[Senate Hearing 110-30]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 110-30
 
                           DISCUSSION OF THE

                     U.S. DEPARTMENT OF AGRICULTURE

                           FARM BILL PROPOSAL
=======================================================================




                                HEARING

                              [before the]

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               ----------                              

                            FEBRUARY 7, 2007

                               ----------                              

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

  DISCUSSION OF THE U.S. DEPARTMENT OF AGRICULTURE FARM BILL PROPOSAL


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


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




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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

                       TOM HARKIN, Iowa, Chairman

PATRICK J. LEAHY, Vermont            SAXBY CHAMBLISS, Georgia
KENT CONRAD, North Dakota            RICHARD G. LUGAR, Indiana
MAX BAUCUS, Montana                  THAD COCHRAN, Mississippi
BLANCHE L. LINCOLN, Arkansas         MITCH McCONNELL, Kentucky
DEBBIE A. STABENOW, Michigan         PAT ROBERTS, Kansas
E. BENJAMIN NELSON, Nebraska         LINDSEY GRAHAM, South Carolina
KEN SALAZAR, Colorado                NORM COLEMAN, Minnesota
SHERROD BROWN, Ohio                  MICHEAL D. CRAPO, Idaho
ROBERT P. CASEY, Jr., Pennsylvania   JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota             CHARLES E. GRASSLEY, Iowa

                Mark Halverson, Majority Staff Director

                      Robert E. Sturm, Chief Clerk

            Martha Scott Poindexter, Minority Staff Director

                Vernie Hubert, Minority General Counsel

                                  (ii)


                            C O N T E N T S

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                                                                   Page

Hearing(s):

Discussion of the U.S. Department of Agriculture Farm Bill 
  Proposal.......................................................     1

                              ----------                              

                      Wednesday, February 7, 2007
                    STATEMENTS PRESENTED BY SENATORS

Harkin, Hon. Tom, a U.S. Senator from Iowa, Chairman, Committee 
  on Agriculture, Nutrition and Forestry.........................     1
Chambliss, Hon. Saxby, a U.S. Senator from Georgia...............     2

                                Panel I

Johanns, Hon. Michael, Secretary of Agriculture, U.S. Department 
  of Agriculture, Washington, DC; accompanied by Keith Collins, 
  Chief Economist, U.S. Department of Agriculture, Washington, 
  DC; and Charles Conner, Deputy Secretary of Agriculture, U.S. 
  Department of Agriculture, Washington, DC......................     4
                              ----------                              

                                APPENDIX

Prepared Statements:
    Cochran, Hon. Thad...........................................    62
    Crapo, Hon. Micheal D........................................    65
    Salazar, Hon. Ken............................................    67
    Johanns, Hon. Michael........................................    69
Document(s) Submitted for the Record:
Johanns, Hon. Michael:
    Written response to questions from Hon. Tom Harkin...........    86
``2007 Farm Bill Proposals'', U.S. Department of Agriculture.....    90
Question and Answer:
Harkin, Hon. Tom:
    Written questions for Hon. Michael Johanns...................   276
Baucus, Hon. Max:
    Written questions for Hon. Michael Johanns...................   287
Chambliss, Hon. Saxby:
    Written questions for Hon. Michael Johanns...................   289
Crapo, Hon. Mike:
    Written questions for Hon. Michael Johanns...................   299
Grassley, Hon. Charles:
    Written questions for Hon. Michael Johanns...................   300
Lincoln, Hon. Blanche L.:
    Written questions for Hon. Michael Johanns...................   302
Lugar, Hon. Richard G.:
    Written questions for Hon. Michael Johanns...................   303
Nelson, Hon. E. Benjamin:
    Written questions for Hon. Michael Johanns...................   305
Roberts, Hon. Pat:
    Written questions for Hon. Michael Johanns...................   307
Salazar, Hon. Ken:
    Written questions for Hon. Michael Johanns...................   308
Thune, Hon. John:
    Written questions for Hon. Michael Johanns...................   311
Johanns, Hon. Michael:
    Written response to questions from Hon. Mike Crapo...........   313
    Written response to questions from Hon. Patrick J. Leahy.....   314
    Written response to questions from Hon. Ken Salazar..........   316
    Written response to questions from various Senators..........   318



                           DISCUSSION OF THE



                     U.S. DEPARTMENT OF AGRICULTURE



                           FARM BILL PROPOSAL

                              ----------                              


                      Wednesday, February 7, 2007

                                       U.S. Senate,
                                  Committee on Agriculture,
                                   Nutrition, and Forestry,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 9:20 a.m., in 
room SD-106, Dirksen Senate Office Building, Hon. Tom Harkin, 
Chairman of the committee, presiding.
    Present or submitting a statement: Senators Harkin, Leahy, 
Lincoln, Stabenow, Nelson, Salazar, Brown, Casey, Klobuchar, 
Chambliss, Lugar, Cochran, Roberts, Coleman, Crapo, Thune, and 
Grassley.

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

    Chairman Harkin. Good morning. The Senate Committee on 
Agriculture, Nutrition and Forestry will come to order.
    This morning, we are pleased to welcome the Secretary of 
Agriculture, Mike Johanns, to explain and answer questions 
about the Administration's proposals for the 2007 farm bill. We 
again welcome Deputy Secretary Chuck Conner and Chief Economist 
Keith Collins, accompanying the Secretary.
    You know, we commonly refer to the, quote, ``farm bill,'' 
when in fact that term captures only a fraction of what the 
legislation is called upon to address. All Americans have a 
stake in the farm bill. Its scope extends from helping 
agricultural producers to conserving our natural resources, 
promoting rural growth and jobs, alleviating hunger and 
improving nutrition, investing in food and agricultural 
research, and increasingly to securing our Nation's energy 
future.
    I want to thank you, Secretary Johanns, and your team for 
making proposals that challenge us to take a new look at issues 
and problems and to consider new approaches. We have a 
responsibility to write a farm bill which looks to the future, 
not one that clings to the status quo of the past.
    Now, we made a good deal of progress, I think, in the Farm 
Security and Rural Investment Act of 2002. But farm bills are 
written for a limited number of years for a good reason. 
Agriculture is among the most rapidly changing sectors of our 
economy. Policies that worked at one time may not be well 
suited to a new era filled with critical new challenges and 
opportunities for farm families, rural communities, and our 
entire Nation.
    A core mission of the farm bill, of course, is promoting 
profitability and income potential in agriculture and a degree 
of stability and predictability in our Nation's food and 
agricultural system. Americans have come to take for granted a 
plentiful, wholesome, and affordable food supply, and it is in 
our Nation's best interest to construct programs to help 
agricultural producers survive the vagaries of weather and 
markets.
    But we also need a farm bill that looks much further ahead. 
It must be bold enough and creative enough to prepare for and 
master challenges and opportunities on the horizon. We are, as 
you have said many times, Mr. Secretary, in the midst of 
revolutionary changes in food and agriculture, most notably in 
farm-based renewable energy. We put an energy title in the 2002 
farm bill, and there is broad agreement that energy is perhaps 
the key driving force in this farm bill. I commend President 
Bush for his ambitious renewable energy objectives, although I 
have some concerns that the budget lacks the resources 
necessary to achieve those goals.
    I also welcome your proposals, Mr. Secretary, to increase 
our investment in agricultural conservation, rural development 
and research, to help beginning farmers and ranchers, and to 
improve USDA's efforts in promoting nutrition and health and 
fighting hunger. We must do more in those areas.
    So I guess my main question at the beginning is whether the 
Administration's proposals, your proposals, are strong enough 
and will we be able to back them up and strengthen them with 
the budget that we have and the resources that we have.
    Again, Mr. Secretary, I want to compliment you and your 
team on a really good proposal. I think there is a lot of stuff 
in there that we can work together with you on. I think it does 
chart a new bold challenge to us here to work together to 
achieve those goals. So again, the committee welcomes you and 
the valuable contribution of your proposals to our work in 
writing this new bill. I look forward to a good bipartisan 
working relationship with you and the administration and with 
my colleagues here in Congress in drafting and enacting this 
vitally important legislation.
    With that, I will turn to our distinguished former Chairman 
and our Ranking Member, my good friend from Georgia, Senator 
Chambliss.

  STATEMENT OF SENATOR CHAMBLISS, A U.S. SENATOR FROM GEORGIA

    Senator Chambliss. Mr. Chairman, thank you for holding this 
hearing today.
    As Chairman, as you know, I dedicated much of 2006 to 
preparing for the reauthorization of the farm bill and this 
committee spent many hours in field hearings listening to 
producers about their farm bill needs. Secretary Johanns held 
his own listening sessions around the country and points to 
those sessions in his development of the Administration's farm 
bill proposals. This hearing today is an important step toward 
the farm bill reauthorization in that it will allow us to 
explore the justifications for the Secretary's specific 
proposals and engage in a dialog about impacts the proposal 
could have on this Nation's farmers, ranchers, rural 
communities, and the agricultural economy.
    Mr. Secretary, welcome. We are always glad to have you back 
before the Agriculture Committee. Dr. Collins, Chuck, we are 
always pleased to see you here. Thank you for your efforts, and 
we appreciate you bringing new ideas to the table as Congress 
begins to debate the new farm bill.
    My goal always has been to make certain that America's 
farmers' voice is heard and their concerns are addressed in 
this process. There are a lot of farmers, a number of ideas, 
and a variety of ways in which concerns can be addressed. Each 
Senator on this committee represents an important part of 
agriculture country and we will each have an important role in 
crafting the new farm bill.
    When the 2002 farm bill was passed, the Congressional 
Budget Office estimated that we would spend $110.6 billion on 
commodity programs during fiscal years 2002 to 2008. I am proud 
to say that because of the market-oriented direction in which 
that farm bill took us, that we have spent much less than 
originally estimated. Farm program spending under the 2002 farm 
bill is now expected to cost approximately $25.3 billion less 
than originally projected for fiscal years 2002 to 2008. And 
even if we take into account recently enacted disaster 
assistance packages, the 2002 farm bill has spent $19.2 billion 
less than expected. These are impressive figures that we need 
to consider in constructing the next farm bill.
    One thing that the 2002 farm bill did provide to our 
farmers and ranchers around America was a true safety net, and 
frankly, Mr. Secretary, with your proposals, I see a tendency 
toward guaranteeing farmers payments versus providing that 
safety net. I am not sure what direction the committee is going 
to decide to go, but it does steer us away from providing a 
helping hand in the years when the farmers really have low 
yields, low prices, and it moves us in a direction of making 
sure that farmers get money from the Federal Government every 
year irrespective of whether or not they plant crops.
    Certainly, there are a lot of challenges ahead of us as we 
work to complete the farm bill before portions of it expire. 
But I trust that we can, Mr. Chairman, work in a bipartisan 
manner to reach a consensus that will prove beneficial for each 
of our States and our constituencies.
    I thank you and look forward to the witnesses' testimony 
today.
    Chairman Harkin. Thank you very much, Senator Chambliss.
    Secretary Johanns, again, welcome to the committee. Your 
statement will be made a part of the record in its entirety. 
Please proceed as you so desire. They put 10 minutes on there, 
but do not worry too much about that. We want to hear your full 
explanation and, of course, I then will open it up for 
questions and different rounds at that time. So, Mr. Secretary, 
welcome.

 STATEMENT OF HON. MICHAEL JOHANNS, SECRETARY OF AGRICULTURE, 
U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON, DC; ACCOMPANIED BY 
KEITH COLLINS, CHIEF ECONOMIST, U.S. DEPARTMENT OF AGRICULTURE, 
    WASHINGTON, DC; AND CHARLES CONNER, DEPUTY SECRETARY OF 
  AGRICULTURE, U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON, DC

