inputs are just wildly expensive.
    Having a nitrogen infuser in your crop rotation has been 
found to be very valuable to a number of farmers when you talk 
about the soaring acreage of dry pea and lentil production in 
North Dakota, nearly 950,000 acres. Again, that is out of 26 
million acres overall. You indicate why in the world don't we 
put some support behind a product we don't even eat. I hope we 
don't eat it, we sell it. We just had the worst trade imbalance 
in the history of the country and some support for something we 
can actually export doesn't strike me as the worst idea that we 
ever encountered.
    Ms. Erickson, I come back to your testimony. I am just kind 
of befuddled by it. You place all the blame on sugar for your 
inability to expand into the Mexican market, but the reality 
is, the Mexican market has, in some instances, demonstrated a 
preference for Mexican sugar as compared to U.S. corn as a 
sweetener product. In addition, production costs, market price 
for sugar in Mexico is more expensive than it is in the United 
States. So I think that there are some other market 
characteristics that play relative to what you are talking 
about and blaming the sugar policy, I think is, again, 
misplaced.
    I think the fundamental problem for each of you is that we 
have very high-priced corn because it is being used for 
ethanol. We have had, in the fairly near term, a transforming 
event in agriculture and it has caused market dislocation, 
market impact for related industries like the 2 of you 
represent. To me, that should have been placed on the table at 
the start of your testimony. I think that you have identified 
villains relative to your present challenges that are not the 
principal cause of your problems.
    Thank you, Mr. Chairman. They have 10 seconds to respond. I 
can just yield back and leave it for a statement, but if you 
would allow the time for them to respond----
    Mr. Scott. Would you like to respond real briefly, in 2 
seconds? We will give you a little bit of time.
    Ms. Erickson. Mr. Congressman, our challenges on corn 
sweetener has really been actions taken by the Mexican 
Government that limited our export opportunities. What we are 
hopeful in moving forward is that in the farm bill that our 
government doesn't inadvertently take actions that limit the 
two-way trade in sweeteners between Mexico and the United 
States as the NAFTA allows.
    Mr. Pomeroy. All right. Thank you.
    Mr. Schwein. Just briefly, Congressman. Our concern is 
simply to provide the producer and his banker partner the 
opportunities to consider oats if the market prices are 
advantageous. We see strong market prices this year. Certainly, 
we need to compete with corn and beans and that is something we 
are well aware of and willing to undertake, but we would like 
to see the banker, that producer's partner, also be able to 
look to oats as a reasonable option.
    Mr. Scott. All right. Thank you. And now I will recognize 
the gentleman from Texas, Mr. Conaway, and thank you for your 
patience in more ways than one.
    Mr. Conaway. Mr. Chairman, thank you. I always find it 
instructive to watch the techniques of my good colleague from 
North Dakota as to how he expands his 5 minutes by preaching 
right up to the last minute and then bullying the Chairman 
into--anyway, bullying. But thank you, Mr. Chairman. I 
appreciate that. Mr. Nicosia, you mentioned reducing loan 
rates. What should the loan rate be or how does that mechanism 
work? Give me a number that would work on a loan rate.
    Mr. Nicosia. Well, today it is just set roughly at 52 
cents.
    Mr. Conaway. Right.
    Mr. Nicosia. What we would like to see is it be based more 
upon, the Administration proposal was for 85 percent of the 5 
year Olympic average, which would relate it to market prices. 
If we did that, and we are in support of that concept, although 
we don't believe it should all be at one time because that 
would be a massive drop and create such a large counter-
cyclical exposure, it would be very difficult on the industry. 
But to base the base market rates on a 5 year Olympic average 
is fine. We would probably propose to have some percentage 
limit on any one year change on it so as to not be market 
disruptive.
    Mr. Conaway. Okay, thank you. Mr. Schwein, you mentioned 
that your mills, after having trouble getting the raw materials 
to use, but you are now using imports, can you help me 
understand what the economic impact is on your business of 
using imported grains versus domestically grown grains? Or is 
there an impact?
