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



 HEARING TO REVIEW THE 2007 FARM BILL PROPOSALS OF THE U.S. DEPARTMENT 
                                   OF
                              AGRICULTURE

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

                                HEARING

                               BEFORE THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           February 14, 2007

                               __________

                            Serial No. 110-1


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







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20402-0001






                        COMMITTEE ON AGRICULTURE

                COLLIN C. PETERSON, Minnesota, Chairman

TIM HOLDEN, Pennsylvania,            BOB GOODLATTE, Virginia, Ranking 
    Vice Chairman                    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, South Dakota      MIKE ROGERS, Alabama
HENRY CUELLAR, Texas                 STEVE KING, Iowa
JIM COSTA, California                MARILYN N. MUSGRAVE, Colorado
JOHN T. SALAZAR, Colorado            RANDY NEUGEBAUER, Texas
BRAD ELLSWORTH, Indiana              CHARLES W. BOUSTANY, Jr., 
NANCY E. BOYDA, Kansas               Louisiana
ZACHARY T. SPACE, Ohio               JOHN R. ``RANDY'' KUHL, Jr., New 
TIMOTHY J. WALZ, Minnesota           York
KIRSTEN E. GILLIBRAND, New York      VIRGINIA FOXX, North Carolina
STEVE KAGEN, Wisconsin               K. MICHAEL CONAWAY, Texas
EARL POMEROY, North Dakota           JEFF FORTENBERRY, Nebraska
LINCOLN DAVIS, Tennessee             JEAN SCHMIDT, Ohio
JOHN BARROW, Georgia                 ADRIAN SMITH, Nebraska
NICK LAMPSON, Texas                  KEVIN McCARTHY, California
JOE DONNELLY, Indiana                TIM WALBERG, Michigan
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

                                  (ii)








                             C O N T E N T S

                              ----------                              
                                                                   Page
Goodlatte, Hon. Bob, a Representative in Congress from Virginia, 
  opening statement..............................................     2
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, opening statement...................................     1

                                Witness

Johanns, Hon. Mike, Secretary, U.S. Department of Agriculture, 
  Washington, D.C.; accompanied by Hon. Chuck Conner, Deputy 
  Secretary; and Keith Collins, Ph.D., Chief Economist, U.S. 
  Department of Agriculture......................................     4
    Prepared statement...........................................     9
    Submitted questions..........................................    71

 
 HEARING TO REVIEW THE 2007 FARM BILL PROPOSALS OF THE U.S. DEPARTMENT 
                              OF AGRICULTURE

                              ----------                              


                      WEDNESDAY, FEBRUARY 14, 2007

                          House of Representatives,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 10:15 a.m., in Room 
1302, Longworth House Office Building, Hon. Collin C. Peterson 
[Chairman of the Committee] presiding.
    Members present: Representatives Peterson, Holden, 
McIntyre, Etheridge, Boswell, Baca, Cardoza, Scott, Marshall, 
Herseth, Cuellar, Costa, Salazar, Ellsworth, Boyda, Space, 
Walz, Gillibrand, Kagen, Pomeroy, Davis, Barrow, Lampson, 
Donnelly, Mahoney, Goodlatte, Lucas, Moran, Hayes, Graves, 
Bonner, Musgrave, Neugebauer, Kuhl, Foxx, Conaway, Fortenberry, 
Schmidt, Smith, McCarthy, and Walberg.
    Staff present: Andy Baker, Christy Birdsong, Nona Darrell, 
Chandler Goule, Craig Jagger, Rob Larew, John Riley, Sharon 
Rusnak, Anne Simmons, April Slayton, Debbie Smith, Bryan 
Dierlam, John Goldberg, Kevin Kramp, and Pam Miller.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE 
                   IN CONGRESS FROM MINNESOTA

    The Chairman. This hearing of the House Committee on 
Agriculture to review the proposals of the United States 
Department of Agriculture for the 2007 Farm Bill will come to 
order.
    I want to start by welcoming everyone to the first hearing 
of the House Agriculture Committee in the 110th Congress, and I 
want to take a moment of personal privilege here to recognize 
Mr. Lampson, one of the new Members of the Committee. I 
understand it is his birthday today.
    So, happy birthday, Mr. Lampson.
    We will withhold his age. He is 39 and something.
    Mr. Lampson. Thank you, Mr. Chairman.
    Mr. Goodlatte. Me, too.
    The Chairman. I appreciate, Secretary Johanns, your making 
time for us during this very busy week for you.
    After testifying last week at the Senate Agriculture 
Committee, I understand he is also testifying at the House 
Budget Committee this week. So we are glad that he was able to 
join us today to discuss the farm bill proposals that he 
announced in January.
    Mr. Secretary, I know you, personally, invested a lot of 
time in this process, and I appreciate the hard work and 
serious consideration that obviously went into development of 
your farm bill recommendations. I thought there were some good 
ideas and some ideas that were not so good, but your efforts 
will contribute to the task that we are about to undertake.
    We, on the Committee, are also hearing from many other 
voices--farmers and ranchers who testified at our Committee 
hearings on the farm bill around the country last year, 
organizations representing agriculture producers, processors 
and consumers, citizens who have submitted feedback on the 
Agriculture Committee's website and, of course, from USDA. 
There are many ideas out there, and it will be our job on the 
Committee to take the best parts of all of these ideas and put 
them together into a farm bill that works for American 
agriculture. This is not an easy task, but I believe we are off 
to a good start.
    As the Agriculture Committee begins to write this bill, we 
have a responsibility to meet the needs of all Americans--
farmers and ranchers, consumers who expect the safe and 
abundant supply of food and fiber, as well as those who count 
on the farm bill's food and nutrition programs for a square 
meal. I intend to make sure that we fulfill those 
responsibilities to the best of our ability, using a fair and 
open process.
    Until we know how much money the Budget Committee is going 
to allocate for writing the farm bill, we are meeting with 
folks, learning about proposals that are out there, and, 
generally, getting to know the lay of the land. I am meeting 
with Senator Harkin to talk about the farm bill on a regular 
basis, weekly or biweekly, and we will continue to do that 
throughout this process. That way, even if the House and Senate 
end up passing different bills, we both know what is going on, 
and kind of how we got there, and what we are going to face 
when the bill gets to conference committee. As I have said many 
times, I want to get the farm bill by both the House and the 
Senate and on the President's desk for signature before the 
current farm bill expires at the end of September. It is an 
ambitious agenda, but I am confident that, working together, we 
can do it.
    So, thank you, Mr. Secretary, for being here today. We very 
much appreciate it. I look forward to your comments. I look 
forward to working with you and your staff as Congress writes 
this new farm bill, and, without objection, we will ask Members 
or give Members the opportunity to submit statements for the 
record with one exception.
    I will recognize my good friend and distinguished Ranking 
Member, Mr. Goodlatte, for an opening statement before we 
proceed to the Secretary.

 OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN 
                     CONGRESS FROM VIRGINIA

    Mr. Goodlatte. Well, thank you, Mr. Chairman, and thank you 
for calling this hearing to receive testimony from the 
Secretary of Agriculture.
    Mr. Secretary, welcome back to the Agriculture Committee. 
It is a different room, and it is not the only difference. 
There is another one that those of us on my side of the aisle 
like to talk about a little less, but nonetheless, this is a 
very bipartisan Committee, and we are delighted to have your 
participation here today. I also want to commend you and the 
Department on the tremendous amount of work that you have done 
in providing proposals and advice to the House and to the 
Senate in terms of our preparation for writing a new farm bill. 
You have done an incredible amount of work, traveling to nearly 
every state in the Union and meeting with thousands of farmers 
and ranchers. You have put together what is a very impressive 
array of proposals that we should give very strong 
consideration to as we write this new farm bill. You released 
that 2 weeks ago today, and the proposal contains a number of 
interesting ideas that warrant further examination. This 
hearing is a single, but important, step in the process of 
compiling the next farm bill. In this hearing and in many more 
hearings and in meetings to come, we will have the opportunity 
to ask questions of the USDA to get a better understanding of 
the details of their proposal. Some of the USDA's ideas will 
have broad support while some will be met with measured 
skepticism. USDA's proposal as written is general. It would be 
nearly impossible for anyone to write a farm bill proposal that 
addressed everyone's individual question or concern.
    However, before the Congress can agree on a final farm bill 
conference report, later this year at some unknown date, we 
must address the details. Members of this Committee and their 
constituents want to know what the USDA's proposal will mean to 
them. An example of this is your proposal to convert the 
current price-based countercyclical program to a revenue-based 
countercyclical program. I understand, based on the testimony 
you received at your listening sessions, the logic behind your 
proposal and why you arrived at this decision. However, I want 
to delve into this proposal a little further, so that I fully 
understand how the program works and the implications of what 
you have proposed. I want to determine if it is a better safety 
net for producers who do not have a crop and if it prevents 
large, unwarranted payouts.
    An additional concern I have is that much of our farmland 
today is farmed by someone other than the landowner, either 
cash rent or on a crop-share basis. Many of the concerns I have 
about your proposal center on the relationship between the 
farmer and the landlord. We must understand the impact of all 
of your proposals on landlords and tenants so that we do not 
disrupt this important relationship. All of us here today have 
a common goal of producing a comprehensive legislative practice 
that strengthens the vitality of American agriculture, provides 
an adequate safety net for our farmers and ranchers, and 
assures that American consumers continue to have access to the 
safest, most affordable food and fiber supply in the world.
    I look forward to working with you and the members of your 
staff as we work toward a new farm bill, and I look forward to 
your answers to the early questions that I and my colleagues 
have about your proposal. Thank you.
    The Chairman. I thank the gentleman for his statement and, 
again, for his continued cooperation as we work through this 
process.
    With that, Mr. Secretary, again, we appreciate your being 
here on a snowy day, but for you and I, this is not anything 
out of the ordinary, and we look forward to your testimony.

STATEMENT OF THE HON. MIKE JOHANNS, SECRETARY, U.S. DEPARTMENT 
               OF AGRICULTURE, WASHINGTON, D.C.;
            ACCOMPANIED BY HON. CHUCK CONNER, DEPUTY
  SECRETARY; AND KEITH COLLINS, Ph.D., CHIEF ECONOMIST, U.S. 
                   DEPARTMENT OF AGRICULTURE

    Secretary Johanns. Well, thank you very much, Mr. Chairman. 
It is, indeed, an honor for me to be here today and to offer 
some thoughts on the farm bill.
    We have submitted very, very extensive written testimony, 
and I am not going to read that. I am going to speak from, 
hopefully, a brief outline to explain the basics of our 
proposals, and then I will look forward to fleshing this all 
out with some discussion and response to questions that are 
offered. I am also submitting with that written testimony the 
actual book of the farm bill proposal so it will be a part of 
the record.*
---------------------------------------------------------------------------
    * A copy of the proposal is retained in the Committee files, and 
can be viewed at http://www.usda.gov/documents/07finalfbp.pdf: the 
webpage links for the legislative language are as follows, in order of 
titles--http://www.usda.gov/documents/fbcommodity_071.pdf; http://
www.usda.gov/documents/fbconservation_071.pdf; http://www.usda.gov/
documents/fbtrade_071.pdf; http://www.usda.gov/documents/
FBNutrition2007.pdf; http://www.usda.gov/documents/fbcredit_071.pdf; 
http://www.usda.gov/documents/fbrd_071.pdf; http://www.usda.gov/
documents/fbresearch0507_1.pdf; http://www.usda.gov/documents/
fbresearch0507_1.pdf; http://www.usda.gov/documents/fbforestry_071.pdf; 
http://www.usda.gov/documents/fbenergy_071.pdf; http://www.usda.gov/
documents/FBmisc_2007.pdf.)
---------------------------------------------------------------------------
    I do want to acknowledge a couple of people who are here 
with me at the table, at the witness table. To my left, of 
course, is Dr. Keith Collins, who I believe everybody 
associated with agriculture knows Keith was very instrumental 
in helping us put together background information; and who just 
has a wealth of information about not only this farm bill but 
past farm bills. And then, of course, to my right, is the 
Deputy Secretary for the USDA, and that is Chuck Conner. And 
Chuck has been involved in more farm bills than I will probably 
ever be involved in in my life, so his help was very important. 
I do want to mention, from a budget standpoint, Scott Steele, 
our Budget Director, is here with us and can answer or respond 
to any questions that may be related to budget.
    I appreciate the welcome by both the Chairman and by the 
Ranking Member. We did work hard to put these proposals 
together. All told, we did 52 Farm Bill Forums across this 
country. We were in 48 out of the 50 states. The only two we 
did not get to were Louisiana and Mississippi, because of the 
hurricanes, when we were doing the Forums. We got about 4,000 
comments, just over 4,000 comments. They were all summarized in 
a book that was published, and it is also on our website and 
into 41 summary papers. We tried to identify the comments by 
theme or by an idea and summarized them, so they are all 
summarized, and then we asked Keith to lay out our effort with 
the economists at USDA to identify five themes or six themes or 
whatever number they felt was appropriate. They ended up doing 
five analysis papers on everything from risk management to 
conservation, and those theme papers are embodied in this book, 
but again, that has been on our website, and we published it. 
To give Keith some credit here, this is an excellent 
publication. Those folks wrote it. It is just a wealth of 
information about farm programs and who receives payments and 
just, really, some great, great information.
    Well, I have a history with the 2002 Farm Bill. I was 
Governor of Nebraska at the time of the 2002 bill. I was asked 
to be the lead Governor for the Western Governors in the 
reauthorization of that farm bill. I was asked also to be the 
co-lead Governor for the Midwest Governors in the 
reauthorization of that farm bill with one of my colleagues, a 
gentleman by the name of Tom Vilsack, who was the Governor of 
Iowa at the time.
    I have said many times I supported the 2002 bill. I think 
it was the right policy for the times. Commodity prices were 
low. It was a difficult time for agriculture. Exports had 
declined for several years in a row. The debt-to-asset ratio 
was about 15 percent for agriculture, and it did some good 
things. It was the first farm bill that had an energy title. It 
increased payments for conservation programs, if I remember 
correctly, by about 80 percent, but as is the case in the 
evolution of farm policy, times do change, and times have 
changed.
    Today, I can tell you that commodity prices for the program 
crops are, by and large, very strong, in fact, for many of the 
program crops, historically strong. Exports have increased year 
after year. We have set three records out of the last 6 years. 
This year, we will hit $68,000,000,000. That is a record. That 
was for 2006. For this year, 2007, we estimate another record 
of $77,000,000,000 in exports.
    On the debt-to-asset ratio, I am very pleased to tell the 
Chairman and this Committee that the debt-to-asset ratio for 
agriculture is absolutely the lowest in recorded history. It 
was about 11 percent in 2006, and probably as important as 
anything, renewable energy is a main part of the agriculture 
economy these days. Although it has been a part for a long 
time, it has grown dramatically in the last 24 to 36 months.
    Well, after listening to farmers and stakeholders all 
across the country, we arrived at the idea that what we needed 
to focus on were four areas. One was a more predictable 
program. Farmers need to know what they are going to end up 
with, a more equitable program. We did Farm Bill Forums in, 
like I said, virtually every state. We heard from specialty 
crop farmers--not asking to be program crop farmers but asking 
for their place in research--and phytosanitary market 
promotion, that sort of thing. We believe that it needed to be 
better able to withstand challenge.
    I said, just recently, it is no safety net to pass a 
program that puts a bulls eye on the back of farmers from a 
trade standpoint. Trade is too important. Eighty percent of our 
cotton produced in the United States goes into the export 
market. Fifty percent of our rice goes into the export market. 
If you raise cattle, 75 percent of the hides are going into the 
export market. About every third row of row crops go into the 
export market.
    Then, finally, it needed to wisely and effectively spend 
tax dollars.
    So here is the essence of what we are proposing: Relative 
to marketing loan rates, they are proposing that loan rates be 
adjusted downward during the life of this farm bill, but by the 
same token, we are also proposing that direct payments be 
increased. There are a number of reasons for this approach. I 
doubt that there will be any debate here today that our 
Marketing Loan Program fits into the amber box. That is the 
most trade-distorting item relative to trade. Now, some may 
say, well, you talk about trade; how important is that?
    Well, in the 2002 Farm Bill, a limit was set on the amber 
box. Why? Because that is what made that piece of it trade-
compliant. So we are proposing to raise the direct payment for 
cotton. That will be about 65 percent because the loan rates 
coming down for cotton impact that area literally to that 
level. So we raised the cotton direct payment by about 65 
percent.
    Now, in the other four major program crops--rice, corn, 
wheat, soybeans--we are also proposing that, in the 3rd, 4th 
and 5th years, we raise the direct payment by six percent. 
Adjusting the loan rates there did not have a budget impact, if 
you will. Why? Because prices are very high. Like I said in my 
comments a few minutes ago, they are historically high, but we 
looked out there, and we said in years 3, 4 and 5, you could 
see some leveling off of ethanol and other things that are 
going on. We need to identify $1,000,000,000 that we can put 
out there for those producers, and we would raise their direct 
payment by about seven percent. I am not the tradesperson for 
the United States, but I can tell you, as a matter of 
principal, decoupled direct payments, in other words, if they 
are not coupled to price or production, are generally compliant 
and are regarded as green box payments. The total direct 
payment increase, therefore, is about $5,500,000,000 over the 
life of this farm bill.
    We also are proposing to create a revenue-based 
countercyclical program. I will share something with you that I 
have said a number of times over the last 3 weeks that sounded 
very counterintuitive to me when I was out there listening to 
farmers. Farmers literally came in and said, the 2002 Farm Bill 
pays us more when we do not need it and less when we do. They 
would go on to say, in years of the highest production, I am 
getting the most money. In years of lowest production, I am 
getting the least money, and I am thinking, how could that 
possibly be? The 2002 Farm Bill was based upon a safety net 
concept. How could that be happening? Here is how it is 
happening.
    In years of the highest production and when prices are low, 
you collect a loan deficiency payment, and so that is going to 
pay out higher when you have high production. On the other 
hand, if you are out in a state where you have had drought, you 
are not going to get an LDP if you have no crop. Why? You 
cannot LDP a crop you did not raise under the 2002 Farm Bill. 
What happens to the countercyclical? It is triggered by price, 
and when you have a shortage, supply and demand typically will 
tell you that price will go up, and you will not trigger the 
countercyclical. Is it any wonder people are here every year 
asking for a disaster relief package and telling you there is 
no safety net, and you are sitting there thinking, how could 
that possibly be? Well, we listened to this, and we went back 
and studied the situation at the USDA, and in fact, in some 
years, they were right. Some of our largest payments occurred 
during the years of best production, a fascinating thing, but 
that is what farmers were saying.
    We are also proposing to provide a number of things that 
are different. We are proposing an enhanced payment option for 
conservation purposes. This is voluntary proposal. Farmers can 
do it. They can choose not to do it. But let us say a farmer 
out there is raising corn and wants to continue to raise corn. 
They look at the situation and say, prices are strong; I 
believe, during the life of this farm bill, I will not get a 
countercyclical or a loan deficiency payment, but I want to do 
some conservation things. We say, great, enter into a program 
here; we will boost your direct payment by ten percent; you can 
continue to farm just like you are farming, but it gives you 
another option, again, a voluntary program.
    We heard a lot about 1031 exchanges. We are proposing that, 
if you sell capital property and invest it in farmland under a 
1031 exchange, you are free to do that. You are free to 
continue to do that. We are proposing that commodity payments 
would not be made on that land. Why? Farmers were telling us 
that prices were going up because of the 1031 exchanges. We 
increased conservation funding in our proposal by 
$7,800,000,000.
    We have a number of proposals in terms of a streamlining of 
what we are doing here in making these programs better able to 
operate more efficiently. We are providing $1,600,000,000 in 
new funding for renewable energy research, development and 
production and are proposing to provide $2,100,000,000 for a 
loan guaranty program, again, targeted at cellulosic ethanol. 
We are providing about $1,000,000,000 in loans and $500,000,000 
in grants into rural communities. I will mention one program.
    I would guess about everybody in this room represents an 
area that has a critical access hospital. There are 1,283 of 
them in the country that we have not been able to rehabilitate. 
We are proposing to fully fund a program that will continue the 
funding for that loan program so those hospitals can all be 
done during the life of this farm bill. We are also targeting 
nearly $5,000,000,000 in funding for our specialty crop 
producers. This is everything that they talked about in the 
Farm Bill Forums--research, development, sanitary, 
phytosanitary, purchasing additional specialty crops for our 
school lunch program--but the overall value of that is about 
$5,000,000,000.
    We also heard from beginning farmers, and we have a number 
of programs directed towards them. For example, on program 
crops, we are proposing to boost the direct payment for 
beginning farmers by 20 percent. They asked us to streamline 
the loan programs. We are proposing to do that. We have 
identified additional funding in our conservation programs that 
will be earmarked toward beginning farmers and socially 
disadvantaged farmers. We have a number of proposals to 
streamline our Food Stamp Program.
    Overall, here is the picture, and these will be my last 
comments. The 2002 Farm Bill spent a certain amount of money. 
If you compare that amount of money with what we are proposing, 
this farm bill will spend $10,000,000,000 less, driven in large 
part by higher commodity prices, but actually driven also by 
the reforms we are proposing. If you take the 2002 Farm Bill 
and say, good enough for me, nice presentation, but I like the 
2002 Farm Bill, I just want to extend it, I can go into the 
House, and I can get the votes to extend it, and I can go to 
the Senate and get the votes to extend it, and it is done, but 
we are proposing that this proposal would actually spend 
$5,000,000,000 more than the extension of the 2002 Farm Bill. 
Why? Because the 2002 Farm Bill in many areas is not going to 
pay a countercyclical. It is not going to pay a loan 
deficiency. Let me give you one example.
    Let us say you are out there in a state where you raise 
corn or soybeans or wheat or rice, and you say, well, I just 
want to extend. Forget the direct payment. I do not like the 
idea. I just want to extend the 2002 bill. Our projections 
would indicate that you just removed $1,000,000,000 from the 
pockets of those producers because that is the value of that 
direct payment over those last 3 years, and because of the high 
prices, it is very unlikely that they are going to get any 
countercyclical or any loan deficiency payment. Plus, they 
would not get the enhanced funding that will go through the 
conservation program.
    We are also doing many, many things, I think you would 
agree, to support emerging priorities. We are increasing 
funding for renewable energy and conservation and research and 
trade and development, some of the very things that farmers 
told us. With that, let me just wrap up where I began.
    It is definitely an honor to be here. We look forward to 
your questions, not only today, but Mr. Chairman and Ranking 
Member, we want to emphasize that, in any way we can help to 
provide information to engage in discussion, we want to be a 
part of that process from today until a proposal is passed by 
Congress and sent to the White House.
    Thank you very much.
    [The prepared statement of Secretary Johanns follows:]
    