    Secretary Johanns. Thank you, Mr. Chairman. I have to tell 
you, it is an honor for me to be back in front of the 
committee. Members of the committee, I appreciate the 
opportunity to visit with you. This is the first time I am 
appearing before the 110th Congress and I feel, like I said, 
very honored to be able to be here and speak about the farm 
bill.
    Our Department has worked very hard on these proposals, but 
for that matter, farmers across the country did because of our 
listening sessions. I am submitting for the record a very 
extensive written statement, so I am going to speak from an 
outline today and try to keep it to the point but fairly brief.
    I would also mention that, for the record, Mr. Chairman, we 
are submitting the book that contains our farm bill proposals, 
so that will be a part of the record.
    Thanks for acknowledging two people that were very key in 
developing our proposals. I could not have a better Deputy than 
Chuck Conner. I will tell you, Chuck has really led this effort 
in the Department.
    Chairman Harkin. Be careful what you say. We all know him.
    [Laughter.]
    Secretary Johanns. Yes, I know. I know. I will be careful.
    And then, of course, every time we had a question about 
analysis or background, we turned to Dr. Collins. My respect 
for Dr. Collins grows daily. He does a great job for us.
    We also have with us a whole host of people, but I would 
mention one of our newest Under Secretaries, Mark Keenum, who I 
think is very familiar to the committee. He works in this area 
with our farm programs and also with our Foreign Agricultural 
Service. And then Scott Steele, if there are budget issues, 
Scott is here to address those.
    This journey to the farm bill proposal started pretty soon 
after I arrived a couple of years ago. We held 52 Farm Bill 
Forums across the United States, really on a nationwide basis. 
We received 4,000 comments. Our approach was always the same. 
It was an open microphone, no prearranged testimony. We just 
said we will be in a given location. Farmers showed up. They 
would oftentimes drive hours to come to these forums and talk 
to us.
    I do appreciate, Mr. Chairman, you were at a forum that I 
conducted in Iowa and that was pretty typical of the forums we 
had across the country.
    We received 4,000 comments. We did a summary of those 
comments that is actually contained in this binder, but we put 
it on the website, 41 summary papers, and then I turned to our 
Chief Economist Keith Collins and I said, identify themes, and 
we worked together and tried to identify themes out of the 
comments. These were published in five theme papers that have 
now been on our website for some period of time, filled with 
excellent information, and again, led by the folks in Keith's 
shop.
    We then ended up with our farm bill proposals, which is 
contained in this booklet, and as I said, we made that a part 
of the record.
    Let me just be very clear, and I mentioned this when I was 
going through the confirmation process. I have a history with 
the 2002 bill. I was the lead Governor for the Western 
Governors and the Midwest Governors. In fact, Tom Vilsak and I 
were co-lead Governors for the Midwest Governors in the 
reauthorization of the 2002 bill. I have said many times, I 
think it was the right policy for the times. Commodity prices 
were low. Exports had declined for several years in a row. The 
debt-to-asset ratio was at about 15 percent. That was not the 
highest in history, but it was certainly a number that caught 
probably everybody's attention. It was the first ever farm bill 
with an energy title and it increased conservation spending by 
about 80 percent.
    But times do change, and farm bills reflect the changing 
times. As the Chairman indicated, that is why we pass them for 
a limited number of years and then reenact them, so we can 
calibrate the changes that have occurred.
    Today, as we prepare for a new farm bill, commodity prices 
are strong for most program crops, and in some areas, 
historically strong. Exports have increased every year to a 
record $68 billion. We think in 2007 that number will actually 
get to $77 billion. That will be yet another record.
    In all of the recordkeeping the USDA has ever done, I can 
tell you that we have the lowest debt-to-asset ratio in 
recorded history. It is now about 11 percent as of 2006, and 
the trend very definitely is in the right direction.
    And renewable energy is a significant contributor to the 
agricultural economy.
    As we went around the country, we listened to stakeholders 
and we built proposals based upon principles of reform and also 
recognizing that fiscal responsibility was important. We knew 
at some point we would have a baseline number we would have to 
work with. The proposals we submit, I would respectfully 
suggest to the committee, are more predictable. These proposals 
are more market-oriented. They provide support when revenue is 
low.
    Senator Chambliss, I am very anxious to engage in a dialog 
with you on some of the comments you have made because 
actually, we believe the proposals we are making provide a more 
predictable safety net for producers out there. But again, I 
will save that for our discussion.
    We believe these proposals are more equitable. They 
distribute resources more equitably than previous farm bills 
have done. And we support growers of specialty crops, for 
example, who have had a small place in previous farm bills, but 
very small. We also would respectfully suggest that these 
proposals are better able to withstand challenge.
    Again, many of you have an interest in, of course, all 
commodities. Some have a very special interest because of state 
production in cotton. Well, we have a WTO cotton case. We 
cannot ignore it. We are now--the case is final in terms of the 
ruling. Now they are trying to figure out whether we have 
complied with the ruling. That is what the most recent case is. 
And we believe it wisely and effectively spends tax dollars.
    Let me just touch with a tad bit of detail on some of the 
proposals. We are proposing to revise downward marketing loan 
rates. I mentioned that when we released this almost--well, it 
was a week ago. Here is how they were set. They were set based 
upon the market. We did not go out there to try to just pick a 
number. We set them based upon market experience over the last 
5 years of the 2002 farm bill, the Olympic average, taking out 
the high year, taking out the low year, and basing it on the 
average of those 5 years.
    The House approved a version of the 2002 farm bill before 
it was sent over here to the Senate and loan rates were 
established in that House-approved bill. We have proposed to 
cap loan rates based upon that number that had been through 
that process.
    We now post about 8,000 daily prices, county prices, and 
you can do the math. Eight-thousand times 365, I do not know if 
we post them on holidays or not, Chuck, but if you do the math, 
roughly around three million posted county prices. It is no 
wonder you go out into the country and farmers are saying, our 
county prices do not make sense. They do not compare with what 
is happening in the next county. Quite honestly, it just 
invites problems. We are changing that from a daily posted 
price in our proposal to a monthly posted price.
    We also increase direct payments by $5.5 billion. I can 
tell you without a doubt, to the producer out there, this is 
more predictable. It is not tied to price or production, and 
although I am not the trade lawyer, I can tell you that 
generally, payments not tied to price or production do not run 
into the WTO challenges that you have in programs that are tied 
to price or production. And for the young producer out there, 
if this proposal is adopted, you take it to the bank.
    Now, lowering loan rates for four of the major 
commodities--corn, wheat, rice, and soybeans--the net effect 
really is not financial. But notwithstanding, we went out there 
and said, you know, in the third, fourth, and fifth year, we 
should improve the safety net, so we identified a billion 
dollars to raise those direct payments. If the projections are 
accurate, the loan rate impact here really is not going to make 
any change in terms of the financial aspect. It is about a 
wash, and Keith may talk about that at some point.
    We heard something very interesting out there relative to 
the countercyclical, and Senator Chambliss, this might get to a 
part of your comments. This seemed counterintuitive to me, but 
we heard it in Kansas, we heard it in Nebraska, we heard it in 
other places. Farmers showed up and said, you know, the 
interesting thing about the 2002 bill, I am over-compensated 
when I do not need it and I am under-compensated when I do. And 
like I said, it sounded terribly counterintuitive to me. Let me 
explain what those farmers were telling us.
    In years of high production, the price goes down typically 
and the countercyclical kicks in. And if they have raised a 
crop, in fact, a big crop, they were able to pick a day to lock 
in their LDP. And in 1 year, it happened at a time where we had 
a 2-month decline in price because of Hurricane Katrina and 
prices came back, so they locked in very high LDPs.
    Now, let me take the other side of that. What about that 
statement that says, in years where I need the safety net, the 
2002 bill isn't there? Some of you will really relate to this. 
What farmers were telling us there, and again, we have studied 
this and it bore out, in years where their production has been 
hit by drought or other circumstances, what tends to happen to 
the price? The price goes up. It is a simple supply and demand 
phenomena. The countercyclical does not kick in. They do not 
get the countercyclical payment at a time when they are 
experiencing drought, their neighbors are experiencing drought, 
for example.
    And I was told a thousand times out there--it is etched in 
my memory--``Mike, you can't LDP a crop you can't raise.'' 
There are no loan deficiency payments on a crop you did not 
raise. So at a time when the farmer needs us most, they have no 
safety net. Is it any wonder that groups are here almost on an 
annual basis saying, we need a disaster program, and there is 
this annual debate, should it be $2 billion? Should it be $6 
billion? Should it be $4 billion?
    Our approach to this addresses a very important part of 
that issue, and again, it came from farmers. We provide a 
conservation-enhanced payment option. Let us say a farmer of a 
program crop out there looks at the farm bill and says, you 
know, prices are strong. I do not think I am going to get a 
countercyclical or loan deficiency payment over the next 5 
years. I will get my direct, but I will not get these other 
programs. However, there are some conservation things that I 
have been interested in getting done. Is there a program that 
fits for me?
    Under the proposal we are making, the answer to that 
question is yes. Farm just the way you are. Raise your corn, 
your wheat, your cotton, whatever you are raising. Work with us 
on conservation ideas for your farm. We will raise your direct 
payment 10 percent under our proposal. And so we get a benefit. 
We assure that farmer an additional payment to assist in doing 
those conservation efforts, totally voluntary. The farmer may 
look at it and say, that is a good program for somebody, it is 
not a good program for me. I will stay with where I am at. That 
is fine. No problem with that at all. We give farmers another 
option to look at.
    We are also proposing to eliminate commodity program 
payments on land acquired through 1031 exchange. This does 
follow the land. Boy, I will tell you what, you go out there, 
all I needed to do to start a farm bill forum debate was to 
start talking about 1031, and I will tell you what, you got a 
debate.
    Farmers see this as raising their cash rents and their land 
prices, and what we are saying is we are not proposing to 
impact the tax code. You will still be free to do the 1031 
exchange. We appreciate the jurisdictional issue here. What we 
are saying is if you do that, then the cash commodity payments 
under Title I would not apply to that land. You would not 
receive those payments.
    Now, if I might make a few comments about some of the other 
changes we are proposing. I could spend hours on the commodity 
title. It is complex. We know that. I will let that come out in 
questions.
    Let me talk about conservation. We are proposing an 
increase of $7.8 billion in our conservation programs. We heard 
from farmers,``we like conservation''. ``Your programs are so 
complicated, they confuse us''. They are right. They confuse 
us, to be very blunt about it. We are proposing simplification 
and consolidation. We are proposing to create a new 
Environmental Quality Incentives Program, which would include a 
regional water program.
    Senator Harkin, you have led the debate on the Conservation 
Security Program. We are proposing more than doubling the 
funding in this area, from about $300 million annually to $800 
million. Most of the money for CSP under the current plan is 
way out there in the ninth and tenth year. It spikes up like 
this. We are proposing to level that out and increase the 
funding by $500 million.
    If our proposals are accepted, we would be able to offer 
CSP on a nationwide basis--on a nationwide basis. It would not 
be limited to watersheds like it is today. We believe over the 
time of our--over 10 years, that we would increase acres from 
15 million to 96 million, a substantial increase in what is 
proposed, and I have to tell you, it just works better for us. 
Trying to get out there nine or 10 years and then ramp that 
program up that dramatically, it would just work better, I 
think, for stakeholders and everyone if we could level that 
funding out over the next decade.
    We are providing $1.6 billion in new funding in our 
proposal for renewable energy research, development, and 
production, targeted at cellulosic ethanol. I am confident in 
telling you, I think corn will always be a part of our ethanol 
industry. It has got a tremendous footing in the market. It has 
been around a long time, really successful in the last couple 
of years. But if we are to meet our goals, if we are to meet 
that goal that the President talked about in his State of the 
Union of reducing gasoline consumption by 20 percent in 10 
years, we need to move toward cellulosic.
    But here is the positive thing about that. All of a sudden, 
ethanol goes from a corn belt-based program to a national 
program. If you have biomass in your State, you have forest 
ground where literally you want to clean up what is laying on 
the floor of that forest, you could have a biomass program. If 
you grow grass in your State.
    The other thing I would mention, we have made a proposal on 
a conservation program where literally we would say you have to 
meet your conservation goals. You have to deal with the nesting 
season. You have to do everything you said you would do to meet 
the environmental nesting requirements, but let us think about 
a program that would allow a harvest, if you will, of something 
from that conservation ground, and again, I emphasize in an 
environmentally sensitive way, complying with all of the needs 
of the nesting birds out there, but again, it gives farmers 
another option.
    We are providing $1 billion in loans and $500 million in 
grants for rural communities. We have a list we could provide, 
but across the United States, we have 1,280-some hospitals, if 
I remember the number correctly--1,283 hospitals that have been 
designated Rural Critical Access Hospitals. These hospitals 
need to be rehabilitated. They need to be up to today's 
standards. These are in very rural areas. Senator Nelson, we 
would see these in our State, but you would see these across 
the country. Senator Roberts, you would see these in Kansas. 
These are hospitals that if that hospital closes, health care 
disappears for miles and miles. We are proposing--we have not 
had the money to finish these hospitals. We are proposing the 
financing for this loan program--it is a loan program that 
would do them all--during the life of this farm bill, we would 
do all 1,283 hospitals, and again, a very important program for 
health care.
    We propose additional funding to deal with the backlog of 
infrastructure programs, and we are proposing some 
consolidation.
    We are also targeting about $5 billion in funding to 
support our specialty crop farmers across the country. As I 
said, we did Farm Bill Forums across the United States. Our 
specialty crop farmers made it clear, they did not want to be a 
subsidized crop. They are not looking to be in Title I in terms 
of a cash subsidy. What they were looking for was increase in 
funding for research in phytosanitary and sanitary issues, 
market promotion, those kinds of things, and so we have 
identified funding here.
    We have a number of proposals. We started every farm bill 
forum with somebody from FFA, somebody from 4H. I was in both 
programs growing up. They are great programs. They talked about 
the challenges of starting out, beginning farmers. We are 
proposing in the program crop area to enhance the direct 
payment for beginning farmers by 20 percent. We are also 
targeting part of our conservation programs and substantially 
improving our loan programs for beginning farmers. The 
improvements in the loan programs, the targeted enhancement and 
conservation, would also apply to socially disadvantaged 
farmers.
    Now, we have not defined beginning farmers in our proposal, 
although there is a definition in our loan programs, but that 
would be one where we say to the committee, Chairman, we want 
to work through this and try to figure out how this program 
applies. But we proposed these ideas because I think they make 
sense for the next generation of farmers.
    And then I would also mention, and there is a lot of detail 
that I will not go into here that we can certainly provide in 
response to questions, we are doing a number of things in our 
food assistance programs that are very beneficial. For example, 
college savings, we are proposing that would not be computed as 
a part of your assets. Your retirement account, we are 
proposing that that would not be figured in as a part of your 
assets. So again, it should improve access.
    We are improving--we focused on this disaster assistance 
area. A couple of things I would mention. One is the revenue-
based plan will simply work better. We are also proposing gap 
coverage. We went out to farmers and they said, ``Mike, I can 
buy crop insurance to cover 70 percent of my crop,'' or 
whatever the number is. ``What do I do?'' Some farmers cannot 
afford to lose that 30 percent and survive. Some can. Some can 
manage that risk, not a good deal, but they can manage it. We 
are proposing to cover that gap in our crop insurance proposal. 
We are linking crop insurance participation to farm program 
participation and we are consolidating ECP and EWP in one 
emergency landscape program in our proposal.
    A final thing I will mention, overall, I believe these 
proposals achieve a funding balance. If you look at the 
spending in the 2002 farm bill, from 2002-2007, this proposal 
spends about $10 billion less. If you add into that the 
disaster relief, it would be about $17 or $18 billion less. But 
apples to apples, $10 billion less. However, if you just walked 
in and said, ``I like the 2002 bill. Let us just reauthorize 
it,'' some have said that, maybe less and less now, but some 
have said that, and so if you just walked out on the Senate 
floor and got those votes and the House floor and just simply 
reauthorized it, this proposal actually spends $5 billion more 
over the baseline. But most importantly, it fits within the 
President's plan to balance the budget within the next 5 years, 
and I would argue to you, it is a more predictable safety net 
in terms of what farmers are trying to deal with, and that is 
especially true in those areas that have struggled through 
drought and those kinds of issues.
    Let me just wrap up my comments and say, Mr. Chairman, I 
thought your comments were right on target. We do a farm bill 
every 5 years because it gives us an opportunity to ask 
ourselves what has worked, what has not worked. We decided the 
best way of approaching that was to simply ask farmers that 
question and to try to fit our proposals and tailor them with 
that as our base.
    So with that, again, I am pleased to be here. If I took a 
few more minutes than I thought I was going to, I apologize. As 
you can tell, I feel passionately about what we are doing, and 
I say finally, I look forward to working with you and the 
committee on all of these important issues.
    Chairman Harkin. Mr. Secretary, thank you very much. That 
was a very comprehensive and well-presented, I think, analysis 
of your farm bill proposal. It is a comprehensive bill. There 
are a lot of good things in there that I think we should take a 
look at. I think it is one on which we can work together as a 
committee and work with you on as we move ahead.
    [The prepared statement of Hon. Michael Johanns can be 
found on page 69 in the appendix.]
    Chairman Harkin. Just a couple of comments on what you said 
there. I think you are right on target on doing something about 
monthly posted prices rather than the daily.
    I have a concern about the direct payments. It is going to 
get harder and harder to explain to our colleagues here, and I 
think the American people, why we should give a government 
check to someone who is doing very well, who is making a lot of 
money, but we are going to give you a check anyway. That is why 
I, quite frankly, I had some questions about this Revenue 
Assurance Program as it was brought up in the past. The more I 
look at it, I think the more I like it, and I think it has a 
lot of promise. Again, I just say, to my way of thinking, I 
