[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
HEARING TO REVIEW THE STATE OF AGRICULTURE IN KANSAS
=======================================================================
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
__________
JUNE 5, 2007, SALINA, KS
__________
Serial No. 110-24
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, Ranking
JIM MARSHALL, Georgia 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
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Page
Boyda, Hon. Nancy E., a Representative in Congress from Kansas,
opening statement.............................................. 5
Etheridge, Hon. Bob, a Representative in Congress from North
Carolina, opening statement.................................... 1
King, Hon. Steve, a Representative in Congress From Iowa, opening
statement...................................................... 6
Moran, Hon. Jerry, a Representative in Congress from Kansas,
opening statement.............................................. 2
Prepared statement........................................... 4
Smith, Hon. Adrian, a Representative in Congress from Nebraska,
opening statement.............................................. 7
Witnesses
Dumler, Troy J., Agricultural Economist, Kansas State University,
Garden City, KS................................................ 8
Prepared statement........................................... 9
Submitted report............................................. 16
Miller, Ph.D., Bill, Cattle Producer, Princeton, KS; on behalf of
Franklin County Farm Bureau Association........................ 29
Prepared statement........................................... 30
Rome, Steve, Farmer; President, Southwest Kansas Corn Growers
Association; Board Member, Kansas Corn Growers Association,
Hugoton, KS.................................................... 31
Prepared statement........................................... 32
Starck, Brian, Corn, Soybean, and Wheat Farmer; Swine Producer,
Fairbury, NS; on behalf of Jefferson County, Nebraska Farm
Bureau......................................................... 34
Prepared statement........................................... 36
Pracht, John C., Corn, Wheat, and Soybean Farmer/Rancher,
Westphalia, KS................................................. 46
Prepared statement........................................... 48
Childs, Barry K., Grain Farmer; Vice President and Fieldman, Farm
Management Services, Inc.; Childs Farms Ptr., Belleville, KS... 49
Prepared statement........................................... 52
Parker, Gary, Soybean, Wheat, and Milo Farmer, Moran, KS......... 55
Prepared statement........................................... 57
Meisinger, Mark, Wheat Farmer and Cow/Calf Producer, Marion, KS.. 60
Prepared statement........................................... 61
Robbins, Lee, Director, Kansas Cattlemen's Association; Cow/Calf
Producer, Yates Center, KS..................................... 61
Prepared statement........................................... 62
Polansky, Hon. Adrian J., Secretary of Agriculture, State of
Kansas, Topeka, KS............................................. 70
Prepared statement........................................... 72
Submitted Statements
Clanton, Steven, Commissioner, Kansas Wheat and Soybean
Commissions; on behalf of Kansas Association of Wheat Growers;
Kansas Wheat Commission, Minneapolis, KS, prepared statement... 88
Dahlsten, Edie, Vice President, Kansas Farm Bureau, Manhattan,
KS, prepared statement......................................... 84
Hanson, William V. ``Bill'', Chairman, Crop Insurance
Professionals Association, Washington, D.C., prepared statement 77
Hineman, Don J., Farmer and Cow/Calf Producer, Dighton, KS,
prepared statement............................................. 87
Kaufman, Leslie, Executive Director, Kansas Cooperative Council,
Topeka, KS, prepared statement................................. 95
Kejr, Joe, President, Kansas Association of Wheat Growers,
Brookville, KS, prepared statement............................. 78
Kocher, Kurt, Cloud County Producer, Glasco, KS, prepared
statement...................................................... 84
Larson, Daryl A., Farmer and Rancher, McPherson, KS, prepared
statement...................................................... 87
Letter to Hon. Collin C. Peterson from concerned Kansas
agriculture groups............................................. 97
Melander, Gary, Assaria, KS, prepared statement.................. 87
Penner, Paul, Vice President, Kansas Association of Wheat
Growers, Hillsboro, KS, prepared statement..................... 80
Tomlinson, Ralph and Barbara, Baldwin City, KS, submitted article 99
Tunnell, Tom R., President, Kansas Grain and Feed Association,
Kansas Agribusiness Retailers Association, Topeka, KS, prepared
statement...................................................... 93
Winter, Ken, President of the Board, Kansas Cattlemen's
Association, Junction City, KS, prepared statement............. 80
Zongker, Derek and Michelle, Farmers, Sylvia, KS, prepared
statement...................................................... 101
HEARING TO REVIEW THE STATE OF AGRICULTURE IN KANSAS
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TUESDAY, JUNE 5, 2007
House of Representatives,
Subcommittee on General Farm Commodities and Risk
Management,
Committee on Agriculture,
Salina, KS
The Subcommittee met, pursuant to call, at 9 a.m., at the
College Center at Kansas State University at Salina, 2310
Centennial Road, Salina, Kansas, Honorable Bob Etheridge
[Chairman of the Subcommittee] presiding.
Present: Representatives Etheridge, Moran, Boyda, King, and
Smith.
OPENING STATEMENT OF HON. BOB ETHERIDGE, A REPRESENTATIVE IN
CONGRESS FROM NORTH CAROLINA
Mr. Etheridge. Good morning. This field hearing of the
Subcommittee of the General Farm Commodities and Risk
Management to review the state of agriculture in Kansas will
come to order. As Jerry reminds me, this is his Subcommittee;
he's just loaned it to me this year.
Mr. Moran. Some of us do hope it's temporary.
Mr. Etheridge. Keep dreaming, Jerry. We really are honored
to be here and thank you. And we're going to move into the
program and I do, before I have opening remarks, want to thank
Jerry and his staff and Nancy and hers for the hospitality.
Last night we had dinner at just a fabulous restaurant. It was
an old school building. Amazing what you can do with an old
school building. I'm going to go back home to my folks in North
Carolina and tell them we need a nice restaurant because it
really was a good place. And it's good to be here.
It's my pleasure to be here today in America's Heartland in
the great State of Kansas. It's a distinct privilege to be in
the district of my good friend, the Ranking Member of the
Subcommittee, Jerry Moran. Last year, no matter what happened
in the election, we were going to have a hearing in Kansas
because we traveled all over the country and said we were going
to talk about it later. During the previous Congress I
participated in many of the field hearings held on this
Subcommittee under Jerry's leadership and others as we traveled
the country. While I was unable to attend them all, I think
Jerry made about every one of them.
And Nancy is new to the Committee and she was very
instrumental in helping make sure we got this back to Kansas
between her and Jerry. So I thank both of them.
During the hearings last year I met with producers in
Arizona, from Arizona to the Rust Belt in Indiana, from the
upper Midwest States of Minnesota, South Dakota to the peanut
and cotton fields of Georgia and even in North Carolina. So I
welcome the opportunity to be here meeting with producers in
Kansas.
Next week this Subcommittee intends to begin the hard work
of putting together the bulk of one of the most important
pieces of this or any farm bill and that's Title I, the
commodity title. Already, two other subcommittees have put
forth and amended their respective pieces of the farm bill
ranging from energy to conservation to dairy to research. Our
turn is coming to consider the part of the farm bill that is
the heart and soul of the safety net the farmers depend on when
times really are tough. We've had some 70 years out here where
you've had drought. So while the topic of today's hearing is to
review the state of agriculture here in Kansas and neighboring
states, the witnesses who will testify today have a unique
chance to get the last word in before we begin the heavy
lifting on the commodity title.
Now I highly recommend that you all take advantage of that
and I'm sure you will. I want to thank all the witnesses who
are here today who will participate. I appreciate your
commitment to agriculture because folks need to remember that
without the people who till the soil, there wouldn't be a whole
lot in the dairy case or the fresh fruit and vegetable case in
the grocery store.
I am now pleased to recognize one of the co-hosts of our
visit to Kansas and my good friend and a partner in our work on
behalf of agriculture, the Subcommittee's Ranking Member, Jerry
Moran, for his opening statement.
OPENING STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN
CONGRESS FROM KANSAS
Mr. Moran. Mr. Etheridge, thank you very much. Thank you
for joining us. My particular appreciation to Mr. King. Mr.
King is a Member of Congress from Iowa and Mr. Smith is a new
Member of Congress from Nebraska. We appreciate them both, very
much, taking time out of their schedules to come to Kansas and
hear from Kansas and Nebraska producers. And to Ms. Boyda, it's
been a real privilege to have another Kansan serve on the House
Agriculture Committee. And we are working hard to develop a
good, close, working relationship to see that good things
happen for Kansas farmers and ranchers at a time in which
Congress is truly focused on agriculture. So I appreciate very
much the help that Mrs. Boyda provided us in having this
hearing here today and glad that my colleagues would take the
time to join us.
And Mr. Etheridge, as he said, we are friends. We will have
banter back and forth from time to time, but ultimately both of
us are interested in seeing that this Subcommittee and really
the full Committee on Agriculture moves forward in a bipartisan
way designed to develop farm policy that is advantageous to the
producers of this country.
We have had--I've lost a bit of credibility by the arrival
of these other Members because for most of the time I've been
in Congress I've been advocating for drought assistance.
Mr. Etheridge. We won't hear that again.
Mr. Moran. They flew over the state arriving here yesterday
and the ponds were full and the fields are green. We're now
advocating for flood assistance.
It is a sad thing in our state, all but 12 counties in the
First Congressional District of Kansas, in fact 85 percent of
the counties in Kansas have, in 2007, been declared disaster
areas. So we have had significant challenges and just seen that
the challenges have changed.
We started with 5 and 6 years of drought in much of our
state, followed by a December 31st winter storm which consisted
of: 5 inches of rain; followed by 6 inches of ice; followed by
2 feet of snow and 40 mile an hour winds resulting in 44 Kansas
counties being declared natural disaster counties. Then it was
just a few weeks ago in April we toured wheat losses here in
Saline County and four other counties. We had 3 nights of
temperatures in the teens, which, from my perspective, it
appeared that 2007 was going to be the year in which we might
have some recovery on Kansas farms. And our winter wheat crop
was significantly damaged, particularly in this part of the
state, and now we've had tornadoes, floods and hail. I'm now
predicting locusts are next. Every array of disaster has beset
our state.
So our efforts on behalf of disaster assistance perhaps are
not over, but my number one priority for 2007 in agriculture
was passage of a disaster assistance plan which Congress did a
week ago and the President has signed that bill. It's a modest
amount of assistance for farmers and I am pleased that we were
successful in doing that. As I say, it's my number one priority
of 2007, despite the fact that I know this is the year in which
we're going to develop the farm bill and the process has begun.
Mr. Etheridge is right. Our full Committee held 11 field
hearings across the country. We were in California, New York
State, Washington and Alabama and places in between, and the
Subcommittee that Mr. Etheridge and I led last year held four
more hearings. This will be our fifth and this is the final
one, before the farm bill is written, out in the country. So
I'm very pleased that we've been successful in having Members
of this Subcommittee come here in advance of writing the farm
bill for 2007. It is perhaps our last shot.
Mrs. Boyda and I were involved in the selection of
witnesses and much of our criteria was related to finding
farmers who are earning a living in farming. We did not seek
necessarily people who represented particular farm
organizations or commodity groups. And I looked, in particular,
for witnesses that would unlikely--it would be unlikely that
they would have the opportunity to testify in our Nation's
Capital.
So who we will hear from today are people who are actively
engaged in farming and ranching in Kansas who are trying to
help figure out how their lives can succeed and how there can
be another generation of young Kansans on family farms in our
state.
This Subcommittee will meet soon to mark up the farm bill.
Those of you who listened in on the Conservation Subcommittee,
Mr. Etheridge and I have, and we do not want to defer
everything to the full Committee and we hope to take the
amendments as they're offered in our Subcommittee.
Let me just close by saying that the Gypsum community,
which is just south of Salina, lost a long time farm leader,
Steve Roe, just on June 2nd. And we treat our--we hold our
Kansas farm families in high regard here and I just want to
express my condolences to his family and express my
appreciation for he, who, like many others, tried to figure out
how to make a living farming, but provide leadership in their
communities and the farm organizations throughout their lives.
So, Mr. Chairman, thank you very much for allowing us the
opportunity to join you and for you to have the opportunity to
be here among the Kansans gathered here today.
[The prepared statement of Mr. Moran follows:]
Prepared Statement of Hon. Jerry Moran, a Representative in Congress
From Kansas
Mr. Chairman, thank you for holding this hearing in my home State
of Kansas. It is a pleasure for me to welcome you and the other Members
of the Committee to Salina, Kansas. The Kansans I represent are
grateful for the opportunity to have their voices heard during this
critical time for the future of agriculture policy in the United
States. In Kansas, not every Kansan is a farmer, but every Kansan is
affected by agriculture.
I would also like to acknowledge my colleague and fellow Kansan,
Congresswoman Nancy Boyda. Thank you, Congresswoman, for traveling to
the First District to participate in this hearing. Finally, thank you
to Kansas State University at Salina for hosting today's event.
Today we will hear from seven Kansas producers, a Nebraska
producer, and an agriculture extension economist from Kansas State
University. Each witness was chosen because they are a leader in their
respective community and have demonstrated the ability to conduct a
successful farming or ranching operation. The witnesses were not chosen
because they have an affiliation with a particular organization or
cause, but because they represent their peers involved in production
agriculture across the state and region.
As the Committee undertakes drafting the next farm bill, it is
important that we hear from those most heavily involved in production
agriculture. In the end, it is these producers the farm bill will
affect. In creating farm policy that will influence the direction of
agriculture for the next 5 years, the Committee must know what works
and what does not work on the ground level. It is one thing to sit in
Washington, D.C. and listen to policy analysts, but it is quite another
to hear directly from someone whose livelihood is directly affected by
Congress' actions.
I hope that today's witnesses will help the Committee better
understand agriculture production on the High Plains. I look forward to
hearing the witnesses discuss their farm operations and how their
operations have been affected by the Commodity Title of the 2002 Farm
Bill. I also hope that each producer will give the Committee
recommendations about how Congress can improve, or perhaps not
detrimentally change, existing farm policy as the Committee drafts the
2007 Farm Bill.
As I have traveled across Kansas, I have heard many positive
comments about the 2002 Farm Bill. I suspect that many of the witnesses
today would agree that the basic structure of the 2002 Farm Bill should
remain in place. However, this is not to say there are not certain
aspects of the legislation that can be improved upon. If there are ways
to improve on the structure of the 2002 Farm Bill, the Committee should
listen to the advice of today's witnesses and attempt to implement
those suggestions that make sense.
I believe most producers across Kansas and the United States would
just as soon earn their living from the marketplace. Nevertheless,
there are times when the marketplace may not be enough and Congress
should craft policy that will deliver necessary assistance. This should
be done in a reliable and consistent fashion that utilizes the least
market distorting means possible. I believe today's witnesses will help
to identify how to meet the future needs of agriculture in the United
States.
I would like to take the opportunity to mention that Congress
recently passed, and the President signed into law, disaster assistance
for agricultural producers. This is something that many Kansas farmers
and ranchers have expressed the need for and I have supported for the
past few years. I am glad this assistance will now be available to
producers and I will work along with my colleagues on the Committee to
ensure that USDA delivers the aid in the most expeditious and efficient
manner possible. Problems, such as declining yields in Kansas, are one
of the reasons this legislation was needed. As we move forward with the
2007 Farm Bill, I hope the Committee can find a solution to problems
like declining yields that necessitate ad hoc disaster assistance.
Finally, as I conclude my opening statement, I would like to take
this opportunity to extend my condolences to the Steve Roe family of
Gypsum, Kansas. Steve recently passed away on Saturday, June 2, 2007.
Although I did not know Steve personally, I have heard tremendous
things about him from people who did. By all accounts Steve was a very
good farmer and stockman. He was forward thinking and able to utilize
new technologies in his farming practice. In light of his many efforts
and achievements, his family came first. Steve and his wife Joyce
raised two children, Jennifer and Kristi. Our thoughts and prayers go
out to Steve's family in this time of difficulty. Steve will be a
greatly missed member of the Kansas agriculture community.
Again, thank you, Mr. Chairman, for holding this hearing and I look
forward to the testimony of today's witnesses.
Mr. Etheridge. Jerry, thank you. And I want to give my
other colleagues here an opportunity to have opening
statements. I think that's important to have brief comments.
And it's my distinct pleasure now to recognize the other co-
host of this endeavor. Although she is new to Congress, as to
agriculture issues, she's already distinguished herself as a
voice on behalf of farm families. She serves on two other
agriculture subcommittees besides this one. So she has an ample
opportunity to really engage in what happens in agriculture,
specifically here in Kansas' agriculture. The first 5 months
since she first took office Nancy Boyda is already making a
difference. Nancy has quickly established herself as a leader
in Congress, has earned a reputation as a tireless advocate for
Kansas working families. I'm now pleased to recognize the
Second District Congresswoman of Kansas, Congresswoman Nancy
Boyda.
OPENING STATEMENT OF HON. NANCY E. BOYDA, A REPRESENTATIVE IN
CONGRESS FROM KANSAS
Mrs. Boyda. Thank you, Chairman. I really appreciate it.
And I will make my remarks brief. We have 2 hours and I want to
make sure that we hear from our producers and our witnesses.
So thank you very much, Mr. Chairman, for coming and for
our other Members from Nebraska and from Iowa. I really
appreciate your coming here. The people of Kansas deeply
appreciate having their voice heard. And I will say that timing
is everything and I got to Congress in a very good time.
Whether it's the Ag Committee or Energy, even Health Care, real
live conversations, even civil bipartisan conversations, maybe
more than you think, are happening about how we find real
solutions. So I get to go on the Agriculture Committee who--
it's one of the most bipartisan committees, if not the most,
bipartisan Committee in Congress and have the honor to serve
with Jerry Moran. And it has been very, very good. Jerry's
helped me certainly understand--I stopped saying the whole
thing about I'm trying to understand completely the farm bill.
``Don't say that. Nobody will believe you.'' But he's certainly
been helpful in helping me understand some of the more complex
issues.
One of the things that we've done is had some field, just
roundtable discussions around the district. And clearly
everyone is looking for some help with the safety net with
disaster relief. How can we level out those ups and downs for
our families so disaster relief, which is so appreciated and so
needed, we don't all have to sit on the edge of our chairs or
worse waiting to see what's going on happen.
And, clearly, as we've talked about even this morning, each
group sees the answers a little bit different. So having a
chance to come here today, having a chance to go right from
here back to D.C., on a plane and talk with these guys, and
specifically with Jerry, about how do we translate that into
the best farm bill for our country, but specifically the best
farm bill for Kansas.
So they say timing is everything. I will congratulate you.
Democracy is not a spectator sport. It is very much a contact
sport. And I feel like I've gotten to know so many of you one
on one because you have been there from the day--probably
before I was sworn in--saying, ``Let me tell you about what's
going on in Kansas.''
There's one thing: We're the producers. We produce what
America eats and what I feed my family and the rest of you feed
yours. And we want to make sure that the producer has a strong
voice in Congress. Not the only voice, but, by God, we need to
make sure that you have that voice and you know that it's been
heard.
So we've been trying to get this hearing together for quite
a little while and it's come together. But, as I say, timing is
everything. We're going to be marking this up with amendments
in the next few weeks, maybe in the next couple of weeks.
So your voice will be the last field hearing that's heard
before the ink is put on that paper about what this farm bill's
going to look like. So thank you all for coming. It's a
tremendous response this morning. And I look forward to hearing
what you have to say. Thank you for being here.
Mr. Etheridge. Thank you, Nancy. We have two other
colleagues with us today. Even though they're not on our
Subcommittee, they're on the full Committee. It's great to have
them come and join us. We were talking last night, we wondered
whether or not we'd have many people show up this morning. And
after looking around at how wet it was yesterday, I figured
farmers would not be in the field. They may be getting
equipment ready, but they wouldn't be in the field. Jerry said,
``Nah, they'll be there. It'll be too wet to plow and not dry
enough to get everything ready.'' So thank you for coming.
Now let me turn to my colleagues for whatever opening
statements they want to have. From the Fifth Congressional
District of Iowa Congressman Steve King will be recognized for
whatever opening comments you want to make.
OPENING STATEMENT OF HON. STEVE KING, A REPRESENTATIVE IN
CONGRESS FROM IOWA
Mr. King. Thank you, Mr. Chairman. I appreciate you holding
this field hearing. I appreciate being here with my good
friend, Jerry Moran, and my other colleagues that are here.
We get a lot out of these field hearings. And when we have
them in Washington our time is pulled. We're like a wishbone
for our time. But when we can come to the field then we can
really focus on the witnesses and focus on listening and that's
what I came here to do.
I do want to tell you that my Ag legislative assistant is
Brent Boydson, a K-State grad, and he played football here. So
he keeps me on top of what's going on in Kansas and he really
regrets that he is not able to be here today to show me the
purple that's around this town. So we have a great working
relationship.
I represent the western third of the State of Iowa and my
background started out in soil conservation work. I bought a
bulldozer in 1975 and began to build terraces, dams, waterways,
clean out cattle yards and whatever else needed to be done. So
from 1975 on up till I entered Congress and sold that business
to my oldest son, my life has been the earth moving business. I
see that as kind of the canary in the cage of agriculture
economy. The dirt's always been there, it can wait another year
to be moved, and so when the economy goes up, they will see me
last and when the economy starts to go down, they'll strike me
off their list first. And that's the sense that I have.
So I've been acclimated to, I'll say, being sensitized
towards the fluctuations in our ag economy. It's great to see
where it is overall in the country today. And I've seen all of
these things that Jerry talked about and lived through them all
with the exception of the pestilence. I haven't had that come
through.
So I wanted to make those comments and then I just wanted
to ask this question to the real Kansans: After you've been
through all of that--the famine, the drought, the blizzards,
the ice storms and the tornadoes and all that, are there any
pansies that survive? I expect not. I think it's all real hard
working people here that put their roots down into the soil.
And that's the part that I care an awful lot about and it is
the essence of America and that's what gets me out here to
Kansas to see that today. Thank you.
Mr. Etheridge. Thank you. And, finally, another new Member
of Congress and a new Member to the Committee, we're glad to
have him join us today, Adrian Smith, from the Third
Congressional District in Nebraska.
OPENING STATEMENT OF HON. ADRIAN SMITH, A REPRESENTATIVE IN
CONGRESS FROM NEBRASKA
Mr. Smith. Thank you, Mr. Chairman. It's great to be here,
despite the purple--the tie, the tape on the floor, I mean,
that's pretty rotten.
I am grateful to be here and it's an incredible experience
as a new Member of Congress in the district immediately north
of here. I'm glad that things are wet enough down here that we
don't have to worry about any Republican River water flow
anymore. Maybe I struck a cord.
Seriously, as we look at the issues important to our
economies, I look at this Congressional district as being so
very similar to my own where there's flooding in one end of the
district and still drought in the other. The challenges we face
are immense and oftentimes we focus so many of our policies
perhaps on protecting the family farm which, I think, is
commendable. That is an objective I share. I would rather
characterize it as strengthening the family farm to afford the
tools necessary to farmers and those on the front lines to
compete.
And so many times policies stand in the way. Public policy
stands in the way of innovation, of individuals pursuing new
ways of doing things.
And so I want to thank Brian Starck from my district,
Fairbury, Nebraska, for coming down here today and for all of
you for showing up here today because it's vital that you give
us your expertise, your insights on the issues because we've
got big decisions to make and we certainly need your input. So
go Big Red. Thank you.
Mr. Etheridge. Thank you. We'd like to welcome our first
panel to the table. Our four panelists are Mr. Tony Dumler;
he's an Agricultural Economist from K-State in Garden City,
Kansas. Dr. Bill Miller, cattle producer from Princeton,
Kansas. Mr. Steve Rome.
Mr. Rome. Rome.
Mr. Etheridge. Rome. He's a farmer, a crop farmer in
Hugoton, Kansas.
Mr. Rome. Hugoton.
Mr. Etheridge. Hugoton. And Mr. Brian Starck, who we've
just been introduced from Nebraska. Appreciate you coming down.
Gentlemen, please know that your full statements will be
entered into the record and if you would try to keep your
comments as close to 5 minutes as possible to allow more time
for questions from the panel if they'd like.
STATEMENT OF TROY J. DUMLER, AGRICULTURAL ECONOMIST, KANSAS
STATE UNIVERSITY, GARDEN CITY, KS
Mr. Dumler. Mr. Chairman, Members of the Subcommittee,
thank you for inviting me to testify. I appear before the
Subcommittee to discuss the challenges and opportunities facing
agriculture producers in Kansas.
Having spent nearly a decade assisting farmers and ranchers
in managing their businesses and having grown up on the farm
myself, I understand the challenges of Kansas producers are
numerous and varied. The last 5 years have clearly demonstrated
some of those challenges.
According to data from the Kansas Farm Management
Association, over this period of time average net farm income
has ranged from $19,000 per farm in 2002 to more than $62,000
per farm in 2004. Much of this variability can be explained by
weather and fluctuating production costs.
The crop and livestock producers have also experienced
increased demand for their products which has led to higher
market prices.
I think the relevant question for Kansas producers is this:
What is the most likely source of income variability over the
next 5 years? At this point continued demand for renewable
fuels indicates that prices for grains and oil seeds will
likely remain strong; however, those same prices will also put
pressure on livestock producers. As the last couple months have
demonstrated, weather continues to be an important production
factor for Kansas farmers and ranchers.
There's little question that commodity subsidies have
reduced the income variability of Kansas farms. From 2002 to
2006 government payments averaged 60 percent of net farm income
for Kansas Farm Management Association farms.
As part of a recent nationwide survey on preferences for
the 2007 Farm Bill, Kansas producers indicated that they
generally support the current three-part safety net. That same
survey indicated that among existing program funding
priorities, Kansas producers ranked disaster assistance over
each of the three current commodity programs. These results
suggest that the current safety net may have some holes.
Primary support for Kansas producers has come in the form
of direct payments. Being decoupled from price and production,
the primary advantage of direct payment is that it has minimal
distortions in global markets. For Kansas producers, the
primary advantage of direct payments is they have been, at
times, the only means of support in the low yield/high price
environments that predominated since the passage of the 2002
Farm Bill. Direct payments are not without disadvantages,
including the fact that payments get capitalized into land
values. But the assertion that direct payments get capitalized
into land values and payments from other commodity programs do
not has no economic validity.
Proposals have been made to convert the current price-based
counter-cyclical program to a revenue-based program. When asked
to prioritize new program funding, Kansas producers
participating in the 2007 Farm Bill preference survey ranked a
counter-cyclical revenue program behind only funding for bio-
energy production incentives.
An analysis of the USDA revenue proposal, for example,
indicates over the last 5 years Kansas farmers would have
received $230,000,000 more under a revenue-based counter-
cyclical program versus the current price-based program. Most
of that support would have come in 2002, a low income year for
Kansas farmers.
Because the revenue-based counter-cyclical program can
provide support at times when yields are low and prices are
high, it offers the potential to reduce ad hoc disaster
assistance.
Finally, Kansas farmers currently have a tremendous
opportunity to earn an income from the market. If government
support is deemed to be appropriate, it also seems appropriate
that those policies encourage a continuation of that market
return. Thank you very much.
[The prepared statement of Mr. Dumler follows:]
Prepared Statement of Troy J. Dumler, Agricultural Economist, Kansas
State University, Garden City, KS
Introduction
The challenges of Kansas producers are numerous and varied. The
last 5 years have seen sustained droughts, brutal winter storms, late
spring freezes, widespread flooding, and massive tornados. These events
by themselves make agricultural production in Kansas interesting. But
those factors are not the only ones to make the last 5 years
interesting. Rising energy costs and increasing demand for crop and
livestock commodities have also had a significant impact on
agricultural production in Kansas. Currently, a variety of forces are
aligning to shape the future of agriculture in Kansas and the United
States. The immediate future looks brighter for some, but perhaps
dimmer for others. Following is a discussion of the challenges facing
Kansas producers.
Farm Income
Data from the Kansas Farm Management Association (KFMA) indicates
that net farm income in Kansas has mirrored U.S. net farm income (Table
1). After experiencing lows in 2002, net farm income, both nationwide
and in Kansas, recovered to record levels in 2004 before dropping each
of the last 2 years. Though Kansas farm income was barely a record in
2004, nevertheless it was three times higher than it was in 2002--the
only year in the last 5 in which net farm income did not cover family
living expenses.
Table 1. Net Farm Income in the U.S. and Kansas (2002-2006)
------------------------------------------------------------------------
Year U.S. (Total $) Kansas * ($/Farm)
------------------------------------------------------------------------
2002 40.2 19,106
2003 60.4 51,051
2004 85.4 62,604
2005 73.8 56,982
2006 60.6 46,593
------------------------------------------------------------------------
* Kansas Farm Management Association farms.
Much of this variability in income can be explained by weather and
fluctuating production costs. Figure 1 shows the annual average yields
for wheat, corn, grain sorghum, and soybeans in Kansas. Widespread
drought in 2002 resulted in low yields for all four crops. Wheat yields
rebounded to near record highs in 2003, but dry conditions that summer
produced low yields once again for the fall crops. While wheat yields
were again below average in 2004, yields of fall crops were above
average. Yields for all four crops were average or above in 2005,
before dropping in 2006.
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
The variability of crop production was exacerbated by rising input
costs during this period of time, putting additional pressure on
income. As seen in Figure 2, diesel fuel and natural gas prices
increased by 145 and 97 percent, respectively, from 2002 to 2006.