    
     Well, thank you, Mr. Secretary. Again, we appreciate your 
being with us, and I know I and the Members have a lot of 
questions, so we will work through this until we get a time 
    limit.Later today, I am going to be going to the Budget 
Committee and making a pitch for additional resources. One of 
the things I will be handing out is an analysis we have done 
that shows that the commodity title is going to be down 42.8 
percent, $60,000,000,000 from what was in the baseline in the 
time we passed the 2002 bill. Most of the other areas--
conservation, especially food stamps--are up substantially. So, 
overall it does not look so bad, but from our calculations, for 
example, food stamps are now going to be 67 percent of the 
amount of money that is in the farm bill, which is an all-time 
high.
    But, in that regard, one of the questions that I have, is 
it in your proposals that you not only change Agriculture 
Committee programs--in the appendix of the President's budget, 
there are eight of these so-called CHIMPs, Changes in Mandatory 
Programs, and in this addendum there, there is a 1 year 
reduction in ag programs of $546,000,000. There is an increase 
of $59,000,000 for a net savings of $487,000,000. Amongst these 
CHIMPs is a $275,000,000 reduction in EQIP and an $80,000,000 
reduction in CSP, and so forth. This extended out is about 
$5,000,000,000 in cuts in funding from Agriculture Committee 
programs, which is coincidentally about the same amount that 
you are asking for an increase in your proposal.
    So my question is: Why is the Administration continuing to 
support these 1 year at a time reductions in Agriculture 
Committee programs by appropriators rather than supporting a 
discretionary budget allocation for the Appropriations 
Committee that is sufficient to cover their needs? Apparently, 
they are doing this because they do not think they have enough 
money, I guess.
    Can you explain to me why that is going on?
    Secretary Johanns. Well, this gentleman to my left is 
probably better to talk through the intricacies of budget 
issues and especially Scott Steele, but let me just offer an 
overall thought. We are kind of in an unusual period here. Why? 
Because we have a budget process that is ongoing, and you have 
just referenced that, while at the same time we are making 
proposals for a farm bill, and as you pointed out in your 
testimony, the current farm bill expires this year, so you have 
to pass a farm bill.
    So, on one hand, you have all of these budget proposals 
that are designed to try to save money and balance the budget 
and do all of those things. Then, on the other hand, you have a 
farm bill proposal that is looking out 5 years and, in fact, 
scored over 10 years in trying to figure out how that all fits 
together. But I can tell you, overall, the essence of what we 
are trying to do from a budget standpoint is precisely what you 
are referencing here. We are trying to deliver a budget that is 
fiscally responsible, and a budget that fits within the 
President's goals of eliminating the deficit over the next 5 
years, and incidentally, our farm bill proposal does fit with 
that. So that is kind of the big view.
    Now, the specific programs----
    The Chairman. Well, I do not know if we need to get into 
that, but you all would agree that the budget does basically 
take back what you have proposed in additional spending?
    Secretary Johanns. Well, no, because it takes effect after 
that budget.
    The Chairman. Pardon?
    Secretary Johanns. What we are proposing in our farm bill 
actually takes effect for the next budget cycle.
    The Chairman. All right.
    Secretary Johanns. Go ahead.
    Dr. Collins. Mr. Chairman, if I could just comment on that. 
The CHIMPs result in what we call a policy baseline. They 
result in a reduction in spending, and you can carry that out 
for 5 years. Our farm bill proposals are based off the current 
services baseline.
    For example, one of the CHIMPs is a reduction in spending 
on the Conservation Security Program below our baseline. If you 
look at what we are spending on the Conservation Security 
Program today, it is about $256,000,000 a year. We are 
proposing $316,000,000 in 2008, which is some $80,000,000 or so 
below the baseline. However, if you look at our farm bill 
proposal, we are proposing taking CSP spending from that 
$316,000,000 in 2008 to $1,400,000,000 by 2016.
    Likewise, for EQIP, one of the programs you mentioned, yes, 
we have a reduction in our proposed 2008 budget to flat line it 
at $1,000,000,000 a year. On top of our current services 
baseline, we are proposing an increase of $4,250,000,000 
cumulatively over the next 10 years above the current services 
baseline.
    So there are sort of two ways to look at this. You can look 
at the short-term 1 year snapshot that the Secretary mentioned 
is an attempt to come and support the President's deficit 
reduction goal, and the second is the longer-term view, which 
is what we are proposing in the farm bill.
    The Chairman. Well, we are very concerned about these 
CHIMPs that have been going on since 2001, and hopefully, we 
can stop that. But, on your revenue proposal, Mr. Secretary, in 
your testimony, you quoted that a Kansas farmer proposed this 
target revenue program, and basically, it appears that he did 
not get help when he needed it because prices were high, and he 
lost the crop to drought. Now, I can see how a county-level 
revenue program would address this situation, but as I 
understand it, what you have proposed is to calculate this 
revenue on a national basis. So my question is: Would John from 
Kansas have gotten any additional support out of your program 
the way that it is constructed?
    Secretary Johanns. I would have to work with John from 
Kansas. I mean, his point is a valid point. There is just no 
question. If you do not raise a crop, you can verify what he 
said to be true. Again, if you do not raise a crop--let us 
say----
    The Chairman. I do not disagree with that, but I am not 
sure, if it is not on a national basis, it is going to fix the 
problem.
    Secretary Johanns. Yes. We have actually done some analysis 
of a situation where, for example, in Kansas, they raise wheat. 
We plugged in wheat as if it were a part of the 2002 Farm Bill 
as we have proposed this program, and the wheat growers would 
actually have done $800,000,000 better, not every year, but 
literally, if you look at the whole picture, we figure that 
they would have done better for the life of the farm bill. Why? 
Because you were actually looking to lost revenue. Under the 
current countercyclical, it is triggered by price, so if you 
have a shortage and price goes up, he is not only out on the 
LDP; he is also out on the countercyclical.
    So the answer to your question is you have to look at the 
year. You have to look at what happened to revenue, but they 
have a better chance with this approach.
    The Chairman. Well, yes, and we need to keep in mind that, 
when we did the 2002 bill, the countercyclical payments were 
viewed as part of the overall safety net to deal with price, 
and the crop insurance, which we had overhauled, was going to 
be what we used to cover yield and revenue. In the budget 
baseline, the crop insurance has gone up the baseline quite a 
bit, something like 40 some percent because of the additional 
resources we put in there. So crop insurance was supposed to 
take care of that. Obviously, it has not, and that is why I 
have been talking about permanent disaster and trying to figure 
out a way to deal with this.
    So I guess I would just--I am not sure that I understand 
what you are trying to get at, but I am not sure if doing this 
on a national level is necessarily going to get at a problem 
that somebody might have at a county level. That was the only 
point I was trying to make.
    Secretary Johanns. It would, and again, we can work with 
you and show you how we have analyzed this.
    Another point I would make, though--and I did not mention 
this--is we also had a proposal on crop insurance that you will 
find very helpful and very interesting. One of the things we 
heard in the Forums is, well, crop insurance is fine. I can 
ensure--let us just pick a number--70 percent of my loss, but I 
have this gap, and I cannot afford to lose on that gap.
    We are proposing a gap coverage type of insurance that 
literally a farmer could ensure 100 percent of their loss under 
this proposal. Now, some farmer may look at this and say, well, 
I would not like to lose 30 percent, but if I had to, I would 
survive. It is not going to put me out of business. The next 
farmer may look at it and say, I cannot afford that loss. If I 
lost 30 percent, it could put me out of business. So, again, it 
is a program that we are offering to farmers, but it would be 
very, very helpful to address part of the problem that you have 
raised, a very important part.
    The Chairman. Well, thank you, and I have gone over my 
time--I apologize--and I have a lot more questions, but we will 
get to those.
    I am pleased to recognize the distinguished Ranking Member, 
Mr. Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Mr. Chairman, I know well the nuisance of CHIMPs, and I do 
not like to see them on your back any more than I liked them on 
mine. We will definitely support your efforts to work with the 
Appropriations Committee to be more mindful of the decisions 
that are made in this Committee when we write a farm bill and 
want to see those funds expended the way they were originally 
intended.
    Mr. Secretary, let me change the subject. As you know from 
visiting my district, it is not unlike that of many other 
Congressional districts where there is a tremendous amount of 
livestock production. We have primarily poultry and beef cattle 
and dairy cattle, but I also hear from elsewhere in the 
country, from hog farmers, growing concerns about the rising 
cost of feed. That seems to be directly related to the very 
exciting and positive development in terms of increased 
production of energy from renewable sources, including corn and 
soybeans.
    What can you point to in this proposal that you have, and 
any other ideas you might have, that we could put into a new 
farm bill that would help to allay the concerns and ease the 
burden that is threatening livestock producers around the 
country?
    As to one major poultry producing company, the president 
informed me recently that they expect next year to be paying 
$800,000,000 more, just that one company, for feed grain than 
they paid in the previous year. I do not believe they have a 
great ability to pass that along to consumers because of 
international competition, because the consumer can change 
their dietary habits and so on. And while a consumer may not 
want to do that, it is not too difficult for them to make 
different choices, but it is very difficult for one of my 
poultry farmers with literally millions of dollars invested in 
poultry houses that are the length of two football fields to 
convert to some other product that might be more economically 
competitive.
    Is there something we can do to address this?
    Secretary Johanns. There are some things that I would point 
to in our farm bill.
    The effort that we are making in terms of the development 
of ethanol in our proposals is directed at cellulosic ethanol.
    Mr. Goodlatte. Aren't we talking about 5 years or more down 
the road to see significant cellulosic production? Wouldn't we 
see a version of production from corn and soybeans over to 
that?
    Secretary Johanns. I do not think it is going to be 5 years 
before you see commercial plants out there producing cellulosic 
ethanol, but again--boy, that is hard to predict--personally, I 
see so many exciting things happening in this area that I will 
be surprised if it takes 5 years to have plants up and running. 
I think it would likely happen quicker, and companies that have 
come in and talked to me lead me to that conclusion that this 
seems to be moving along faster. Why? Because there is just a 
real strong market out there.
    Here is what I have been saying to producers: I think there 
are about 2 years here that are just a tough adjustment. The 
positive for the corn producer and high prices is also 
translating, as you point out, to a negative to somebody who 
has to go out and buy that, and they have seen their costs 
double. We do not have statistics yet, but there seems to be a 
lot of anecdotal evidence that you are going to see more corn 
acres this year. The Cotton Council just released a report 
where they said you could have a 14 percent shift out of 
cotton. Now, will all of that go to corn? Probably not. Some of 
it will go to corn, though.
    One of the things we are looking at is we have some CRP 
acres. We have the largest--last year, we had the largest 
soybean crop in history, and we have the largest carryover in 
history. So you have some cushion there if people decide to 
move from soybeans into corn, so you are not going to have a 
situation where soybeans now start to be in a major problem. 
So, there are a number of things going on.
    But, in reference to our proposals, first, we are focused 
on cellulosic ethanol. That is not saying we are forgetting 
what is happening with corn. We will continue to do those 
things. Second, conservation efforts here do help producers, 
for example, the cattle producers. They will like what we are 
proposing. For one thing, there are funding increases for about 
$7,800,000,000, but in programs they have liked, I think they 
are going to like what we are doing in conservation, so there 
are a number of positive things. But, I will be very honest 
with you, I think there are a couple of years here that are 
just years of adjustment, and they are not going to be like the 
years where you could buy $2.00 corn.
    Mr. Goodlatte. Well, I have very grave concerns, and I hope 
we can work on some other solutions that we can put into a farm 
bill that will help during those nearer-term years; because 2 
or 3 years of very negative circumstances could be all it takes 
to put people who operate under a totally free enterprise 
system, and do not have a safety net, out of business.
    Let me go into one other area that I mentioned in my 
opening remarks. I want to focus on the revenue-based 
countercyclical program that you propose. I begin this question 
with a corn example recently used in the media by Dr. Keith 
Collins. Dr. Collins said that the national corn yield is 146 
bushels per acre times $2.35 per bushel, which equals $344 per 
acre, so $344 becomes the target revenue. Then the actual 
revenue must be calculated, which is the actual price times the 
national average yield. If the actual price times yield is 
lower than the target revenue of $344, then producers will 
receive a revenue countercyclical payment based on their 
countercyclical program yield to make up the shortfall. Here is 
my question.
    Suppose a corn farmer in the Southeast suffers a 100 
percent corn crop loss due to a pronounced regional drought, 
but the price in crop yields in Nebraska, Iowa, Illinois, Ohio, 
and the rest of the corn belt are above average or just about 
average, and the actual national revenue exceeds $344 per acre. 
Will that producer in the Southeast receive a revenue 
countercyclical payment even if the farmer's revenue is zero?
    Secretary Johanns. Since you quoted the good doctor here, 
let me turn to him.
    Dr. Collins. Did I say all that? Holy smokes.
    Mr. Goodlatte, the answer is, no, that producer would not 
receive a payment. This goes back to Mr. Peterson's question. 
This countercyclical revenue proposal is not individually 
based. So there will be people that fall through the cracks, 
but we think it is better than what we have now.
    In addition to that, we still have crop insurance, and we 
believe that the Crop Insurance Program ought to be the 
backbone for providing people protection against both price, 
because we have revenue policies, and production losses. That 
program has grown dramatically in the last 5 years. It 
continues to set record acreages in crop insurance as we expect 
another record in 2007, and we have also proposed the gap 
coverage policy that the Secretary spoke about, strengthening 
crop insurance, the individual-based loss protection program 
combined with a more targeted countercyclical revenue program, 
admittedly working on a more aggregate level, but finer-tuned 
to production and price changes than the current 
countercyclical payment program.
    Mr. Goodlatte. So the revenue countercyclical program will 
not provide coverage to producers who lose their entire crop 
unless the actual national revenue falls below the commodities 
national target revenue.
    How is this program beneficial to producers whose 
production is very important to them, but if they have a total 
loss, constitutes only a tiny fraction of the nation's 
production of that crop?
    Secretary Johanns. Congressman Goodlatte, this program, if 
you look at the history of how countercyclical has worked, will 
simply work better for somebody who has lost their crop.
    Now, under the facts that you have given us and presented 
to us, I think the answer is obvious. It would not pay under 
those circumstances, but I would raise the question would the 
current program pay under those circumstances? What is 
happening with the current program is really obvious, and that 
is that, in those years where we have had very, very high 
production and low prices, the countercyclical has kicked in. 
So, at a time when a farmer has the highest production, they 
are getting the most money out of the countercyclical program.
    On the other hand, in those years where we have had 
widespread drought or some phenomena that has impacted revenue, 
I can tell you that this farmer stands a much better chance 
under what we are proposing.
    So, if the countercyclical is really part of the concept of 
a safety net, then with the way it is structured now, based 
upon price, I just do not see how it gets to be a safety net 
because they are just simply getting rewarded when they produce 
the most crop because it is triggered by price.
    Mr. Goodlatte. Thank you. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman, for your forbearance.
    The Chairman. I thank the gentleman.
    I am pleased to now recognize the Vice Chairman of the 
House Agriculture Committee, Tim Holden from Pennsylvania.
    Mr. Holden. Thank you, Mr. Chairman.
    Mr. Secretary, following up on your remarks about ethanol 
and subsidies, a recent Associated Press story quoted Energy 
Secretary Bodman as saying he did not see ethanol subsidies to 
U.S. farmers remaining in place beyond 2010 or import tariffs 
on ethanol beyond 2008, and as far as I can tell, your plan is 
silent on the issue.
    Do you agree with the Secretary? Or do you believe that 
ethanol subsidies and tariffs should be continued after their 
current authorization expires?
    Secretary Johanns. Our plan is silent. We do not offer a 
thought on that one way or another.
    I see how much has happened in the last couple of years to 
ethanol. I mean, the world has changed dramatically. The 
numbers for an ethanol plant are so different today than they 
were when I was Governor of Nebraska and was part of the effort 
to put an ethanol plant at the state level so we could build 
more ethanol plants in the State of Nebraska.
    So the best answer I can give to you today is that 
Congress, working with the Administration, working with whoever 
the Secretary of Agriculture is at the time is going to have to 
make a policy decision about whether those incentives that were 
wise choices, I would argue, when they were put in place, are 
still necessary at that point in time.
    I must admit, I could no more predict for you what 2010 
will mean to the ethanol market. We may have cellulosic plants 
up and running by then, but again, the thoughtful approach to 
that would be to simply look at what the circumstances are at 
that point in time and make an assessment as to whether those 
items are still necessary.
    Today, Congress has spoken. We accepted that in our 
proposal, and we did not propose a change one way or another in 
the ethanol subsidies that are in place.
    Mr. Holden. Thank you, Mr. Secretary.
    Following up on a conversation we had the other day when we 
had a chance to get together on the Mill Feed Program. I thank 
you for including it in your proposal, but I am concerned if it 
is truly going to be a safety net for those people who need it 
the most. The payment rate is reduced from 34 percent to 20 
percent over the life of the bill, and we have to remember it 
initially started at 45 percent.
    In addition to that, I am concerned about the smaller 
farmers who are not going to meet the 2,400,000 pounds of 
production so then their reimbursement rate will be 85 percent 
of the historical production as opposed to 100. I believe those 
smaller farmers are the ones who need a safety net the most. So 
I know there is a baseline problem, and we are hoping we are 
going to correct that baseline problem in time, but I am just 
concerned about if you think that it is a sufficient safety 
net.
    Secretary Johanns. Well, you point out what you are going 
to face just like what we faced. It is not the baseline. And so 
in addition to the challenges the Chairman has just in terms of 
the overall budget baseline, he will be faced with what we 
faced. What gets added back in is about $1,000,000,000. It will 
score at about $1,000,000,000. I think our proposal scores just 
under that, about $800,000,000, if I am not mistaken, right in 
that vicinity.
    The other thing I will tell you is this. We made 
adjustments pretty well throughout the commodities, and just in 
terms of trying to figure out a way to work with all 
commodities in, roughly, an equitable sort of way, some 
adjustments seem necessary here. We continue to keep the 
program in place. We continue to have the price support. We 
continue to have MILC in place, not at the level it was. So, 
actually, when you look at our overall MILC proposal, I really 
do believe it represents a reasonable approach to try to deal 
with, again, I think what you are going to be dealing with when 
you sit down, add and subtract.
    Mr. Holden. Okay. Mr. Secretary, I just want to make sure I 
understand you.
    If we find the vehicle to get what I believe is $40,000,000 
in for September, you are saying that will not make much of a 
difference as far as the baseline goes, or did I misunderstand 
you?
    Secretary Johanns. If you find a vehicle to add 
$40,000,000, does that put it in the baseline?
    Mr. Holden. Does it make a significant difference in what 
we are going to be able to do to keep it at the 34 percent or 
higher?
    Secretary Johanns. I think we already have a budget 
baseline. That is the problem you are going to run into. The 
baseline is there. It is not what I--certainly, I could not 
prepare proposals on the hope that something might happen. The 
budget baseline is there, and you are going to be faced with 
that just like we were.
    Mr. Holden. Thank you, Mr. Secretary.
    I yield back, Mr. Chairman.
    The Chairman. I thank the gentleman.
    I am pleased to now recognize the distinguished Member from 
Oklahoma, Mr. Lucas.
    Mr. Lucas. Thank you, Mr. Chairman.
    Mr. Secretary, let us return back for a moment to the topic 
of renewable energy and green production and maintaining that 
balance.
    Last year, when it came time for the big rollover on CRP, 
that large portion of the approximately 37,000,000 acres was in 
CRP. The Department chose to offer very lengthy contracts from 
1 year up to full 10 year enrollments.
    Could you expand for a moment on the topic of how you view, 
and perhaps some input from Dr. Collins, on how you view the 
current price of corn affecting those short-term contracts. 
What percentage might potentially not be re-enrolled in an 
environmentally sensitive area, land, and how that will affect 
the supply of grain over the next 2, 3, 4, 5 years?
    Secretary Johanns. This is something we are looking at. We 
continue to look at our CRP acres, and we will continue to do 
that. I signaled just a few days ago that sometime in early 
summer, maybe even before that, as we get better numbers about 
what corn acreage will be this year, we will make an assessment 
as to whether we might do something like let people out of CRP 
acres without penalty, that kind of approach.
    You are absolutely right. We did this a little bit 
differently this time. We do have varying terms on our 
contracts, and you could look at those varying terms and say, 
there is a certain number of acres that are going to be 
available because the contract is of this period of time, what 
should we do with that? And you can literally make that 
assessment.
    From a typing standpoint, it is an assessment that we feel 
we need to complete some time this spring, sometime early 
summer. Why? People just need to know as they think about the 
2008 crop. It will not impact the 2007 crop. That acreage is 
going to be what it is, and like I said, we will have better 
figures here. I think we publish our first figures on the last 
day of March, but we will continue to look at that. We will 
continue to analyze whether there is a reason here to bring 
some acres out of CRP.
    Mr. Lucas. But it does stand to reason that with the high 
grain prices that potentially some of those acres that are not 
so environmentally sensitive, more productive, will most likely 
voluntarily come out simply because the land owners will not 
want to renew their contracts.
    Secretary Johanns. Voluntarily, yes. I mean, they may look 
at $4.00 corn and say, this is a no-brainer for me. I can raise 
corn on this land. I can do it, and so, yes, from a voluntary 
standpoint, as those contracts come up, they may decide not to 
renew. In fact, I can tell you that, as of today, there are 
3,000,000 acres that have at least sent a preliminary signal 
that they are not renewing, because they have not filed the 
short form or done whatever needs to be done in that program, 
so I can tell you that today for 2007.
    Mr. Lucas. So producers do respond to market signals, 
decisions are based on market circumstances. Expanding on that 
question, if potentially that is the case, then that means that 
we will have possibly several acres of authorized CRP that 
would not be in use. Would it be your intention within the 
Department to make those acres available or enrollment to bring 
more land of a higher environmentally sensitive rating into the 
program? Because our conservation friends out there are very--
both in agriculture and outside of production agriculture, are 
very sensitive to how successful CRP has been. I believe there 
is a view from the hearings that we have had for years on this 
Committee that if acres come out, there should be the ability 
for acres to come in to maintain that balance out across the 
country.
    Secretary Johanns. The answer to your question is yes, we 
are very concerned about the environmentally sensitive land and 
we focused on that. Let me offer one quick idea for you, and we 
put this in our proposals. We talked a lot about this. In your 
state and the state I come from, sure there is probably some 
land that could come out of CRP and maybe a gross of crop 2 out 
of 5 years. When that land really should stay in CRP, and we 
want it to stay in CRP, we have a proposal that basically says, 
keep that land in CRP, meet the environmental requirements you 
have agreed to meet, meet the nesting requirements for bird and 
wildlife and that sort of thing. But, let's examine the 
possibility of allowing a harvest off that land that would meet 
all of those requirements, maybe we would require a small 
reduction in the payment that we would make.
    But again, what we are trying to do is encourage the 
landowner to think maybe out of the box a little bit and say 
no, I want my land in CRP. I can do this in an environmentally 
sensitive way. We can work with them versus that landowner 
saying well, I will take the risk of not raising a crop 3 out 
of 5 years, because in those 2 out of 5 years, I might make out 
very well. And it has to be targeted for cellulosic energy 
production, so it is a little bit down the road, but again, it 
may be the right approach in terms of how to manage this 
difficult issue.
    Mr. Lucas. Thank you, Mr. Secretary. Thank you, Mr. 
Chairman.
    The Chairman. I thank the gentleman. I am pleased to 
recognize the Chairman of the Specialty Crop Subcommittee, Mr. 
McIntyre of North Carolina.
    Mr. McIntyre. Thank you, Mr. Chairman. Mr. Secretary, thank 
you for your presentation. One of our areas of responsibilities 
on our Subcommittee that has been reconfigured includes rural 
development. Many of us have benefited from the positive impact 
of rural development in our districts. In your presentation, 
when you first released your proposal for the farm bill, you 
stated that $500 million would be made available to reduce the 
backlog of rural development projects. Is this money in 
addition to money that will be available for pending 
applications and upcoming projects in the new fiscal year? And 
if so, how much money will be available for new projects in the 
coming fiscal year?
    Secretary Johanns. The answer is yes. In our book--and I 
don't have the specific page--but we refer to this as new 
money. So the answer to your question is yes. And Keith--Keith 
has the numbers. He can give you what we are doing this year.
    Dr. Collins. Actually, I can't. I don't remember the 2007 
numbers. This proposal begins with Fiscal Year 2008. And so it 
would be a one-time infusion of mandatory funds to address the 
backlog. Now the backlogs are changing. I can give you one 
example of the waste in the water and waste disposal backlog at 
the beginning of this year, it was like $2.7 billion. At the 
end of this year we expect it to be down to $2.2 billion. Now I 
can't tell you how meritorious all of those numbers are, but 
there is a sizable backlog out there. So we would address that 
with this proposal.
    Mr. McIntyre. Okay. Well I believe it is on pages 119 to 
120 of your proposal book. The $500 million is what you said 
would be for the backlog. So I don't know if you are saying, 
Dr. Collins, if you don't have the figures, but what new money 
will be available for the new projects?
    Secretary Johanns. It is actually about a $1.3 billion 
between loans and grants. This would be in addition to that. 
What we were trying to do was to say, as we continue to build 
up this backlog, is there an amount of money we can put in in 
addition to what we are doing to try to deal with the backlog? 
Now, even with the additional money we are putting in, I would 
tell you our estimate is that we will probably deal with 
conservatively 30 percent of the backlog, maybe more than that, 
because when you get into these projects, not all of them are 
ready for funding or ready for a loan. They just aren't. So we 
might be able to do better than that, but that is what that 
number would purchase in our proposal.
    Mr. McIntyre. Okay.
    Dr. Collins. It is in addition to the numbers you are 
looking at on page 43.
    Mr. McIntyre. Okay, in addition to the numbers we are 
looking at?
    Dr. Collins. Yes.
    Mr. McIntyre. Okay. Thank you. Thank you, Mr. Chairman.
    The Chairman. I thank the gentleman. Now pleased to--we are 
going to be recognizing people as they were here, when we 
started and so forth. So let's see, Mrs. Musgrave left. Mr. 
Kuhl? He left. Mr. Conaway next.
    Mr. Conaway. Thank you, Mr. Secretary, for being here 
today. I want to talk about the adjusted gross income changes 
that you are proposing for, producers should get direct 
payments. How did you pick the $200,000 number?
    Secretary Johanns. Here is what we did. Currently, there is 
an adjusted gross income number. And if I am not mistaken, it 
is $2.5 million. So the first thing we asked was, who is 
impacted by $2.5 million of adjusted gross income? And keep in 
mind, this isn't the gross. This is after you have deducted 
everything.
    Mr. Conaway. I am a CPA.
    Secretary Johanns. Then you know what I am talking about. 
It is the lowest number. We found out as best we could tell 
that $2.5 million impacted .0007, seven in 10,000 taxpayers, 
didn't really impact very many people.
    Mr. Conaway. Right. We are talking about ag taxpayers here?
    Secretary Johanns. Right. Then we started to try to analyze 
what number we could arrive at that we felt was a reasonable 
approach to adjusted gross income. At $200,000, we impacted--we 
impact in the overall picture about 2.3 percent of tax filers, 
but you can slice that a little thinner and actually get down 
to about 38,000 I believe.
    Mr. Conaway. These are farmers?
    Secretary Johanns. No.
    Mr. Conaway. Okay. We need to be talking about farmers, ag 
guys.
    Secretary Johanns. These are schedule F people.
    Mr. Conaway. The $200,000, putting it there, how much does 
that save?
    Secretary Johanns. A billion and a half over 10 years.
    Mr. Conaway. And if we put it at $500,000, what could it 
save?
    Secretary Johanns. We could run an analysis of that, I 
think.
    Mr. Conaway. So there was some magic between getting from 
$2.5 million to $200,000. Mechanically, how does a taxpayer 
implement this? In other words, if I have--and I know your 
proposal here doesn't talk about a 3 year average, but since 
subsequent to this, you have talked about some sort of 3 year 
moving average. I have 3 years moving average of $199,999. I 
qualify for $360,000 in payments. I have a moving average of 
$200,000 and a buck, I don't qualify for anything.
    So I am not sure how--if we believe predictability and 
stability is a benefit for a farm structure program--that not 
being able to predict year to year things that are outside the 
farm business impacting your qualifications, I don't know how 
you run a business that way; particularly with partners who may 
assume you are getting a payment and that affects the way the 
partnership was drawn up.
    Suddenly, you sell some land somewhere else and you have a 
big 1 year where you are over that. Mechanically, how we are 
going to do this? If you don't qualify 1 year, do you get to go 
back and enroll like we did in the old tax days where you carry 
back your losses and all those kinds of things?
    Secretary Johanns. It is a 3 year approach but having said 
that, because of Congress' direction, we have implemented it 
now.
    Mr. Conaway. Two million five dollars, we both agree that 
the precious few people have been impacted by it, and at $2.5 
million, those taxpayers have a lot more wherewithal to respond 
to changes within that number than some $200,000.
    Secretary Johanns. Oh, I just--you probably--you can run 
circles around me when it comes to looking at tax returns. But 
having said that, these folks are doing well; $200,000 of 
adjusted gross income is great in any state, in any county, an 
individual who is successful, very successful, just by tax 
statistics in the top 2.3 percent. That means they are doing 
better than 97.7 percent of the rest of the population.
    Mr. Conaway. Let's be careful about that line of logic, 
because if I have flood insurance on my home, it doesn't matter 
what I make. So as we begin to introduce this idea that we will 
look at your whole picture, as opposed to what should ag do. I 
don't disagree that we should limit the recreational farmer and 
move them out of this process, but there are big farming 
operations where family-owned--everything they have is in this 
deal. They could have big swings from year to year that these 
payments are imported to, even though they would be above the 
$200,000 number at some point in time. So I am cautious about 
the theory behind going this direction.
    At $2.5 million, I don't think many people paid attention 
to it because it was such a number that there were a handful of 
folks impacted, and there again, their ability to respond to 
changes in the overall farming environment is better at $2.5 
million than $200,000. Anyway, we will continue the discussion. 
Thank you, Mr. Chairman. I appreciate getting to talk and we 
will talk about this further.
    The Chairman. I thank the gentleman. I am pleased to 
recognize the Chairman of the General Farm Commodities 
Subcommittee, Mr. Etheridge of North Carolina.
    Mr. Etheridge. Thank you, Mr. Chairman. Mr. Secretary, 
welcome. Thank you for coming. I know you have been busy. I 
think you would agree that if we write a farm bill that is 
critical, maybe the most important one we are dealing with as 
the farmers face a lot of uncertainty. I am going to try to ask 
three quick questions in the essence of time, if you will refer 
to them, please.
    As you probably know, we have a lot of important poultry in 
North Carolina. We rank number two in hogs, pigs and turkeys, 
number three in poultry and eggs. As we look forward toward a 
new and different renewable energy source, do any of the 
Department's proposals address utilization of waste such as 
livestock waste, such as manure and poultry litter, as an 
alternative to a renewable energy source? I think that is 
important.
    As we deal with these issues, you talk about it. And let me 
move now to my next question. As you can expect, some of us 
have some problems with your approach, your payment limits, as 
you have just been talking and your recommendations to lower 
the AGI count to $200,000. I am concerned about those people 
who receive the AGI cap to really move to a bare subsistence, 
or even the negative level they approach or implementing.
    While I am not saying that this would happen to all, 
roughly 38,000 taxpayers, Dr. Collins, that you say will be 
affected. It could happen to some of them. I am not on this 
Committee to help put farmers out of business, and I don't 
think you are either. Have you asked, or will you ask the IRS 
to perform an analysis on the 38,000 to see how many would have 
a negative or subsistence under AGIs if your proposal were 
implemented?
    And Mr. Secretary, on that, do you have a concern of how 
this proposal might affect the interests of people to 
participate in conservation programs? This would put them over 
the cap and might have a negative impact on the conservation.
    And final question, your proposal calls for termination of 
extra long staple cotton competitiveness programs. This program 
has not been challenged by WTO. It costs only about $10 million 
a year, and has been highly beneficial and strongly supported 
by the industry. Can you share with us why, in your proposal, 
it has been terminated?
    Secretary Johanns. Okay. Let me kind of work down through 
the list. The answer to your question on livestock waste is 
yes. We are targeted, focused on that. We think that is 
important also. I would mention the 9006 program, but again, 
that is a part of our proposal. The payment limit cap, no.
    We agree with you. We don't want to put anybody out of 
business. But again, I do believe that by any definition, these 
are successful people. Now, averages can be very, very 
misleading, as you know, but I will tell you if you take the 
amount of money here, divide it by just the number of people 
impacted, it comes up to about--I don't know, 15,000 average, 
13,000 average.
    So how much they will be impacted, of course, depends upon 
the individual, how they are structured, a whole host of 
things. But again, I would just point out that these really are 
in the top 2.3 percent of tax filers in the U.S. The 
conservation programs, could they exceed the cap with 
conservation program?
    I could envision a circumstance where somebody is maybe 
close to that level, and all of a sudden, their participation 
and conservation would get them there. I am not--everybody 
makes their own decisions, but I would wonder whether somebody 
at that level of income would really be influenced not to do 
something from an important conservation standpoint because of 
that.
    But yes, the answer to your question, just to be very 
candid with you, I could envision a circumstance where somebody 
is at that level and they could be put over the $200,000 AGI. 
The ELS cotton program, you are right. It was not challenged. 
Having said that, it is identical to the Step 2 program. I 
don't think there is any difference between what was challenged 
and this program. And again, what we try to do is focus on 
those approaches that hopefully, at the end of the day, we can 
assure farmers we have the best chance to withstand a 
challenge. And, this one really is very similar, virtually 
identical to the step two program that was challenged.
    Mr. Etheridge. Thank you, Mr. Secretary. It seems to me on 
that one we were surrendering before we challenged. Thank you. 
I understand your position, but I yield back.
    The Chairman. I thank the gentleman. I am pleased to 
recognize a new Member, Mr. McCarthy from California.
    Mr. McCarthy. Thank you, Mr. Chairman. Mr. Secretary, I 
just have two quick questions. In reviewing your proposal, and 
you talked about it today, the provisions to assist specialty 
crops, I applaud you for that. One of the keys to these growers 
is food safety, as is evidenced in E. coli and other fresh food 
safety scares, that hurt crops in California which I come from. 
Currently, growers are able to come together and agree on grade 
standards, packaging research but not food safety. I was 
wondering if you have looked at, or if there is reason why you 
haven't proposed, to allow marketing orders to include food 
safety procedures.
    Secretary Johanns. We have not. That is a good question, 
and probably the best I can do today is follow up on that. And 
see if that is something that would make sense to look at the 
marketing order approach and I will do that.
    Mr. McCarthy. I would like to work with you on that if 
possible.
    Secretary Johanns. Yes. Chuck just pointed out to me that 
that certainly would be included in our research dollars. As 
you know in our proposal, we boost funding for research in this 
whole area significantly for the non-program crops. So under 
this proposal, there would be a funding source there.
    Mr. McCarthy. To actually look at it?
    Secretary Johanns. Again, we can look at it to see if that 
is a good approach and we would love to work with you.
    Mr. McCarthy. Just one last question. The Administration 
has proposed eliminating flex acreage prohibition to comply 
with the WTO Brazil cotton case. My district includes many 
fruits and vegetable growers. Has the Department looked at or 
analyzed the cost to change to the fruit and vegetable growers?
    Secretary Johanns. Yes, we have, and I am going to draw 
your attention to an article that I read some time ago. In 
fact, I will even hand it to you.
    Mr. McCarthy. Well, thank you.
    Secretary Johanns. It is an excellent analysis. We would be 
happy to supply copies to the Members of the Committee. And I 
just happen to run across that this morning. I was trying to 
catch up on some reading, and it is very, very good. Here is 
kind of the net of what the article says. Don't anticipate a 
great consequence here, but it could be regional. What is 
probably a nonevent in one part of the country could be 
important in your part of the country. And so we probably need 
to work with you to try to get some fine-tuning, but overall, I 
don't think there is huge impact here. I actually--the article 
concludes there would not be a significant impact.
    Now here is kind of the dilemma you will face and we face. 
This is a situation where the WTO ruling was adverse. We 
appealed. This was not a situation where we tried to anticipate 
what they might rule. We appealed. We battled and said you are 
wrong, we lost. Basically, what they are saying is that our 
direct payments could end up in the amber box, would end up in 
the amber box, that is a problem. And that is a very, very 
important issue for the Committee to address. We felt we had to 
address it. I think of all of the things we have proposed, our 
specialty crop farmers were very supportive when I visited with 
them about what we had in mind. All things being equal, they 
would love to see this issue go away. I don't think it is going 
to go--it won't go away. We have to somehow figure it out.
    Mr. McCarthy. Well, thank you. Thank you, Mr. Chairman.
    The Chairman. I thank the gentleman. I am pleased now to 
recognize the Chairman of the Livestock Subcommittee, Mr. 
Boswell from Iowa.
    Mr. Boswell. Thank you, Mr. Chairman. And thank you, Mr. 
Secretary, for spending this time with us. I appreciate the 
depth of what you bring to what is on the discussion on the 
table. Mr. Holden made some comments about the MILC, the 
concerns dropping 34 to 20. I think we will need to continue 
that dialogue as we go along, but I don't want to belabor that 
this morning at this time. Thinking of something that was said 
by Dr. Collins or maybe yourself, the crop insurance backbone 
for the safety net for the individual producer. Have you ever 
thought about having something of that ilk or that like for the 
milk producer? Have you had any discussion about that 
possibility? Or does that even create any interest in raising 
that point?
    Secretary Johanns. I will ask Dr. Collins to offer a 
thought on that.
    Dr. Collins. Yes, sir. We have had discussion from private 
individuals who are interested in proposing a price insurance 
product for milk. And if I am not mistaken, I think that has 
been submitted, to the USDA. There has been a proposal 
submitted. It is under what we call a 508(h) submission under 
the Federal Crop Insurance Act, which means that it is a 
private company's or a private interest's idea. So it is 
confidential. It is protected by business confidentiality and I 
can't discuss how it works. But that idea has been submitted to 
USDA and it will be considered by the Board of Directors of the 
Federal Crop Insurance Corporation. That would be a price 
insurance product similar to the kinds of price insurance 
products that we now sell for fed cattle, feeder cattle, hogs 
and sheep, something along those lines.
    Mr. Boswell. I think what you just told me is we can't talk 
about it.
    Dr. Collins. Well, we can talk about the concept but 
exactly how it works, who has submitted it and so on----
    Mr. Boswell. May I ask you this, do you have any feeling on 
the timeline on when that will be out in the open, or we can 
talk about it? Because I think this is something that has got 
some potential.
    Dr. Collins. I really--under the law, the Board of 
Directors is required to provide a Notice of Intent to 
disapprove a product for sale that a private sector person 
wants to sell within 90 days. If the Board doesn't do that, 
then the product is automatically available for sale. So I 
can't say it will happen within 120 days. Often these things 
get tabled and there is a great deal of discussion between the 
submitter of the product and the Department, and sometimes it 
takes a year or two, and then, of course, there is a period of 
time when we run a pilot program.
    So I can't tell you. But I can tell you there has been a 
little bit of concern among the Board of Directors about a milk 
price insurance program operating at the same time we have a 
price-based product like milk operating. So there is just that 
general philosophical concern that the board has, and our 
question of redundancy of the current milk program operating 
parallel with the price insurance product.
    Mr. Boswell. I appreciate that. I yield back, Mr. Chairman.
    Mr. Bonner. Mr. Chairman?
    The Chairman. The gentleman from Alabama.
    Mr. Bonner. Would it be possible for the chair to advise 
Members, on both sides of say the next four Members, who are 
going to be recognized? Because some of us have other Committee 
hearings.
    The Chairman. I can do that. I thank the gentleman from 
Iowa. The next person is Mr. Walberg from Michigan on the 
Republican side and Mr. Baca, then Mr. Graves, is he here? Mr. 
Hayes. So it will be Mr. Walberg, Mr. Hayes, Mr. Baca, and Mr. 
Cardoza are the next four. Do you want to know what number you 
are?
    Mr. Bonner. That would be great.
    The Chairman. All right. I might start a trend here. If I 
can figure out--let's see, you are number ten. You are number 
ten and we are on--so actually, you are, like, three or four on 
your side down.
    Mr. Bonner. Thank you very much.
    The Chairman. So Mr. Walberg from Michigan, welcome.
    Mr. Walberg. Thank you, Mr. Chairman. And thank you, Mr. 
Secretary, for being here. Having the privilege of having a 
major land-grant university in my state, Michigan State 
University, and its research issues and vitality, your support 
for integrating a couple research and extension services into 
one single agency, the Research, Education and Extension 
Services, the funding for specialty crop research and extension 
will be very important to Michigan.
    And so the one question I would like to ask for 
clarification is, what is the mechanism for distribution of 
that $100 million per year for this research in speciality 
crops?
    Secretary Johanns. We prefer the competitive approach. You 
probably have seen that in the way we approach budgets and in 
our programs. We think we get the best opportunity to get 
really quality research by going out, literally into the 
marketplace of universities, and approach it that way. So that 
would be the emphasis as to ask universities to submit their 
proposals and try to decide which is best and fund that 
approach.
    Mr. Walberg. Okay. Well, that bodes well for Michigan 
State. So thank you.
    Secretary Johanns. Pretty good school.
    Mr. Walberg. I yield back.
    The Chairman. Thank you. The chair recognizes the gentleman 
from California, Mr. Baca.
    Mr. Baca. Thank you, Mr. Chairman and thank you, Mr. 
Secretary, for being here. I want to start on the positive 
note. First of all, I want to thank you for submitting your 
proposal, and thank you for suggesting a recommendation and a 
change in the food stamp program name. So I want to thank you 
for suggesting that we change the name at this point to food 
and nutritional program. It seems like a minor change, but a 
very important proposal, especially as we look at 36 million 
people, 11 percent of our population now, that fall under the 
category of poverty or in the need for food stamps. ``Food 
stamps'' is a term that carries a huge stigma, and that is an 
important change even though it is minor. In my district in the 
Latino community, have had a hard time accepting food stamps 
because the term ``food stamp'' suggests that people don't 
work. And that applies to a variety of different people, and so 
just changing the name itself will help get people to apply for 
the food and nutritional program versus the food stamp negative 
connotation.
    So I commend you for that. And I think that is positive. 
Nutrition and food stamps are a huge obligation for our 
Committee and sometimes--we take it very seriously. So I thank 
you for highlighting it in the proposal, but there are some 
concerns that I have. And one of the areas that I want to ask 
you, Mr. Secretary, is you have made several good suggestions 
in your proposal for the food stamp program, such as removing 
the cap on the childcare expense, and then excluding of college 
savings and retirement fund from the asset test to qualify for 
food stamps.
    Those are good suggestions, but then, however, I am 
concerned about your suggestion to eliminate categorical 
eligibility for food stamps program. Not only does it seem to 
discourage people from participating in food stamps, it also 
seems like a confusing change that will affect many states. For 
example, this past December, the State of Minnesota, which 
happens to be the home of the Chairman, decided to move 
categorical eligibility with temporary assistance from needy 
families program.
    If your proposal goes through, Minnesota will have to 
completely undo the change and it will cause a lot of confusion 
at that state level. I am afraid that this proposal will affect 
services to our families and go against the USDA's desire to 
streamline the administration nutrition program. Could you 
please comment on that?
    Secretary Johanns. I am going to ask, if you don't mind our 
deputy to offer a few thoughts here, because he has worked this 
area much more extensively than I have.
    Mr. Conner. Congressman, let me just say that with regard 
to categorical eligibility, we are not eliminating categorical 
eligibility for food stamps. If you are, for example, the 
recipient of cash benefits under TANF, you would remain 
categorically eligible for the food stamp program.
    I think where we are making some change, for example, is 
where a person may not be receiving cash benefits, but may be 
receiving something as simple as literature from that program, 
or some kind of service-oriented situation.
    In that case, we would ask them to go through a regular 
eligibility check for food stamps, not to just simply 
automatically assume that they are eligible. But if you are a 
recipient of cash benefits under TANF, you would remain 
categorically eligible.
    Mr. Baca. But what effects would it have on Minnesota with 
the change, though, that would undo what they have done right 
now and that would be confusing to that state?
    Mr. Conner. We could provide for the record, I think some 
data for the State of Minnesota, on how many of your TANF 
recipients would involve cash payments versus these other 
services they may be receiving. And I don't have that at my 
fingertips for Minnesota, but we can provide that for the 
record.
    Mr. Baca. I know that I am going to be running out of time. 
But Mr. Secretary, as you know, we rely on states to implement 
the new state food stamp program. This is often one of the 
biggest parts of the budget and their largest responsibility. 
As a result, we make sure there are strict quality controls in 
how the money is spent.
    But I am--someone just handed me a note--but as a result, 
we make sure that there are strict quarter controls in how the 
money is spent. But I am confused by the suggestion that 
excessive negative errors would cost states five percent of the 
administrative cost. This seems like huge burdens that would 
hurt our state, and ultimately hurt our working families. I 
feel like errors could be addressed more constructively. I 
would like to hear your reasoning for this proposal.
    Mr. Conner. Well, again, Congressman. I would say generally 
speaking, as you know we are very, very pleased with the 
progress that we have made in the food stamp program. I don't 
have the error rate figures exactly at my fingertips, but you 
know, the error rate has dropped very, very dramatically with 
regard to that program. We feel like we have had good 
cooperation with the states in getting that reduction in error 
rates. In this case, for this particular provision we want to 
continue to obviously run the best possible program that we can 
with the fewest error rates that we possibly can.
    So this incentive, I guess, if you will, for states that 
remain above--have higher error rates we feel it is important 
to continue to put that pressure on them. That is the reason 
for our provision.
    Again, I would say, generally speaking, though, we feel 
like we have made great progress in bringing the error rates of 
this program down very, very substantially.
    Secretary Johanns. I might just offer a thought here. This 
is one we would love to work with you on, because I think there 
is a looming issue here. Those unjustly denied--I think if you 
look at those numbers, they are going up. I don't think anybody 
here wants that to become a major problem. We are trying to 
figure out how best to address that. And the proposal that we 
have submitted really tries to get to that issue. But, if you 
look at it, I think what you are hoping to achieve here could 
be achieved through our proposal.
    Because again, I don't think you want people unjustly 
denied. Now the question is what is the best approach? We like 
our approach. I think the state would have to have a problem 2 
years in a row before we would head in this direction. So we 
would continue to work with the state to solve this problem. 
But on the last day, we are headed in the wrong direction in 
this area, where we have had--we have had good results as the 
deputy has indicated in other areas of food stamp 
administration, really good results. I think it is pretty well 
regarded now that this is a well-run program, but I think this 
is a looming problem.
    Mr. Baca. Thank you very much. I know my time has run out, 
Mr. Chairman. But I would like to, for the record, ask 
additional questions or submit them for the record, one that 
deals with dairy's role in nutritional program. The other one 
dealing with renewable energy and livestock, but I will submit 
them for the record.
    The Chairman. Without objection, the gentleman's questions 
will be submitted as well as any Members that have additional 
questions, I am sure the Secretary will be happy to answer 
them.
    We now have the gentleman from North Carolina, Mr. Hayes.
    Mr. Hayes. Thank you, Mr. Chairman. Mr. Secretary thank you 
and your fine staff for being here, for your very thoughtful 
proposal. There are a couple issues I would like to go over 
with you. On the issue of AGI limits for farmers, IRS says two 
million over $200,000 filing; 85,000 schedule F, they were--
that is about 25,000 to receive payments. This is a very 
critical area. If you look at it in one way--and I agree that 
these folks are doing well, the risk is very great, but 
something we haven't mentioned, these are people that own very, 
very valuable farm land that we want to keep in production. 
They are making that kind of money, they understand the 
importance of making a profit. I want to make sure in our 
deliberations that we don't create an incentive for them to 
sell that land into development as opposed to keeping it in 
crop land.
    So if you could speak to that. Next on the ethanol. I 
appreciate all the thoughtful comments from Members and from 
all of you all. It is a critical part of our energy 
independence. Farmers have been talking to me a lot in the 
livestock and poultry, a critically important role. How about 
production? Is production going to go up? With seed corn $200 a 
bag, you can't get it. It is something that you all maybe could 
do internally to help stimulate production by helping with 
availability and price of seed corn.
    If you would comment on that, and last, and especially not 
least, thank you for the incredible productivity and good 
things that are generated, commerce and farmers by Rural 
Development. John Cooper is a real hero in our area. The things 
that you all do through Rural Development knows no boundaries. 
It has nothing to do with politics, it just helps move the 
economy forward. So anything that you can do, and you have 
already done it in your proposal, to keep that program going. 
Back to the issue of the payment limits. What are the 
thoughts--are we concerned about an effect of penalizing folks 
and kind of incentivizing the sale instead of farming? I think 
a farmer in my district, 150 family members that was a year 
ago, all of them involved in a very large farm. And I don't 
want them going in to something else.
    Secretary Johanns. Well, here is what I would offer. We 
heard a lot about development pressure when we were doing the 
Farm Bill Forums. I think that is especially true in parts of 
the country where you have growing cities and suburbs that are 
created, and some of the land prices just knock your socks, 
off. I mean, it is just remarkable that people would pay that 
much for an acre of land, but they do. I would hesitate to 
design farm policy trying to get in the way of that.
    We certainly are mindful of it. I think there are some 
things that we are proposing that are helpful. I think our 
beginning farmer initiative is very important here to try to 
help farmers get started and take over that land. But I would 
hate to promise because I know I couldn't fulfill that somehow 
if we did this, that phenomena would ease up or go away.
    Mr. Hayes. If you remember, I do, you were in Union County 
very graciously last year, and the Cox family and you all had a 
great conversation, that is one of many examples. Charlotte is 
spreading that way and driving the price of land.
    Secretary Johanns. It is a national phenomena, even in the 
most rural state, if you go to a city, go to the edge of that 
city and you will see those growth pressures. The seed corn, I 
think what is probably happening, although, again, we won't 
have a good picture for 60 days here, is you are probably 
seeing some people moving toward corn production because the 
price is strong. It has put some pressure on that seed corn 
industry to get the seed out there. I know nothing else beyond 
that. I would be happy to check into it and see what I could 
find out.
    Mr. Hayes. One more thing before my time runs out. The 
Chairman, Mr. Peterson, and my Chairman, Mr. Boswell, on the 
Livestock Subcommittee, have really been working hard on this 
animal ID issue. You all have made great strides on the 
voluntary program. He and I maybe disagree on one percent of 
the overall picture. Keep pressing to get that voluntary ID 
program in place before the bureaucracy gets the other option, 
so that we have the best system, least priced, most 
productivity, where they understand it, don't have to have a 
lawyer to read it. This is what we want to have certify your 
beef.
    Secretary Johanns. Congressman, I will leave this with you. 
I will put this in your hands, but this deals with the animal 
ID program and we did meet our goal. We have 25 percent of the 
premises registered, that is where we wanted to be at this 
point in time. But thank you for your comments. This one is not 
an easy one, but we will keep working.
    Mr. Hayes. Thank you, Mr. Chairman.
    The Chairman. I thank the gentleman. I am pleased to 
recognize the Chairman of the Horticulture and Organic 
Agriculture Subcommittee, Mr. Cardoza from California.
    Mr. Cardoza. Thank you, Mr. Chairman. And thank you, Mr. 
Secretary, for being with us today. I think that the proposal 
you have put forward is thoughtful, and I applaud you for doing 
so. You also came to my district during the rollout, and I 
appreciate that, and listened to my farmers. I especially want 
to point out in the proposal that you paid attention to the air 
quality concerns in the Central Valley of California. You 
mentioned that there would be an opportunity to possibly carve 
out some funds from the EQIP program to deal with some of the 
challenges there that farmers have in meeting air quality 
needs.
    And what I am going to do today because of the limited 
amount of time is ask my questions--and this one in particular, 
because it is more detailed, I would ask that that one be 
submitted back in writing because the air quality questions are 
pretty technical, and I would like to have you answer those 
specifically. Which takes me to the next issue, which is dairy 
and methane digesters. Producers generating electricity from 
livestock waste currently receive a tax credit of .9 cents per 
kilowatt hour for power generated and transmitted to a utility.
    Those generating power from wind and solar equipment 
receive a tax credit about twice that amount. And so my first 
question is, the livestock credit expires at the end of 2007, 
would you all support extending that credit? And would you 
support increasing the livestock credit to equal that of other 
competing technologies?
    Secretary Johanns. The Department has not taken a position 
on that, but I would promise you this, I would sincerely look 
at that and let you know where we would be on that if we take a 
position today. But you know, in my judgment, just again 
speaking here, these programs do good things, and we have to 
weigh if it makes sense to extend that, and whether we want to 
be in favor of that, but I promise you, I will take a look at 
that.
    Mr. Cardoza. I would appreciate that Mr. Secretary because 
many of my producers are under tremendous pressure in some of 
these areas about the air quality and the water quality 
standards in the Central Valley, and those digesters can be 
part of the answer. And we certainly need them to be 
competitive with other competing technologies.
    The next thing I would like to mention to you is section 32 
funds. One of your farm proposals calls for increasing the 
overall section 32 fruit and vegetable purchases. The $2.75 
billion over 10 years because your Department currently spends 
roughly $275 million per year on fruits and vegetables, ten 
times this would equal exactly $2.75 billion as you proposed. 
Or is the Department actually recommending an increase in that 
amount, ramping up the minimum per year? Is it the same 
proposal as in the past or is it more?
    Secretary Johanns. It is new. It is more. And that is 
outlined in the book and I can't put my fingertips on it, but I 
know this was proposed as an increase in that funding.
    Mr. Cardoza. I did read that section. I was a little 
confused. So I appreciate your clarification and we will ask 
you more about that in our Horticulture hearings. Finally on 
block grants: As you know, Congress has established a 
successful block grant program in 2003, state departments of 
agriculture used these grants to develop--for the development 
and marketing of speciality crops that are important to the 
state's agriculture economy. Can you explain what led the 
Department to decide not to include these programs in your 
proposal, even though we received some support for it at the 
hearings?
    Secretary Johanns. Oh, I knew--we had talked about that. It 
is authorized through 2009 currently, and that is why it wasn't 
included in this proposal because that is there through that 
year.
    Mr. Cardoza. But it would expire----
    Secretary Johanns. It would expire in 2009, and it actually 
came about through a separate Act, I believe. The Speciality 
Crop Act. So that Act would have to be reauthorized in whole or 
in part to deal with that. But again, we saw it there through 
2009, and just didn't take a position on it. It is in a 
separate Act in the farm bill.
    Mr. Cardoza. So we may or may not want to look into that, 
as the Chairman desires.
    Finally, I know Mr. McCarthy asked this question on flex 
acres. I would just like to share with you that farmers in my 
area are also very concerned about the flex acre proposal and 
the Department's suggestions, and would like to have you 
respond to that again.
    Secretary Johanns. We will. That article that I provided 
came out of Amber Waves. And it is a pretty good article. But 
like I said, this is one we have to figure out. I don't think 
the issue can be ignored. In fact, I am very confident the 
issue can't be ignored.
    Mr. Cardoza. Thank you, Mr. Secretary.
    The Chairman. I thank the gentleman. I am now pleased to 
recognize the gentleman from Alabama, Mr. Bonner.
    Mr. Bonner. Thank you, Mr. Chairman. Mr. Secretary, it is 
good to have you before the Committee. I will be at the Budget 
Committee tomorrow to welcome you back. I know you are coming 
back up for dual testimony this week. One of the primary 
concerns I hear from our southern peanut growers in the 
industry at large is the elimination for funding of the storage 
and handling payment program. Many growers have told me and 
other Members from the Southeast that they will literally go 
out of business if this payment program is not restored in some 
way in the 2007 Farm Bill. What are your thoughts regarding 
this issue? And how do you feel that the Administration could 
be more supportive of peanuts and since it is Valentine's Day, 
I didn't bring Alabama peanuts, but our friends from North 
Carolina have some if you would like to taste them.
    Secretary Johanns. Well, I do have some North Carolina 
peanuts here. I will wait until the hearing is over, though, to 
start munching. But here is kind of what it came down to. We 
looked at this program and we don't provide storage in other 
areas. This was unique. And I don't think it was provided 
before 2002, if I am not mistaken. I may be remembering that 
wrong. But it is not in the other programs, and so our proposal 
was to take that out, and again it kind of gets back to the 
equity issue, what are you doing for other crops, and how are 
you treating them? And storage was not a part of other crops.
    Mr. Bonner. Okay. Let me throw another one to you real 
quick like. I know you have heard from Mr. Conaway, and others 
have, or will, raise the concern about the $200,000 AGI limit. 
One of the concerns that I have specifically is how this 
proposal might have a disproportionate effect on those who live 
in the southeastern region of the country. So my question to 
you is, do you have any information on where the approximately 
80,000 farmers that would be affected negatively by this 
reside? And if not today, could you provide that to us?
    Secretary Johanns. We do have that. And actually, I am 
going to ask Dr. Collins to address that. But actually, when 
you slice through this, it is actually 38,000 farm operators 
who have an AGI over $200,000, but only about 25,000 of those 
receive farm payments. So you can slice that even a little 
finer when you figure out who is getting the payments. But 
Keith, if you could talk a little about where these people are 
from.
    Dr. Collins. Yes, just to re-emphasize the Secretary's 
point that the data on schedule F filers with AGI over $200,000 
from the IRS, and it is available up on their website, shows 
that 4.2 percent of all filers had AGI over $200,000 in 2004. 
That is the most recent year available. But if you go to the 
next group, the group of AGI filers, the group of schedule F 
filers with AGI over $200,000 that get government payments, 
that is only 1.2 percent of all filers, and they get less than 
five percent of government payments. I know there has been a 
concern expressed here whether this is going at the heart of 
commercial agriculture. Commercial agricultural producers, 
those with sales above $250,000 get 55 percent of all 
government payments. Schedule F filers with AGI over $200,000 
getting government grants only get less than five percent of 
government payments. So I don't think we are piercing the heart 
of commercial agricultural production here.
    But to get to your question about the regional 
distribution, I don't have regional distribution because it is 
not available from the IRS on filers with AGI over $200,000 
that get payments. I only have it for those with over $200,000, 
schedule F filers with over $200,000. And as I said, they 
account for 4.2 percent of all filers. If you look at Alabama, 
4.1 percent, same as the national average. If you look at 
Georgia, it is higher in Georgia; 6.8 percent. If you look at--
well, let's find another couple of states here.
    Mr. Bonner. Mississippi.
    Dr. Collins. Mississippi, 4.4 percent. Right next to that, 
Louisiana, 4.4 percent. So in many of the southern states, it 
is very parallel to the national average. When you get to the 
northeastern state, for example, then you get up into some of 
the double digit 10 to 15 percent.
    Mr. Bonner. Right. Thank you very much. Thank you, Mr. 
Chairman, and happy Valentine's Day to you too.
    The Chairman. Thank the gentleman, and I am pleased to 
recognize the gentleman from Georgia, Mr. Scott.
    Mr. Scott. Thank you, Mr. Chairman. Mr. Secretary, good 
morning. How are you?
    Secretary Johanns. Doing great.
    Mr. Scott. Congress passed the 2002 Farm Bill that included 
radical changes for the peanut program. We saw pre-2002 peanut 
support prices fall from $610 per ton to $355 per ton for the 
marketing loan program in 2002. Yet U.S. peanut exports 
continue to fall because of the loan repayment rate being set 
so high by your Department. And according to the University of 
Georgia's National Center for Peanut Competitiveness, exports 
have fallen dramatically since early--the early 1990s when we 
had a supply management program. And our new program is 
supposed to increase exports. The 2002 Farm Bill directed the 
Secretary to establish a loan repayment rate that the Secretary 
determines will have four major points: One, minimize the 
potential loan forfeitures, minimize accumulation of stocks of 
peanut by the Federal Government. Minimize the cost of the 
Federal Government in storing peanuts and allow peanuts 
produced in the United States to be marketed freely and 
competitively, both domestically and internationally.
    Now without a change in the loan repayment rate formula by 
your Department, whereby other peanut exporting nations are 
considered in the process, U.S. peanut producers are not 
competitive in the international marketplace.
    My question is, will you ask your staff to take a look at 
how the process for determining the loan repayment rate can be 
changed in order to better reflect the intent of Congress, and 
ensure that U.S. producers of peanuts can once again be 
competitive in the world marketplace.
    Secretary Johanns. Congressman, I am always happy to do 
that. I am always happy to look at how our programs are 
operating and whether there is something we are not paying 
attention to. So the answer to your question is of course. As 
you were asking the question, I was asking Dr. Collins--and 
there is some history here, and I would ask Dr. Collins to 
offer a thought, if you want to hear it. Which is maybe a 
little step beyond your question, but we would be happy to 
offer some thoughts on this situation.
    Dr. Collins. I would say, Congressman, you have identified 
an issue that is particularly difficult for the Department of 
Agriculture. I don't think we have spent more time studying any 
loan repayment rate than we have for peanuts. We have 
contracted with a private company to give us ideas on how to 
establish the longer payment rate formula economics, we have 
had internal task forces to review how a payment rate can be 
set. We have met with the industry several times.
    I attended one meeting with 70 representatives from the 
peanut industry to discuss alternative methods for setting the 
loan repayment rate. The difficulty has been that there is not 
clear, transparent price discovery for peanuts in the United 
States. There are very few shellers, very hard to come up with 
the appropriate peanut price. What we do is we use a system 
where we weigh four different price inputs to establish the 
loan repayment rate. We utilize foreign peanut prices. We 
utilize stock market peanut prices as reported by the 
Agricultural Marketing Service. We use prices received by 
farmers for peanuts as reported by the National Agricultural 
Statistics Service, and we use forecasted prices as forecasted 
by the World Agricultural Outlook Board. We take those four 
sources of peanut price information and with those we establish 
the loan repayment rate.
    And we do believe that the loan repayment rate has been 
fairly representative of market prices. If it wasn't, we would 
have wholesale forfeitures of peanuts, which we have not seen. 
If we set that loan repayment rate unduly low, it is a huge 
budget exposure to the taxpayer. So we have to balance this 
between some of the factors that you have mentioned, such as 
competitiveness, as well as, the cost of the peanut program to 
the taxpayer, and as the Secretary said, we are always open and 
willing to take a look at any new idea that comes along with 