think that rather than bumping up direct payments, maybe we 
ought to put more in the Revenue Assurance. Again, that is a 
true countercyclical-type program.
    Now, how that runs into WTO problems, I am not certain. We 
have to work that one out, I think. But I think that is more 
saleable than just a direct payment, again, to a farmer who is 
doing very well.
    The 1031 exchanges, right on target. I hear about that a 
lot. In fact, I just want to say as an aside, I compliment you 
on all the hearings you had around the country. I went to the 
one in Iowa. You were right. It was wide open, no preset 
agenda. Anybody could say what they wanted to say, and I 
thought it was really a good exchange. But the 1031 exchanges, 
you are right on target on that.
    On conservation, I know that there is an urge to simplify 
and we do have to simplify, but there are a lot of specific 
things that we have tried to address in the past, whether it is 
WHIP or WRP or EQIP or CRP. All of these address different 
aspects of conservation, and I am not certain that sort of one-
size-fits-all. Within that framework, whatever we can do to 
simplify, we should.
    I again congratulate you and thank you for your proposal on 
getting rid of the watershed basis on the CSP Program. I have 
heard a lot of not good comments on that one in the past, 
simply because of the anomalies which it brings up and the 
inequities on that. So we can go to a true national basis on 
that. We had some testimony in our hearings earlier on and we 
are getting more information on proposals on how you do that 
and we welcome any suggestions that you might have on that 
basis, also.
    I will say, however, I think that as much as I applaud your 
willingness to move ahead on CSP, I think if you are going to 
use CSP for renewable energy and cellulose crops where they can 
harvest it in an environmentally sensitive manner, I think CSP 
fits into that and I am not certain that that amount of money 
that we have there will move farmers into that transition where 
they can grow those kinds of crops, but that is for a later 
discussion.
    On rural development, I applaud your proposal on the 
hospitals. I think that is long overdue, something I wish we 
would have paid attention to in the past and we did not.
    The Specialty Crop Program, while I think you are going 
down the right track on that, I might have a question and 
concern about how you want to do that. We have started a 
program, a little pilot program in the 2002 farm bill that was 
called the Fruit and Vegetable Snack Program. We started with 
four States and 100 schools, 25 schools in each State, where 
kids were given free fresh fruits and vegetables and it was 
just to see what would happen. Well, what happened is every 
single one of those 100 schools that started, not one has asked 
to drop out of the program. We are now up to 14 States, if I am 
not mistaken, and, I do not know, somewhere between 500 and 700 
schools. I cannot get a quite good grip on exactly how many 
schools.
    But every State in which they have adopted this, the 
schools that are not getting it are asking why they cannot get 
it. It is a way to get fresh fruits and vegetables to kids in 
elementary school. I have said before, my goal has been that in 
10 years, that every elementary school kid in America gets free 
fresh fruits and vegetables at snack time in their schools. I 
hope that we can work on that as part of your program in 
looking at specialty crops.
    The enhanced direct payments to beginning farmers, I think 
we should look at that. I have a little bit of concern about 
that in terms of the definition and who gets that and whether 
or not that ought to be balanced with long-term lower rate 
interest rates, in other words, spreading things out over a 
longer period of time and that rather than just an up-front 
direct payment as such, but a balance between the two.
    On food stamps, again, I congratulate you for looking at 
the retirement assets. Senator Chambliss has a bill which 
pretty soon--have you introduced it yet or not? I want to get 
on it, but----
    Senator Chambliss. It is ready to be dropped.
    Chairman Harkin. It is ready to be dropped, working on the 
asset limit and stuff. I looked it over and I told my staff to 
put me on that bill right away. But it tracks a lot of what you 
are saying.
    And the crop insurance, we are going to have to take a look 
at that gap coverage, group coverage that you are talking about 
and see how workable that is. I do believe that crop insurance 
should be strengthened. I think it provides, again, that safety 
net when you are talking about farmers may not get something 
when they do not have a crop. Well, that is what crop insurance 
is for and we need to design it so that we do cover that gap 
you are talking about, that 20 percent, 30 percent gap in 
there.
    So all in all, I thank you very much for your presentation 
and for your recommendations. We look forward to working with 
you on it.
    I have one question that basically has to do with funding 
and energy. I think there is a consensus, Mr. Secretary, and 
you have said it in your statement, to move this farm bill 
aggressively in the energy area, in renewable energy. But right 
now, USDA is proposing about $160 million per year in funding 
for energy programs. Correct me if I am wrong on that. Current 
authorizations for essentially the same programs total over 
$200 million per year, and appropriations from fiscal year 2003 
through 2006 averaged about $175 million a year.
    So again, if I am right on those numbers, then why are you 
proposing less than recent appropriations or current 
authorizations while at the same time the President is calling 
for a very aggressive and expanded research and development 
program on renewable fuels and bioenergy? So that is my 
question. I am looking at the figures and it looks like we are 
spending more now and authorizing more now than what you are 
proposing.
    Secretary Johanns. You are right in terms of spending 
authorization, but let me, if I might, just run through some 
numbers here that I have in front of me. The 2002 farm bill 
provided mandatory funding of $14 million per year. It 
authorized an additional appropriation of $49 million annually 
through 2007. However, none of the additional $49 million of 
authority was ever appropriated. It never came to be.
    A couple of other things to think about before I talk about 
our proposal. The 2005 Energy Policy Act extended the 
authorization for appropriations to fiscal year 2015 and 
increased discretionary funding by $200 million. We are not 
proposing any change to that. So that is still there. We are 
not proposing that that go away.
    In addition, the USDA proposes an increase in mandatory 
funding from $14 million to $15 million a year, so actually a 
little bit better than what was in the 2002 bill.
    Chairman Harkin. Fourteen to fifty?
    Secretary Johanns. Fourteen to fifteen, one-five. Fourteen 
to one-five, 15.
    Additionally, the USDA's research title proposal also 
includes a major investment for bioenergy. It provides $50 
million annually for bioenergy and bio-based products research 
initiative. This initiative was designed to be complementary to 
the biomass research and development initiative.
    Then finally, our proposal would accelerate the development 
of technologies to better utilize low-value woody biomass by 
authorizing $15 million in annual mandatory funding for Forest 
Service research. Now, that is a pretty aggressive program. I 
would also mention that we are also proposing a $2.1 billion 
loan guarantee program to assist in building cellulosic ethanol 
plants, and I would mention this funding is targeted at the 
cellulosic area. But again, not to take away from anything we 
might be doing out there now in corn. We will continue to do 
those things, too.
    The other thing I would mention, and this is an area I only 
want to mention because I am not as familiar with the Energy 
Department budget as much as I would like be, but there is an 
energy initiative there that we work with the Energy Department 
on, so when you put the whole initiative together, Chairman, I 
think you will see that we have a very aggressive effort here. 
You add into it the loan guarantee program and I think we can 
do some very, very exciting things with what we are proposing.
    Chairman Harkin. Mr. Secretary, I am sure my staff and 
others will absorb that and look at that. You are right on the 
$2.1 billion loan guarantee program. DOE has that. They cannot 
administer anything. I mean, DOE, this is not what they have 
done in the past. They have no history of doing this. They have 
tried to do it. They cannot seem to get it done.
    Well, we know how to do it, we being the Department of 
Agriculture know how to do this. We have a long history in 
doing this and it is time that we step up to the plate and I am 
glad you did with the $2.1 billion. I think we ought to be out 
there. As you know, we have got to break this chicken-and-egg 
thing.
    You can get investors in corn ethanol plants now. That is 
no problem. You can raise a lot of equity on those. But 
cellulose, that is pretty difficult right now. If there is no 
supply, then you have got to put some loan guarantees out there 
for cellulose plants and for farmers to raise the crops. They 
say, well, why should we raise it? Where are the incentives? 
Where is the market for it? So we have got to do both together 
and I think that is sort of what you are doing.
    But let me move ahead. I just want to ask one more 
question. On the Conservation Security Program, your plan would 
provide an increase of $500 million over the next 10 years, 
spread the baseline funding from the two uncapped years in the 
baseline back to raise the existing multi-year funding cap. 
Chuck, I am finally understanding what you were doing here. 
Well, you are going in the right direction. It is just not 
enough, OK?
    But the President's budget released Monday would reduce 
spending for the Conservation Security Program in 2008 by $135 
million and reduce the cap on CSP by $80 million between now 
and 2015. So there is kind of an inconsistency there.
    And the second part of my question has to do with 
regulation. You are planning to take a whole year to redo the 
CSP regulations. I do not know why. Between that and the 
funding situation, this could mean the program might not enroll 
any new farmers or ranchers for 2 years, and yet farmers and 
ranchers like the program. They want to participate. We want to 
do better conservation on working lands. We want to move into 
bioenergy crops. This fits that perfectly. It seems to me it is 
an existing program. It should not take you 2 years to get this 
done.
    So that is two. How about the inconsistency in the 
President's budget, what you want to do, and why does it take 2 
years and can you collapse that down?
    Secretary Johanns. Let me address the 2 years and I will 
ask Dr. Collins to visit with you about budget.
    It is going to take us some time to do some regulations 
here. Chairman, I would say this. If we can do it in a shorter 
period of time, I will absolutely be committed to that.
    Chairman Harkin. Well, you can.
    Secretary Johanns. You are right. Farmers told us they 
liked this program. You referenced their consternation about 
this being limited to wetlands and they would say, well my 
neighbor can get in it. I cannot get in it. They felt some 
unfairness there--or watershed. It is not wetlands.
    Chairman Harkin. Yes.
    Secretary Johanns. And so whatever we can do to get those 
regulations done and do this program, and I think at the end of 
it, there may be some things here that you want to talk to us 
about, but I think at the end of it, we are going to have a 
better program, a more reasonably financed program, a program 
that we can build upon year after year after year instead of 
somebody worrying about the ninth year and the tenth year where 
this program skyrockets in terms of the funding available.
    I would sincerely argue to you, I think some of the things, 
maybe not all, but some of the things you would like to 
accomplish are necessary. We have to get through that 
rulemaking process. If we can do it more expeditiously, I am 
all for moving government along and we will take a look at 
that. But we built something in and that is where you are 
running into this issue about 2008.
    Chairman Harkin. On the budget stuff, I will defer until 
later. I have taken too much time as it is right now and I will 
defer to that later. After everybody has had their rounds, we 
will get back to that budget on that.
    Secretary Johanns. OK.
    Chairman Harkin. I will now yield to my colleague, Senator 
Chambliss.
    Senator Chambliss. Thank you, Mr. Chairman.
    Mr. Secretary, let me make clear that our obligation as an 
oversight committee dictates that we direct criticism where we 
think it needs to go and we commend where we think we need to 
commend. As you and I have discussed privately, I commend you 
for thinking outside the box. We have got to make significant 
changes in the way we approach agriculture in this country and 
particularly government participation.
    My criticism, though, is really directed in a number of 
areas. I am going to try to focus on a couple of them relative 
to your proposals, because at the end of the day, we both have 
the same goal in mind and that is to make sure that we continue 
to provide the most abundant, the highest quality, and the 
safest food supply of anybody in the world. We cannot let 
agriculture become a national security issue. And the way we 
make sure that does not happen is that we continue to have 
farmers all across America that produce that high quality of 
food product.
    Now, in your testimony, you have noted as a criticism of 
the 2002 farm bill that only 9 percent of farms collected 54 
percent of all government commodity payments, and that is true. 
But what you have not noted in that testimony is that 9 percent 
of U.S. farmers represent 70 percent of farm output. Now, this 
9 percent that USDA considers commercial farms combined with 
the next tier, representing 25 percent of all farms, which are 
known as intermediate farms, consists of farm operators who 
report farming as their major occupation.
    The remaining farms, which are dubbed rural residence farms 
by USDA, represent 65 percent of all farms and receive only 
16.9 percent of government payments under the current farm 
bill. But those farm operators list their major occupation as 
something other than farmers. They are not the people who get 
dirt under their fingernails and drive the tractors every day. 
And while these rural residents' farms contribute in a positive 
and significant way to our Nation's agricultural diversity, it 
is fair to say that they do not incur the level of agricultural 
risk of those intermediate or commercial farmers who provide 
the bulk of the Nation's commodities.
    Now, in the current farm bill, we have a $2.5 million 
threshold for farmers to be able to participate in farm 
programs. Now, that $2.5 million is gross income only, from 
farming operations, significantly different from the adjusted 
gross income and the level of $200,000 that you have proposed. 
In addition, the current farm bill says that will be a 3-year 
average and that 75 percent of that $2.5 million has to come 
from farming operations, a major change from what you are now 
proposing.
    I called up--and under your proposal, a farmer who exceeds 
that $200,000 limit gets no payments whatsoever in the 
subsequent year. I called an equipment dealer and I said, tell 
me what a piece of equipment costs. For example, what does a 
big tractor cost that somebody who has got 500 acres or more 
needs. A John Deere 8330 is $130,000. A small tractor is 
$80,000. A 4 row cotton picker is $230,000. A corn combine with 
a grain head is $260,000. With those numbers, in Georgia, it 
was not that long ago you could buy a farm for that amount of 
money, and these folks are now having to pay that for 
equipment.
    I point that out because under your limit of $200,000 of 
adjusted gross income, a farmer would still have to make all of 
his equipment payments. He would have to make all of his land 
payments on any farm that he was purchasing. And yet if he had 
a pretty good year 1 year, by the time he got to the next year, 
he would not be able to participate in government programs, and 
that is why I say that your proposal concentrates more on 
direct payments to folks as to whether or not they farm or not, 
as the Chairman referred to, and does not provide that safety 
net, and I am going to give you an example.
    Let us say that we pass this farm bill this year. It goes 
into effect October 1, when the fiscal year begins. And let us 
say you have a farmer in my part of the world who has a pretty 
good year this year. He participates in government programs 
under the cap that is set in place. He has an adjusted gross 
income in excess of $200,000 from which, as I have already 
said, he has got to make all these payments. But all of a 
sudden, he has exceeded your cap. So that means that next year, 
he does not participate in government programs. He gets no 
payments under your proposal.
    Now, let us say next year, when he needs those payments, he 
has that drought that you referred to or he has extreme wet 
conditions that you referred to and he does need those 
payments. All of a sudden, because of this cap that you have 
set, he gets no income. He gets no help from the government. He 
has still got to make those farm payments. He has still got to 
make those equipment payments. He has still got to reimburse 
his banker. And granted, he has got the crop insurance program 
to work with, but what am I missing here? Where is that safety 
net that we want to give to our folks under your proposal with 
that scenario?
    Secretary Johanns. Very respectfully, here is what you are 
missing. Our proposal is a 3-year average, so what you have 
laid out there in terms of 1 year, another year, is actually 
going to be substantially mitigated by a 3-year average. You 
know, I grew up on a farm. I appreciate there can be 
spectacular years followed by bad years. We understand that.
    The other thing I would tell you is this. If you take a 
look at adjusted gross income, the current law is $2.5 million. 
It is also based on AGI. It is an AGI limit just like what we 
are proposing.
    I will tell you, at $2.5 million, and Keith always 
remembers numbers better than I do, but I think if I remember 
the numbers correctly, at $2.5 million, you are really not 
impacting anybody to speak of. I think it is 0.0007 percent of 
the tax filers in the United States who would be impacted by 
that. It is--even under the proposal we are making, we are 
impacting 2.3 percent of the tax filers in the United States, 
2.3 percent, and it is actually, when you figure out who 
actually is receiving payments, it is probably a much smaller 
number than even that.
    But getting beyond that, Senator, I certainly appreciate 
also the cost of equipment. You are right, equipment is 
expensive. If you are a major commercial farmer as we describe 
it and as you have referenced, you go out and buy a new 
combine, you could pay $250,000, $300,000. If you put bells and 
whistles on it and it does the things that we can do with 
current technology, these are very pricey operations.
    However, if you go to Schedule F on the tax return, which 
is entitled ``Profit or Loss from Farming'' or also it is just 
basically the form where you consolidate your profit and loss, 
in part one, you list all of your income, and then the Internal 
Revenue Service through action by Congress allows you to start 
deducting what you would deduct off of that income.
    I could spend the next 10 minutes describing what you can 
deduct. It is a long, long list. It is items 12 through 34, 
everything from pension and profit sharing plans to rent, 
lease, repairs, seeds, employee benefit programs other than 
what is under pension and profit sharing. I mean, like I said, 
I could tie up a lot of the committee's time telling you what 
is computed in that, and I am talking about AGI. I am not 
talking about the gross income. So you get to take all that 
away before you have to worry a bit about the proposal we are 
making.
    And then you get to line 34, and tell me where else you 
find this on anybody's tax return. The Internal Revenue Service 
has five or six more spaces where you list other expenses. 
Everything else that was not listed somewhere else, you get to 
list other expenses, including machinery.
    Now, the other thing I want to devote a moment to was your 
question about the high cost of machinery. I do not deny it. 
Whether you are a farmer in Iowa or a farmer in Georgia, there 
is a cost of machinery. I asked for an example. I said, assume 
for the purposes of discussion, when I spoke to somebody in our 
economist division, I said, assume that a farmer spent $400,000 
on equipment. How will that farmer's expense impact his AGI?
    Now, here is what would happen. You can do Section 179 
expensing. That will save you $108,000. Then on the balance, 
the $292,000 balance, you can take depreciation, and based upon 
2006 numbers, that would total $31,273. So now the farmer can 
plug in, offsetting his income, $139,273 for that $400,000 
equipment purchase.
    Now, the other thing I would tell you is that farmer, let 
us say he bought $400,000 worth of equipment. He probably did 
not part with $400,000 in cash. There is probably some trade-in 
value in the old equipment. I mean, there are a number of 
things going on here. But the only point I will make to you is 
that when you really slice and dice this, we project, and Keith 
can explain how we do this, that we will probably impact a 
billion-and-a-half over 10 years. But with the recognition that 