Current forecasts from the Energy Information Administration (EIA)
point to slightly higher costs in 2007. The increasing energy costs
have caused crop production costs to increase as well. Table 2 shows
the energy intensive expenses for non-irrigated KFMA crop farms from
2002-2006. Each year from 2003 to 2005 had double-digit percentage
increases for fertilizer and fuel expenses. Fuel costs continued the
double-digit increase in 2006, while fertilizer expenses increased by a
modest 1.55%.
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
Table 2. Energy Intensive Expenses for Non-Irrigated KFMA Crop Farms (2002-2006)
----------------------------------------------------------------------------------------------------------------
Expense Category 2002 2003 2004 2005 2006
----------------------------------------------------------------------------------------------------------------
Fertilizer and Lime
Crop Expense $21,114 $24,710 $27,858 $36,797 $37,920
Expense/Crop Acre $16.55 $19.18 $21.13 $26.69 $27.11
Annual Change (%) 15.83% 10.20% 26.31% 1.55%
Gas, Fuel, and Oil
Crop Expense $11,584 $13,257 $15,806 $20,901 $24,127
Expense/Crop Acre $9.08 $10.29 $11.99 $15.16 $17.25
Annual Change (%) 13.27% 16.55% 26.45% 13.75%
Total Energy Expense
Crop Expense $32,698 $37,967 $43,664 $57,698 $62,047
Expense/Crop Acre $25.64 $29.46 $33.12 $41.85 $45.01
Annual Change (%) 14.92% 12.42% 26.36% 7.54%
----------------------------------------------------------------------------------------------------------------
Source: Kansas Farm Management Association 2006 Databank.
The past 5 years have not been all negative though. Even after
declining somewhat in 2006, beef cattle prices have remained strong. In
addition, crop prices have increased significantly due to rising demand
for ethanol. At this point, continued demand for renewable fuels
indicates that prices for grains and oilseeds will likely remain
strong. However, those same strong prices will also put pressure on
livestock producers. Evidence of this occurring may already be evident
in the 2006 KFMA data. While income on crop farms in 2006 was generally
equal to or greater than income in 2005, beef cattle operations saw
declines in income (Table 3). This drop in income can partially be
explained by lower cattle prices in 2006 and higher forage costs caused
by drought. But it is also likely that the increase in feed grain
prices in the fall of 2006 had a negative impact on cattle returns.
Table 3. KFMA Net Income per Operator by Farm Type (2002-2006)
------------------------------------------------------------------------
No. of Net Income per Operator
Type of Farm Farms -------------------------------------------------
(2006) 2002 2003 2004 2005 2006
------------------------------------------------------------------------
All Farms 1,554 $19,343 $52,410 $63,491 $57,584 $46,804
Cash Crop 1,065 20,229 51,424 57,087 49,422 49,366
Dryland
Cash Crop 73 9,743 57,580 62,729 64,955 92,335
Irrigated
Stock-Ranch 33 9,291 34,148 51,366 45,396 35,986
Cowherd
Cowherd 21 6,595 22,458 32,088 24,914 13,344
Dairy 38 22,426 24,484 71,192 52,658 25,663
Backgroundin 14 29,220 63,035 82,252 63,279 - 5,823
g
Cash Crop- 155 17,544 33,879 49,613 50,149 31,132
Cowherd
Cash Crop- 11 34,201 49,643 81,068 72,799 55,538
Dairy
Cash Crop- 33 3,197 87,728 79,308 83,820 1,203
Backgroundi
ng
------------------------------------------------------------------------
Source: Executive Summary, 2006 Profitlink Analysis, Kansas Farm
Management Assoc.
Government Payments
There is little doubt that commodity subsidies have reduced the
income variability of Kansas farms. As shown in Figure 3, from 2002-
2006, government payments averaged 60% of net farm income for KFMA
farms. In spite of the seemingly high dependence on government
payments, some care needs to be exercised in interpreting these
numbers. Namely, KFMA government payment data includes all government
payments (i.e., commodity, conservation, and disaster assistance.)
Because conservation payments (mainly from the Conservation Reserve
Program) are included, the importance of government payments may be
overstated. For example, according to the 2002 Census of Agriculture,
in 2002 nearly 29% of government payments were CRP or WRP (Wetland
Reserve Program) payments. However, commodity program payments in 2002
were lower than previous or subsequent years, thereby making CRP/WRP
payments a higher percentage of total government payments.
Nevertheless, CRP/WRP payments are a significant source of government
payments in Kansas.
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
Concerning the relative importance of government payments, a study
by Dumler in 2005 determined that, from 1995-2004, farm program
payments have been a significant factor in farm profitability. However,
the study also determined that other factors, such as cost management
and production have larger effects on profitability than government
payments. Nevertheless, if government payments were reduced or
eliminated, farm profitability would be diminished. Obviously, those
farms that specialize in the production of farm program commodities
would suffer larger losses than those who do not specialize in those
commodities. In addition, larger farms would be able to absorb the loss
of government payments better than small farms, and in many cases even
remain profitable. On the other hand small farms were not profitable,
on average, even with government payments.
Although government payments have contributed a significant portion
of net farm income in recent years, not all the benefits of government
payments go to farmers, as a portion of those benefits gets capitalized
into land values. This reality has two ramifications. First, it
demonstrates that family farms are not the only beneficiaries of farm
subsidies. Second, it indicates that as farm income would decline from
a reduction or elimination of government payments, farm asset and
equity values would also decline.
A 2006 study by Kastens and Dhuyvetter estimated that average
cropland values by state would fall by 2.3% to 40.8% if government
payments were eliminated. Land values in Kansas would be estimated to
fall by 30.2% if government payments were eliminated. Certainly, a
reduction in land values of that magnitude could have a devastating
effect on the financial viability of many farms. The estimated decline
in land values, however, assumes that 100% of government payments are
capitalized into land. In reality, government payments are not likely
to be fully capitalized into land values. Moreover, the study was
conducted prior to the rapid rise in commodity prices in the fall of
2006. Consequently, the reduction in land values would likely be
significantly less. This point is illustrated by a recent survey on
farmland values. The survey by the Federal Reserve Bank of Kansas City
indicates that in spite of decreasing commodity program payments, non-
irrigated farmland values in Kansas have increased by 7.6% from 2006
while irrigated values have increased by 10.4%.
Because of the relative importance of government payments in
enhancing farm income, it is not surprising that Kansas producers would
generally support the current three-part commodity safety net. As part
of a recent nationwide survey on preferences for the 2007 Farm Bill,
Kansas producers were asked to prioritize which of several existing
programs are most important to maintain in light of potential funding
constraints or trade-offs. The results for 10 separate programs or
program categories are shown in Figure 4.
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
Kansas producers placed the highest priority on maintaining funding
for disaster assistance programs. That corresponds with producer
preferences nationwide. The next highest priority was for direct
payments, followed by commodity loans, and counter-cyclical payments.
Conservation programs, including land retirement programs such as the
Conservation Reserve Program (CRP), and working land programs such as
the Environmental Quality Incentives Program (EQIP) and Conservation
Security Program (CSP) ranked lower. Supporting livestock commodities
ranked last in Kansas and nationwide. Given that the primary
commodities grown in Kansas are farm program commodities, it is not
surprising that Kansas producers would rank commodity programs higher
than other programs. It is also not surprising that Kansas producers
ranked disaster assistance over each of the three current commodity
programs, or that direct payments would rank much higher in Kansas than
on a nationwide basis. Overall, the results suggest that Kansas
producers may believe the current safety net may have some significant
holes.
Primary support for Kansas producers since 2002 has come in the
form of direct payments. Being decoupled from price and production, the
primary advantage of direct payments is that they result in minimal
market distortion in the global trade arena. For Kansas producers, the
primary advantage of direct payments is that they have, at times, been
the only means of support in the low yield/high price environments
which have predominated since the passage of the 2002 Farm Bill. As
previously mentioned, direct payments get capitalized into land values.
But the assertion that direct payments get capitalized into land
values, and payments from other commodity programs do not, has no
economic validity. The capitalization process may be more transparent
with direct payments, but it is not exclusive to direct payments.
Counter-Cyclical Revenue Proposals
Leading up to the 2002 Farm Bill, much debate centered on the need
to provide an enhanced safety net for crop producers when prices
decreased. Crop producers received direct payments and marketing loan
program payments averaging nearly $10 billion per year from 1999-2001,
but that was deemed insufficient, and Congress intervened to provide a
total of $19.5 billion in market loss assistance (MLA) payments over
those 3 years. In the 2002 Farm Bill the counter-cyclical payment (CCP)
program was created, formalizing the MLA payments into a permanent
program.
With two of the three commodity safety net programs tied to price,
it is fair to say that producers of commodity program crops should be
well covered in low price environments. But does that imply that the
safety net is now sufficient? Given the fact that an average of $1.3
billion in crop disaster aid has been paid out annually from 1999-2006
suggests that the current combination of safety net programs is not
sufficient. The primary problem with safety net programs that are tied
to price is that they are not very effective in high price/low yield
environments.
Economically, there is a strong argument for a redesigned safety
net that more effectively focuses on a bottom line revenue or net farm
income goal instead of the current multitude of safety net tools that
variously focus on price, production, or some mix of the two. Kansas
producers participating in the 2007 Farm Bill preference survey ranked
a counter-cyclical revenue program behind only bioenergy incentives
when asked to prioritize potential new program funding (Figure 5).
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
Several proposals have been made to convert the current price-based
counter-cycle program to one in which payments are made when revenue
falls below a predetermined target. These include, but are not limited
to proposals from USDA, American Farm Bureau Federation (AFBF), the
National Corn Growers Association (NCGA), and American Farmland Trust
(AFT). All four of the revenue-based proposals are designed to achieve
the same goal, but use different means to do so. Two of the proposals
(USDA and AFT) trigger payments when national revenue falls below the
target level. The AFBF proposal triggers payments when state revenue
falls below the target level, while the NCGA proposal triggers payments
when county revenue falls below the target level. Since the proposals
use different methods to calculate the revenue target and payment when
revenue falls below that target, they will vary in how much money will
be distributed through them and to whom it will be distributed.
Following are the results of a simple analysis comparing counter-
cyclical revenue proposals from USDA and the AFBF to the current price-
based CCP program. Table 4 shows the net advantage of the USDA proposal
over the current CCP from 2002-2006 for wheat, corn, soybeans, and
sorghum in Kansas, while Table 5 shows the net advantage of the AFBF
proposal for those same crop years. For the primary Kansas crops, the
USDA proposal had a $231.5 million advantage over the current CCP
program and a $79.6 million advantage over the AFBF proposal from 2002-
2006. The USDA proposal resulted in higher payments for all crops
except grain sorghum. When compared to the current CCP program, corn
was the only crop that received lower payments under the AFBF proposal.
Most of the support under both proposals would have come in 2002, a low
income year for Kansas farmers, while fewer payments would have been
made in 2004 and 2005.
Table 4. Net Advantage of USDA Proposal Over Current CCP From 2002-2006 in Kansas
----------------------------------------------------------------------------------------------------------------
Year Wheat Corn Sorghum Soybeans Total
----------------------------------------------------------------------------------------------------------------
Million Dollars
----------------------------------------------------------------------------------------------------------------
2002 164.6 103.4 51.0 13.0 332.0
2003 0.0 0.0 19.2 0.0 19.2
2004 0.0 - 36.7 - 56.4 0.0 - 93.1
2005 0.0 29.8 - 56.4 0.0 - 26.6
2006 0.0 0.0 0.0 0.0 0.0
---------------------------------------------------------------------------------------------
Total........... 164.6 96.5 - 42.6 13.0 231.5
----------------------------------------------------------------------------------------------------------------
Table 5. Net Advantage of AFBF Proposal Over Current CCP From 2002-2006 in Kansas
----------------------------------------------------------------------------------------------------------------
Year Wheat Corn Sorghum Soybeans Total
----------------------------------------------------------------------------------------------------------------
Million Dollars
----------------------------------------------------------------------------------------------------------------
2002 76.0 51.0 99.8 51.9 278.7
2003 0.0 0.7 88.3 0.0 89.0
2004 0.0 - 68.7 - 56.4 0.0 - 125.1
2005 0.0 - 34.3 - 56.4 0.0 - 90.7
2006 0.0 0.0 0.0 0.0 0.0
---------------------------------------------------------------------------------------------
Total........... 76.0 - 51.3 75.3 51.9 151.9
----------------------------------------------------------------------------------------------------------------
Tables 6, 7, and 8 show how the current CCP program compares to the
USDA and AFBF revenue proposals using data from the Kansas Farm
Management Association from 2002-2005. As expected, results correspond
with state totals. Both the USDA and AFBF programs would have provided
more income to Kansas farms than the current CCP program. In addition,
the USDA proposal, on average, resulted in larger payments per farm
than the AFBF proposal. Also, the AFBF proposal performs better for
sorghum, but worse for wheat and corn.
Table 6. Estimated Payments for KFMA Farms With 2002 Price-Based CCP Program
----------------------------------------------------------------------------------------------------------------
Wheat Corn Sorghum Soybeans Total
----------------------------------------------------------------------------------------------------------------
$/Farm
----------------------------------------------------------------------------------------------------------------
2002 0 0 0 0 0
2003 0 0 0 0 0
2004 0 3,744 2,701 0 6,445
2005 0 5,231 2,759 0 7,990
---------------------------------------------------------------------------------------------
Average......... 0 2,244 1,365 0 3,609
----------------------------------------------------------------------------------------------------------------
Table 7. Estimated Payments for KFMA Farms With USDA Revenue-Based CCP Program
----------------------------------------------------------------------------------------------------------------
Wheat Corn Sorghum Soybeans Total
----------------------------------------------------------------------------------------------------------------
$/Farm
----------------------------------------------------------------------------------------------------------------
2002 7,679 4,898 2,355 521 15,453
2003 0 0 900 0 900
2004 0 1,539 0 0 1,539
2005 0 5,497 0 0 5,497
---------------------------------------------------------------------------------------------
Average......... 1,920 2,984 814 130 5,847
----------------------------------------------------------------------------------------------------------------
Table 8. Estimated Payments for KFMA Farms With AFBF Revenue-Based CCP Program
----------------------------------------------------------------------------------------------------------------
Wheat Corn Sorghum Soybeans Total
----------------------------------------------------------------------------------------------------------------
$/Farm
----------------------------------------------------------------------------------------------------------------
2002 3,594 2,546 4,790 2,999 13,929
2003 0 36 4,255 0 4,291
2004 0 0 0 0 0
2005 0 2,519 0 0 2,519
---------------------------------------------------------------------------------------------
Average......... 899 1,275 2,261 750 5,185
----------------------------------------------------------------------------------------------------------------
The revenue proposals considered in the analysis offer the
opportunity to provide assistance to producers over a broader array of
economic scenarios. That does not imply that the programs will always
be superior to the current CCP program, but because the proposals are
tied to revenue instead of price, they offer the possibility to provide
assistance when producers need it most and therefore reduce the need
for ad hoc disaster assistance.
References
Dumler, T.J. 2005. Impact of U.S. Farm Programs on Kansas Farms.
Agricultural Lenders Conference. Garden City and Abilene, KS.
Dumler, T.J. 2007. The 2007 Farm Bill: Kansas Producer Preferences
for Agricultural, Food, and Public Policy. www.agmanager.info. May
2007.
Henderson, J. and M. Akers. 2007. Survey of Tenth District
Agricultural Conditions. Federal Reserve Bank of Kansas City. 1st
Quarter 2007.
Kastens, T. and K. Dhuyvetter. Government Program Payments and Non-
agricultural Returns Affect Land Values. www.agmanager.info. September
2006.
USDA-NASS. (2004) 2002 Census of Agriculture. Vol. 1, Part 16.
Washington, D.C., USDA-NASS.
______
Impact of U.S. Farm Programs on Kansas Farms
Troy J. Dumler, Extension Agricultural Economist, Southwest, K-State
Research and Extension, Garden City, KS 67846
Impact of U.S. Farm Programs on Kansas Farms
U.S. farm subsidies have faced increased scrutiny in recent years.
Groups representing consumer, environmental, and international
competitor interests have stepped up efforts to persuade developed
countries to reduce or eliminate farm subsidies. The increased coverage
of these interest groups in the media coupled with successful
challenges of farm subsidies in the WTO and record domestic budget
deficits result in a negative outlook for the future of U.S. farm
subsidies. The President's 2006 Budget Proposal provided a possible
glimpse into the future of U.S. farm subsidies. However, the reaction
to that proposal also demonstrated that support for these programs
remains strong in production agriculture.
Whether U.S. farm subsidies should be reduced or eliminated can be
debated extensively from an economic and social standpoint. That is not
the purpose of this paper, however. Rather, this paper will determine
the relative impact that U.S. farm program payments have on Kansas
farms, and evaluate the economic consequences of reducing or
eliminating government payments.
Who Receives Farm Subsidies?
Before any changes to farm payments are evaluated, it is important
to develop a baseline regarding who receives farm subsidies and how
large those subsidies are. It is also important to understand the
different types and sizes of farms in the U.S. and how government
payments are dispersed to those farms. In the 2004 Family Farm Report
from the Economic Research Service (ERS) of USDA, farms were split into
three primary categories: small family farms, other family farms, and
nonfamily farms. The definition of small family farms in this
categorization would be those farms with annual gross sales of less
than $250,000. Other family farms are those with annual gross sales of
$250,000 or more, and nonfamily farms are those that are ``organized as
nonfamily corporations or cooperatives, as well as farms operated by
hired managers'' (Banker and MacDonald 2005).
In the 2004 Family Farm Report, small farms are further separated
into five different categories. These small family farm categories are
(1) limited-resource farms, (2) retirement farms, (3) residential/
lifestyle farms, (4) low-sales farming occupation farms, and (5) high-
sales farming occupation farms. Limited resource farms are those with
sales less than $100,000, farm assets less than $150,000, and total
operator household income less than $20,000. Retirement farms are small
farms whose operators report they are retired. Residential/lifestyle
farms are small farms whose operators report a major occupation other
than farming. Low-sales farming-occupation farms are small farms whose
operators report farming as their major occupation and have sales less
than $100,000. High-sales farming-occupation farms are small farms
whose operators report farming as their major occupation and have sales
between $100,000 and $249,999. Other family farms are further separated
into large family farms, and very large family farms. Large family
farms are those farms that have sales between $250,000 and $499,999.
Very large family farms are the farms that have sales of $500,000 or
more.
Small farms (all those with sales under $250,000) comprise 91% of
the farms in the U.S., but only 28% of the value of production.
Conversely, large and very large family farms constitute nearly 7% of
U.S. farms, but are responsible for 58% of the value of production. The
remaining 14% of agricultural production comes from nonfamily farms
(Banker and MacDonald 2005).
Broken down further, limited-resource, retirement, and residential/
lifestyle farms account for nearly 60% of the farms, yet provide only
6% of the value of production. Moreover, 55% of small farms had sales
under $10,000. However, small farms held 68% of farm assets, including
60% of the land. Furthermore, small farms produce a large percentage of
the major commodities, including 60% of the value of production for
hay, 45% for soybeans, 47% for wheat, 39% for corn, and 38% for beef
(Banker and MacDonald 2005). Based on this information, it can be
argued that both small and large farms have an important role in
production agriculture in the United States.
Focusing on government payments, from 1996-2003 commodity program
payments (production flexibility contracts, direct payments, counter-
cyclical payments, loan deficiency payments, and marketing loan gains)
accounted for nearly 59% of the average annual farm program payments of
$14.9 billion. Commodity payments were followed by ad hoc and emergency
payments which accounted for over 27% of average farm payments, and
conservation payments at 12% of total payments (USDA-ERS 2004).
High-sales small farms, large family farms, and very large family
farms receive approximately 75% of commodity program payments. However,
that percentage is roughly equivalent to the percentage of program
commodities that they produce. Conversely, over 50% of Conservation
Reserve Program (CRP) payments, which make up the majority of
conservation payments, are received by retirement and residential/
lifestyle farms. In fact 25% of retirement farms receive CRP or Wetland
Reserve Program (WRP) payments. Only 10% of residential/lifestyle farms
receive CRP or WRP payments, but they comprise 44% of all farms, and
enroll an average of 44% of their land in the program--compared to 25%
for all participating farms (Banker and MacDonald 2005).
Farms and Government Payments in Kansas
In Kansas, small farms in 2002 (i.e., those with sales less than
$100,000) comprised nearly 82% of all farms (table 1). However, they
accounted for less than 10% of all sales, but received over 42% of all
government payments (table 2). By contrast, large farms (i.e., those
with sales over $250,000) made up only 7.5% of all farms, but provided
nearly 79% of all sales and received 34% of all government payments
(USDA-NASS 2004). In 2002, nearly 29% of government payments were CRP
or WRP payments. However, commodity program payments in 2002 were lower
than previous or subsequent years, thereby making CRP/WRP payments a
higher percentage of total government payments. Nevertheless, CRP/WRP
payments are a significant source of government payments in Kansas.
Although CRP/WRP payments are significant, they vary across farm types
and locations in Kansas. Since farm typology data is not available on a
state-level basis, this paper will not discuss, in-depth, the
differences in government payments (including CRP/WRP) across typology
groups. Rather, specific attention will be given to the relative
importance of government payments on a county and farm-level basis in
Kansas.
Table 1. Number of Farms and Total Sales By Market Value of Ag Products
Sold
------------------------------------------------------------------------
Ag Market Value of No. of % of Total Total Sales % of Total
Sales Farms Farms ($1,000) Sales
------------------------------------------------------------------------
Less than $1,000 7,214 11.2 1,061 0.0
$1,000 to $2,499 6,647 10.3 5,826 0.1
$2,500 to $4,999 6,764 10.5 14,754 0.2
$5,000 to $9,999 7,961 12.4 39,504 0.5
$10,000 to $24,999 10,464 16.2 138,201 1.6
$25,000 to $49,999 7,159 11.1 222,946 2.5
$50,000 to $99,999 6,513 10.1 425,723 4.9
$100,000 to $249,999 6,858 10.6 1,015,924 11.6
$250,000 to $499,999 2,896 4.5 942,898 10.8
$500,000 to $999,999 1,214 1.9 794,074 9.1
$1,000,000 to 473 0.7 689,078 7.9
$2,499,999
$2,500,000 to 97 0.2 325,124 3.7
$4,999,999
$5,000,000 or more 154 0.2 4,131,131 47.2
---------------------------------------------------
Total 64,414 -- 8,746,244 --
------------------------------------------------------------------------
Source: 2002 Census of Agriculture: Kansas.
Table 2. Number of Farms Receiving Government Payments and Total
Government Payments By Market Value of Ag Products Sold
------------------------------------------------------------------------
No. of
Ag Market Value of Farms Total Govt. % of Total Govt. Pmts.
Sales Receiving Payments Government as a % of
Govt. Pmts. ($1,000) Payments Total Sales
------------------------------------------------------------------------
Less than $1,000 1,333 642 0.2 60.5
$1,000 to $2,499 3,690 5,313 1.6 91.2
$2,500 to $4,999 3,703 9,811 3.0 66.5
$5,000 to $9,999 4,541 17,375 5.3 44.0
$10,000 to $24,999 6,376 31,654 9.6 22.9
$25,000 to $49,999 5,043 32,660 9.9 14.6
$50,000 to $99,999 4,991 41,418 12.6 9.7
$100,000 to $249,999 5,579 77,698 23.7 7.6
$250,000 to $499,999 2,421 56,828 17.3 6.0
$500,000 to $999,999 1,009 32,655 9.9 4.1
$1,000,000 to 379 17,796 5.4 2.6
$2,499,999
$2,500,000 to 56 2,405 0.7 0.7
$4,999,999
$5,000,000 or more 70 1,988 0.6 0.0
---------------------------------------------------
Total 39,191 328,243 -- --
------------------------------------------------------------------------
Source: 2002 Census of Agriculture: Kansas.
Without question, farms in Kansas differ due to climate,
typography, and proximity to population centers. Average annual
precipitation varies from over 42 inches in the southeast corner of the
state to under 16 inches on the western border. Much of eastern Kansas
is dominated by rolling grasslands, small, irregular-shaped fields, and
woodland areas. In contrast, a large portion of western Kansas is
dominated by flat cropland with deep soils. These differences are
critical in understanding agriculture in Kansas, and understanding how
policy changes may affect farms in the state.
Since commodity programs constitute the majority of government
payments in both the U.S. and Kansas, farms specializing in crop
production obviously will be impacted more by potential reductions in
government payments than predominately livestock and non-program
commodity farms. Therefore, counties in Kansas that have a higher
percentage of land in crops will likely be affected more than those
counties with larger amounts of grassland. Tables 3 and 4 show how the
counties differ across Kansas by crop reporting district.
Table 3. Average Number of Farms, Crop Farms, and Percentage of Crop
Farms per County by Crop Reporting District
------------------------------------------------------------------------
Crop Reporting Avg. No. of Avg. No. of Crop Avg. % of Crop
District Farms per County Farms per County Farms per County
------------------------------------------------------------------------
Northwest 429 398 92.8
West Central 360 331 91.9
Southwest 388 346 89.2
North Central 554 507 91.5
Central 725 660 91.0
South Central 709 645 91.0
Northeast 762 666 87.4
East Central 745 641 86.0
Southeast 729 585 80.2
------------------------------------------------------------------------
Source: 2002 Census of Agriculture: Kansas.
Table 4. Average Land in Farms and Cropland per County by Crop Reporting
District
------------------------------------------------------------------------
Avg. % of
Avg. Land in Avg. Cropland Cropland Avg.
Crop Reporting Farms per in Farms per from Total Cropland per
District County County Farm Land by Crop Farm
County
------------------------------------------------------------------------
Northwest 567,372 384,497 67.8 967
West Central 512,178 357,399 69.8 1,080
Southwest 497,894 362,517 72.8 1,047
North Central 479,105 295,323 61.6 582
Central 505,047 326,647 64.7 495
South Central 528,565 349,276 66.1 542
Northeast 297,276 181,715 61.1 273
East Central 321,691 161,545 50.2 252
Southeast 402,723 180,820 44.9 309
------------------------------------------------------------------------
Source: 2002 Census of Agriculture.
These tables show that while there is not much difference in terms
of the average number of crop farms to total farms per county from east
to west, there is a noticeable difference in average amount of cropland
to farmland per county across regions in Kansas. For example, 72.8% of
the average land in farms per county in southwest Kansas is cropland,
compared to only 44.9% in southeast Kansas. Since counties in southwest
Kansas have more land in farms, a higher percentage of cropland, and
fewer farms, the average crop farm in western Kansas farms over three
times the acreage of the average farm in eastern Kansas.
Average county and farm level net income and government payments
from 1994-2003 are shown in table 5. Most notably, both on a county and
farm basis, government payments exceed net income in all districts
except west central and southwest Kansas. Also, net income and
government payments are substantially higher in western Kansas than in
the eastern districts of the state. The higher government payments on a
county basis can be explained by the fact that farms in the west tend
to be more crop oriented (see tables 3 and 4), and, on average, have
higher levels of production through irrigation. Higher production, both
historically (when direct payment yields were frozen), and currently
(for marketing loan benefits), will result in higher payments for farms
and counties that grow program commodities. Because farms in the west
are also significantly larger in terms of acreage, it is also expected
that income and government payments would be higher on a farm basis.
Table 5. Average Net Farm Income * and Government Payments by Crop
Reporting District (1994-2003)
------------------------------------------------------------------------
Avg. NFI/ Avg. Govt. Avg. Govt.
Crop Reporting County Pmts/County Avg. NFI/ Pmts/Farm
District ($1,000) ($1,000) Farm ($) ($)
------------------------------------------------------------------------
Northwest 8,123 10,931 18,935 25,481
West Central 9,120 8,998 25,324 24,988
Southwest 15,062 11,569 38,784 29,789
North Central 7,057 8,466 12,731 15,274
Central 6,209 7,688 8,561 10,600
South Central 5,934 9,769 8,366 13,772
Northeast 4,838 5,144 6,348 6,750
East Central 2,182 3,108 2,929 4,173
Southeast 2,038 3,322 2,797 4,560
------------------------------------------------------------------------
* Net Farm Income equals Total Net Farm Proprietors' Income. According
to the Bureau of Economic Analysis this number consists of the net
income that is received by sole proprietorships and partnerships that
operate farms. It excludes the income that is received by non-family
farm corporations.
While it is not unexpected that net income and government payments
would be higher in the west, it may be surprising to some that portions
of western Kansas may be less dependent on government payments (i.e.,
have net income greater than government payments) than eastern Kansas.
After all, western Kansas is more crop intensive than eastern Kansas.
However, there may be several explanations regarding why portions of
western Kansas are less dependent on government payments.
First, a larger portion of small farms tend to reside in the east.
Although farm typology data is not currently available regarding those
small farms, it is likely that there are more residential/lifestyle
farms in the east than the west. These farms are often not as concerned
about earning a living from farming as simply enjoying the farm
lifestyle.
Second, since direct payment yields and acreage bases were largely
frozen in the mid-1980s, farms in the west intensified cropping
rotations and shifted the overall crop mix. Consequently, these farms
may actually be moving toward receiving a larger percentage of revenue
from the market rather than government payments. In contrast, eastern
Kansas may have already been farming at a higher cropping intensity,
which would thus be reflected in their direct payment yield and acreage
base. (Of course, benefits from the marketing loan program are based on
current production which would lessen this overall effect.)
Third, CRP payments could distort the relative importance of
government payments as a contributor to net income. For example, some
counties enrolled larger percentages of cropland into the program than
other counties. Those counties that have a large percentage of cropland
in CRP would then appear to be receiving a larger portion of net income
on a county and farm basis from government payments than is actually
occurring. In other words, counties and farms are not as dependent on
government payments as the numbers indicate.