    Mr. Schwein. The economic impact is of a concern, but it is 
not the greatest concern and while we do bring in oats from 
across the Canadian prairies to the mill in Iowa, for example, 
and there is a transportation component there, market forces, 
if they were grown in Iowa, the market would probably be the 
same price based on our facility. A bigger concern is the 
strategic risk that all the mills are now taking by having most 
of North America's oat production concentrated in a single 
growing region of the continent.
    There has historically been 5 large oat producing states in 
the U.S., but they covered a pretty broad geographic area. 
Today, as the oat production has shifted into Canada, most of 
the North America's oat production is a 130 mile oval spread 
across Manitoba, Saskatchewan and into Alberta. So all of our 
oat demand for food products is filled from a narrow producing 
reason and the event of a crop growing problem in that region 
of the world, we will not be able to source sufficient supplies 
within North America.
    Mr. Conaway. Okay. Thank you, Mr. Chairman. I yield back.
    Mr. Scott. All right. Thank you, panelists. You have done a 
wonderful job. Thank you very much. Thank you, Mr. Nicosia, Mr. 
Kapraun, Mr. Schwein and Ms. Erickson, for your excellent, 
excellent presentations and we will allow you to leave and we 
would like to welcome our next panelists.
    All right. Thank you very much. We would like to welcome 
our second panel. First, we have Mr. Bob Stallman, President of 
the American Farm Bureau Federation, and Mr. Tom Buis, 
President of the National Farmers Union. You may begin, Mr. 
Stallman, but just before you begin, staff has just informed me 
that we will be having votes in about 15, 20 minutes, so if you 
could concise your remarks so that we can ask questions before 
we leave, we have a series of 3 votes; some may come back, some 
not. We can have it for the record, but you may proceed, Mr. 
Stallman.

  STATEMENT OF BOB STALLMAN, PRESIDENT, AMERICAN FARM BUREAU 
                           FEDERATION

    Mr. Stallman. Chairman Scott and Members of the Committee, 
thank you for the opportunity to present our recommendations on 
the 2007 Farm Bill. The farm bill encompasses much more than 
just issues that affect farmers and ranchers. It covers issues 
in which all Americans have a stake; alleviating hunger and 
poor nutrition, securing our Nation's energy future, conserving 
our natural resources, producing food, fuel and fiber and 
promoting rural development.
    Our Members have told us that the basic structure of the 
2002 Farm Bill should not be altered. The current farm bill is 
working and working well, overall, not only for farmers and 
ranchers, but also for the environment and consumers. The track 
record of success from the current farm program is very good. 
Agricultural exports continue to set new records, hitting $69 
billion in 2006, accounting for \1/4\ of farm cash receipts. 
Government outlays are considerably lower than what Congress 
said it was willing to provide as a farm safety net when the 
2002 Farm Bill was signed. Farmers' average debt to asset ratio 
is the lowest on record, about 11 percent in 2006, and farmers 
have access to a dependable safety net.
    The following is a summary of the 4 key principles 
underlying our proposal. First, the proposal is fiscally 
responsible. Even though the goals of the farm bill continue to 
grow, we have structured our proposal to stay within the March 
CBO baseline and do not assume any additional budget dollars 
from reserve funds. We accomplish this by proposing offsets for 
all funding increases within a title.
    Second, the basic structure of the 2002 Farm Bill should 
not be altered. Farm Bureau's proposal for the 2007 Farm Bill 
maintains the baseline balance between programs. Our proposal 
does not shift funding from title to title.
    Third, the proposal benefits all of the sectors. Farm 
Bureau is a general farm organization with Members who produce 
all commodities. It is easy for any one group to ask Congress 
to allocate more funding for a program that benefits its 
interests without worrying about whether that will take funds 
away from others. Farm Bureau's proposal seeks balance across 
the board.
    And fourth, world trade rulings are considered. The Farm 
Bureau proposal includes changes to comply with our existing 
agreement obligations and World Trade Organization litigation 
rulings, but it does not presuppose the outcome of the Doha 
Round of WTO negotiations, which are far from complete.