we are basing this on AGI, that the farmer gets to take all of 
these expenses off, again, here is what I would respectfully 
suggest.
    By any definition in any part of the country, these folks 
are doing very well. My deputy said, these tend to be the 
wealthiest folks in the county. I do not know if that is the 
case or not. I do not live in every county. But I will tell 
you, based on AGI, these folks are in the top 2.3 percent of 
tax filers in the United States, and then slicing it even 
finer, those folks who receive farm programs, it is even a 
smaller number of that.
    Now, there is probably some concern because we have people 
from all over the country here about, well, Mike, I hear you, 
but this impacts my part of the country more than other parts 
of the country.
    I have asked Keith to look into that and Keith is going to 
offer a thought or two, and if you do not mind, I would like to 
have Keith offer a thought. Keith?
    Mr. Collins. Sure, Mr. Secretary. I can amplify your 
comments by perhaps providing a couple of numbers.
    I would say, first of all, the universe of people that we 
are focused on here with this proposal is Schedule F filers, 
people who file a 1040 return and have a Schedule F. In 2004, 
there were a little over two million of those. Out of those two 
million, 85,000--and that is a little bit different number than 
our book because we have got some more recent data from the 
Internal Revenue Service--about 85,000 of those farm 
proprietors had adjusted gross income over $200,000. But now 
out of those 85,000, many of them did not get farm program 
payments at all. So out of those 85,000, 25,000 received farm 
program payments.
    So that means 25,000, or 1.3 percent of Schedule F filers, 
received farm program payments, and they received 4.7 percent 
of all farm program payments made. Mr. Chambliss, you mentioned 
that commercial farms received 55 percent of all farm program 
payments. Well, this group receives 4.7 percent of all farm 
program payments.
    I also should mention that there are other filers, those 
who do not participate in a material way in the operation of 
the farm. They file a 1040. They may not have a Schedule F, 
usually do not. They file a Form 4835. They are landlords. 
There is another 638,000 of those filers, and out of that, 
there are 12,000 of them, or 13,000 of them that receive farm 
program payments. That is about 2 percent of all the Form 4835 
filers in the United States.
    In total, when you add the Schedule F filers and the Form 
4835 filers together, you have got about 2.7 million tax 
returns and about 38,000 of those, or 1.4 percent, have 
adjusted gross incomes above $200,000.
    Now, we had a little bit of difficulty getting complete 
State data, but as the Secretary mentioned, we do have some 
idea of how this cuts regionally, but primarily just from the 
Schedule F filing data. And if you look across the country at 
where the most or the highest proportion of Schedule F filers 
having adjusted gross income over $200,000 reside, it tends to 
be the Northeastern States, States like New Jersey, 
Connecticut, Massachusetts. In fact, the State with the highest 
proportion of returns, Schedule F returns over $200,000 AGI is 
the District of Columbia. Twenty-nine percent of tax returns 
with Schedule F are over $200,000 in AGI.
    In most of the States, particularly in the Southern States, 
it is lower. Alabama, 4 percent of Schedule F filers have AGI 
over $200,000. Mississippi, 4.4 percent. Georgia is a little 
higher, 6.8 percent. But generally, that is the way it works 
out. The coasts tend to be higher. The heavily populated States 
tend to be higher. When you get into the plains States, Kansas 
is 2.3 percent of Schedule F filers have AGI over $200,000. And 
then again, out of that 2.3 percent, not all of those are 
getting farm program payments.
    So I think while there has been a lot of alarm about this 
proposal and perhaps the heavy incidence of this proposal on 
commercial farmers, when we look at the data, I think it turns 
out to be less than what probably most people expect. Thank 
you.
    Senator Chambliss. Just very quickly as a follow-up, if the 
$200,000 is a 3-year average, Mr. Secretary, then you need to 
be clear in your book, because I am sitting here reading at 
page 21. It says, $200,000 annually. It does not say anything 
about average. So you need to make that clear, and that helps 
some. It does say that you can have a couple of good years and 
throw in a bad year and you are still going to be eligible.
    However, I am also sitting here looking at Schedule F. 
Irrespective of whether you have the average of $200,000 or 
$2.5 million, you are still going to have to make these 
payments. Now, you referred to Schedule F and here it is, and 
Chuck, you are shaking your head. Show me on here where it says 
you can deduct your farm land payments, that you can deduct 
your equipment payments. These payments go on, and $200,000 is 
a lot of money, but when you are talking about somebody having 
to conduct a farming operation or that is a corporation, 
whether it is an individual or whether it is a trust. If he has 
$200,000 and has a million dollars' worth of equipment, plus 
the land, the farm, there is no way he can do it.
    But even irrespective of that, irrespective of whether it 
is somebody that has a million dollars' worth of payments, or 
if he has a small amount of payments, he has still got to take 
it out of whatever that adjusted gross income is. Keith, your 
numbers bear out the fact that farmers do a pretty good job of 
taking a lot of expenses off of there, and I do not doubt that. 
But the fact is, a $200,000 limit, even if it is over a 3-year 
average period of time, is not going to allow your small 
farmer, your farmer who farms 500 acres, the ability to 
participate.
    Keith, I think you hit it on the head better than anything 
else. We are going to eliminate 85,000 farmers across America 
with that limit from being able to get a helping hand when 
times are tough, not in the good years, but when times are 
tough, they are going to be eliminated.
    My time is up. I have taken way more than I should. I may 
have a chance to come back, Mr. Secretary. I do have, Mr. 
Chairman, a list of questions that I will submit for the 
record.
    Chairman Harkin. Without objection, we will include those, 
and we will include any questions that members were not able to 
ask to send to the Secretary.
    In order of arrival, we have Senator Nelson, Senator Crapo, 
Senator Roberts, Senator Lugar, Senator Salazar, Senator 
Klobuchar, Senator Cochran, Senator Brown, Senator Coleman, 
Senator Lincoln, Senator Stabenow. I am told that Senator 
Nelson will yield his first position to Senator Crapo, who 
needs to make another appointment, so I recognize Senator 
Crapo. We will try to do 6-minute rounds. I ask, Mr. Secretary, 
if you can help condense the answers a little bit and we will 
try to get through at least a first round and get into a second 
round, but I am committed to be here as long as we need to 
flesh out all the concerns that Senators have on your proposal. 
Senator Crapo?
    Senator Crapo. Thank you, Mr. Chairman, and thank you, 
Senator Nelson. I am one of those who, I am sure like most of 
us, have four hearings going on at this point and need to get 
moving to another.
    Mr. Secretary, I want to join with the comments of others 
who already today have commended you for thinking outside the 
box and submitting a very solid, good proposal to us for 
consideration. By the nature of the way this works, though, I 
am going to focus on some areas where I do have disagreement in 
the few moments that I have. In fact, I am going to probably 
spend my entire time on just one of those, and that is the 
dairy program aspects of the proposal.
    As you know, I have been a longtime opponent of the MILC 
program, which I believe is regionally divisive and does not 
really provide an effective, fair, or non-market-distorting 
safety net for our dairy farmers, and I am disappointed that 
the administration has embraced this program in its proposal. 
In fact, the USDA itself has identified a number of flaws in 
the past with the MILC program, and in a report issued in 2004, 
the USDA found that the MILC program conflicts with the dairy 
price support program and actually causes milk prices to stay 
lower longer for all dairy producers. According to that report, 
without the MILC program, the remaining dairy programs raise 
the milk price by 4 percent compared to about 1 percent with 
the MILC, on average over 5 years.
    So I guess my question is, why, given this understanding by 
the USDA of the problems we have with the MILC program, has the 
administration endorsed it as a part of its proposal?
    Secretary Johanns. As you know, to date, we have supported 
the money for the MILC program. The President indicated he 
would and we have, and we have honored that commitment. For 
many dairy farmers in the Northeast, this is a safety net 
program. You can argue about whether it is effective, whether 
it is getting the job done, but it was put there. It has been 
financed over the past 5 years.
    We propose some changes, much like we have proposed changes 
to a number of programs. We say it needs to be based upon the 
historical average. We propose that the rate be cut down from, 
I think, 34 percent the last year of the farm bill. It would be 
at 20 percent. But we have made those kinds of proposals all 
across our programs to try to make programs more market-
oriented.
    Here is what I would say when I thought about this. I 
certainly appreciate what you are saying and what you quoted 
from some of our findings. Once a safety net is put in place 
for people, however, it is very difficult to just snap your 
fingers and say it goes away. That is going to cause some real 
pain out there.
    So we took an approach that basically says, we think we can 
put enough change into this, enough reform into this, that for 
the life of this next farm bill, it will step down and be a 
more market-oriented approach.
    The final thing I would say on it, I have had a number of 
conversations with farmers in the milk area. I do think, 
Senator, there is a growing discussion about how best to 
approach milk programs in the future. I do not think it is 
ready for this farm bill, but I do believe as we head into the 
next 5 years with this in place, I do think that this 
discussion will continue and my hope is that good things will 
come out of it and we can take yet another step in the next 
farm bill.
    Senator Crapo. Well, thank you for your answer. I disagree 
with your conclusions there. In fact, I think that we would 
have a better safety net if we were to eliminate the MILC 
program, but I understand what you are saying.
    I wanted to get two other quick questions in here, so if I 
could ask you to respond quickly to them, I would appreciate it 
because I am running out of time already.
    The first is you describe some changes that you are 
proposing to the MILC program and my question is, do you 
anticipate that this revised MILC program will be classified as 
blue box or amber box under WTO rules?
    Secretary Johanns. I am not the trade person and I would 
feel a lot more comfortable if I could pass that question to 
Susan Schwab. But I do think there is a chance this is blue 
box.
    Senator Crapo. OK. I will certainly ask her, as well, if 
she could elaborate on that, maybe when you get a chance to 
give me a fuller answer. I would appreciate it.
    Secretary Johanns. Yes.
    Senator Crapo. The last question--I want to stick with 
dairy but shift subjects quickly--is on forward contracting. It 
is not clear to me what the current position of the Department 
is on forward contracting. In the past, the administration has 
supported it, as I do. In fact, there was a letter by Secretary 
Venneman to this committee stating the desire of the Department 
to have Congress extend that program.
    Do you continue to support the program? Does the Department 
continue to support it, and if so, would you be willing to send 
us another letter indicating that support?
    Secretary Johanns. I absolutely would. We support that. We 
have in the past. I do not know that we spent any time on that 
issue in the farm bill proposal----
    Senator Crapo. Right.
    Secretary Johanns [continuing]. But we are so on the record 
there, but I would be happy to do it again and----
    Senator Crapo. I would appreciate that.
    Secretary Johanns. I would be glad to do it. I will send 
that and copy the committee.
    Senator Crapo. Thank you. Mr. Chairman, we did it with 15 
seconds to spare.
    Chairman Harkin. Great example. Thank you very much, 
Senator.
    Now, we will go to Senator Nelson, and then Senator 
Roberts, then Senator Lugar, and on.
    Senator Nelson. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for being here today and a special 
thank you to the former Chairman and Ranking Member Senator 
Chambliss for conducting a field hearing out in Nebraska and 
for listening very carefully to those who grow their crops in 
rows and those who are engaged in agriculture with ranching and 
cow-calf operations. We appreciate it very much.
    Mr. Secretary, I have been watching the crop insurance 
program for some time as it relates to a continuing drought. 
The crop insurance program was never designed to try to have a 
loss for 7 years in a row, and so the effect of that is that 
the base continues to shrink each year so that if you have a 
drought going long enough, in effect you are out of business 
for crop insurance. I hope that you will take a very close look 
at the crop insurance program to see what we can do to avoid 
having that result. Averaging over years might make somewhat of 
a difference, but there are some things that I think ought to 
be considered and our staff would like to visit with you about 
that.
    I have a series of questions which I will submit to you, as 
well, but one of the things that is important, I think, in this 
farm bill is to stress what the purpose of it is. The purpose 
is obviously to get payments to agriculture in a fair and 
equitable way and one that complies with all the new 
requirements. But it is also to protect our agricultural 
production sources in the United States so that we do not have 
to rely on other countries for production of our food because 
we want to produce it here at home. If we like relying on other 
countries and other parts of the world for 65 percent of our 
oil, we will love importing 65 percent of our food and relying 
on other countries to provide it for us. We do not want to give 
away that.
    So, really, this farm bill is about protecting and the 
security of our food production here, not just safety but 
security of being able to produce it here at home so that we do 
not end up as a result of unfair trade practices, as a result 
of other imports, that we are not in the position where we have 
to rely on others for our food.
    The second part of this is moving toward our own fuel 
security with the biofuels, with cellulosic, with ethanol, and 
you and I know what the ethanol industry started in Nebraska. 
When I was Governor, we had one plant. When I left, we had 
seven and you inherited that and we have continued to progress 
along the way and it is very encouraging that we are looking at 
switchgrass and other kinds of products that we can turn into 
our own fuel. But it is about developing our fuel security, as 
well.
    So my challenge, I guess, and I tell you, I have no pride 
of authorship, but you probably would not believe that, but 
turning it into the Food and Fuel Security Act of 2007, because 
that is what it is about. Now, there will be some that will 
want to offer another word, ``fiber,'' too, so I will be 
tripartisan, whatever it takes, but I think the emphasis has to 
be on producing and having the security of our food here at 
home. That is what these payments are about, keeping people in 
agriculture, bringing new people into agriculture.
    Someone said today that the average age of farmers in 
Nebraska went up from 55 to 56. It still seems pretty young to 
me, but I know that the trend is not necessarily the way we 
want to go, or the number of farms that continue to decrease.
    So that is what this is all about, and I applaud your 
efforts to try to build a program that will really work toward 
fuel and food, the security of both, because that is really 
what this is all about, and I wondered if you might have any 
comments you might make on that suggestion.
    Secretary Johanns. I like the suggestion and I think it 
does focus on reality. You know, if you think about how much we 
are involved in the fuel issues, and I believe there is a great 
opportunity to expand that on a nationwide basis. As I said in 
my opening comments, I really look forward to the day and 
envision the day when production of ethanol is a nationwide 
phenomena, where it does move out of the corn belt and we move 
into cellulosic ethanol. That is when every citizen can look at 
that and say, we are benefiting from that investment that was 
made by that Congress some years ago. I think it is exactly 
where we need to be headed.
    We did not try to name the bill. We only wanted to put our 
proposals out. But I do agree with your thought that it 
reflects reality. Twenty percent of our corn crop now is 
essentially devoted to ethanol. That number is likely to 
continue growing. I hope a future Secretary can come here and 
start giving you statistics as to how much of our biomass in 
the country is now being devoted to ethanol production, because 
we have got a lot of it and it is an untapped source of energy 
for this country.
    Senator Nelson. Thank you. Thank you, Mr. Chairman. I 
outdid Senator Crapo. I left 20 seconds.
    Chairman Harkin. You sure did. Thank you very much, Senator 
Nelson.
    Now we go to Senator Roberts.
    Senator Roberts. Thank you. Thank you, Mr. Chairman, and 
thank you for holding this hearing, and thank you, Mr. 
Secretary, for coming before us. As I said, the best way to 
write a farm bill or any bill is to sit on the wagon tongue and 
listen to farmers and you certainly followed that advice. My 
word, you went to 52 listening sessions, including one at the 
Kansas State Fair in Hutchison and handled that very well.
    We are running the numbers and we are going to be with you 
next week and so I am not going to be too pesky with you. I 
want to thank you for your health care efforts. I think you 
said 1,200, I think, Critical Access Hospitals. We have 84 in 
Kansas, the most in any State, and I want to thank you for that 
initiative.
    I did not vote for this last farm bill. I checked with 
staff. I checked the numbers out of Kansas State University and 
seven out of the 10 years previous to that bill, the 2002 bill, 
we would not have received a payment. Those were some of the 
roughest years that we have had. And we have continued that. 
Why on earth would I support a farm bill that seven out of 10 
years when you really need the money you are not going to get 
the money?
    You said that, basically, in your testimony, but I want to 
repeat it. It is on page six of 12 in the Wiesemeyer report. I 
am not getting any payment for this, Mr. Chairman, or at least 
I do not think I am, and if I am, I sure as hell do not want to 
talk about it.
    [Laughter.]
    Senator Roberts. But at any rate, Jim Wiesemeyer, if James 
Brown was the Godfather of Soul, he is the Godfather of 
Agriculture Program Policy. On page six of 12, you say, well, 
if you look at the current CCP, and farmers told us this, and 
when they told us this, it seemed counterintuitive. I could not 
figure out what they were telling us. But when we looked at it, 
they were right. It is no wonder they were showing up asking 
for disaster aid. You cannot LDP something you have not grown, 
and they are right about that. But what tends to happen is that 
prices go up and the CCP is not triggered and they are out. 
They are flat out. If they have not raised a crop because of 
drought, they have literally lost on their LDP and literally 
lost on their CCP. Where is the safety net?
    And that is what a lot of people were asking at the end of 
the 2002 bill. Lord knows I do not want to extend that. And so 
we had to rely on crop insurance and that is about all we had, 
and that is why you are going to be facing on the supplemental 
an emergency disaster bill for the 3 years of drought that we 
went through out on the plains and your home State, my home 
State, and other areas out there. So I want to thank you for 
really figuring out what is wrong with the current program and 
how to fix it.
    We have to remember the lessons we have learned. I know you 
have heard in the forums that the target price for wheat was 
too low. We would get four cents of an increase. I am not going 
to get into comparing the commodities. I do not want to do 
that. I could, but do not want to. But the four cents comes in 
the out years. Wheat growers are not very happy about this, and 
so we are going to have to work on that.
    I want to know, how does this formula help the wheat 
producers who were essentially left out of the countercyclical 
program under the 2002 bill? You do not have to answer that 
right now because I do not have enough time to get into it, but 
you could answer it for the record, and besides, you are coming 
up to talk to me next week anyway.
    Do you have any projections--and this would be for the 
number cruncher of all time and the flyspecker over here, Dr. 
Collins--do you have any projections that you could provide us 
as to how the countercyclical payments would have looked over 
the last 5 years compared to the current farm bill? We need to 
know that.
    You have traditionally opposed ad hoc disaster payments, 
encouraging the producer to buy crop insurance. As somebody who 
worked very hard in 2000 with Senator Bob Kerrey from Nebraska 