respect to the peanut loan repayment rate.
    Mr. Scott. Let me just follow up on that very quickly, Mr. 
Secretary. In this upcoming farm bill, your proposal lowers the 
loan rate for peanuts from $355 per ton to $336 per ton. It 
eliminates the separate payment limits for peanuts, and it 
maintains the same direct payment for 2008 and 2009. U.S. 
production decreased about 30 percent in acreage in 2006. Now 
my producers in Georgia are telling me that the acreage 
decreased in 2007 could be as much as 40 percent. Now if the 
industry is declining this much under the 2002 bill, how can 
the U.S. Department of Agriculture expect the U.S. peanut 
industry to survive with the cuts you have offered for this 
next farm bill?
    Secretary Johanns. I would offer a couple of thoughts. One 
is, first that I would really be anxious to talk to the 
industry about where these farmers are going. What other crop 
are they going to grow? What is drawing them away from peanuts 
and try to make an assessment about that because again, they 
have the ability to make that assessment, and they may make a 
financial decision about where they should end up. Should it be 
peanuts? Should it be this commodity? And so sometimes the 
overall figure just doesn't tell the whole story.
    The second thing I will tell you, in terms of the loan rate 
we arrived at, it is based upon the market. We just simply 
looked at the market price over the last 5 years and we took 
out the high year, we took out the low year to try to avoid 
distortion on both ends, and we took the average called the 
Olympic average to arrive at that loan rate, and literally our 
proposal is based upon the market for that commodity.
    Secretary Johanns. Now, in addition, we have a cap, and I 
just put that in so you have the whole picture, but the cap is 
the House-passed version of the loan rate for the 2002 bill. 
The House actually passed loan rates before it was sent over to 
the Senate. We said that has been through the House process. 
That will be what we agree upon internally in terms of our 
proposal, and that is how we ended up with the loan rate we 
ended up with--market-based, capped by the House version. And 
again, I would be anxious to meet with your producers or to 
talk to them and see what commodity they are moving to or 
thinking about versus peanuts, and that can happen. Decisions 
can be made, and then the direct payment goes up.
    The other thing I should mention for your peanut 
producers--and maybe they have not connected with this--is the 
direct payment does go up in years 3, 4 and 5 to $261 a ton in 
those out-years, and the thing about that is that it is very 
predictable. I was in Georgia this year, and I visited some 
peanut acreage, and where there was not going to be much of a 
crop because of drought.
    In fact, we pulled up peanut plants, and it looked bad, 
very bad, and I am guessing there was not much harvest in that 
area. This they can plan on. This they can literally take to 
the bank if it is approved here on the Hill.
    Mr. Scott. Thank you very much, Mr. Secretary, and peanuts, 
of course, are very, very important. It is probably our most 
agricultural product in Georgia, and I certainly look forward 
to working with your office as we move forward in addressing 
the peanut producers' concerns.
    Thank you, sir.
    Secretary Johanns. Great. Thank you.
    The Chairman. I thank the gentleman, and I will now 
recognize the gentleman from Texas, Mr. Neugebauer.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Mr. Secretary, it is good to have you here.
    Secretary Johanns. Thank you.
    Mr. Neugebauer. I have kind of some rapid-fire questions 
here, and you can get me this information, but of the 25,000 
folks, Dr. Collins, could you tell me what percentage of the 
total production that that 25,000 is representing? If you do 
not have that, you could give me, maybe, your best guess--I do 
not know--but if you could do that. I think we have kind of 
covered the AGI, and so I want to move on to a couple of other 
issues.
    One of those is, Mr. Secretary, you talk about moving more 
to direct payments, and part of that is you think that makes 
this farm bill maybe more till friendly in some respects. One 
of the things I am hearing from the producers, though, on the 
direct payments is that there is some concern about what that 
does to the tenant-landlord relationship there, that we are, in 
fact, moving payments to those landlords. To a certain degree, 
it might be a disincentive for them, really, to be engaged in a 
very aggressive agricultural program, and that it might 
actually raise the rents for those folks who are the tenants of 
that.
    Can you give me some feedback on that?
    Secretary Johanns. Yes, I sure can.
    There is a discussion always about what impact our 
subsidies have on land rent and prices, and there is no 
question everywhere in America, land rent and land prices have 
gone up in the last years. In fact, it has been on a steady 
climb over a significant period of time. What is happening out 
there? Well, you can say, ``Mike, I think it is direct 
payments.'' I would tell you ultimately whether it is 
countercyclical, loan deficiency payment, direct payment, I 
believe it is going to be reflected.
    I am not offering this or suggesting this, but if you 
literally took subsidies down to zero, you could assure 
yourself that you are not distorting anything or impacting land 
price, but as a policy matter, we do not want to do that. As a 
policy matter, I argue that investment in agriculture makes a 
great deal of sense. But, I will tell you, in the end, I think 
you are going to see the subsidies capitalized into land costs 
and higher cash rent, and it may make some difference initially 
that it is a direct payment versus LDP, but I think, in the 
end, you are still going to get the same result.
    Here is one other thought I would offer. One of the things 
we found, which, I guess, is no surprise to anybody in this 
room, is farmers and landowners are very sophisticated 
businesspeople these days. They know these programs better than 
we do. They can cite page and verse. I mean, they are really 
very, very sophisticated businesspeople, and so the owner of 
that land, of course, is going to know about where that tenant 
is going to end up, again, whether it is direct payment or 
whatever, and you know what? When they sit down to pencil out 
what the cash rent can be, they are going to look to their 
neighbors, and they are going to try to figure out what the 
neighborhood is doing. But again, in the end, it is all 
capitalized maybe a little quicker with direct payment, but in 
the end, I think it all factors into where those rent and land 
costs are at.
    Mr. Neugebauer. Thank you. I want to move to your crop 
insurance proposal because, as you know, I have a great deal of 
interest in that, and you have heard from people in West Texas 
and, I know, across the country about the crop insurance issue. 
I do think we need to improve it because it is really not, for 
many producers, providing an adequate safety net.
    I noticed in your proposal that you had a formula, I 
believe, for an every one percent decline in county yield below 
the 90 percent expected yield that five percent of the 
producers' deductible on an individual policy would be covered. 
I believe that is the formula.
    Can you expound on how you came to that number?
    Dr. Collins. That number, Mr. Neugebauer, is, more or less, 
an example of how this could work. The idea would be that we 
would like to be able to compensate someone for the value of 
their production that is not covered by the insurance policy. 
That may or may not be their deductible. It could be less than 
their deductible if their return is above their coverage level 
on their policy.
    In our example that you are referring to, we said someone 
could buy an area yield policy exactly as you have proposed in 
your own legislation. If the county yield is below the county 
yield trigger, then someone would get a portion of their 
deductible covered or the portion of the value of their 
production not covered by their policy. They would get that 
covered up to the point where 100 percent of that gap could be 
covered if the county yield falls far enough.
    So, for example, if the county yield is 90 bushels an acre 
on average and the actual turns out to be 89, then that 1 
bushel drop would translate into a small portion of the 
person's uncovered portion of their crop. A small portion of 
that would then be covered. If the county yield falls far 
enough--I think in the example we used, if it fell below 70 
percent of the average county yield, then 100 percent of that 
portion of their crop that is not covered by insurance would 
then be covered.
    So the value of their individual policy plus their 
deductible portion as determined by the county area yield 
policy could add up to 100 percent of the value of the crop or 
it might not. It might turn out to be less than that. It all 
depends upon what the county yield is in relation to the 
average county yield.
    Secretary Johanns. If I might just add something here.
    Mr. Goodlatte, when we were talking about the revenue-based 
countercyclical, raised the issue of how do local conditions 
factor into this, and it is a good question. But, when you 
consider our approach here in terms of crop insurance and the 
approach to a revenue-based countercyclical program, again, I 
think you can see that you just have a more certain safety net 
for somebody who is in that problem of not raising a crop 
because of drought or some other conditions. This, we think, is 
going to go a long way to provide a better safety net in those 
disaster conditions when you put those two together.
    Mr. Neugebauer. Well, I am very interested. Mr. Conner and 
I have had a conversation as you and I have, Mr. Secretary, and 
Mr. Collins, I am very interested in taking your idea and my 
idea and meshing those together. I think that in the long term 
gives our producers a much better certainty, and one of the 
things I heard you say a while ago that is important is that, 
with farmers who are out there taking the kind of risks that 
they are taking, they need to have some certainty of what their 
expectations are in the event of certain catastrophic or bad 
things happening. So, I look forward to that, and I thank the 
Chairman for the time.
    The Chairman. I thank the gentleman.
    The gentlelady from South Dakota is recognized.
    Ms. Herseth. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for your testimony and for a very thoughtful 
proposal. I do want to follow-up, though, on questions posed by 
the Chairman and the Ranking Member and some points of 
clarification from questions posed by Mr. Neugebauer.
    On the revenue-based program, I understand, in response to 
the concerns expressed that I have, as well because of 
producers in South Dakota that would fall through the cracks 
under this proposal, take out the gap coverage insurance 
proposal for a moment.
    Why not use county level rather than the national average 
in this revenue-based program?
    Secretary Johanns. The programs are national. I mean, when 
you pass a farm bill, you are going to have a national farm 
bill.
    Keith, how would you do it county-based?
    Dr. Collins. You could, but it just expands the level of 
complexity substantially. I mean we have a national average 
price. We have a national average yield. We do not have a 
county price, for example. We do not necessarily have a county 
yield for every county either, and some of the county yields, 
if we use the National Agricultural Statistics Service data, 
are very, very thin.
    For example, we do not offer group risk protection, GRP 
coverage, in every county where major crops are produced 
because we do not have good yield data in some of those 
counties. So maybe you could go to broader production regions. 
Maybe not a county. You know, maybe you might be able to 
conceive of this being expanded to or applied to a broader 
production region. But, I think a county is getting it down to 
a level of detail where you get into some administrative 
complexity and lack of some data that we currently have.
    Ms. Herseth. And I appreciate that, and I appreciate the 
response in terms of that this is a new type of proposal. I am 
glad that you have investigated it further. As you know, some 
of the national commodity organizations have done a lot of work 
to try to propose something that they think would be workable 
as well. So, I am glad that you might be open to kind of 
looking at how we could kind of structure it slightly 
differently, maybe on a regional level, as we gain additional 
statistics to narrow the set of individuals who might fall 
through the cracks and, again, looking at other proposals with 
the gap insurance coverage that you provided.
    Now let me move to the direct payment proposal. A lot of 
the producers who I have spoken with who have had a chance to 
take a first look at what USDA has set forth here think that 
countercyclical payments and LDPs are more in line with our 
desire to provide a real safety net, a better, a maybe more 
pure safety net, than direct payments, because they are tied to 
commodity prices. So let me share with you my three concerns, 
one that Mr. Neugebauer already raised and you addressed.
    First, in South Dakota, my understanding is that you are 
not making many recommendations or suggestions to change the 
way we are calculating the direct payment. So we have outdated 
data in some instances. In South Dakota, a lot of the bases are 
on small grains that, by and large, are not grown in terms of 
the number of acres that were grown 20, 30, 40 years ago. I do 
not think you are recommending any updating of the yield, so I 
have producers in South Dakota who are going to be at a 
disadvantage compared to producers in Iowa or in Illinois. So 
that is my first concern. I am just wondering if you would 
consider steps to remedy the issue of bases and yields.
    Then you addressed the issue about increased direct payment 
and the effect on its sort of being capitalized into higher 
land costs or cash rents, so I appreciate your response there.
    My third concern is maybe what is being proposed here with 
direct payments based on where they would go in terms of the 
boxes on international trade issues. Is this being driven more 
by the trade considerations in WTO than the pure safety net 
issues that we want to have an adequate safety net? And I just 
want to know, on balance, if this is a 50&50 trade safety net 
or how that is coming into play?
    Secretary Johanns. It is a more predictable situation for 
farmers. Let me tell you that you face exactly what we face 
when we sit down to try to figure this thing out. You are going 
to have a baseline, which we did, and every program outside of 
the baseline then is added. You are going to have to come up 
with money, anything beyond the baseline, and the baseline is 
low because prices are very high in these program crops, 
especially in four out of five, cotton not so much, but it is 
definitely the other four.
    We sat down on the direct payments, and we said to 
ourselves, ``what we can we do that is going to be certain?'' 
Because predictable was something we believe farmers wanted to 
try to achieve. We actually came up with $1,000,000,000 to add 
to that base payment for those four program crops in years 3, 4 
and 5. So here is your challenge.
    If you come in and say, ``I want loan rates where they were 
or maybe higher. I will give up on the--we do not want to raise 
the direct payment,'' you just took $1,000,000,000 out of the 
pockets of producers of those four commodities in this country, 
because we literally identified $1,000,000,000. In adjusting 
loan rates, when you have $4.00 corn, it is not going to make 
any difference, and the other thing you are going to have to do 
is you are going to have to base it on some projection. 
Somehow, some way, you are going to have to sit down and say to 
yourself what is the price of corn today and tomorrow and a 
year from now, and 2 years from now and 3 years from now. You 
are going to have to do that across the commodities. So, again, 
you will face those issues.
    Now, in terms of your question about updating, the only 
thing I will tell you about that is, again, I feel strongly 
about this. It is no safety net to put a bulls-eye in a 
farmer's back. I do not care if you are pro-trade or anti-
trade. It is no safety net to say to a farmer, ``we are going 
to do this, but I am not sure it will survive during the farm 
bill.''
    Now, keep in mind, we will fight for every program we have, 
just like we did for the cotton program, but there are rules, 
and you can get really good advice as to what works and what 
might not work, and then make your assessment as to how best to 
approach this. But, if you update, you are going to have a 
situation where you are just inviting problems, and you know, I 
am the Agriculture Secretary. I am not a trade lawyer, but I do 
believe that you will have problems there.
    So, straight out, we just said, ``What is the best 
approach?'' We identified $1,000,000,000. It is predictable. It 
is understandable. Farmers can plan on it. We increased the 
cotton direct payment by about 65 percent. Again, in the cotton 
case, this is real. It is not something that might happen to 
us. The case that is pending now is an enforcement action. We 
lost that first case, aggressively defended it, took it up on 
appeal, aggressively defended it, lost it again, and Brazil and 
a whole host of countries who joined the fray immediately said, 
``Well, you have not complied.'' It is the Marketing Loan 
Program that is the problem, it is the countercyclical that is 
the problem.
    So, again, adjusted loan rates this time, I do not think 
you are going to have any impact. I do not think you are going 
to see a different baseline. You have $4.00 corn out there. You 
have $6.50 soybeans, on and on. The one thing we can tell the 
farmers is, if you set aside $1,000,000,000, you are going to 
get it if it is in the direct payment. It is there. It is 
mandatory. It is real. Plan on it. Take it to the bank.
    Ms. Herseth. Thank you, Mr. Secretary.
    Mr. Chairman, I know I am out of time, but I am going to 
submit questions.
    The Chairman. We have a number of Members who want to 
speak, and I do not know--how long does the Secretary have?
    Secretary Johanns. I am fine. I can stay as long as the 
Members want to ask questions.
    The Chairman. Well, I may not be able to stay that long, 
but you know.
    Ms. Herseth. No. I will just be submitting this question in 
writing about the Administration's proposal to continue the RUS 
Broadband Program and clarification on the rent changes. Thank 
you.
    The Chairman. I thank the gentlelady, and maybe we need to 
get a little more strict on the 5 minutes here. I have been 
letting things slide to try to make sure that we give everybody 
a chance to speak.
    So the next Member to be recognized is Mr. Smith from 
Nebraska.
    Mr. Smith. Thank you, Mr. Chairman and Mr. Secretary, and I 
will not even take up my 5 minutes.
    Now, you touched on the wheat producers and the impact. 
Again, what was that number? I assume you are utilizing factors 
of the last 5 years as they would be applied forward, perhaps, 
in your estimation.
    Secretary Johanns. The wheat producers will receive an 
increased direct payment in years 3, 4 and 5 of 6\1/2\ percent, 
if I am not mistaken, 7.2 percent.
    Mr. Smith. 7.2 percent? Okay.
    Secretary Johanns. So it would go from $0.52 to $0.56 a 
bushel.
    Mr. Smith. Okay, and then any other commodities that would 
be in a similar situation?
    Secretary Johanns. Yes. I mean they would.
    Cotton gets the large bump because adjusting loan rates for 
cotton does impact there, so they get a bump of 65 percent, but 
the rest of the commodities are 7.2. It is in the seven percent 
range for the rest of the commodities.
    Mr. Smith. Okay. Thank you. I yield back.
    The Chairman. Thank you.
    Mr. Barrow.
    Mr. Barrow. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for being here today.
    First off, I want to ask you for your help in something. I 
would like a status report and an update on the civil rights 
litigation and settlement procedures. I would like for the 
members of your staff to get that. I can tell you I get serious 
complaints and concerns about the way that is working out in my 
district, and I would like the folks on your staff to visit 
with us some so we can get an overview of that.
    Now I want to talk peanuts for a second. Dr. Collins, thank 
you for your assessment and for your response earlier. I am not 
taking issue with you, but I am reacting to the statement that 
everything is okay with the loan repayment rate because we have 
not seen wholesale foreclosures. I do not think wholesale 
foreclosures is the best test of whether or not we are getting 
squeezed, or whether or not things are moving in the right 
direction or the wrong direction just yet. We have lost our 
entire foreign market, or so it seems. If it had not been for 
the expansion of our share of the domestic market, things would 
be a lot worse than they are. So I want you to know that there 
are concerns there that need to be addressed, and I do not know 
if they have been addressed today.
    On the subject of the storage issue that Mr. Bonner picked 
up, I want to return to that just for a second. You know, 
storage fees was a part of the deal in the buyout program to 
move us from an old-fashioned, New Deal type of program to a 
market-based program. Because of the unique features in that 
sector of the ag economy, storage fees was a part of the deal--
it was part of the bargain--and margins are so close right now 
with them in the picture. But, considering what is happening to 
our foreign market share, what is happening locally, if we do 
not look out--if the margins are as close as they are, if we 
pull that out of the system, we are going to be basically 
killing the domestic share of the market as well and allowing 
the foreign producers to move in. So I have to tell you, I 
think that is an issue.
    What do I tell people who say this Administration and this 
proposal is reneging on the deal that was made as a part of the 
buyout program?
    Secretary Johanns. For all of history? I mean that is the 
question.
    Mr. Barrow. A page of history is worth a volume of logic, 
and I ain't got a volume of logic to give all these folks. I am 
trying to deal with the history of how we got to where we are.
    Secretary Johanns. Yes. I was not here for the 2002 
negotiations, obviously, but it does raise that issue.
    Was the storage rate situation for the farm bill that was 
passed in 2002, recognizing that every 5 years, Congress does 
pass a new farm bill, or is it for all of history?
    Then the second thing. It is not foreclosures that we are 
talking about. It is forfeitures. Yes.
    Mr. Barrow. Foreclosures is right around the corner, but I 
know what you mean.
    Secretary Johanns. Well, ``forfeiture'' is literally where 
a farmer says, ``I am better off to turn this over to the 
government.''
    Mr. Barrow. Right, but you get the point I am making.
    Secretary Johanns. Yes.
    Mr. Barrow. The trend is that all of the things that should 
be moving up are moving down, and that is what worries us.
    Secretary Johanns. Yes, but you know, here is kind of what 
it came down to with the storages. We just do not do it across 
commodities.
    Mr. Barrow. Well, I recognize that, but that is a part of 
the history that brought us to that point where that was not a 
part of the picture with respect to everybody else in ag. It 
was an important part of keeping margins competitive in the 
peanut sector, and it was just that different then as a result 
of a whole host of historic factors, and that history ain't 
going anywhere.
    Secretary Johanns. Yes. The deputy points out--and he is 
absolutely right--that there was a point in time where storage 
was normal. We paid storage on all commodities, but we have 
pretty well gotten away from that.
    Mr. Barrow. Well, peanuts are different, and there are 
factors in its marketability that make it an important factor, 
and we need help with that, so I want to continue that 
discussion with you.
    Finally, on a pretty constructive note, I want to call your 
attention to the fact that, in my district, just last week, we 
broke ground on the first commercially viable cellulosic 
ethanol plant in the country. We are petitioning and working 
with Secretary Byron to try and get him to continue to support 
and award them the support that they need. It is Slash Pine. It 
is a non-program ag product that does not cannibalize or feed 
on that sector of the ag community that--you know, where nature 
is doing most of the cooking to get you for the short jump from 
ethanol to gas in the tank. It is going to take stuff--it is 
going to take beef off the table and take food out of 
production. The highest and best use of some of our products is 
food. They ain't had a much better use for Slash Pine and 
cellulose than putting it in a gas tank.
    So I want to encourage your Department to devote as much of 
your research dollars as you possibly can to cellulosic ethanol 
research development and non-program commodities, because that 
will allow for the highest and best use of products right now, 
which are being seriously deranged in the market because of the 
ease with which we can convert what nature has almost gotten 
into ethanol. We are just going to take this short step, and we 
need to invest in something that will produce a much higher and 
better use than non-program ag products that are lying all over 
the ground in my state.
    Secretary Johanns. We have $150,000,000 in our proposal for 
the Wood-to-Energy Program to accelerate development in this 
area. So, gosh, if you are doing something like that in your 
state, I hope----
    Mr. Barrow. Well, listen. There are rice growers in 
California who find similar cause with us because they have a 
lot of cellulosic stuff in what is an ag waste product. They 
are having a hard time managing. You have lots of potential in 
this area where you can raise their profile and create a higher 
and better use for a lot of ag waste.
    Thank you.
    Secretary Johanns. Thank you.
    Mr. Holden [presiding.] Mr. Fortenberry.
    Mr. Fortenberry. Thank you, Mr. Chairman.
    Mr. Secretary, it is nice to see you. I appreciate this 
first marker you have laid down to begin the overall farm bill 
discussion. I think you have taken the framework of what has 
worked well and have built upon it and have made some 
adjustments, particularly with your countercyclical idea, 
direct payment limitations, increased emphasis on conservation, 
new farmers entering farmer programs.
    I do want to talk specifically about your energy title, 
though, because ag-based renewable energy production is a huge 
opportunity for America, and a huge opportunity for our 
farmers. I am really pleased with your emphasis on it, but I do 
want to unpack some things a little bit. Before I do that, I 
also want to commend you for pointing out the impact of the 
1031 exchange issue on agriculture and bringing that up in your 
proposal. I think that is not a well-understood factor in 
raising land values, and I am glad you brought attention to 
this.
    In that regard, in Colfax County, back home in Nebraska, 
you might know Danny Kluthe. Danny has an 8,000-head hog 
operation. He captures the manure, turns it into methane from 
its digester, and burns it right on the spot, putting 
electricity back into line. It is a fascinating project. We are 
so proud of him because he has helped lead the way in this 
regard, and he did that by stringing together--there is a big 
capital barrier there, obviously, and he strung together some 
grants from USDA Rural Development, Environmental Trust, 
Nebraska Environmental Trust, as well as the public power 
district.
    The $500,000,000 that you are proposing for new projects 
such as that, is that on top of other programs that would apply 
in the USDA Rural Development?
    Secretary Johanns. Yes. That is new money.
    Mr. Fortenberry. That is new money. Okay.
    The other project, of course, is where we have a need--we 
have a fascinating project in which--of the 30,000 head of 
cattle, the manure from that is captured and placed in a 
patented methane digestion process. The gas then is used to 
burn the ethanol plant, and the distiller's grain is fed back 
to the cattle. This closed-loop energy system greatly enhances 
the energy output-to-input ratios over the traditional ethanol 
plant. So I put that on the radar screen as other new 
developing technologies that are out there that are converting 
substantial amounts of what used to be considered waste into 
great new energy opportunities.
    I do have a suggestion on an idea in regards to your Loan 
Guaranty Program on cellulosic, and I understand the reason and 
the intent of trying to drive policy in that direction. Given 
that--and this might contradict my friend Mr. Barrow's 
statement a bit, but given that we are some years down the road 
in that regard, particularly in our area of the country with 
the inputs that we might use for cellulosic where we are, would 
it be possible to conceive of an adjustment that would--if you 
committed to heading in the direction of a cellulosic ethanol 
plant, but took advantage of traditional inputs at the moment--
in other words, you would refit later or somehow guarantee you 
could refit later--that you may be able to take advantage of 
what you are offering here in this initial stage? It is just an 
idea for you to consider.
    Secretary Johanns. Yes, we would be happy to look at that 
idea. It is an interesting idea, because I suspect you will 
have plants maybe look at this and say, ``We would do better 
with a cellulosic approach versus''----
    Mr. Fortenberry. Yes, but we can get going now with the 
inputs that we do have. Yes.
    Secretary Johanns. Okay.
    Mr. Fortenberry. Thank you.
    Secretary Johanns. Yes.
    Mr. Fortenberry. I yield back.
    The Chairman [presiding.] I thank the gentleman.
    Now I recognize the gentleman from Georgia, Mr. Marshall.
    Mr. Marshall. Thank you, Mr. Chairman.
    Mr. Secretary, I apologize. I had to be at an Armed 
Services Committee meeting, so I have not been here to listen 
to your testimony and to the questions that have been asked. I 
understand a number of people have brought up a subject that is 
near and dear to the hearts of anybody from Georgia, and that 
is the loan repayment rate that has been set for peanuts, which 
has been an absolute disaster as far as export competitiveness 
is concerned. A number of people have already talked about that 
briefly.
    Have you committed to do something about that? I hope you 
have during this hearing.
    Secretary Johanns. Well, I was asked are you willing to 
look at it, and absolutely. Dr. Collins kind of went through 
what we have done to try to figure this out because price 
discovery with peanuts is a perplexing problem that we have, 
but the answer to the question is yes. If we are overlooking 
something, if there is not something we have not paid attention 
to, we are happy to----
    Mr. Marshall. I appreciate that, Mr. Secretary.
    All I can tell you is that, as I talk to my guys--and it 
has been over a year now that this conversation has been 
occurring. It almost seems like Nero fiddling and Rome is 
burning. That is how bad this is. I mean, our stock of peanuts 
seems utterly inconsistent with the Congressional intent in the 
2002 Farm Bill legislation for the USDA not to take some action 
on that subject and fix it, and you had a year to sort of 
fiddle with it, and Rome is burning as we speak. I will bet 
that you have been asked by plenty of people about that 
subject.
    Your plan contemplates flexibility where base acreage 
planning is concerned, and what that may mean is that a number 
of folks will choose to go into fruit and vegetables. We have 
fruit and vegetable growers who specialize in that area who are 
wondering what impact that might have on their business, their 
market, et cetera.
    Have you done a state-by-state analysis, and if you have, 
could you share that so that we can get an idea of what sort of 
impact you project that might have?
    Secretary Johanns. We have done an analysis. I am not sure 
it is state by state, certainly region by region, but 
absolutely, we will put that in your hands.
    Mr. Marshall. Is it possible for you to do a state-by-
state? I would love to have an analysis of the impact on 
Georgia if that is possible to do.
    Secretary Johanns. I would imagine it is possible. Like I 
said, I have not seen anything we have done there.
    Dr. Collins. Well, we just finished a rather lengthy 
project on this issue and have confined it to a regional basis. 
I hope that will be helpful to you. I know there are some 
private sector studies going on. I really do not know if they 
are going to do it on a state-by-state basis, but between what 
we have done and what the other studies have done, hopefully 
you will get a pretty good picture of what the analysts think 
the impacts will be.
    Mr. Marshall. Yes. For many of the reasons cited by Mr. 
Barrow, we are pretty excited in South Georgia about the 
possibilities where cellulosic ethanol is concerned, and 
arguably, since that is where originally TNT came from, there 
is a huge potential if the thing can be figured out 
appropriately. It may mean that we can produce an awful lot of 
energy without diverting a lot of our acreage into that process 
and consequently having an impact upon the price of corn, the 
price of chicken, et cetera.
    I heard from the Chairman recently that, in your state, I 
believe, Mr. Secretary, you are doing some research on sweet 
sorghum. Is there some potential in that crop that----
    Secretary Johanns. I think there is potential in any 
biobased crop. I think the opportunities for cellulosic ethanol 
in the future are so exciting, and there is so much potential 
there.
    Mr. Marshall. Well, from our perspective, conservation-wise 
and then just, frankly, national resource-wise, it would be 
great if you can, in any way possible, support these efforts 
that are ongoing to develop the cellulosic ethanol process, and 
like I say, we are pretty excited about that in South Georgia. 
In the meantime, our farmers are ready, willing and able to 
assist with corn and other products--sweet sorghum might be 
one--but you do need to fix the loan repayment rate for 
peanuts. I mean, all of these grand things that we all need to 
be working on and worrying about are important, but this is 
something that is already in the law, and it is a problem that 
has existed for a year, and you know, Nero seems to be fiddling 
while Rome is burning on this one.
    Thank you, Mr. Secretary.
    Secretary Johanns. Yes, absolutely.
    Dr. Collins, indicated, yes, we did do a grant for sweet 
sorghum, so we do have some things there. We would love to sit 
down with you on this peanut issue because I will promise you 
this: It is not because people are sitting with their feet on 
their desks. This is a problem that we have tried to figure 
out, and we have worked with the industry. We have brought the 
industry in. We have brought some very good minds in and, quite 
honestly, obviously, not with much success, but we would be 
happy to sit down with you and try and see if there is 
something we are overlooking.
    Mr. Marshall. If I could, Mr. Chairman, just add one more 
comment here.
    You know, a lot of what I see in your proposal makes a lot 
of sense to me. There is an awful lot of change that is very 
dramatic that is contemplated and problematic because there are 
an awful lot of people out there who have made business 
investments around an expectation that we are not going to do 
some sort of grand, radical change to the way we support our 
farm programs. Among those things that are problematic is this 
business with peanuts, but then the AGI changes that you are 
suggesting are way too dramatic. The three-payment limit rule, 
that is way too dramatic. There are just a number of other 
things that you have suggested that change things so 
dramatically that you can expect a lot of failures and farm 
bankruptcies if we implement those things, but the peanut 
program is something that is there. You do not have to change 
anything. Just do what is right right now.
    Thank you, sir.
    Secretary Johanns. Thank you.
    The Chairman. I thank the gentleman.
    Now I will, please, recognize the very patient Ranking 
Member, Mr. Moran from Kansas.
    Mr. Moran. Mr. Chairman, thank you. I am happy to be 
patient for you and for the Secretary.
    I am delighted that you would join us today. I just have a 
couple of comments and then a couple of questions.
    I am very interested in the revenue-based issues, the 
program that you suggest, but I do know that the National 
Association of Wheat Growers has indicated that, in 2006, no 
Kansas wheat farmer would have received a payment under this 
proposal despite terribly low yields and higher prices. It may 
suggest that there is a target price issue in the development 
of this program, but if we can move in the direction of 
assuring revenue, I think that is a concept that has validity.
    I also am pleased that we would move in the direction of 
strengthening the direct payments for a number of reasons. In 
fact, that was the House position when we went to conference in 
2002, that we were for a larger component compared to payments 
based upon production.
    We were interested in trying to enhance the role that the 
direct payment plays. Again, that is important for a number of 
reasons, but one is based upon the history we have had in our 
state of multi-year disasters. I am concerned about the 
allocation of how you got to the direct payment portion and its 
balance between a variety of crops.
    I had some interest in--you know, it seems to me that there 
were some benefits that maybe were accruing to cotton that were 
not accruing to wheat, for example. Of course, now that Kansas 
has become a cotton state, I am interested in that, but one of 
the things that we would be missing is a base. We do not have 
base acres for cotton.
    So, again, I would only highlight the need to try to 
rebalance these direct payments among the various commodities.
    Finally, as far as a comment, I wanted to commend this 
Critical Access Hospital Program. The two things I spend most 
of my time on in Washington, D.C. are agriculture and health 
care, and for much of the time I have been here, I have chaired 
the Rural Health Care Coalition--that is 185 of us, Republicans 
and Democrats, banded together to try to make sure that health 
care is delivered to rural America. There is no state with more 
critical access hospitals than Kansas, and this cost-based 
reimbursement, so-called ``cost-based reimbursement,'' that 
those critical access hospitals receive is important. But, it 
does nothing to replenish the equipment, or to refurbish the 
buildings, or to build a new facility, and if this program 
fills that mission, I think it has great benefit for rural 
development. If you lose your hospitals and you lose your 
doctors, you lose your communities as well.
    Finally, on the question side, the supplemental deductible 
coverage that you are suggesting--what I think you said, Mr. 
Secretary, was, instead of insuring for 70 percent, it would 
allow you to insure for 100 percent.
    That concept has a lot of appeal to me. My guess is that it 
has to be priced in a way that will be unaffordable for most 
farmers, and I would like your response to that. I do not know 
whether this issue will address what I have been trying to get 
from RMA for a multitude of years, which is how do we address 
the multi-year disaster problem on crop insurance. Perhaps this 
should be directed to Dr. Collins, but we have been anxiously 
awaiting proposals from RMA--I do not know--for 3 years now, to 
try to address multi-year disasters, and the answer that I get 
is it is coming soon, and maybe this is a component. I do not 
know whether this is part of what they developed.
    Finally, before I lose my time, I want to get my words in. 
Commodity prices are important in your assumptions, and the 
largest fear I have about the Administration's farm bill 
proposal is it is based upon the assumption that prices will 
remain where they are or perhaps higher, and again, maybe this 
is Dr. Collins'--it is for him to respond, but what kind of 
statistical data, what kind of analytical process have you gone 
through that can help me feel comfortable? When you say that 
the current farm bill would have paid less money than your 
proposal, that is only true if commodity prices remain high, 
and I began to worry in the last few weeks or months that maybe 
we really do need to extend at least the commodity title, if 
this could be done.
    Theoretically, we need to extend the commodity title with 
not one change so that we can keep the safety net in place for 
the out-years when prices are diminished. My concern was 
highlighted this morning when I was told that you do not take a 
position on ethanol and the tax credit or the tariff. I assume 
that that has got to be built into the assumptions that your 
economist is using to develop what the commodity prices are 
going to be in the future. I also am interested in what portion 
of those prices is related to the ethanol market today, how 
much of a factor, of a driving factor, is that in commodity 
prices?
    Thank you.
    Secretary Johanns. Just to address that last point, the 
position we take is that those things are in place, and we have 
not asked for their repeal, or change, or alteration. We just 
acknowledge that those things are in place and will be through 
the time limit that Congress has set, and somewhere out there, 
you will decide if that has been sufficient or if you need to 
extend it.
    Here is what I would tell you about wheat, and this is--if 
you ran the revenue-based countercyclical as if it were the 
2002 bill, we would have ended up better off by about 
$810,000,000. That would not be true of every commodity, but it 
is true of wheat, and if I remember the numbers--I do not have 
them in front of me--I think it all occurred in that first 
year. Under the revenue-based approach for wheat, your wheat 
growers would actually have had a better situation, at least 
based upon our analysis.
    On the direct payments, I appreciate your comments. You are 
right. There was a lot of support for our approach, actually, 
when the 2002 Farm Bill was written. The thing I can tell you 
again about the direct payments is, if you adjust the loan 
rates for those four commodities, quite honestly, it is not 
going to make a lot of difference.
    The money we found to enhance direct payments was 
$1,000,000,000, and we had to find it. We did not achieve that. 
There really is not that savings that popped that money up. We 
just went out and said, ``In the 3rd, 4th and 5th years, let us 
increase those direct payments for those other commodities.'' 
We will put in the record the critical access hospital list. It 
will do a lot of good. I will end my comments there.
    On the price for the insurance that will--yes. It is slow, 
Keith says, and now I will let him talk about price or about 
insurance. Here is what I wanted to say about commodity prices.
    You know, you are going to sit down just like we did, as I 
have said, and you are going to start somewhere, and CBO will 
sit down with you or give you information, and somewhere you 
are going to arrive at what these numbers should be. 
Congressman, I am just going to guess, when it is all said and 
done, that we will not be that far off. These are not numbers 
we dreamed up or tried to make things look a little better than 
they are. Like I said, in the end, lay CBO next to our 
projections, and you are going to be about the same. The one 
thing about going to the direct payment that helps all of those 
commodities is, look, that is certain. Your farmers out there 
are going to know, and they are not going to worry about did I 
raise a crop; did I not raise a crop; can I LDP something I did 
not raise if drought continues, et cetera. If they receive that 
direct payment, it is truly in the bank. It is there just like 
our current direct payment system.
    The Chairman. Be very brief, Dr. Collins.
    Dr. Collins. Very brief.
    I will just mention to Mr. Moran that the average premium 
rate on our current county-based area yield policies is 3.2 
percent. That means 3.2 percent of your crop value are your 
liability. If you look at corn, something like corn is probably 
ten percent.
    So our area yield policies are cheaper than our individual 
policies, and this gap coverage is an area yield policy whose 
liability is only the deductible portion of the policy, so that 
should bring the premium rate down even more. I do not think it 
is going to be a high price for farmers.
    Regarding your question about declining----
    Mr. Moran. Does this solve that problem, the multi-year 
disasters? Are these related to it?
    Dr. Collins. Well, it will help solve that problem because, 
currently, individual policies are based on your own 10 year 
history, and the area yield policy is based on county history. 
So, if you have a poor history relative to your county, buying 
a county policy will help you provided your own individual 
yield is correlated with the county yield over time, so it will 
partially help that. But, we do have two products as you know--
you have heard this apparently from talking with RMA--two 
products in stream to address the secular decline in yields. 
That is due to weather. Honestly, I do not know where they are 
in the development process today, but I will find out and let 
you know.
    Mr. Moran. Mr. Chairman, thank you for your patience.
    I would like USDA to put before us, or before me at least, 
the addendum that I keep looking for that is their projection. 
I assume Dr. Collins' projections about commodity pricing is on 
which you base your assumptions.
    Dr. Collins. We will.
    Mr. Moran. Okay. Thank you, sir.
    The Chairman. I thank the gentleman.
    The chair recognizes the gentleman from California, Mr. 
Costa.
    Mr. Costa. Thank you very much, Mr. Chairman.
    I would like to thank the gentlewoman from New York and the 
gentleman from Wisconsin for yielding. I have another place I 
have to go.
    I want to ask one question, and I will submit the other 
questions, Mr. Secretary, for you to respond to at a later 
date. Thank you for being here today, and for your visit to our 
district last year and during your listening tour.
    I do want to associate my support with the comments that 
were made with Congressman McCarthy on the E. coli issue and 
the food safety. In California, we are coming up with an effort 
to try to provide greater food safety as a result of recent 
events. I believe it ought to be a national effort. Frankly, 
having individual state standards for food safety, I do not 
think is a good way for us to go. We should work more on that.
    I also want to associate my comments with Congressman 
Cardoza on the efforts with hopping energy and methane as it 
relates to dairies. I look forward to your response on that 
question that he asked you earlier. I will submit to you 
questions as they relate to some additional efforts on BSE 
efforts that the Department is involved with and Energy. I hope 
it came across your radar screen that I and others, on a 
bipartisan basis, have introduced legislation in the House, and 
there is a separate effort going on in the Senate as it relates 
to the freeze impact that occurred in California last month. It 
has not only impacted California, but obviously, there has been 
also devastation that has occurred in the Midwest and in other 
parts of the country in agricultural regions.
    I would like to know if you have had a chance to look at 
the freeze package that we have put together and what the 
response would be by the Department and, if you have not had a 
chance to take a look at it, conceptually what your response 
might be, and to whether or not we can work with you.
    Secretary Johanns. You can always work with us. I emphasize 
that. We may not always agree at the end, but we certainly are 
open.
    I did have a meeting when I was in California. One of our 
meetings when we released our proposal was in California, and 
some commodity groups and growers wanted to meet with me. We 
had a very early morning meeting on the freeze, and they gave 
me a great update on what they were dealing with.
    Mr. Costa. We are looking at over $1,200,000,000 in losses, 
exceeding the 1998 freeze.
    Secretary Johanns. Yes. It was just a tragic situation, no 
doubt about it, and we are working with California to do all we 
can do from the USDA's standpoint. I must admit it would 
probably be best if I responded to your request about the 
package, and I will be happy to do that and give you a 
response.
    Mr. Costa. All right. Look at the 1998 Federal template as 
a start because we are trying to follow that in terms of the 
Federal, state and local response in 1998 which lost over 
$800,000,000. This is $1,200,000,000. It is just not the citrus 
industry, but it is the packing sheds. It is the farm workers 
who have lost their livelihoods. It is unemployment insurance. 
It is housing. It is health care, and the ripple effect has 
also impacted fresh market growers, vegetable growers, some 
Southeast Asian farmers who do not have a bank loan or who are 
farming 5 or 10 acres, and you know, it is just their family. 
They do not have employees. So the ripple effect, we believe, 
is going to be significant, and we would really like to have 
the same sort of support on the Federal level that we received 
in 1998 as a minimum.
    Secretary Johanns. Thank you.
    Mr. Costa. I thank my colleagues for yielding.
    The Chairman. Yes. I thank the gentleman, and I will now 
recognize the gentlelady from New York, Mrs. Gillibrand, and 
thank you for your patience.
    Mrs. Gillibrand. Thank you, Mr. Chairman.
    Thank you, Secretary, for being here and Deputy Secretary 
and Dr. Collins.
    I come from upstate New York, and we have a lot of dairy 
farmers, and I have been meeting with them for over a year and 
a half, and the stories they tell me are, in their region, 
there used to be 200 dairy farms. Now there are 20. It is 
costing them $17 to $18 per hundredweight to produce the milk, 
and they are getting reimbursed $12 per hundredweight. If this 
trend continues, we will not have dairy farms in upstate New 
York. That is of grave concern to me and to our communities, 
not only because it is part of our heritage, part of our 
culture, part of our quality of life, part of our economic 
security, but it is also part of our nation's national 
security. We need to make sure we have food production 
throughout the country always, and having small farms be 
sustained is part of my mandate for my district. But, it should 
be part of what we want to do as legislators in this Congress 
and as policymakers as part of the Administration.
    So I have read your plan, and I was grateful that you had a 
continuation of the MILC Program in it, and I recognize that 
that was a significant step, and we are very encouraged by 
that, but in your recommendation, you phased down the 
percentage, and so my question is why did you choose to do 
this. What is your long-term goal for the program, and can you 
explain the rationale for the Department's decision not to 
maintain the program, at least at its current level?
    Secretary Johanns. Yes. I can tell you our goal is exactly 
what we have laid out there, to continue the MILC Program, 
through the life of the next farm bill, and yes, we do stair-
step it down, but very clearly, we stay with the MILC Program. 
We also keep the Price Support Program at $990 million, and so, 
actually, the only change made here was in the stair-stepping 
down. We pretty much keep the same MILC Program.
    Congresswoman, here is the--you know, again, I have been 
saying you will face many of the same challenges we did, and 
you will. One of the challenges to the MILC Program is that the 
baseline is what the baseline is. This is not in the baseline. 
So, when you advocate for a program that is not covered in the 
baseline, what you are saying is we are going to have to find 
this money somewhere. That is what we faced, and so, there are 
just simply restrictions on how much money is available.
    The other thing I will tell you is that we did make changes 
in other commodities, and so this change, if you study it in 
terms of what we are proposing, is in line with some other 
things that we have done for other commodities, but again, I 
will just emphasize this one is not in the baseline. This is 
money we had to go out and identify and find to continue 
funding. This one, the score on this one, is about $800,000,000 
over 10 years. The cost of a full program would be more than 
that.
    Mrs. Gillibrand. You also mention that you want a shift to 
85 percent of the 3 year average in milk market during the 
Fiscal Years 2004 and 2006. What is the intention of that?
    Secretary Johanns. It is the same approach we followed in 
terms of other commodities.
    Mrs. Gillibrand. Well, to our dairy farmers, this is going 
to be very troubling to them. The combination is going to be 
seen as something that is really going to undermine their 
ability to actually stay in business.
    So what are your thoughts about the long-term survivability 
for dairy farms in upstate New York?
    Secretary Johanns. I grew up on a dairy farm. I think I 
probably have as much feeling for dairy as anything I do, and I 
grew up on a farm of 30 cows, 32 cows at the most. I mean it 
was the average dairy farm. I believe that dairy in the 
Northeast part of the United States, whether it is upstate New 
York or wherever--Pennsylvania, Wisconsin, Minnesota--is very 
important. You know, we have done some studies on the MILC 
Program that, quite honestly, might have led you to the 
conclusion that there was no chance you would see MILC 
continued in the Administration's proposal. I do think it is 
important, and we made a case for it, and we identified the 
funding for it, admittedly not at the full level that you would 
like to see, so we have made a pretty strong statement here of 
our support for your dairy farmers and for Northeast dairy.
    I will also say--and you will not have to look very far to 
find this. There are folks in the dairy industry, more so in 
the western part of the United States, that fundamentally 
really disagree with the MILC Program, and they are in the 
House and in the Senate. I was questioned very vigorously in my 
Senate hearing about ``Why are you doing this? You have 
criticized it in the past as a Federal department. Why are you 
continuing it?''
    Again, I think it is important, and so I think we have made 
a very positive statement about your industry but, really, for 
the Northeast part of the United States.
    Mr. Conner. Congresswoman, if I could just add as well, for 
your region of the country, our environmental provisions and 
the resources that we have added to that particular title have 
a great deal of impact upon the ability to sustain a viable 
dairy sector in the Northeast region of the country. I think 
these programs are critical as that region continues to grow. 
The ability of agriculture and urban America to interact in 
some of those areas is critical, and those conservation dollars 
will be a great boost to your producers.
    Mrs. Gillibrand. We are appreciative of that trend.
    So thank you.
    The Chairman. I thank the gentlelady, and I now recognize 
the gentleman from Wisconsin, Dr. Kagen.
    Mr. Kagen. Thank you, Mr. Chairman.
    I apologize for this microphone. It has a medical problem 
that I am not licensed in this state to address, but on a very 
serious note, I appreciate the fact that you have come from the 
dairy industry and a dairy family.
    I do represent Wisconsin. As you know, we have received the 
most from the MILC Program over the years, but at the same 
time, the farm bill proposal that you put forward really is a 
reflection of your values and what sort of landscape you are 
intending to create by instituting these proposals.
    Would you not agree that with the ratcheting down of the 
MILC Program and the 85 percent peg that you are really going 
to see far fewer family dairy farmers in Wisconsin?
    Secretary Johanns. No, not necessarily. I would not agree 
with that, and here is why.
    We did decide to keep this program, and again, we have done 
studies that were pretty critical of the program. We did decide 
to keep the milk support at $990 million. The Deputy's comment 
is a very, very good comment. There are many programs that we 
will offer through our proposal that will be very helpful to 
the dairy industry, and we will do everything we can to try to 
reach out to the industry, whether it is in Wisconsin or 
upstate New York, to try to get those programs to the people 
there and be as aggressive as we can. There are many things 
about our proposal that I believe are very positive for that 
industry.
    Mr. Kagen. Notwithstanding your opinion, but wouldn't you 
agree that, in the communities that we live in in Wisconsin, 
with this that you have proposed we will see far fewer 
smaller----
    Secretary Johanns. I would not necessarily agree with that, 
again, because if you look at the totality of our proposal, we 
have some very, very good things for your dairy industry, for 
Wisconsin in general, some very, very positive things in our 
proposal.
    Mr. Kagen. Thank you for being here.
    Secretary Johanns. Thank you.
    The Chairman. I thank my neighbor and friend, Dr. Kagen; 
and I welcome another neighbor and good friend, Mr. Pomeroy 
from North Dakota.
    Mr. Pomeroy. Thank you, Mr. Chairman.
    Mr. Secretary, you have a sincerity about your testimony 
that is effective, and I have noted by watching you work that 
you have put a lot of time into your proposal. The farm bill 
will be written in the Agriculture Committee, and your offering 
will have some useful guidance, although certainly it will not 
be determinative. Fundamentally, do you see a farm bill--what 
is the core purpose, in your view, of a farm bill?
    Secretary Johanns. The core purpose, in my view, is that it 
supports agriculture. Now, farm bills over time have expanded. 
There was a time when you talked about a farm bill, you talked 
about commodities, and once you addressed commodities, you were 
pretty well done with the farm bill. Now we support a whole 
host of things through our farm bills, but fundamentally what I 
believe we should be about is supporting agriculture.
    Mr. Pomeroy. I thank you for your comment, and I agree with 
you. Although, to press the point a little further, I believe 
that the core purpose of a farm bill is to provide some 
protection against price collapse. It is the core fundamental 
purpose, an assurance against ruinous price collapse. That is 
the risk on the family farm that they can't otherwise protect. 
If you don't give them protection against price collapse, 
inevitably you are going to reduce the number of family farm 
operations.
    I think it is extremely dangerous to write a farm bill in 
times of good prices, because the risk is not at the forefront 
of what people are thinking about. They are thinking about good 
prices.
    Chairman Roberts in this Committee--I was one of seven on 
the Committee when we wrote Freedom to Farm--took an approach 
that strikes me as eerily similar to the one that you are 
supporting, and that is to maximize payments. I think we need 
to maximize protection. And if you push payments out, 
irrespective of how the pricing environment is, you are 
inevitably going to have lower resources to respond when prices 
collapse and farmers need to help.
    My purpose as an advocate for production agriculture is not 
to secure every budget dollar available to farmers, as 
surprising as that may seem. It is to secure for them the most 
protection so that they have a good response when they need a 
response. I am not concerned about getting them money when they 
don't need money because prices are good. So, really, it is a 
philosophical approach.
    But moving the money into direct payments in the way you 
have away from the ability, the loan deficiency payment 
specifically that responds to price collapse, I think diverts 
the purpose of the farm bill in a way that I disagree with.
    Now, before the time runs out, the Chairman has been 
infinite in his patience, but I want to ask you about the way 
you have structured these direct payments. Because you have 
structured them based upon the loan rate in support of the 
commodities.
    Now, those loan rates are not set at equal levels of 
protection per commodities. We heard, for example, as we had 
the hearings--and I know you heard a good deal about it, too--
there was a lot of support to continue the farm bill. We didn't 
hear that too much from wheat, because they feel they have an 
insufficient LDT. The problem with converting the loan 
deficiency payment into a direct payment and shipping it out is 
the inequities of the 2002 Farm Bill are simply continued, 
maybe even magnified in that approach. How did you wrestle with 
that issue of equity of cross-commodities?
    Secretary Johanns. We recognize that issue, and you are 
absolutely right. If you talk to the wheat grower, they are 
pretty cool on the 2002 bill. They feel like there was 
something that happened in that 2002 bill, that their argument 
is it just wasn't fair across commodities.
    But if you look at the adjustments we have made in loan 
rates, the adjustment for cotton actually resulted in the 
arrival at a number. You actually were going to have an impact 
on spending into that area. So you have a higher direct 
payment. It really was put back into that commodity.
    If you look at the others, the adjustment of the loan rate 
because the prices are high, it just doesn't move any budget 
numbers for you, and you will find that. You will find that. We 
looked out there and, kind of in the vein of what you are 
talking about, we said, there could be some changes as we look 
out there. Let's improve the direct payment. And we identified 
a billion dollars to spread across those commodities for about 
an average increase of 7.2 percent thereabouts.
    Again, here is what I would say. You will start where we 
started. It is pretty straightforward. You will have 
projections, you will have a budget, you will have to make 
decisions as to how best to approach this. But I can tell you 
this: based upon what you are going to see, which is probably 
what we saw, if you decide not to enhance those direct 
payments, I would just advise you, that is a billion dollar hit 
to wheat growers, to corn growers, to soybean growers, to rice 
growers across the country. Every farm bill is built upon the 
shoulders of the last.
    You know, I was running for Governor when Freedom to Farm 
was getting so much criticism; and the extra amped payments, 
the largest payments ever made in the history of farm programs, 
was in the year 2000, $32 billion. Were things better for 
farmers then? No. Were prices high? No. Too many other things 
weren't working right for farmers.
    So, however you state it, I believe we have the same goal 
here. How you do it is terribly important, and it is a 
combination of factors, and that kind of puts the puzzle 
together.
    But, again, the numbers I cited at the start of my 
testimony, very, very definitely we have different 
circumstances today than we had at the time of the 2002 Farm 
Bill. No doubt about it. But I will just make a very forceful 
argument to you that we tried to take into account all of the 
things that you are talking about; and develop a farm bill that 
makes a lot of sense for producers out there and does what you 
hope we achieve, which is to provide that safety net. In my 
judgment, farmers are going to do better in your state with 
this revenue approach. I just think they will.
    Mr. Pomeroy. I think the revenue change specifically to 
countercyclical is a positive improvement. I do. I think a 
sincere approach has been made, Mr. Chairman; and I appreciate 
the Secretary and his A-Team with him.
    I just worry very much about the billion dollars in the 
payments, diluting the kind of protection we can afford when 
prices collapse. You build a farm bill for bad times, not good 
times. We will be wrestling with the same finite numbers you 
did, and we will see where it comes up.
    Thank you.
    The Chairman. I thank the gentleman.
    Secretary, you have been very patient, but do you have time 
for one more question from me and Mr. Goodlatte? And then 
hopefully nobody else will show up.
    Secretary Johanns. Yes.
    The Chairman. Thank you, Mr. Secretary.
    When your proposal for this farm bill was released, 
officials from a number of our international friends reacted 
somewhat negatively, suggesting that the Doha Round was 
threatened because you didn't propose further reductions in the 
commodity spending. The EU ag spokesman was quoted as saying, 
if we are to have a successful outcome to Doha, the U.S. will 
need to propose more ambitious cuts and disciplines and trade-
distorting domestic farm subsidies.
    In your opinion, why is it that our negotiating partners, 
if you will, or whatever you want to call them, the EU in 
particular, why do they expect that we would unilaterally alter 
our programs before we have commitments from them for increased 
access and programmatic reforms in some of these issues, 
barriers that they continue to throw up? You know, what is your 
reaction to their comments and their approach in all of this?
    Secretary Johanns. You know, that is a very good, 
straightforward question. I am going to give you, hopefully, a 
straightforward answer; and that is that the EU, I believe, 
does not want to open its market further than what it has on 
the table; and I also believe that they must.
    We have always said we are there to negotiate. So I think 
the EU is trying to do everything they can to talk the world 
down, relative to our farm bill proposal. But maybe, Mr. 
Chairman, what it also indicates is that we tried to 
concentrate on a proposal that was also very good farm policy.
    Now you and I may disagree about some of the pieces of 
this, but we have the same purposes in mind, and that is to get 
a good farm bill for agriculture. We have benefited from a 
strong agricultural system, but at the risk of being too blunt, 
quite honestly, what the EU needs to do is step up and be 
willing to open up their markets. And we can move the Doha 
Round and we can make the case here on the Hill that we have 
ended up with an agreement that hopefully can be approved, but, 
to date, their market access I don't believe is enough. And if 
it was just the EU, that would be one thing, but keep in mind 
that the developing countries will be based upon \2/3\, in all 
likelihood, of the developed countries. So if you settle here, 
you are not going to end up very well in that piece of the 
equation. So I think they have to do better. I think they are 
reluctant to do it, and they are talking down our proposal.
    The Chairman. Thank you, Mr. Secretary.
    Mr. Goodlatte?
    Mr. Goodlatte. Well, thank you, Mr. Chairman.
    If I might just amplify that, I want to commend you on 
putting American farmers and ranchers first. We have a lot of 
opinions about the best way to do that. That is what a farm 
bill should do; and it should not be catering to European 
trading partners who enjoy a sizable trade surplus with the 
United States in agricultural production. Even though we are 
clearly the larger and more significant agricultural producer--
at a time when they subsidize their agricultural production 
maybe differently than we do but to a greater amount per acre 
and maintain much higher market access. So I commend you for 
that.
    I also commend you for, nonetheless, notwithstanding that, 
attempting to address the existing problem we have with the 
existing WTO agreement where our cotton program, and 
potentially some of our other programs, are in a jam over that. 
This does look very creatively at ways to address those.
    So I appreciate that, and I join with the Chairman in 
expressing concern about the reaction we have received from the 
Europeans in particular.
    I wanted to ask you further about dairy programs.
    First, with regard to the Federal milk marketing order, I 
note that you made some comments while you were in the Senate 
regarding the Federal milk marketing orders, and I would like 
you to expand on. I understand that the Department has taken 
steps to improve the time it takes to address Federal milk 
marketing order decisions. However, it still takes an average 
of 2 years for the USDA to reach a final decision.
    By contrast, I understand California maintains its own milk 
pricing system that takes only 4 months to make decisions. 
Given the importance of these decisions to the dairy industry--
and I heard this all over the country when we talk to dairy 
farmers--shouldn't we include FMMO process revisions in the 
2007 Farm Bill?
    Secretary Johanns. Well, we heard the same criticism. 
Anytime we were out there talking to farmers, if there was any 
dairy around, we get criticized for the impossibly slow pace of 
the marketing order system.
    Here is the difficulty. It is a rule-making process that we 
have to go through. So we have to go through hearing and all of 
the steps that are involved in rulemaking. So even an improved 
system, just to be very candid with you, is probably a 12 to 18 
month system, and we are taking too long. We want to try to 
streamline that. We think we can do some things, but, in the 
end, we are still going to deal with the Federal rule-making 
process as it is currently structured, and that just takes a 
while, especially in complicated cases.
    Mr. Goodlatte. Do you think that is beyond the scope of our 
jurisdiction in the Agriculture Committee to----
    Secretary Johanns. You are not going to impact rulemaking 
very much, I would guess, although you will have an ally here 
if you want to take it on, because it is really cumbersome.
    Mr. Goodlatte. Well, I think we should. Maybe just to get 
the ball rolling, and it may be something that requires a 
broader look at that problem, but we also ought to look at 
whether we can target this process in such a way that it can be 
done more quickly.
    Secretary Johanns. Okay.
    Mr. Goodlatte. I would also like to ask you about dairy 
forward contracting. You spoke about the USDA support for a 
dairy forward contracting program as a means for producers to 
manage risk. Now I know that you have already stated that the 
Department is in favor of this program, but I would just like 
to clarify a few points.
    I know that cooperatives are already allowed to forward 
contract, and widely do. In fact, I understand about 84 percent 
of the milk is moved through cooperatives that forward 
contract. So is it the case that this program would just allow 
about 16 percent of the milk sold to proprietary plants to be 
forward contracted and treated like milk marketed through 
processor dairy cooperatives?
    Secretary Johanns. I just asked the expert, and he said I 
don't know the answer to that. But if we can respond in writing 
I would be happy to do that.
    Mr. Goodlatte. I would appreciate that.
    You studied the forward contracting program. Did your 
experts find that dairy forward contracting undermines the 
Federal milk pricing system or, for that matter, any of the 
components of the Federal milk marketing order?
    Secretary Johanns. No. No, we didn't. We did not find that.
    Mr. Goodlatte. Will the handler still be responsible to pay 
into the producer pool even though he has a contract with some 
of his farmers?
    Secretary Johanns. We will get an answer to that, too. We 
are not remembering the answer to that. So if you don't mind, 
we will submit a written response to your questions.
    Mr. Goodlatte. Well, thank you.
    My objective is to be consistent and fair to everybody in 
this process, and this is one of the keys to your farm bill 
proposals, and that is to try to help farmers find new ways to 
manage risk.
    Secretary Johanns. Yes.
    Mr. Goodlatte. Forward contracting orders that are 
available to some dairy farmers but not available to others, I 
think that they should be consistent, and I hope we can work 
toward that policy.
    Secretary Johanns. Great. Thank you.
    Mr. Goodlatte. Thank you.
    The Chairman. I thank the gentleman.
    Mr. Secretary, you have been very generous with your time, 
and this discussion has been useful, and we appreciate you 
making the time for us.
    Secretary Johanns. We appreciate----
    The Chairman. Dr. Collins, we appreciate your being with us 
as well.
    Mr. Goodlatte and I will be spending a lot of time talking 
to you, I assume, over the next few months. I agree totally 
with you that our objectives are the same, and I have no doubt 
that we will come together in a place that would be good for 
American agriculture and get this process done on time.
    Secretary Johanns. We look forward to working with you.
    The Chairman. Thank you very much.
    Secretary Johanns. Thank you.
    The Chairman. Okay. I guess we have some final--without 
objection, the record of today's hearing will remain open for 
10 days to receive additional material and the supplementary 
written responses to any question posed by a Member of the 
panel.
    This hearing of the House Agriculture Committee is 
adjourned.
    [Whereupon, at 1:27 p.m., the Committee was adjourned.]
    [Material submitted for inclusion in the record follows:]
                          Submitted Questions
Responses from Hon. Mike Johanns, Secretary, U.S. Department of 
        Agriculture
Questions Submitted By Hon. Collin C. Peterson, a Representative in 
        Congress from Minnesota
    Question 1. Your proposal includes a number of comments from 
farmers about the difficulties both new and current farmers face with 
increasingly higher rents and higher land values. But aren't direct 
payments under criticism as income transfers to landowners, and 
consequently, a major cause of these inflated rents and land values? 
Won't increasing direct payments for all farmers and giving new farmers 
a 20% bonus on top of that--as you propose--simply send rents and land 
values even higher?
    Answer. We believe that the proposed increase in direct payments 
would likely lead to only a slight increase in cropland rents or land 
values because the proposed increase is modest relative to total direct 
payments. The Administration's 2007 Farm Bill proposal would increase 
direct payments, including the increase for beginning farmers, by an 
estimated $5.75 billion over 10 years, or $575 million per year. There 
are about 265 million base acres eligible for direct payments so the 
proposed increase in direct payments raises direct payments by an 
average of only about $2.25 per base acre. It is very unlikely such an 
increase in payments would raise cropland rents and land values very 
much. While the proposed increase in direct payments for upland cotton 
amounts to about $23 per base acre, the increase in direct payments is 
largely offset by lower marketing assistance loan benefits on acreage 
planted to upland cotton under the Administration's 2007 farm 
proposals.