Finally, various events such as droughts and fluctuations in
livestock prices affect the relative relationship between government
payments and net income. For example, northwest Kansas was especially
hit hard by drought from 2000-2003. To help those who were affected by
those conditions, disaster legislation was passed and emergency
disaster payments were distributed to farmers. Obviously, in
circumstances such as these, government payments could increase in
importance in terms of contributing to net farm income on a county
basis. Also, if overall net income is depressed because of poor cattle
prices for instance, then government payments will again appear to
contribute a greater portion of net income.
While it is interesting to evaluate the importance of government
payments for farms in Kansas on an aggregate basis, care must be taken
when drawing conclusions. Aggregating income and payment data may end
up masking important trends and relationships. Furthermore, little can
be said in terms of how changes in farm programs may impact individual
farms. Therefore, the remainder of this paper will focus on the impact
of government payments on farms in the Kansas Farm Management
Association (KFMA). Using KFMA data, more precise analysis can be
performed.
Impact of Government Payments Using KFMA Data
Data from farms that were continuously enrolled in the KFMA from
1995-2004 were used to study the relationship between government
payments and farm financial performance. The entire data set contained
9,630 farm-year observations. In determining these relationships, a
2001 study by Dumler that determined the relationship between farm size
and profitability was used as a foundation for this study. Following
the 2001 study, farms were separated into three regions: east, central,
and west. Since farm size issues have become mainstay topics for farm
policy debates, in this study, farms were also divided into four size
categories. These size categories basically follow the major categories
of 2004 Family Farm Report. Thus, the four farm size categories based
on gross farm income (GFI) are: small farms under $100,000 GFI, medium
farms with GFI from $100,000 to $249,999, large farms with GFI from
$250,000 to $499,999, and very large farms with GFI over $500,000.
Farms by Area
Following is a brief description of how farms compared in the three
regions of the state. As previously mentioned, farms in Kansas differ
across the state in climate and typography. However, the average farms
in the KFMA data set are quite similar across regions (table 6). In
terms of total government payments, the average farm in the west had
payments that were nearly 82% higher than the average farm in the east,
and almost 49% greater than the average farm in central Kansas.
Likewise, as a percentage of gross farm income (GFI), government
payments in western Kansas (18.9%) were nearly double that of the east
(10.7%). The central region fell in between this range at 14.5%. On a
total crop acre basis, however, government payments in each region are
within $2.65/acre.
Table 6. Financial and Production Measures for KFMA Farms in Kansas,
1995-2004
------------------------------------------------------------------------
Measure Units East Central West
------------------------------------------------------------------------
Total Govt. Payments $ 23,151 28,231 41,972
Govt. Payments/Acre $ 26.30 24.00 26.65
Govt. Payments/GFI % 10.7 14.5 18.9
Gross Farm Income (GFI) $ 247,453 212,942 254,004
Net Farm Income * (NFI) $ 19,834 10,130 11,503
Total Expense Ratio % 105.1 105.2 105.0
Total Assets $ 725,440 607,938 781,818
Total Capital Managed $ 1,380,247 1,288,509 1,486,091
Rate of Return to Capital % 1.6 1.1 1.7
Managed (RRCM)
Avg. Debt/Equity Ratio % 83.8 102.8 86.4
Crop Income/GFI % 48.1 57.9 57.9
Livestock Income/GFI % 35.0 22.4 16.6
Non-farm Wages $ 11,114 8,168 8,429
Total Crop Acres No. 915 1,182 1,730
Acres Harvested No. 958 1,132 1,189
------------------------------------------------------------------------
* Net Farm Income equals gross farm income minus operating expenses,
depreciation, unpaid operator labor, and unpaid family labor.
Table 6 shows several other interesting financial and production
measures as well. For instance, as expected, eastern farms earn a
higher percentage of GFI from livestock than crops. Moreover, as
expected, farms in the west were larger, in terms of total acreage, but
had a lower cropping intensity (acres harvested/total crop acres).
Nevertheless, the financial measures across regions were similar.
In the 2001 farm size study by Dumler, the primary profitability
ratio used was rate of return to capital managed (RRCM). Capital
managed equals total farm assets plus the value of rented land. Thus,
the RRCM formula, shown below in equation 1, is:
RRCM = (Net Farm Income + Interest Expense)/Total Capital Managed,
(1)
where net farm income equals gross farm income minus operating
expenses, depreciation, and unpaid labor charges. Although RRCM is not
one of the 16 standard farm financial ratios, it is very similar to
rate of return on assets. The only difference is that RRCM includes the
value of rented land in addition to total assets. Capital managed was
used instead of total assets because it gives a broader indication of
farm size. The average RRCM per region ranged from 1.1% in central
Kansas to 1.7% in western Kansas.
Another important financial measure in table 6 is the total expense
ratio. The total expense ratio, shown in equation 2, indicates how much
it costs to produce each dollar of gross income.
Total Expense Ratio = Total Expenses/Gross Farm Income. (2)
The lower the total expense ratio--the greater cost efficiency (and
potentially higher net returns). Like RRCM, the total expense ratio was
nearly identical for all three regions. In fact all three areas were
within 0.2% of each other. Obviously, a ratio above 100% is a concern,
but it should be noted that unpaid operator and family labor are
included in total expenses, resulting in a ratio that is higher than
would typically be expected.
Farms by Size
Although the average farm in the KFMA is similar across regions,
significant differences exist between farms when separated into size
categories according to gross farm income. Table 7 shows selected
financial and production measures for KFMA farms by farm size.Notably,
government payments for very large farms are over six times as large as
those for small farms. However, government payments per acre for very
large farms are less than 50% greater than those for small farms. In
addition, very large farms earn a smaller percentage of gross farm
income from government payments than do their smaller counterparts. The
differences between farms, in terms of government payments, are not
surprising. Certainly, it is expected that large farms would receive
greater amounts of payments since they farm larger acreages. It is also
expected that payments per acre may be greater since the size of farms
in this study are determined by gross income. Thus, farms producing
high yielding program commodities (i.e., irrigated corn) would likely
earn a higher income, and potentially higher government payments on a
per acre basis. Finally, larger farms have demonstrated the ability to
achieve lower costs and higher yields, thereby making government
payments a smaller portion of gross farm income.
Table 7. Financial and Production Measures for KFMA Farms by Size, 1995-
2004
------------------------------------------------------------------------
Very
Measure Units Small Medium Large Large
------------------------------------------------------------------------
Total Govt. Payments $ 10,194 22,674 40,576 66,942
Govt. Payments/Acre $ 22.56 24.90 27.72 31.49
Govt. Payments/GFI % 15.6 13.6 11.7 9.3
Gross Farm Income $ 66,469 166,315 348,371 755,987
(GFI)
Net Farm Income * $ - 20,022 1,032 37,222 123,917
(NFI)
Total Expense Ratio % 136.1 100.8 89.6 84.5
Total Assets $ 382,596 569,797 914,160 1,584,294
Total Capital Managed $ 644,087 1,152,746 1,867,243 3,039,967
Rate of Return to % - 2.5 1.4 3.8 6.1
Capital Managed
(RRCM)
Avg. Debt/Equity % 67.6 90.7 106.8 106.6
Ratio
Crop Income/GFI % 49.3 54.3 55.4 48.4
Livestock Income/GFI % 28.8 26.6 26.7 35.3
Non-farm Wages $ 13,770 10,196 7,016 3,628
Total Crop Acres No. 506 1,005 1,577 2,272
Acres Harvested No. 440 906 1,492 2,246
------------------------------------------------------------------------
* Net Farm Income equals gross farm income minus operating expenses,
depreciation, unpaid operator labor, and unpaid family labor.
While the government payment information by farm size is
interesting, it does not tell the whole story in terms of the relative
importance of government payments for farms in Kansas. It is also
important to understand the financial characteristics of the different
size farms. The most telling financial differences between farm sizes
are profitability and expense management. As shown in table 7,
profitability, as measured by RRCM, varies from - 2.5% for small farms
to 6.1% for very large farms. While, in terms of percentage points the
difference seems small, the difference in profitability between farm
sizes is actually quite large. For example, very large farms earn over
four times the return on capital than medium size farms. In another
major difference between farms, the total expense ratio drops from
136.1% for small farms to 84.5% for very large farms. This suggests
that cost management is a significant factor in farm profitability. It
also suggests that large farms have some cost advantages over small
farms, or that large farms were able to grow over time because they
were efficient cost managers. Otherwise, many of the remaining
financial measures are not very dissimilar, or generally follow
expectations based on how the farms were classified. Of the remaining
variables, the most interesting is the debt/equity ratio. Unlike what
many would expect, small farms actually have the lowest debt/equity
ratio, meaning they have lower debt loads than larger farms.
Farm by Type
When discussing government payments by area and farm size, it was
hypothesized that government payments in the west were higher than
those in the east because of irrigation. Likewise, since irrigation
usually results in greater production than non-irrigation, it would be
expected that government payments would be higher as well. As table 8
shows, total government payments and payments per acre were larger for
irrigated farms.
Table 8. Financial and Production Measures for Irrigated and Non-
irrigated KFMA Farms in Kansas, 1995-2004
------------------------------------------------------------------------
Non-
Measure Units Irrigated irrigated
------------------------------------------------------------------------
Total Govt. Payments $ 49,340 30,831
Govt. Payments/Acre $ 36.72 23.99
Govt. Payments/GFI % 15.4 15.5
Gross Farm Income (GFI) $ 340,594 222,114
Net Farm Income * (NFI) $ 30,008 15,009
Total Expense Ratio % 97.0 105.0
Total Assets $ 808,074 671,815
Total Capital Managed $ 1,583,416 1,382,611
Rate of Return to Capital Managed % 3.1 1.4
(RRCM)
Avg. Debt/Equity Ratio % 106.3 91.6
Crop Income/GFI % 71.5 64.5
Livestock Income/GFI % 6.3 13.7
Non-farm Wages $ 8,453 9,874
Total Crop Acres No. 1,456 1,298
Acres Harvested No. 1,224 1,215
------------------------------------------------------------------------
* Net Farm Income equals gross farm income minus operating expenses,
depreciation, unpaid operator labor, and unpaid family labor.
Statistical Model
A statistical model was developed from the KFMA data set to
quantify the relationship between profitability and several other
explanatory variables, including government payments. The profitability
measure used in the statistical models was rate of return to capital
managed. The purpose of this extensive model was to quantify the effect
that these variables had on RRCM. The model can be expressed as:
RRCM = B0 + B1YEAR + B2 GOVTPP +
B3CINCP + B4 TEXPR + B5AVGDE +
B6AVGDE2 + B7GFI +
B8GFI2,
where YEAR is a binary, or ``dummy'' variable that allows for changes
in RRCM over time (year is defined as 1995 = 95, etc.), GOVTPP is the
percentage of gross income earned from government payments, CINCP is
the percentage of gross income earned from crops, TEXPR is the total
expense ratio, AVGDE is the average debt/equity ratio, and GFI is gross
farm income. Squared terms on AVGDE and GFI allow for non-linear
relationships with RRCM.
The results of this model are shown in table 9. The R2
value, at 71.2%, indicates the amount of variability in RRCM that is
explained by the other variables. Thus, 71.2% of the variability in
RRCM can be explained by the six independent variables in the model.
Two of the most important things to consider when interpreting the
results of the regression model are the sign of the coefficient and
whether or not the variable is statistically different from zero.
Beginning with the YEAR variable, we can see from table 9 that RRCM was
statistically different from the base year (2004) in 7 of the 9 years
from1995 through 2004.
Table 9. Regression Results for KFMA Profitability Model
------------------------------------------------------------------------
Variable Coefficient t-statistic
------------------------------------------------------------------------
Intercept 0.1099 62.13
1995 * 0.0050 3.86
1996 * 0.0148 11.72
1997 * 0.0113 9.00
1998 * - 0.0030 - 2.33
1999 - 0.0011 - 0.78
2000 * - 0.0044 - 3.27
2001 * - 0.0046 - 3.50
2002 * - 0.0027 - 2.13
2003 * - 0.0038 - 2.98
GVTPP * 0.0154 4.44
CINCP * - 0.0025 - 2.27
TEXPR * - 0.1055 - 102.37
AVGDE * 0.0036 10.21
AVGDE2 * - 0.0002 - 6.27
GFI * 0.0001 16.45
GFI2 * - 0.0000 - 2.63
------------------------------------------------------------------------
* Indicates significantly different from zero at 0.05 level.
* 2004 is the base year.
The general purpose of government payments is to provide a safety
net for farmers in an economic environment where many forces are out of
their control. Because these payments are designed to boost farm
income, it would be reasonable to expect that government payments would
be an important variable in determining RRCM. The percent of gross farm
income from government payments (GVTPP) was used instead of total
government payments because it also gives an indication of the crop/
livestock mix of the farm. GVTPP is statistically significant and
positive, meaning that as the percentage of GFI earned from government
payments increases, RRCM increases as well. However, for every 1%
increase in GVTPP, RRCM increases by only 0.015%.
The CINCP variable was included in the model to determine whether
the crop/livestock mix of a farm had any impact on RRCM. According to
this model, as the percentage of gross income earned from crops
increases, RRCM decreases. Although, this variable is statistically
significant, like GVTPP, the effect is small.
The total expense ratio (TEXPR), defined on page eight, gives an
indication of how well a farm manages costs, which in turn will affect
profitability. The TEXPR variable in the model is highly significant
and negative, meaning that for every 1% increase in TEXPR, RRCM will
decrease by about 0.1%. For example, assume that a farm had a total
expense ratio of 90% and a corresponding RRCM of 5%. If the total
expense ratio increased to 91%, and everything else was held constant,
RRCM would fall to 4.9%.
An average debt/equity ratio (AVGDE and AVGDE2) was
included in this model to determine the impact debt may have on
profitability. According to the regression results, as the average
debt/equity increases (i.e., a farm is more highly leveraged), RRCM
increases as well, but at a decreasing rate. Again, this variable is
statistically significant, but its impact is minor. This indicates
that, on average, farms in the KFMA are using their borrowed funds to
earn positive returns on their operations. Of course, caution should be
used in increasing leverage as cash flow problems can develop.
The final variable is gross farm income (GFI and GFI2).
As previously mentioned, a squared term for GFI was included in the
model to allow for a non-linear relationship between GFI and RRCM. In
the model both variables are statistically significant, with GFI
positive and GFI2 negative, indicating that as farms get
bigger--in terms of GFI, RRCM increases, but at a decreasing rate. By
holding all other variables constant and varying GFI and
GFI2, we can determine the point at which RRCM levels off
with continued increases in GFI. Figure 1 shows that RRCM increases
until GFI reaches $4.3 million. At that point GFI plateaus and then
starts to decrease. This result would suggest that profitability is
maximized with GFI of $4.3 million. However, extreme care must be taken
in making that assertion. First, data on large farms is limited in the
KFMA, making projections at higher levels of GFI more problematic. For
example, the maximum GFI for a farm in the data set used to derive this
model was $2.8 million. Second, in order to predict RRCM as GFI
increases, all other variables were held constant. However, as previous
data showed, as farm size increased, TEXPR decreased. Since this
variable was held constant to illustrate the relationship between RRCM
and GFI, the advantage most large farms have in terms of costs are
eliminated, making it appear that economies of size are maximized at
$4.3 million in GFI.
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
The preceding statistical model indicates that government payments
are a significant factor in the overall financial performance of a
farm. However, the same model also shows that increasing the percentage
of GFI that comes from government payments has less of an impact on
profitability than other variables. Expenses and total revenue have a
greater impact on profitability than government payments do. It is
important to understand this when evaluating farm policy alternatives.
In today's farm policy environment there are government officials and
interest groups who are advocating reductions in payments or even the
complete elimination of farm subsidies. Some of the information
previously presented would seem to suggest that, on average, farms may
be able to absorb a reduction in government payments without a
catastrophic reduction in profitability. This may be especially true
with larger farms. At the same time there is the realization that in
some years, government payments were a vital contributor to gross
income (figure 2).
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
Loss of Government Payments
To further determine the impact of government payments on farm
profitability, additional analysis was performed with the KFMA data
set. In this analysis, scenarios in which government payments were
reduced by 10%, and completely eliminated were developed. Without
question, it would be expected that both gross and net income would
fall if government payments were reduced or eliminated immediately, and
everything else remained constant. However, reducing or eliminating
government payments will likely have consequences outside of simply
reducing income. Most notably, land values would likely fall as
government payments dropped. A study by Kastens and Dhuyvetter
estimated that cropland values in Kansas would fall by 33.3% if
government payments were eliminated. A reduction in land values of that
magnitude could have a devastating effect on the financial viability of
many Kansas farms. The estimated decline in land values, however,
assumes that 100% of government payments are capitalized into land. In
reality, government payments are not likely to be fully capitalized
into land values.
Nevertheless, using the assumption that government payments are
fully capitalized into land values provides a ``worst case scenario''
in terms of the impact of a reduction in government payments. This
could also be considered a ``worst case scenario'' because cash rent
for cropland was not reduced in conjunction with land values. This was
necessary because the KFMA data does not distinguish between crop,
pasture, and other cash rent.
To account for the fact that government payments get capitalized
into land values, in this analysis, land values were reduced by 3.3% in
the scenario in which government payments were reduced by 10%, and by
33.3% in the scenario in which government payments were completely
eliminated. For farms that own land, the reduction in land values will
negatively effect the solvency position of those farms, and may reduce
the profitability of those farms as well. Table 10 shows the changes in
net farm income, rate of return on assets, and rate of return on equity
as government payments are reduced. As government payments are reduced,
net farm income is reduced by the same amount. Since larger farms
receive larger payments, total income losses are greater for larger
farms. On a percentage basis, however, smaller farms are more adversely
affected.
Table 10. Net Farm Income, Rate of Return on Assets, and Rate of Return
on Equity for KFMA Farms by Farm Size, 1995-2004
------------------------------------------------------------------------
Measure Small Medium Large Very Large
------------------------------------------------------------------------
Net Farm Income - $20,467 $1,226 $37,579 $124,484
(NFI)
NFI w/ Govt. Pmts - $21,475 - $1,045 $33,502 $117,739
Reduced by 10%
NFI w/o Govt. Pmts - $30,549 - $21,480 - $3,186 $57,037
Rate of Return on - 5.22% 3.22% 8.20% 12.31%
Assets (ROA)
ROA w/ Govt. Pmts - 5.70% 2.76% 7.75% 11.90%
Reduced by 10%
ROA w/o Govt. Pmts - 10.67% - 2.02% 3.21% 7.90%
Rate of Return on - 15.51% - 1.00% 8.37% 17.63%
Equity (ROE)
ROE w/ Govt. Pmts - 17.13% - 2.86% 7.33% 16.95%
Reduced by 10%
ROE w/o Govt. Pmts - 27.53% - 13.01% - 1.17% 8.66%
------------------------------------------------------------------------
Because income levels differ dramatically between farm sizes,
better measures of changes in profitability include the rate of return
on assets (ROA) and equity (ROE). ROA and ROE were used instead of RRCM
because they provide a better indication of how changes in government
payments affect profitability in terms of a producer's investment and
not a landlord's. According to the data shown in table 10, ROA
decreases by less than 0.5 percentage points for all farm sizes if
government payments are reduced by 10 percent. Declines in ROE range
from 1.86 percentage points for medium farms to 0.68 percentage points
for very large farms.
If government payments are eliminated altogether, rate of return on
assets decreases by over five percentage points for the two smallest
farm sizes, and by 4.4 percentage points for very large farms. Rate of
return on equity drops by approximately 12 percentage points for small
and medium farms, but only by 9.5 and nine percentage points for large
and very large farms, respectively. In spite of the declines, rate of
return on assets and equity remains positive for very large farms.
Table 11. Average Total Assets, Liabilities, and Equity for KFMA Farms
by Farm Size, 1995-2004
------------------------------------------------------------------------
Measure Small Medium Large Very Large
------------------------------------------------------------------------
Total Assets $359,808 $550,677 $907,746 $1,577,664
Total Assets w/ Govt. $353,206 $542,006 $894,685 $1,557,077
Pmts Reduced by 10%
Total Assets w/o Govt. $293,182 $463,175 $775,944 $1,369,923
Pmts
Total Liabilities $75,448 $155,888 $282,464 $551,111
Equity (Net Worth) $284,360 $394,790 $625,282 $1,026,553
Equity w/ Govt. Pmts $277,758 $386,118 $612,220 $1,005,966
Reduced by 10%
Equity w/o Govt. Pmts $217,734 $307,287 $493,480 $818,812
------------------------------------------------------------------------
Based on the values in table 11, average total assets fell 18.5%,
15.9%, 14.5%, and 13.2% for small, medium, large, and very large farms,
respectively. The difference in asset values is due to small farms
having a greater portion of assets in land. Larger farms tend to rent a
higher percentage of land versus owning, making long term assets such
as land a smaller percentage of total assets than small farms. As
liabilities remained constant, the average debt/asset ratio for each
size of farm increased by about six percentage points, with small farms
having the lowest ratio at 32.0%, and with very large farms having the
highest ratio at 42.6%. Average declines in equity ranged from 23.4%
for small farms to 20.2% for very large farms. Although the average
financial position declined for KFMA farms when government payments
were eliminated, the number of farms that become insolvent during the
1995-2004 timeframe increased by only 2 percent (0.7% to 2.7%).
While the preceding discussion simply illustrates the impact of
government payments through mean values, it is also important to
understand that there is a tremendous amount of variability between
farms as well. For example, figure 3 shows the mean ROA without
government payments by farm size. Looking exclusively at small farms,
the average ROA without government payments was - 10.7%. However, at
one standard deviation above and below the mean, ROA would be 2.8% and
- 24.1%, respectively. This indicates that many, but not all farms will
become unprofitable if government payments are eliminated.
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
There are many potential reasons why the loss of government
payments may have different effects on farms in Kansas. First and
foremost, since most government payments are targeted toward specific
commodities, those farms that have historically produced those
commodities will receive the bulk of farm program payments. Therefore,
if farm programs are reduced or eliminated, those farms will likely be
affected more than farms that do not produce those commodities. For
example, figure 4 shows ROA and ROA without government payments for
four types of farms in the KFMA data set. These farms include non-
irrigated crop, irrigated crop, cow herd, and beef backgrounding. As
one would expect, ROA suffers larger declines for both non-irrigated
and irrigated farms than cow herd or beef backgrounding operations.
Irrigated farms suffer the largest decline in returns, and cow herd
operations the smallest. Beef backgrounding operations are the only
ones who earn a positive return.
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
A second reason for the variability of impact of farm program
payments is that farms vary significantly in terms of their ability to
consistently earn positive returns. It was demonstrated earlier that
larger farms have shown the ability to produce at lower cost than their
smaller counterparts. That ability has allowed larger farms to earn
higher profits and be less dependent on government payments. In
addition, some farms within a particular size class have demonstrated
the ability to earn higher returns than comparably sized farms without
the benefit of additional government payments.
Finally, as previously mentioned farms in the data set may have
experienced different conditions over the last 10 years, such as
drought and highs and lows in cattle prices that have increased or
decreased the amount of government payments they received relative to
average and to other farms.
Discussion and Summary
The fact that profitability varies so much between farms with and
without government payments has some major implications for farms in
Kansas and the forthcoming debate over the 2007 Farm Bill. In recent
farm bill debates, support for farm subsidies has been broad and
bipartisan. Recently, however, that support has splintered to some
degree and become increasingly contentious as Federal budget pressures
developed and advocacy groups have protested against farm program
payments being inefficient and detrimental to poor, developing
countries. As a result, proposals have been made to reduce farm program
payments.
This paper has shown that, over the last 10 years, farm program
payments have been a significant factor in farm profitability. However,
it has also shown that other factors, such as cost management and
production have larger effects on profitability than government
payments. Nevertheless, if government payments were reduced or
eliminated, farm profitability would be diminished. Obviously, those
farms that specialize in the production of farm program commodities
would suffer larger losses than those who do not specialize in those
commodities. In addition, larger farms would be able to absorb the loss
of government payments better than small farms, and in many cases even
remain profitable. On the other hand small farms were not profitable,
on average, even with government payments. Because farm profitability
varies significantly between farms, some difficult questions arise
regarding future farm policy.
For instance, since large farms are typically more profitable than
small farms, and receive a smaller portion of gross income from
government payments, it could be construed by some that payment
limitations could be imposed on large farms with minimal effect on
profitability. To do so, however, requires a means to impose those
limits. In other words, should payment limitations be based on a strict
ceiling of total payments, number of acres farmed, gross income, or
some other measure? This leads to the issue of equity. The problem with
using one of the above measures to define an ``equitable'' distribution
of government payments is that one's particular definition of
``equitable'' may not meet another's definition. This can already be
seen in the reaction of various commodity groups to proposed stricter
payment limitations. One commodity group's definition of an equitable
distribution of payments does not agree with another's.
Then there is the issue of the variability of profits and motives
between similar farms (i.e., size and type). As a group, small farms
have difficulty competing with large farms. But in terms of
profitability, some can compare favorably with large farms. Other small
farms are not profit oriented. They have other primary occupations, but
enjoy and value the agricultural lifestyle. The remaining group of
small farms faces challenges such as limited resources and production
or management inefficiencies. (Large farms can face these challenges as
well). Even if people would agree to target farm payments to small
farms, the question exists as to whether those payments should be
targeted to all three of those groups. These circumstances make forming
farm policy difficult. That is why it is important to understand the
structure of agricultural and understand how changes in policy may
impact farms. When the process of understanding the relationship
between government payments and farm profitability begins, often more
questions arise then are answered. Consequently, this study is just one
step in a broader effort to provide information to a complex issue.
References
Banker, D.E. and J.M. MacDonald, Eds. (2005) Structural and
Financial Characteristics of U.S. Farms: 2004 Family Farm Report.
Agriculture Information Bulletin No. 797. Washington, D.C., USDA-ERS.
Dumler, Troy J. Farm Size in Kansas: Is Bigger Better? 2002 Kansas
State University Agricultural Lenders Conference. January 2002.
Kastens, T. and K. Dhuyvetter. Government Program Payments and Non-
agricultural Returns Affect Land Values. www.agmanager.info. September
2005.
USDA-NASS. (2004) 2002 Census of Agriculture. Vol. 1, Part 16.
Washington, D.C., USDA-NASS.
USDA-ERS. (2004) Direct Government Payments by Program 1996-2003.
Washington, D.C., USDA-ERS. http://www.ers.usda.gov/data/FarmIncome/
finfidmu.htm#payments.
Mr. Etheridge. Dr. Miller.
STATEMENT OF BILL MILLER, Ph.D., CATTLE PRODUCER, PRINCETON,
KS; ON BEHALF OF FRANKLIN COUNTY FARM BUREAU ASSOCIATION
Dr. Miller. I wasn't quite sure about what to talk about,
so I finally decided that maybe I could just sit here and
complain for 5 minutes and see how it goes.
Ag producers in Kansas face many challenges that affect
their operation. Among those are ever increasing costs of fuel
and fertilizer. When most other businesses are faced with
increases in cost for production, those costs are passed on to
the consumer. Farmers pay high prices for necessary inputs to
grow food and fiber and usually have to sell their produce at
whatever price is offered. They do not have the luxury of
passing increased costs associated with production on to
anyone. As a result, their operation is always operating
between a rock and a hard place.
Within the last year, farmers have had a significant
increase in the price of grain that they sell, but when you
consider the increase in production costs, the bottom line
doesn't change much. When environmental conditions are such
that production is high, then the supply and demand equation
takes effect and market prices are low. And when environmental
conditions are such that crops are not good, the price
increases, but the problem with that is he doesn't have
anything to sell.
Most farmers operate a business that barely hangs on from 1
year to the next and they exist in that manner from year in,
year out, year after year. And when he or she gets too old to
farm and decides to pass it on to the next generation, then the
next generation starts out by trying to dig themselves out of a
hole that was inherited when they inherited the farm.
The lack of rural development results in young people
growing up and moving away, never to return to the community
which they grew up in, unless it's as a visitor. Agriculture is
a key component of rural communities, but if rural communities
are to survive, they must be strengthened. They need better
access to education, health care and improved infrastructure.
In western Kansas a man might bleed to death before he can get
to a physician for medical help. In east Kansas the worst thing
associated with the same injury might be the headache and
boredom that his wife suffers while he lays around the house 5-
6 days recuperating.
Farmers are among the most productive and most creative
entrepreneurs in this country, but farming is a never-ending
battle. It's a battle that you can fight for a while, but there
comes a time when you get tired of fighting or you just can't
afford to fight anymore.
I admit that today the things that I've said have barely
etched a mark when it comes to identifying challenges faced by
agriculture in Kansas, but you've heard from others and you'll
hear from more--more from those that follow.
If Kansas agriculture is to remain viable and survive, then
these issues must be addressed.
In closing I must say that it is a privilege and an honor
to be able to sit here and address such a distinguished group
of people. I thank you for requesting my presence here today
and I thank you for listening.
[The prepared statement of Dr. Miller follows:]
Prepared Statement of Bill Miller, Ph.D., Cattle Producer, Princeton,
KS; on Behalf of Franklin County Farm Bureau Association
Agricultural producers in Kansas face many challenges that effect
their operation. Among those are the ever increasing costs of fuel and
fertilizer. When most other businesses are faced with increases in
production costs, those costs are passed on to the consumer. Farmers
pay high prices for necessary inputs to grow food and fiber and usually
have to sell their produce at whatever price is offered. They do not
have the luxury of passing increased costs associated with production
on to the consumer. As a result, their operation is always between a
rock and a hard place.