to create a program that provides the necessary risk management 
tools to producers, I am very concerned about the effects of 
your proposal on crop insurance. The last farm bill already 
robbed to use us as a bank, $2 billion from crop insurance. How 
does taking additional money out of this risk management 
program help producers? I do not understand that.
    As the $200,000 adjusted gross income cap plays out in 
reality, let us say that there are three brothers in Dodge 
City, Kansas, operating jointly as Three Brothers, Inc. That 
company has an AGI of $205,000. That means each brother 
receives about $68,333 as their share. Does your proposal 
really preclude any of the brothers from receiving Title I 
payments? Does the $200,000 limit apply to the AGI of the 
corporation or to each brother individually?
    You also have a conservation enhancement payment under 
Title I, that is the one where you say you will increase the 
producer's direct payment by 10 percent if they forego a 
marketing assistance loan countercyclical payment. I understand 
that the conservation payments under Title II are not subject 
to the new AGI limit in your proposal. So my question is, is 
this proposal a commodity program or a conservation program and 
which AGI limit would you propose applying to it?
    Now, that is the laundry list of questions that I had for 
you. We have got about 32 seconds. Obviously, you cannot answer 
that, so why do not we just reserve all that until you come up 
and talk to me next week. We will have a good talk about it.
    Keith, you said 85,000 farmers were eligible but only 
35,000 actually got payments, is that right?
    Mr. Collins. Mr. Roberts, I said out of all of the Schedule 
F filers, the what we call farm proprietors----
    Senator Roberts. Sure, sure, sure.
    Mr. Collins.--85,000 had AGI above $200,000, and out of 
that 85,000, 25,000 actually got farm program payments.
    Senator Roberts. Yes, but the other 60,000, with the way 
the farm program was set up, we did not have a crop. So how can 
you file on Schedule F if you did not have a crop and you are 
not going to get a payment?
    Mr. Collins. This was 2004 data, Mr. Roberts.
    Senator Roberts. Two-thousand-and-four?
    Mr. Collins. Correct. That is the latest IRS data we had.
    Senator Roberts. Yes. Well, that is right in the middle of 
our drought. We had 2003, 2004, 2005, 2006, and a blizzard.
    [Laughter.]
    Mr. Collins. It was also----
    Senator Roberts. I mean, the reason they did not put it 
down on Schedule F is with the way this farm bill is written, 
if you do not have a crop, you do not get a payment, except for 
crop insurance. I guess that is my answer to it. The other 
thing is that 29 percent came from the District of Columbia. 
What is that all about?
    Mr. Collins. Apparently there are a lot of high AGI farm 
proprietors in the District of Columbia.
    Senator Roberts. Yes, there are a lot of absentee landlords 
or something. By the way, Members of Congress make about 
$170,000 and if all farm income counts, there are not going to 
be many Members of Congress getting any farm program payments. 
I do not have a farm.
    [Laughter.]
    Senator Roberts. Thank you, sir, and Mr. Secretary, thank 
you. Chuck, it is good to see you and that guy with the glasses 
on his nose behind you. I appreciate his work, too. Thank you, 
Mr. Secretary.
    Chairman Harkin. Thank you, Senator Roberts.
    Now we turn to the person who really alerted us and the 
whole country, I think, to the promise of cellulose ethanol, 
who really kind of charted the course and led the way, and that 
is Senator Lugar.
    Senator Lugar. Thank you very much, Mr. Chairman.
    Let me just join you and Senator Chambliss in commending 
the Secretary, to begin with, for this book. This is really a 
substantial contribution. Now, I do not want to be derogatory 
to other Secretaries of Agriculture, but frequently, we have 
had a suggestion of pamphlets and then disappearance. I 
appreciate the fact that you are here, you have a book, you 
have Chuck Conner, who came with me to Washington 30 years ago 
and whose ministry in this thing I really respect so much, and 
Keith Collins, who has done superb work really throughout this 
period of time in amassing statistics that are impressive. So 
this is important.
    Now, I make that point because some of the agricultural 
press have commented that commendation has come here or there, 
but I think it ought to be very concerted. I am one person that 
supports what you are doing, and even though we may argue over 
specifics of this situation, this is a vast contribution.
    Second, I wanted to commend you for sticking up for the 
fact that farmers throughout the last three decades have gained 
much of their growth through foreign trade. We have expanded 
our markets. We need to continue to do that. I appreciate all 
the disputes that are going on surrounding the WTO--loss of 
jobs, outsourcing, all sorts of particular protections even of 
American agricultural commodities, but this really has to be 
something that is a mission for agriculture in the same way 
that, second, you have commended energy.
    The explosive possibilities of this are evident to any of 
us who are in farm country now. I am amazed at the changes even 
in a short time in rural counties in our State--tax revenues, 
deposits in the bank, hope for the local Chamber of Commerce. 
This is an extraordinary sociological phenomenon, quite apart 
from whatever we are discussing with regard to individual 
farmers. And it is just beginning.
    This is so significant, the world trade business and the 
energy revolution as it intersects agriculture, that if we did 
nothing else but foster those two things, we will do a great 
deal for most farmers in our country as well as most of our 
citizens.
    Now, let me just add with regard to the energy situation, I 
am hopeful that specifically USDA can work in this bill or 
elsewhere with those who are going to try to get higher yields 
for corn or for beans or for whatever. We have all these static 
estimates, only so many acres, only so many bushels. Now, 
granted, the weather plays a big role, but the fact is that 
there has not been much of an incentive to get corn to 200 
bushels to the acre on an average and 250 in a good year, or 
ditto to move ahead with beans. In all of our lifetimes, we 
have seen those kinds of adjustments, but not for a while. I 
think that is very, very important.
    Likewise, with regard to corn ethanol, distillers' dry 
grain, DDG. Some people are working out markets for that, new 
deal, huge opportunity for income, and likewise a way of 
meeting some of the needs of people who are feeding livestock, 
who need to try to think through how those proteins can come to 
their livestock.
    A third thing I want to mention is the safety net item, I 
think very important. Last farm bill, I proposed a safety net 
situation and got 30 votes. It was an alternate farm bill. I 
have no grief for that particular situation, but others have 
thought through that and improved upon it a great deal.
    Our payments, I believe, ought to be to keep farmers in 
business and that, I think, can be done in part through what 
you are suggesting. I hope we will be able to perfect that. 
There are a lot of groups outside of agriculture deeply 
interested in the equities of that.
    And speaking of equities, I commend your attempt to try to 
meet the criticism, not in agriculture, not in this committee, 
but the ordinary people in life who say, why should a 
millionaire get subsidies from me, a modest taxpayer? There 
isn't any good reason for that.
    And we have got to think about some degree of social equity 
while we are thinking about subsidies. Some would say subsidy 
is not a good idea at all. I am not going to go down that 
route, but I would just simply say that, clearly, there are 
limits to both the patience and the common sense of most people 
when it comes to subsidies and taxpayers and transfers of 
monies in America. And I commend you and Keith for trying to 
get into that problem.
    Now, let me just add that the conservation that Senator 
Harkin has talked about is very important because that is our 
heritage. The land that I farm or that I hope that my sons will 
continue to farm will someday be farmed by other people. 
Hopefully, it will be in better shape, we will have done better 
with the water resources, improved the land resources, kept 
White River from flooding more often, all the sorts of things 
that are very important for our heritage, the assets of our 
Nation. So we want to support those programs.
    And finally, I would hope at the end of the day that all of 
this bill costs the taxpayers of the country much less money. I 
appreciate each of our committees would say, well, after all, 
we are advocates for particular people. We are advocates for 
farmers. I am a farmer in the sense that I own land, 604 acres. 
We have got corn and soybeans and trees out there. I take these 
programs very seriously. Someone is suggesting about recipients 
of payments, I am a recipient of payments. The Environmental 
Working Group and so forth lists me and our farm so everybody 
can read how much is coming into our farm. So we understand 
these issues.
    But I would just say simply that it is very, very important 
that we preserve the opportunity to farm for people, not just 
family members. My sons are going to have that opportunity. But 
there are very few sons, reportedly, in our State who are going 
to have those opportunities. And just getting down to the 
payments issue, the dilemma is that the talented young farmers 
right now farming in Indiana, 2,000, 3,000, 4,000 acres, may 
only own 50 or 100 of that. That is where the machinery is 
being utilized, and they are doing a pretty good job. But the 
equity of this is uncertain, I would say, and farmers are still 
getting owner and the ownership situation. You cannot tackle 
all of that, but the fact that you have tried to get into those 
issues is tremendously important in terms of the continuity of 
agriculture.
    So I will submit my questions for the record, but I wanted 
to take this time to make these comments. Thank you very much.
    Secretary Johanns. Thanks for the comments. We appreciate 
it.
    Chairman Harkin. Thank you very much, Senator. Again, thank 
you for your great leadership in this whole area. I look 
forward to working with you on this whole area of bioenergy and 
how we move ahead and couple that with conservation at the same 
time. I think it is doable. I do not know exactly how to do it 
right now, but I hope we can accomplish that.
    Let me see, now, going down the list here, Salazar, 
Klobuchar. Senator Klobuchar?
    Senator Klobuchar. Thank you, Mr. Chairman.
    Thank you, Secretary Johanns. And thank you for the visits 
you have made to our State. I know that Congressman Collin 
Peterson and I met with you when you were there at Farm Fest 
and appreciate the work you have done in our State. I also 
appreciate the focus that you have on energy. Like Senator 
Harkin, I am concerned about the investment that we want to 
make sure that when you look at the money we have put into oil 
companies, that if we are really going to develop our own home-
grown energy, that we have to make a better investment than 
this.
    I also appreciate that you are talking about continuing the 
MILC program. We would like to see it at the levels at least 
that it is currently and not a cut. But it is very important 
that we continue the MILC program as well as the sugar program.
    But I thought I would focus today on disaster assistance. 
You know, Minnesota farmers have been hit with heavy losses for 
two consecutive years. We were hit with excess rain and 
flooding in 2005 and again with drought in 2006, and in some 
cases, the same farms in both years. The combined costs of the 
disasters to Minnesota's farm economy was more than $700 
million over both years. I have cosponsored the Emergency Farm 
Relief Act of 2007 that was introduced by Senator Conrad to 
compensate farmers for a portion of these losses. As we look at 
the emergency supplemental funding for the war in Iraq, which 
of course to support our troops, I understand, but emergency 
funding for farmers is also important for rural America.
    Given the fact that the 2002 farm bill commodity programs 
have cost something like $25 billion less than originally 
anticipated, why don't we see that kind of support for the $5 
billion in disaster assistance for those farmers who suffered 
losses over the last 2 years?
    Secretary Johanns. In the farm bill proposal we have, I 
would respectfully suggest to you that we have what I consider 
some excellent ideas in terms of how to deal with disaster. For 
example, Senator, there is just no question in my mind that the 
revenue-based countercyclical is going to work better for those 
individuals who have experienced disaster problems in a program 
crop than just, without a doubt, than what we have now, because 
what tends to happen in a disaster, price goes up. The current 
program is triggered by price and they are out, and if they do 
not raise a crop, they do not get the loan deficiency payment 
under any circumstances, so they really lose on a couple of 
accounts.
    The second thing I would say is that one of the things we 
heard from farmers was that the gap they could insure, whatever 
the number is, 70 percent of their crop or whatever, but that 
30 percent was the real problem for some farmers. For others, 
it was not. They did not want to lose that, needless to say, 
but they were at a point in their farming career where that 
would be a part of the risk that they could manage if they had 
to.
    So our gap coverage says for those farmers who want to buy 
that gap coverage, let us make it available. Let us put that in 
our proposal. We have also proposed consolidating a couple of 
programs that we use a lot in disaster, ECP and EWP, which 
again, I think we confuse everybody about when these programs 
apply and when they do not. We are proposing a different 
approach.
    Now, in terms of the disasters that we have been dealing 
with, here is what I would say to you from our standpoint at 
the Department. We have reached out in so many ways. I was 
Governor of a State just north of Senator Roberts' State and in 
the same vicinity of your State. Out of the 6 years I was 
Governor, I think we had drought all 6 years. We had a couple 
of years a little bit better than the others, but a very, very 
difficult situation. I will tell you that when the Department 
stepped up with the non-fat milk program, it was a huge help to 
our farmers. It has been criticized and we have tried to be 
mindful of the criticism directed at that, but it really was a 
helpful program.
    This last year, we went out. We identified additional 
funding where literally we could block grant it into the States 
and they could distribute it to dig wells deeper, buy feed for 
the animals, buy hay. It was a very, very flexible program, and 
again, a program well received.
    I feel strongly we need to somehow solve this disaster 
issue because it is an annual event here. How big, should it 
happen, should it not happen, et cetera--how does a farmer ever 
plan on that? I mean, that is no safety net. And farmers told 
me that was no safety net.
    I really believe that working with the proposals we have, 
and maybe there are some other ideas, there are some things 
that really will be a safety net for farmers in disaster relief 
situations.
    Senator Klobuchar. And I appreciate that. I would just also 
appreciate, though, support for the supplemental, for Senator 
Conrad's bill.
    The other piece of this with the crop insurance, my concern 
with this is based on a county-wide basis of loss, and we have 
some big counties in Minnesota where you might have a part of a 
county where a farm was totally wiped out and the rest of the 
county is fine. Have you looked at that again and refiguring 
that for that situation?
    Secretary Johanns. I will ask Dr. Collins, who works this 
area, to offer some thoughts on that.
    Mr. Collins. Senator, we have looked at that and we decided 
to go with the county basis because we already have in place 
county area crop insurance programs. We have GRP, Group Risk 
Protection, and GRIP, Group Risk Income Protection. If you look 
at the national enrollment in crop insurance, farmers who buy 
crop insurance policies today have about $20 billion of their 
crop value that is not covered. That is the value of the 
deductible part of their policy. We have county area policies 
in place already today that would cover about $13 billion out 
of that $20 billion deductible. So we already have on the 
ground a county area-based policy that could be adopted to 
cover the deductible portion of existing multiple peril crop 
insurance policies.
    So that is the reason we went to the county basis, because 
it takes years to develop a crop insurance program, to 
determine the appropriate actuarial rating, and we already have 
done that over the last several years for the county-based 
areas.
    Now, I understand your concern. It is a legitimate concern, 
and what you will find is that producers whose yields tend to 
correlate with the county, this will be a great benefit to 
them. For those producers whose yields do not correlate with 
the county, they are going to have to buy up higher levels of 
coverage with their individual crop policies. So it is true 
that there are some tradeoffs there and I think we went with 
the county basis because that was where we were best equipped 
to deal with it.
    Senator Klobuchar. Well, thank you, and we look forward to 
working with you and I will submit some additional questions in 
writing.
    Thank you, Mr. Chairman.
    Chairman Harkin. Thank you very much.
    Senator Cochran?
    Senator Cochran. Mr. Chairman, thank you.
    Mr. Secretary, thank you and your staff for cooperating 
with our committee and being here to describe the proposal the 
administration is making for changes in the farm programs. We 
know this is a complicated and wide-ranging effort and we 
appreciate the hard work personally you have devoted to the 
process and your openness in terms of going around and talking 
and asking questions of people out in the country about what 
their thoughts are and what their impressions are of these 
proposals.
    What I am hearing from some of my friends in my State of 
Mississippi is that in cases of cotton and rice programs, the 
changes that are proposed in the farm bill may very well end up 
causing people to go out of farming, sell the land, and I 
wonder, in that connection, has there been any effort to do an 
economic income analysis or economic impact analysis of the 
program in terms of job losses, economic consequences, 
practical consequences as a result of these proposals, if they 
are approved and enacted into law.
    Secretary Johanns. I will ask Dr. Collins to talk more 
extensively about the economic analysis. Let me, if I might, 
though, offer a thought. I was in your State recently. In fact, 
our first stop when we unveiled this was in Mississippi and we 
had a great opportunity to talk to producers. It was a packed 
house. They were very, very interested in what we were doing.
    But let me, if I might, just zero in on cotton because we 
were right there in the Delta. If you look at the adjustments 
that we have made to the loan rate for cotton, for example, and 
then look at the increase that we have made in the direct 
payment, the increase in the direct payment is 65 percent. And 
again, it is hard to figure out the micro level, the impact on 
each farmer in each State, but I can tell you in an overall 
picture the numbers are absolutely very close to each other.
    But here are a couple of things, Senator, that I think are 
really important. The first thing is cotton is plagued like any 
other crop with weather issues. It may be especially true for 
cotton. If you are irrigating cotton, you can withstand drought 
and that sort of thing, but if you are not, you are just 
praying that Mother Nature is going to be on your side this 
year. The one thing about the direct payment I can tell you, 
that is the one thing you are not going to have to pray about. 
Maybe you should pray anyway, but I can tell you it is going to 
be there. It is a mandatory provision, approved. That young 
cotton farmer out there who is just getting started who has a 
mortgage payment, an equipment payments, et cetera, can take 
that to the bank. Under the current program, if they lose a 
part of that crop, again, they cannot LDP a crop that they did 
not raise, and if they have any uptick in the price, they are 
not going to get the countercyclical kicking in and so they are 
really, really out. They are really on the losing side of what 
was supposed to be a safety net.
    The second point I would mention, and again, I am not the 
trade person so I even hesitate to bring this up other than it 
is real. We aggressively defended our cotton program. We lost 
in the first stage. We aggressively defended it again. We lost 
in the second stage. Now there is a WTO panel and the purpose 
of them being impaneled is to decide whether we have done what 
is necessary to comply with the ruling. That is the only 
purpose of the panel. Somewhere in your deliberation time here, 
between now and the time the farm bill will be passed, my 
expectation is you will get a WTO ruling there and then we will 
know what that ruling is.
    But as I said to cotton producers, folks, it is no safety 
4net to go out there and suggest something that puts a bullseye 
on your back. It is no safety net at all. As a general 
proposition, if your payments, your direct payments are not 
linked to price or production, they are green box. They are WTO 
compliant.
    Now, I will tell you, Senator, we did not sit down to write 
a farm bill for the WTO. We sat down to write a farm bill that 