    We have nearly 60 recommendations and suggestions included 
in the report we have submitted for the record. I will 
highlight just a few of the major proposals.
    First, we support continuation of the 3-legged stool safety 
net structure of the commodity title, including the direct 
payment system and the loan support. But we recommend that the 
current counter-cyclical payment program should be modified to 
be a counter-cyclical revenue program using state crop revenue 
as the trigger, rather than the national average price.
    Second, given the determination of the ruling of the WTO 
Brazilian cotton case, we support eliminating the fruit and 
vegetable planting restriction on direct payments. We support 
continuing the restriction for the counter-cyclical payments.
    Third, we maintain our longstanding opposition to any 
further changes in the current farm bill payment limitations or 
means testing provisions.
    Fourth, we support establishing a county-based catastrophic 
assistance program focused on the systemic risk in counties 
with sufficient adverse weather to be declared disaster areas. 
In conjunction with this, we support elimination of the 
Catastrophic Crop Insurance Program and the Non-Insured 
Assistance Program. The crop insurance program would then need 
to be re-rated to reflect the risk absorbed by the catastrophic 
program.
    Fifth, we support changing the structure of the dairy price 
support program to support the price of butter, nonfat powder 
and cheese, instead of only the price of milk. We support this 
only if total Federal spending does not increase under this 
approach.
    Sixth, we support haying but not grazing on CRP acreage, 
with some reduction in the rental rate. Similarly, we support 
the use of selected CRP acres to harvest grasses raised for 
cellulosic feed stock, with a reduction in the rental rate. In 
both of these cases, production practices that minimize 
environmental and wildlife impacts would have to be utilized. 
We support an additional $250 million annual to expand the EQIP 
program and to allocate 17 percent of the mandatory EQIP 
funding for fruit and vegetable producers. And for the 
nutrition title, we support funding for additional purchases of 
fruit and vegetables.
    These are some of the major recommendations. I will be glad 
to answer any questions on the other recommendations I have not 
specifically referenced. For clarification, any element of the 
current farm bill not directly addressed in our submission, has 
our support to be continued.
    In closing, I want to emphasize that our recommendations 
are intended to more effectively use the limited dollars in the 
CBO baseline. There are still many unmet needs across all of 
the titles of the farm bill, and our testimony would look 
somewhat different if additional budget funds are allocated for 
the farm bill. Thank you and I will look forward to answering 
questions.
    [The prepared statement of Mr. Stallman appears at the 
conclusion of the hearing:]
    Mr. Scott. Thank you very much. Now we will hear from Mr. 
Tom Buis, President of the National Farmers Union.
    Mr. Buis. Thank you, Mr. Chairman. It is actually 
pronounced ``Bias.'' It is a Hoosier pronunciation of a French 
name and I don't know how they came up with it.
    Mr. Scott. Thank you. I appreciate that. As you have 
noticed from the first panel, I have struggled with my 
pronunciations of names.
    Mr. Buis. That is okay.
    Mr. Scott. So thank you for correcting me. I appreciate it.
    Mr. Buis. I can legitimately say I am born biased.
    Mr. Scott. Wonderful. Thank you, Mr. Buis.

    STATEMENT OF TOM BUIS, PRESIDENT, NATIONAL FARMERS UNION

    Mr. Buis. Mr. Chairman and Members of the Subcommittee, I 
appreciate this opportunity to be here today. We have submitted 
a more complete, inclusive testimony in writing, which 
obviously we don't have time to go over orally, but I would be 
glad to answer any questions regarding that. We too are a 
general farm organization and as you might imagine, there are a 
lot of issues out there considering the breadth and depth of 
the farm bill.
    The goal of this farm bill, however, should be profits from 
the marketplace. I have never met a farmer that didn't prefer 
to get their income from the marketplace, and with the recent 
excitement and opportunity in renewable energy, both ethanol 
and biodiesel and wind energy and those opportunities down the 
road with cellulosic ethanol, farmers in those areas are very 
optimistic and very upbeat. And if we accomplish the goal of 
profits from the marketplace, many of the symptoms that we 
often debate, in this Committee and elsewhere, go away. 