Within the last year, farmers have had a significant increase in
the price of grain that they sell but when you consider the increase in
production costs, net income doesn't change very much. When
environmental conditions are such that production is high, then the
supply and demand equation takes effect and market prices are low. When
environmental conditions are not good and production is low, then grain
prices are high but the problem with that is that there isn't much to
sell.
Most farmers operate a business that barely hangs on from 1 year to
the next and they exist in that manner year in and year out. And when
he or she gets too old to farm and decides to pass the operation on to
the next generation, then the next generation starts out by trying to
dig their way out of a hole that was created when they inherited the
farm.
Farmers are among the most creative and most productive
entrepreneurs in the country. But farming is a never-ending battle,
it's a battle that you can fight for a while but there comes a time
when you do get tired of fighting.
I admit that today, I have barely etched a mark when it comes to
identifying the challenges faced by agriculture producers in Kansas but
you have already heard from others and you will hear more from those
that follow.
In closing, let me say that your being here today as
Representatives of the Agriculture Subcommittee attests to your good
will and your good intentions and for that, I thank you.
Bill Miller, Ph.D.
Mr. Etheridge. Thank you. Mr. Rome.
STATEMENT OF STEVE ROME, CROP FARMER; PRESIDENT, SOUTHWEST
KANSAS CORN GROWERS ASSOCIATION; BOARD MEMBER, KANSAS CORN
GROWERS ASSOCIATION, HUGOTON, KS
Mr. Rome. Mr. Chairman and Members of the Committee, my
name is Steve Rome and I'm honored and humbled by the
opportunity to testify before you this morning. I'm also a bit
puzzled as to why I deserved whatever, whether this is an honor
or punishment, for being in front of this group. But,
nevertheless, I appreciate the time that you have all spent to
come to Kansas and to hear the situations that we deal with.
I'm involved in an irrigated farming operation in southwest
Kansas with two of my brothers and we're actually third
generation citizens of the United States. So I've started out
with saying that immigration is one of the issues that, I
think, we have to somehow deal with. The labor force in western
Kansas relies heavily on our neighbors to the west, not only
Hispanic population, but the German Mennonites, and some type
of a solution to allow those people to become citizens, I
think, is important. I don't particularly, in my opinion, think
a guest worker program is a solution. We need these folks for a
year-round job. We do have jobs for them. They're hard workers.
And so I challenge Congress to look for solutions there. That's
a real need. We've had an ad in the paper for 2 weeks for two
employees and we have not had an answer. It's not because we
don't pay. We feel like we pay decent wages, benefits, paid
vacation, so on, so forth. So that's one of the issues that, I
think, we struggle with.
Our operation we took over from the folks in 1982 and it's
grown about 10 fold in that time. And I've made the joke that
we've figured out at least part of Sam Walton's business plan:
We've learned how to sell more for less. We don't always know
how to influence the people we buy products for on the inputs
and we don't know how to pass along the costs that are part of
our production and that's frustrating.
I was talking to a neighbor the other day that had some
welding that was going on on some farm equipment a mile away
from a machine shop and he had a $10 surcharge that he added
onto his bill for a mile drive. No doubt that fuel charge is
part of that business's expense and he needs a way to recoup
that. We are no different. We have reduced our fuel usage in
our operation tremendously through the use of no-till, strip-
till, a lot of less tillage. We, in our part of the world, have
served on lots of K-State committees as my bio says and I
appreciate the purple. I didn't go to school there, but it's a
soothing color.
We see as much variance from the western side of Kansas to
the eastern side of Kansas as we do from the eastern side of
Kansas to the East Coast. So there's a lot of variability in
our state on rainfall and soil types and the challenges. When I
looked at the letter that I received inviting me to the
hearing, it said describe the challenges facing Kansas. And I
thought about that a little bit and tried to figure out exactly
what to say; and I decided that if you didn't live close to a
town that was hit by a tornado that spread the entire town
throughout all your fields, or you weren't in an area where all
your wheat was frozen and it was smelling like sewage, or it
was hailed out, or the fields were so wet that you couldn't get
a planter across it, times are relatively good.
In our part of the world we had a little bit of moisture
this winter. Some of it was in ice and it did a lot of damage
to our trees. REA poles: we spent a lot of time without
electricity this winter. Fortunately we're back up and running
and so we've decided energy and the ability to flip on a light
when you need it is important, although we've learned how to
use candles and other things.
The thing that I struggle with when we look at this is most
of the time when you read a farm magazine article it talks
about the price of production or, excuse me, it talks about not
being afraid to sell at a profit. That's an interesting
statement for those of us who have spent many winters--which
farmers supposedly aren't working during the winter--but spent
many winters buying feed or trying to identify what is a profit
and how do you identify that.
In our part of the world that's always a two part equation,
and in most articles it's talked about as just being a price.
The costs very seldom run into that. We're always, even though
we see some pretty decent prices, and we see an opportunity for
this year to be profitable.
I'm a little bit concerned about what the inputs are going
to do and I would say that the people that are in the livestock
industry would maybe not agree with me on how good of a benefit
ethanol is. To us it's one of the bright spots of the economy
and I hope our government continues to see the value of that
into the future. It's a--we talked about cellulosic and I think
Stevens County is one of the two counties that's in the final
running for a cellulosic plant, but yet I have heard no
presentations on economics of switch grass production. I've
also not heard anything from NRCS as to how much they're going
to scream when we remove all the residue that we've spent lots
of years trying to accumulate on our soils. So there are some
questions I have about that, but I think it makes lots of sense
to continue that process.
Anyway, there's lots of stuff to cover today and I
appreciate the opportunity to be here and look forward to any
questions that you might have later on. Thank you.
[The prepared statement of Mr. Rome follows:]
Prepared Statement of Steve Rome, Crop Farmer; President, Southwest
Kansas Corn Growers Association; Board Member, Kansas Corn Growers
Association, Hugoton, KS
Mr. Chairman and Members of the Committee: My name is Steve Rome
and I am honored by the opportunity to testify before you this morning.
I am involved in an irrigated farming operation with my two brothers in
southwest Kansas near Hugoton. We are third generation United States
citizens. I think our family has an appreciation for the immigration
situation which is very important to the economy of western Kansas. My
grandfather immigrated to the United States from Germany through Russia
in the late 1800's. My father had to learn English when he started
school, and as Dad would tell us, if the nuns caught you speaking
German, you would be reminded to speak English by a ruler on your
knuckles.
When we took over the farm in 1982, we farmed about 1,200 acres.
Today we farm approximately 12,000 acres with about 75% being irrigated
by center pivots. Some would say this is a large business and I suppose
it is, and I'm not sure if the risk is always worth the return.
Nevertheless, this is a family farm. I hear so many people say we need
to save the family farm but I never hear anyone say we need to save the
family grocer, hardware store, pharmacy, lumber yard etc. We have
figured out the ``how to sell more for less'' part of Sam Walton's
business plan, but we are unable to figure out to exert the influence
on our suppliers or pass on our increased cost to our customers.
Without farm subsidies and an understanding lending institution our
farm would probably not exist today and according to our insurance
agent we have one of the highest APHs of all of his customers. Most of
the writers whose articles I read in farm publications always talk
about not being afraid to sell at a profit. I wonder how they possibly
know what that is when they very seldom discuss the cost of production
in the articles only the price of the commodity. Last year, I would
have bet right up until we put the combine in the field that we had an
average to above average crop. I was fooled along with our crop
consultant, county agent and the rest of the industries that try to
guess how good of a job of production we did for the year. Our yields
were off 20% which nobody anticipated. Success or profit is always a
two part equation ``price yield''. Unfortunately this type of loss
usually puts us at a level with crop insurance where all we lose is the
profit! I keep telling my brothers we need to put a sign along the
highway that reads ``We are giving you the opportunity to second guess
us at least 1 more year.''
We use crop insurance to help manage our risk and give us the
opportunity to pre-market our planned production. With crops like wheat
that we have not been able to maintain yields on, the insurance program
becomes less effective in risk management. This is because we have
suffered several years with below average yields caused by drought,
diseases and freeze damage. It would seem that crop insurance could be
designed to insure anticipated revenue, and not have coverage to cover
less and cost more when we have a crop loss.
I serve on the Kansas Corn Growers Board and have heard Ken
McCauley explain NCGA's plan for some type of a revenue plan that would
limit or do away with direct payments and create something that would
be a safety net when yield or prices were low. I have not studied this
enough to have an opinion whether this is a good solution. We do think
the programs could be made simpler and easier to explain to an out of
state landowner. Surely there is a better word than counter cyclical.
We have a landowner that was a college professor and then a consulting
geologist. He is a very intelligent and detailed person but he drives
the poor ladies in our local FSA office insane trying to figure out how
his payments were determined and if they are correct.
Agriculture is the life blood of western Kansas. Our farm is
located on top of two finite and depleting resources, the Ogallala
Aquifer and the Hugoton Natural Gas Field. The recent increase in grain
prices has farmers apprehensively excited about the future of our
industry. We have not even completed one growing season with the
increased grain prices we have seen from the growth in the ethanol
industry and we are already concerned about what the higher prices will
do to our long time customers in the livestock industry.
I have served on several committees to discuss how to maintain the
water supply that has made our economy what it is. We killed lots of
trees creating reports but have done little to stop the decline. Most
farmers have implemented practices (strip till, no-till, raising
cotton, center pivots) to make their business more efficient and
hopefully save water, but the reality in my mind is that it is no
different than the natural gas industry. They are both finite resources
but one we are attempting to remove as rapidly and completely as
possible but with water our goal is to maintain the resource
infinitely. For those of us who are investing in production
agriculture, it almost seems to be a hypocrisy. It is difficult to make
long term investments with this uncertainty and it varies from state to
state which also makes it difficult to attract new industry to our area
when they see the differences in water law. I have told the people on
the committees that it is my goal to run out of water the day before
the second coming of Christ. Even though I say that with tongue in
cheek, I believe anything beyond drinking water should be treated as a
resource not unlike natural gas, oil etc. I serve on our county
economic development board and we think Stevens County is one of the
final two choices for a cellulosic ethanol plant but I have not heard
one presentation on the economics of switch grass production. I also
have not heard from NRCS on what concerns they might have about the
removal of the entire above ground residue as it would apply to
conservation plans.
The letter I received inviting me to testify asked about the
challenges facing Kansas farmers. If you are a grain producer and don't
happen to live close to one of the communities that was hit with a
tornado that spread the town through out your fields, or your wheat was
not frozen earlier this spring, or your fields are not so wet that you
can't get a planter across them, then this a better year compared to
the last several. We have had a little moisture and the grain prices
look decent. If you are a livestock producer and had to put up with all
the snow and ice this winter and are now looking at record high grain
prices you might not think times look so good.
In closing I would like to say that with current economics, most
farmers have less concern about a subsidy program than they have in the
last few years. The main concern most of us have is with the investment
it takes to run a farming operation, changes in policy can have a
devastating effect on the profitability our industry. Most of us would
be more than happy to get our profit from the marketplace but with the
risk of inputs, rent, and land costs increasing, most of us are still
skeptical that can be done. I would like to have some of the magazine
and newspaper writers tells us exactly what it is to compete in a fair
world market. I'm not sure that exists.
I have heard many K-State economists say ``on average we drive the
profits on most businesses to zero.'' It appears it will continue to be
more difficult to be above average in the future. I still remember the
comment our banker made when we brought in one of our first farm
payment checks. He said ``I see you received your welfare check.'' I
said I thought we worked way too hard for this to be called welfare. It
appeared to me those payments were as much of a benefit to his business
as they were to mine. I read many articles in the newspapers that make
me think the non-farming just consider this a form of welfare. We think
the subsidy program should not be based on what a person's income is,
but should be a tool to help make sure we have a viable food production
system in this country.
In my opinion, we as a country cannot afford to have a national
policy that relies on other countries for our food or energy supplies.
In reflecting back on the past 25 years, I sometimes wonder if we
would have made the same decision to get involved in this business. We
are against payment limitations. It sometimes appears my brothers and I
are being penalized by trying to run an efficient operation. By running
our business as a partnership, we can spread the cost of expensive
equipment over more acres. But we would not make the list of operations
that receive a large amount of government payments if we each had our
own operation. I am not sure it is wise or good business to have part
of the farm program that helps ``beginning farmers'' get into a
business that is so capital intensive and has such huge risks involved
with it. With most of our retirement tied up in the value of land, and
the State of Kansas having so much influence on that value with where
they try to take water law, it makes for many sleepless nights.
I thank you for the opportunity to address you today.
Mr. Etheridge. Mr. Starck.
STATEMENT OF BRIAN STARCK, CORN, SOYBEAN, AND WHEAT FARMER;
SWINE PRODUCER, FAIRBURY, NE; ON BEHALF OF JEFFERSON COUNTY,
NEBRASKA FARM BUREAU
Mr. Starck. Good morning. My name is Brian Starck, a farmer
in Jefferson County in the southeast part of Nebraska. My
family and I own and operate a corn, soybean and wheat farm
which includes a 100 sow farrow to finish swine operation.
Mr. Chairman and Members of the Committee, I want to thank
you for holding this field hearing on the 2007 Farm Bill and
for taking time to listen to those who have the most at stake
in this debate--our nation's farmers and ranchers.
The landscape that my family farm faces has changed
considerably since the enactment of the 2002 Farm Bill.
Unpredictable weather conditions, market opportunities
involving the development of the ethanol industry,
uncertainties involved with international trade and
significantly higher input costs are creating many challenges
for my operation.
While we are experiencing some great opportunities in the
corn and soybean market at the present time, now is no time to
abandon the basics of the safety net created in the 2002 Farm
Bill. What should be done in the 2007 Farm Bill is to make some
modifications to the existing safety net to help farmers like
me deal with the growing risks inherent to agriculture.
We in agriculture are unique in many ways. We are very
vulnerable to weather related crop disasters each and every
year, which constantly puts my production levels at risk. In
2001 we experienced dryland corn yields of 10 to 30 bushels per
acre, and again in 2003 we experienced similar yields.
We are price takers when we sell our commodities. To
develop a farm policy on the notion that crop prices will
remain high for a long time would be a mistake. Farm commodity
markets are no different than other markets in that they will
cycle and there will be both good and bad years to come. We
have to keep a safety net in place to deal with the risk of
lower prices.
When it comes to the input side, I am also a price taker.
When I purchase fertilizer, fuel and other inputs vital to my
operation, some of these costs have almost doubled in the last
3 to 4 years which makes my operation even more vulnerable to
production and price risks that I face.
Therefore, I support a safety net structure that
incorporates direct payments, counter-cyclical support and
LDP's; however, I believe that consideration should be given to
modify the counter-cyclical program to have payments triggered
by a shortfall in crop revenue rather than a trigger based
solely on price.
I have faced a couple years of drought during the last 5
years and it seemed that the years I needed the most assistance
from a safety net, I received the least help from current
safety net structure because you had to grow the crop in order
to receive assistance. In those dry years the direct payments
were very beneficial because they provided some cash assistance
at a time when there was a short crop to sell.
I also believe that crop insurance continues to play a
larger and larger role in providing a safety net for my
individual risk in agriculture. I usually participate in a 70
to 75 percent level of CRC coverage policy, and though I hope
to never receive the guarantee, I know it is there to recoup
most inputs at a near break-even level.
It is my opinion that future farm policy should strive for
more improvement in our current crop insurance program while
taking the uncertainties out of annual disaster bills that seem
to come up every year in Congress.
As a farmer from a state that relies on a great deal of
farm exports, I think it is imperative that the next farm bill
be compliant with current WTO rules. WTO violations could have
a huge negative impact on many sectors in agriculture--
particularly the livestock industry. By the same token, the
2007 Farm Bill should not be written to comply with what
someone assumes will be the outcome of the current WTO
negotiations taking place.
Many producers in Jefferson County are participants in the
Conservation Security Program. I support the CSP program and I
think we should look for ways for more funding to provide room
for steady and efficient expansion of the program. The CRP
program has, in some cases, turned out to have some negative
economic factors in rural counties. The rent paid on CRP acres
used to stay in the local economy, but with the rise in outdoor
enthusiasm some urban landowners have purchased land for
hunting and the majority of the rent paid is being exported to
Lincoln, Omaha or Kansas City, and only the property tax money
is staying in our local economy.
In terms of bio-fuel development, I believe it is
imperative that Congress prioritize research on modifications
of dried distiller grains and other byproducts to expand their
use, especially in non-ruminant animals. Projections are by the
end of 2009 we will process the equivalent of 65 percent of
total production of corn in Nebraska to ethanol and we will
increase the production of DDG's threefold.
In order to take advantage of this exciting phenomenon in
Nebraska of corn to ethanol to DDG's to livestock, we must have
the research to improve ways distiller grains can be used for
cow/calf operations, non-ruminant animals, and to enhance the
consistency of the DDG's to increase their levels in cattle
rations.
Finally, one last issue is the 1031 tax-free exchanges.
This has forced land values in my area to a point where I and
other young producers are unable to compete in purchasing land
for further expansion without seriously diving into debt with
little chance of success in servicing that debt.
Mr. Chairman and Members of the Committee, thank you for
the opportunity to share our thoughts with you and I look
forward to any questions you may have.
[The prepared statement of Mr. Starck follows:]
Prepared Statement Of Brian Starck, Corn, Soybean, and Wheat Farmer;
Swine Producer, Fairbury, NE; on Behalf of Jefferson County, Nebraska
Farm Bureau
Good morning. My name is Brian Starck, a farmer in Jefferson County
in the southeast part of Nebraska. My family and I own and operate a
corn, soybean and wheat farm which includes a 100 sow farrow to finish
swine operation.
Mr. Chairman and Members of the Committee, I want to thank you for
holding this field hearing on the 2007 Farm Bill and for taking time to
listen to those who have the most at stake in this debate--our nation's
farmers and ranchers.
The landscape that my family farm faces has changed considerably
since the enactment of the 2002 Farm Bill. Unpredictable weather
conditions, marketing opportunities involving the development of the
ethanol industry, uncertainties involved with international trade and
significantly higher input costs are creating many challenges for my
operation.
While we are experiencing some great opportunities in the corn and
soybean markets at the present time, now is no time to abandon the
basics of the safety net created in the 2002 Farm Bill. What should be
done in the 2007 Farm Bill is to make some modifications to the
existing safety net to help farmers like me deal with the growing risks
inherent to agriculture.
We in agriculture are unique in many ways. We are very vulnerable
to weather-related crop disasters each and every year which constantly
puts my production levels at risk. In 2001 we experienced dryland corn
yield of 10 to 30 bu/acre and again in 2003 we experienced similar
yields.
We are price takers when we sell our commodities. To develop a farm
policy on the notion that crop prices will remain high for a long-time
would be a mistake. Farm commodity markets are no different than other
markets in that they will cycle and there will be both good and bad
years to come. We have to keep a safety net in place to deal with the
risk of lower prices.
When it comes to the input side, I am also a price taker when I
purchase fertilizer, fuel and other inputs vital to my operation. Some
of these costs have almost doubled in the last 3 or 4 years which makes
my operation even more vulnerable to production and price risks I face.
Therefore, I support a safety net structure that incorporates
direct payments, counter-cyclical support and loan deficiency payments.
However, I believe that consideration should be given to modify the
counter-cyclical program to have payments triggered by a shortfall in
crop revenue rather than a trigger based solely on price.
I have faced a couple years of drought during the last 5 years and
it seemed that the years that I needed the most assistance from a
safety net, I received the least help from current safety net structure
because you had to grow the crop in order to receive assistance. In
those dry years, the direct payments were very beneficial because they
provided some cash assistance at a time when there was a short crop to
sell.
I also believe that crop insurance continues to play a larger and
larger role in providing a safety net for my individual risk in
agriculture. I usually participate in a 70% or 75% level Crop Revenue
Coverage policy and though I hope to never use the guarantee I know it
is there to recoup most inputs at a near break-even level.
It is my opinion that future farm policy should strive for more
improvements in our current crop insurance programs while taking the
uncertainties out of annual disaster bills that seem to come up every
year in Congress.
As a farmer from a state that relies a great deal on farm exports,
I think it is imperative that the next farm bill be compliant with
current WTO rules. WTO violations could have huge, negative impacts on
many sectors in agriculture--particularly the livestock industry. By
the same token, the 2007 Farm Bill should not be written to comply with
what someone assumes will be the ``outcome'' of the current WTO
negotiations taking place.
Many producers in Jefferson County are participants in the
Conservation Security Program. I support the CSP program and I think we
should look for ways for more funding to provide room for steady and
efficient expansion of the program. The CRP program has in some cases
turned out to have some negative economic factors in rural counties.
The rent paid on CRP acres use to stay in the local economy but with
the rise in outdoor enthusiasm some urban landowners have purchased
land for hunting and the majority of the rent paid is being exported to
Lincoln, Omaha or Kansas City and only the property tax money is
staying in the local economy.
In terms of biofuel development, I believe it is imperative that
Congress prioritize research on modifications of Dried Distiller Grains
(DDGs) and other byproducts to expand their use, especially in non-
ruminant animals. Projections are by the end of 2009, we will process
the equivalent of 65 percent of total production of corn in Nebraska to
ethanol and we will increase the production of DDGs threefold.
In order to take advantage of this exciting phenomenon in Nebraska
of corn to ethanol to DDGs to livestock, we must have more research to
improve ways distiller grains can be used for cow/calf operations, non-
ruminant animals, and to enhance the consistency of the DDGs to
increase their levels in cattle rations.
Finally, I like to mention some of the conditions that I have had
to face because of the unintended consequences of the current and past
farm bill and how that impacts the next generation of farmers. Clearly,
government support has had an impact on land costs and cash rents which
is often cited as a factor limiting opportunities for young farmers
entering agriculture. It is my opinion that the payment limitation is
too high and the big farmer that hits the limitation just starts
another entity and then can go and offer in some cases $20 to $30 an
acre more in cash rent than I or another small younger producer can
compete with.
Another policy issue affecting land values and cash rents relates
to the 1031 tax-free exchanges. This has forced land values to the
point were I and other young producers are unable to compete in
purchasing land for further expansion without seriously diving into
debt with little chance of success in servicing that debt.
Mr. Chairman and Members of the Committee, thank you for the
opportunity to share our thoughts with you and I look forward to any
questions you may have.
Mr. Etheridge. Thank you. Let me thank each of the
witnesses and now we'll recognize each Member of Congress for 5
minutes of questioning. And I will begin by yielding myself 5
minutes.
Mr. Dumler, I want to follow-up on your comments regarding
higher crop prices and beef cattle prices. The topic of food
versus fuel has been an underlying theme as we have moved
forward toward this next farm bill. We've heard it here, but we
also heard it in other places and many of the witnesses today
have touched on the grain and livestock issues and many of you
in this audience today probably have both.
So my question is this: Can you give us a snapshot of
producers here in Kansas? How common is it for a farmer here to
have large grain and cattle production together? And for those
producing both, is the rise in crop prices helping them make up
for the increased cost in their livestock production?
Mr. Dumler. I'd say a very high portion of Kansas producers
have both grain and livestock in their operations.
For example, the increase in production costs has had an
impact on livestock producers in 2006 already. When you look at
net farm income from our Farm Management Association, it was
down in 2006 from 2005 and most of that was from livestock
producers. Cash grain producers actually had--were either equal
or had higher net farm income in 2006. So it does have an
impact and it's impacting livestock producers right now as far
as the increase in grain prices.
Mr. Etheridge. So you're saying if you have both, though,
you don't pick it up in the cattle production because the
actual cost of the grain inputs are going to negate----
Mr. Dumler. Potentially, yes.
Mr. Etheridge. Your testimony mentioned one problem that
we've been hearing about; that is the high cost of land values.
Mr. Dumler. Yes.
Mr. Etheridge. As you stated, farm program payments are
often cited as one of those sources of rising land values. I
have two questions on that because we've sort of got a three-
legged stool that we talk about in the farm bill: A direct
payment, marketing loan programs and counter-cyclical payments.
Which of these has the greatest risk of seeing its benefit
captured in the land values? And Second, before you answer
that, let me give you a hypothetical: If this Subcommittee had
additional resources to put in place which we don't right now,
but if we did, if we did put it in the programs and we wanted
to make sure that these dollars got to the farmer rather than
to the landowner, which are separate in some cases, which
program would be the best one to add those additional resources
to.
Mr. Dumler. I would argue first that all three programs--
direct payments, counter-cyclical payment and marketing loan
will get capitalized into land values. The direct payments will
be capitalized probably faster. It's more transparent
certainly. If the landowner is cash renting land, they may just
increase the amount of the cash rent that they're asking by
that much that the farmer's receiving.
Mr. Etheridge. So your basic premise is that government
payments add to the cost of land values.
Mr. Dumler. Yes. But certainly the counter-cyclical payment
and the marketing loan payment will get capitalized as well
because again the cash rents and, in turn, land values are a
function of income that you can earn off that land and each one
of those programs increases that income. So they all will get
capitalized into land values.
Mr. Etheridge. Or in rent values.
Mr. Dumler. In rent values, yes.
Mr. Etheridge. Either or.
Mr. Dumler. Yes, sir.
Mr. Etheridge. Thank you. Mr. Moran, 5 minutes.
Mr. Moran. Chairman, thank you very much. One of the
disadvantages of no longer being Chairman, and there are many,
is that I'm now held to this 5 minute time limit.
Mr. Etheridge. But I didn't take all mine, Jerry.
Mr. Moran. Thank you very much. Let me first acknowledge a
number of folks in the audience that need to be recognized. Not
only do we have the dean of K-State School of Agriculture, Fred
Cholick here, but we have our host, the dean, Dean Kuhlman of
K-State Salina. And so we appreciate very much the hospitality
you've extended to us.
For my colleagues from out of state, we're on the K-State
Salina campus. K-State is in Manhattan, but this school here is
generally devoted toward aviation. We have a very strong school
of agriculture at Kansas State University.
We also have with us Bill Fuller, who is the State Director
of FSA. In the row behind him is Harold Klege who is the State
Conservationist at NRCS and Adrian Polansky, our State
Secretary of Agriculture, is also present. Plus, two of our
leaders in the Kansas Legislature, Mark Taddiken, the state
Senator who chairs the Senate Agriculture Committee and John
Faber, who chairs the House Agriculture Committee. So we are
surrounded by dignitaries. I tell you that mostly so that you
can take your complaints to those folks.
And then let me just speak briefly before I ask a couple
questions. One, I think that folks need to know what a
difficult circumstance this Subcommittee faces in regard to the
new farm bill. I think it would be very difficult to draft a
farm bill that provides the safety net that the current farm
bill provides. The baseline budget that the House passed and
Senate passed budget allow the House Agriculture and Senate
Agriculture Committees to use in developing the farm bill, if
you take the commodity title that we're responsible for on this
Subcommittee, it's 43 percent less money than the 2002 Farm
Bill. So when my Kansas constituents come to me and ask for a
greater direct payment, higher loan rates, the reality is that
we are asked to draft a farm bill, the commodity title, with
nearly half the amount of money that was available in 2002.
Now the budget provides a $20 billion reserve fund which
perhaps is something that we're going to be able to utilize,
but I remain very skeptical. Currently it's required that we
either raise taxes or cut other spending to take money out of
that reserve fund. So in many ways it looks like we're able to
do more than, I think, ultimately we'll be able to do.
And in particular, the direct payment is under attack in
Washington. The Senate Chairman of the Agriculture Committee
has indicated that he very much wants the direct payment to be
used to fund CSP. In the House our Chairman has indicated that
this is an opportunity for us to fund a permanent disaster
program: to take money out of the direct payment and use it for
permanent disaster and to rebalance loan rates.
And so one of the topics that I would like to understand
from the hearing today is how important the direct payment is
as a component of this three-legged safety net that we created
in the 2002 Farm Bill.
And so let me ask particularly, Mr. Starck, in this case,
you talked about those three payments and you had some pretty
specific reasons why that direct payment was important to you
as it would be to Kansas farmers.
Mr. Starck. For myself the direct payment is very
beneficial in getting a start on the next year for your yearly
inputs. You know, the counter-cyclical, you don't know what
it's going to be. It's nothing you can bank on. The direct
payment, though, is very beneficial. The LDP, the problem with
the LDP, as I stated, is you need to have the crop in order to
collect that. If you don't produce anything, the LDP does you
no good if there's an LDP there. But, yes, the direct payment
to me is very beneficial.
Mr. Moran. Professor Dumler, the direct payment and its WTO
implications as compared to loan payments, anything that you
would care to--what payments are least market distorted.
Mr. Dumler. Direct payment is the least market distorting,
as you well know. And we thought this was a WTO green box
program meaning it has minimal market distortion, whereas, the
counter-cyclical program and the commodity loan program each
are amber box programs meaning that they have significant
market distortion. So from the aspect of trade distortion, the
direct payment has the minimum amount of those three.
Mr. Moran. I appreciate the way Mr. Starck phrased it which
is we ought not try to figure out how to comply with
negotiations that are ongoing, but it is important for the next
farm bill, as best we know how, to comply with WTO as it is
today. I never thought we should extend the current farm bill
while we figured out what WTO was going to do and turn our farm
programs over to 140 negotiators in Geneva, but we do not want
the uncertainty that comes with a commodity program that's
subject to attack, constant attack at WTO.