we thought was good policy, but again, getting back to the case 
of cotton, I cannot ignore it and none of us can because 80 
percent of the cotton produced is exported. Like it, dislike 
it, pro-trade, anti-trade, I know all the debate, but the 
reality is that on any given day, we have got to be paying 
attention to selling 80 percent of our cotton production into 
that export market. We just are in a position where we have got 
to pay attention to how best to do this.
    And I can tell you, I think when you sort it all out, with 
that increase in direct payment, with some of the things we are 
doing, I will promise you I cannot tell you what happens to the 
individual farm out there. I can tell you in terms of the 
overall picture I believe this is a more secure, a more 
predictable safety net, and I am not being critical of the 2002 
bill. I supported the 2002 bill. If you turned the clock back, 
I would do it again. But times do change and one of the changes 
here is we have got to pay attention. We need that export 
market for your cotton people.
    So that is a long answer, probably more than you wanted----
    Senator Cochran. I think you are absolutely right. The 
export market is critical for agriculture generally, but 
specifically for cotton. We understand that and we appreciate 
your looking into it and trying to figure out what the 
consequences are going to be. I think, to be fair with our 
constituents, though, it would be a mistake to over-promise 
that we are going to fix this in a farm bill. I do not know 
that the votes are here to do that or the support from the 
administration is available to help us do that. And so I am 
trying to figure out what do we do now? How do we try to make a 
transition if a transition is needed from some traditional land 
use practices to something that could take the place of what we 
have seen in the past.
    I grew up in an era, as some of the others did, both my 
grandparents had farms. Those days are so different from where 
we are today, though. My recollections as a young boy of 
picking cotton and chopping cotton, that just--nobody does that 
anymore. You have got cotton pickers and mechanical--what you 
have is a labor force that has built up and a culture of people 
involved in providing the inputs, those fertilizers, seeds, and 
on and on and on, businesses depend on this. If this crop just 
disappears, it is going to have an enormous adverse economic 
consequence on the South and particularly on my State of 
Mississippi.
    I just wonder if anybody has thought about that and thought 
about, well, what are we going to do now? Just tell everybody, 
good luck? Is there going to be any kind of effort to help with 
a transition if that occurs in some of these areas? I am 
worried about that.
    There used to be economists, and this is not talking about 
Keith or anybody in particular, but they would talk about, 
well, there are going to be some financial dislocations. I have 
heard that. I heard that when I got to Washington. What that 
means is people are going to go broke. Some people are going to 
go broke and it is going to be devastating.
    I just am curious to know if you have thought through that 
and what are we going to do about it.
    Secretary Johanns. I come from a different part of the 
country, admittedly, but financial dislocation language does 
not impress me, either. I was very, very involved with farmers 
during the 1980 crisis. In my lifetime, and hopefully in no 
one's lifetime, do we see that again. We thought long and hard 
about it.
    I suppose, Senator, we could have walked into this 
committee and said, well, we have done this because we have to 
comply with the WTO. We wish you the very best. Not impacted 
direct payments, taken that money, sent it to the bottom line 
and had a big savings and touted that all over the country that 
we have got this big savings. We did not do that. We tried to 
figure out how best to approach this. And so that is why cotton 
is getting--you know, the other four major program crops 
starting in the third year going through the fifth year, they 
get a 7 percent increase. We are proposing 65 percent for 
cotton.
    So you add all of that up, and again, I will suggest to you 
that I think we have got some great ideas here. I have immense 
respect for you, like everybody on the committee. I know that 
you are trying to figure this out, too, just like we have been 
trying to figure it out because we have to somehow decide how 
best to approach this because that export market is important. 
I would love to sit down with you or your staff or whoever you 
want me to sit down with, walk through the numbers, try to show 
you what we think these numbers mean, and, you know, just make 
the case, because I think some of the very same things you are 
debating in your mind today, we have debated. We have tried to 
figure out how best to approach this.
    I would again respectfully suggest, I think we have got a 
really good idea here and a good approach and we are anxious to 
try to make the case. So I offer that to you. I would be happy 
to do it. Your concerns are certainly our concerns.
    Senator Cochran. Well, we appreciate your response and your 
interest in working to try to find some answers to our 
questions.
    I complement you on the conservation incentives. I like the 
idea that you are expanding the Wetlands Reserve Program, the 
Conservation Reserve Program. The Cellulosic Bioenergy Program 
is something that I think we will be very interested in. These 
are all options for land use, as well, and we just need to take 
advantage of the opportunities we have to help make ends meet, 
as they say.
    Thank you very much.
    Chairman Harkin. Thank you very much, Senator Cochran.
    Senator Coleman?
    Senator Coleman. Thank you, Mr. Chairman. It is kind of 
like a blink of an eye here. I look to my right, and if you 
count Roberts as a Chair on the House side, I think there is an 
array of one, two, three, four, five Chairmen, former Chairmen 
of this committee. I have not been here that long.
    But I do have to say, Mr. Secretary, I do want to start off 
by thanking you. And I have some concerns and kind of the 
nature of this is that I will kind of target in on those, and I 
do not even know if in the time we have that I will even get 
the responses. We will have a further conversation. But I want 
to thank you and your staff for your effort in this, for the 
work you have done on the ground, for your commitment to listen 
to the folks who this impacts, our farmers.
    I have said I have some questions. I am going back home and 
talk to the folks who have got the dirt under their fingernails 
and let them tell me what is the impact of some of these 
changes. But clearly, you have done the groundwork. You have 
thought outside of the box. You are trying to deal with that 
situation that says if you do not plant the crop, where is the 
safety net? I understand that.
    I have particular appreciation--I disagree with my 
colleague from Idaho about the MILC program, and yet I will 
join him on forward contracting. We should work together on 
that. I share the concerns of many of us on sugar. I think you 
have done a good job maintaining a program that is no cost to 
the taxpayer.
    I think we face some challenges in the future over some 
trade issues and I think energy may be a solution and I applaud 
the strong commitment to energy. I think a lot of it has come 
out of this committee, by the way, and I think that is 
important. On Foreign Relations, we had Alan Greenspan come 
before the committee and he indicated that we could be doing 60 
billion gallons of--about 60 billion. A lot of us thought it 
was bold when we did 7.5 billion gallons of renewable fuel, 
RFS, for this country. We are going to do 11 billion gallons if 
we do nothing in the next couple of years. What we can get out 
of corn may be 15 to 17 billion. We have got 60 billion, but we 
have got to get there, and you have that commitment.
    I share the commitment that is close to the heart of the 
Chairman in conservation. Rural development, I have a 
particular concern about Critical Access Hospitals, and you 
touched this. I thought we had the most in the Nation. Kansas 
may have, but we are pretty close and I visited almost half of 
them. That is a difference. That is life and death. It is life 
and death, those 25-bed hospitals, and so I applaud the work 
that goes on there.
    Let me at least phrase a few areas of concern, and one is 
there is a--we have a farm policy to protect the farmers when 
prices are low, not when prices are high. We cut marketing 
loans by $4.7 billion. I think countercyclical cuts is $3.7 
billion. I think these are two of the programs that help 
farmers on the down side. And then we have slight and temporary 
increases on direct payments.
    My concern is what if predictions are wrong and prices 
drop? I start with that concern. Do you need to pass unbudgeted 
emergency relief like we did in the 1990's? So I have that 
concern. Let me lay that out there. If there is time, you can 
respond now or respond later.
    I got a--and by the way, it is a big axe. If you look at 
the cuts, the overall cuts, kind of if you weigh it in 
totality, $3.7 billion from the current baseline below 2008, 
2010, that is a lot of money to cut from the safety net. It is 
a heavy axe that we are doing there.
    I have a particular concern, if I can, just about wheat. I 
want to put it on the table. Senator Roberts kind of mentioned 
that. You stated publicly that wheat growers did not get a fair 
shake in the last farm bill and so I am wondering if you see a 
four-cent increase in direct payment that only comes in the out 
years as equitable, especially in light of the fact that I am 
hearing from a lot of folks in the wheat industry that the 
countercyclicals do not do much for wheat.
    And the particular concern I have is on your 
countercyclical program, you make it revenue-based rather than 
price-based, but what if--I have got folks in the Red River 
Valley, if they lose their entire crop under their program and 
cannot get a payment if prices are high for farmers in other 
States that make their crop.
    So my question would be are we covering--one of the 
strengths of this proposal is we are saying, hey, we are going 
to provide a safety net for folks who do not reduce the crop. 
On the other end, if I have got folks who get wiped out and in 
the rest of the country they are making theirs, then my folks 
get left out, and I presume that applies for others. So help me 
understand how your proposal would help farmers who suffer 
complete crop loss, especially if the rest of the country has a 
good year.
    I could go on and on. If you can deal with the general 
proposition that a lot of this is based on a sense that we 
think prices are going forward, and God bless, they are. I 
mean, energy has made a difference. Energy is the future. 
Energy is the future. I do hope--I just have to say this--that 
we look at sugar.
    If we turned everything that is green into energy down the 
road but exclude sugar, I think this could be a problem for our 
sugar growers, and especially, by the way, as we look at NAFTA 
and some other things where we have the prospect of a lot of 
sugar coming in this country. I would hope that we would look 
at energy, at ethanol as a way possibly to deal with the sugar 
that is coming in so we do not upset our program. That may be 
the safety valve and I hope that we kind of look to the future 
in spite of some of the challenges of price now.
    I have only got 24 seconds left. I will make this 
statement. Let us continue the conversation, but I am very, 
very concerned about if we are wrong on the price bet that our 
farmers could face some big problems under this. But with that, 
let me say this is a forward-thinking proposal. You have done 
the hard work. I am very appreciative and I look forward to 
working with you on this farm bill. Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Coleman.
    Now, Senator Lincoln.
    Senator Lincoln. Thank you, Mr. Chairman.
    Mr. Secretary, welcome to the committee and thank you so 
much for joining us today with Dr. Collins and Mr. Conner.
    Before I begin my round of questions, I would like to start 
by acknowledging what is certainly a very detailed proposal and 
one which is obvious you have put a great deal of passion into 
and time, as well, in your listening tours. We want to thank 
you for your work. I am certainly glad to know that you have 
listened to a lot of farmers across the country who support the 
current farm bill, and I presume as a result you propose 
maintaining some of the basic structures here as we have seen 
in the commodity title, the marketing loan, the 
countercyclical, the direct payment. You have mentioned some of 
your reasons for why you have dealt with them as you have.
    But I do have some serious questions and concerns and I 
look forward to working with you in the months ahead to try and 
face those challenges that we all face across this country in 
terms of the diversity of our States and the diversity of this 
country and the products and commodities that we grow. So that 
is important.
    I would just like to point out that from the questioning, 
Senator Nelson brings up the issues of markets and, you know, 
how we meet those demands, and coupling that with Senator 
Chambliss's remarks and the possibility of losing those 85,000 
farmers as a result of the means testing that you have placed 
in here, that production probably will shift overseas and as it 
does, we will never see it again, more than likely. So I am 
hoping that Dr. Collins, perhaps, or somebody might respond to 
us with an answer in writing where you anticipate the foreign 
countries that will compensate for any expected decline in our 
production of those commodities as you talk about those export 
markets, and if so, which countries those might be. So if you 
all could provide that.
    Then in reference, really, to your AGI proposal, this 
recommendation kind of strikes me as somewhat inconsistent with 
the Administration's approach to so many other policy 
initiatives in terms of their ideas, I suppose. I serve on the 
Finance Committee and I find it interesting that when we passed 
legislation a few years back to stem the loss of manufacturing 
jobs in this country, to my knowledge, no one in the 
administration raised any question about the size of the income 
of the manufacturer receiving the tax benefit. In fact, I think 
we wished that all the manufacturers were doing better 
economically than they were. We had just lost about some three 
million manufacturing jobs. But in any event, Congress and the 
administration thought it was important enough to step in and 
help manufacturers compete in the global marketplace. That is 
not always free and it is not always fair, as we know, and we 
did so regardless of the manufacturer's size or income.
    I think the same is also true of the Administration's 
approach to energy policy. I also sit on the Energy Committee 
and I have been spending a lot of time lately reviewing our 
Nation's energy policy and, of course, see a lot of press about 
record profits from the Nation's oil companies. As you are 
certainly likely to be aware, the government provides a 
considerable amount of assistance via the tax code and other 
incentives for the energy sector, and yet to my knowledge, the 
administration has not proposed a means test for oil companies, 
either.
    I hear most often that this is due to our need for energy 
security and the necessity or the really necessary commitment 
to the pursuit of energy independence, and yet we have not 
extended those tax credits for the renewable fuels in a way 
that is--it was not in the President's budget, anyway.
    I guess, Mr. Secretary, just an explanation or your 
comments in terms of to the committee why the administration 
supports means testing for farmers but not for oil companies, 
or why we should support means testing for our farmers when 
they face the same, if not more, unlevel playing field in the 
global marketplace. Now, I know you have made the comment 
several times that you are not the trade person, and we are 
certainly aware of that, nor was the farm bill written for 
trade purposes. And yet we cannot operate in a vacuum and we 
know that.
    When we look at what it means to this country to not only 
working farm families but all families to have a safe, and more 
importantly, affordable food supply, secure food and fiber 
supply produced here at home, it seems to me that it would be 
as equally as high a priority in terms of the Administration's 
policies and ideas of how they approach those things. So maybe, 
I do not know, you have got an idea of how that----
    Secretary Johanns. I will offer a thought or two, if I 
could.
    Senator Lincoln. Sure.
    Secretary Johanns. Let me, if I might, just start out. You 
use the terminology ``means testing.'' Keep in mind that the 
2002 farm bill embraced that approach. It is in the 2002 farm 
bill. It is a much higher level, like $2.5 million, and it 
impacts really a sliver of the tax filers in the United States 
because $2.5 million in adjusted gross income really is the 
wealthiest of the wealthy. But $200,000 of adjusted gross 
income, again, is, if you examine what we are saying they can 
deduct under our tax code, they are getting a substantial 
benefit, if you will, because of tax policy adopted by 
Congress.
    But then we go a step further in this area and we say, we 
are going to not only recognize that, we are going to send 
cash. We are going to send a subsidy. We are going to say to 
hard-working families around the country that the money that 
you pay in taxes will be distributed into a formula that sends 
out a check to people who are raising these commodities.
    Now, personally, I have said all along, I think it is a 
wise Federal policy to invest in agriculture. Not everybody 
agrees with me when I make that statement, but I believe it is 
a wise Federal policy.
    But when you look at the decision, is there a point at 
which you become successful enough that you graduate from the 
cash subsidy that we are sending, I think Congress has answered 
that question repeatedly. Since 1970, payment limits have been 
a fact of life. Payment limits have been a part of farm policy 
now for over 35 years, dating back, I believe, to the 1970 farm 
bill, and I will just be very candid with you, and maybe there 
is somebody in this room who would disagree with me. You know 
what? They haven't worked certainly not very well. Certainly 
not very well. I think the common belief is that there is a 
payment limit, but quite honestly, there are so many 
opportunities to restructure, to redesign, to do this, that, 
and the next thing.
    This is vastly different approach than saying, there is a 
tax credit contained in a farm tax return, or if you get oil 
you get a tax credit or whatever, than literally distributing 
cash out of the Treasury. I believe it is just a vastly 
different approach. Thank you very much.
    Senator Lincoln. Well, it seems to be also that you are 
picking winners and losers and I just do not think that is our 
business here, but hopefully we will have an opportunity to 
work with you a little more and see what we can do to be a 
little bit more diverse in terms of our approach, I will wait 
for the second round, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Lincoln, Senator 
Stabenow?
    Senator Stabenow. Thank you, Mr. Chairman, and welcome, Mr. 
Secretary and Dr. Collins and Mr. Conner. Welcome. We 
appreciate all the hard work, and I would echo the sentiments 
about the way in which you presented information to us in the 
farm bill. I appreciate it very much.
    When we look at agriculture in Michigan, it is our second 
largest industry, and in the farm bill, I find myself needing 
to be interested, as I have talked to the Chairman about 
before, in every single page because we have a great diversity 
of crops and everything from soybeans and corn and sugar beets 
to apples and cherries and milk and pork and beef, as well as 
Christmas trees. We have everything.
    But I want to focus--and I will be focused on every piece 
as a result of that, as well as rural development and premier 
land grant universities like Michigan State University, my alma 
mater, are in the State. So I care very much about all of the 
farm bill.
    But I want to focus on 50 percent of the crops that have 
not been included in a substantial way in this farm bill, which 
are specialty crops. I think it is important and I appreciate 
the new focus that you have given. Senator Craig and I will be 
reintroducing shortly our specialty crops bill that we hope--we 
talked to the Chairman about incorporating into a new title and 
are looking forward to working with the Chairman and Ranking 
Member and committee to do that.
    Let me speak to a couple of things related to specialty 
crops now, because I think it is important that you have added 
certain provisions. I do think, and I want to just emphasize in 
the area of increased purchases for fruits and vegetables for 
nutrition, which, as you know, is a win-win situation. We help 
our fruits and vegetable growers. We also help our children, we 
help seniors, we help others in terms of their nutrition.
    I appreciate the proposed increase in Section 32 and the 
dollars that you have proposed, an additional $200 million for 
2008, $225 million for 2009, et cetera. I just want to 
emphasize, though, that we attempted to do that. We put into 
the farm bill in 2002 what we thought was going to be an 
additional $200 million per year above current spending, which 
at that time was $180 to $200 million a year. Unfortunately, 
instead of seeing an additional $200 million added, we see 
numbers like the 2005 purchase, according to CRS, which was 
$135 million total, not with $200 million added to it.
    So it is important to me, and I want to create language 