    Question 2. Do you envision the 20% bonus in direct payments for 
beginning farmers potentially being shared with landowners in share 
rent situations when both the landowner and the tenant producer share 
in the risk of production--and hence are both eligible for farm 
payments--or should we establish this 20% bonus exclusively for the 
beginning farmers?
    Answer. We envision that a producer who meets the definition of a 
beginning farmer and who receives direct payments would receive a 20 
percent increase in those payments under the Administration's direct 
payment bonus for beginning farmers. We do not envision the landlord 
receiving a share of this payment--its purpose is to assist beginning 
farmers.

    Question 3. According to your proposal, the recommendation to set 
loan rates at 85% of recent prices is designed to provide a more 
market-based solution for setting loan rates and to avoid the 
unintended consequences of creating incentives for producers to plant 
one crop over another. If you intend a market-oriented approach to 
setting loan rates, how do you justify a cap on loan rates?
    Answer. From a broad policy perspective, we propose to continue 
support for production agriculture while shifting that support so the 
market, not the government, serves as the primary signal for what and 
how much America's farmers should produce. As you know, a significant 
component of our proposal is to lower loan rates from their current 
levels. This action would reduce non-market incentives that loan rates 
and consequent LDPs create for producers' crop mix and planting 
decisions. In turn, we propose shifting expected savings from the 
marketing assistance loan program to the direct payment program, 
thereby shifting increasingly to non-trade-distorting support.
    If prices for commodities remain relatively high, then the maximum 
loan rates we propose will continue to provide revenue support, albeit 
at lower levels, and provide a vehicle for producers to obtain interim 
financing. However, if one commodity's market value falls to levels 
near or below the loan rate, the Department considers it appropriate to 
lower its support level (i.e., to 85% of the Olympic average) relative 
to those of other commodities. In so doing, we would reduce the 
program-based incentive for producers to continue planting and 
harvesting a commodity that the market has consistently valued at a 
relatively low level.
    Congress would appear to agree with these arguments for capping 
loan rates, since caps on loan rates have been included in both the 
1996 and 2002 Farm Bills as well as other farm bills. The caps on 
marketing assistance loan rates contained in the Administration's 2007 
Farm Bill proposals were included in the House-passed version of the 
2002 Farm Bill.

    Question 4. Some commodity groups have criticized the current 
target prices for the countercyclical program as being too low. Yet the 
Department used those same target prices for its revenue-based counter 
cyclical proposal. Was there any consideration to changing the target 
prices to more closely reflect relative crop prices and values? Why did 
you use them in your proposal?
    Answer. We reviewed the current target prices for all program crops 
and believe that current target prices combined with the 
Administration's countercyclical revenue payment proposal along with 
the Administration's other proposals to improve the commodity, 
conservation, trade, credit, research, energy and miscellaneous titles 
of the farm bill will provide an adequate safety net for farmers and 
ranchers, while staying within the fiscal constraints of the budget.

    Question 5. Many of your recommendations for the Commodity Title 
appear to be based on the assumption that the U.S. will lose its 
pending appeal with Brazil regarding cotton. Is it the Administration's 
expectation that we will lose this appeal?
    Answer. In shaping these farm bill proposals, our primary goal has 
been promoting good farm policy. This means a more market-oriented 
approach that is predictable and balanced, an approach that provides 
farmers and ranchers with a safety net, yet doesn't distort market 
signals.
    We believe that steps we have taken regarding GSM credit programs 
and the elimination of the Step 2 program sufficiently address the WTO 
cotton panel findings and recommendations regarding prohibitive export 
subsidies and serious prejudice. As the record reflects, Brazil argued 
that we have not fully complied with the ruling. Arguments by Brazil 
and the United States were made before a compliance panel in Geneva on 
February 27&28, 2007. A public decision by the compliance panel is not 
expected until summer.

    Question 6. The competitiveness provisions for extra long staple 
(ELS) cotton cost the government about $23 million in FY06, is 
projected to cost $17&$19 million annually in your 5 year budget, and 
it has never been challenged in the WTO. Why do you propose the 
elimination of this program?
    Answer. The ELS competitiveness provisions are essentially the same 
as those for upland cotton, which were found to be illegal under the 
WTO. Our proposal is to treat ELS cotton the same as upland cotton and 
eliminate what has been found to be a prohibited export subsidy.

    Question 7. We have heard much from fruit and vegetable growers 
about the potential consequences to their industry should the planting 
prohibitions on program base acres be removed, as you proposed. I want 
to take a step back from those specific consequences and look at 
broader impacts. Without the prohibitions in place, the utility of 
program base acres increases, and likewise the value of those acres. 
Additionally, fruit and vegetable growers will now have an incentive to 
seek out these acres for their plantings or else suffer a potential 
competitive disadvantage to competitors that do grow on program base 
acres. It seems this could exacerbate the whole high land value, high 
rent problem. Has USDA looked at the consequences on land values and 
rents for program crop acres' should the planting prohibitions be 
lifted? Are the consequences previously described not a possibility?
    Answer. Removing the planting restrictions on program base acres 
will have a minimal impact on land values and rents. Agricultural land 
value and rent reflect expected net returns from the use of the land, 
including the value of payments. Any producer who acquires rights to 
base acres pays a higher price for that land, reflecting the value of 
the payments. Current owners of the base acres capture most of the 
current and future value of the payments. Permitting fruit and 
vegetable production on this land will not alter the value of the 
payments.
    Land values and rents may increase if fruit and vegetable producers 
are willing to outbid program crop producers for land, including base 
acres. ERS analysis indicates that significant increases in fruit and 
vegetable production are unlikely given the barriers to entering these 
markets. Startup costs for a new (and sometimes for an existing) grower 
of fruit or vegetables can be substantial. Agronomic and economic 
constraints limit incentives to expand production of many fruit and 
vegetables. The fruit and vegetables category includes a diverse group 
of hundreds of individual commodities; each has specific production and 
marketing characteristics and limitations. Specialized production and 
marketing constraints limit incentives to expand acreage devoted to 
these commodities. A new grower would need to (1) develop specialized 
expertise, (2) invest in capital equipment and irrigation, (3) hire 
expensive and often difficult-to-obtain labor to harvest the crop, (4) 
modify program crop production practices by restricting herbicide use 
before switching to a food product, and (5) locate and develop markets 
or contracts for the crops.

    Question 8. One of your proposals in the payment and eligibility 
limits section calls for new rules that strengthen requirements for the 
active management contribution to an operation that allows individuals 
to qualify for commodity payments without contributing labor to the 
operation. Who are you targeting with these stronger requirements? Why 
can't these new rules be implemented administratively through rule 
making?
    Answer. The current rule on what constitutes a significant 
contribution of active personal management provides that the 
determination takes into consideration whether the claimed management 
is critical to the profitability of the farming operation, considering 
the individual's share. Problems can arise when multiple individuals 
claim that they are jointly providing critical contributions of active 
personal management. It is common to see claims that all contributions 
of active personal management in a farming operation are being provided 
jointly by all of the members of the farming operation. It is asserted 
that the members meet or otherwise communicate with each other and 
jointly make decisions which are critical to the profitability of the 
farming operation. When farming operations are structured to maximize 
eligibility for payments and include multiple entities involving the 
same individuals, these assertions strain credibility, but can be 
difficult to disprove.