And using the Chairman's extra time, Mr. Rome, you, I
think, mentioned in your testimony, but I don't think you said
this vocally, payment limitations. It caught my attention
because, as I understand it, there are three brothers farming
in your farming operation. Payment limitations is a significant
topic of conversation in Washington. Trying to figure out how
do we best direct the amount of money that we can that
increases the likelihood that farmers survive and that there's
rural development, and communities are alive and well. How
would a change in payment limitations affect your farming
operation?
Mr. Rome. We've had to structure our operation differently
as we've grown and it appears to be a deterrent for growth in
that industry or in this industry. And so, I guess, and I
mention in the final pages of my written testimony that the
first farm check I brought in to our banker when we first
started, they referred to it as a welfare check. And I told him
that I thought we worked way too hard for this to be called
welfare, even though I knew him well and he was kidding and so
forth.
But the reality is that the cost of production is important
to a large farm, as well as a small farm, and the large farm
just like the way we talk about family farms and I mention in
there, we're saving the family farm. We don't talk about family
pharmacist, the family druggist, the family grocer, so on, so
forth.
And the reality is that to be efficient you have to cover
more territory and the equipment to do it is expensive. So our
business is a lot more efficient with the three of us tied
together, but without structuring our business and subjecting
ourselves to--don't remember the group that posts our numbers
on the Internet as for the amount we--the environmental working
group. You can be clever on how you structure things and hide
that, but the reality is that just because you're larger
doesn't necessarily mean those costs of production are any
less. So it shouldn't be a welfare payment in my opinion. It
should be something that ensures that we have an economy, an ag
business that ensures food and potentially energy now with
ethanol for a long time and we're not relying on other
countries for that. So I think it's something that our farm
businesses are growing.
Mr. Moran. Thank you very much.
Mr. Etheridge. Thank you. Mrs. Boyda.
Mrs. Boyda. Thank you, Mr. Chairman. One of the
difficulties that I have to deal with is I have to go after
Jerry Moran too often. It's just difficult, Jerry. You don't
make it easy on me.
My question was pretty much the same, I think, as we've all
been trying to get at too. There are three payments that are
trying to be balanced and clearly we know that there's going to
be less money in the pot right now because it's an equation
that was set up. This is not an intentional thing that Congress
is doing. It's just the way the formula is working right now.
So among those three and, I think, what you were trying to
do, Mr. Chairman, was to say if we had more money how would you
spend it.
So if I could go at the same question that, I think, each
one of us is going at, and I would ask each one of you: Are we
saying direct payments? How do those three work and if you were
writing the farm bill, Mr. Dumler, how would you balance those
three? How would you do that?
Mr. Dumler. As an economist we like the idea of less market
distortion. So from that standpoint the direct payment is
favored.
Mrs. Boyda. And who's going to get hurt by that? If we did
it that way, who in Kansas will be hurt by that.
Mr. Dumler. If we went to more direct payments.
Mrs. Boyda. Yes. If we balance those three a little bit,
but then we used more direct payments, who is going to get hurt
by that? The corn growers, the soybean producers? Wheat? I know
wheat--God bless the wheat growers. They understand democracy,
the context for it.
Mr. Dumler. If we think prices are going to remain high
over the next few years, which the likelihood is they are, it's
no guarantee that they will, but they are, then no groups are
really going to get hurt that much if we maintain or enhance
the direct payments. Nationwide probably like cotton, for
example, would be the group that would get hurt most if we move
money from other programs to specifically the direct payments.
Mrs. Boyda. And as we all know, the Agriculture Committee
tends not to be so bipartisan, but it does tend to be very
regional.
Mr. Dumler. Right. But I don't see groups here in Kansas,
one commodity versus the other being hurt that much by
potentially changing some of those programs around.
Mrs. Boyda. Dr. Miller, I had asked a couple of cattle
producers, I know we're talking--this is the commodity chair,
but the fact is we have one hearing. We're not going to have
another hearing. And certainly talking about cattle production
and livestock production I just--we wanted to make sure that
those issues were being heard as well.
So could you talk to me, Dr. Miller, about just how you
market your livestock and do you think you have access to
markets? You know what we were talking about.
Mr. Starck used the words price takers or price taker on
both ends of the deal; you take whatever price is out there.
How do you feel about competition, your access to markets?
Dr. Miller. Where we live we don't have a problem with
access to markets because we're within 10 or 15 minutes of two
or three auction houses.
Mrs. Boyda. So you feel you can get a pretty good price for
your cattle on a given day. It's a competitive marketplace
that's running.
Dr. Miller. It's a competitive marketplace and it seems to
depend on which day you take them there, you know. And I guess
it does, you know, what are they looking for, who's there and
what are they looking for today. And you don't know that until
you get there and you're sitting there and they start bidding
and then you know what they're looking for today.
But in the last, I would say, year or year and a half,
cattle prices have been very good; extremely good. And like it
was alluded to earlier about the ethanol thing and livestock
feed. They kind of clash. And we do feel that a lot now when we
call the co-op and tell them to come out and fill the wheat
feeders. It's not like it used to be at all. And it's due to
the ethanol plant down at Garnett. So if we can get rid of it
we'll----
Mrs. Boyda. The press didn't hear that. Thank you very
much. I'm going to take a little bit more of the Chairman's
time, too, that Jerry didn't take or maybe Jerry did. But from
your standpoint what's the one thing that we can do to help the
young farmers? If we could write one piece into the farm bill
what would that be?
Mr. Starck. Give them a farm. That is the toughest thing is
in order to be--I'm 35 and I started when I was a freshman in
high school with 80 acres and my dad helped me get it set up.
Mrs. Boyda. Good for you.
Mr. Starck. And I think in today's climate, I have a six-
year-old and it's going to be tougher to get him into it than
it was for my dad, I think. But one piece that would be a loan
towards young producers, and how you define a young producer I
don't know. I'd like to consider myself young, but I've been
doing this for 17 years too so----
Mrs. Boyda. You're young.
Mr. Starck. Thank you. But a loan that would encourage a
retiree to sell that property at a reduced rate to a young
producer and have tax benefits for that retiree to not have to
take the ultimate top price of the market.
Granted that's not fair to the guy that can be competitive
and bid the higher price, but to have that advantage for the
young guy, he's going to need that or else we're all going to
be pushing 40, 50, 60 and there's no one at 20 going to be
coming back to take over.
Mrs. Boyda. In the last 3 years I haven't met a farmer yet
who doesn't tear up when talking about the next generation.
True story, not one. Thank you.
Mr. Etheridge. Thank you. All right. The gentleman from
Iowa, Mr. King.
Mr. King. Thank you, Mr. Chairman. I just do want to say
that, Mr. Starck, you're going to be delighted at how great you
feel when you're jumping out of bed when you're pushing 60.
But in your testimony all of you impart so many questions
and I appreciate all of it, all of us do.
I'd like to turn first to Mr. Dumler and your discussion
about all the farm program payments being capitalized and land
prices, and I don't know if it was intentional, you said prices
instead of values. But I notice as I look through your
testimony I didn't pick out any chart in there that showed what
had been the price of land value prices from 2002 through 2006
as your comparison for the income portion of this. Can you give
us some sense of what that trend has been producer to producer
sales rather than producer to hunter sales or city investment
sales?
Mr. Dumler. I mean, land values, in general, have been
trending up. And the tough thing is to distinguish between land
values going up because of agricultural reasons and land values
going up because of essentially non-ag influences in land
values.
Mr. King. And that's why I said producer to producer.
Mr. Dumler. Right. They've still been going up because of
land--agricultural uses. And there's a recent survey from 2006-
2007 from the Federal Reserve Bank in Kansas City that said for
Kansas, anyway, dryland land values went up 7\1/2\ percent and
irrigated land values went up over 10 percent. So we've seen,
from the ethanol and bio-fuels effect, quite an increase in
land values. So that's having quite an impact right now.
Generally they have been going up over time.
Mr. King. I appreciate that. And just ask this question,
it's really not quite hypothetical: You said, though, as an
economist we like the idea of less market distortion. So I went
to what would be no market distortion. That would be the
baseline that one would measure everything off of then,
wouldn't it. And so I had this sadistic thought of what if, in
1985, we had let our program sunset. We would have zero market
distortion for a period of perhaps a generation. What would
land values be or what would land prices be today? Could we
function here? What kind of crops would be out here on this
land we're seeing today? Do you have a sense of what has been
the effect over the last 22 years of farm programs?
Mr. Dumler. There was a study by my colleagues at Kansas
State that was updated in 2006 that they estimated land values
in Kansas would drop by about 30 percent if government payments
were removed. Now today, because of basically bio-fuels and
higher grain prices, we know that that impact would not be that
steep. It would be significantly less than that if we expected
prices to remain high long term. So certainly it has helped
enhance those values or, if you want to look at it from a
equity standpoint, keep that.
Mr. King. What about producer income. Would it be the same
or would it have dropped 30 percent proportionally? Has it all
been capitalized into land values?
Mr. Dumler. That's the big debate among economists: what
percentage of those are capitalized into land values. Some
would say that it's closer to about 50 percent. Others argue
it's closer to a hundred percent. I would argue it's probably
closer to a hundred percent than 50 percent. But income
certainly would drop. I did a study looking at, okay, if
payments were removed and the land values fell by that 30
percent, what would happen to profitability. Basically rate--
rate of return on assets and return on assets would drop as
well.
Mr. King. And at this time could I ask you to submit that
study into the record.
Mr. Dumler. Sure.
[The information appears following the prepared statement
of Mr. Dumler:]
Mr. King. I'm very interested they even asked that
question; appreciate that. I'd like to quickly, if I could,
turn to Dr. Miller. And you mentioned fertilizer costs. And
we've got something like 406 trillion cubic feet of natural gas
offshore the United States we can't drill because of
environmentalist barriers. We've got enough natural gas
underneath public lands in the United States, non-national park
public lands, to heat every home in America for the next 150
years we can't drill. Or if we can, we can't get the access to
it.
What would be your recommendation on the fertilizer costs
recognizing that 90 percent of the input cost on nitrogen
fertilizer, at least, is out of that natural gas? What would be
your advice to the environmentalist community that might be in
charge of some gavels in Washington D.C.?
Dr. Miller. The people that are standing there saying that
you can't bring the drills out here if we don't want the hole
in the ground, those people.
Mr. King. That's a right hand question.
Dr. Miller. For myself I have to keep the holes out of the
ground also, but, I guess, we're in a predicament now where we
can't have everything. We've got to put the holes in the
ground. And you have to do it, I guess, in a responsible way.
We don't want to dig up everything, I don't suppose. But I
think we have to start exploring our own resources. We can't
put the whole country into the atmosphere of being a park. I
think we have to start using what we have, but use it
responsibly. I don't think we can have 150 years of energy
under our feet without using some of it.
Mr. King. Thank you, Dr. Miller. I just want to very
quickly ask Mr. Rome because I'm dying to ask this question and
it's a very short answer.
Mr. Etheridge. Please be quick.
Mr. King. Was the nun's use of the ruler to teach English
an effective method?
Mr. Rome. I think so.
Mr. King. All right. Thank you.
Mr. Etheridge. Mr. Smith, 5 minutes.
Mr. Smith. Thank you. We've heard about land values, 1031
exchange, certainly implies a discussion of capital gains
taxes. Mr. Dumler, realizing that in the context of the farm
bill we do need some revenue to pay for many of the safety nets
not just in agriculture, but otherwise, would there be a down
side to repealing the capital gains tax?
Mr. Dumler. It would certainly encourage additional
investment perhaps. To be honest I haven't thought about that
significantly to put a whole--I don't see a huge down side
right now besides revenue.
Mr. Smith. You're saying it would result in a decrease in
revenue.
Mr. Dumler. From your perspective perhaps, yes. But keeping
in mind also that people have a tendency to adjust how they
manage their assets, whether they sell more assets or exchange
those assets if that tax is there or not in place, it may or
may not. I mean, I haven't looked at it enough to give you a
solid answer on that, but I wouldn't expect certainly the
amount of revenue, if it would drop, to drop in the amounts of
the capital gains that's taxed.
Mr. Smith. Okay. Thank you. Dr. Miller, you are a cattle
producer for which I'm grateful. We've heard about energy
issues and talked a little bit about the environmental
activism. I was reading in TIME magazine the other day that the
writer suggested that eating a T-bone steak or any beef
product, I will surmise, is as egregious to the environment as
driving a Hummer. And, I mean, I come from a very cattle heavy
district and certainly have observed a lot of the obstacles to
efficient cattle production and effective cattle production.
What would be the single best thing to do in terms of a
regulatory manner that would make your job easier and more
effective?
Dr. Miller. That is a toughie. I don't know the answer to
your question. I can't answer that one.
Mr. Smith. That's fine. When we look at revenue-based
approaches perhaps, Mr. Rome and Mr. Starck, what would you see
in terms of payment limitations, what would be the right
amount? And that might be a tough question too. Payment
limitation: Would you support payment limitations, and if so,
at what level?
Mr. Rome. That's the nice thing about having Mr. Dumler to
do all the studies and to look at that and that's where K-State
and the economists fit into it. I think you would have to
analyze that situation. You know, there probably is some limit
somewhere, but again you have to evaluate it on what the
business environment is that we're looking at. So it's sure
not--it's something that scares us when we hear the term anyway
with the amount of capital that it consumes to run our business
is when we see our first combine at $80,000 now be worth over a
quarter million without a corn head. So right now with the
current commodity prices due to ethanol and the bio-fuels and
the other things that are going on, those things aren't as big
a concern and it doesn't look like it will be in the future.
But, I guess, we believe in cycles and taking that away, if
we're going to maintain the size of operations we need to
produce the food for this country, I'm reluctant to put a
number out there without having some good justification as to
why that number fits there. So I'm sorry, I can't give you an
answer.
Mr. Smith. Okay. But Secretary Johansen has put out the
$200,000 number, adjusted gross income.
Mr. Rome. There are so many loopholes that the devil's
always in the details. That's been the thing that when we had
the 2002 Farm Bill everybody thought that was going to be great
until you put things in the application and that's the way most
things are, it seems like, is you find out the details that
don't work and where the loopholes are. So are there enough
loopholes to work around some of that? Can you create enough
entities? You know, sometimes it really almost feels fraudulent
when we talk about the subsidy program and that's probably the
most frustrating thing being in this seat. I don't know that
any of us that wouldn't love to receive every bit of our income
from the market like, it appears, we get for the next few
years. But that hasn't been the case for the 25 years we've
been here. So that's again a concern when you put a limit on
something when you don't have a better crystal ball than what
we do.
Dr. Miller. If I may, back to your question, the question
that you asked me was which government regulation most affects
the operation. It wouldn't affect an operation like the one
that we have. All of our cattle are on range. But I would
imagine that that changes drastically when you get to like out
here in western Kansas particularly where you have a lot of
feedlot operations. Government regulations regulating how they
manage those feedlots, the waste produced at those feedlots,
that gets to be quite a problem when you have cattle in
confinement.
Mr. Etheridge. Thank you. Let me thank each of our
witnesses for your testimony and your time this morning. And we
now will ask the second panel, if they will, to come forward.
(Off the record.)
Mr. Etheridge. Let me thank each of you for being here.
And, Mr. Pracht, from Kansas, thank you.
Mr. Childs from Kansas. We're really trying to save time.
Mr. Parker also from Moran, Kansas. Mr. Mark Meisinger from
Kansas. Thank each of you for coming. Your full statement will
be included in the record. And we'll start with you, Mr.
Pracht, 5 minutes.
STATEMENT OF JOHN C. PRACHT, CORN, WHEAT, AND SOYBEAN FARMER/
RANCHER, WESTPHALIA, KS
Mr. Pracht. Thank you very much. I am honored to be here
and I appreciate all the Representatives for coming down here
and listening to us complain. As Mr. Moran said, we have hardly
any money to work with so with what I'm going to say today,
hopefully I'll get half of what I'm asking for.
My name is John Pracht and I farm in Anderson County.
My wife, Reva, and I have three boys. I raise corn, wheat,
soybeans and cattle. I farm with my two brothers, Bill and
Dave. My family has been involved with agriculture for many
generations. We are a true family farming operation.
The challenges in agriculture are many. The high cost of
fertilizer, fuel, machinery, property tax, health care and
mother nature's lack of cooperation are just a few of the many
items that I, as a Kansas farmer, deal with from day to day.
Take, for example, liquid fertilizer last fall was selling for
$160 per ton. This spring the price increased roughly 60
percent to $260 per ton. As everyone knows, fuel cost has
followed the same path. The inputs that producers use to raise
their crops have risen dramatically. These inputs are what
producers have to have and cannot do without, nor skimp on.
These inputs dramatically affect our end profit margin, which
is becoming less every year.
As for my family and I, we are fortunate enough to have
health care for now. There are many producers that cannot
afford it. My neighbor is around 60 years of age. He and his
wife pay around $1,200 a month for their health care premium.
I'm paying about half that. I do not know how we will be able
to afford health care in the future. Every year my health care
premium increases. This problem has to be dealt with or it will
be even a bigger problem in the future.
Property tax, machinery and machinery repair costs also
rise every year. It is extremely hard for a middle sized farm
operation to operate with the prices the way they are. For
example, a new combine lists around $300,000. It makes me sad
to think that I'm getting roughly the same price for my grain
as my father did many years ago and his fuel, fertilizer,
machinery prices were nothing like we have today. Hopefully
with the help of ethanol and bio-diesel plants the price for
grain will increase and stay increased. I think that if the
farmer has higher grain prices that we will be less dependent
upon government help. But higher prices are not the only piece
of the puzzle.
A safety net must be in place in the farm bill for
disasters like droughts and floods. The new farm bill should
raise the LDP price to higher levels than they are now. More
money should be spent for disaster relief in the years we have
crop failures. I know a lot of talk is to do away with the
direct payment program, but for me it's nice to know that some
steady income is coming in. The money spent in the conservation
program is money well spent, but I believe the program needs
more money to carry on to benefit farmers as the program is
intended. I do not think payment limitations should be in place
for farmers who have higher incomes, if all their income comes
from agriculture. Investors with other sources of income that
own farms or ranches should not receive government payments.
Ranchers with livestock should be included in the farm bill
also. There is not a price protection for livestock owners like
the LDP payment for the grain farmer. Emergency haying and
grazing on CRP or buffer strips need to be released for haying
in a much quicker time frame. When a drought occurs, livestock
producers have to rely on buying hay and other feeding material
to feed their animals which will end up costing them lots of
money. There needs to be a disaster plan in the farm bill to
help out cattle ranchers.
Closing of some of the ASCS offices should not be done.
This money saved is not worth the inconvenience that this will
cost.
I am not in favor of having mandatory animal ID. This
decision should be left for the producer to decide. Located in
Anderson County is a large Amish community. I'm sure that they
are not in favor of this either. A lot of retired farmers have
a few cows to supplement their incomes. I believe this could
make some of them sell their cow herds and quit. I hope it has
been taken into consideration how this might affect people such
as these. This could lead to weeding out of the little
producer. It appears like we are getting closer every day when
issues like this arise to becoming large corporate farms
instead of family farms. This is what happened to the hog
producers. I think there would be other less costly and simpler
ways of having animal ID. I would like to remind you that the
cattle which had mad cow disease were traced back to the
original owner without the help of this proposed animal ID
system. I would support country origin of labeling if we were a
hundred percent positive that the cattle producer would not
have to pay for it. I strongly support farm bureau and farm
credit for bettering life for rural America.
In closing, I hope that Representatives and Congress can
keep an open mind, bring all their ideas to the table and leave
with the best solution. Please keep in mind what is best for
the people that your decisions will have an effect on. Help
keep family farms family farms and rural communities from
extinction. Thank you.
[The prepared statement of Mr. Pracht follows:]
Prepared Statement of John C. Pracht, Corn, Wheat, and Soybean Farmer/
Rancher, Westphalia, KS
My name is John Pracht. I farm in Anderson County. My wife, Reva,
and I have three boys. We hope that they can have a future in
agriculture, if they choose so. I raise corn, wheat, soybeans and
cattle. I farm with my two brothers Bill and Dave. If it wasn't for my
father, I never would have been able to get started farming. My family
has been involved with agriculture for many generations. I would say
that we are a true family farming operation.
The challenges in agriculture are many. The high cost of
fertilizer, fuel, machinery, property tax, health care, and mother
nature's lack of cooperation are just a few of the many items that I,
as a Kansas farmer, deal with from day to day. Take for example liquid
fertilizer last fall was selling for $160 per ton. This spring the cost
increased roughly 60% to $260 per ton. As everyone knows fuel cost has
followed the same path. The inputs that producers use to raise their
crops have risen dramatically. These inputs are what producers have to
have, and cannot do without, nor skimp on. These inputs dramatically
effect our end profit margin, which is becoming less every year.
My wife, Reva, and I have three kids. We arc fortunate enough to
have health care for now. There are many producers that can not afford
it. My neighbor is around 60 years of age. He and his wife pay around
$1,200 a month for their health care premium. I am paying about half
that. I do not know how we will be able to afford healthcare in the
future. Every year my heath care premium increases. This problem has to
be dealt with or it will be even a bigger problem in the future!
Property tax, machinery and machinery repair costs also rise every
year. It is extremely hard for a middle sized farm operation to operate
with the prices the way they are, for example a new combine list price
is around $300,000. It makes me sad to think that I am getting roughly
the same price for my grain as my father did many years ago and his
fuel, fertilizer and machinery prices were nothing like we have today.
Hopefully with the help of ethanol and bio-diesel plants the price for
grain will increase and stay increased. I think that if the farmer has
higher grain prices that we will be less dependent upon government
help. But higher prices are not the only piece of the puzzle.
A safety net must be in place in the farm bill for disasters, like
drought and floods. With so much money invested in farming today one
bad year can bankrupt a producer. The new farm bill should raise the
LDP prices to higher levels then they are now. More money should be
spent for disaster relief in the years we have crop failures. I know a
lot of talk is to do away with the direct payment program, but for me
it's nice to know that some steady income is coming in. Money spent in
conservation programs is money well spent, but I believe the program
needs more money to carry on to benefit farmers as the program is
intended. I do not think payment limitations should be in place for
farmers who have higher incomes, if all their income comes from
agriculture. Investors with other sources of income that own farms or
ranches should not receive government payments. Ranchers with livestock
should be included in the farm bill also. There is not a price
protection for livestock owners like the LDP payment is for the grain
farmer. Lets say hoof and mouth disease was found in America, cattle
prices would fall and many producers would loose large amounts of
revenue. Times have changed, if something like this happens the
American rancher needs a safety net to count on. Emergency haying and
grazing on CRP or buffer strips need to be released for haying in a
much quicker time frame. Lets say most of the county where a producer
lives has received adequate rainfall, and the producer lives in a
drought stricken area of the county. The USDA will not give the
authority to hay or graze because the other part of the county has
adequate conditions, this is not right. I know of cattle producers that
this has happened to. When a drought occurs, livestock producers have
to rely on buying hay and other feeding material to feed their animals,
which will end up costing them lots of money. There needs to be a
disaster plan in the farm bill to help out cattle ranchers.
Closing of some of the ASCS offices should not be done. The money
saved is not worth the inconvenient that this will cause.
I am not in favor of having mandatory animal ID. I believe this
program will leave less income for cattle producers. Not just the cost
of tags will the producer have to pay for. I'm sure sale barns will
increase their price of operation to be able to pay for the technology
that has to he bought to make this program work. Packing plants will
pass the buck on as well. This all adds up to less dollars for us.
Located in Anderson County is a large Amish community. I am sure that
they are not in favor of this either. A lot of retired farmers have a
few cows to supplement their incomes. I believe this could make some of
them sell their cow herds and quit. I hope it has been taken into
consideration how this might affect people such as these. This could
lead to weeding out the little producer. It appears like we are getting
closer every day when issues like this arises to becoming large
corporate farms instead of family farms. I think there would be other
less costly and simpler ways of having animal ID. I would like to
remind you that the cattle which had mad cow disease were traced back
to the original owner without the help of this proposed animal ID
system. I would support country origin of labeling, if we were 100%
positive that the cattle producer would not have to pay for it.
In closing, I know that tough decisions have to be made. I hope
that Representatives in Congress can keep an open mind, bring all of
their ideas to the table and leave with the best solution. I hope this
letter can help all of you make your decisions a little easier. Please
keep in mind what is best for the people that your decisions will have
an effect on. Help keep family farms, family farms and rural
communities from extinction.
Sincerely,
John C. Pracht
Mr. Etheridge. Thank you, sir. Mr. Childs.
STATEMENT OF BARRY K. CHILDS, VICE PRESIDENT AND FIELDMAN, FARM
MANAGEMENT SERVICES, INC.; CHILDS FARMS PTR., BELLEVILLE, KS
Mr. Childs. Thank you for this opportunity to discuss a few
issues. I'm a 53-year-old fourth generation farmer from
Belleville, Kansas, with a BS and Master's in Ag Economics from
Kansas State University.
The invitation was to comment on a few challenges ag
producers are facing. It seems to be very open ended. Since you
guys aren't in control of mother nature, we'll focus on just a
few things that the Committee might be able to.
First would probably be health insurance costs or health
care insurance. Both availability and the cost continues to be
a huge problem; possibly deduct them on Schedule F or Schedule
C depending on your small business.
Second, simplify how and when the dollars are received by
producers and their landlords. The CCP concept was a very good
idea; however, its implementation is almost impossible to
follow. Quite a few people say they're not sure what they're
supposed to receive when they're supposed to receive it and I
guess they do know how. I've included a little chart--flowchart
simplifying the procedure from the local FSA office and I would
challenge anybody on the Committee to try and explain the how,
why and the when to a 90-year-old or an 80-year-old landlord.
It would be quite dramatic.
And, I guess, the FSA offices should be applauded and
thanked for their continued front line support with the farmers
as far as implementing new procedures and ever-changing
implementations.
One possible suggestion might be the direct payments have
just two simple payment dates: Spring, and Fall. The CCP
payments, if it's harvested in the summer have it paid in the
summer. If it's harvested in the fall have it paid in the fall.
Have a maximum of four payment periods so people know what's
going on.
For 30 years I've had a very unique experience of working
with farmers of all ages and sizes usually around the kitchen
table. I've considered myself very lucky and extremely blessed
to have been invited into the financial workings of so many
farm families. The intergenerational workings of these
businesses seem to be most challenging and most rewarding.
This brings me to my third point: Getting young people to
stay and come back to the farm. A few simple thoughts might be
to change the recapture depreciation for the first year of
machinery equipment to an installment sale provision such as
used on the land. Most of you know that the recapture
depreciation is taxed in the first year. It wouldn't be a
change to the total revenue received. It would be a matter of
the timing.
Second: Starter loans for farmers. I'm not sure how, in the
governmental budgeting process, how loans or FMHA or FSA loans
are figured in your budget. Cities and counties have revolving
funds; loans are loans; they are paid back. They're secured.
But this would be a very good opportunity for young farmers to
know what those loans are and the amount of those loans.
Now with FSA program there are people that are approved for
loans, but simply not--they don't know when those loans are
going to become available.
The third one is probably the stability of the ag program:
How else would we tell the young people that agriculture is an
extremely excellent career? Let me explain why. When you're a
parent, if you're lucky enough to be one, you talk about their
future career, what's the first thing that comes up? How a
future or how that job is--does this job have a future and can
they succeed at it? Is that job going to be constantly changing
with regulations and government interference? Will that job be
used as a political tool? And will the pay scale be known and
will they be penalized for being successful? I'm sorry to say,
but our past ag programs have told potential farmers and
ranchers the wrong thing.
Now we started with payment limits of $50,000 and dropped
to $40. If you adjust the 1985 $40,000 limit to today's--or
just simply inflation, that's almost $78,000. The other thing,
1985 Farm Bill was an 11 year program. The 1996 fortunately was
6 years. The 2002 was 5 years and we don't know what we're
going to have. The stability again is the issue. And again the
prices are high now. Why can't target prices and loan rates be
set and adjusted for inflation?
The CCP payments will not be a liability to the USDA in
2007. And where is that budgeted money going to go? Why can't
those unused budgeted funds be set aside for years to come when
we, unfortunately, will probably need them. Do the same with
the LDP payments.
Any future legislation proposed, especially for ag
legislation: Please have you or your staff do the due diligence
that needs to be done. But before you decide on anything, make
one more column in that. And title it: Will this be a positive
or a negative for the future generations of farmers? If it's
not going to be a positive, if it's a negative, don't put it in
there. If it's a positive, however, and telling that next
generation of farmers that they are needed, they are wanted,
and we want them to keep producing food and fiber for this
country and world, pass it and fight for it. How else can you
explain to that next generation that they're wanted and they're
needed.
Again, thank you for this opportunity. We have entrusted
you with tremendous responsibility for drafting and passing
this ag legislation. I think that most people understand that
there will always be short term wants and needs that must be
addressed. With these decisions, however, always and without
exception you and your fellow Congressmen and Congresswomen
must determine whether that's going to be a positive for the
future generation of ag men and women. We cannot afford to lose
another generation as we did in the 1980's. Thank you.
[The prepared statement of Mr. Childs follows:]
Prepared Statement of Barry K. Childs, Vice President and Fieldman,
Farm Management Services, Inc.; Childs Farms Ptr., Bellville, KS
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
Mr. Etheridge. Thank you, sir. Appreciate it.
Mr. Parker.