however we create it in the farm bill to make it clear that it 
is, in fact, additional money, not the difference between $135 
and $200 million, and I am looking forward to working with you 
on that, because the language in here is very positive. I just 
want to make sure it gets translated because it is a critical 
program. It is a critical program for our farmers.
    I also want to ask, and I would welcome your comment on 
that, Mr. Secretary, but I also notice that you are not 
proposing to expand the Specialty Crop Block Grant Program and 
I wonder if you might share why that would be the case as we 
look at expanding opportunities for specialty crops in the farm 
bill.
    Secretary Johanns. Actually, let me address that first 
issue. We agree with you. When I sat down with you, you pointed 
out to me that you felt like you had made a step forward only 
to find out that maybe you had not made any ground at all.
    Senator Stabenow. Right.
    Secretary Johanns. So at page 172 of our book, when we 
referenced this additional funding, we describe it as provide 
new mandatory funding for the purchase of fruits and 
vegetables. Senator Harkin mentioned the snack program. We are 
proposing to do this through the school lunch program. However, 
Senator, I can tell you that our attitude has been if schools 
are using this to benefit the children, maybe they do it 
through lunch, maybe they do it through breakfast, maybe they 
do it through a snack, we kind of view this, let the schools 
decide what program works best. So we will try to work with you 
on that, too. But yes, we heard you and we have included that.
    Chuck, on the pilot program, Senator, is that what you were 
referring to?
    Senator Stabenow. There is a Specialty Block Grant Program 
that we had in the past.
    Secretary Johanns. I guess what I would say is this. The 
additional funding here is about $5 billion, as you know.
    Senator Stabenow. Yes.
    Secretary Johanns. It is a significant marker for specialty 
crop producers in the farm bill proposal. And what we are 
proposing is that money would be in the research area, which we 
have significantly boosted. So I think what you are referencing 
in the pilot program, I think we have addressed but through the 
research title, which specialty crop producers told us we 
really would like some assistance in funding for research, 
sanitary, phytosanitary, the purchases, and market promotion--
--
    Senator Stabenow. Right.
    Secretary Johanns [continuing]. And I think we hit all of 
those areas pretty substantially.
    Mr. Conner. And I think, Senator, if I could, I believe the 
Specialty Crops Block Grant Program, as well, was an 
authorization subject to appropriation. The programs Secretary 
Johanns has described would all involve mandatory funding taken 
directly out of the CCC, so we would not be subject to 
appropriations in that regard.
    Senator Stabenow. Thank you. This is certainly an important 
step forward for specialty crops. There is no question that 
research is a major piece of the commodity purchase. We have 
other assistance, as well, tree assistance program, other 
things that are very important for specialty crops.
    Let me just, if I might, just ask one more----
    Chairman Harkin. We have people that need to--can we go to 
the second round? We will have a second round.
    Senator Stabenow. Absolutely, Mr. Chairman.
    Chairman Harkin. Now Senator Thune. Well, Senator Thune 
left. Senator Grassley?
    Senator Grassley. Thank you, Senator Harkin, Mr. Chairman, 
and Mr. Secretary. First of all, I know you, as every other 
member said, you have put hard work into your suggestions and I 
think I ought to recognize that I am aware of that hard work 
because you spent a great deal of time at the State Fair of 
Iowa having a listening session and I imagine that was one of 
more than 100 listening sessions you or your staff had around 
the country, so you were diligently taking notes at that 
meeting and I presume this is a result of that, so thank you 
very much.
    One of the things that everybody knows I have been 
interested in and working hard with Senator Dorgan on is farm 
payment limitations. I am going to go through a series of 
questions, so if you could just make a note or a couple of 
words that would remind you of what I am asking about.
    I was wondering how you came to the number of $200,000 of 
adjusted gross income for someone not to receive farm payments 
down from the $2.5 million that is under current law. I am 
happy to see that a payment limit section is in the farm bill 
proposal. I do not know how it is going to work out. We will 
have a chance to study that before we work on legislation, but 
obviously, I am very much interested in payment limits, so one 
way or the other, your way or the Dorgan-Grassley way, we have 
to do something about payment limits so that 10 percent of the 
largest farmers do not get 72 percent of the benefits, not that 
that is the only problem.
    The problem is a greater problem of the public relations 
for farmers. There is only 2 percent of the population, when 
city people might question whether or not we ought to help big 
farmers get bigger so that they cut young people out from 
getting started farming or young people renting land, whatever 
the case might be, and it is all of the above. So that is one 
issue.
    Along the same line, though, I notice that you have 
increased the payment cap to $360,000 without eliminating 
generic certificates. I would be happy not to eliminate generic 
certificates, but I would just like to have everybody that gets 
a generic certificate get a 1099 so that we know they are 
paying tax on it. We do not know that. Everybody else that gets 
a farm payment, gets benefit from a program, has a 1099. So 
that is a major issue.
    But the $360,000 and also increasing the direct payment to 
$110,000. Now, I was not here, but I was told that you made an 
answer to Senator Roberts that this was in order to be WTO 
compliant. Well, if you are WTO compliant at $110,000, you are 
surely WTO compliant at $40,000, it seems to me.
    Also, on another issue, I have been getting calls from 
farmers to see if they would be able to get out of their CRP 
contracts early. If you have not commented on that for some 
other member, I would like to hear that.
    I am concerned that through my discussions with farmers, 
that they are concerned as I am about the huge concentration 
that we have seeing the livestock industry, the vertical 
integration, trying to control all aspects of livestock 
production. I do not think the concentration is much different 
than it was 100 years ago--well, 90 years ago when we passed 
the Packers and Stockyards Act, not we, but when Congress did. 
So I think it is fair that you ought to know that farmers get 
nervous when just four firms, and now we are talking about 
Swift being sold off, slaughter 71 percent of all the livestock 
or cattle, 63 percent of the farmers. Is that much different 
than where we were 100 years ago?
    Could you also comment on why there is no mention of 
consolidation in the farm bill proposal? Now, maybe 
administrations do not generally do that because you want the 
marketplace to take care of it, but we have the Packers and 
Stockyards Act. We have Congress acting when there was a 
problem of concentration at that time. Should we not be 
concerned about this if we are concerned about the institution 
of the family farm? Thank you.
    Chairman Harkin. You have got about a minute to answer all 
those questions.
    Secretary Johanns. I will run through it very quickly.
    Senator I do appreciate your leadership in this really 
challenging area of payment limits. Here is what it came down 
to. If you look at the whole constellation of issues, the 
$360,000, which you point out that is what the limit would be, 
some would probably argue that is too much. Some would probably 
say, well, it should be more than that. But that was the number 
that was familiar from the 2002 farm bill.
    But really what the debate came down to is this. The most 
effective way of approaching this and where you are going to 
have the most impact is as we have proposed. These things 
have--I mentioned maybe before you arrived, we have had payment 
limits since 1970, and I will just be very blunt. None of them 
have been very effective. New ideas come up. We get new laws. 
We issue new regulations and all of a sudden everything just 
gets restructured and people are writing stories the next year 
saying, how are they getting around the payment limits? This is 
certain. It is straightforward to administer, and so that is 
how we arrived at that approach.
    The CRP contracts, I am looking at that. In the next 60 to 
90 days, we will have a lot better numbers as to what is going 
to happen out there in farm country, how much corn is going to 
be planted, and I can make an assessment as to whether we 
should release CRP acres early. I understand I can do that. The 
Secretary does have that power. I promise you, we are looking 
at it, and as those numbers come out, please continue the 
conversation with us. We should have a decision, I would say by 
early summer, maybe even a tad bit before that, but in that 
timeframe.
    The concentration area, again, a very complicated area. Our 
role, in my judgment, is administration of the Packers and 
Stockyards Act, and as a recent audit or investigation showed, 
not only is that our role, we need to be more forceful and do a 
better job there.
    I have to tell you, I came from a State that had a 
constitutional ban on corporate farming. Just respectfully, I 
would suggest we have to look at this area. That ban was thrown 
out recently by the Eighth Circuit Court of Appeals, lost at 
the District Court, lost at the Eighth Circuit. I think there 
is a petition for certiorari pending before the U.S. Supreme 
Court. Those efforts to try to regulate that kind of thing have 
fallen on disfavor. South Dakota lost their ban, et cetera. So 
bans in who can do this and who cannot do this, I think it is 
just an area we are looking at. I won't offer any legal advice. 
I am a lawyer, but I do not practice anymore, but I just again 
respectfully suggest that is an area you have to pay attention 
to if there is some thinking about this as farm bill policy is 
developed.
    Generally we do take a position that market forces should 
regulate how things end up. That has just been my general view 
through the years.
    I think I hit everything.
    Chairman Harkin. Pretty close. Thank you, Mr. Secretary.
    Senator Leahy?
    Senator Leahy. Thank you, Mr. Chairman. Having spent a 
number of years as Chairman of this committee, I know how 
difficult it is sometimes to put one of these hearings together 
and to make it coherent and how difficult it is for the 
Secretary. There have been times, Mr. Secretary--this is going 
to come as a shock to you, but there have been times over the 
years that a tad bit of parochialism has come into the 
questioning here, and I hate to think--you think that Bob Gates 
or somebody like that has trouble coming up here to explain the 
war, and you have to understand, look around the diversity of 
this committee and figure out what the parochial issue is for 
each of us.
    I was pleased with my talk with you last night and with Mr. 
Conner, who as I said is well known to this committee. I 
actually appreciate all you have done, Mr. Secretary.
    I think, as I said, on the MILC program, I am glad to see 
it in here. I think, though, that it has been cut too much. It 
is one of the best--it probably is the best targeted program 
USDA runs. It works with market forces to provide modest 
assistance when the prices are low. Now we have soaring feed 
costs and fuel costs and low milk prices. It is the worst 
possible time to cut it. It is the most targeted program you 
have in your Department.
    I think the increased funding for EQIP is a good idea. I do 
not agree with eliminating the regional equity provision. This, 
I authored in the 2002 farm bill. You have States that receive 
very little commodity program support, but having a $12 million 
base of conservation funding is a good public policy. I am also 
concerned about the Administration's plan to consolidate the 
Farm and Ranchland Protection Program that was started in 
Vermont.
    I also wish the administration would reverse its position 
in opposition to emergency disaster assistance. My State of 
Vermont, Vermont is still trying to recover from first the 
devastating floods that wiped out much of the corn and hay crop 
last spring, then we had a drought on top of it. We had the 
worst possible thing, increased fuel prices. I know Chairman 
Peterson in the House indicated some willingness to move 
disaster assistance, but I remember last year when we did this 
on the Iraq supplemental, we were faced with a veto threat. We 
are spending billions of dollars a month in Iraq for 
reconstruction there. I wish we could take just a tiny bit of 
what we are wasting in Iraq and spend it on our American 
farmers.
    Now, given the USDA's recommendation for a continuance of 
MILC as part of the 2007 farm bill, do you support a 1-month 
MILC extension from August 31 to September 30 in order to 
assure there is not a lapse in the program?
    Secretary Johanns. Senator, we do. In fact, I was just 
asking Keith Collins, but I think we have built that in as we 
tried to figure out where we ended up on the baseline. But let 
me study that before I commit to that last statement. Let me 
make sure----
    Senator Leahy. Will you get back to me----
    Secretary Johanns. Yes.
    Senator Leahy [continuing]. Because obviously this is of 
great significance not only in my State but several others, and 
if you could give me a definitive response on that, it would be 
very, very helpful.
    Do you agree that the MILC program is highly targeted to 
small- and medium-sized dairy farmers?
    Secretary Johanns. It definitely works for small- and 
medium-sized farmers. There are publications out there where we 
have raised questions about the MILC program. But having said 
that, in response to an earlier question from Senator Crapo, 
here is my read on it and here is why we ended up. We made 
changes pretty well across commodities equitably. It seemed 
fair to approach the MILC program the same. But probably the 
most important thing in terms of the decision to keep the 
program was it is a safety net that was put in place. 
Agriculture adjusts to that. I just--we heard over and over 
again from farmers out there, we like the structure. We would 
like to see you try to keep the structure in place. Here is 
where we think changes are necessary.
    And so that weighed on me and I decided to keep the 
structure pretty well across the farm bill and the proposals we 
have made, including MILC. I think it is very difficult for 
farmers that we just walk in, boom, the safety net is over, the 
MILC program is gone. So we proposed to keep it.
    Senator Leahy. And in that regard, we touched this just 
briefly last night when we talked, but 30-some-odd years on 
this committee, I have supported a lot of commodity programs 
that do not affect my State at all. This is one of the very few 
that does. It is far more targeted than the others. I must 
admit that I have a little bit of difficulty going back home 
explaining why I am supporting things for Iowa, for any of 
these other States, and Vermont, a program that affects a State 
like mine, it is cut.
    And last, will you look at this question of disaster 
assistance? Again, just think of going to a farmer in my State 
who has just been clobbered. They know we passed this 
assistance in the past. We know the administration has cut it 
out because they said we have to concentrate first on disaster 
assistance to Iraq. Explain that to a farmer in my State, why 
it is far more important for reconstruction and emergency fuel 
assistance, everything else in Iraq than it is right here in 
our own country when it is our tax dollars going to it. So 
please, please look at this question of disaster assistance 
again, and you and I should chat further on that because I know 
my time is up.
    Thank you. And again, thank you very much for your call 
last night. I do appreciate that very much, and Mr. Conner, 
too.
    Secretary Johanns. Sure.
    Chairman Harkin. Thank you very much. Let me see, now I 
will go to Senator Salazar.
    Senator Salazar. Thank you very much, Senator Harkin. I 
have an opening statement and some questions, but I will submit 
those for the record, and I assume that is without objection, 
and I would appreciate it, Mr. Secretary, if you would respond 
to my questions.
    Let me just first say to both you and the Chairman that I 
very much appreciate the work that you have done on the rewrite 
of the 2007 farm bill. I think last year, through many of the 
conversations that we had here and probably ten or 12 farm bill 
listening sessions that I had in Colorado, there was a sense 
that we would not be dealing with this issue here today in 2007 
and it is through the leadership of Chairman Harkin as well as 
through your leadership and all the work that you did last year 
that we are here today.
    Just as a general comment, I will tell you that I 
appreciate the substance of what you have put into the farm 
bill. I do think as one Senator from Colorado that it is 
something that we can work from. You obviously will have lots 
of input and back-and-forth as we go forward and we try to 
improve on the product that you have brought here to us today, 
but let me just say thank you to you and to Mr. Conner and Dr. 
Collins and all of the staff that have been involved in putting 
together this proposed farm bill. It gives us at least a 
framework from which to start on.
    I am going to ask a couple of questions. The first question 
has to do with energy. I think for all of us, Democrats and 
Republicans alike, this is one of the new great chapters of 
opportunity for rural America, to bring rural America back into 
a place of vibrancy and certainly in Nebraska with what you did 
in ethanol and some of the things there, you were leading the 
way.
    My question to you is this. I am concerned that we do not 
have the resources in here to be able to implement the vision 
that I think is a shared vision in America for how we can grow 
our way to energy independence. Senator Grassley and I, for 
example, are cosponsoring the resolution that says 25 by 25, we 
ought to be able to grow 25 percent of our energy from 
renewable energy sources by the year 2025.
    And I looked at the budget that you have presented here and 
it looks like it is $978 million for the energy title over the 
time period of 2008 to 2017. But when I take that amount and I 
say, well, what does that mean in terms of the 50 States and 
what they are going to get with respect to the grants and the 
other programs that are articulated here, it essentially comes 
out to about $1 million a year. A million dollars a year, Mr. 
Secretary, with all due respect, I do not think gets us to 
where we want to get. It does not get us to where the President 
said that we ought to be getting with the 35 billion gallon 
renewable fuel standard, I think by the year 2017.
    And so I have this reaction without having studied this in 
great detail that this is highly insufficient if what we are 
going to do is to put an imperative on this energy opportunity 
that we have for rural America. So can you just respond to 
that. Is this adequate?
    Secretary Johanns. Yes. What I will do for you, I in 
earlier testimony walked down through all of the areas of the 
USDA budget where we have increased funding and then just 
reminded the committee that in addition to all of that, we had 
added a loan guarantee program of $2.1 billion targeted at 
cellulosic. But just suffice it to say, when you look at our 
total energy proposals, and also recognizing we aren't 
proposing to change anything that you have done already, that 
is in the bank, if you will, but if you look at everything we 
have targeted going forward, we have a very substantial energy 
package and I will detail and outline that for you in a letter 
to you, Senator, and a copy to the committee.
    But part of what gets really confusing here is if you look 
back, for example, and make comparisons, part of that money was 
discretionary. It never got funded. It never made it to the 
finish line, and so even though it was theoretically there, it 
was never appropriated and we never were able to work with it, 
so----
    Senator Salazar. I would appreciate it, and I imagine that 
my colleagues on both sides of this committee would very much 
appreciate having a more robust explanation of what it is that 
we are doing with respect to investments on this title of the 
farm bill.
    Secretary Johanns. We will.
    Senator Salazar. Let me ask you one more quick question. 
Coordination with respect to other agencies, the Department of 
Energy. I just came from a hearing with Secretary Bodman, 
talking about what he is doing there. How are we coordinating 
what we are doing here with the Department of Energy? A quick 
example is cellulosic ethanol. We heard from the experts at a 
conference we had a week ago that it is almost a dream too far 
away, not commercially feasible right now. How are you and DOE 
coordinating to make sure that as a country we are having the 
maximum impact on trying to achieve these visions that we have?
    Secretary Johanns. Coordinated at every level. We have 
people--I not only coordinate with my colleague on the Cabinet, 
but we have staff people working----
    Senator Salazar. Is there a specific renewable energy 
working team that coordinates on an ongoing basis?
    Secretary Johanns. I will allow Keith, if you do not mind, 
to offer a few thoughts on that.
    Mr. Collins. Sure, Mr. Salazar. There are several, in fact. 
One is that USDA has created an Energy Council. It is chaired 