    Question 9. How does USDA ensure farmers are complying with the 
current AGI limit, and what new rules and procedures do you want to 
institute to ensure compliance, as your proposal recommends?
    Answer. The Department has established rules, regulations and 
procedures to ensure that producers comply with the current AGI limit 
for receiving farm program and other payments. These procedures include 
a system of reviews to determine whether producers are in compliance 
with the regulations. We do not believe that new rules and procedures 
would be needed to institute or to ensure compliance with the 
Administration's AGI proposal.

    Question 10. Can you please explain your rationale for leaving the 
AGI limit for conservation payments the same, and how you reconcile 
that with your reasons for changing the AGI limit for farm safety net 
payments?
    Answer. There are important differences between commodity programs 
and conservation programs which must be taken into consideration. 
First, commodity programs relate directly to income connected with the 
farming or ranching operation. As Farm Bill Forum input indicated, and 
our analysis further verified, there is a current imbalance of 
commodity program distribution under current law. Conversely, 
conservation programs currently have a more even distribution across 
farms of all acreage and size. In fact, most conservation programs are 
connected with small and mid-size farming operations. Under 
conservation programs, the government is either sharing in the cost of 
a particular conservation practice, purchasing an easement, or 
receiving some sort of new conservation benefit. In the end, wildlife 
and natural resources do not recognize property boundaries, political 
boundaries or differences in income. We want to seek out the greatest 
environmental benefits that can be purchased on behalf of the entire 
nation.

    Question 11. Does the Department have projections for budget 
outlays for your proposed changes to direct payments, countercyclical 
payments, and marketing loans divided by commodity? Can you tell us in 
the aggregate how much cotton, rice, wheat, corn, and soybeans would 
receive under your proposal as compared to the January 2007 baseline? 
What are your price projections for these crops?
    Answer. Yes, the Department does have projections for budget 
outlays for the proposed changes to direct payments, countercyclical 
payments and marketing loans divided by commodity. The estimated 
changes in total payments by crop year under the Administration's 
proposals compared to the FY 2008 President's Budget baseline for corn, 
wheat, upland cotton, rice and soybeans are as follows:

----------------------------------------------------------------------------------------------------------------
               2008/09   2009/10   2010/11   2011/12   2012/13   2013/14   2014/15   2015/16   2016/17   2017/18
----------------------------------------------------------------------------------------------------------------
million dollars
----------------------------------------------------------------------------------------------------------------
      Corn         ^72       ^70       103        96        81       ^69       ^77       ^79       ^91       ^91
     Wheat         ^40       ^40        53        56        58       ^18       ^16       ^15       ^12       ^12
  Soybeans         ^43       ^47       ^21       ^56       ^77      ^138      ^150      ^147      ^160      ^160
    Upland        ^268      ^314      ^343      ^343      ^418      ^336      ^438      ^425      ^562      ^562
    Cotton
      Rice         ^15       ^15        21        22        23        ^6        ^6        ^5        ^4        ^4
----------------------------------------------------------------------------------------------------------------

    The price projections for these crops under the Administration's 
2007 Farm Bill proposals and under the FY 2007 President's Budget 
baseline are as follows:

----------------------------------------------------------------------------------------------------------------
               2008/09   2009/10   2010/11   2011/12   2012/13   2013/14   2014/15   2015/16   2016/17   2017/18
----------------------------------------------------------------------------------------------------------------
FY 2008 President's Budget Baseline
----------------------------------------------------------------------------------------------------------------
      Corn        3.50      3.60      3.35      3.20      3.15      3.10      3.05      3.05      3.00      3.00
     Wheat        4.25      4.20      4.30      4.35      4.35      4.40      4.45      4.45      4.45      4.45
  Soybeans        7.10      7.10      6.75      6.45      6.35      6.30      6.25      6.30      6.20      5.95
    Upland         N/A       N/A       N/A       N/A       N/A       N/A       N/A       N/A       N/A       N/A
    Cotton
      Rice        8.95      9.20      9.35      9.41      9.43      9.50      9.50      9.70      9.83      9.96
----------------------------------------------------------------------------------------------------------------
                                    Administration's 2007 Farm Bill Proposal
----------------------------------------------------------------------------------------------------------------
      Corn        3.50      3.60      3.35      3.20      3.15      3.10      3.05      3.05      3.00      3.00
     Wheat        4.25      4.20      4.30      4.35      4.35      4.40      4.45      4.45      4.45      4.45
  Soybeans        7.12      7.11      6.75      6.45      6.35      6.31      6.26      6.31      6.22      5.97
    Upland         N/A       N/A       N/A       N/A       N/A       N/A       N/A       N/A       N/A       N/A
    Cotton
      Rice        8.94      9.20      9.35      9.41      9.43      9.49      9.49      9.69      9.84      9.95
----------------------------------------------------------------------------------------------------------------
N/A--The Department is prohibited by law from publishing price projections for cotton.


    Question 12. Your proposal states ``loan rates guarantee farmers a 
`safety net' per unit'' of covered commodities. But if the loan rate 
becomes set at 85% of a commodity's previous 5 year Olympic average, 
what happens to the loan rate and the utility of it as a safety net if 
the commodity experiences a prolonged period of low prices?
    Answer. The loan rate would continue to serve as a safety net in a 
period of low prices. Because the loan rate is a 5 year average, it 
takes years for it to adjust to a prolonged, lower level of market 
prices. During that adjustment period, the loan rate may actually be 
above the market clearing, or market equilibrium, price. Such a 
situation should be temporary, if the loan rate is supposed to help 
stabilize markets but not distort price signals. Once the loan rate 
fully adjusts to the lower price levels, it would still support farm 
prices received by producers, because prices may be quite variable 
within a year. A move to a new, prolonged period of lower market prices 
may have many causes. If the move reflects increases in long-run 
productivity, reductions in production costs, or changes in global 
competitive positions, the new lower prices may reflect a new, expected 
and sustainable level of market prices. In that case, it would be 
inappropriate to keep the loan rate reflective of past market prices 
and artificially high, because it would be inconsistent with the new 
price equilibrium. It would be appropriate to set the loan below the 
historical average of past prices, as we have proposed, to prevent an 
unduly high loan rate from interfering with market-based decisions of 
producers. Moreover our countercyclical revenue proposal is structured 
to provide greater income protection in a less production distorting 
way as the loan rate is reduced.

    Question 13. I assume you have consulted with USTR to determine how 
your proposed changes would be classified by the WTO and whether the 
result would be in compliance with our current WTO obligations. What 
has USTR told you about your changes to the commodity title?
    Answer. The proposals we have outlined are not only good farm 
policy but would diminish any possible trade distortions, which is the 
concern addressed by the current WTO rules. For example, the marketing 
loan program is a major contributor to the so-called ``amber box,'' 
measures that are considered more than minimally trade distorting. Our 
proposal will reduce budget outlays under that program. At the same 
time, our proposal would increase direct payments and would remove 
planting restrictions on base acres. The increased planting flexibility 
better reflects the considerations underlying the WTO rules for so-
called ``green box'' (non- or minimally-trade distorting programs). 
Conservation and environmental programs are also entirely consistent 
with WTO rules for green box programs. Our proposal would increase that 
funding. On balance, we think these proposals move U.S. farm policy in 
the right direction in terms of the WTO rules; they minimize possible 
trade distortions in our programs, decrease funding under programs in 
the amber box, and replace it with funding under non- or minimally-
trade distorting (``green box'') programs. Having said that, there is 
no question that the protections provided by a peace clause are 
significant. Yet another reason a successful conclusion to the Doha 
Round is so important.

    Question 14. You have stated publicly on more than one occasion 
that wheat growers did not get a fair shake in the last farm bill. The 
Department's proposal includes a $.04 increase in the direct payment 
rate for wheat that only comes in the out years. Is this increase 
sufficient to restore fairness to wheat growers?
    Answer. During the 2002&06 crops, wheat producers have experienced 
stronger market prices relative to other commodities. For example, 
wheat producers received an average farm price of $3.60 per bushel 
during the 2002&06 crops, compared with just $2.78 per bushel during 
1997&2001 prior to the enactment of the 2002 Farm Bill. This represents 
a 29 percent increase in average prices for wheat, compared with lesser 
increases for other crops (20 percent for corn, 22 percent for 
soybeans, eight percent for rice, and a two percent decline for 
cotton).
    To enhance the safety net for all producers of program crops, the 
Administration's farm bill proposal modifies the countercyclical 
payment program to make it responsive to not only prices but also 
yields. Thus, if targeted wheat revenue per acre falls below prescribed 
levels, producers will receive revenue-based countercyclical payments. 
Had the Administration's proposal been adopted in the 2002 Farm Bill, 
wheat producers would have received about $810 million more in payments 
over the 2002&06 crop years under the Administration's proposal than 
they received under the 2002 Farm Bill's commodity programs.

    Question 15. Wheat growers do not expect to receive a 
countercyclical payment for the 2006 crop. Given your best estimates 
for the season average price for wheat for 2006, would wheat growers 
have received a payment had your countercyclical revenue program been 
in place?
    Answer. The Administration feels very strongly that its 2007 Farm 
Bill proposals treat all commodities fairly. The formulas for computing 
each safety net benefit are the same for each eligible commodity. 
Providing the same program structure across all commodities is a fair 
way to assure equitable treatment of all eligible commodities. In 
addition target prices and program yield factors used to determine 
program benefits are those used in previous farm legislation. For wheat 
producers specifically, the Administration has estimated that benefits 
received under the proposed safety net structure would have resulted in 
increased payments of $810 million for the 2002&06 crops, compared with 
payments received under the 2002 Farm Bill's direct payment, 
countercyclical payment and marketing assistance loan programs. 
Payments for 2006 would have been $81 million higher under our proposal 
than under current law.

    Question 16. Mr. Secretary, your proposal for sugar is based on a 
presumption that you will be able to reduce U.S. sugar production to 
accommodate import surges that otherwise would over supply the market 
and cause CCC loan forfeitures. At a minimum, it is important that 
Mexico live up to its NAFTA obligations and allow U.S. sugar producers 
the promised unimpeded access to the Mexican market. As you know, 
Mexico is currently not living up to those obligations; the tariff it 
currently applies to U.S. sugar imports is far above what NAFTA calls 
for. What can you tell the Committee about Administration efforts to 
rectify this situation?
    Answer. We share your belief that the current tariff applied by 
Mexico on U.S. sugar imports violates NAFTA. We have indicated to 
Mexican authorities that the tariff on U.S. sugar imports should be 
reduced and made commensurate with the U.S. tariff on Mexican sugar 
imports of 1.6 cents per pound. Mexican authorities have indicated that 
they will review their current tariff on U.S. sugar imports and 
indicated that as provided under the NAFTA Mexico's tariff on U.S. 
sugar imports will be eliminated on January 1, 2008.

    Question 17. In the near-term, what is your projection for imports 
from Mexico in 2008, 2009, and 2010? For those same years, what is your 
assumption with respect to tariff-rate quota imports under commitments 
established in WTO agreements and existing Free Trade Agreements? Again 
for the same years, what are your projections for additional import 
access commitments that you anticipate will be granted in free trade 
deals that are not yet completed or implemented?
    Answer. In the FY 2008 President's Budget baseline, which was 
prepared in October through December 2006, imports of sugar from Mexico 
were projected to exceed 800,000 tons annually in crop in FY 2008, FY 
2009 and FY 2010. In recent months, lower sugar production in Mexico, 
reduced Mexican imports of HFCS and increasing corn prices in Mexico 
and the U.S. have greatly lowered projected U.S. imports of sugar from 
Mexico. We currently project for that Mexican imports of sugar to the 
United States could drop to 75,000 tons in FY 2008. While the 
Department will not revise its forecasts for FY 2009 and FY 2010 for a 
few months, it would appear that if the same factors mentioned above 
continue, projected imports of Mexican sugar to the U.S. in FY 2009 and 
FY 2010 would fall appreciably. Our projections assume tariff-rate 
quota (TRQ) imports under commitments established in WTO and other 
existing Free Trade Agreements would be at the minimum levels 
established under those agreements with the exception of a small 
increase in the TRQ for specialty sugar. These minimum import levels 
include 1,256,000 tons in 2007/08, 2008/09 and 2009/10 under the WTO 
Agreement and 123,000 tons in 2007/08, 131,000 tons in 2008/09 and 
134,000 tons in 2009/10 under the CAFTA&DR Agreement. The FY 2008 
President's Budget baseline does not assume any additional import 
access under future trade agreements that have not been implemented.

    Question 18. In your proposal you recommend extending the MILC 
program, but you phase down the percentage. What is the long term goal 
of this program? Can you explain the rationale behind the Department's 
decision not to maintain the program at its current level?
    Answer. The proposal recognizes that milk prices have been well 
above support prices in recent years and that trend is expected to 
continue. Therefore, our proposal focused on a safety net for dairy 
farmers to address the variability in milk prices. We maintain the MILC 
program but propose to make MILC payments consistent with our other 
countercyclical, safety-net programs. The payment rate would be phased 
down over the life of the program, and payments would be based on 85 
percent of historical milk marketings over the fiscal 2004&06 period. 
This proposal is also good WTO policy, because payments based on 
historical production are less trade-distorting.

    Question 19. As we look toward new and different renewable energy 
sources, does the Department have any proposals that would utilize 
livestock wastes, such as manure, in alternative power generation? Do 
you envision increased use of methane digesters? Are there any related 
incentives for dairy producers in your proposal?
    Answer. Since the inception of the Renewable Energy Supply and 
Energy Efficiency Improvements Program in FY 2003, there have been 91 
digester projects funded. Many of those digester projects were funded 
to assist farmers or ranchers construct digesters to handle dairy and 
other animal waste. We will continue to utilize this program and other 
USDA Rural Development business programs to support such innovative 
renewable energy ventures. If the USDA proposal to increase this 
program by $500 million is enacted, USDA envisions significantly more 
methane digesters installed in cooperation with rural electric 
cooperatives and dairy farms. The EQIP program has also been an 
effective program for helping to construct methane digesters. If 
additional funding and program improvements are enacted as proposed by 
the Administration, this important function is expected to expand. In 
addition, The Conservation Security Program currently offers producers 
enhancement payments for production of electricity from methane 
digesters.

    Question 20. Though I know these questions will come from many 
sectors of the agriculture community whether it is from commodity 
groups, livestock or processors, but what has the USDA done in this 
proposal to look at the issue of increased renewable production as it 
co-exists with livestock production?
    Answer. The 2007 Farm Bill provides an opportunity to address the 
implications of expanding renewable energy to support the President's 
goal of reducing gasoline consumption by 20 percent in 10 years. The 
Administration's 2007 Farm Bill Proposals augment efforts of the 
Environmental Protection Agency and other Federal agencies, and is a 
comprehensive program that promotes research and development (R&D), 
feedstock availability, and cellulosic ethanol production.
    With respect to R&D, the 2007 Farm Bill proposal would create an 
Agricultural Bioenergy and Biobased Products Research Initiative. This 
initiative would be funded at $500 million over 10 years and would 
focus research and development (R&D) on improving biomass production 
and sustainability and improving biomass conversion in biorefineries. A 
second proposal would build on the Biomass Research and Development Act 
and provide $150 million over 10 years to increase the annual 
competitive grant funding for biomass research, focusing on cellulosic 
ethanol. The focus on biomass to produce ethanol would reduce the 
pressure to use more feed grains to produce ethanol, this enabling 
expanded ethanol production while providing sufficient feed supplies 
for livestock.
    To insure cellulosic ethanol producers have access to a reliable 
feedstock, the 2007 Farm Bill proposal would provide the authority for 
a Cellulosic Bioenergy Program. The Cellulosic Bioenergy Program would 
be funded at $100 million and would share the cost of biomass 
feedstocks used by cellulosic ethanol producers. In addition, the 2007 
Farm Bill proposes a Biomass Reserve Program (BRP) operated in parallel 
with the Conservation Reserve Program (CRP). The BRP would establish 
clear requirements that biomass could only be harvested with sufficient 
environmental and wildlife protections, including development of 
management criteria consistent with the wildlife conservation purpose 
of CRP, and rental payments would be limited to income forgone or costs 
incurred by the participant to meet conservation requirements in those 
years biomass was harvested for energy production.
    The 2007 Farm Bill proposal would also create a Forest Wood-to-
Energy Program. This program would be funded at $150 million over 10 
years and its goal is to accelerate development and use of new 
technologies to more productively utilize low-value woody biomass 
resources, offsetting the demand for fossil fuels and improving the 
forest health.

    Question 21. I understand it takes an average of 2 years for USDA 
to reach a final decision Federal Milk Marketing Order cases? What 
further administrative action can be taken to streamline this process? 
Should the farm bill include provisions to promote speedier decisions 
on FMMO amendments?
    Answer. Federal milk marketing orders are authorized under the 
Agricultural Marketing Agreement Act of 1937. The Congress from time-
to-time does get involved in major changes concerning Federal orders 
such as the reform implemented in 2000. However, Federal milk marketing 
orders are generally and routinely modified using Federal rulemaking 
procedures. USDA believes that rulemaking using public hearings 
enhances transparency, including cross-examination of witnesses and 
issuance of preliminary decisions, and offers the best opportunity for 
all interested parties to present their ideas and views for 
consideration.
    In large part, the pace of the Federal milk order rulemaking 
process is due to the statutory requirement for formal rulemaking, 
conducted under procedures defined by the Administrative Procedures 
Act. Formal rulemaking ensures maximum public input through very 
structured procedures that tend to take time. To address the issue of 
timeliness, the staff of the Agricultural Marketing Service has already 
instituted changes to streamline the process (such as pre-rulemaking 
consultations with interested parties to identify key issues, setting 
internal delivery dates, etc.).
    However, we remain open to finding additional ways to improve the 
speed and efficiency of milk order rulemaking. The Department is 
committed to continue to improve the rulemaking process. But the 
complexity of issues often require sufficient time to ensure the 
perspectives of all stakeholders are thoroughly vetted and considered 
in an open and transparent process.
Title II--Conservation

    Question 22. It is becoming widely recognized that the biggest 
conservation issue is actually the ability to deliver the financial 
assistance provided by the various farm bill conservation programs. 
What is the Administration proposing to deal with this workload 
situation?
    Answer. It is important for the Administration's FY 2008 Budget 
Request and 2007 Farm Bill proposal to be considered in their totality. 
In developing the FY 2008 Budget, the Department based its request only 
upon current law and changes to mandatory program requested in the 
President's Budget. In contrast, the 2007 Farm Bill proposal presents 
our view of what future programs can and should look like.
    We offer several dramatic new concepts in our farm bill proposal 
relating to the consolidation and streamlining of conservation 
programs. Moving six cost-share programs into one focused effort, as 
well as merging three easement programs into a single effort are 
examples of a new approach and new philosophy. The opportunities for 
administrative savings and relief to NRCS field offices and staff are 
tremendous. Under current conditions, field staff spends inordinate 
amounts of time on differing program applications, computer software 
and duplicative financial tracking systems. We feel that by freeing up 
agency personnel from administering twenty-three programs, more time 
can be spent out on the land with farmers and ranchers. It is also 
important to note that we also propose additional technical assistance 
resources related to working with limited resource and beginning 
farmers.
    As you know, technical assistance funding related to farm bill 
programs is derived from those mandatory accounts. As we proposed to 
increase conservation title programs, technical assistance funding to 
support those programs would be expected to increase.

    Question 23. Tell me more about the ``market-based approach to 
conservation'' that is suggested in the proposal. I understand that you 
had a WRP sign-up that was operated in this way. Can you explain how 
farmers reacted to it?
    Answer. Current USDA conservation programs would be amended to 
introduce market forces and to provide additional incentives for 
greater environmental returns on Federal and landowner investments. In 
cost-share programs for example, a portion of the funds would be used 
in local bidding pools to select the least cost environmental benefits. 
This portion of cost-share would also incorporate a sliding scale that 
relies on the market to promote practices with higher environmental 
returns. By changing enrollment to a market-based competition approach 
and using targeted incentives, programs can ensure the maximum 
environmental benefits for each public dollar spent. Access to bidding 
pools for limited capital agricultural producers would also be 
provided. Auctions, specifically reverse auctions to promote bidding 
down, would be used in the easement programs.
    Farmer response was mixed in the recent WRP reverse auction pilot 
program. It enrolled 3,500 acres with a bidding process that reduced 
easement acquisition costs by 14 percent--saving nearly $820,000 in 
Fiscal Year 2006. Farmers who applied could be characterized as those 
who would not typically be able to compete in the normal WRP ranking 
process because of their property size or their wetland value. The 
following table highlights the results of the sign-up.

               WRP Reverse Auction Funding Recommendations
------------------------------------------------------------------------
                    Number      Number Bids/                 Initial Bid
     State         Applied         Funded     Acres Funded    Provided
------------------------------------------------------------------------
  California               1              1           541   $1,244,300.0
                                                                       0
    Colorado               2              2           136    $158,750.00
    Delaware               1              1            13      $9,750.00
     Georgia               8              8         2,135   $3,658,125.0
                                                                       0
       Idaho               2              1           160    $240,000.00
    Kentucky               3              1           507    $769,080.00
    Missouri              12              2           97.5    $96,062.50
               ---------------------------------------------------------
  Total.......            29             16        3,589.5  $6,176,067.5
                                                                       0
               =========================================================
    Savings...                                                  $820,000
------------------------------------------------------------------------
The WRP Reverse auction was conducted in 7 states in FY 2006.


    Question 24. You propose a ``market-based approach'' that would 
favor landowners with more resources to contribute to conservation 
activities. Are you concerned about the impact such an approach will 
have on the participation of limited-resource producers to participate?
    Answer. Market-based approaches can provide new opportunities for 
limited resource producers. The idea is to introduce new financial 
resources and incentives into conservation, in order to further reward 
and encourage good conservation practices. For example, a business that 
has a point source water quality concern could pay a farmer to 
establish buffer strips to reduce nutrient runoff. Limited resource 
producers would be likely beneficiaries and recipients of this new 
conservation funding.

    Question 25. It has been reported that the Department is not going 
to hold any general CRP sign-ups for the next 2 years. Why was this 
decision made?
    Answer. At this time, USDA does not expect to conduct a general 
sign-up for Fiscal Year 2007 but is open to the possibility of new 
enrollments for 2008. USDA has offered new general CRP signups only 4 
of the past 7 years. This decision reflects the opportunity the 
Administration provided to CRP contract holders having contracts that 
mature during FYs 2007&2010 to re-enroll or extend their contracts. In 
addition, low stock levels and record-high prices are expected for some 
major field crops over the next several years. In this environment of 
very tight crop markets and limited acreage expected to exit the CRP 
over the next 2 years as a result of re-enrollments and extensions, the 
USDA believes it is prudent to consider not holding general signups 
that could result in acreage being withdrawn from crop production, 
exacerbating increases in feed and food prices. However, continuous 
sign-up of high-priority buffers, wetlands and other initiatives, as 
well as the Conservation Reserve Enhancement Program, will continue. 
USDA encourages farmers and ranchers to consider these opportunities. 
We will monitor CRP and crop markets closely to determine when it is 
appropriate to resume general signups.

    Question 26. Under the Department's projections, how many acres 
will be coming out of the CRP?
    Answer. Under USDA's long-term projections the CRP would decline 
from 37 million acres currently to a low of 32 million acres in 2009 
and rise to 39.2 million by 2016.

    Question 27. Does the Department have the authority to allow early 
outs of CRP acreage? What procedural steps must the Department 
undertake to allow early outs and what has been done to date? Do you 
expend to recommend Congressional action in this area?
    Answer. The Department has the authority to allow early outs of 
acreage enrolled in the Conservation Reserve Program (CRP). In fact, 
the Department offered early outs to some producers enrolled in the CRP 
in 1995/96 after yield prospects declined sharply for 1995-crop corn 
and the price of corn rose sharply. Secretary Johanns has announced 
that no early outs will be provided for 2007. However, we will continue 
to monitor the corn and other commodity markets. If at some future 
time, we determine that early outs should be permitted, we will advise 
the Congress of this decision and any limitations or requirements that 
would apply. Our first priority will be to continue contracts 
conserving marginal cropland with a high degree of erodibility or 
acreage which provides important wildlife habitat.

    Question 28. Several places in the conservation title proposals, 
there is mention of WTO compliance and concerns about not going beyond 
``income forgone'' (page 51&52) and trying to ensure that payments 
remain green box (page 52, 46&47). Has any nation threatened to 
challenge U.S. conservation program payments?
    Answer. No WTO member has challenged or threatened a challenge to 
U.S. conservation program payments. All USDA conservation and 
environmental programs are consistent with WTO criteria for green box 
programs. In the Administration's 2007 Farm Bill proposals, we crafted 
each proposal in light of WTO disciplines to continue to ensure WTO 
compatibility.

    Question 29. You propose elimination of the regional equity 
provision for conservation program funding. Did you give any 
consideration to other methods for promoting the type of balance that 
this provision was intended to provide?
    Answer. Across the country at the Farm Bill Forums, producers and 
landowners expressed opinions regarding funding of conservation 
programs and the processes used to select projects. These producers and 
landowners wanted conservation program funding to be targeted to the 
most areas with the most significant resource concerns. In effect the 
regional equity provision acts like an earmark that distorts the 
quantitative, merit-based formulae used to determine allocations to the 
states. The proposed consolidation of cost-share and easement programs 
also expands program eligibility to a wider range of landowners and 
land uses.
    We propose to replace the regional equity provision with allocation 
formula that are resource need-based. Funds would go to states where 
our natural resource-based formulas identify priorities based on data 
showing natural resource problems such as soil erosion and degradation, 
water quality and water quantity concerns, fish and wildlife habitat 
conservation needs and areas of pressing regulatory compliance.
    Indeed, rather than balance conservation programs funding, it was 
our experience that the regional equity provision created an imbalance 
in conservation program allocations that reduced the effectiveness of 
conservation programs and increased their costs. For instance, EQIP 
contracts have a national average cost share rate of 59 percent. 
Regional Equity states cost share rates are much higher, on the order 
of 66 percent. This implies that less conservation is paid with tax 
dollars in these states than in non Regional Equity states. 
Furthermore, funds are re-directed toward Regional Equity states after 
the formulae allocations. In effect, this partially offsets the 
efficiency of resource based formulae. Allocating funding in this 
manner does not guarantee that tax dollars are being used to purchase 
the greatest social good, as would be the case in a switch to resource 
based formulas, as proposed above.
    Funding is currently allocated from the national level for all 
programs except for CRP and CSP and is currently based on natural 
resource based formulae. The exception to this is the regional equity 
provision in Section 1241(d) of the 2002 Farm Bill.

    Question 30. You indicated in response to a press question that the 
consolidation of conservation programs includes real reform for the 
benefit of specialty crop producers. Please explain your meaning in 
this regard.
    Answer. The conservation program with the greatest emphasis on 
conservation issues related to specialty crops is the Agriculture 
Management Assistance program (AMA). However, the AMA statute limits 
program availability to the 15 states where participation in the 
Federal Crop Insurance Program has been historically low. The eligible 
states include: Connecticut, Delaware, Maine, Maryland, Massachusetts, 
Nevada, New Hampshire, New Jersey, New York, Pennsylvania, Rhode 
Island, Utah, Vermont, West Virginia, and Wyoming. By combining the key 
elements of the AMA program in the new EQIP program, assistance to 
specialty crop producers in transitioning to organic farming, for 
example, will be available to specialty crop producers in all states 
and total funding available for such practices will be expanded.

    Question 31. In looking at the operation of the Emergency 
Conservation Program and the Emergency Watershed Program and proposing 
to combine them, did you also look at the disparities between how 
various types of natural disasters are treated? Such as whether more 
assistance is available to deal with drought situations, rather than 
blizzards or floods?
    Answer. An analysis of the disparity between various disaster 
events has not been done. Comparing available funding would be 
problematic because funding is provided through supplemental 
appropriations based upon the level of damage caused by the disaster 
event, regardless of the type of event.

    Question 32. You propose consolidating the current NRCS working 
lands easement programs, FRPP, GRP and Healthy Forests, into one 
program. How would the new program protect against the inevitable 
pressure to protect as many acres of land at the lowest cost? Only one 
of the programs targeted for this consolidation (FRPP) relies solely on 
permanent conservation easements as the legal instrument for 
protection. How does USDA plan to address the structural differences 
between the three candidate programs?
    Answer. Regarding the question on protecting against the pressure 
to protect as many acres of land at the lowest cost, the new Private 
Lands Protection Program (PLP) would continue to use ranking criteria 
for acquisition of easements. The ranking criteria would include 
factors that address environmental and other goals. In effect, the 
overarching goal of the new program would not be to maximize the number 
of acres, but maximize the environmental benefits of the conservation 
easements.
    The new PLP would emphasize the structural strengths and popular 
attributes of each existing program. For example, the new program would 
incorporate landowner contributions and other leveraging opportunities 
of the Farm and Ranchland Protection Program (FRPP) as a key feature. 
It would take from the Grassland Reserve Program (GRP), the provision 
that allows third parties to hold easements while preserving the option 
for the Federal Government to hold the easement. Another key feature of 
the combined program--derived from GRP and the Healthy Forests Reserve 
Program (HFRP) (and similar to the Wetland Reserve Program)--would 
allow the landowner to perform restoration of the site. Finally like 
the HFRP, the new program would provide assurances and certainty in 
compliance with Federal and state regulations.
    Although most program funds will be utilized in the traditional 
way, PLP would have the flexibility to use local markets to set payment 
rates through an auction approach which will provide another option to 
increase participation in conservation programs and extend funding to 
more projects.

    Question 33. With regard to your proposal to remove Tier II under 
the Conservation Reserve Program (CSP). How many farmers currently 
receive tier II payment? What would happen to them under this proposal?
    Answer. Our proposal does not seek to eliminate Tier II. Instead, 
our proposal seeks to create a progressive Tier, which would be a 
combination of the existing Tier I and Tier II. Currently, 6,520 
participants receive a tier II payment. Under the Administration's 
proposal there would be a two tier system, a Progressive tier and a 
Master tier. It would only be speculation on NRCS's part at this time 
as to what level the current 6,520 tier II participants would be placed 
into or whether the prior year contract participants would remain under 
the current rules and regulations.
Title III--Trade and Food Aid
    Question 34. You propose authorizing use of up to 25% of the P.L. 
480 Title II request to procure food from selected developing countries 
near the site of a crisis (instead of using U.S. food and U.S. 
carriers). In making this recommendation, did you consult with 
commodity and labor groups that would be affected by the proposal? What 
is the current state of play in the WTO negotiations on food aid, and 
is this proposal consistent with the U.S. position in those 
negotiations?
    Answer. The Administration has had a number of discussions with a 
variety of stakeholders, including representatives from commodity 
groups and others, on the issue of local procurement. WTO discussions 
are ongoing. The local procurement proposal is completely consistent 
with the U.S. position in WTO, which is that it is important to have as 
many tools as possible to address emergencies, including both in-kind 
food aid and cash. What is paramount is having adequate food aid 
available when needed to save lives. The U.S. position on food aid in 
the WTO is quite clear; the focus has to be on disciplines to prevent 
commercial displacement rather than cash versus in-kind or the reform 
of food aid.

    Question 35. I didn't see a recommendation with regard to the 
Foreign Market Development Program? Is there a reason you did not 
include that program in your proposal?
    Answer. The Foreign Market Development program, which largely 
targets program crops, remains a core program in our export expansion 
strategy. The President's FY 2008 budget request would continue to fund 
the Foreign Market Development Program at the current level of $34.5 
million. The Market Access Program, which is similar to the FMD 
program, received a significant increase in funding.

    Question 36. Are organic trade or producer associations currently 
prohibited from participating in the Market Access Program? If not 
specifically prohibited, what are some of the obstacles to their 
participation?
    Answer. No. Organic trade and producer associations are allowed to 
participate in the Market Access Program (MAP). In fact, USDA proposes 
expanding mandatory funding for the MAP by $250 million over 10 years 
and focusing the additional funds on non-program commodities.

    Question 37. Regarding the new grant program to address 
international sanitary and phytosanitary issues: Who would be eligible 
for these grants? How would research priorities be set? Would there be 
a cost-share requirement?
    Answer. The new grant program could be modeled after the existing 
Technical Assistance for Specialty Crops (TASC) program. Under that 
program, eligibility is limited to projects addressing sanitary, 
phytosanitary, and related technical barriers to trade (SPS&TBT) that 
affect the export of U.S. specialty crops. Under the new program, in 
addition to specialty crops, all other agricultural commodities and 
products would be eligible. Using the TASC model, any government or 
non-government entity could apply including universities, agricultural 
trade associations, or private companies. Proposals that are time 
sensitive and reflect the existence of a barrier to U.S. exports would 
take priority. There is no specific cost share requirement, but 
applicant contributions are encouraged and may make a proposal more 
competitive.

    Question 38. Why do you propose mandatory funding for USDA staff 
support for international standard setting bodies? Have current funding 
procedures led to insufficient representation?
    Answer. This proposal is intended to strengthen American 
representation and provide additional staff resources to the 
international standard setting bodies that play a very important role 
in international agricultural trade--Codex Alimentarius for food 
safety, the International Plant Protection Convention (IPPC) for plant 
health, and the World Organization for Animal Health (OIE).
    The Associate Professional Officers (APO) program provides the 
opportunity for member governments to place their nationals on the 
staffs of these organizations. By doing so, they are in a position to 
influence their policies and programs.
    European countries have a successful recruitment strategy, which 
includes financing large numbers of entry-level APOs, who in time rise 
up the ranks to become decision makers. For example, there are 
approximately 100 APOs at the FAO which hosts the Codex Alimentarius 
and IPPC. The Netherlands alone funds about 30 APOs, followed by 
Germany with 11, Italy nine, and Spain eight.
    By contrast the United States funded only two APOs last year and is 
planning to fund one this year. This imbalance is believed to have led 
FAO to taking a more Eurocentric approach to its analysis and hiring 
permanently more Europeans in entry-level positions.
    This concern was noted in two separate reviews by the Government 
Accountability Office in 2001 and 2006, which recommended funding of 
entry-level professional staff where Americans are underrepresented.
    In past years, the Foreign Agricultural Service has funded APO 
positions at approximately $200,000 per year, which has allowed only 
one or two APOs to serve each year. The 2007 budget requested that 
$200,000 again be made available.
    The lack of dedicated funding and the limited amount available have 
hindered the ability of the United States to take advantage of the APO 
program and, therefore, U.S. representation in the organizations has 
been limited.
    Providing mandatory funding of $15 million over 10 years is 
proposed to ensure regular, annual funding will be available to plan, 
recruit, and retain long-term U.S. technical and senior-level presence 
in these influential standard-setting bodies. USDA would expect to 
target the new APOs to strengthen our voice in these organizations that 
have a tremendous impact on our ability to export agricultural products 
overseas. In addition to providing funds towards the APO program, the 
proposal would provide funding for USDA to place seasoned director-
level staff--including from the Foreign Agricultural Service, Animal 
and Plant Health Inspection Service, Food Safety and Inspection 
Service, and other technical agencies--in international organizations 
that have the experience, background, and savvy to effectively 
influence decision making.

    Question 39. How is the Administration's proposal to provide 
technical assistance to resolve trade disputes different from TAAP? How 
can we avoid a similar imbalance of operational costs versus benefits?
    Answer. The Trade Adjustment Assistance for Farmers program (TAA) 
provides producers, who have been adversely affected by import 
competition, free technical assistance and cash benefits. TAA does not 
provide technical assistance to address unfair trade practices, it 
seeks to help producers adjust to severe changes in trade patterns. In 
the Administration's farm bill proposal, USDA is seeking broad 
discretionary authority to provide enhanced monitoring, technical 
assistance, and analytical support to agricultural groups to address 
unfair trade practices.
    When industries are faced with unfair practices by our trading 
partners, they are often at a disadvantage due to limited information 
and resources. At the same time, U.S. industries may be challenged by 
other trading partners. Although the preferred route to address unfair 
trading practices may be to initiate a World Trade Organization (WTO) 
case, this may be impossible for limited resource industries. This 
situation adversely affects smaller groups and industries much more 
than larger, more resourceful entities. Trade dispute cases are 
typically very lengthy and resource intensive, often spanning several 
years. USDA can provide needed technical and analytical expertise to 
assist in the event of such action.
    The Administration proposes giving USDA broad discretionary 
authority to provide enhanced monitoring, technical assistance, and 
analytical support to limited resource agriculture groups if the 
Secretary of Agriculture determines that it would be beneficial to U.S. 
agriculture. Already, the restructuring of the Foreign Agricultural 
Service at the USDA, with the creation of a Monitoring and Enforcement 
Division, has enhanced our ability to monitor trade barriers and 
countries' compliance with remedies.
Title IV--Nutrition
    Question 40. There are several worthwhile and thoughtful 
suggestions to the food and nutrition programs, including removing the 
cap on childcare expenses, exclusion of college savings and retirement 
funds from asset limits. However, your proposal to eliminate 
categorical eligibility for the food stamp program has caused some 
concern. Besides resulting in fewer food stamp participants, the change 
would appear to add burdens on the states. Minnesota recently 
implemented a reconfiguration of its TANF and food stamp operations 
based on categorical eligibility. What comments do you have regarding 
this concern? Did you work with state governments in the development of 
this proposal?
    Answer. Categorical eligibility was originally designed to 
facilitate the certification of persons who met income and asset tests 
in other programs with similar eligibility standards such as Temporary 
Assistance for Needy Families (TANF). However, this policy was expanded 
in 1999 to allow states to confer categorical eligibility to those 
receiving any TANF funded services, including those provided without 
income or asset tests. For example, some states distribute pamphlets 
and brochures to food stamp applicants as a part of its TANF services. 
In some instances this has resulted in food stamp eligibility being 
extended to some who may not have met the Food Stamp program income and 
asset requirements.
    The biggest impact on state agencies would be in those states that 
have non-cash programs that confer categorical eligibility making the 
entire TANF population categorically eligible. These states include 
Delaware, Minnesota, Michigan, South Carolina, Texas, Oregon, Wisconsin 
and Massachusetts. These states, under this proposal, would still be 
required to confer categorical eligibility to those households that 
receive TANF cash assistance therefore maintaining the administrative 
ease that was the original intent of categorical eligibility. Thus, the 
only households that will lose food stamp eligibility will be those 
with either income or resources higher than allowed by program rules or 
those that do not separately apply. At the same time this proposal will 
also ensure that only those households that meet the individually state 
determined income and asset tests under TANF and receive TANF cash will 
be categorically eligible for food stamps. This proposal, in tandem 
with our proposal to exclude the value of retirement, military combat 
pay, and education savings accounts from the resource test, will 
strengthen the program by creating a more uniform and rational set of 
national eligibly standards while easing the burden on state agencies.