STATEMENT OF GARY PARKER, SOYBEAN, WHEAT, AND MILO FARMER,
MORAN, KS
Mr. Parker. I thank you very much, Congressman Moran and
Congresswoman Boyda, Chairman Etheridge.
I first would like to change one word in my written
testimony. On page two or second page paragraph two, the
bottom--the second paragraph up from the bottom, it says
``recently''--when I'm speaking about a comment I'd made to
Congressman Moran. Recent for me maybe isn't recent for him. As
you get older time goes faster. So, Congressman, I do
apologize. That was over in Emporia at one meeting and so I
want to insert the words a few years back.
Mr. Moran. I remember.
Mr. Parker. Also, while I'm picking on Congressman Moran,
we have a question whether Moran was named--Congressman Moran
was named after the city or vice versa.
In my written testimony I discussed back in Earl Butz'
tenure that we were encouraged to plant fence row to fence row
mainly because of exports.
I am cautious about the fact that we're almost encouraging
that for the recent avocation of alternative fuels and with
ethanol and bio-diesel. So with caution I would want the
Congress to consider some type of floor under crude oil so we
have some protection for the people that are invested in these
plants and then also because most of the plants are being built
by farm monies or with an individual's money and not corporate
farms and et cetera. I could see in 6 months all of those
plants being closed or broke for the simple fact the OPEC
nations could easily cut their crude oil down to $20 or $30 a
barrel for 6 months and we'd be broke. So I do give caution
there.
The other thing that concerns me about planting fence row
to fence row and putting so much emphasis on our corn and
soybeans and, et cetera, is debate over food and fuel. Where
will a public rather put the corn: In their stomach or in their
fuel tank when it comes to the pinch.
The importance on government fuel subsidies has to play a
big part in where we go with alternatives fuels. Other things
that are needed to be considered are alternate fuels such as
hydrogen, electric, liquid coal and others. Just last Sunday
Boone Pickens was in The Wall Street Journal saying that
ethanol wasn't any good. And I suppose if I was an oil and gas
producer I would probably say that too. The other point I
thought was he's had natural gas--we've had natural gas for
years, but we're not running our cars on it, if this is what
he's proposing.
I would like us to think down the road also are the flex
fuel vehicles that we're promoting now, will they be reliable
in 10 more years or will we be looking at some other kind of an
automobile or truck or tractor. I think we need to think that
and I really am encouraged about the renewable fuel future
right at this time because I have no other answer for our cars,
trucks, combines and et cetera, but what we do have is using
alternative fuel. But I do want you to keep these things in
mind.
Another thing, the discussion about the low interest loans
and grants and in my written testimony I have some criticisms
about some of the loans that we're giving to young farmers and
older farmers and the write-offs and et cetera.
I am an advocate of trying to keep young farmers on the
farm. Ever since I was a young man and working in some farm
organization this has been a thing that we've always tried to
work for is let the farmers stay on the farms. However, I don't
know what the criteria should be. I can recall back when I was
a young farmer and my dad's neighbor said to him you might not
be doing him a favor by giving him a farm. Maybe it's not the
best possibility of him making an income.
Our U.S. Government must protect our food and fiber that we
produce out here on the farm because it is a strategical
defense for our country.
The one thing I recall back years ago was being at a Kansas
State Board Agriculture meeting and a gentleman from a foreign
country that was overtaken by the Nazis said the reason they
were overtaken was because they could not feed their people. He
said, ``This will never happen again in our country because we
don't care how much subsidy we have to give to our farmers. We
want to have the food to feed them.'' So this has always kind
of stayed with me and I think this is a valuable thing to be
thinking about. We've been blessed in this country to always
have food, but that's not guaranteed.
I do support the government's loan and grant for rural
communities because I think that's one of the only ways we're
going to keep a viable source of vital rural things going on.
Concerning bringing young farmers back, I just had--
yesterday I was visiting with a farmer in his 40's and he was
telling me his son just graduated from Kansas State. I said,
``Well, you're sure fortunate to have your son come back to the
farm.'' He's well established. He's inherited money and land.
He says ``I don't know if it's such a good deal or not. He's
just not making money like he should if he was in another
business.'' So I'm sorry to say I don't have any ideas of how
we can track this other than the fact I do think I mentioned in
my written testimony that I think the young farmers and the
farmers that want to stay on the farm and they're smaller
farmers, if we'd have some type of other type of employment in
that community helps a lot. Maybe where they could stay on the
farm, maybe one of the people work or et cetera and that will
also take care of their--I'm sorry, I'm over time. I'm sorry,
Mr. Chairman.
[The prepared statement of Mr. Parker follows:]
Prepared Statement of Gary Parker, Soybean, Wheat, and Milo Farmer,
Moran, KS
Personal History
I take great pride in this opportunity to testify before all of you
today. While I am a scholar on neither farm programs nor agricultural
policy, my 52 years of farming experience provide me with some
expertise that I offer as qualifications for my testimony today.
I began my farming experience in rural Jefferson County in the mid-
1950s. I would likely still be there today were it not for the
construction of the Perry Federal Reservoir. Both my farm and my
parents' farm were consumed by the reservoir--offering ample motivation
to pursue other options. My wife, Janice, and I moved our family to
Allen County, where we have remained ever since.
We were blessed with six wonderful children--and six children
total--and a wonderful life. Each of our children has graduated from
college and begun successful careers and lives of their own. Rural
life, I believe, has been a major contributing factor in the
development of their work ethics and senses of responsibility.
Although my entire family has benefited greatly from a farm
upbringing, I acknowledge that we have seen both the good and bad in
agriculture. While my half-century in this profession has revealed many
of the negatives in farm programs, I am not here today to criticize
those programs.
History of Farm Programs
Yet it is important to note the sheer quantity of programs that
have come and gone.
I recall former United States Secretary of Agriculture Earl Butz's
tenure--a time when farmers were encouraged to plant from fence row to
fence row.
I was fortunate to be a personal acquaintance of Secretary John
Block, and to become intimately familiar with the programs enacted
during the Reagan Administration.
I remember farm programs that attempted to entice people to
continue farming, even when it was the wrong thing for the individual
farmer to do.
I have seen poor production farmers acquire low-interest loans that
they were unable to pay back. These loans were made to farmers
struggling so mightily that, even when the loans were written off, many
of the farmers still were forced out of business.
I have seen young farmers who managed to procure start up-loans,
only to struggle for years to keep their heads above water.
These events are not necessarily all bad. But in hindsight, it
seems that sometimes the government is not doing these farmers any
favors. The many attempts to assist us remind me of a friend of my
father, who offered this advice: ``You might not want to give your
child a farm; you might not be doing them any favors.''
Doing farmers a favor, however, has been the intent of each farm
program enacted. Many times it has succeeded--I could not begin to
imagine the number of farmers such as myself who would not be farming
today were it not for many of these farm programs. Furthermore, please
note that no one forces us to live on the farm; we choose this way of
life, and most of us would not trade it for anything.
To find continued success at the lives we have embraced, we must be
skeptical of planting fence row to fence row. This was unsuccessful 3
decades ago, and probably will not be successful today or in the
future. We must, therefore, consider carefully our current policies
with an eye toward improvement.
Successes of Previous Bill
I realize you have heard a variety of suggestions on the upcoming
farm program, and I am sure many of them are outstanding ideas. As a
family farmer in Southeast Kansas, I have few problems with the current
program. I appreciate the flexibility it offers and would change few
things about it. There were several successes on which I would like to
offer comment.
First, the farm programs that have been a real success are the
conservation programs. I believe this has effectively aided farmers in
the preservation of our resources, the purification of water supplies,
elimination of soil erosion, and several other key areas.
I commend the Congress for providing additional funding to upgrade
our waterways, as well as the locks and dams systems. This additional
funding will not only upgrade river transportation in our country but
provide safer communities to many served by these rivers.
The funding of the farm disaster program was critically needed. We
absolutely need protection from disasters over which we have no
control. The crop insurance program has been a safety net to at least
help cover production costs. While I would applaud its expansion to
cover additional operating expenses, I believe it was a huge step
toward protecting farmers.
Suggestion: Modify Production Yield History Methodology
In and effort to protect farmers even further, however, I would
like to offer a few criticisms and suggestions that could be
potentially incorporated into the 2007 Farm Bill.
My primary concern is with the technique employed in determining
production yield histories. This 4 year average calculation further
penalizes farmers who already have suffered through extended hardships,
such as droughts. As yields decrease, the production history continues
to decline; consequently, insurance production yields and deficiency
payments go down in lock-step.
Anecdotal evidence that I have observed firsthand points to the
shortcomings of the deficiency payment system. If I produce a below-
average crop, I get paid on a low yield; farmers producing bumper crops
receive large deficiency payments. The allocation of deficiency
payments simply is not equitable in many circumstances.
Furthermore, crop insurance programs are often handled inequitably.
For example, farmers one county south of me can insure soybeans after
wheat as a second crop. Farmers in Allen County are ineligible to
insure a second crop, putting us a striking disadvantage to others only
a few short miles away. Looking farther across the country, friends in
Mississippi tell me second-crop milo can be insured for $190 per acre.
Assuming this to be true, chances are many farmers are likely motivated
solely by the allure of insurance money.
Suggestion: Keep Rural Communities Vital
As farmers, it is probably unfair to expect the United States
Government to keep us in business any more than the mom and pop grocery
stores or shoe stores. However, farmers play a strategic role that
perhaps other small entrepreneurs do not--the American farmer serves
the vital role of feeding not only our citizens, but citizens from
around the globe. In these times of tragic but inevitable worldwide
strife, food production is one of our country's best defenses.
Maintaining this defense means maintaining the viability of our rural
communities.
U.S. Representative Nancy Boyda has expressed her commitment to
keeping rural communities vibrant. From the time I was involved with
American Farm Bureau Young Farmers and Ranchers, this has been an
overriding concern. Years of observation have convinced me that having
more and smaller farms in our rural communities will not keep them
vibrant on their own. Other opportunities must exist in a town to
combat many rising costs today's farmers must face.
The rising costs of farm equipment--coupled with the tremendous
cost of planting a crop--is prohibitive for many prospective farmers.
Still, small farms and farmers can continue to survive, if not thrive,
if there is additional employment in the area. To forge an acceptable
living, many farmers must seek additional full- or part-time employment
in non-farm-related venues.
American farmers are willing to adjust and embrace this additional
challenge. To be able to do so, however, they need small industries to
locate in rural areas and offer those employment opportunities. As many
industries have moved overseas in search of low-cost labor, such
opportunities have become increasingly difficult to find.
Suggestion: Ensure Continued Availability of Affordable and Local
Health Care
The availability of affordable health insurance, health care
facilities and local medical staff are essential to small American
farmers. Health care is as important to farmers as many other farm
programs.
A few years back I spoke with U.S. Representative Jerry Moran at a
meeting in Emporia. Commodity prices, I explained, are not the only
thing making it difficult for farmers to remain on the farm. Health
insurance costs are a major problem. With such exorbitant costs, it is
commonplace for at least one member of a farm family to find employment
off of the farm to pay for the family's health insurance.
I am encouraged with the current proposal for funding of rural
health care facilities. The present program provides funding for the
continued operation of critical-access hospitals in rural communities
across the United States. The continued availability of local health
care services is paramount to keeping farmers productive in our
country.
Suggestion: Address Bio-Fuel Industry Challenges
Alternative fuels from agricultural products provide us with an
outstanding opportunity to address one of our country's most pressing
energy crises. As we continue to make advances in this arena, I have an
increasing sense of dread at the number of people--especially farmers--
who are making significant and risky investments into bio-fuels.
My fear is that most of our ethanol and bio-diesel plants are being
built using the money of rural farmers and other individual citizens.
These investments are being made as Americans face ever-rising prices
at the gas pump. A few strategic moves by OPEC to drop crude prices
could bring financial ruin on this industry and many of its investors.
In a short time, we would see these new plants would shut down.
Avoiding such a disaster--as bio fuels struggle to become more
financially viable--would require the implementation of a price floor
in oil imports, ensuring that bio fuels can remain financially
competitive in the short term.
Conclusion
I have been farming most of my life. American agriculture has been
a blessing for me and my family, and provided more than most people
could ever want. It is my sincere hope that great deliberation will be
given to these ideas and the ideas of others in generating a new farm
bill that builds on the many successes of past programs while improving
upon their deficiencies.
Thank you for the opportunity to offer my thoughts on this topic.
Please feel free to contact me with any additional questions.
Gary Parker.
Mr. Etheridge. Thank you, sir.
STATEMENT OF MARK MEISINGER, WHEAT FARMER AND COW/CALF
PRODUCER, MARION, KS
Mr. Meisinger. My name is Mark Meisinger. I live in Marion.
I farm wheat and I also have a cow/calf operation and three
young boys that help me as much as they can on that. I'd like
to begin my remarks by thanking the Committee for allowing me
to testify this morning and for listening to the direct views
of farmers and ranchers about the farm bill.
I am not coming before you today to plead for more Federal
money for farmers and ranchers. Clearly we're going to have to
learn to deal with less and we need to be aware of that. I
believe most ag producers would much prefer to receive income
from the value of the products that they produce.
Unfortunately, in today's farm economy that is not consistently
reliable enough to maintain financially sound farms and ranches
without Federal support.
The past 10 years of farming have been very challenging as
far as a Kansas producer is concerned. Low grain prices,
exploding expenses and difficult weather have made it difficult
to find the income needed for the family. This exposes the need
for some kind of farm income stabilization so that we have a
reliable source of food and fiber for our country.
Has the current farm bill been sufficient? Yes, it's been
okay, especially the counter-cyclical support concept, but a
revenue-based counter-cyclical program or possibly a savings
account idea that I've heard proposed would be better in my
opinion. These types of programs are necessary to stabilize
income in difficult years.
The recent increase in grain prices has at least provided
an optimistic view of the future, provided we have a crop to
sell. The support of crop insurance programs needs to continue.
We have the expanded use of ethanol to thank for this current
jump in corn prices. Our country needs to become increasingly
reliant upon ourselves for our energy and Federal support needs
to continue in this area. I believe most Americans would rather
fill up their vehicle knowing they are supporting a Midwest
farmer instead of a Middle East terrorist. Please continue to
support the growth of the ethanol industry.
I hope that our country can move away from direct support
of farm programs. That clearly is what we see in the picture
coming towards us in the future. But we do need crop insurance
products and income stability products that maintain a reliable
and healthy ag economy.
One side note I might add, just locally, recently on Friday
in my local Farm Service Agency office, probably heard it
before, but the computer system's running very slow. She said
it was even a good day and yet we are waiting and waiting and
waiting. So please do what you can to look into speeding up the
number of servers or whatever needs to be done so that there's
not so much time spent there. And what's more if that business
is done at home, it's going to have to be faster because
individuals aren't going to sit at home waiting and waiting and
waiting to conduct business at home. Thank you.
[The prepared statement of Mr. Meisinger follows:]
Prepared Statement of Mark Meisinger, Wheat Farmer and Cow/Calf
Producer, Marion, KS
I would like to begin my remarks by thanking the Committee for
allowing me to testify this morning and for listening to the direct
views of farmers and ranchers about the farm bill.
I am not coming before you today to plead for more Federal money
for farmers and ranchers. I, and I believe most ag producers, would
much prefer to receive my income from the value of the products that I
produce. Unfortunately in today's farm economy that income is not
consistently reliable enough to maintain financially sound farms
without Federal support. The past ten years of farming has been very
challenging as far a Kansas is concerned. With low grain prices,
exploding expenses, and difficult weather it has been difficult to find
the income to support a family. This exposes the need for some kind of
farm income stabilization so that we have a reliable source of food and
fiber for our country.
Has the current farm bill been sufficient? Yes, it has been okay,
especially the counter-cyclical support concept. Whether that is left
in place or we move to more of a savings account idea, it is necessary
to have a method in place to stabilize income in difficult years.
The recent increase in grain prices has at least provided an
optimistic view of the future, provided we have some product to sell.
The support of crop insurance policies needs to continue. We have the
expanded use of ethanol to thank for this current jump in corn prices.
Our country needs to become increasing reliant upon ourselves for our
energy, and Federal support needs to continue in this area. I believe
most Americans would rather fill up their vehicle knowing they are
supporting a Midwest farmer instead of a Middle East terrorist. Please
continue to support the growth of the ethanol industry.
I hope that our country can move away from direct support of farm
programs. But we do need crop insurance products and income stability
support to maintain a reliable and healthy ag economy.
Mr. Etheridge. Mr. Robbins.
STATEMENT OF LEE ROBBINS, DIRECTOR, KANSAS
CATTLEMEN'S ASSOCIATION; COW/CALF PRODUCER, YATES CENTER, KS
Mr. Robbins. Honorable Congresswoman and Congressmen, I'm
Lee Robbins, a fourth generation cow/calf producer from Yates
Center, Kansas. I'm a Director for the Kansas Cattlemen's
Association and USD 366 School Board Member. Thanks a lot for
the opportunity to share with you some of my concerns about the
beef business.
My biggest challenges are not with the production of beef
because I know I can compete very well as a producer.
My big challenges lie in the marketplace.
Previous rules by USDA have been detrimental to rural
communities. I'm convinced that the four major packers control
USDA whenever a meat issue is at stake. For example, USDA not
allowing Creek Stone Farms to individually test cattle for BSE
for export to the Southeast Asia market as they had requested.
The demand there is huge. Our best USA beef is cheaper on their
retail shelves than their own locally produced beef.
Kansas State University did a study after losing our export
markets to Southeast Asia and estimated it cost us 14 to 15
percent of our beef's value. In 2006 Kansas' value of beef
production was $2.9 billion times a 14 percent loss:
$416,000,000 of lost income to Kansas producers. The loss in
Kansas income taxes, the $416,000,000 times an average of 6
percent paid by producers for a total of approximately
$25,000,000 lost in state income taxes in 2006 alone. If you
take the producers $416,000,000 times an economic multiplier of
five then approximately $2,000,000,000 was lost to our
economies. These figures are just for 2006 in Kansas.
Imagine the loss to all USA producers and economies. In
private business customers dictate what they will purchase, not
the sellers. Recently a judge ruled in favor of Creek Stone
Farms for individual testing and USDA says it's going to appeal
so that it will still not be allowed. Simply put, it's not
about economics because a $50 test yields approximately $150 in
value.
Another recent example of USDA working against me as a
producer is USDA trying to tie mandatory identification to
country of origin labeling. A simple hot iron brand will
suffice for COOL identification and cost producers very little.
Individual ID would be much more expensive to producers, it's
hard to implicate and it would stop COOL in the long run. Just
as the packers have told USDA to do. Our beef customers and
producers want mandatory COOL implemented in the USA and
deserve to get what they want, whether they're here or
overseas. So please support mandatory COOL. Current law
prohibits ID use as verification for COOL so please don't let
it happen. It's unnecessary and unintended.
Captive supplies by packers depress live cattle prices. As
captive supplies go up, live cattle prices go down.
Without the use of captive supplies, packers will still
have the same volume of cattle available to them as before.
They would just have to bid on them in a true, live
marketplace. I would encourage you to support legislation that
limits captive supplies by meat packers because it will improve
producer's profits.
Let me state in closing that consolidation and vertical
integration has not been good, in general, for production
agriculture on the rural economies. If we stay on the same
trail as we've been on, then rural America will suffer even
more. We must make some changes to improve profits. I'm not
alone in my thoughts and opinions and thank you very much for
your time and consideration.
[The prepared statement of Mr. Robbins follows:]
Prepared Statement of Lee Robbins, Director, Kansas Cattlemen's
Association; Cow/Calf Producer, Yates Center, KS
Honorable Congresswomen and Congressmen,
I am Lee Robbins, a 4th generation cow/calf producer from Yates
Center, Kansas. I am a Director for the Kansas Cattlemen's Association
and a USD 366 School Board Member. Thank you for the opportunity to
share with you some of my concerns about the beef business.
My biggest challenges are not with the production of beef, because
I know I can compete very well as a producer. But instead, my
challenges lie in the marketplace
Previous rules by USDA have been detrimental to rural economies. I
am convinced that the four major packers control USDA whenever a meat
issue is at stake. For example, USDA not allowing Creek Stone Farms to
individually test cattle for BSE for export to the Southeast Asia
market as they had requested. The demand there is huge. Our best USA
beef is cheaper on their retail shelves than their own locally produced
beef.
Kansas State University did a study after loosing our export
markets to SE Asia and estimated it cost us 14-15% of our beef's value.
In 2006, Kansas's value of beef production was $2,971,488,000.00 14%
loss = $416,008,000.00 has lost income to Kansas producers. The loss in
Kansas income tax = $416,008,000.00 6% average paid by producers =
$24,960.000.00 in lost state income taxes in 2006 alone. If you take
the producers loss of $416,008,000.00 times an economic multiplier of
five, and then $2,080,040,000.00 was lost to our economies. These
figures are just for 2006 in Kansas. Imagine the loss to all USA
producers and economies. In private business customers dictate what
they will purchase, not the sellers. Recently a judge ruled in favor of
Creek Stone Farms for individual testing and USDA says it is going to
appeal so that it still will not be allowed. Simply put, it's not about
economics because a $50.00 test yields approximately $150.00 increase
in value.
Another recent example of USDA working against me as a producer is
USDA trying to tie mandatory identification to COOL. A simple hot iron
brand will suffice for COOL identification and cost producers very
little. Individual ID would be much more expensive to producers is hard
to implicate and would stop COOL in the long run. Just as the packers
have told USDA to do. Our beef customers and producers want Mandatory
COOL implemented in USA and deserve to get what they want whether here
or overseas. So please support Mandatory COOL. Current law prohibits ID
use as verification for COOL, so please do not let it happen. It is
unnecessary and unintended.
Captive supplies by packers depress live cattle prices. As captive
supplies go up, live cattle prices go down. Without the use of captive
supplies, packers will still have the same volume of cattle available
to them as before. They would just have to bid on them in a true, live
marketplace. I would encourage you to support legislation that limits
captive supplies by meat packers because it will improve producer's
profits.
Let me state in closing that consolidation and vertical integration
has not been good in general for production agriculture and rural
economies. If we stay on the same trail as we have been on then rural
America will suffer even more. We must make some changes to improve
producers profits. I am not alone in my thoughts and opinions.
Thank you for your time and consideration.
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
Lee Robbins.
Mr. Etheridge. Thank you, Mr. Robbins. Let me thank each of
our panelists for your comments and I will recognize myself for
5 minutes as we move to some questions now.
I want to first make a comment regarding the testimony of
Mr. Childs and Mr. Parker. All of you mentioned in your
comments and in your testimony about the challenges facing
farmers in rural America as it relates to health care, about
the growing costs of health care and health care insurance, how
that affects Americans in the long run and how expensive it is.
I wish there was something we could do in the farm bill to help
that. I think all those in the audience would appreciate that
as well. However, unfortunately, costs have gone up. However,
that is not in the jurisdiction of those of us within this farm
bill. That's not our jurisdiction.
But I do appreciate, let me say, because your testimony
will be available to us and we appreciate you sharing your
personal experiences. We can't solve it in the farm bill, but
we have to find solutions to these problems, not just for
farmers, but for all Americans. It is a real challenge and I
just want to require all of us who work not only in
agriculture, but in other areas as well, help Americans have
the necessary insurance they need.
Mr. Pracht, to you and Mr. Childs, in both your testimonies
you called for increasing market loan rates and consequently
marketing of loan rates and loan deficiency payments. Some,
including the Administration, caution that going in that
direction is provocative and could increase new challenges to
our farm programs in the WTO, World Trade Organization. What do
you think about this argument and why do you think loan rates
need to go up?
Mr. Childs. I'm not sure I understand your question
totally. The loan rates and target prices, I'm not sure how
they were set in 1996 and what basis they were. Were they based
on cost of production, yield, revenue? I'm not sure how they
were based so, therefore, I'm saying that the costs of that
have gone up, I know, so if that's--if the target prices and
loan rates were based on that, then obviously those should go
up also.
Mr. Etheridge. But when you move toward--the
Administration's position on this is if you move toward higher
loan rates then that tends to increase production in those
areas. Even if they don't do it in the marketplace, they wind
up under the loan which then creates the problem for the long
term costs.
Mr. Childs. For the long term costs of the program?
Mr. Etheridge. Yes, yes.
Mr. Pracht. I mean, it's part of the safety net that needs
to be around. You know, that's just one thing we'd have now
that I don't want to lose, but if there's another better source
of means for doing it, I'd be all for it. And, yes, what you're
talking about would be cost--it's costly.
Mr. Etheridge. That was the Administration's position in
there.
Mr. Childs. What is the true cost of that loan to the
Administration?
Mr. Etheridge. And I don't know that number.
Mr. Childs. I don't either.
Mr. Etheridge. And I don't know if there's anyone out there
who knows how they set it in 1996. We need to find out as we
start moving forward. With that I will yield to the gentleman
from Kansas, Mr. Moran.
Mr. Moran. Mr. Chairman, thank you very much. I'll try to
be brief and get us, as best I can, back on time. On health
care, one of the things that's in the Administration's proposal
that makes a lot of sense to me is in regard to rural
development outside our commodity title, but no interest loans
to critical access hospitals across the country. And there's
almost no community in Kansas that we don't rely upon access to
health care through what's designated under Medicare critical
access hospital. They have no additional money for building or
for purchasing equipment and I have been very complimentary to
the Administration at least in that proposal in regard to the
farm bill.
Mr. Childs, you know my ag person, Aaron Pelka, well. Would
you make sure the two of you get together. I want to explore
further this land versus equipment sale because I'm certain I
don't understand what you're telling me: about how if you sell
equipment it's treated differently than if you sell land. And I
think that's what you're telling me. Is that true?
Mr. Childs. Yes, if you buy equipment you depreciate it.
Mr. Moran. The purchase of the equipment that we're talking
about, not the tax consequences of the sale of that equipment.
Mr. Childs. I work with an older generation that would like
to sell his machinery equipment to a young farmer. All right.
If he does that, most of the time that equipment is depreciated
down to zero. If he has a hundred thousand dollars worth of
equipment, it's recaptured in depreciation. That is all taxed
in the first year of that contract.
Mr. Moran. And you're talking about the tax consequence to
the seller.
Mr. Childs. To the seller, yes.
Mr. Moran. Mr. Meisinger, I may borrow your line. You got a
good political line: Midwest farmer versus Middle East
terrorist. I don't have to give you credit for it. I'm going to
use it regularly now. But let me ask you, you're a cattle
producer and yet are talking about the benefits of ethanol. How
do you see it as a cattle producer when your input costs are
increasing due to the cost of corn or grain.
Mr. Meisinger. I'll respond to that because a cattle
producer raising cow/calf so the impact to me is not as direct
as someone who would be feeding. But from my perspective an
opportunity to finally see, from a grain producer's
perspective, the opportunity to earn a profit for once on the
product that we raise looks good finally for once that we can--
I can support my family hopefully because of the increased
price that we receive. Will it hurt the cattle producer? Yes,
he's been making money and I've been making money on the cow/
calves that I raise. Will some of that profit come out of the
cow/calf? Yes, it will. But for me, the opportunity to see an
increased income and a profit because of the grain that I
produce is good.
Mr. Moran. I have been very surprised. You know, the
criticism of ethanol now is that it's increased the price of
corn. That's exactly why we got interested in producing ethanol
is because of the price of corn. And so I remain a strong
supporter of renewable fuels for a number of reasons, but it
originally started out, how do we help farmers have some
profitability for the commodities they grow. In that regard
about input costs, one of the reasons that the amount of money
that's available to the commodity title in drafting the
commodity title in the next farm bill is that commodity prices
are higher. Therefore, as they score they create a baseline.
The amount of money that we have to spend on this commodity
title gets based upon the amount of money we spend today under
the farm bill. It's less because of higher commodity prices.
There ought to be a way we can change that and some of you
suggested--Mr. Childs suggested about how we capture what we're
not spending and save it for the future.
Let me ask this question because much of what the debate in
Washington has been, we've heard a bit of this from USDA: is
that everything in agriculture is going well with the commodity
prices. But what I fail to ever hear anybody talk about is the
increasing input costs. And so as a producer perhaps you could
explain to me what the consequences are of higher fuel,
fertilizer, natural gas and other input costs. Has the
increasing commodity prices that you're receiving for your
commodities, has that more than offset the increasing costs of
production?
Mr. Meisinger. Not yet because we haven't raised the crop
to sell into that higher market yet. It will help, but the
increase in costs that we've withstood the last 2 or 3 years is
not going to be long term sustainable for us at the price that
we were receiving for our products. It took out the profit
margin. There was basically no profit. And $1.70 corn across
the scale, last year 40 cents nitrogen, it did not compute. So
the increase in grain prices will hopefully--if we can have
something to sell into that--hopefully help offset those
extravagant prices because I don't see them coming down
unfortunately.
Mr. Moran. Yeah. We've tried to explain to the
Administration and others that the consequence of higher prices
unfortunately is lower prices in the future and we know the
cycle will continue and you cannot base the farm bill upon
commodity prices that they already take. Thank you, Mr.
Chairman.
Mr. Etheridge. The Congresswoman from Kansas.
Mrs. Boyda. I'd just like to again thank you all for doing
this in front of everyone and getting it on the public record.
And I'd like to highlight some things that I've heard out in
the field so we make sure that in the many comments that you've
made, I'd like to pull out a couple.