However, while prices may be good in some sectors and overall, 
farmers are pretty satisfied with the 2002 Farm Bill safety net 
structure, any farm program that works in high prices; any 
safety net would then work. But as history has taught us, good 
times do not last forever and we must plan for the worse. So we 
feel there should be a safety net that works when the rural 
economy is struggling and it has to be a key priority.
    We conducted numerous meetings around the country and by 
and large, people pointed out, over and over again, 2 glaring 
holes in the current safety net. One is the rising cost of 
production, primarily fueled by skyrocketing energy costs that 
farmers, as price takers, cannot pass on to others as most 
other businesses can and do. As President Kennedy once said, 
``farmers are the only ones who buy retail, sell wholesale and 
pay freight both ways.'' I would add another sentence, that 
they also are the only ones that pay fuel charges both ways, 
and that has been difficult the last couple of years for them 
to grapple with.
    And since the Committee is faced with crafting a new farm 
bill with significantly diminished resources, we started 
looking, at Farmers Union, at options. One option that we had 
reviewed and analyzed, and we commissioned a study by Dr. 
Darryll Ray at the University of Tennessee, that looked at a 
purely counter-cyclical safety net based on cost of production. 
The concept is to take all of the current safety net, the 3 
legs, the direct payments, marketing loans, target price, 
combine them into 1 counter-cyclical program based on cost of 
production. The preliminary results of the study show that we 
could provide the same level of safety net the farmers 
currently have, plus save $2 to $3 billion per year for other 
priorities. This level of support, 95 percent of the cost of 
production, would only provide Federal assistance if commodity 
prices are low and I think that is key, because one of the 
things that we get beat up with over and over again is how can 
you justify a payment to a farmer, like myself in Indiana, 
getting $4 for the corn, which is a profitable price, and also 
a payment from the government?
    The second glaring hole in the safety net is when producers 
have less than a normal crop because of weather-related 
disasters. Well, risk management programs are important. They 
do not protect enough of the risks farmers face. Emergency ad 
hoc assistance, as we all know, and you are going through it 
right now, is most difficult to enact. We are now going on the 
third year without an emergency disaster program. Permanent 
disaster assistance in the farm bill is a critical and 
inseparable part of an adequate safety net. Using part of the 
direct payments to pay for a permanent disaster program seems 
like a common-sense solution to a major challenge currently 
confronting our Nation's farmers.
    In summary, Mr. Chairman, I would hope this Subcommittee 
would seriously consider taking a look at adopting a purely 
counter-cyclical safety net based on cost of production, 
because no one can project what prices are going to be down the 
road. Gross revenue, fixed payments, don't get to the problem 
that they are currently facing; and also combine it with a 
permanent disaster program. Thank you, Mr. Chairman. I would be 
glad to take questions.
    [The prepared statement of Mr. Buis appears at the 
conclusion of the hearing:]
    Mr. Scott. Thank you. Thank you, Mr. Buis. Here is our 
situation. We have got 12 minutes before votes and what I 
thought we could do is to get as many questions in as quickly 
as we can. And then, Members, we have a choice of either 
submitting our questions for the record or taking some--12 
minutes left until the votes end. So I would suspect that we 
have got about 10 minutes before we have to rush over, with 2 
minutes to get over that normally we can make it. So we have 
got 10 minutes here. We can take as much advantage of it and if 
we want to come back, the chair will certainly have us come 
back or we could submit questions for the record. With that, in 
an effort to speed things, I will recognize Mr. Moran for his 
questions.
    Mr. Moran. Mr. Chairman, thank you very much. I will ask 
these questions and not expect a response today, but if Mr. 