    Question 41. You propose a five percent of administrative costs 
charge against states with excessive negative error rates. Can you 
provide the Committee with a list of states to which this penalty would 
apply and your estimate of the sum of those charges?
    Answer. The Food Stamp Program currently has no penalty associated 
with high rates of negative errors--improper denials and terminations. 
Our proposal is to assess a penalty of five percent of a state's 
administrative costs for certification when their negative error rates 
exceed the national average by 50 percent for 2 consecutive years. 
States should respond by reducing their negative errors.
    We cannot provide a list of states to which this penalty would 
apply upon implementation because it depends on future state 
performance. Had this provision been in effect in 2004 and 2005 and 
negative error rates remained as measured for those years the penalty 
would have been applied to California, Guam, Idaho, Illinois, Maryland, 
and Michigan, totaling over $15 million.

    Question 42. Regarding the privatization of state food stamp 
programs, could you offer your perspective on the success and/or 
failure of streamlining efforts in Florida and Texas?
    Answer. Both the Florida and Texas experiences offer valuable 
insight into the future of state modernization efforts. In Florida the 
experiment began slowly, on a small scale, and expanded statewide after 
the state demonstrated success. Florida used state staff for all of its 
operation but also reached out to community based partners to provide 
additional points of program access. The Florida model implements new 
technology, new partnerships, policy simplifications, and process 
reengineering while closing some offices and reducing administrative 
staff. It is too early to draw conclusions about the impacts of the 
project on payment accuracy and program access. USDA initiated a study 
of the project and expects to release it this summer. We remain 
committed to supporting Florida in its endeavor to improve 
administration of the Food Stamp Program, including program access and 
integrity.
    The Texas effort fell short of expectations when backlogs in 
processing benefits, unacceptable wait times, and other problems arose 
for people needing help at the pilot call center sites. Implemented in 
January 2006, the state placed pilot operations on hold in April and 
then made the decision to delay indefinitely further rollout in June 
2006. In December 2006 the state substantially scaled back the contract 
with the private firm hired to operate the centers, and then canceled 
the contract with Accenture in March 2007. Texas is currently 
reevaluating its modernization plans. USDA monitored the state's 
progress with on-site reviews, a review of reporting documents, and 
participation in regular conference calls regarding the status of the 
project. We believe that the goal of making it easier to access program 
services through call centers and other technology efforts is laudable, 
and support the state in their decisions to redesign their project to 
ensure proper administration of the Program.
    In Texas, USDA maintained control of Federal funding for the pilot 
and required that the state meet benchmarks in service and 
functionality before we authorized further expansion. We will continue 
our oversight as we work actively to ensure that the new strategy meets 
food stamp timeliness and quality standards and achieves the 
administration's goal of ensuring food assistance to the needy.

    Question 43. Regarding the proposed competitive grant program to 
develop and test solutions to the rising rate of obesity: how would 
this support or complement current state nutrition education efforts?
    Answer. With respect to Food Stamp Nutrition Education (FSNE), 
state agencies work through cooperating organizations to deliver 
nutrition education to low income people eligible for food stamp 
benefits. The goal of Food Stamp Nutrition Education (FSNE) is to 
improve the likelihood that persons eligible for the FSP will make 
healthy food choices within a limited budget and choose physically 
active lifestyles consistent with the current Dietary Guidelines for 
Americans and MyPyramid. Thus, the competitive grant program would be 
highly supportive of and consistent with existing FSNE educational 
goals. Several features of the proposed grant make it a value-added 
nutrition education initiative:
    First, the grants would provide resources that could be used to 
reinforce existing FSNE messages in a variety of ways, such as 
incentives at point-of-sale for purchases of fruits and vegetables by 
food stamp participants, grants to connect food stamp shoppers with 
farmers markets, and integrated communication and education programs. 
This can only strengthen the overall impact of FSNE since the 
likelihood of behavior change is increased when consistent and repeated 
messages are delivered through multiple channels.
    Second, by providing 100 percent Federal funding for the 
demonstrations, USDA can focus initiatives on new and promising areas 
that states are not yet pursuing with their own funding.
    Third, the grant program would include funding for rigorous 
evaluations that can produce definitive answers. In contrast, states 
face the on-going challenge of setting aside sufficient resources to 
fund the necessary research and securing the necessary expertise. The 
research associated with the proposed grant program is expected to 
provide a scientific basis for future state obesity prevention efforts.

    Question 44. One concern I have heard is that the current Food 
Stamp Nutrition Education Guidance narrowly defines ``allowable'' 
activities to focus on one-on-one direct education, which is more 
expensive and reaches fewer people. Is there anything in your proposal 
that addresses this limitation? What are the reasons for restricting 
education efforts in this way? What needs to be changed to allow 
broader outreach efforts?
    Answer. FNS has never restricted allowable educational efforts only 
to direct education. As documented in state plan guidance, allowable 
Food Stamp Nutrition Education (FSNE) includes not only direct 
education but also indirect and social marketing nutrition education 
methods. For example, appropriate social marketing that targets 
nutrition messages to food stamp eligibles are allowable with approval 
from FNS.
Title V--Credit
    Question 45. The last two farm bills have required the Farm Service 
Agency increase its focus of borrower training with the goal of 
graduating more and more FSA credit program borrowers to commercial 
lenders. What can you report about the Department's record in this 
area?
    Answer. In Fiscal Year 2005, 3,611 (4.63 percent), direct loan 
borrowers graduated to commercial credit. In Fiscal Year 2006, 2,824 
(3.83 percent), direct loan borrowers graduated to commercial credit. 
These rates are comparable to graduation rates over the past ten years.

    Question 46. You propose that additional credit be made available 
for beginning farmers. Does the Administration's budget call for an 
increase in FSA personnel to process the loans? If not, how can the 
increase be implemented?
    Answer. The Administration does not have any proposal to increase 
personnel to process these loans. However, we believe current staffing 
levels are adequate to manage the potential increases in loan 
applications.

    Question 47. Would you suggest that we leave the borrower term 
limits in place for guaranteed loans? Congress had to extend the waiver 
on term limits until September 30th of this year.
    Answer. Guarantees are generally only sought by lenders for as long 
as they are needed because of the lender's administrative cost to 
obtain and maintain the guarantee. Agency regulations limit a lender's 
ability to recover these costs. Thus, lenders have an incentive to 
request guarantees only so long as they are absolutely necessary.
Title VI--Rural Development
    Question 48. The 2002 Farm Bill provided mandatory funds to clear 
out the RUS backlog of loans and grants. How quickly did we get that 
money out? Given the backlog and need do you feel there are better ways 
of helping communities address water and waste treatment?
    Answer. The 2002 Farm Bill was signed May 13, 2002. On August 20th, 
in just over 3 months, we awarded $703 million to fund 377 water and 
waste disposal projects in 47 states and Puerto Rico.
    USDA Rural Development shares your desire to find ways to help 
communities address their water and waste disposal needs. We're also 
looking for better ways to utilize the Federal investments and 
encourage communities to establish a more regionalized approach to 
developing water and waste disposal projects. We recognize that many 
communities need some type of Federal assistance and promote the use of 
private sector funds as leverage. We also coordinate with other Federal 
and state water agencies to make best use of available resources.
    Other Rural Development efforts include:

   Ensuring the project is sustainable and can maintain the 
        facility without additional Federal subsidies.

   Including conservation measures to reduce water consumption 
        and waste generation.

   Providing access to the commercial market so communities can 
        acquire financing for future capital improvements.

   Ensuring governing board members and system operators are 
        properly trained in the management of their water facilities.

   Providing continuing support to board members and operators 
        i.e., circuit riders and board training.

    Question 49. The 2002 funding ($360 million) for backlogged loans 
and grants was used exclusively for waste and wastewater treatment. How 
will the $500 million proposed by the Administration be allocated among 
the various programs?
    Answer. The proposal will allow for approximately 40 to 50 percent 
of the applications we currently have on hand to be funded. However, as 
you know, we continue to receive applications, so there will likely be 
more prior to farm bill enactment. We have not yet prioritized the 
applications. However, should this provision become law, we will look 
forward to working with you to develop a prioritization for the use of 
these funds.

    Question 50. The 1996 Farm Bill created the Rural Community 
Advancement Program (RCAP) which was partly designed to provide more 
flexibility to local communities (i.e., a percentage of funds could be 
moved around from one account to another). For the 2007 Farm Bill, you 
propose consolidating legislative authorities for rural development 
programs to provide additional flexibility. Has RCAP provided 
significant flexibility in the allocation of loans and grants to 
communities and regions? How will the Administration's proposed 
consolidation contribute to greater flexibility?
    Answer. Historically, the annual appropriations bill has blocked 
transfers between the three identified function categories specified in 
RCAP: (1) Rural Community Facilities, (2) Rural Utilities, (3) Rural 
Business and Cooperative Development. The Administration's 2008 budget 
preserves transfers within the functional categories. The proposal 
simplifies the budget presentation. It is not expected to affect either 
the distribution of funding or how programs are delivered to 
recipients.
    Regarding the Administration's farm bill proposal, the purpose of 
the streamlining and consolidation is to remove unnecessary statutory 
inconsistencies among programs that have built up in the Consolidated 
Farm and Rural Development Act (CONACT) over the decades. This would 
enable these programs to more efficiently and effectively work 
together.
    Also, the CONACT contains a number of provisions that unnecessarily 
constrain the administration of these programs and remove the 
flexibility for Rural Development to adjust the programs to meet the 
changing economic development needs of Rural America. Rural Development 
is ready to work with the Congress to craft amendments to the CONACT 
that build on the work of Rural Development's Delivery Enhancement 
Taskforce to streamline and consolidate the program regulations to 
create wealth and improve the quality of life in rural America.

    Question 51. With regard to your proposal to create a multi-
department energy grants platform, please provide some more detail 
about how it would work. Are other Federal agencies also contributing 
mandatory money for this joint venture? How well have the DOE&USDA 
joint programs worked to date?
    Answer. The energy grants platform proposed in the farm bill would 
consolidate the USDA energy grant programs under the authority in the 
Biomass Research and Development Act of 2000. Programs included in this 
platform will be Section 9006 Renewable Energy Systems and Energy 
Efficiency Improvements Grants and Section 9008 Biomass Research and 
Development Grants. The proposal does not seek to combine USDA energy 
programs with those administered by other departments such as the 
Department of Energy (DOE), into this platform. Other departments are 
not expected to provide mandatory funding.
    By streamlining our programs, we believe we can work more 
effectively with the Department of Energy and other Federal partners to 
take advantage of synergies between the programs and minimize 
duplicative effort. USDA has a very good working relationship and 
closely coordinates its energy-related activities with DOE. Examples of 
current coordination include DOE's participation in USDA's Energy 
Council, co-chairing of the Biomass Research and Development Board and 
Technical Assistance Advisory Committee created by the 2000 Biomass 
Research & Development Competition Grants Program (Section 9008 of the 
2002 Farm Bill).

    Question 52. The Administration is also proposing to create a 
Business and Community Grants Program Platform, thereby presumably 
streamlining service provision. What evidence can you provide this 
Committee that existing program organization creates obstacles to 
regional and community access to the various loan and grant programs 
administered by USDA Rural Development? Is the Administration also 
proposing mandatory funding for these two new program platforms?
    Answer. To facilitate the coordination of rural development 
activities, the farm bill proposes to group authorities to reflect the 
customers who either directly benefit from the programs or are 
essential to their operation. Two of these platforms are for: (1) 
business grants and (2) community programs.
    Historically, when a problem develops in rural America, new 
programs have been developed to address them. As a result, USDA Rural 
Development has two loan guarantee programs that can provide assistance 
to construct renewable energy systems, six grant programs that 
facilitate commercial business development and two separate program 
areas that are designed to assist rural communities in developing rural 
infrastructure and community assets. These programs generally have 
adopted different approaches to rural development. Because rural 
development activities are separated into individual legislatively 
mandated categories, it is difficult for USDA to embrace emerging rural 
development opportunities, such as renewable energy as quickly as we 
otherwise would. This situation has also created a complex and 
confusing maze of programs for customers to understand and access.
    While some Rural Development programs are designed with very 
distinct purposes, they share common features with other Rural 
Development programs. For example, the Water and Waste programs and 
Community Facilities programs serve some of the same rural communities. 
By consolidating the legislative authorities of the various loan, loan 
guarantee and grant programs, we can improve access to these programs 
for rural communities.
    Rural Development is already working with the Office of Management 
and Budget, through regulations, to consolidate and streamline the 
common elements of our loan guarantee programs. We believe this effort 
will make it easier for our customers to fully utilize our programs and 
for us to administer them. Ultimately, we hope to do the same thing 
with our direct loans and grant program. We are developing improved 
performance measurement standards for these programs so we can better 
evaluate their effectiveness in order to improve their performance in 
the future.
    The farm bill proposals also request $500 million in mandatory 
funding to reduce backlog of several Rural Development infrastructure 
programs, including Community Facilities and Water and Waste 
Development. Additionally, mandatory funding is requested to complete 
reconstruction and rehabilitation of all 1,283 certified Rural Critical 
Access Hospitals within the 5 years covered by the farm bill. This 
proposal would invest $85 million to support an estimated $1.6 billion 
in loans and $5 million for grants.
Title VII--Research

    Question 53. You are proposing the merger of ARS and CSREES into a 
single agency. As you know, the National Association of State 
Universities and Land-Grant Colleges is also proposing a reorganization 
of the Research, Education and Extension agencies of USDA. What are 
your comments about the features of these two proposals? Are you 
concerned in either case about the impact on ARS and its ability to 
serve its stakeholders?
    Answer. There are some important distinctions between the USDA 
proposal and CREATE&21. As proposed by CREATE&21, consolidation would 
remove the ARS, CSREES, ERS, and Forest Service research and 
development from the Department and be made into an independent agency 
led by a Director appointed to a 6 year term. The USDA proposal 
creating the Research, Education, and Extension Service would maintain 
the agencies with in the overall structure of the Department and the 
subcabinet level position responsible for the oversight of these 
activities. CREATE&21 would also abolish the National Agriculture 
Research, Extension, Education, and Economics Board. Additionally, 
there are other major differences concerning budgeting, reporting, and 
program formulation.
    The farm bill proposal to reorganize USDA's agricultural research, 
education and extension programs will help improve the efficiency and 
effectiveness of existing programs; strengthen linkages and 
coordination with university partners and other cooperators; and 
highlight and enhance the quality of USDA conducted and supported 
science. Under the proposed merger, USDA's intramural research program, 
currently in ARS, would be even better positioned to serve 
stakeholders. Currently, stakeholders must interact with two separate 
agencies to communicate their priorities and learn about scientific 
advances. The new agency would streamline this process in Washington, 
while maintaining the structure and relationships at the local level.

    Question 54. Do you believe that the intramural and extramural 
components of USDA's REE portfolio should coordinate efforts and 
funding? Is that better achieved by having separate and disparate 
efforts or via a single integrated agency?
    Answer. We believe a single integrated agency would be more 
effective and provide tangible benefits for producers, consumers and 
taxpayers. For example, producer groups must currently go to two 
separate agencies within USDA to provide input and solicit assistance 
to address their needs. The current system can lead to confusion for 
stakeholders, as well as potentially result in duplication of effort. 
By having one agency responsible for both intramural and extramural 
programs, stakeholders will have a more clear pathway to communicate 
their priorities and the new agency will be better able to allocate 
resources to intramural and extramural programs. These benefits will 
extend to consumers through the continued enhancement of our safe, 
affordable and nutritious food supply. Finally, taxpayers will benefit 
because taxpayer dollars will be allocated in a more focused and 
efficient manner that will decrease duplication.

    Question 55. Do you believe that USDA's research efforts should 
become more competitive in nature?
    Answer. The Department believes that the competitive process is one 
of the most effective ways to ensure that the highest quality research 
is identified, prioritized, and supported. Therefore, the Department 
supports making USDA's research efforts more competitive in nature. For 
example, the Administration has consistently proposed increases in the 
National Research Initiative (NRI), with proposed funding of $265 
million in the FY 2008 Budget.

    Question 56. You are proposing a specialty crop research 
initiative. How many programs are currently dedicated to specialty 
crops? How much funding?
    Answer. USDA's Research, Education and Economics (REE) agencies 
support research in a broad range of programs related to specialty. The 
Agriculture Research Service specialty crops program includes Citrus 
Fruits, Tropical/Subtropical Fruits, Deciduous Tree Fruits, Small 
Fruits (including grapes), Tree Nuts, Potato, Vegetables, and Nursery 
Crops and Ornamentals. Within CSREES, specialty crop research is 
supported principally with funding under the Hatch Act, McIntire-
Stennis Cooperative Forestry, Evans-Allen, National Research 
Initiative, and Integrated Activities programs that address a variety 
of specialty crops. The Economic Research Service also has areas of 
research encompassing specialty crops including market analysis and 
outlook, consumer demand for specialty crops (particularly fruits and 
vegetables), and organics. Total funding in FY 2006 within the REE 
agencies for specialty crops was approximately $280 million consisting 
of $191 million in ARS, $87 million in CSREES and $2 million in ERS.

    Question 57. You are proposing a Bioenergy and Biobased Products 
Initiative. How many programs are currently dedicated to energy? How 
much funding?
    Answer. USDA has energy programs in seven agencies and staff 
offices. The programs encompass research and development, 
commercialization, outreach and education. Funding (budget authority) 
for bioenergy programs is $77 million for FY 2007.
    In addition, the Agricultural Bioenergy and Biobased Products 
Research Initiative is designed to enable USDA to better address this 
high priority issue. USDA's current network of intramural laboratories 
has an ever increasing capacity in the area of bioenergy and bio-
products. This network, coupled with the expertise represented by the 
Federal-state partnership with the nation's universities, will ensure 
that this initiative is conducted in a collaborative way to maximize 
the strengths of USDA's intramural and extramural science, as well as 
engage private sector partners and other government entities such as 
the Department of Energy.
    Research conducted through this new initiative will complement the 
work supported by the Biomass Research and Development Initiative. 
USDA's intramural and extramural programs are already closely 
coordinated with the Department of Energy and USDA's Rural Development 
regarding the Biomass Research and Development Initiative and this 
continued coordination will help ensure that the programs are 
complementary. The primary vehicle for this coordination is USDA's 
Energy Council.

    Question 58. Several of the focus areas under the proposed 
Specialty Crop Research Initiative are similar to various proposed 
rural development grant platforms. Is this overlap intentional?
    Answer. The focus areas under the Administration's Specialty Crop 
Research Initiative reflect the research needs identified during the 
USDA listening sessions, as well as priority areas identified by the 
National Agricultural Research, Education, Extension and Economics 
Advisory Board. The Specialty Crop Research Initiative will provide 
science-based solutions to the unique challenges facing the specialty 
crop industry and complement the other specialty crops farm bill 
proposals, as well as ongoing USDA programs aimed at assisting the 
industry.

    Question 59. Where would the Initiative be located? CSREES&ARS?
    Answer. Under the Administration's proposal to merge the 
Agricultural Research Service (ARS) and the Cooperative State Research, 
Education and Extension Service (CSREES), the Specialty Crop Research 
Initiative would be administered by the newly created Research, 
Education and Extension Service (REES). Under the new organizational 
structure, this initiative will be better able to engage the respective 
strengths of USDA's intramural capacity and extramural partners.

    Question 60. How does the Initiative fit in with the goals of the 
National Specialty Crop Research Program which was authorized in the 
Specialty Crop Competitiveness Act, but never funded?
    Answer. The Specialty Crop Competitiveness Act, signed into law in 
January of 2005, was focused primarily on providing block grants to 
state departments of agriculture for the purpose of marketing and 
promotion of specialty crops. The law specifically defined specialty 
crops as including fruits and vegetables, tree nuts, dried fruits and 
nursery crops (including floriculture). This definition has allowed 
USDA to focus on specific crop groups to develop priorities for 
addressing the needs of specialty crop producers.
    The section of the Specialty Crop Competitiveness Act that 
authorizes the National Specialty Crops Research Program reads as 
follows:

        ``Research and extension grants may be made under this section 
        for the purpose of improving the efficiency, productivity and 
        profitability of specialty crop production in the United 
        States.''

    Even before the Specialty Crop Competitiveness Act became law, 
CSREES had undertaken the development of a national strategic research 
and extension plan for specialty crops by working with various segments 
of the specialty crop industries to develop strategic plans for that 
industry. Upon completion of the individual plans, a national workshop 
will be held to weave them together into a single plan that recognizes 
the intrinsic differences while focusing on the common themes that 
bridge the needs of the various groups. To date, CSREES has partnered 
with the tree fruit industry, the grape and wine industry and the berry 
crop industry to successfully develop strategic plans that focus on 
problems that have their solutions in research and extension. CSREES is 
currently working with the vegetable crop industry in finalizing a 
similar plan.
    As an outcome of these activities, the tree fruit, tree nut, 
citrus, grape and wine, and berry crop industries have come together to 
form a Specialty Crop Research Team to address research and extension 
needs that are common to the various industries. These efforts of the 
specialty crop industries can now be used to help inform USDA as it 
completes its national strategic research and extension plan for 
specialty crops. This plan will be utilized to help guide activities 
funded under the new Specialty Crops Research Initiative.
Title VIII--Forestry
    Question 61. With regard to your proposal for comprehensive 
statewide forest planning, do you believe it will facilitate the goal 
of ensuring that state foresters are included in NRCS programs such as 
EQIP and CSP?
    Answer. Statewide forest resource assessments and plans will be an 
important tool in developing a more cohesive, integrated forest 
management strategy. State foresters already have an important role in 
NRCS State Technical Committees. The information from the new 
assessments and plans will result in a better understanding of role of 
NRCS programs in meeting the forest needs within a state.

    Question 62. In the 2002 Farm Bill, Congress made a strong 
commitment to private landowner assistance by making the Forest Land 
Enhancement Program (FLEP) mandatory funding. However, much of its 
funding has been diverted to firefighting costs and other needs. What 
can be done to protect the use of this funding for its intended 
purpose?
    Answer. Funds for the Forest Land Enhancement Program were used for 
program purposes and other funds were transferred for fire suppression 
under the Congressional authority in the annual appropriations bill for 
the Forest Service that allows for funds available to the agency to be 
transferred. Congress cancelled remaining funds for FLEP in FY 2005. 
Since the passage of the 200 Farm Bill, Congress also enacted important 
changes to the Internal Revenue Code to permit taxpayers--both private 
individuals and companies--to expense up to $10,000 of qualifying 
reforestation expenditures incurred during the taxable year for a 
qualified timber property. In the case of an individual, the 
amortization deduction is allowed in determining adjusted gross income 
(i.e., an ``above-the-in-line deduction'') rather than as an itemized 
deduction. This encourages taxpayers to make investments in 
reforestation.
Title IX--Energy
    Question 63. Several Departments of the executive branch have 
important roles to play in increased production and use of renewable 
energy. What can you tell the Committee about how the various efforts 
are coordinated?
    Answer. The Biomass Research and Development Act of 2000, as 
amended, created a Biomass Board and a Technical Advisory Committee. 
The role of the Biomass Board is to coordinate programs within and 
among Federal departments and agencies for the purpose of promoting the 
use of biobased fuels and products. This board is co-chaired by USDA 
and DOE and has active members from other Federal departments.
    The Technical Advisory Committee is comprised of members from 
private and public sector organizations that have an interest in 
promoting the use of biofuels and biobased products. The Technical 
Advisory Committee provides advice to the Biomass Board on technical 
focus and direction on the use of biofuels and biobased products and 
facilitates consultations and partnering among Federal, state, research 
community and private sector.
    In addition, the Secretary of Agriculture has established the USDA 
Energy Council and the Biobased Products and Bioenergy Coordination 
Council which provide forums through which USDA agencies and other 
departments can coordinate, facilitate, and promote research, 
development, transfer of technology, commercialization and marketing of 
biobased products and bioenergy using renewable domestic agriculture 
and forestry materials.

    Question 64. It looks like you're shifting several programs that 
are in the 2002 Farm Bill's energy title over to the rural development 
area, such as the Renewable Energy and Energy Efficiency Program and 
the Biomass R&D Program. Why was this done?
    Answer. Rural Development already administers both of these 
programs. The Administration's 2007 Farm Bill proposal recognizes that 
many of our programs share certain features with other Rural 
Development programs. By consolidating the Rural Development 
authorizations for various loan, loan guarantee and grant programs, we 
can improve access and simplify the application and implementation 
procedures for rural communities. Rural Development is already working 
with the Office of Management and Budget to consolidate and streamline 
the common elements of our loan guarantee programs regulations. We 
believe this effort will make it easier for our customers to access our 
programs and for us to administer them.

    Question 65. How long are you envisioning the need for the loan 
guarantees for cellulosic ethanol production? What size plants are you 
envisioning that would use the $100 million guarantees? How does your 
proposal interact with the DOE's Title 17 loan guarantee program?
    Answer. Cellulosic ethanol production is still at its infancy. To 
advance this technology, the Administration's proposes to promote 
ethanol production from cellulosic material by funding research and 
providing incentives through a variety of program initiatives that 
augment efforts by the Department of Energy. The Administration 
proposes a loan guarantee program funding level of $210 million, which 
would support $2.1 billion of guaranteed loans over 10 years for 
cellulosic projects.
    To ensure successful commercialization of cellulosic ethanol 
technologies, other initiatives in the 2007 Farm Bill proposal have 
been created to promote research and development (R&D), feedstock 
availability, and cellulosic ethanol production. The Administration's 
2007 Farm Bill proposal creates the Agricultural Bioenergy and Biobased 
Products Research Initiative. This initiative would be funded at $500 
million over 10 years and would focus research and development (R&D) 
on: improving biomass production and sustainability, and improving 
biomass conversion in biorefineries. A second proposal builds on the 
Biomass Research and Development Act and provides $150 million over 10 
years to increase competitive grant funding for biomass research, 
focusing on cellulosic ethanol. Since little ethanol is currently being 
produced from cellulosic material, there is no way of knowing how much 
ethanol production the proposal would incentivize. While current 
capital costs for cellulosic plants are now quite high compared with 
grain ethanol plants, they are expected to decline over time. Thus, a 
$100 million guaranteed loan is expected to fund increasingly larger 
plants over time. The estimated loan level is a placeholder base on the 
historic subsidy cost of the current program and does not necessarily 
reflect future projects. USDA is evaluating the impact of proposed 
programmatic changes on the subsidy cost.
    These policies are reflected in our farm bill proposals and we 
believe that the resources projected are sufficient, when leveraged 
with investments from the private sector to rapidly develop a strong 
domestic cellulosic ethanol industry. These efforts are in coordination 
with DOE efforts to take advantage of synergies between the programs 
and minimize duplicative effort. The key is positioning the Federal 
research and financing programs to lead and encourage work with 
promising technologies. Once a technology or process is recognized as 
commercially viable by private capital markets and lenders, the Federal 
Government should allow the private sector take over.

    Question 66. Do you see a need for a cellulosic production 
incentive during this farm bill? How far away is cellulosic production?
    Answer. The Administration believes, based on estimates within the 
scientific community that we are within 3 to 5 years away from 
commercial cellulosic ethanol production. Our proposals are designed to 
ensure appropriate R&D is in place. We see a very real need for funding 
Federal programs focused on cellulosic ethanol production in the next 
farm bill. Developing this technology in a way that enables 
commercialization depends on quality, high-quality focused research and 
production incentives. Yet, bioenergy research and development 
currently totals only two percent of USDA's entire research and 
development portfolio. This level of support is inconsistent with our 
nation's energy supply and security priorities. Even with the success 
of corn and soybean biofuels, to substantially reduce America's 
dependence on imported oil, biofuels will need to be made from 
cellulosic processes that use feedstocks such as specialty crop 
biomass, switchgrass, corn stover, straw, and woody biomass. Some 
cellulosic conversion processes have been scientifically demonstrated 
to be capable of producing biofuels and other energy. The Department of 
Energy recently announced six selectees for up to $385 million in 
grants for cellulosic biorefineries. In addition, research at DOE is 
focused on the goal of making cellulosic ethanol cost-competitive by 
2012.

    Question 67. In your proposals you frequently mention cellulosic 
ethanol production. How about the other types of biofuels that can be 
produced from biomass, such as the chemical or thermo-chemical 
processes that lead directly to gasoline and other products? Can such 
processes be accommodated within the scope of your proposals?
    Answer. While cellulosic ethanol is a major component of our 
proposals to support renewable energy production, our energy proposals 
for the 2007 Farm Bill are much broader than cellulosic ethanol. The 
purposes of the Administration's proposal are to expand Federal 
research on all types of renewable fuels and bioenergy and reauthorize, 
revise, and expand programs that advance the production and 
commercialization of renewable energy. Funding basic and applied 
research, as well as sharing the risk through loan and loan guarantee 
programs, helps to improve the economic, technical, and commercial 
viability of new, high capacity renewable energy processes. Once a 
process is recognized as having achieved commercial viability, the 
Federal Government should refocus support on other less developed, yet 
promising processes for producing renewable energy.

    Question 68. Can you tell us how much is already being spent under 
the various accounts like ARS and CSREES in the energy area? What is 
the justification for the $500 million in new spending that you're 
calling for and how is it related to what we're already spending in 
this area?
    Answer. USDA bioenergy research funding in FY 2006 was $20.739 
million in budget authority for the Agricultural Research Service (ARS) 
and $6.003 million in budget authority for the Cooperative State 
Research, Education and Extension Service (CSREES). In addition, the 
U.S. Forest Service (FS) utilized another $12.75 million in budget 
authority for renewable energy research programs. The ARS and CSREES 
funds were used almost exclusively for research and development with a 
small amount going to outreach and education. About \3/4\ of the FS 
funds were used for commercialization activities with the remainder 
going to research and development. The proposed farm bill initiative 
for renewable energy research would add an average of $50 million per 
year in mandatory research funding. The purpose of the funding is to 
accelerate the commercial development of renewable energy with a focus 
on cellulosic ethanol. While USDA energy research programs currently 
conduct a range of projects related to biomass production and use, the 
farm bill initiative would expand activities in the areas of feedstock 
design; feedstock production; logistics, including baling, storing, and 
transportation; and feedstock conversion.

    Question 69. The President's Biofuels Initiative calls for 
replacing 30% of the nation's gasoline consumption with biofuels by 
2030 (the ``30 \ '30'' proposal). The Initiative also calls for making 
cellulosic ethanol cost-competitive with gasoline by 2012. Your farm 
bill proposal, however, calls for less than $1 billion in total energy 
title incentives through 2017. Given the Administration's ambitious 
biofuels vision, and given our national interest in weaning our nation 
from insecure foreign oil supplies, how can we meet these objectives 
with such a low funding proposal?
    Answer. We believe that the President's goal of 35 billion gallons 
of biofuels and alternative fuels by 2017 is attainable through the 
Administration's proposed initiatives and aggressive private sector 
investments. The Administration's proposals include a total of $800 
million to support research and development towards achieving the 
President's goal. In addition, over $700 million is included in the 
proposals to support renewable energy systems grants and loans and $100 
million to provide direct support to producers of cellulosic ethanol. 
These investments will provide a bridge for promising technologies to 
reach a level of development to encourage private sector capital 
investment. These efforts, coupled with funding and programs of other 
Federal agencies with which we are coordinating, including the 
Department of Energy and the Environmental Protection Agency, will 
provide support and encouragement to build the foundation for a 
domestic renewable fuel industry that can meet the President's goals.

    Question 70. The Section 9006 program has proven to be very 
popular, yet USDA is proposing only $71 million in total annual funding 
for the Section 9006 grant and loan guarantee program. How important do 
you regard this program among the Department's energy efforts?
    Answer. This program is important to USDA. The 2008 budget request 
will provide program level funding of almost $15 million in grants, and 
$195 million in guaranteed loans. The Administration's 2007 Farm Bill 
proposal includes an additional $500 million in grants and funding to 
support an estimated $2.17 billion in guaranteed loans to fund 
cellulosic ethanol projects over 10 years. The estimated loan level is 
a placeholder based on the historic subsidy cost of the current program 
and does not necessarily reflect future projects. USDA is evaluating 
the impact of proposed programmatic changes on the subsidy cost. In 
addition, the Rural Development Business and Industry Program, with a 
program level of $1 billion in guaranteed authority can also be 
accessed for additional energy business guarantees, as well as other 
rural business ventures. Together with the new cellulosic guarantee 
proposal, these programs represent substantial USDA emphasis on 
renewable energy financing.

    Question 71. The Biomass Research and Development Act of 2000 calls 
for not only research but development activities to introduce biomass 
energy as a sustainable energy source. Beyond its research activities, 
what are the plans of the Department to facilitate commercial 
development of energy crops?
    Answer. The Administration's 2007 Farm Bill proposal provides 
several ways to facilitate commercial development of energy crops. It 
includes $150 million of mandatory funding for the Biomass Research and 
Development Program to continue the support for demonstration projects. 
A new loan guarantee program is proposed to support an estimated $2.17 
billion in funding for cellulosic ethanol projects that might exist in 
the later stages of the demonstration phases of development. The 
estimated loan level is a placeholder based on the historic subsidy 
cost of the current program and does not necessarily reflect future 
projects. USDA is evaluating the impact of proposed programmatic 
changes on the subsidy cost. In addition, $159 million is proposed for 
a new the Forest Wood to Energy Program aimed at accelerating the 
development of new technologies to better utilize low-value woody 
biomass into biofuels. The Administration is proposing $100 million to 
help plants purchase cellulosic feedstocks. We are also proposing a 
long-term biomass reserve program is proposed to stimulate production 
of dedicated feedstocks such as switchgrass.

    Question 72. Would you support additional incentives to support 
transitional crops to help get the feedstock production pipeline 
moving?
    Answer. It remains to be seen what the most competitive ways to 
produce ethanol will be. We are reviewing, in this early stage, what 
the feedstocks for those processes are and whether a transitional crop 
is warranted. Well-intentioned incentives for crops associated with a 
technology that does not pan out may hurt farmers, as well as the 
environment. At this time, we believe that support is best applied to 
the research and of biofuel technologies and the initiatives outlined 
in the response to the prior question.

    Question 73. What incentives, if any, do you think should be 
offered to producers to encourage them to grow crops that are suitable 
as energy feedstocks? Should basic farm programs be modified to 
encourage planting of energy crops?
    Answer. Discovering and producing viable feedstock is a promising 
endeavor. This is one of the reasons we have proposed the Cellulosic 
Bioenergy Program, which will provide $100 million in direct support to 
producers of cellulosic ethanol.
    At this time we believe that support is best applied to the 
research and commercialization (loan/grant programs) of biofuel 
technologies and the proposals to cost share the purchase of cellulosic 
feedstocks and create a long-term biomass reserve.

    Question 74. Local ownership of bioenergy plants, wind energy farms 
and other renewable energy facilities offer the best economic 
development benefits for local areas. How has the USDA promoted 
community ownership of renewable energy facilities, and what more can 
the farm bill do to promote local ownership?
    Answer. From Fiscal Years 2001 through 2006, Rural Development has 
invested over $480 million in 1,134 renewable energy and energy 
efficiency projects of which $349 million has been invested through 
Business and Cooperative Programs. The Section 9006 Renewable Energy 
Program accounted for over 800 of the individual projects. In fact 
since its inception, there have been 91 local digester projects funded. 
Many of those digester projects have been to assist farmers or ranchers 
construct digesters to handle dairy and other animal waste. We will 
continue to utilize this program and other USDA Rural Development 
business programs to support such innovative renewable energy ventures.
Title X--Miscellaneous
Organic Agriculture:

    Question 75. Can you tell the Committee what portion of 
conservation funding currently goes to organic farmers?
    Answer. Within our internal tracking system, participating organic 
farmers are not separately identified, so it is unknown what percentage 
of cost-share is utilized by this particular group. The Agricultural 
Management Assistance (AMA) program and the Environmental Quality 
Incentives Program (EQIP) offer a practice for `Transition to Organic 
Production'. EQIP contracts from Fiscal Year 2003 through 2006 document 
completion of this practice on 299 contracts at a cost of $602,656. AMA 
contracts from Fiscal Year 2004 through Fiscal Year 2006 document 
completion of this practice on 116 contracts at a cost of $591,160.

    Question 76. Consumer demand for organic products is growing 
steadily. How would your proposal assist farmers in meeting the serious 
challenges associated with transitioning from conventional to organic 
production? What is the role of EQIP in this area?
    Answer. There is increased demand for organic products and more 
farmers are interested in transitioning from traditional farming to 
organic farming. However, the requirements to be certified organic are 
lengthy and can be quite costly, especially for small farmers. Fees may 
range from $500 or less for very small farms to $5,000 plus for larger 
farms and processors based on acreage and gross sales. Typical 
certification costs may be around $1,500 for a small-medium farm. In 
addition, a key to expanded opportunity in organic production is 
adequate market data to inform farmers, processors, wholesalers and 
retailers. And, organic farmers, just like traditional farmers, are 
looking for opportunities in the global marketplace.
    The Department's farm bill proposal recognizes the needs of the 
organic agricultural industry and identifies several initiatives to 
assist it. These organic farming initiatives represent $61 million in 
additional funding over 10 years. We propose to expand and increase the 
cost share certification reimbursement program for all states and for 
all producers and processors. Reimbursement would be increased from the 
current $500 annually to $750 annually or 75 percent of certification 
costs, whichever is smaller. This program has been very helpful to 
producers transitioning to organic farming, and expanding this program 
will help the organic sector continue to grow.
    Farmers or ranchers who desire to transition toward organic farming 
practices that may result in reduced fertilizer/pesticide application, 
or change the way in which nutrients are applied to their fields can 
receive assistance through NRCS and the Environmental Quality 
Incentives Program (EQIP) specifically. The EQIP program already has 
national priorities that connect directly with the objectives of 
organic farming:

   Reductions of non-point source pollution, such as nutrients, 
        sediment, pesticides, or excess salinity in impaired watersheds 
        consistent with TMDLs where available as well as the reduction 
        of groundwater contamination and reduction of point sources 
        such as contamination from confined animal feeding operations.

   Conservation of ground and surface water resources.

   Reduction of emissions, such as particulate matter, nitrogen 
        oxides (NOX), volatile organic compounds, and ozone 
        precursors and depleters that contribute to air quality 
        impairment violations of National Ambient Air Quality 
        Standards.

   Reduction in soil erosion and sedimentation from 
        unacceptable levels on agricultural land.