We are working on an emergency haying provision in the
conservation credit. And Jerry asked--Mr. Moran asked, too, if
that's what we were talking about, yes. So your voice has been
heard on that and that amendment is going in. And I'd like to
make sure that each one of the panelists understand today what
we're talking about and why we need some provision to allow
some emergency haying. Thank you for helping. I didn't
understand the depreciation either and I appreciate getting
that done.
And then one thing that I have heard repeatedly, with the
anxiety over the FSA and the NRSC offices is the computer
systems and I'd like to make sure that that's duly noted that
we really need to make some upgrades on our computer system. So
as you're making trips back and forth and now over a few more
counties that, in fact, we have computer systems that do work.
I'd like to talk about, when you were talking about, Mr.
Robbins, competition and what--again this is one of the very,
very pervasive things that I've heard up and down the district
as I've been out talking--that our rural producers are lacking
that truly competitive market. And I'd like for you to just
again talk to me about when you can sell, how you sell, what
the day to day looks like for you when you're trying to get out
there and sell your cattle. Do you feel like you have an open
and free market to do that; a competitive marketplace?
Mr. Robbins. Well, when I market my cattle I use Superior
Livestock Auction which is the video auction and I also have a
couple of local markets that are relatively close. And I market
most of my production through those tools. I also hedge on the
board of trade. So as far as my individual market there, I feel
pretty well covered.
Now if I decide I want to take my cattle out West and feed
them, that's where I get pretty scared because I'm at the mercy
of, as I said, the packers. And you've usually--you're in a set
time limit. When they're ready to go, if something bad happens
in the market that's caused by who knows what, you've got only
a limited amount of time to market those cattle. Now as far as
if they're in my position at home, I can buy some time.
Mrs. Boyda. Specifically what would you have the
Agriculture Committee do?
Mr. Robbins. Well, pass country of origin labeling. I think
that would definitely help us. And try to stop some of the
consolidation in the packing industry. I think that would help
tremendously. It's not an easy job to do, but I think that will
help add to our profits and our profits are our profits.
Mrs. Boyda. And what I hear again around, and I don't mean
to be putting words in your mouth, but I hear often about
captive supply and how in fact that's--could you address that
or what would you have----
Mr. Robbins. Definitely.
Mrs. Boyda. What would you have the Agriculture Committee
do about that?
Mr. Robbins. I would hope that it could be legislated to
where the packers can only purchase the cattle within 14 days
of slaughter. They can't own them prior to that because it
adds, like I said, to their captive supply and that's how they
help manipulate the market and depress the market.
Mrs. Boyda. Thank you. I would just come back on a
different subject, too, we were talking about the three legs of
our farm subsidies. We heard earlier in the first panel about
the direct payments. I didn't hear that in this particular
panel as much. Real quickly and I only have a few seconds left,
do I hear that same from you about direct payments? Or are you
again in the counter-cyclical versus the LDP's as the longer
legs of that stool?
Mr. Parker. I think personally that the direct payments are
much superior because when you don't have crops it's hard. And
I know I've been in situations where I've been with friends
from Illinois raising 230 bushel crops and we've raised 40 or
50 on some drought and they get a huge LDP payment and we
don't, and I just think it's a fairer way. However, I would
like to comment on the LDP's because they are monies that come
in the first part of the year and the last part and this year
the government cut those percentages down where we only got 20
or 30 percent of the LDP at the first of the year, which is the
time when you need the money.
Mrs. Boyda. I yield back the lack of balance of my time.
Mr. Childs. I might comment that the total dollars and the
stability of it is probably more important than the amount.
Mr. Etheridge. The gentleman from Iowa.
Mr. King. Thank you, Mr. Chairman. The solution for
everybody out here is more dollars per acre. You just have to
figure out how to get that. So we are trying to figure out how
to get that all together and I appreciate that, but I wanted to
comment, Mr. Childs, I think you said the single most important
thing here and it's something that maybe you think that was
redundant to us, but, you said: ``We have entrusted you with a
tremendous responsibility to draft and pass ag legislation.''
And I think it's important that that's reiterated because that
needs to be on our conscience at all times. And even though we
get involved in the policy side of this, but that little
reminder brings that back up to the top. That's the purpose of
this and it is a high responsibility. I wanted to just note
that this panel heard this. And I appreciate that.
Now, Mr. Pracht, I wanted to talk with you a little, if I
could, about COOL. A hundred percent positive producer, you're
a hundred percent positive producers wouldn't have to pay for
it. I mean, I appreciate that sentiment and that thought, but
how in the world would we ever get there. So does that mean to
me that you're--I mean, I have to interpret that means you're
opposed to COOL because I can't imagine how we'd ever be a
hundred percent positive that it wouldn't be passed on to the
producer.
Mr. Pracht. Yeah, I don't know either and that's a question
nobody really knows. COOL is good. You know, putting the United
States logo on our meat and stuff, there's nothing wrong with
that at all, but I don't want to be the one that has to maybe,
in the end run, pay for it as coming out of----
Mr. King. But you don't really have advice for us on how
we'd ever be sure that the producer isn't paying for it.
Mr. Pracht. That's exactly----
Mr. King. And when I look in the meat case in Washington,
D.C. and I see Australian steaks that are porterhouses at
$16.25 a pound and U.S. T-bones at, say, $12.25, what should I
draw for my conclusion there; are they marketing Australian
beef?
Mr. Pracht. Yeah, they are.
Mr. King. And so there are two sides to that coin. They may
not be equal. I just want to point that out. And then, in
trying to move along here at the request of the Chairman, and I
appreciate everybody's testimony. I wanted, if I could, to turn
to Mr. Robbins. I want to tell you, I agree with your view on
USDA's prohibition on BSE testing at Creek Stone. The
government should never intervene in a value added endeavor by
a producer or a packer or a marketer, especially because there
was no down side to that. It was their opportunity to add value
to their product and USDA stepped in. So I agree with the court
decision. I agree with you, Mr. Robbins. And I wonder, would
you agree with that statement?
Mr. Robbins. Yes, sir.
Mr. King. And then the Creek Stone operation today, is
there anything that prevents any of the packers from adopting a
COOL program voluntarily?
Mr. Robbins. Not to my knowledge.
Mr. King. But you've got some figures here that show that
the BSE testing, I presume that's what you're referencing, was
$50 a head and there's $150 upside to the marketing and I don't
challenge that. That seems reasonable to me. Creek Stone then
could also do country of origin labeling on the livestock to
pay a premium if they could find a marketing opportunity to
compete against that Australian beef, could they not.
Mr. Robbins. They could and, in fact, now that I give it
more thought, that's already being done. They just don't label
it. Maybe they do label it as USA beef also, but they have
their own logo just as Tyson has on his that identifies it as
their meat product.
Mr. King. At least Creek Stone, but does it say U.S. beef
born, raised, fed and slaughtered.
Mr. Robbins. I can't answer that. I don't know that for
sure.
Mr. King. So the bottom of my question is if there's a
marketing advantage to COOL, how come I don't see anybody using
that out there now? I mean, it's clear when it's BSE testing
and marketing to Asia. So why don't we have examples anywhere,
even the smaller private packers, that have been at odds with
some of the larger operations?
Mr. Robbins. I assume there probably is and I wouldn't say
that Creek Stone is not labeled USA beef. I know it's
identified as being produced in the United States and totally
produced here and processed here.
Mr. King. I think----
Mr. Robbins. The problem is they can't test and that's
where you lose--that's where they lost their market to Japan.
Mr. King. They can't actually even trace, though, today,
can they?
Mr. Robbins. They can.
Mr. King. Well, not in a market efficient fashion where
you'd hang them on a hook and say these are U.S., these came
from Mexico as feeders, these came from Kansas as feeders. I
mean, we really can't do that effectively at a marketing
situation, can we.
Mr. Robbins. They can. Yes, sir, they can.
Mr. King. How are they doing that?
Mr. Robbins. They run it all through their plant primarily.
Mr. King. How do they trace back to premises of origin?
Mr. Robbins. They're tied in real close with the individual
producers.
Mr. King. Thank you very much. Mr. Chairman, I yield back.
Mr. Etheridge. The gentleman's time has expired.
Mr. Smith, 5 minutes.
Mr. Smith. Thank you, Mr. Chairman. Mr. Parker, if I might
ask you some questions, and let me just begin by saying that as
I crisscross the Third District of Nebraska I would say the
biggest concern in agriculture is inputs right now. Doesn't
matter how high the price of corn is, with the increasing
amount of inputs there's a great concern. Now you advocated for
a price floor for petroleum. Let me also say, just give you a
background of my approach here I think it's in the consumer's
best interests that we have good ag policy so we have an
affordable, efficient and available food supply. Can you tell
me how a price floor for petroleum would be in the best
interests of the consumer.
Mr. Parker. I'm sorry, I guess I don't know if the word
advocate is proper. I have concerns about it. The people that
have invested in petroleum plants, especially bio-diesel plants
and ethanol plants; having any protection of not being sold out
and by not having some type of a floor. And I'm not the
original person that I heard it--actually I heard this from the
Governor of Montana, I think, and he was concerned about liquid
coal. But his concern and he said in his statement that you
don't see Wall Street investing in these plants. You see
individuals. And the reason they don't is because there's no
protection for it. They're not going to put their money in
where they could be sold out in a 6 months time and I--
personally I can't see----
Mr. Smith. Sold out as in closure.
Mr. Parker. As if the OPEC nations decided that we were
putting too much and weren't selling enough petroleum base to
the United States, what would be the fastest way to increase
that would be just to cut the production--increase the
production or cut the price in crude oil in the United States,
which our consumers would buy the cheapest regardless of the
other economic advantages and put a real strain on the plants
that we have and the people that have investments in these
plants. I just think that we ought to be aware of that as other
things.
Mrs. Boyda. Would you yield, please, just a moment.
Mr. Smith. Yes.
Mrs. Boyda. But you're not suggesting that we have a price
floor for oil. If the price of oil comes down that's a good
thing. What you're suggesting is we have a price floor from an
investment standpoint so people know if it goes below this that
someway or another we are able to withstand that. Is that your
suggestion?
Mr. Parker. Yes, I'm talking, particularly, about imported
oil, imported crude. Just protect the people that have their
investments in ethanol plants. A number of people in rural
areas have really invested heavily in these plants and I could
see what 6 months would do.
Mr. Smith. I mean, your written testimony, as well as your
verbal testimony, did state the implementation of a price floor
in oil imports. And I'm fearful of government intervening at
the extreme cost to the consumer and especially ag producers. I
was talking to a retailer the other day who talked about the
price controls of the early 1980's saying that retailers could
not make more than 30 cents per gallon. And when in actuality
it was roughly a 5 cents margin and so what we found is
everyone raising their margins up to 30 cents per gallon. That
is extremely concerning to me and the advocacy of a price floor
on oil imports does scare me. Thank you, Mr. Chairman.
Mr. Parker. Can I make one comment, please.
Mr. Etheridge. Sure.
Mr. Parker. I guess, like I said, the Governor from Montana
brought this up and I thought about it. I don't know if that is
the thing that we need to use. I just think that you as
Congress-people are really, you know, you're supporting bio-
fuels and I am too, but I think we really need to be concerned
about the investment we're putting in these plants and whether
it's based on the floor of oil, we do have some type of a base
on our wheat and our corn, et cetera, that is logical.
Mr. Etheridge. Thank you. And let me thank each of our
panelists today for coming and being--both panels. You've done
an excellent job. I think this has been a good hearing and now
I'm going to ask whoever will set the mic up. We're fortunate
today to have with us the Kansas State Secretary of
Agriculture, Mr. Adrian Polansky. And I would ask him to come
forward and make any comments he would like to make before we
close the hearing.
STATEMENT OF HON. ADRIAN J. POLANSKY, SECRETARY OF AGRICULTURE,
STATE OF KANSAS, TOPEKA, KS
Mr. Polansky. Good morning, Chairman Etheridge and Members
of the Subcommittee. Thank you for hosting the hearing today.
Kansans are certainly proud to have two Members of this
important Subcommittee: Ranking Minority Member Jerry Moran and
Representative Nancy Boyda. Both have strong interests in
success of Kansas agriculture.
As Kansas Secretary of Agriculture, an active farmer,
father of an active farmer and daughter-in-law with two
grandsons hopefully growing roots in that good Republic County
soil for another generation, I represent a diverse agriculture
that is a national leader in the production of wheat, corn,
sorghum and soybeans. And as you know, we are a leader in
livestock production. We're also moving toward leadership in
cotton production. In 2005 we produced 87,700 bales of cotton
placing us 17th in cotton production. We have also climbed to
18th in milk production. Cash receipts for our farm marketings
were nearly $10,000,000,000 in 2005. And Kansas ranks 7th in
food farm product exports, which were valued at $2.7 billion. I
support the work of the Kansas Farm Bill Coalition and their
consensus recommendations on the 2007 Farm Bill.
Kansas agriculture continues to be a significant
contributor to the economic well-being of our state. We have an
agriculture tradition and we believe the future lies in our
fields.
Increasingly agricultural resources provide raw materials
for a broad range of nonfood products such as chemicals,
fibers, construction materials, lubricants and fuels. Bio-based
and bio-energy products provide new and expanded markets for
agricultural feed stocks. They will reduce our nation's
dependence on petroleum and other imported materials and
diversify our agriculture.
The farm bill is vitally important to the future of Kansas
agriculture, to our nation's security and to our rural
communities. Also, to be equitable, it must be tailored to fit
diverse agriculture from Kansas to Florida to Alaska.
I will leave the budgetary issues to the Members of
Congress and will focus on what I think deserves to be looked
at to be a part of the legislation.
First and foremost, the provisions of the next farm bill
must comply with the World Trade Organization rules of trade
between nations.
After that we must ensure a viable safety net for farmers.
Reducing the protection offered by the existing safety net is
unacceptable. Production costs, including the cost of land, as
you've heard, fuel, fertilizer and other inputs, have increased
dramatically since the current farm bill was enacted. The
reality is that we have already reduced dramatically the
effective safety net since passage of the last farm bill. Crop
farmers cannot survive in the future if we're going back to
prices livestock producers were historically accustomed to, and
that is a new reality.
Preparing for a new generation of farmers is a necessity,
not an option. Beginning farmers are most at risk if the safety
net is weakened. New farm policy must provide landowners with
tax benefit for selling to beginning farmers. We must also
streamline and enhance the Farm Service Agency beginning buyer
finance program. Finally, we must allow beginning farmers equal
crop insurance risk protection.
While the bulk of Kansas agriculture produces wheat, corn,
soybeans, sunflowers and sorghum, the value of our specialty
crop production has doubled in the last 5 years. The Specialty
Crop Block Grant Program first established in the current farm
bill should be enhanced. I also believe the Farmers Market
Nutrition Program is worthy of enhancement, that risk
management protection should be improved and that farm to
cafeteria programs should be more firmly established. Risk
management tools must continue to be improved and a permanent
disaster program provision should be included in the next farm
bill. Conservation costs to your program should be strengthened
and a meaningful working lands program should be enacted.
It is time to look at enhancements to the Conservation
Reserve Program. For the least fragile parcels of land enrolled
in the CRP, USDA should allow up to \2/3\ of those acres to be
used to produce energy crops under no-till practices. I believe
this has potential to enhance wildlife benefits and maintain
the conservation impacts while providing an additional income
for the farmer and freeing up additional Federal budget
resources for CRP involvement of our most fragile lands.
Strengthening the viability of America's farm and ranch
operations benefits the rural economy. A program that provides
funding for local, state and farm level programs to encourage
innovative marketing strategies, new business ventures and
market or product development is needed. It is also imperative
that we increase Federal investment in research of cutting edge
technology to keep us competitive in the world market.
The farm bill also must make a strong commitment to an
ongoing, aggressive, renewable energy initiative. We must move
away from our dependence on foreign oil and reap the positive
economic impact renewable energy holds for our environment and
for our nation's farmers and rural communities.
Biotechnology can help answer the world's need for safer,
more abundant and more nutritious foods. It can play a part in
developing competitive cellulosic ethanol production and it can
give us crops that require less water, important for states
like Kansas.
USDA, FDA and EPA can help us reach those goals sooner with
additional funding that will allow them to improve and speed up
the permit approval processes.
Finally, we must eliminate the unfair prohibition on the
interstate sale of state inspected meat to create new
opportunities for small businesses in rural communities. It
also is a matter of fairness, since our foreign meat processors
that are considered equal to federally inspected plants may
sell their products throughout the entire United States.
The upcoming debate on farm policy is an opportunity for us
to develop policy that preserves existing food production,
prepares for a new generation of farmers, and promotes new
opportunities as agriculture continues to evolve to meet new
needs. The challenge will be to accommodate many points of view
without becoming polarized in our mission.
I thank you very much for the opportunity to be honored to
present some comments this morning and certainly if there are
questions, I'd be ready to stay after to address them. Thank
you so much.
[The prepared statement of Mr. Polansky follows:]
Prepared Statement of Hon. Adrian J. Polansky, Secretary of
Agriculture, State of Kansas, Topeka, KS
Good Morning Chairman Etheridge and Members of the Subcommittee.
Thank you for hosting this hearing today. We're proud to have two
Members of this important Subcommittee: Ranking Minority Member Jerry
Moran and Representative Nancy Boyda. Both have a strong interest in
the success of Kansas agriculture.
As Kansas Secretary of Agriculture I represent a diverse
agriculture that is a national leader in the production of wheat, corn,
sorghum and soybeans. And, as you know, we are a leader in livestock
production. We also are moving toward leadership in cotton production.
In 2005 our growers produced 87,700 bales of cotton, placing us 17th in
cotton production. We also have climbed to 18th in milk production.
Cash receipts for our farm marketings were nearly $10 billion in
2005, and Kansas ranks seventh in farm product exports, which were
valued at $2.7 billion.
I support the work of the Kansas Farm Bill Coalition and their
consensus recommendations on the 2007 Farm Bill.
Agriculture continues to be a significant contributor to the
economic well-being of Kansas. We have an agricultural tradition, and
we also believe the future lies in our fields.
Increasingly, agricultural resources provide raw materials for a
broad range of nonfood products, such as chemicals, fibers,
construction materials, lubricants and fuels. Bio-based and bioenergy
products provide new and expanded markets for agricultural feedstocks.
They will reduce our nation's dependence on petroleum and other
imported materials, and diversify our agriculture.
The farm bill is vitally important to the future of Kansas
agriculture, to our nation's food security and to our rural economies.
Also, to be equitable, it must be tailored to fit diverse
agricultures--from Kansas to Florida and Alaska.
First and foremost, the provisions of the next farm bill must
comply with World Trade Organization rules of trade between nations.
After that, we must ensure a viable safety net for farmers. Reducing
the protection offered by the existing safety net is unacceptable.
Production costs, including the cost of land, fuel and fertilizer, have
increased dramatically since the current farm bill was enacted. The
reality is that we have already reduced the effective safety net
significantly.
Preparing for a new generation of farmers is a necessity, not an
option. Beginning farmers are most at risk if the safety net is
weakened. New farm policy must provide land owners a tax benefit for
selling to beginning farmers. We also must streamline and enhance the
Farm Service Agency's beginning farmer finance program. Finally, we
must allow beginning farmers equal crop insurance risk protection.
While the bulk of Kansas agriculture produces wheat, corn,
soybeans, sunflowers and sorghum, the value of our specialty crop
production has doubled over the last 5 years. The specialty crop block
grant program, first established in the current farm bill, should be
enhanced. I also believe the farmers' market nutrition program is
worthy of enhancement, that risk management protection should be
improved, and that farm-to-cafeteria programs should be more firmly
established.
Risk management tools must continue to be improved, and a permanent
disaster program provision should be included in the next farm bill.
Conservation cost-share programs should be strengthened, and a
meaningful working lands program should be enacted.
It is time to look at enhancements to the Conservation Reserve
Program. For the least fragile parcels of land enrolled in the
Conservation Reserve Program, USDA should allow up to \2/3\ of those
acres to be used to produce energy crops under no-till practices. I
believe this has the potential to enhance wildlife benefits and
maintain conservation impacts, while providing additional income for
the farmer and freeing up additional Federal budget resources for more
CRP enrollment of the most fragile lands.
Strengthening the viability of America's farm and ranch operations
benefits the rural economy. A program that provides funding for local-,
state- and farm-level programs to encourage innovative marketing
strategies, new business ventures and market or product development is
needed. It also is imperative that we increase Federal investment in
research of cutting-edge technology to keep us competitive in the world
market.
The farm bill also must make a strong commitment to an ongoing,
aggressive renewable energy initiative. We must move away from our
dependence on foreign oil and reap the positive economic impact
renewable energy holds for our environment and for our nation's farmers
and rural communities.
Biotechnology can help answer the world's need for safer, more
abundant and more nutritious foods; it can play a part in developing
competitive cellulosic ethanol production; and it can give us crops
that require less water. USDA, FDA and EPA can help us reach those
goals sooner with additional funding that will allow them to improve
the permit approval process.
Finally, we must eliminate the unfair prohibition on the interstate
sale of state-inspected meat to create new opportunities for small
businesses in rural communities. It also is a matter of fairness, since
foreign meat processors that are considered equal to federally
inspected plants may sell their products throughout the United States.
The upcoming debate on farm policy is an opportunity for us to
develop policy that preserves existing food production, prepares for a
new generation of farmers and promotes new opportunities as agriculture
continues to evolve to meet new needs. The challenge will be to
accommodate many points of view without becoming polarized in our
mission.
Mr. Etheridge. Mr. Secretary, thank you for your comments
and they will certainly be a part of the record. We appreciate
that. Let me also thank again our panelists and all those who
have been present. Before we close, I'm going to ask the
Ranking Member, a good friend, if he has any closing comments
he'd like to make.
Mr. Moran. Mr. Chairman, thank you very much. Again I thank
my colleagues for making the effort to be in Kansas and to
listen to Kansas farmers and ranchers. I know that Nancy and I
have very much appreciated the extra effort that you made to be
here personally.
My assumption is that if anyone has any written testimony
they would like to present to the Subcommittee, it will be made
a part of the record and they need to present that to the
Committee staff within the next 10 days; 30 days, 30 days it
won't be too late. I started to believe those time frames in
Washington; 30 days will be fine.
I also wanted to point out how much effort has gone in in
Kansas to our farm groups, both Farmers Union and Farm Bureau,
as well as all of our commodity groups coming together to
create a coalition and to develop a uniform set of positions in
regard to the next farm bill. That's very much appreciated.
We have three Kansans who are serving in national offices,
national leadership: Greg Schelor is here. Just recently the
National Chairman of the Grain Sorghum Producers. John Thaemert
is here. He's the President of the National Association of
Wheat Growers. And we have Ken McCauley, who is the President
of the National Association of Corn. I didn't say the right
words: National Association of Corn Growers. Thank you. And so
Kansas is well represented on a national level, but I know
again that Nancy and I would very much appreciate any input,
advice and suggestions from any and all of you as we try to
figure out what we do on behalf of Kansas agriculture.
And I know that not every Kansan is a farmer or rancher,
but there is not a Kansan who will not be affected by this
piece of legislation. And there is no more important piece of
legislation, no more important bill that will work its way
through Congress this year that will affect the Kansas economy
than this one. And so any help that you can give us to make
sure that we have our feet on the ground and an understanding
of what's important and what matters to get the job done as
best we can would be greatly appreciated.
And again I appreciate the dose of Kansas common sense and
good judgment that we have right before we leave for our
nation's capital. It's a good thing. Thank you very much, Mr.
Chairman.
Mr. Etheridge. Before we close, let me again thank each of
you for coming. Thank Jerry and Nancy for their hospitality and
for yours. They've done a lot of work in helping pull together
witnesses for our staff and the hospitality of Kansas is as I'd
always expected it to be when I visit here.
And let me, I guess, expand what Jerry said. He said--he
was talking about Kansas. The truth is this bill will affect
every American. Whether they farm or not, they are consumers in
one way or another. And it really reaches outside the borders
of the United States for people around the world who really
depend on American food products to separate them from hunger.
So this is an important piece of legislation and certainly your
input is appreciated.
Under the rules of the Committee, the record of today's
hearing will remain open for 30 days to receive additional
material and supplemental written response from witnesses to
any questions posed by a Member of the panel and any other
materials you may want to share and with that ladies and
gentlemen----
Mr. Smith. Just briefly, I promise. I made a joke about the
Nebraska/Kansas State rivalry, but a great example of how we
can work together----
Mr. Etheridge. That will cost you greatly.
Mr. Smith.--is last year I toured the wheat research
facility in Manhattan. Great opportunity not just for Kansas
but to Nebraska wheat growers as well and we can share
information. So I know that working together we can accomplish
a lot. Thank you.
Mr. Etheridge. He's trying to get out of the ditch. And
when you're the state next door you want to get out of the
ditch real quick.
Mrs. Boyda. Amen.
Mr. Etheridge. Okay. With that this field hearing of the
Subcommittee on General Farm Commodities and Risk Management
stands adjourned. Thank you.
[Whereupon, the Subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Prepared Statement of William V. ``Bill'' Hanson, Chairman, Crop
Insurance Professionals Association, Washington, D.C.
Chairman Etheridge, Ranking Member Moran and Congresswoman Boyda:
I want to thank you for holding this important hearing here today.
The policies that you have responsibility for have a direct and
dramatic impact on so many people's lives, and I think it is
appropriate that have this hearing among us, and greatly appreciate
your listening to the needs and concerns of rural America.
I am Bill Hanson, and I have worked with and among farmers and the
agricultural industry for most of my life. For the last 25 years, I
have been involved with Crop Insurance at the state and national
levels, working for FCIC/RMA and in the private industry as an agent, I
also currently serve as Chairman of the Crop Insurance Professionals
Association (CIPA), an association of agents from around the country
who are dedicated to service and the success of the crop insurance
program.
As you embark upon the writing of a new farm bill, I want to
emphasize the importance of our Federal Crop Insurance Program, and
urge the Committee to be very careful not to undermine the program
which is providing incredibly valuable risk-management tools for
farmers.
Before getting into this any further, I should note that whereas
the farm bill expires in September of 2007, and therefore must be
reauthorized, the Federal Crop Insurance Act does not sunset. Crop
Insurance has been deliberately kept separate from the farm bill
because: (1) it is not meant to be viewed as a government program like
the farm bill; and (2) it is a complex public-private partnership that
should be considered separately and carefully.
However, knowing that money (or lack of money in terms of the
Federal budget) is an issue in the farm bill, and knowing that some are
viewing crop insurance as a potential bank or source of offsets for
other spending needs in the farm bill, I think that it is important
people understand: (1) why the crop insurance baseline has increased;
and (2) what are the potential ramifications of trying to take money
out of the program--the point being that Crop Insurance is the wrong
place to go for money needs in the farm bill.
The reason the crop insurance baseline has increased is two-fold.
First, it is because of the success of the program--more and more
farmers are purchasing higher levels of insurance. This is exactly what
Congress intended in 2000 when it passed the Agricultural Risk
Protection Act (ARPA). Second, the increased commodity prices that
farmers are enjoying means more risk to insure, which means higher
premiums and therefore more premium subsidy which the government
provides. The fact is that if a corn loss is sustained this year,
instead of being indemnified at $2.00 per bushel for non-revenue
policies or $3.03 per bushel for revenue policies (last year's market),
the producer will be indemnified at $3.50 per bushel for non-revenue
policies or $4.06 per bushel for revenue policies (this year's market).
It speaks volumes that even though premiums have increased this year,
most farmers are still buying up at the same levels--they haven't
dropped coverage levels to make up for the increased cost--to me this
says that they still find insurance to be necessary and a good deal. In
any case, it would seem unwise to penalize the program for its success.
The point is, to the extent you take away from either the delivery
system, or the levels of support in the crop insurance program, the
result could very well be a retreat from the ground we have gained
since 2000, and an actual weakening of the farm safety net at the very
time we are wanting to strengthen it. Is this really the goal of the
farm bill?
Crop Insurance today is an incredibly valuable risk management tool
for the farmers I serve. Don't misunderstand--the three-piece safety
net of the 2002 Farm Bill is also important, but it is designed to
provide a safety-net in times of low prices. Crop Insurance on the
other hand is designed to be tailored to the particular risks on the
individual farm, and the particular market risks of the day--and that
is why it is so important for helping farmers mitigate and manage their
real risks this year, when prices are generally high.
Revenue products (CRC, RA) have allowed farmers not only to cover
production risks, but market risks (declining prices) as well. These
products not only allow you to protect down-side risks on both the
production and market side, but it also provides the security needed to
capture opportunities in the market. For example, many farmers have
contracted corn 3 years out at great prices--and it is the Crop
Insurance products that give them the certainty to do this.
Finally, I think it is worth noting that the structure of the Crop
Insurance program is no doubt a reason for its success--the partnership
between the Federal Government and private companies which makes the
products affordable; and the service-based competition among the agents
who explain the products and provide essential advice in their service
to farmers is critical.
Farmers generally have challenges enough in managing their farm--
and so it is helpful to have an agent who is surveying the many
policies and products that are available and helping tailor those
products to the particular needs of the farm. Good agents are
particularly critical when storms come--as they inevitably do--and the
farmer sustains a loss. Having an experienced agent who can manage the
claim during these times is invaluable.
In summary, while crop insurance isn't new, it is more important
than ever to thousands of farmers. The ability to tailor coverage to
each individual operation, obtain coverage at a meaningful level and
affordable price, secure the coverage from a local, trusted insurance
professional, and know that the coverage is in place and the fact that
it can be counted on for financial planning purposes all combine to
make crop insurance the cornerstone of many farmers' financial and risk
management plans. These benefits of crop insurance always have and will
continue to account for the success and acceptance of the program.