Stallman or Mr. Buis, if you or your colleagues would visit 
with me about these topics in the future, that would be useful 
to me. I just wanted to raise the issue with Mr. Stallman, 
about rebalancing target prices and loan rates. That is not 
mentioned in your testimony. We heard from the panel 
previously, particularly from the millers, their concerns about 
oats and wheat, and I hear this issue from Kansas wheat 
farmers, about their importance. And I know how difficult it is 
if we don't have more money. No one wants to give up anything 
in order to increase the other side. So Mr. Stallman, if you 
would visit with me sometime about American Farm Bureau's 
thoughts in regard to rebalancing loan rates and target prices.
    Mr. Buis, your position on direct payments I am interested 
in pursuing. Direct payments at the moment in Kansas are the 
only thing that we are receiving as far as a safety net for 
farmers, and my guess is that the only way that I could reach a 
conclusion that direct payments are not a valuable part of this 
3-legged stool is if we had a crop insurance or disaster 
program that was actually working. Despite our efforts, for as 
long as I have been in Congress and perhaps as long as you all 
have been working in agricultural policy, we are a long way 
from that being the case. So I would like to talk further about 
what I see developing here. It is kind of an anti-direct 
payment proposition and yet there are reasons in which direct 
payments are awfully important and so I would like to hear from 
you in the future about that, and I yield back the balance of 
my time.
    Mr. Scott. Thank you very much, Mr. Moran. The gentle lady 
from South Dakota, Ms. Stephanie Herseth Sandlin.
    Ms. Herseth Sandlin. Thank you, Mr. Chairman. I will defer 
to my colleagues who were here previously. I appreciate their 
testimony today, 2 organizations which you represent that have 
long provided good ideas to this Subcommittee and the full 
Committee; but I defer to my colleagues. Thank you.
    Mr. Scott. And thank you. The gentleman from Louisiana, Mr. 
Boustany.
    Mr. Boustany. Thank you, Mr. Chairman. I also share 
Congressman Moran's question with you and also, I would like 
you to compare and contrast your proposal on the counter-
cyclical payments, your individual approaches to this, with 
that recommended by the corn growers. I would be interested in 
knowing some of the differences and how you have come about 
your change in position on this, to some degree, over the last 
several months. Thank you and I will yield back.
    Mr. Scott. All right, thank you. Now the gentleman from 
Indiana, Mr. Brad Ellsworth.
    Mr. Ellsworth. Thank you, Mr. Chairman. If you would ask me 
how to pronounce Mr. Buis, as a fellow Hoosier, I could help 
you there, but probably not.
    Mr. Scott. I needed help. I needed help this morning, my 
friend. I appreciate it.
    Mr. Ellsworth. I will submit my questions, but if you all 
could contact my office about the farm flex issue and your 
support and/or feelings about that, and your organizations', on 
farm flex. I think there are about 19 Members that are co-
sponsoring legislation as a result of that and if you could 
have someone contact my office about that and your opinions. 
Thank you.
    Mr. Scott. Thank you. The gentleman from North Dakota, Mr. 
Pomeroy.
    Mr. Pomeroy. Thank you, Mr. Chairman. It seems to me that 
the core of the farm bill, the heart of it, is making sure we 
have price protection for farmers when prices collapse. We have 
seen that if it doesn't account for skyrocketing energy costs, 
that can be a very insufficient level of security. I am very 
intrigued by the Farmers Union proposal and the $3 billion it 
potentially frees up that we give through scoring. That could 
be used as a down payment on the permanent disaster component 
that many of us hope to put into this legislation. So I know 
each of these guys and think very highly of them and the 
organizations they represent. They have once again given us 
some weighty material to consider and I think it is going to be 
very helpful to us. Thank you.
    Mr. Scott. Thank you very much. And certainly, before we 
adjourn, let me, on behalf of the full Committee thank you for 
your understanding of our time crunch this morning. Your 
testimony was very, very informative and very beneficial to us. 
And thank you, Mr. Stallman, and thank you, Mr. Buis, for your 
testimony.
    Now, under the rules of the Committee, the record of 
today's hearing will remain open for 10 days to receive 
additional material and the supplementary written responses 
from witnesses to any questions posed by a member of the panel. 
This hearing of the Subcommittee on General Farm Commodities 
and Risk Management is adjourned.
    [Whereupon, at 11:33 a.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
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