   Promotion of at-risk species habitat conservation

    In addition to the priorities already contained in the EQIP 
program, the Department's farm bill proposal calls for merging the 
authorities of the Agricultural Management Assistance (AMA) program, 
and specific authorities relating to organic transition into EQIP.

    Question 77. Are there any obstacles or inducements to 
participation in conservation programs for organic farmers?
    Answer. The conservation cost-share programs do offer inducements 
(a higher percentage of cost-share) for limited resource farmers and 
ranchers and for beginning farmers and ranchers, but not specifically 
for organic farmers. There is a practice for `Transition to Organic 
Production,' which has been an inducement for producers to begin using 
an organic management system. There are no known obstacles to 
participation in conservation programs for organic farmers. It has been 
said that organic farms were not meeting soil index criteria for CSP 
due to tillage practices. However, it has been our experience that many 
organic farms have met this criteria because the application of manure 
and other organic material off-sets the results of tillage.

    Question 78. What kinds of risk management tools are currently 
available to organic farmers? What are the obstacles for organic 
growers to participate in crop insurance programs? Does your proposal 
address their needs in any way?
    Answer. In addition to providing producers with Federal crop 
insurance to help farmers manage production and revenue risks, RMA is 
particularly proud of its successful Risk Management Research, 
Education and Outreach partnership agreements. Since 2002, RMA has 
funded over $2.2 million in Risk Management Education and Outreach 
projects that are available to organic farmers (see chart below). Using 
these partnerships, RMA reaches producers with the best risk management 
information possible through universities, community and tribal-based 
organizations, commodity groups and an array of state programs.
    RMA is working with partners to create non-insurance risk 
management tools for organic producers. Since 2002, RMA has funded 12 
partnerships totaling $8.3 million related specifically to organic 
farming, including an interagency agreement with the Agricultural 
Marketing Service (AMS) to collect and report price data on organic 
commodities separate from their conventional counterparts. Other 
partnerships are geared toward collecting and reporting organic price 
information at either the producer or local level. Whether this data 
could be used for price elections will need further evaluation. These 
partnerships are also developing price and risk models for both 
conventional and organic production for selected commodities. In 
addition, RMA is providing funding to the Economic Research Service for 
a nationwide survey of organic producers to collect data on numerous 
aspects of organic farming. The chart below has details regarding risk 
management tools developed through partnerships with RMA.
    Some of the tools that are currently available online for organic 
producers include:

   Cost of Production Calculator for Grapes/Tree Fruit in 
        Pacific NW available at www.nwgrapecalculators.org.

   Georgia Organics: Direct Marketing Strategies Workbook 
        available at www.georgiaorganics.org.

   University of Minnesota: Organic Farm Business Management 
        Class available at www.mda.state.mn.us/esap/organic/
        ofbmbrochure.pdf.

   Benchmarking Reports for organic crop and livestock 
        operations is a Non-Insurance Risk Management tool available at 
        www.finbin.umn.edu.

   Directory of Organic Farms In MN available at 
        www.mda.state.mn.us/esap/organic/directory.pdf.

    All of the Federal crop insurance programs available to 
conventional farmers are also available to organic growers. In 2006, 
RMA had 2,538 policies insured with nearly 355,000 acres and a 
liability of over $82 million for organic and transitional to organic 
farming practices in the Federal crop insurance program. RMA is 
providing the maximum coverage available based on the limited data it 
has. Participation in crop insurance with an organic type factor has 
grown since 2005 by approximately 30 percent from 1,950 to 2,538 
policies with similar increases in the number of acres, liability and 
premium. California, Iowa, Minnesota, North Dakota and Washington 
remain the five states with the largest number of organic practice 
policies. With the exception of Minnesota, which still saw a seven 
percent increase in policies, other states had substantial increases, 
from 32 percent over prior year in Iowa to 43 percent over prior year 
in Washington.
    RMA has some positive steps underway to capture more organic data. 
In August 2006, RMA entered into an interagency agreement with AMS. AMS 
has been collecting and reporting prices on a limited number of organic 
fruits and vegetables at a few wholesale markets around the country. 
RMA is providing funding to AMS to expand this effort to a somewhat 
larger number of wholesale and retail operations throughout the 
country. While AMS modifies its software system to accommodate expanded 
organic coverage, a pilot project has been initiated to begin 
collection of retail prices directly comparing organic and conventional 
fruit. USDA's 2007 Farm Bill proposal would build on these efforts to 
further expand organic market reporting. As organic price data becomes 
available from AMS, RMA will continue to analyze empirical information 
for possible development of unique organic prices as actuarially 
appropriate. 


 Are organic producers participating in the crop insurance program 
required to pay surcharge in their crop insurance rates. How are price 
elections determined for organic crops? Do the guarantees generally 
    reflect the higher market value of organic crops?Answer. Yes, a 
five percent surcharge on the standard base rate is charged for the 
organic farming practice. Currently, very limited data are available on 
organic production, yields and pricing. For this reason, RMA is unable 
to estimate empirical premium rates or expected yields for organic 
production for any crop. Beginning with the 2004 crop year, RMA 
established an option for the organic practice to allow for unique 
identification of organic practice experience data in RMA databases. 
The very limited data available to RMA suggested greater yield 
variability for organic production and, consistent with standard 
actuarial practices, an additional rate load was created to account for 
the indicated higher variability. RMA established a preliminary organic 
practice rate factor of 1.05, in essence a five percent surcharge on 
the standard based rate.
    A significant dataset of organic crop insurance experience is only 
available for the 2005&2006 crop years. For the 2005 crop year, organic 
practices were carried out on units covering some 423,000 acres, with a 
resulting combined loss ratio for these units of 1.19. For the same 
crops and counties, but on units where conventional practices were 
carried out, the combined loss ratio was 0.59. For the 2006 crop year, 
organic practices were carried out on units covering nearly 355,000 
acres, with a combined loss ratio for these units of 1.01. For the same 
crops and counties, but on units where conventional practices were 
carried out, the combined loss ratio was 0.94. This results in an 
average loss ratio of 1.10 for organic practices and 0.77 for 
conventional practices over the 2 years with data available. Although 
this empirical information reflects only 2 crop years, the data clearly 
identifies two different pools for risk classification and reinforces 
the current procedure for an organic practice surcharge. It should be 
noted that 2006 crop year loss experience may not be entirely complete 
for both pools, as Approved Insurance Providers (AIPs) may still be 
submitting loss claims. As more years of organic practice experience 
data are accumulated, RMA hopes to gradually incorporate empirical 
information into the rate and yield estimation procedures.
    Multiple Peril Crop Insurance (MPCI) policies for all 300+ 
commodities currently covered by the crop insurance program are 
available for crops grown using organic farming practices. The five 
percent premium surcharge applies to all of the products that 
incorporate the producer's past production history of growing the crop 
as part of the basis for establishing the insurance guarantee, 
including: Actual Production History (APH or traditional MPCI), 
Catastrophic Risk Protection (CAT), Crop Revenue Coverage (CRC), Income 
Protection (IP) and Revenue Assurance (RA). These plans also include a 
price component per unit (bushels, cwt., cartons, etc.) of the insured 
crop. Losses in the insured's production or revenue are indemnified 
with these plans. In addition, Dollar Plans of Insurance provide 
protection against declining value due to damage that causes a yield 
shortfall for several crops.
    Note: Organic producers are not charged an additional five percent 
in premium for crops covered under the Group Risk Protection (GRP), 
Group Risk Income Protection (GRIP), Adjusted Gross Revenue (AGR) and 
AGR-Lite plans of insurance due to the following:

   GRP policies use a county index as the basis for determining 
        a loss. When the county yield for the insured crop, as 
        determined by the National Agricultural Statistics Service 
        (NASS), falls below the trigger level chosen by the farmer, an 
        indemnity is paid. However, individual crop losses may not be 
        covered if the county yield does not suffer a similar level of 
        loss.

   GRIP makes indemnity payments only when the average county 
        revenue for the insured crop falls below the revenue chosen by 
        the farmer.

   AGR and AGR-Lite use information from a producer's Schedule 
        F tax forms to calculate the policy revenue guarantee. These 
        plans do not distinguish between organic and conventional 
        farming practices.

    Currently, RMA does not differentiate between organic farming and 
conventional farming practices for crop value or price election(s) due 
to the lack of pricing data on organically grown commodities.
    RMA has established an ``organic option'' for the organic farming 
practice on the Actuarial Documents to allow for the unique 
identification of organic farming practice experience data in RMA 
databases. As organic farming practice experience data is accumulated, 
RMA hopes to gradually incorporate empirical information into unique 
organic rate, price and expected yield offers. Until that data is 
available, RMA believes it would be prudent to continue to publish and 
use the price elections and dollar amounts of insurance for the crop 
grown under conventional farming practices for crops grown under 
organic farming practices. In recognition of the growing need for price 
information on organic farming, RMA is funding several interagency 
agreements with other USDA components and partnerships with private 
entities to collect and report price information. Details on these 
partnerships are noted below.
    Under most of the Federal crop insurance programs guarantees do not 
reflect a higher market value for organic products. However, two 
insurance products can assist producers with protection against loss of 
revenue should they have a higher market value for their organic crop. 
The Adjusted Gross Revenue (AGR) and AGR-Lite programs are whole-farm 
revenue products available in 28 states that protect against low 
revenue due to unavoidable natural disasters and market fluctuations 
that occur during the insurance year. Most farm raised crops, animals 
and animal products are eligible for protection. Organic producers can 
take into account expected organic premiums since the guarantee is 
based on the producers own previous 5 years of adjusted farm revenue. 
An annual farm report is submitted, with a list of commodities 
produced, quantities expected and expected prices for the organic crop 
for the covered year.

    Question 80. As organic products continue to penetrate the consumer 
marketplace, credibility in enforcement of the organic standard is 
critical. The National Organic Program (NOP) ensures the credibility of 
the organic label and bolsters consumer confidence. Recently, there 
have been news reports about improperly labeled organic products in 
stores. There are currently six employees in the NOP office, and only 
three in the Audit Review and Compliance Branch to enforce the rule. In 
your opinion, is there sufficient staff to investigate complaints, 
write and issue rules, and respond to new issues in a timely matter?
    Answer. The National Organic Program (NOP) has eight professional 
staff members. Auditors from the Agricultural Marketing Service Audit 
Review and Compliance Branch and investigators from the AMS Compliance 
and Analysis Program are assigned to do NOP work as needed. USDA 
requested an increase of $1.3 million for the NOP in FY 2007. The same 
request is anticipated for FY 2008.

    Question 81. The Administration's proposal provides $10 million in 
mandatory funding for organic research focusing on conservation and 
environmental outcomes and seed varieties suited for organic farming. 
There were many agriculture research programs that were authorized with 
mandatory spending under the 2002 Farm
Bill . . . is there an existing research program that these types of 
proposals would fit under?
    Answer. The 2002 Farm Bill authorized the Organic Research and 
Extension Initiative and provided $3 million per year in mandatory 
funding. This program is complementary to the additional $10 million 
included in the Administration's farm bill proposals.
Specialty Crops:
    Question 82. The Administration's proposal ramps up Section 32 
spending by $2.75 billion over ten years. Under current law, Section 32 
purchases must be a minimum of $200 million per year, but the actual 
spending has been approximately $275 million. What detail can you 
provide the Committee regarding how this dramatic increase in spending 
would be used?
    Answer. This proposal is for Section 32 funding to be directed 
toward purchasing more fruits and vegetables for distribution to USDA 
feeding programs to enhance consumption of these commodities according 
to the USDA Dietary Guidelines for Americans. The Administration is not 
proposing a $2.75 billion increase over ten years in total Section 32 
funding. Currently, there are situations where USDA does not spend all 
of its Section 32 funding. The additional commodity purchases would 
come from this unused spending authority. No cuts in other commodities 
purchased under existing programs are being proposed.

    Question 83. Can USDA currently purchase value-added items with 
Section 32 funds, or does the Administration's proposal require new 
authorization to do this?
    Answer. USDA can purchase value-added items with Section 32 
funding. Generally, Section 32 funds are used to remove surplus 
commodities, including value added products from those commodities, 
from the normal commercial markets.

    Question 84. Your proposal briefly mentions the Department of 
Defense Fresh Program but does not address the School Snack Program. 
The school program has proven very popular in the 14 states and three 
Indian Reservations where it is authorized. Is it the Administration's 
position that these programs should be discontinued? If so, why?
    Answer. The Administration has not proposed to discontinue the 
Fresh Fruit and Vegetable Program (FFVP) in the communities where it 
currently operates. This program has been well received by students and 
by state and local school administrators in those locations, and it 
supports the Dietary Guidelines for Americans (DGAs) recommendation to 
increase consumption of fruits and vegetables.
    The Administration is committed to increasing fruit and vegetable 
consumption given their importance to health and the specific 
recommendations of the Dietary Guidelines for Americans. To support the 
Administration's goal to increase fruit and vegetable consumption, the 
Administration has proposed to provide $500 million over ten years for 
additional fruits and vegetables through the National School Lunch 
Program (NSLP) and the School Breakfast Program (SBP).
    The Department considered a range of approaches to increase the 
availability of fruits and vegetables in schools, and ultimately 
selected this approach because it has the potential to increase fruit 
and vegetable access to the greatest number of school children. On 
average, over 31 million children eat a school meal each school day. In 
contrast, if the FFVP were expanded in its present form (25 schools in 
each state and select Indian and Tribal Organizations), its benefits 
would reach far fewer children--roughly 650,000 each day.

    Question 85. What does the Department estimate would be the cost of 
all the program changes proposed to benefit specialty crops? How much 
of that would be mandatory spending? What offsets is the Department 
proposing to pay for specialty crop programs?
    Answer. The Administration strongly supports increased assistance 
to specialty crops. The Administration's 2007 Farm Bill proposals would 
change several titles to increase substantially the support to 
specialty crops, including greater mandatory funding. We believe these 
proposals, which target a series of mutually reinforcing changes to the 
conservation, trade, nutrition, rural development, energy, research and 
miscellaneous titles of the farm bill, provide the best, comprehensive 
set of programs to assist specialty crop producers. The 
Administration's 2007 Farm Bill specialty crop proposals would increase 
assistance to specialty crop producers by nearly $5 billion over the 
next ten years and include increased mandatory funding of $68 million 
for Trade Assistance for Specialty Crops, increased mandatory funding 
of $250 million for non-program crops under the Market Access Program, 
increased mandatory funding of $500 million for fruit and vegetable 
purchases for the School Lunch Program, and increased mandatory funding 
of $1 billion for specialty crop research. Our proposals also includes 
targeting $2.75 billion of Section 32 funding for increased specialty 
crop purchases for use in food assistance programs.

    Question 86. The Specialty Crops Competitiveness Act of 2004 
established a program of block grants to states that is operating in FY 
2006 and FY 2007 on a $7 million annual appropriation. The state 
departments of agriculture use the grants to support the development 
and marketing of specialty crops that are important to the state's 
agricultural economy. Does the Administration support the continuation 
of the block grant program? Would the Department recommend mandatory 
funding for the program?
    Answer. Authority extending through Fiscal Year 2009 already exists 
for the Specialty Crops Block Grant Program with nearly $14 million in 
appropriated (FY 2006 and FY 2007) to fund it. The Administration's 
proposal does not change or provide mandatory authority for this 
existing authority. Grants have been approved for six states, with 
several additional applications under review. Over the next 3 years we 
will have an opportunity to determine the effectiveness of funds 
provided in this manner.

    Question 87. The specialty crop sector is quite united in its 
support for continuing the limitation on planting flexibility to 
exclude planting fruits, vegetables, and wild rice on commodity program 
base acres. The Department's farm bill proposal would eliminate that 
restriction. What is the Administration's view of the effect of the 
proposed elimination of the planting restriction on individual 
specialty crop producers and on the sector as a whole?
    Answer. Eliminating planting restrictions keeps us in compliance 
with our WTO commitments today. Additionally, the recent Economic 
Research Service report entitled ``Eliminating Fruit and Vegetable 
Planting Restrictions: How Would Markets Be Affected?'' suggests that 
planting restrictions are not as critical for the specialty crop 
industry as they might initially appear. A possible exception to this 
is dry edible beans. For example, in 2003 and 2004, only about five 
percent of fruit and vegetable production was on base acres for program 
crops--but 99 percent of the farms using base acreage had a history of 
planting fruit and vegetables on those base acres. This is the case 
because the new entrants to the specialty crop business are few and far 
between, as a result of a series of formidable barriers that include 
the need for specialized equipment, contracts for produce headed to 
processing, processing expertise, higher production costs, excessive 
labor needs for harvest and limited seasonal production time.

    Question 88. The Administration's proposal provides an additional 
$50M annually for the purchase of fruits and vegetables for school 
meals, some of which is to be transferred to DOD Fresh at the 
Secretary's discretion. How would this money be processed or spent if 
not through DOD Fresh? What are the factors which might affect the 
Secretary's decision to utilize these funds through DOD Fresh?
    Answer. The Department envisions providing an additional $50 
million for fruits and vegetables to be used annually for the purchase 
of fresh, frozen and canned commodities. At the Secretary's discretion, 
funds would be directed to DOD Fresh, the Agricultural Marketing 
Service (AMS), or both for the purchase of fruits and vegetables. Funds 
would be allocated to each state proportional to the state's commodity 
entitlement under the National School Lunch Program. The Department 
would determine the amount of funding that would be directed to DOD 
Fresh and AMS based on a number of factors, including school 
preferences for fresh, frozen and canned fruits and vegetables and 
market considerations including product availability, prices, and 
transportation considerations.

    Question 89. In consolidating various grant programs under the new 
``Business Grants Platform,'' what will happen to funding levels? The 
proposal says that specialty crops would get priority in the value-
added grants portion, but would the amount of money available be 
reduced as a result of combining programs?
    Answer. The new ``Business Grants Platform'' is intended to 
standardize administrative processes and forms, not to influence 
program funding levels.

    Question 90. How will your proposal to consolidate research 
programs affect implementation of the proposed Specialty Crop Research 
Initiative? How would the ongoing plant breeding programs to develop 
improved fruit and vegetable varieties be affected by the proposed 
research reforms?
    Answer. The Administration's proposal to merge the Agricultural 
Research Service and Cooperative State Research, Education and 
Extension Service would facilitate an improved management structure to 
support the Specialty Crops Research Initiative. By bringing together 
the Department's intramural and extramural research programs and having 
a single National Program Staff, the Department will be better able to 
identify the comparative strengths of the USDA intramural laboratory 
network and our extramural partners to ensure that resources are better 
focused to address the challenges facing the specialty crops industry. 
Ongoing plant breeding programs to develop improved fruit and vegetable 
varieties would be enhanced by providing closer linkages between these 
efforts and the complementary capacity represented by the Department's 
overall research, education and extension programs. A key benefit will 
be facilitating more interaction between the applied research on plant 
breeding conducted intramurally with the vast extension network across 
the nation.
Beginning Producers & Disadvantaged Producers:
    Question 91. Though you have quoted Lorette, who spoke at the North 
Carolina listening session, and indicated that, ``we need a lot more 
resources to work one-on-one with farmers to eradicate all the problems 
in the system, to get farmers into the programs that do exist'', it 
appears that your farm bill proposal does not envision any additional 
funding for the Section 2501 Outreach Program. And your FY08 budget 
request only asks for $7 million, a million dollars above the FY06 and 
FY07 amounts. Do you not feel that additional funding is appropriate in 
this area?
    Answer. The Outreach and Assistance for Socially Disadvantaged 
Farmers and Ranchers Competitive Grants Program, also known as the 
Section 2501 program, plays an important role in USDA's efforts to 
provide opportunities for socially disadvantaged farmers and ranchers 
to successfully acquire, own, operate, and retain farms and ranches; 
and helps ensure equitable participation in the full range of USDA 
programs. USDA strongly supports this program and its continuation in 
the 2007 Farm Bill. Continuation of the 2501 program will complement 
the additional beginning and socially disadvantaged farmer and rancher 
programs proposed in the USDA's farm bill package, along with other 
ongoing USDA programs that assist farmers and ranchers.

    Question 92. Do you believe that the outreach efforts of locally-
based organizations are necessary to help smaller producers effectively 
use the programs you've suggested making changes to?
    Answer. USDA's Farm Service Agency continues to actively utilize 
outreach efforts whenever possible and any partnership with locally-
based organizations is welcome.
Questions Submitted By Hon. Terry Everett, a Representative in Congress 
        from Alabama
    Question 1. As you know, the 2002 Farm Bill directed the Department 
of Agriculture to establish a loan repayment rate for peanuts that you 
determine will: minimize potential loan forfeitures; minimize the 
accumulation of stocks of peanuts by the Federal Government; minimize 
the cost by the Federal Government in storing peanuts; allow peanuts 
produced in the United States to be marketed freely and competitively, 
both domestically and internationally. However, U.S. peanut exports 
continue to fall because of the loan repayment rate being set so high 
by the USDA. Why does the rate remain at a level that prohibits peanuts 
produced in the United States to be marketed freely and competitively, 
both domestically and internationally? What are you doing to make U.S. 
peanuts more competitive internationally?
    Answer. U.S. peanut exports have remained stable under the changes 
enacted in the 2002 Farm Bill, and the outlook for U.S. peanut exports 
remains optimistic. Marketing year 2006 peanut exports are currently 
projected to increase 12 percent over 2005; season-to-date exports 
through January are 30 percent over the same period in 2005.
    During the years leading up to the 2002 legislation, the observed 
peanut export pattern was one of variable export volume dependent 
primarily upon annual U.S. peanut production. Because the previous 
marketing quota program guaranteed a lower support price to over-quota 
peanuts [$132/short tons] and required them to be crushed or exported, 
peanut producers and shellers were more willing to match competitor 
prices in international markets in order to sell peanuts. Peanut export 
volume in a given year was largely a function of production or 
available supply of over-quota peanuts.
    Now, peanuts produced in excess of food requirements are no longer 
required to be exported or crushed, and may be marketed freely among 
uses. As a result, U.S. peanut exports have centered around the core 
market for high-quality food uses, with gains in some years.
    Peanut butter exports nearly doubled between 2002 and 2005, 
increasing from approximately 14,000 tons to 26,000 tons of peanut 
butter. On a farmer stock (in-shell) basis, the addition of peanut 
butter exports brings total 2005 raw peanut equivalent exports to 
almost 300 million tons, an increase of nine percent from 2002.
    Despite evidence of a stable peanut export market, the peanut 
industry has repeatedly contended that the level of the loan repayment 
rate or National Posted Price (NPP) is responsible for a perceived loss 
of export market share. This is simply not the case. It appears that 
the industry wishes for the peanut program to be operated as an export 
subsidy program, possibly similar to the former Step 2 cotton program. 
But a marketing assistance loan program that establishes a single 
repayment rate for all end-uses, domestic and international cannot 
target one end-use over another.
    USDA's recent analysis on the peanut industry proposal to establish 
the NPP revealed that U.S. peanut prices would need to decline 
considerably for U.S. producers to gain an appreciable increase in 
export volume. Peanut export competition is intense, especially to the 
European Union, and significant discounting would be necessary to 
entice buyers away from competitors in Argentina, China, and Brazil.
    Artificially lowering the NPP to enhance exports significantly 
increases taxpayer costs to operate the Marketing Assistance Loan 
program beyond the baseline costs established for the program. The 
analysis established a baseline over the 2007&17 period that reflects 
peanut supply and use and budget implications associated with 
implementation of the proposal. Compared to baseline costs estimated in 
the Fiscal Year 2008 President's Budget, the proposal adds $4.9 billion 
to government outlays over a ten year period, or 3.5 times the original 
budget estimate. The majority of the increase comes from marketing loan 
gains, as countercyclical payments are maximized when peanut prices 
decrease to the $355 per ton loan rate.
    More importantly, lowering the NPP to levels proposed by the peanut 
industry would likely present serious World Trade Organization (WTO) 
concerns and possible challenges against the U.S. government. Marketing 
loan gains are subsidies for the purposes of the WTO Agreement on 
Agriculture and the WTO Agreement on Subsidies and Countervailing 
Measures (SCM Agreement). As such, they qualify as amber box support 
and count toward the total U.S. support limit of $19.1 billion per 
year. In addition, the SCM Agreement provides that no country should 
cause, through the use of any subsidy, serious prejudice to the 
interest of another country. When the perceived effect of a subsidy is 
significant price suppression, price depression, or lost sales in an 
individual market or in the world market, the WTO may rule, as it did 
in the upland cotton case brought against the United States by Brazil, 
that a subsidy creates serious prejudice.

    Question 2. The President's farm bill proposal lowers the loan rate 
for peanuts from $355 per ton to $336 per ton. It eliminates the 
separate payment limit for peanuts. In addition, it maintains the same 
direct payment for 2008&09. U.S. production decreased about 30% in 
acreage in 2006. My producers tell me that the acreage decrease in 2007 
could be as much as 40%. If the industry is declining this much under 
the 2002 bill, how can USDA expect the U.S. peanut industry to survive 
with the cuts you have offered for the next farm bill?
    Answer. The 2002 Farm Bill transitioned the U.S. peanut program 
from a quota program to a market-oriented program, thereby allowing the 
peanut industry to respond to market dynamics. The elimination of 
peanut marketing quotas brought shifts in peanut production both within 
and between the three producing regions (Southeast, Virginia-North 
Carolina, and Southwest). The movement to new, more productive peanut 
acreage has increased average yields and production, with shifts in 
regional peanut production favoring the Southeast.
    The U.S. peanut industry has flourished under the 2002 Farm Bill. 
The reduction in peanut prices (from $610 tons under the previous 
program) has served to increase domestic food use of peanuts and 
improve the competitiveness of U.S. peanuts. U.S. peanut food use 
increased 17 percent between 2002 and 2005, with domestic origin food 
use increasing 19 percent over the same period, as peanut imports fell 
sharply.
    In 2005, peanut acreage rose 16 percent, with production increasing 
14 percent over the previous year to the second highest level on 
record. Although peanut use increased over the period following the 
2002 legislation, peanut stocks built to 52.2 percent of use at the end 
of the 2005 marketing year, which had a depressing effect on option 
prices offered to farmers in early 2006. Peanut acreage decreased 25 
percent in 2006, as the market responded to these burgeoning peanut 
stocks.
    Current offerings on 2007 crop runner peanuts (approximately 80 
percent of total peanut production is runner peanuts) are $60&$90 per 
ton above the loan repayment rate, easily the highest option prices 
offered since 2002. Between 2002 and 2006, runner option prices ranged 
from $10&$45 per ton above the loan repayment rate. As peanut producers 
have noted, higher corn prices makes corn a profitable alternative to 
peanuts this year. If peanut planted acreage decreases by 40 percent in 
2007, it is likely due to the attractiveness of alternative crops.
Questions Submitted By Hon. Tim Walberg, a Representative in Congress 
        from Michigan
    Question 1. Again, with the Administration's goal of improving the 
safety net for producers in mind, how does reducing the incentives 
(premium subsidies) and increasing the costs for catastrophic coverage 
for crop insurance help improve producer's safety net? Are you 
attempting to fix specific areas of the country where there are 
problems with crop insurance indemnity ratios, due to high repetition 
of weather problems, (like drought in the Dakotas), at the expense of 
greater participation in areas of the country where loss ratios are 
okay?
    Answer. The Administration's proposal would require producers to 
purchase a buy-up level of crop insurance in order to be eligible for 
farm program benefits. This means, participation would be expected to 
increase in all areas of the country. To offset the increased costs of 
greater program participation, several proposals are made to garnering 
savings. One proposal is to reduce premium subsidies by five percentage 
points for coverage levels of 70 percent or below and two percentage 
points for coverage levels of 75 percent or higher. Current subsidy 
rates vary by coverage level ranging from about 67 percent at lower 
coverage levels to 38 percent at higher coverage levels.
    Due to the higher premium, the dollar value of the subsidy is 
greater at higher levels of coverage than at lower levels of coverage. 
To avoid too great an impact, the proposed reduction of these higher 
levels of coverage is less. However, it is inevitable that a small 
number of producers would reduce their crop insurance coverage level by 
a step (five percentage points) to offset the higher costs. However, 
these lower buy-up levels will still provide important risk protection.
    Another proposal to garner savings to offset the increased program 
costs is to restructure the administrative fee producers pay for 
catastrophic (CAT) coverage to better reflect the size of the farming 
operation. This would be accomplished by charging an administrative fee 
on CAT coverage equal to the greater of $100 or 25 percent of the CAT 
premium, up to a maximum of $5,000. There have been numerous complaints 
that some large producers are receiving millions of dollars of 
indemnity for $100, while small farmers get minimal benefits for their 
$100. This change makes the program more equitable between large and 
small producers. Currently, the CAT fee is $100 regardless of the 
amount of protection provided. In addition, the Administration's 
proposal would further increase direct payments to farm program 
participants. Hence, more money will be automatically placed in the 
hands of eligible producers, regardless of price and yield fluctuations 
over the course of the year. Producers will clearly be in a better 
financial position to afford crop insurance given the availability of 
the direct payments.

    Question 2. With the Administration's goal of improving the safety 
net for producers, how does the Administration's proposed change from a 
countercyclical payment based on price (from the 2002 Farm Bill) to one 
based on revenue, ensure a stronger safety net for producers of 
different commodities in different regions of the country? Do we know 
it will work the same for a corn producer in Iowa, versus a corn 
producer in Michigan? (Michigan Farm Bureau)
    Answer. The Administration's proposal would create a 
countercyclical program that is more responsive to actual conditions by 
replacing current price-based payments with revenue-based payments for 
program crops. Current price-based countercyclical payments are based 
on fixed program payment yields and acreages. Thus when market prices 
drop below the level that triggers a countercyclical payment, payments 
are made regardless of the level of yields.
    Since current countercyclical payments are not directly tied to 
actual yields, they may over-or-under compensate producers for annual 
fluctuations in market revenue. For example, when yields are above 
trend, causing market prices to decline, current countercyclical 
payments can over-compensate producers since higher yields offset some 
revenue lost from lower market prices. The opposite occurs when yields 
are below trend. In this situation, lower production can cause market 
prices to increase and countercyclical payments to decline--even to 
zero. However, because revenue per acre may change only slightly or 
even decrease as a result of declining yields per acre, revenue-based 
payments would be more responsive to actual conditions.
Questions Submitted By Hon. Bob Etheridge, a Representative in Congress 
        from North Carolina
    Question 1. Do you envision the 20% bonus in direct payments for 
beginning farmers potentially being shared with landowners in share 
rent situations when both the landowner and the tenant producer share 
in the risk of production--and hence are both eligible for farm 
payments--or should we establish this 20% bonus exclusively for the 
beginning farmers?
    Answer. We see no reason why the 20 percent bonus in direct 
payments for beginning farmers should be shared with landowners in 
share rent situations when both the landowner and the tenant producer 
share in the risk of production. We envision that a producer who meets 
the definition of a beginning farmer and who receives direct payments 
would receive a 20 percent increase in those payments under the 
Administration's direct payment bonus for beginning farmers.

    Question 2. Last week at the Senate hearing, Dr. Collins said there 
were about 38,000 Schedule F and Form 4835 filers who have AGIs over 
$200,000 and who receive farm payments. This is the universe that would 
be affected by the proposed $200,000 cap. Will USDA be asking the IRS 
to analyze how many of those tax filers would see negative AGIs if you 
eliminated the farm payments from their tax returns?
    Answer. The Administration has proposed to reduce the AGI 
eligibility cap for receiving farm commodity and other payments from 
$2.5 million to $200,000 in order to make the distribution of payments 
more equitable and prevent payments from going to the wealthiest 
Americans. As you correctly point out, there were about 38,000 Schedule 
F and Form 4835 filers or about 1.4 percent of all Schedule F and Form 
4835 filers in 2004 who had and AGI over $200,000 and who receive farm 
payments. We do not know how many of those tax filers would have had 
negative AGIs if they were no longer eligible for farm program 
payments.

    Question 3. According to your proposal, the recommendation to set 
loan rates at 85% of recent prices is designed to provide a more 
market-based solution for setting loan rates and to avoid the 
unintended consequences of creating incentives for producers to plant 
one crop over another. If you intend a market-oriented approach to 
setting loan rates, how do you justify a cap on loan rates?
    Answer. From a broad policy perspective, we propose to continue 
support for production agriculture while shifting that support so the 
market, not the government, serves as the primary signal for what and 
how much America's farmers should produce. As you know, a significant 
component of our proposal is to lower loan rates from their current 
levels. This action would reduce non-market incentives that loan rates 
and consequent LDPs create for producers' crop mix and planting 
decisions. In turn, we propose shifting expected savings from the 
marketing assistance loan program to the direct payment program, 
thereby shifting increasingly to non-trade-distorting support.
    If prices for commodities remain relatively high, then the maximum 
loan rates we propose will continue to provide revenue support, albeit 
at lower levels, and provide a vehicle for producers to obtain interim 
financing. However, if one commodity's market value falls to levels 
near or below the loan rate, the Department considers it appropriate to 
lower its support level (i.e., to 85% of the Olympic average) relative 
to those of other commodities. In so doing, we would reduce the 
program-based incentive for producers to continue planting and 
harvesting a commodity that the market has consistently valued at a 
relatively low level.
    Our proposals would leave the safety net for American producers 
intact, but the market, not the government, would increasingly serve as 
the signal for what and how much to produce.
    Congress would appear to agree with these arguments for capping 
loan rates, since caps on loan rates have been included in both the 
1996 and 2002 Farm Bills as well as other farm bills. The caps on 
marketing assistance loan rates contained in the Administration's 2007 
Farm Bill proposals were included in the House-passed version of the 
2002 Farm Bill.

    Question 4. Some commodity groups have criticized the current 
target prices for the countercyclical program as being too low. Yet the 
Department used those same target prices for its revenue-based counter 
cyclical proposal. Was there any consideration to changing the target 
prices to more closely reflect relative crop prices and values? Why did 
you use these same target prices in your proposal?
    Answer. We reviewed the current target prices for all program crops 
and believe that current target prices combined with the 
Administration's countercyclical revenue payment proposal along with 
the Administration's other proposals to improve the commodity, 
conservation, trade, credit, research, energy and miscellaneous titles 
of the farm bill will provide an adequate safety net for farmers and 
ranchers.

    Question 5. Many of your recommendations for the commodity title 
appear to be based on the assumption that the U.S. will lose its 
pending appeal with Brazil regarding cotton. Is it the Administration's 
expectation that we will lose this appeal?
    Answer. In shaping these farm bill proposals, our primary goal has 
been promoting good farm policy. This means a more market-oriented 
approach that is predictable and balanced, an approach that provides 
farmers and ranchers with a safety net, yet doesn't distort market 
signals.
    We believe that steps we have taken regarding GSM credit programs 
and the elimination of the Step 2 program sufficiently address the WTO 
cotton panel findings and recommendations regarding prohibitive export 
subsidies and serious prejudice. Arguments by Brazil and the United 
States were made before a compliance panel in Geneva on February 27&28, 
2007. A decision by the compliance panel is not expected until summer.

    Question 6. We have heard much from fruit and vegetable growers 
about the potential consequences to their industry should the planting 
prohibitions on program base acres be removed, as you proposed. Without 
the prohibitions in place, the utility of program base acres increases, 
and likewise the value of those acres. Additionally, fruit and 
vegetable growers will now have an incentive to seek out these acres 
for their plantings or else suffer a potential competitive disadvantage 
to competitors that do grow on program base acres. It seems this could 
exacerbate the whole high land value, high rent problem. Has USDA 
looked at the consequences on land values and rents for program crop 
acres' should the planting prohibitions be lifted? Are the consequences 
previously described not a possibility?
    Answer. The adverse ruling in the WTO cotton dispute necessitates 
removing the planting flexibility limitations. Overall, the market 
effects of eliminating restrictions are likely to be small for most 
fruits and vegetables. In November 2006, USDA's Economic Research 
Service published a study entitled ``Eliminating Fruit and Vegetable 
Planting Restrictions: How Would Markets Be Affected?'' This study 
provides information on the effects of eliminating the planting 
restrictions from a farm, regional, and national perspective.
    The USDA proposal contains significant funding increases and policy 
changes in various assistance programs, value-added programs, and 
research programs that are targeted to specialty crop producers. A few 
specific examples include--an annual $100 million competitive grant 
program specifically geared toward specialty crops research; an 
additional $275 million annually in Section 32 purchases of fruits and 
vegetables; an additional $50 million in annual spending for purchases 
of fruits and vegetables through the National School Lunch Programs; 
and significant increases in both the Market Access Program and the 
Technical Assistance for Specialty Crops Program.
    Additionally, 85 percent of total farm family income is from 
nonfarm sources. By investing in rural America through programs outside 
the commodity title, the USDA proposal provides support that aids 
agricultural producers regardless of their farm size, the crops they 
raise, or their income. USDA's rural development and energy proposals 
alone would infuse over $2 billion into rural communities, including 
$1.6 billion to complete reconstruction and rehabilitation of over 
1,200 rural critical access hospitals and $4 billion in Business and 
Industry Loans to create jobs and invest in value-added businesses.
    By providing bonus direct payments and other incentives for 
beginning and socially disadvantaged farmers, USDA's proposal will help 
those who are under-represented in production agriculture and generally 
have difficulty entering the business due to economies of scale, high 
land values and rental rates, and lack of capital. In addition to the 
direct payment bonuses, the USDA proposal targets a significant portion 
of conservation programs and loan programs to beginning and socially 
disadvantaged farmers.
    USDA's proposed Adjusted Gross Income eligibility requirement and 
program payment attribution will help ensure that those most in need 
receive assistance, while the nation's largest and most wealthy are 
graduated from direct subsidy programs.

    Question 7. One of your proposals in the payment and eligibility 
limits section calls for new rules that strengthen requirements for the 
active management contribution to an operation that allows individuals 
to qualify for commodity payments without contributing labor to the 
operation. Who are you targeting with these stronger requirements? Why 
can't these new rules be implemented administratively through rule 
making?
    Answer. The current rule on what constitutes a significant 
contribution of active personal management provides that the 
determination takes into consideration whether the claimed management 
is critical to the profitability of the farming operation, considering 
the individual's share. Problems can arise when multiple individuals 
claim that they are jointly providing critical contributions of active 
personal management. It is common to see claims that all contributions 
of active personal management in a farming operation are being provided 
jointly by all of the members of the farming operation. It is asserted 
that the members meet or otherwise communicate with each other and 
jointly make decisions which are critical to the profitability of the 
farming operation. When farming operations are structured to maximize 
eligibility for payments and include multiple entities involving the 
same individuals, these assertions strain credibility, but can be 
difficult to disprove.