Again, I want to thank you for the opportunity to appear before you
today and prepare these remarks for your consideration.
______
Prepared Statement of Joe Kejr, President, Kansas Association of Wheat
Growers, Brookville, KS
Dear Honorable Chairman Etheridge and Subcommittee Members,
Thank you for the opportunity to provide written testimony
regarding the 2007 Farm Bill on behalf of the wheat grower members of
the Kansas Association of Wheat Growers (KAWG). We have several members
in the audience today who recognize this legislation's large impact to
the agricultural communities of Kansas. Our testimony provides an
overview of our state's wheat industry, our policy recommendations for
the programs of the commodity title programs, as well as several
recommendations for crop insurance.
On average, Kansas is the largest wheat producing state. Nearly \1/
5\ of all wheat grown in the United States is grown in Kansas; this is
why it is called the ``Wheat State''. Kansas is also the number one in
flour milling in the United States.
Kansas produces hard winter and soft winter wheat. Winter wheat
planting in Kansas takes place in the fall, from late September through
October. In the spring, the wheat comes out of dormancy with the warm
weather and spring rain and grows to maturity. Kansas wheat is
harvested in the summer, from late May through early July.
Kansas wheat producers deliver enough wheat each year to bake 36
billion loaves of bread and enough to feed everyone in the world, over
six billion people, for about 2 weeks. One acre of Kansas wheat
produces enough bread to feed nearly 9,000 people for 1 day, and we
plant more than 10 million acres per year.
The Kansas wheat industry is not only essential for feeding the
world but looks forward to contributing wheat straw into cellulosic
ethanol production in the near future. Maintaining our wheat industry
contributes nearly 20,000 jobs, $1.9 billion to the state's economy and
the heritage that comes with being the ``Breadbasket of the World''.
Through our policy development process, Kansas wheat growers
participated in producing the National Association of Wheat Growers
(NAWG) Title I Proposals which recommend a direct payment for wheat to
be increased to $1.19 per bushel and that the target price be increased
to $5.29 per bushel, while maintaining the marketing loan program as
currently structured.
This level is needed to provide an adequate safety net for wheat.
Since 2002, wheat growers have ONLY received direct payments, not
counter cyclical or LDPs. Two-thirds of Kansas wheat producers surveyed
identified the Direct Payment as the most important program for their
wheat operation. These fixed, reliable payments are non-trade
distorting, depended upon by lenders for farm financing, and do not
evaporate in a drought.
According to USDA data, historical input costs for 2005 and 2006--
the most representative of forecast production costs over the term of
the next Farm Bill--averaged $215.79 per acre. The average yield, on
the other hand, has stayed around 38 to 42 bushels. Using these
numbers, the average cost to produce a bushel of wheat is around $5.29
while the average market price over the term of the 2002 Farm Bill has
been approximately $3.40 (2003-2005). While most wheat growers purchase
crop insurance and rely on it heavily, affordable coverage is typically
limited to 65 to 70 percent of expected yield. Wheat growers expressed
concern, therefore, about ensuring that a safety net exists for the
other 30 to 35 percent of the crop. By providing a safety net to wheat
growers of $1.19 per bushel in the form of a direct payment, Federal
farm policy can assure growers, their families and their bankers that
they have a predictable and dependable safety net.
KAWG has examined a number of revenue assurance programs but has
yet to find one that will provide adequate support for wheat growers.
These programs do not work well in areas like Kansas where we have
widely variable climatic conditions and agriculture production yields.
Because of those variable factors many Kansas crop acres are planted to
wheat, a crop that endures those conditions. In order to meet WTO
obligations, these programs are normally capped at 70 percent
coverage--not viable coverage of risk from a business perspective.
In fact, if a revenue assurance program had been a component of the
2002 legislation, wheat growers would have received a small payment in
only 1 out of the past 5 years. This is the same period of time that
Kansas wheat farmers have incurred multiples crop disasters due to
drought, flood and freeze. Thus none of the revenue scenarios that have
been presented to this point provide any ``safety net'' for Kansas
wheat farmers.
Over the past 7 years, Kansas producers have developed an intimate
relationship with crop insurance and this year we continue to have that
connection. These experiences have gone into these policy
recommendations for crop insurance.
Through the drought western Kansas wheat producers have seen a
significant decline in their t-yields. We join 20 other Kansas
agricultural organizations in supporting that if a county is declared
as a disaster, then the Risk Management Agency would plug in full t-
yield or the farmer's actual production history (APH), whichever is
higher. This drought has also brought forward concerns with production
history that combine continuous and summer fallow fields in the same
unit. These are two separate production techniques that result in their
own production history and they should not be lumped together.
Additional concerns regarding production history include the ability to
keep this history in situations where producers develop a cash rent
arrangement with their landlords as they do with a share rent
relationship. Finally, we believe that longer production histories
result in more stability with regard to crop insurance claims.
Through this year's Easter freeze to central Kansas' wheat crop, we
have identified a need to redefine when a crop is heading vs. headed.
In adjusting the crop for damage prior to the crop being headed,
adjusters count every green tiller as tillers that will continue to
produce to maturation. Wheat producers are well aware that this is
never the case and that continued development of the plant will result
in only a fraction of those tillers developing to full maturity. This
procedure should be adjusted for scientific and actual production
knowledge. Additionally, the RMA determination for a second crop on
that field is too late. We would propose that RMA work with respected
researchers to come up with more accurate date for determination of
heading date.
Administratively, our producer members recommend that RMA have
state offices, similar to the Farm Service Agency and the Natural
Resources Conservation Service, for closer contact with producers
rather than regional offices. We would also suggest the inclusion of a
state producer review Committee for this agency.
Finally, we would like to share our support of Congressman Moran's
proposed amendments to the Conservation Reserve Program (CRP) and
Conservation Reserve Enhancement Program (CREP). CRP has had a large
impact on the state of Kansas and our rural communities with 3 million
acres enrolled over the 20 years of the program. By allowing the
harvesting of biomass resources from CRP acres for ethanol production,
we will further our country's goal of energy self-sufficiency as well
as add to the economic development in our rural communities.
Additionally, our state has developed a CREP for water conservation
of the Ogallala Aquifer. Our rural communities developed with irrigated
agricultural production and this plan for conservation will have a
dramatic effect on them. Allowing dryland agricultural production on
acres enrolled into this CREP will accomplish the goal of reducing
irrigation through retiring over-allocated water rights while
transitioning these economies into this lower input production option.
Dryland production will support the local rural economy through
continued agricultural production.
Sincerely,
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
Joe Kejr,
President.
______
Prepared Statement of Paul Penner, Vice President, Kansas Association
of Wheat Growers, Hillsboro, KS
Dear Honorable Chairman Etheridge and Subcommittee Members,
Thank you for the opportunity to provide written testimony to the
Field Hearing held Tuesday, June 5, 2007 at the Campus Center at KSU
Salina, 2310 Centennial Road, Salina, KS. We would like to provide our
response to further inquiry of the panelists regarding the 2007 Farm
Bill on behalf of the wheat grower members of the Kansas Association of
Wheat Growers (KAWG).
The discussion at the hearing included the impact of higher grain
prices on operations with grain and livestock segments. As wheat
producers we appreciate receiving higher prices for our crops in the
marketplace but it does not lessen the importance of having a reliable
safety net for agriculture production during low price cycles. During
these up-cycles in crop prices, livestock producers choose wheat as
feed grain and as a grazing option for livestock nutrition.
Much discussion was held on the impact of government program
payments on land values. All the value of agriculture land whether from
the marketplace, program payments or recreation is eventually
capitalized into value and rents. Land is a highly valued asset in our
country as a stable investment and as valuable collateral for
production agriculture that depends upon financing. Wheat producers
have identified direct payments as a reliable system of Federal support
for maintaining agriculture production on our land.
The panelists clearly reiterated the importance of direct payments
as compared to loan deficiency payments and counter cyclical payments.
The wheat producers of Kansas have depended on these payments through
the weather and market cycles of agriculture production and we insist
that these payments be strengthened in the next farm bill.
Regarding the discussion about repealing capital gains tax, wheat
growers support the reduction of capital gains taxes. Additionally,
some of the discussion of the Subcommittee meeting focused on potential
incentives for young and beginning farmers. We would support a lower
capital gains tax for land transfers and capital purchases to qualified
beginning farmers. A capital gains tax incentive to sellers who
transfer land and capital to a beginning buyer would assist with one of
our primary concerns in agriculture, the future generation of
producers.
Regarding payment limits, wheat growers oppose further payment
limitation reductions and would request a commensurate increase in the
payment limitation to accommodate the direct payment increase.
Thank you for this opportunity to provide comments.
Sincerely,
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
Paul Penner,
Vice President.
______
Prepared Statement of Ken Winter, President of the Board, Kansas
Cattlemen's Association, Junction City, KS
On behalf of the Kansas Cattlemen's Association, I appreciate the
opportunity to provide comments on the challenges of Kansas agriculture
as it relates to the farm bill. Kansas has a rich history of
agriculture and is the second largest cattle producing state in the
country. With over six million head of cattle in production each year,
producers have a vested interest in the farm bill and current
legislation.
Background
Since 1994, more than 122,000 cattle ranches and farms have closed
down or left the beef cattle business.\1\ In 1997 the average family
farm consisted of only 487, and farming and ranching families often
depend on off-farm income for their livelihood.\2\ The rancher's share
of each retail dollar earned on beef was 47 cents in 2005, down from
56 cents in 1993.\3\
---------------------------------------------------------------------------
\1\ U.S. Department of Agriculture, National Agricultural
Statistics Service Agricultural Statistics Database, U.S. and All
States Data--Cattle and Calves, 1994-2005.
\2\ U.S. Department of Agriculture, Economic Research Service, July
9, 2002.
\3\ USDA Economic Research Service, ``Beef Values and Price
Spreads,'' available on-line athttp://www.ers.usda.gov/briefing/
foodpricespreads/meatpricespreads/.
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
Family producers are efficient; however, control of the agriculture
industry by large corporations has adversely affected family
production. Independent cattle producers are at the mercy of large
corporate packers. The Packer's and Stockyards Act was introduced in
1921 to protect producers from of a small number of meat packers
controlling the livestock markets. The act bans price discrimination
and manipulation, and other unfair and deceptive practices; yet the
Packers and Stockyards Act has not been enforced as acknowledged by the
USDA Inspector General. His report detailed the failure on the part of
the Grain Inspection, Packers and Stockyards Administration to enforce
the Packer's and Stockyards Act.
Examples Within the Feeding Sector
As a commercial cattle feeder I find it increasingly difficult to
find real competition in the fat cattle markets. We are located in
Dodge City, Kansas where there are two packing plants with in 2 miles
of our front door, another located 70 miles to the south at Liberal,
and one 60 miles West by Holcomb, Kansas. These plants have a slaughter
capacity of well over 15,000 head per day. We have a thirty thousand
head, one time capacity, feed yard and market from 1,000 to 3,000 head
of live cattle to the packers each week. Our location would seem to be
in the heart of demand for South West Kansas, but not so.
Each week we put out a list of market ready cattle for the three
packers, Excel, Tyson, and Farmland, to look at and bid on. Twenty
years ago when the same physical facilities were owned by Excel, Hy
Plains Dressed Beef, National, and IBP, we had four bidders weekly in
our yard. Sometimes sleeping out overnight just to be first to get a
list and bid on our cattle. Today IF three buyers show up at the yard
they will come in Monday, Tuesday, or Wednesday, and more to get an
inventory of available cattle in the industry than to bid on cattle.
Excel is the only packer that consistently shows up each week with
a bid on our cattle. National has not been to our yard for maybe 6
months, Tyson comes in most every week. Tyson and Excel show interest
and indicate a willingness to buy cattle most every week, but when the
trade takes place only Excel is timely with a true market bid while
Tyson will call after the trade takes place to see if we have anything
left over to sell at a discounted price. National would take all cattle
that we would turn in on their grid or at the high of the week, but we
refuse to sell that way. National's grid cattle must be turned in on
Tuesday, before any trade takes place, National has the right to start
slaughtering the cattle Wednesday, again before any trade has been
established, and the cattle are then priced according to their
performance in the packing plant but based off of the cash price to be
established sometime later in the week. You give the cattle to the
packer and have no idea what the price might be. This is a far cry from
having packers camp out on your door step just to get in line to bid.
In the industry today there are many undisclosed deals between
packer and producer all with the promise of getting more money for the
producer who enters into these arrangements but with no regard to the
overall lowering of the market through reduced competition. Branded
products are an excuse used by the packers to justify their
arrangements to procure a consistent supply and quality of cattle. When
in fact what this does is keep the packer from competing in the cash
market to out bid other packers for these cattle. Producers will supply
through breeding, feeding, sorting, or verifying what ever the packer
is willing to pay most for. But the packer has found out that if he
pays the same price for all cash cattle regardless of quality that he
can drive producers into grid, formula, and branded programs to receive
a premium over cash which encourages the best cattle out of the cash
market leaving the lesser quality cattle to set the price on all
cattle.
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
The reported cash market in my opinion/experience is much less than
what is reported. When you take into consideration cattle sold at the
high of the week and other similar undisclosed arrangements, cash may
be as thin as 25-30% of cattle sales on any given week. If transactions
took place like this on the CME or the CBOT people would go to jail,
just ask Martha Stewart. When you drive on the highways across our
country you must obey the laws for the protection and safety of all, as
cattle producers we ask nothing more. We need enforceable rules that
allow everyone to know what is going on. We need to know what is
trading, to whom, at what price, and when. All need access to the
market who have like product. Special deals, that include some and
exclude others does not provide fair equitable access to the market
place.
The Kansas Livestock Association always responds with ``we are not
going to tell our producer how to sell cattle'' which is the same as
promoting these under the table deals between packer and producer which
limits what other producers can do. Cattle need to sell in an open
market system, where all hands are on the table.
[GRAPHIC(s) NOT AVAILABLE IN TIFF FORMAT]
Opportunities for Congress
It is imperative that the Congress mandate and ensure the proper
enforcement of the Packers and Stockyards by establishing an Office of
Special Counsel at USDA to oversee both investigations under, and
enforcement of the Act. It is essential that Congress amend the P&S Act
to prevent unfair or deceptive practices, to define ``unreasonable
preference or advantage,'' and to correct a recent misinterpretation by
the U.S. appellant court system: a meatpacker should not be allowed to
avoid the P&S Act's jurisdiction by claiming it engaged in unfair
market practices (that are harmful to the economic wellbeing of
producers) in order to maintain competitiveness with other meatpackers,
that are likewise engaged in the same unfair practices. Producers need
to be assured that Congress will not allow unfair and anti-competitive
market behavior to take place.
To maintain and increase the cash value of cattle, there needs to
be an increase in competition and an enhancement of fair practices in
the industry. Steps need to require a certain percentage of daily
slaughter to be purchased from the cash market. Congress needs to
ensure that there is transparency among contracts between packers and
producers. Competition is imperative to the livelihood of independent
producers.
______
Prepared Statement of Kurt Kocher, Cloud County Producer, Glasco, KS
July 5, 2007
To Jerry Moran and Nancy Boyda;
The farm bill expires in Sept. of 07 and several things need to be
continued in the new draft. Winter wheat will be planted as the new
bill will be implemented, it concerns me that the crop insurance
program which is an integral part of our marketing program, may change.
This change may affect the way we do our risk management. Some of the
area farmers were not aware there was a possibility of doing away with
the subsidizing of their premiums. Their initial response was dropping
it all together. I don't believe this is the right answer. I equate it
to a car that is out of gas and has a flat tire, you put in gas and fix
the tire, you don't shove it off the cliff. The costs that producers
have to cover have continued to increase dramatically in the last year
or so. Current crop prices will help offset expenses, to hopefully
realize a respectful margin. What about future expenses and prices?
The bottom-line is this: continue to support the crop insurance
program and work to enhance it to make it a better risk management tool
for producers to use. With good risk management by ALL producers a
disaster assistance program would no longer be necessary.
Respectfully submitted.
Kurt Kocher,
Cloud County Producer.
______
Prepared Statement of Edie Dahlsten, Vice President, Kansas Farm
Bureau, Manhattan, KS
Chairman Etheridge and Members of the Subcommittee on General Farm
Commodities and Risk Management, welcome to Kansas! Thank you for the
opportunity to appear before you today and share the views of Kansas'
farmers and ranchers as we enter this critical time for American
Agriculture. My name is Edie Dahlsten and I serve as the Vice President
of Kansas Farm Bureau.
Kansas Farm Bureau is the state's largest general farm
organization, having 40,000 members who actively earn their living from
farming and ranching. Additionally, Kansas Farm Bureau is part of a
nation-wide organization, the American Farm Bureau Federation,
consisting of over six million members from all fifty states and Puerto
Rico.
My husband and I operate a 3rd generation family farm in McPherson
County, Kansas where we produce wheat, soybeans, milo and corn on a
100% no-till operation. In 2000 we closed out a successful farrow-to-
finish swine operation and changed our grain operation entirely to the
no-till system. We, like so many in this part of the state, understand
the all too recent reality of the challenges Mother Nature--farming's
best friend and worst enemy--can inflict on agriculture. Early this
year we were optimistic and excited about the prospects for 2007. The
wheat was beautiful, a full profile of moisture was ready for spring
crops and in many parts of this state, agriculture was set for a banner
year. The challenge began on Easter weekend, when much of the state
experienced several days of crop-killing temperatures. The central part
of the state--where you sit today--has been the most devastated with
estimates of as much as 50% to 100% loss in many fields.
We are here today to talk about how you can help best position
production agriculture across Kansas and the nation to combat the
unknowns at home and in the world marketplace. With that in mind, I
want to share with you several solutions that Kansas Farm Bureau
supports as you move forward in your discussions about the
reauthorization of the farm bill. It is important to note that we like
many other groups support the basic structure of the 2002 Farm Bill--it
has worked well for many and can continue to provide with us with a
strong foundation going forward.
Supporting the Structure of Farming
Solid foundations are important to success. In farming, operators
rely on direct payments, counter-cyclical support, and marketing loan
payments as the foundation for their businesses. The three-legged
structure of our current safety-net should be maintained.
Direct payments represent a $5.2 billion investment according to
the CBO baseline. This investment helps farmers meet the day-to-day
capital requirements on their farms and ranches and provides
consistency in net farm incomes. Direct payments provide stability
which insures production agriculture against the inconsistent nature of
commodity prices caused by fluctuations in the world market or weather.
In the end, U.S. consumers benefit in that their small investment
provides consistently affordable food, fiber, and increasingly, fuel.
We support continuation of this essential element of the current
program.
While the Counter-Cyclical program of the 2002 Farm Bill has worked
well in many instances, producers who have experienced yield reductions
due to weather in times of higher prices have not benefited from the
program. This is especially true in the northwestern counties of
Kansas, where 6 to 7 years of drought conditions have resulted in few
bushels harvested in a time where prices, especially for wheat, have
been high, resulting in few payments when many producers needed them
most. Likewise, at times, other producers have received payments when
yields have risen but prices have been low so payments have been made
even though farmers may not have needed the support.
For those reasons, Kansas Farm Bureau supports the implementation
of a revenue-based counter-cyclical program where payments would be
triggered by a shortfall in state crop revenue rather than a shortfall
in the national average price. This modification would allow the
counter-cyclical payment to fulfill its roll as a key component of the
farm safety net.
Assistance for Those Who Need It
One need not travel far from here to see the impacts of weather
related disaster and thus the need for permanent assistance for those
producers impacted. As you're already aware, the current practice of ad
hoc assistance seems to have run its course--they are difficult to pass
and public perception is not necessarily well informed nor is it
favorable. Kansas Farm Bureau supports the development of a county-
based catastrophic assistance program available in counties with
sufficient adverse weather to be declared disaster areas. The program,
proposed by the American Farm Bureau Federation accomplishes several
goals. First, by re-rating crop insurance and using a minimal producer
fee, it provides coverage within existing budget baselines. As you all
have heard as recently as the fall of 2006 from our President Steve
Baccus, KFB is not completely enamored with the current structure or
state of the crop insurance industry. We believe that in addition to
the benefit of a permanent catastrophic assistance mechanism you also
have the opportunity to inject competition and affordability into the
crop insurance system during this process.
Second, the AFBF catastrophic assistance program would focus on
losses below 50 percent of normal production for all crops--providing
producers of any commodity with a baseline of coverage and protection.
Additional crop insurance coverage could then be purchased up to
traditional levels of coverage providing protection against production
shortfalls.
Ultimately, we believe that ensuring farm revenue through the
counter-cyclical proposal above when combined with the standing
catastrophic assistance program just discussed will result in an
integrated and affordable farm safety-net for American producers. A
shift which makes our producers better positioned to succeed in a
global agricultural market.
Accessing Markets and Trading Partners
Part of the challenge in farming and ranching, like any business,
is in identifying and securing consumers for our products. That need
for new and expanding markets implies our participation in the WTO
process. While some have begun these discussions with the concept that
the United States should re-align its farm programs in anticipation of
compliance with a future agreement in the stalled talks, we believe
that approach to be premature. One of the tenants of our farm policy
has always been its ability to level the playing field in the global
market. We should not amend that practice based on unknown outcomes of
the negotiations. Farmers and ranchers are willing to lower farm
program payments as part of the WTO negotiations only when we can
secure opportunities to sell products overseas.
Second, until that agreement is finalized, we believe that it is
critical to continue to provide Trade Promotion Authority to the
President to facilitate our ability to identify and negotiate access to
the markets of individual nations. Through this authority, we can
continue to pursue opportunities in an efficient and effective manner
until broader agreements can be reached.
Flexible Conservation and Energy Opportunities
While we realize that this is not the Subcommittee with
jurisdiction over conservation or energy. However, it's not often that
we have the opportunity to entertain Members of the House Agriculture
Committee. Given that we wanted to mention several priorities of Kansas
Farm Bureau in other areas.
First, it's important to note that our membership is well aware
that stewardship of the land and success in today's market are linked.
With the rising cost of fuel and fertilizer it only makes sense to
employ farming practices that minimize those input costs. To that end,
many of our members have and continue to employ no-till and minimum
till practices, participate in CSP and EQIP, and to look for
opportunities to maximize their values through enhanced water
conservation.
It's the opportunity for water conservation that we are most
concerned about today. The State of Kansas recently began negotiations
with USDA to establish a Conservation Reserve Enhancement Program
(CREP). The goal of that program was water conservation, and the target
was an area of the state, above the Ogallala Aquifer, where water
levels have declined to a critically low level. Part of the proposal
would have allowed producers to dry land farm enrolled acres--this was
rejected by USDA. We would ask for your assistance in clarifying the
law so that where the goal of the CREP is water conservation, dry land
farming could be allowed by USDA.
The second conservation issue that we wanted to mention today is
the concept that bio-mass products such as switch grass could be grown
and harvested from CRP acres. We're also supportive of this change
which will facilitate continued expansion of the growing renewable
energy segment.
Finally, KFB believes that the new opportunities in energy
represent a part of the future of agriculture and rural America. We've
signed on as a partner in support of the 25 X '25 initiative in hopes
that as a nation we will continue to pursue this important initiative.
We also believe that the current farm bill debate provides new
opportunities to fund innovative research into cellulosic ethanol and
other renewable sources.
Rural Development--Positioning for the Future
The need for new markets, development of new products, and
identification of new economic opportunities has never been more
prevalent than it is in rural America today. Many of our communities
have experienced over a century of out-migration resulting in the loss
of youth, leadership, and the reality that at the passing of the
current generation, vast amounts of wealth will transition from rural
areas to the cities and suburbs.
While current funding within the Rural Development Title benefits
infrastructure and health care access--both important to rural
communities, we believe that those dollars should be refocused to
support development of entrepreneurial activity, identification and
encouragement of leadership, recruitment and retention of young people,
and the creation of opportunities for local wealth generation and
philanthropic activity. These tools will enable rural communities to
create a bright future using existing resources and human capital.
Conclusion
Thank you once again for the opportunity to share the views of our
members. We realize that there are no easy solutions to many of these
issues, and that there are many who simply favor shifting funding from
currently successful programs that equip our members for success. We
believe that there are workable solutions and that consensus can be
reach in a way that maintains production agriculture as a vibrant and
productive component of our economy and our nation. Kansas Farm Bureau
stands ready to assist as you seek solutions for America's farmers and
ranchers.
Thank you.
For more information please contact:
Edie Dahlsten,
Vice President,
Kansas Farm Bureau,
Manhattan, KS 66503;
Terry Holdren,
National Director,
Kansas Farm Bureau,
Topeka, KS 66612.
Prepared Statement of Daryl A. Larson, Farmer and Rancher, McPherson,
KS
June 5, 2007
Rep. Jerry Moran and the House Agricultural Committee,
In light of all the complaining from the large livestock and
poultry producers as well as from some of the food processors and
retailers about the price of corn and other grain and oil seeds being
too high, I would like to offer the following suggestion. The powers to
be in Washington, D.C. need to decide if they want to keep the price of
agricultural commodities low so that feed and food stays a little lower
or if they want the agricultural producers to get a fair price from the
market. Just remember, as you probably already know, that our cost of
production has increased dramatically because of the increase in price
of fuel, fertilizer, equipment, insurance, etc. If you choose to try to
keep the price of commodities low to please the people that are
complaining, then remember we will have to be subsidized if you want to
keep us in business so the USA does not become totally dependent on
foreign countries for our food needs, which would be a horrible
mistake. If this is the path you choose then I ask that you develop a
media campaign explaining your actions to the taxpayers of the USA so
they know it is not the farmers and ranchers that are getting rich from
the subsidies, but that it is the people that buy and use our
commodities that are benefiting.
Daryl A. Larson,
Farmer and Rancher.
______
Prepared Statement of Gary Melander, Assaria, KS
Farm Bill Comments
Current government farm programs tie subsidy price supports to farm
production. Additional bushels equal additional subsidies. This
emphasis on production subsidies ignores the wisdom of the marketplace.
Farm decisions made on subsidy considerations distort grain markets and
individual commodity supplies. These subsidies encourage and finance
excessive application of fertilizers and other crop inputs, the farming
of fragile lands, and the creation of crop surplus and low commodity
prices.
At this point in history, when there is talk of global warming, a
developing energy crisis, water shortages, and pollution, Americans are
coming to the reluctant conclusion that our natural resources are
finite. It is imperative that farm programs encourage resource
conservation, not resource consumption.
Tax dollars that have been chasing crop production should be
shifted into programs that stimulate and support conservation. We need
to establish resource consumption standards for agriculture. If farmer
Jones can meet the energy standard, or other critical standards, give
him a serious subsidy award. When Jones discovers new farm tactics that
reduce crop inputs while maintaining satisfactory yields, increase the
subsidy. Give him tax dollars for efforts to protect the land,
wildlife, and clean air and water. A healthy environment is as critical
to the good life as is food production. We cannot expect the
marketplace to recognize and reward this critical conservation work.
Gary Melander,
Assaria, KS.
______
Prepared Statement Don J. Hineman, Wheat Farmer and Cow/Calf Producer,
Dighton, KS
To: Members of the Subcommittee on General Farm Commodities and Risk
Management
Field Hearing--Salina, KS, June 5, 2007
My name is Don Hineman and I am a dryland farmer and cow-calf
producer from Dighton in West Central Kansas. The multi-year drought on
the High Plains was devastating to my crop production from 2000 through
2006. Like many of my neighbors, there were several years during that
period that my net farm income would have been negative had it not been
for farm program payments. Obviously production-based payments were of
no benefit to me during this time. It was the direct payment component
of the farm bill that supported me during those tough times and allowed
me and most (but not all) of my neighbors to stay in business. I thank
you for providing that support and I strongly urge you to maintain an
adequate level of direct payments in the next farm bill.
As a wheat farmer and beef producer I am very aware of our need to
export a significant portion of our agricultural production. Therefore
I am quite hopeful that the new farm bill will be WTO-compliant and
will not contain provisions that would jeopardize the U.S.' ability to
export wheat and beef. The truth is that production-based program
payments do a number of things wrong and do very little right. Such
payments do not provide a safety net to U.S. producers during times of
production shortfall, they distort market signals and stimulate
overproduction of selected crops, and by doing so they have a
significant negative effect on farmers in other parts of the world
whose governments are unwilling or unable to play the price support
game. As an American I worry about the negative sociopolitical
implications of such a policy and as a Christian I am concerned about
the humanitarian effects. It is possible to craft a farm bill that
provides adequate support to U.S. producers without distorting market
signals and adversely affecting our counterparts in other countries. I
urge you to search for such a solution by reducing dependence on
production-based support payments and moving toward direct payments and
other forms of compensation that would be WTO-compliant.
Thank you for your consideration,
Don J. Hineman.
______
Prepared Statement of Steven Clanton, Commissioner, Kansas Wheat and
Soybean Commissions, Minneapolis, KS; on Behalf of Kansas Association
of Wheat Growers; Kansas Wheat Commission
Dear Honorable Chairman Etheridge and Subcommittee Members,
I am Steven Clanton. I currently am a Commissioner on the Kansas
Wheat and Soybean Commissions. I would like to report to you on the
work to which I was a part. Several Kansas agriculture groups met
throughout last year to discuss the upcoming farm bill.
I know this was presented to our Kansas delegation and would like
to now present it to this Subcommittee.
Thank you for this opportunity to present this to you.
Sincerely,
Steven Clanton,
Minneapolis, KS.
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