    Question 8. How does USDA ensure farmers are complying with the 
current AGI limit, and what new rules and procedures do you want to 
institute to ensure compliance, as your proposal recommends?
    Answer. Under current procedures, an individual or entity subject 
to the average AGI limitation must either: provide a statement from a 
certified public accountant or an attorney that the average AGI does 
not exceed the limitation; or certify that their average AGI does not 
exceed the limitation. The reviewing authority may request tax records 
and other documentation if they question the accuracy of the 
certification. Additionally, cases are selected for review as part of a 
nation-wide selection. We would implement similar procedures under the 
proposal.

    Question 9. Can you please explain your rationale for leaving the 
AGI limit for conservation payments the same, and how you reconcile 
that with your reasons for changing the AGI limit for farm safety net 
payments?
    Answer. There are important differences between commodity programs 
and conservation programs which must be taken into consideration. 
First, commodity programs relate directly to income connected with the 
farming or ranching operation. As Farm Bill Forum input indicated, and 
our analysis further verified, there is a current imbalance of 
commodity program distribution under current law. Conversely, 
conservation programs currently have a more even distribution across 
farms of all acreage and size. In fact, most conservation programs are 
connected with small and mid-size farming operations. Under 
conservation programs, the government is either sharing in the cost of 
a particular conservation practice, purchasing an easement, or 
receiving some sort of new conservation benefit. In the end, wildlife 
and natural resources do not recognize property boundaries, political 
boundaries or differences in income. We want to seek out the greatest 
environmental benefits that can be purchased on behalf of the entire 
nation.

    Question 10. Does the Department have projections for budget 
outlays for your proposed changes to direct payments, countercyclical 
payments, and marketing loans divided by commodity? Can you tell us in 
the aggregate how much cotton, rice, wheat, corn, and soybeans would 
receive under your proposal as compared to the January 2007 baseline? 
What are your price projections for these crops?
    Answer. The Department does have projections for budget outlays for 
the proposed changes to direct payments, countercyclical payments and 
marketing loans divided by commodity. The estimated change in total 
payments by crop year under the Administration's proposals compared to 
the FY 2008 President's Budget baseline for corn, wheat, upland cotton, 
rice and soybeans are as follows:

----------------------------------------------------------------------------------------------------------------
               2008/09   2009/10   2010/11   2011/12   2012/13   2013/14   2014/15   2015/16   2016/17   2017/18
----------------------------------------------------------------------------------------------------------------
----million dollars----
----------------------------------------------------------------------------------------------------------------
      Corn         ^72       ^70       103        96        81       ^69       ^77       ^79       ^91       ^91
     Wheat         ^40       ^40        53        56        58       ^18       ^16       ^15       ^12       ^12
  Soybeans         ^43       ^47       ^21       ^56       ^77      ^138      ^150      ^147      ^160      ^160
    Upland        ^268      ^314      ^343      ^343      ^418      ^336      ^438      ^425      ^562      ^562
    Cotton
      Rice         ^15       ^15        21        22        23        ^6        ^6        ^5        ^4        ^4
----------------------------------------------------------------------------------------------------------------

    The price projections for these crops under the Administration's 
2007 Farm Bill proposals and under the FY 2007 President's Budget 
baseline are as follows:

----------------------------------------------------------------------------------------------------------------
               2008/09   2009/10   2010/11   2011/12   2012/13   2013/14   2014/15   2015/16   2016/17   2017/18
----------------------------------------------------------------------------------------------------------------
----million dollars----
----------------------------------------------------------------------------------------------------------------
      Corn        3.50      3.60      3.35      3.20      3.15      3.10      3.05      3.05      3.00      3.00
     Wheat        4.25      4.20      4.30      4.35      4.35      4.40      4.45      4.45      4.45      4.45
  Soybeans        7.10      7.10      6.75      6.45      6.35      6.30      6.25      6.30      6.20      5.95
    Upland         N/A       N/A       N/A       N/A       N/A       N/A       N/A       N/A       N/A       N/A
    Cotton
      Rice        8.95      9.20      9.35      9.41      9.43      9.50      9.50      9.70      9.83      9.96
----------------------------------------------------------------------------------------------------------------
                                ----Administration's 2007 Farm Bill Proposal----
----------------------------------------------------------------------------------------------------------------
      Corn        3.50      3.60      3.35      3.20      3.15      3.10      3.05      3.05      3.00      3.00
     Wheat        4.25      4.20      4.30      4.35      4.35      4.40      4.45      4.45      4.45      4.45
  Soybeans        7.12      7.11      6.75      6.45      6.35      6.31      6.26      6.31      6.22      5.97
    Upland         N/A       N/A       N/A       N/A       N/A       N/A       N/A       N/A       N/A       N/A
    Cotton
      Rice        8.94      9.20      9.35      9.41      9.43      9.49      9.49      9.69      9.84      9.95
----------------------------------------------------------------------------------------------------------------
N/A--The Department is prohibited by law from publishing price projections for cotton.


    Question 11. Your proposal states ``loan rates guarantee farmers a 
`safety net' per unit'' of covered commodities. But if the loan rate 
becomes set at 85% of a commodity's previous 5 year Olympic average, 
what happens to the loan rate and the utility of it as a safety net if 
the commodity experiences a prolonged period of low prices?
    Answer. The loan rate would continue to serve as a safety net in a 
period of low prices. Because the loan rate is a 5 year average, it 
takes years for it to adjust to a prolonged, lower level of market 
prices. During that adjustment period, the loan rate may actually be 
above the market clearing, or market equilibrium, price. Such a 
situation should be temporary, if the loan rate is supposed to help 
stabilize markets but not distort price signals. Once the loan rate 
fully adjusts to the lower price levels, it would still support farm 
prices received by producers, because prices may be quite variable 
within a year. A move to a new, prolonged period of lower market prices 
may have many causes. If the move reflects increases in long-run 
productivity, reductions in production costs, or changes in global 
competitive positions, the new lower prices may reflect a new, expected 
and sustainable level of market prices. In that case, it would be 
inappropriate to keep the loan rate reflective of past market prices 
and artificially high, because it would be inconsistent with the new 
price equilibrium. It would be appropriate to set the loan below the 
historical average of past prices, as we have proposed, to prevent an 
unduly high loan rate from interfering with market-based decisions of 
producers. Moreover our countercyclical revenue proposal is structured 
to provide greater income protection in a less production distorting 
way as the loan rate is reduced.

    Question 12. I assume you have consulted with USTR to determine how 
your proposed changes would be classified by the WTO and whether the 
result would be in compliance with our current WTO obligations. What 
has USTR told you about your changes to the commodity title? In the 
absence of an effective Peace Clause what assurance can you provide 
that if Congress adopts the Administration's commodity title in its 
entirety that the programs could be successfully defended in the WTO?
    Answer. The proposals we have outlined are not only good farm 
policy but would diminish any possible trade distortions, which is the 
concern addressed by the current WTO rules. For example, the marketing 
loan program is a major contributor to the so-called ``amber box,'' 
measures that are considered more than minimally trade distorting. Our 
proposal will reduce budget outlays under that program. At the same 
time, our proposal would increase direct payments and would remove 
planting restrictions on base acres. The increased planting flexibility 
better reflects the considerations underlying the WTO rules for so-
called ``green box'' (non- or minimally-trade distorting programs). 
Conservation and environmental programs are also entirely consistent 
with WTO rules for green box programs. Our proposal would increase that 
funding. On balance, we think these proposals move U.S. farm policy in 
the right direction in terms of the WTO rules; they minimize possible 
trade distortions in our programs, decrease funding under programs in 
the amber box, and replace it with funding under non- or minimally-
trade distorting (``green box'') programs. Having said that, there is 
no question that the protections provided by a peace clause are 
significant. Yet another reason a successful conclusion to the Doha 
Round is so important.

    Question 13. Secretary Johanns has stated publicly on more than one 
occasion that wheat growers did not get a fair shake in the last farm 
bill. The Department's proposal includes a $.04 increase in the direct 
payment rate for wheat that only comes in the out years. Is this 
increase sufficient to restore fairness to wheat growers?
    Answer. During the 2002&06 crops, wheat producers have experienced 
stronger market prices relative to other commodities. For example, 
wheat producers received an average farm price of $3.60 per bushel 
during the 2002&06 crops, compared with just $2.78 per bushel during 
1997&2001 prior to the enactment of the 2002 Farm Bill. This represents 
a 29 percent increase in average prices for wheat, compared with lesser 
increases for other crops (20 percent for corn, 22 percent for 
soybeans, eight percent for rice, and a two percent decline for 
cotton).
    To enhance the safety net for all producers of program crops, the 
Administration's farm bill proposal modifies the countercyclical 
payment program to make it responsive to not only prices but also 
yields. Thus, if targeted wheat revenue per acre falls below prescribed 
levels, producers will receive revenue-based countercyclical payments. 
Had the Administration's proposal been adopted in the 2002 Farm Bill, 
wheat producers would have received about $810 million more in payments 
over the 2002&06 crop years under the Administration's proposal than 
they received under the 2002 Farm Bill's commodity programs.

    Question 14. Wheat growers do not expect to receive a 
countercyclical payment for the 2006 crop. Given your best estimates 
for the season average price for wheat for 2006, would wheat growers 
have received a payment had your countercyclical revenue program been 
in place?
    Answer. The Administration feels very strongly that its 2007 Farm 
Bill proposals treat all commodities fairly. The formulae for computing 
each safety net benefit are the same for each eligible commodity. 
Providing the same program structure across all commodities is a fair 
way to assure equitable treatment of all eligible commodities. In 
addition target prices and program yield factors used to determine 
program benefits are those used in previous farm legislation. For wheat 
producers specifically, the Administration has estimated that benefits 
received under the proposed safety net structure would have resulted in 
increased payments of $810 million for the 2002&06 crops, compared with 
payments received under the 2002 Farm Bill's direct payment, 
countercyclical payment and marketing assistance loan programs. 
Payments for 2006 would have been $81 million higher under our proposal 
than under the current law.

    Question 15. Why did the Administration determine that the 75% 
farm, ranch or forestry income exemption be eliminated?
    Answer. The Administration believes the AGI should be administered 
on the basis of income from all sources. Tax filers with AGI of 
$200,000 or more are the highest income people in the United States. 
The Administration believes that those with incomes at the level, 
regardless of source, should be able to succeed with out farm program 
assistance.
Questions Submitted By Hon. K. Michael Conaway, a Representative in 
        Congress from Texas
    Question 1. Mr. Secretary, you state that your farm bill proposal 
is intended to address situations where farmers lose their crop but 
still do not receive help under the farm bill. However, you also 
propose to make $2.5 billion in cuts to the Federal Crop Insurance 
Program which is intended to deal with crop loss situations (p. 183). 
The idea of permitting supplemental insurance that is triggered on an 
area-wide basis on top of individual coverage (p. 151) has merit in 
meeting the risk management needs of farmers and is worth exploring. 
But, the $2.5 billion in cuts I believe will result in higher farmer 
paid premiums and less affordable coverage levels to farmers. How would 
you respond to this?
    Answer. Only part of the $2.5 billion in savings will have a direct 
effect on farmer paid premiums. One proposal that directly affects 
farmer paid premiums is to trim premium subsidies by five percentage 
points for coverage levels of 70 percent or below and by two percentage 
points for coverage levels of 75 percent or higher. Current subsidy 
rates vary by coverage level ranging from about 67 percent at lower 
coverage levels to 38 percent at higher coverage levels. After the 
proposed changes to the subsidy rates, the dollar value of the subsidy 
will still be greater at higher levels of coverage than at lower levels 
of coverage because premiums are greater at higher coverage levels. 
Despite this, it is expected that some producers will scale back their 
coverage level by one step (five percentage points) to offset the 
effects of the proposed reduction in subsidy rates. However, the 
coverage provided should still provide a valuable risk management tool.
    Another proposal that directly impacts farmer paid premiums is a 
revision to the fee charged for catastrophic (CAT) coverage. Currently, 
farmers may obtain CAT coverage for $100, regardless of the dollar 
amount of insurance obtained. This proposal would allow the fee for CAT 
coverage to vary according to the dollar amount of insurance obtained. 
This change makes the program more equitable between large and small 
producers.

    Question 2. Mr. Secretary, the Administration's plan states that 
higher direct payments and revenue-based countercyclical payments will 
help make up for cuts in cotton loan rates. However, the yield base for 
these payments is well below current yields. How will this be 
addressed?
    Answer. Under the Administration's farm bill proposals, the decline 
in payments to cotton producers from lowering the loan rate is offset 
by increasing direct payments for cotton. While the yield used to 
determine these payments is below current yields, the payment rate for 
direct payments is adjusted to compensate cotton producers for the loss 
in payments from reducing the cotton loan rate.

    Question 3. Mr. Secretary, you propose in your farm bill proposal 
that Congress give the Secretary of Agriculture expanded authority to 
adjust farm policy not only to comply with existing trade commitments--
as was allowed for under the 2002 Farm Bill--but also any future trade 
agreements (p. 38). Does this mean that Congress could pass a 2007 Farm 
Bill, and then the Secretary could unilaterally change existing farm 
law to comply with the new trade agreement(s)?
    Answer. The current circuit breaker provision authorizes the 
Secretary of Agriculture to make adjustments in the amount of certain 
expenditures during a particular period to ensure that the United 
States does not exceed ``the total allowable domestic support levels 
under the Uruguay Round Agreements.'' This revision also authorizes 
adjustment of payments. As the statutory language of the current 
circuit breaker provision is explicitly limited solely to the Uruguay 
Round Agreements, however, by definition it could not apply to domestic 
support levels that may be agreed to under the current Doha Round 
negotiations (or any other World Trade Organization agreement). 
Consequently, we believe this change would simply facilitate 
implementation of any agreement that may succeed the Uruguay Round 
Agreements.

    Question 4. Mr. Secretary, I noticed that your proposal does not 
impose a reformed AGI test on conservation programs. Why has the USDA 
taken the position that an individual's AGI is not relevant with regard 
to conservation programs versus commodity programs?
    Answer. There are important differences between commodity programs 
and conservation programs which must be taken into consideration. 
First, commodity programs relate directly to income connected with the 
farming or ranching operation. As Farm Bill Forum input indicated, and 
our analysis further verified, there is a current imbalance of 
commodity program distribution under current law. Conversely, 
conservation programs currently have a more even distribution across 
farms of all acreage and size. In fact, most conservation programs are 
connected with small and mid-size farming operations. Under 
conservation programs, the government is either sharing in the cost of 
a particular conservation practice, purchasing an easement, or 
receiving some sort of new conservation benefit. In the end, wildlife 
and natural resources do not recognize property boundaries, political 
boundaries or differences in income. We want to seek out the greatest 
environmental benefits that can be purchased on behalf of the entire 
nation.

    Question 5. Mr. Secretary, an AGI cap like the one you propose 
makes it very difficult for a lender to measure cash flows from year to 
year. How and when will lenders know if a farmer qualifies for payments 
each year? In the absence of current tax returns, how can it be 
determined if a farmer qualifies for payments in the next operating 
year?
    Answer. The $200,000 limitation would be based on the average AGI 
for the previous 3 years, just as is the case with current $2.5 million 
limitation. Persons who are unsure whether their average AGI will 
exceed the limitation (because they haven't filed their tax return for 
the last year) should either delay signing up for a benefit until they 
are sure of their average AGI or be prepared to repay benefits if their 
average AGI does, in fact, exceed the limitation.

    Question 6. Mr. Secretary, since an S-corporation reports an AGI, 
but a C-corporation does not, is a C-Corp exempt from the AGI 
limitation?
    Answer. A C-corporation is not exempt from the proposed Adjusted 
Gross Income (AGI) limitation. A C-corporation has a reported net 
income. Under the current $2.5 million AGI eligibility criterion, the 
AGI for a corporation is defined as the total of final taxable income 
and any charitable contributions reported to the Internal Revenue 
Service on form 1120 or comparable forms.

    Question 7. Mr. Secretary, an AGI is a calculated value net of all 
operating expenses. But this does not take into account the principal 
portion of a taxpayer's debt service. A $200,000 AGI max would severely 
limit the ability of a loan customer to meet principal debt repayment 
on land and equipment. Since the announcement of your proposal, are you 
hearing concerns regarding some of the potential unintended 
consequences?
    Answer. We do not believe that the Administration's 2007 Farm Bill 
proposal to decrease the AGI eligibility cap for farm commodity program 
payments from the current $2.5 million to $200,000 would severely limit 
the ability of a loan customer to meet principal debt repayment on land 
and equipment. We have not heard from producers or farm credit lenders 
that the proposal would reduce the ability of producers to repay farm 
real estate and operating loans. Expensing and depreciating are 
subtracted from gross farm income when calculating AGI, which reduces 
AGI for those who have financed the purchase of eligible assets.

    Question 8. Mr. Secretary, at the Senate Agriculture Committee 
hearing on renewable fuels, either you or your Chief Economist, Keith 
Collins mentioned that the USDA is excited about the role of sweet 
sorghum in the ethanol industry. What role or how large of a role does 
USDA envision sorghum playing in starched-based renewable fuels 
industry? Could you provide me with additional details on what role 
USDA expects sweet sorghum to play in the industry? Are there ag 
policies or programs at USDA that you intend to change or promote 
sorghum production as a local feedstock for the local renewable fuels 
industry?
    Answer. The idea of using sweet sorghum for commercial ethanol 
production is not new, and there are many benefits of using sweet 
sorghum. Sweet sorghum is a low input, high carbohydrate crop that can 
be cultivated in nearly all temperate climates. In addition, each acre 
of sweet sorghum could yield between 500 to 800 gallons of ethanol, 
which is larger than the ethanol yield from corn.
    The reason sweet sorghum is not a popular source of ethanol is due 
to the high costs associated with constructing and operating a central 
processing plant. While starch can be stored for long periods of time, 
the simple sugars directly derived from sweet sorghum are quite 
perishable and have to be fermented immediately. In addition, the 
harvest season for sweet sorghum is only a few months and since sorghum 
juice cannot be easily stored, ethanol production would be limited to a 
few months a year making its use generally uneconomic compared with 
corn.
    However, researchers at the USDA&ARS Sugarcane Research Laboratory 
in Houma, Louisiana have found that it may be possible to plant sweet 
sorghum during the spring and summer months on fallowed sugarcane 
fields for use as a complementary biofuel feedstock. The integration of 
these two crops could assure a continuous supply of feedstock to the 
ethanol producer.
    In 2005, as part of the Biomass Research and Development 
Initiative, USDA provided a $1.9 million grant to the Tampa Bay Area 
Ethanol Consortium for the implementation of a scale-up pilot plant 
demonstration facility. This project will demonstrate how the 
production, harvest, transportation, storage, handling and conversion 
of multiple feedstocks compatible with the climate and soil of Florida 
can be managed to economically produce ethanol. The project will focus 
on the development of a flexible-feedstock process that will enable the 
use of a combination of several feedstocks, including citrus pulp and 
peel waste, sweet sorghum, and nonfood, high starch sweet potatoes to 
enable stable-year-round ethanol production. This entails designing and 
constructing a 2 million gallon per year flex-feed ethanol plant.
    Therefore, while sweet sorghum will not likely replace corn as the 
feedstock of choice for ethanol production in the United States, we 
believe it has the potential to complement other feedstocks and allow 
regions of the country that may not be efficient corn producers to 
enter the ethanol market.
Questions Submitted By Hon. Stephanie Herseth, a Representative in 
        Congress from South Dakota

    Question 1. Mr. Secretary, I am pleased to see that the 
Administration's 2007 Farm Bill proposal would reauthorize the Rural 
Broadband Loan Program. As you know, this valuable program provides 
access to advanced telecommunications services to many parts of South 
Dakota and other rural areas throughout the country. However, while I 
support the program's goals, I am concerned that the focus of the 
program has lost its focus on rural, unserved areas. As we work to 
write a new farm bill, I look forward to working with you, in the 
coming months, to address these concerns. In the USDA FY 2008 Budget 
Summary (page 44), you explain that ``Regulations are being changed to 
correct certain weaknesses that have become apparent since the program 
was established a few years ago. The new regulations will ensure that 
program funds are focused on rural areas that are lacking existing 
providers, and that applicants meet high enough standards to ensure 
long term success.'' May you please expand upon these comments? What 
specific changes are you proposing to make to the RUS Broadband Loan 
Program in the 2007 Farm Bill that will address the ``unserved'' issue? 
Will the funds granted by the continuing resolution for FY 2007 still 
be made available to providers to serve already served communities this 
fiscal year, or will the regulation changes you propose apply to 2007 
funds?
    Answer. We share your assessment that broadband is a critical 
component to the future of rural America. The Broadband programs have 
moved us closer to achieving this vision. Through more than $1.1 
billion in loans for broadband deployment more than 1,000 rural 
communities will receive broadband service. Approximately 40 percent of 
these communities had no broadband service at the time the loan was 
approved, and an additional 20 percent had limited access to broadband 
services. Currently, eight projects have been completed (Kansas, 
Louisiana, Michigan, North Dakota, Nebraska, South Dakota, Texas and 
Washington), 37 are in progress, and 13 more are getting started.
    Even with this level of success, the program needs to be adjusted 
to better serve unserved or underserved communities. In response, we 
are proposing new rules that seek to address this and other critical 
issues, and further facilitate the deployment of broadband service in 
rural America as directed by Congress.
    While we have placed a priority on projects that target unserved 
communities, the competitive nature of the broadband market, coupled 
with lower densities and higher cost to serve these areas lead 
applicants to include other rural, but more densely populated areas in 
their proposals. The fact is we have not received an application in the 
loan program proposing to serve only unserved areas.
    With regard to our proposed regulations, we are applying the 
lessons we have learned since the program's implementation in proposing 
new rules that seek to improve the program's support of unserved areas 
and other critical issues, and further facilitate the deployment of 
broadband service in rural America as directed by Congress. While we 
are not able to discuss the substance of the proposed regulations, the 
following is a summary of the major issues addressed by the proposed 
rulemaking:

    1. Establish requirements to provide service to un-served and 
        underserved areas;

    2. Establish criteria to exclude funding for broadband in certain 
        served areas;

    3. Provide potential applicants with a clear definition of which 
        communities are eligible for funding;

    4. Establish equity and cash requirements that mitigate risks; and

    5. Impose new time limits for build-out and deployment to ensure 
        prudent use of loan funds and timely delivery services to rural 
        customers.

    Until the new rules are final, Rural Development will accept and 
process applications under its current rules and regulations.

    Question 2. Mr. Secretary, USDA provides 18 cents per meal in 
school lunch commodities, but does not provide any commodities for the 
school breakfast program. Given the importance eating breakfast, we 
could support the breakfast program and support agriculture if USDA 
provided schools with commodities for breakfast. Would you support such 
an initiative? (The schools are seeking 10 cents per meal for 
breakfast.)
    Answer. USDA agrees that a good breakfast, at home or in school, is 
critical to good school performance and classroom behavior. We are 
pleased that USDA has seen an increase in student participation in the 
School Breakfast Program (SBP). Total breakfast participation increased 
from approximately 7.5 million in FY 2000 to nearly 9.8 million in FY 
2006.
    The Administration is committed to the continued success of the SBP 
and supports the Program in several ways. Although USDA does not 
provide commodity foods through the SBP specifically, school food 
authorities may elect to use commodities received through the National 
School Lunch Program, such as fresh, canned, dry and frozen fruit, to 
prepare healthful breakfasts. Schools can also obtain fruits and 
vegetables by purchasing fresh produce from the Department of Defense 
(DOD) to take advantage of lower food prices that come with DoD's bulk 
buying.
    Furthermore, the USDA's 2007 Farm Bill proposals would provide new 
mandatory funding for the purchase of additional fruits and vegetables 
for use in the National School Lunch and School Breakfast Programs. 
This $500 million of funding over 10 years represents a net increase in 
the total purchase of fruits and vegetables for school meals over 
levels available under any other authorities.
    Given these proposals and other existing resources available to 
schools for the SBP, the Department believes that providing additional 
funds for commodities is not necessary.
Questions Submitted By Hon. John R. ``Randy'' Kuhl, Jr., a 
        Representative in Congress from New York
    Question 1. I noticed with interest that your farm bill proposal 
includes several provisions for specialty crops. We grow a number of 
them in New York. We held a field hearing last summer in my district, 
and I think that many of my colleagues were surprised to learn that New 
York has agriculture! What I heard during that hearing from our 
specialty crop growers is that they face challenges like never before. 
From sky rocketing land costs to a near agriculture trade deficit, 
ever-increasing regulations and labor shortages, it is a new era and if 
we are to retain our domestic specialty crop industry we need to invest 
more money in programs designed to help them stay competitive. That is 
why last session I cosponsored H.R. 6193--The EAT Healthy America Act, 
and we are getting ready to reintroduce that bill very soon. Your 
proposal represents a step in the right direction, particularly the 
emphasis on research. However, there were some programs, which were 
missing, programs that I have heard a lot about from my growers. 
Specifically: Your proposal would increase funding by $50 million 
annually for schools to purchase fruits and vegetables. In announcing 
your farm bill proposal, you suggested that schools would have the 
option to choose whether to use these funds from among the fruit and 
vegetable snack program or school meal programs. However, your actual 
proposal appears to exclude the snack program. I hope it would be 
included. Can you please clarify your proposed use of this $50 million?
    Answer. The Administration's proposal is intended to support 
efforts to offer school meals based on the most recent Dietary 
Guidelines for Americans. In developing this proposal, the Department 
considered a range of approaches to increase the availability of fruits 
and vegetables in schools and ultimately selected the approach that has 
the potential to reach the greatest number of school-age children. 
Because most schools across the country participate in the National 
School Lunch Program (NSLP), targeting the fruits and vegetables to the 
NSLP will reach the greatest number of school children nationwide. On 
average, over 31 million children eat a school meal each school day. In 
contrast, if the same level of funding was directed toward the 
nationwide expansion of the Fresh Fruit and Vegetable Program (25 
schools in each state and select Indian and Tribal Organizations), 
approximately 650,000 children would benefit in about 1,325 schools.
    While the Department is not seeking to expand the Fresh Fruit and 
Vegetable Program, any USDA commodities provided to schools may be used 
for any purpose that is principally for the service of children, 
including snack programs operated by the school.

    Question 2. Your proposal does not include any funding for the 
Specialty Crop Block Grant Program. The block grant program, authorized 
under the Specialty Crop Competitiveness Act, provides funding to the 
state departments of agriculture to be used by grower groups and 
specialty crop producers for programs that enhance competitiveness.
    Answer. Authority extending through Fiscal Year 2009 already exists 
for the Specialty Crops Block Grant Program with nearly $14 million 
appropriated (FY 2006 and FY 2007) to fund it. Grants have been 
approved for six states, with several additional applications under 
review. Over the next 3 years we will have an opportunity to determine 
the effectiveness of funds provided in this manner.

    Question 3. In FY06, this program received $7 million in 
appropriations, or just over $100,000 for New York. Given our current 
budget constraints it is not realistic to expect a program like this to 
depend on the appropriations process each year. This is the kind of 
program that ought to receive mandatory funding (for stability and 
continuity) under the farm bill. This program recognizes the diversity 
of specialty crops from state to state, offering maximum flexibility 
for projects that support research, promotion, exports, consumer 
health, and food safety. Could you please explain why the 
Administration chose not to provide mandatory funding for this program?
    Answer. Authority extending through Fiscal Year 2009 already exists 
for the Specialty Crops Block Grant Program with nearly $14 million 
appropriated (FY 2006 and FY 2007) to fund it. Grants have been 
approved for six states, with several additional applications under 
review. Over the next 3 years we will have an opportunity to determine 
the effectiveness of funds provided in this manner.
    More broadly, the Administration strongly supports increased 
assistance to specialty crops. The Administration's 2007 Farm Bill 
proposals would change several titles to increase substantially the 
support to specialty crops, including greater mandatory funding. We 
believe these proposals, which target a series of mutually reinforcing 
changes to the conservation, trade, nutrition, rural development, 
energy, research and miscellaneous titles of the farm bill, provide the 
best, comprehensive set of programs to assist specialty crop producers. 
The Administration's 2007 Farm Bill specialty crop proposals would 
increase assistance to specialty crop producers by nearly $5 billion 
over the next ten years and include increased mandatory funding of $68 
million for Trade Assistance for Specialty Crops, increased mandatory 
funding of $250 million for non-program crops under the Market Access 
Program, increased mandatory funding of $500 million for fruit and 
vegetable purchases for the School Lunch Program, and increased 
mandatory funding of $1 billion for specialty crop research. Our 
proposals also include $2.75 billion for Section 32 specialty crop 
purchases for use in food assistance programs.
Questions Submitted Hon. Jim Costa, a Representative in Congress from 
        California

    Question 1. Mr. Nunes, and I, recently introduced a bipartisan bill 
to provide assistance to farmers and farm workers who have been 
impacted by this year's devastating freeze as well as 2005 and 2006 
natural disaster events. We respectfully request the Secretary's 
comment on this legislation.
    Answer. We assure you that USDA will continue to fulfill its 
commitment of using all existing resources to assist farmers and 
ranchers who are affected by natural disasters. A list of ongoing 
disaster programs, administered by FSA is available online at: http://
disaster.fsa.usda.gov. Should legislation be signed into law that 
authorizes broader assistance for losses resulting from natural 
disasters, USDA will work diligently to provide that assistance in an 
expedient manner.

    Question 2. Florida recently received Section 32 funding to cover 
losses incurred during the recent tornadoes. Will California growers be 
able to receive Section 32 funding to facilitate cleanup of the groves 
affected by the freeze?
    Answer. We have no plans at this time to utilize Section 32 funds 
for this purpose.

    Question 3. The Administration has indicated that pursuing clean, 
renewable energy is a priority for the 2007 Farm Bill. Much of the 
focus of the Administration's proposal is on cellulosic ethanol, which 
can be generated from a wide variety of crops. In the Administration's 
view, which crops show the most promise, and will most likely receive 
the most funding, for producing this fuel? Beyond cellulosic ethanol, 
what other biobased energy does the Administration suggest pursuing?
    Answer. As we attempt to grow the cellulosic ethanol industry as 
rapidly as is practical, choice of the feedstocks we emphasize will be 
very critical. They must be efficient in their conversion and must be 
easily and readily attainable. Several feedstocks show great long term 
promise, yet will require the establishment of a full scale production 
sector. At the present, we must keep our attention focused on 
cellulosic feedstocks with reliable near term availability. Contending 
feedstocks would be corn stover, rice and wheat stalks, wood pulp and 
residues, and yard residues.
    Rural Development agricultural economists have indicated that 
``Switchgrass is noteworthy for ethanol production because of its 
potential for high fuel yields, hardiness and ability to be grown in 
diverse areas'' (``From Grass to Gas'', Rural Cooperatives Magazine, 
Ethanol Issue, September/October 2006). They also indicate that the net 
gain from cellulose from a crop such as switchgrass could be triple 
that of corn, particularly because switchgrass can be grown with no 
``fertilizer, irrigation, or other energy intensive activities''. 
However, any plant crop or plan waste could be used in the production 
of cellulosic ethanol.
    From FY 2003 through FY 2006, USDA, in conjunction with the 
Department of Energy, has funded 55 research and development projects 
totaling $58.1 million under the Biomass Research and Development 
(Section 9008) grant program. The heaviest dollar investments outside 
of cellulosic ethanol have been in Feedstock Development ($18.3 
million), Bioproducts ($14.9 million), and Bioenergy Analysis ($12.2 
million), respectively. Also during the same time period, Rural 
Development has funded 846 grants and loans under the Renewable Energy 
Systems and Energy Efficiency (Section 9006) grant and guaranteed loan 
program where all loan guaranteed have been for renewable energy 
projects other than cellulosic ethanol. The heaviest dollar investments 
outside of ethanol production have been in Biomass ($47 million), Wind 
($33.5 million), and Anaerobic Digesters ($25.9 million). Any of these 
energy types may prove to be continued worthwhile investments.
    The Administration is also pursuing biodiesel as an alternative 
fuel. Biodiesel is a biobased alternative to fossil fuel that shows 
promise. Pure biodiesel emits 75 percent less carbon dioxide than 
petroleum diesel. Using a blend of 20 percent biodiesel to 80 percent 
petroleum diesel reduces carbon dioxide by 15 percent. And, biodiesel 
can be used in conventional diesel engines. From FY 2003 through FY 
2006, the Section 9008 program has provided $4.3 million for research 
and development in this field. Additionally, the Section 9006 program 
has provided $7.8 million in grant funding and $9.7 million in loan 
guarantees for biodiesel projects.

    Question 4. Your proposal would authorize and additional $500 
million in mandatory research funding for biobased energy over the next 
10 years. Will there be any process by which we can evaluate the 
effectiveness and the efficiency of these expenditures? How do you 
propose monitoring these projects to expedite the application of the 
science? Is there any oversight component to the grant process?
    Answer. USDA's intramural and extramural research programs both 
have strong mechanisms in place to ensure that expenditures under the 
Agricultural Bioenergy and Biobased Products Research Initiative will 
be carried out efficiently and effectively.
    For intramural programs, the Agricultural Research Service has an 
Office of Scientific Quality Review (OSQR). OSQR manages and implements 
the ARS peer review system for research projects, including peer review 
policies, processes and procedures. OSQR centrally coordinates and 
conducts panel peer reviews for project plans within ARS' National 
Programs every 5 years.
    The peer review process is an opportunity for researchers to obtain 
constructive feedback on ways to improve the scientific quality of 
their projects from their peers. The review criteria and project plan 
design policies assure that ARS research scientists develop carefully 
conceived project plans that focus on three key elements of research 
planning: (1) adequacy of approach and procedures, (2) probability of 
successfully accomplishing the project's objectives, and (3) merit and 
significance as it aligns with the National Program Action Plan.
    The Cooperative State Research, Education and Extension Service 
(CSREES) administers USDA's extramural competitive grant programs. 
CSREES utilizes a highly effective peer review process to ensure 
quality and relevance. Reviews are conducted by relevant subject matter 
experts in the areas of research, extension and education. Evaluation 
criteria include scientific merit, scientist qualifications, facility 
capacity, project planning and management and overall relevance.

    Question 5. Last week yet another case of BSE was confirmed in a 
Canadian bull. The past 2 years countries like Japan and Korea have 
rejected countless shipments of U.S. beef, citing safety concerns. 
Still the U.S. continues to allow cattle under the age of 30 months 
from Canada to enter the U.S. herd with no distinction as to its 
country of origin. If we are going to continue accepting shipments from 
a country with numerous cases of BSE, how do you propose to defend the 
safety of our beef products?
    Answer. USDA's efforts to reopen Asian export markets to U.S. beef 
remain a top priority. In our negotiations on this issue, we have 
consistently pressed for trade agreements that are based in sound 
science. Neither USDA's existing regulations nor the proposed rule 
concerning Canadian ruminant imports is being raised as an obstacle in 
our negotiations with Japan and South Korea, and we have received 
assurances from officials of both countries that the proposed rule will 
not affect these efforts. In 2004, a joint United States-Japan press 
statement regarding the resumption of trade in beef and beef products 
contained a provision indicating that ``additional BSE cases will not 
result in market closures and disruption of beef trade patterns without 
scientific foundations.''
    USDA believes it is vital that we continue to work to persuade our 
trading partners to adopt science-based trade policies that are 
consistent with international standards. We continue to believe that 
the most effective way to ensure trade in safe products is to base our 
own policies in sound science, and to encourage our trading partners to 
enter into trade agreements that are similarly based in sound science.
    In regards to identification, USDA requires that Canadian feeder 
cattle imported to the United States be branded--CAN--and identified as 
Canadian, age certified, enter in sealed vehicles, move as a group only 
to approved feedlots, and then move as a group under permit to 
slaughter before 30 months of age. For animals headed directly to 
slaughter, they are allowed to enter only at certain ports, be 
accompanied by appropriate certification, enter in sealed vehicles, 
sent only to approved slaughter facilities, and their ages are verified 
by FSIS personnel to ensure that they are under the 30 month age limit. 
Any animal that does not meet the identification or age requirements is 
condemned and does not enter the human or animal food chain. USDA and 
Canadian officials have and are working closely together to ensure that 
only animals and products that meet USDA requirements enter the United 
States.
    It is also important to note that the single most important thing 
we can do to protect human health regarding BSE is the removal from the 
food supply of specified risk materials (SRMs)--those tissues that, 
according to the available scientific evidence, could be infective in a 
cow with BSE. USDA's Food Safety and Inspection Service (FSIS) enforces 
this ban domestically and ensures that all countries exporting beef to 
the United States comply with the SRM ban. Likewise, the most 
significant step we can take to prevent the spread of BSE and bring 
about its eradication in the animal population is the ruminant-to-
ruminant feed ban. It is because of the strong systems the United 
States has put in place, especially these two essential firewalls, that 
we can be confident of the safety of our beef supply.
Response from Keith Collins, Ph.D., Chief Economist, U.S. Department of 
        Agriculture
Question Submitted By Hon. Collin C. Peterson, a Representative in 
        Congress from Minnesota
    Question. Last week at the Senate hearing, you said there were 
about 38,000 Schedule F and Form 4835 filers who have AGIs over 
$200,000 and who receive farm payments. This is the universe that would 
be affected by the proposed $200,000 cap. Did USDA ask the IRS how many 
of those tax filers would have negative AGIs if you eliminated the farm 
payments from their tax returns?
    Answer. The Administration has proposed to reduce the AGI 
eligibility cap for receiving farm commodity and other payments from 
$2.5 million to $200,000 in order to make the distribution of payments 
more equitable and prevent payments from going to the wealthiest 
Americans. As you correctly point out, there were about 38,000 Schedule 
F and Form 4835 filers or about 1.4 percent of all Schedule F and Form 
4835 filers in 2004 who had and AGI over $200,000 and who received farm 
payments. We do not know how many of those tax filers would have had 
negative AGIs if they were no longer eligible for farm program 
payments.
    Most farm sole proprietors affected by the proposed $200,000 cap 
are subject to the cap because of their off-farm income. Based on 2004 
Internal Revenue Service tax information, three out of four farm sole 
proprietors with an AGI of $200,000 or more reported a farm loss. For 
those with an AGI between $200,000 and $1 million and a positive farm 
income, their average farm income was $38,700.
    In addition, less than two percent of crop share landlords would be 
subject to the cap. The average payment received by these landlords was 
only $5,430 in 2004. Since some of these payments are conservation 
payments, the actual number affected and the average payments would be 
even lower.


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