by one of our under secretaries----
    Senator Salazar. And DOE participates----
    Mr. Collins. DOE participates in the Energy Council. We 
also have a statutory group, the Biomass Research Development--
--
    Senator Salazar. If you can get me an overview of that 
coordination, it is important because it is important that our 
government know what one hand is doing so we know how we are 
moving forward.
    Last question before my time runs out. Following up on 
Senator Leahy's comments on agricultural disaster assistance, 
Colorado is now under lots and lots of snow. We have 10,000 
dead cows out in the Eastern plains and it is a problem that is 
affecting Nebraska and other States. It has been a sore point, 
frankly, between us in the Senate and the administration. I 
would hope that you can get yourself, Secretary Johanns, and 
the administration to support the agricultural disaster 
emergency package so we can get that behind us and then 
concentrate on the good product that you have brought to us 
before and see how we can move forward and refine it and look 
forward. It is just a request.
    I thank you very much for being here today and thank you 
again. As I said earlier, Chairman Harkin, I think a year, even 
6 months ago, people were saying there is not going to be a 
farm bill in 2007. I want to just say again, congratulations, 
because I think when you go through a program that is a $100 
billion program the way that we have and you have 5 years of 
experience, no matter how good the program is, no matter how 
visionary those people were who wrote it, you learn a lot in 
that 5-year period and it would not be happening if it had not 
been for your leadership and I really appreciate it.
    Chairman Harkin. You are overly generous. I appreciate 
that. But we worked hard on that. We got a good bipartisan 
agreement on that. And I commend the administration. I think 
the Secretary has come up with a good sound proposal. We will 
work on it, obviously. Not everybody agrees on different things 
in it, obviously. We have got a lot of work to do here. But I 
am convinced we can come up with a good progressive forward-
looking farm bill. I think we are--I see certain things 
emerging. Obviously, there are things we are going to have to 
work out and there will be some contentious issues. I 
understand that. But I still think we are headed in a direction 
that we can all hopefully pull together on.
    Senator Thune?
    Senator Thune. Thank you, Mr. Chairman. I would also echo 
my colleague from Colorado about dealing with the disaster 
issue. If we could come to a resolution on that that deals with 
the last couple of years of disasters in the Midwest, then we 
could, I think, start with a clean slate, so to speak, as we 
tackle this next farm bill and contemplate how we deal with 
disasters going forward.
    But I do want, Mr. Secretary, to thank you, Deputy 
Secretary Conner, Dr. Collins, for what is a very good faith 
effort that required a lot of thought, a lot of time, and a lot 
of input from people all over the country, and I appreciate 
your willingness to listen. Fifty-two meetings around the 
country, many of which were attended by you, Mr. Secretary, I 
think speaks really well of your commitment to getting a good 
product that incorporates the input, the thoughts, the best 
ideas out there from our producers who ultimately have to live 
with and adhere to the policy that we enact here in the 
Congress. So thank you for what was a very time-intensive and 
laborious, I am sure, process, but one that is, when you look 
at all the work that went into it and the product that you 
produced, it was clear that you did--that there is a lot of 
work that did go into it, and again, one that ultimately 
hopefully will be of great benefit to our producers.
    Let me just make a couple of general observations about--
and again, I won't get into specific questions. We will have 
time to do that. I do want to interact with my producer groups 
in South Dakota as they react to this and get their direct 
input so that as we move forward, we can figure out what some 
of the regional impacts of the bill are and how we can put a 
bill together, assemble a bill, hopefully by the August recess, 
that is something that we can--everybody can be happy with and 
be able to vote out of the Congress and hopefully get signed 
and enacted into law.
    But there are a couple of questions that I have at the 
moment and you talked about. One has to do with the budget. You 
talked about a $10 billion reduction over the course of the 
bill, $18 billion if you include disaster payments of the past 
farm bill. And the question has to do with this, because it 
seems to me at least some of the assumptions you are making 
about prices going forward are maybe not optimistic, hopefully 
they are realistic in terms of where prices are going to be in 
the out years, but I recall going through when I was a member 
of the House of Representatives trying to get disaster relief 
enacted here, coming to the administration with a proposal that 
essentially would say that we are achieving great savings in 
LDP and countercyclical payments from not making payments today 
that as a result of higher prices, and I wanted to apply those 
savings toward disaster relief and the answer was, no way, you 
cannot do that because in the out years of this farm bill, we 
may not have these good prices and we have to have this 
reserve.
    It looks to me like that is what you are doing here. You 
are assuming that these prices are going to stay at this level 
and therefore there is going to be all this money that would 
have been available under the previous farm bill that you can 
call savings, and so you are cutting back on some of the safety 
net-type programs.
    I guess I would like to get you just to react to that 
because it seems to me that you are building assumptions in 
about prices in the out years here that could affect some of 
these programs if, in fact, we get into a time when prices drop 
precipitously.
    Secretary Johanns. Here is what I would offer. Pretty soon 
here, you will start exactly where we started. You will start 
with a baseline, and all decisions will be based upon what you 
do off of that baseline. Here is how you will get the baseline. 
You will just say, well, if we just did the 2002 bill, kept 
every ``i'' dotted and every ``t'' crossed and changed nothing, 
what would that cost over the next 5 years? As the 2007 farm 
bill, that is where your assumption is going to begin. That is 
where our assumption begins.
    In computing into that, you are going to have to make some 
decisions, rational decisions, based upon price projections. We 
did not just pull these numbers out of the air to get the 
numbers to fit. That is the baseline you will start with. That 
is the baseline that we started with.
    Here is how it shapes up. If you compared the actual 
spending that occurred from 2002 to 2007 in the farm bill that 
we have today, this proposal will spend about $10 billion less. 
Why? Because during a lot of that time, you had very low 
prices. You paid out very large LDPs during the Katrina event 
and those kinds of things happened. It has only been in the 
last year or so that you started to see those prices go back 
up. When I came here 2 years ago, the discussion was, what will 
we possibly ever do with all this corn we have in reserve? Now, 
that is not the discussion anymore.
    Then if you did the 2002 farm bill again, let us just say 
you said to me, Mike, I want the 2002 farm bill again, I do not 
want any changes, no ``i'' undotted, no ``t'' uncrossed, this 
proposal spends $5 billion more. It fits within the President's 
plan, but it spends $5 billion more than that baseline, and you 
will be finding that as you start to work through the numbers.
    You say we have cut the safety net. We really have not. 
Here is why we have not. If you look at cotton, the money that 
increases the direct payment is basically what we have done in 
terms of adjusting on loan rates. If you look at the other four 
major program crops, which you grow some of them in your State, 
wheat, corn, rice, and soybeans, an adjustment of the loan does 
not make any difference. It is basically a net wash 
financially. So we have not really impacted that safety net and 
you will find that you won't impact it, either.
    On the other hand, if you say, you know what, I just want 
to keep all that the same and I am willing to take the money 
away from the enhanced direct payment for those crops, those 
four crops, which is an additional 7 percent in the third, 
fourth, and fifth year, you have just cost those producers a 
billion dollars, because we literally went out and found and 
identified that money, recognizing that somewhere out there, 
maybe ethanol is not quite as strong, et cetera, so let us 
buildup the direct payment. But the nice thing about it, if you 
approve that, your farmers can take it to the bank. It is done, 
it is mandatory, and they can plan on that money being there. 
You take that out, you just cost those producers across the 
country a billion dollars, and adjusting the loan rates, I 
think you are going to find, unless you make really radical 
adjustments, you are going to find that it is a net zero 
effect, or basically a wash. So it is not the reduction that 
maybe you think.
    And the last thing I would say, Senator, and I offer this 
to everybody and I am probably getting myself in trouble here, 
but I am happy to come out and explain this or sit down with 
producers or your staff or whoever because it is complicated. 
We would be happy to try to do some things to try to get people 
out there to walk folks through what we have done here.
    I think in a State like yours, because you are so similar 
to Nebraska, you are going to like what we did.
    Senator Thune. Well, I hope you are right. I know the 
direct payment probably impacts differently across commodities. 
A corn grower in Western or the middle of South Dakota 
probably--I talked to one yesterday that said, ``I get about $8 
an acre on my direct payments.'' So increasing it by 20 percent 
is not a big deal. But on the other hand, I think you have to 
weigh that versus the current program and what they would be 
with the current loan rates, what they would be receiving.
    So I guess the main thing is maintaining that, of course, 
safety net for those down years, hoping that in the future, if 
renewable energy continues to drive corn prices high--we have 
got good corn prices, although that gets the livestock guys 
upset. You do not want to go to a sale barn these days because 
you will get the other side of high corn prices, which I am 
sure you are hearing, as well.
    But just a couple of things I will say. I know my time has 
expired, but a couple other observations. One is there is a 
concern that has been raised, too, about when you do the 
national target revenue per acre, that going to a national does 
not take into consideration what I think you heard from Norm 
Coleman, some of the regional or local conditions that might 
impact that, if you had a really bad year in one area of the 
country.
    And second, and this has to do with this whole issue that 
was raised earlier by my colleague from Arkansas, ironically, I 
have always supported payment limits, and at the time, I do not 
think that the administration was in favor of it. Now the 
administration is coming out in favor of it and now my 
agricultural groups are saying they do not want them anymore. 
So I am not sure who is being progressive and who is digressing 
here, but there has been an evolution of thought on this, and I 
think even when you get out of some of the Southern 
commodities, you are going to hear from farm bureaus and corn 
grower organizations in my part of the country that may have 
some issues with that.
    But nevertheless, it is a good start. You jumpstart the 
process and we look forward to working with you, and Mr. 
Chairman, look forward to working with you as we get this 
process underway. Thank you.
    Chairman Harkin. Thank you, Senator Thune. Senator Casey?
    Senator Casey. Mr. Chairman, thank you for putting together 
this hearing and for your great leadership of this committee on 
very difficult issues, and I am going to thank you, Mr. 
Secretary, for your public service and for the work that goes 
into putting together the budget proposals that you and your 
team have announced.
    I have got a couple of questions. I do want to focus, as 
Senator Leahy reminded us, some of us once in a while get 
parochial. That is part of our job, to focus a lot of attention 
on our home State. I know you have spent a lot of time in the 
Commonwealth of Pennsylvania and I know some of these issues 
will be familiar to you.
    I want to speak in particular about dairy policy, and I 
know you have been asked about this today. In our State, we 
have got some 8,600 dairy farmers, a big part of our farm 
economy, and if there was one resounding and consistent 
question that I heard from dairy farmers across the State over 
the last 2 years, it is a very simple question, but I know that 
dealing with it is particularly difficult. What a lot of them 
said to me very simply, and it is a question they have asked 
for many years, is why doesn't Federal policy take into 
consideration or have a full understanding and a policy that 
reflects the true cost of production, what a dairy farmer and 
his or her family have to endure just to survive.
    And I know that it is a very broad question, and I also 
want to ask particular questions about the MILC income loss 
contract. But I just wanted to get your thoughts generally on 
that very specific but, I think, very important question for 
dairy farmers.
    Secretary Johanns. I grew up on a dairy farm in Senator 
Harkin's State, so I have been around dairy as long as I can 
remember and I will share a story with you. I went to the 
village where my great-grandfather came from in Germany 2 years 
ago, and as we drove into this village, guess what was in the 
middle? Dairy cows. So I guess we have been milking cows in my 
family for a long, long time. I do have a familiarity here 
probably that is maybe even more than the average Secretary 
would have because my background is there.
    The proposals we have made in our current dairy policy are 
what I would describe as fairly modest. We keep the milk income 
loss contact (MILC) program, probably surprised a few people by 
deciding to do that because we have put out some information 
questioning the program, but we do keep it.
    We are making adjustments. It does go from a rate of 34 
percent, stairsteps down to 20 percent, and it is based upon 
historical production under our proposal. But that is really it 
with MILC. We also keep the price support program at the 
current level, and that is really the main area where we have 
the ability to impact the dairy situation for farmers out 
there.
    I was questioned by Senator Crapo, why did you keep the 
MILC program, and I said, you know, it is a safety net that was 
put there and you just do not change that overnight. So my hope 
is that the dairy industry, because I do think there is 
conversation on what to do and I think they are going to have 
some proposals, I would encourage the dairy industry to keep 
that conversation going, because here is what you will find, 
Senator. There is a huge diversity of opinion in the dairy 
industry between your area of the country and as you move West. 
As you move West, bigger operations, a lot of cows, you know, 
it is just a different phenomena than what we would see in the 
Northeast. In my judgment, both are valuable and we need to 
develop dairy policy that is helpful.
    The last thing I will mention, we get criticized a lot on 
the milk marketing order system because it is slow and 
cumbersome, and you know what? It is slow and cumbersome. I 
wish I could figure out a solution to that problem. I would 
make most dairy farmers more happy with this. It is a very 
cumbersome process, not because I have got people dragging 
their feet at the USDA, it is just the process is so 
cumbersome. People are trying to get through these things, but 
by the time we get to a decision, the issue that drove that is 
sometimes a year or 2 years old.
    So, boy, I am really hoping the dairy industry can work 
with this committee and maybe have some ideas. I guess we would 
try to be open to ideas. Of course, we would. But what we have 
proposed here is fairly modest and I think most of the people 
who are involved in dairy would agree with me.
    Senator Casey. Well, I appreciate that. One thing I would 
ask you to do, and certainly I would want to make myself 
available at getting our schedules together, is to spend some 
time in Pennsylvania listening to, as you have, I am sure, in 
the past, listening to our dairy farmers and I hope we can do 
that.
    Let me just ask you in particular about MILC, and I know we 
are--when I say the income loss contract. How did you determine 
the reductions that would take place between fiscal year 2009 
and fiscal year 2013, when you go from that 34 down to 20?
    Secretary Johanns. Here is basically how we did it. Our 
approach was to try to be equitable as best we could across 
commodities. We had made adjustments in the marketing loan 
rates, again, pretty well across the commodities based upon 
historical market prices over the life of the last two farm 
bills. We have kind of put that in place. Then we looked at the 
MILC and said, how can we make the case that they were treated 
about the same? And so that is really how we headed out there 
to do it, and that is how we ended up with this stairstep 
process.
    The thought was originally, maybe we should just reduce it 
straight out of the box. I wanted a more rational approach in 
terms of adjusting it over time, so we did it over the 5 years 
of the farm bill.
    And actually, here is another interesting issue. I was 
talking to Senator Thune about the baseline. Here is your 
challenge with the MILC program. It is not in the baseline. It 
is not funded out there. So when you sit down and say, I want 
the MILC program, you are going to have to convince your 
colleagues to find money somewhere to fund this program at 
whatever level you want it funded at. It will be literally new 
money added to the baseline, and Senator Harkin has been 
through this. He is nodding his head. That is just the way it 
is, so----
    Senator Casey. I look forward to working with you and with 
the committee and especially our Chairman.
    Chairman Harkin. As I said earlier, I think we have a lot 
of consensus on the committee to move ahead, but I said there 
are going to be some contentious issues. I think we just tapped 
one.
    [Laughter.]
    Chairman Harkin. It just has to do with different parts of 
the country and what we are going to do. Well, we will just 
have to work. We will work something out some way. But with the 
budget constraints, Senator Casey, we really do have a problem 
here without it being in the baseline, and how we resolve it, I 
do not know quite yet.
    We will start a second round. I will keep myself to 6 
minutes and then go around again.
    Just a couple, three things. CSP, just keep in mind--this 
is not a question--but incentives. Think about it as an 
incentive background for biomass and conservation together, for 
biomass and conservation together. Think about it as an 
incentive.
    Second, on the program that you and I talked about when you 
first came into my office, Section 9002, the bio-based 
purchasing requirement for the Federal Government, we put a 
provision in the last farm bill--it is in permanent law, by the 
way--that requires the Federal Government to purchase bio-based 
products as long as they are equivalent in price, performance, 
and availability. Last September, you were very gracious to 
come over to the Department of Defense where we had a 2-day 
fair or whatever you want to call it, exhibitors. Forty-some 
companies came there to demonstrate the goods they had that 
were bio-based that could be purchased by the Department of 
Defense.
    You moved aggressively on this. I congratulate you for it. 
At first. But we are still at only six products and what has 
happened? It seems to have, from your initial endeavor to 
really move this, it seems to have slowed down greatly and I do 
not know why.
    Second, I looked in your book. You have a proposal for $18 
million over 10 years. That is $1.8 million. That is a small 
increase from what we had, and I just wonder if that is going 
to be adequate.
    So, just briefly, address yourself to Section 9002 and what 
you want to accomplish with that.
    Secretary Johanns. Keith really spearheaded the 
regulations, if I remember correctly, on this, and Keith, if 
you could--I do not know how much of this you can remember, but 
if you could help with this one.
    Mr. Collins. Mr. Secretary, Senator Harkin, I agree with 
you. It was a long time in getting the first proposed rule out. 
We had to get guidelines out first through a proposed and final 
rulemaking. As you indicated, we do have six items. Items are 
classes of bio-based products with literally hundreds of 
branded products subsumed under an item. We have six items that 
have been designated for preferred procurement by final rule. 
That final rule requires us to give agencies, Federal agencies, 
a year after the promulgation of the final rule before the 
mandate takes effect. That mandate takes effect this March 
2007, because the six items were designated by final rulemaking 
in March 2006.
    We have two other proposed rules. The comment periods have 
closed. We are preparing the final rules now. We are discussing 
the final rules with the Office of Management and Budget and we 
hope very soon to be able to issue final rules on two rules 
which will designate an additional 20 items. Again, 20 items 
being classes of bio-based products. When we have those 20 
items designated, together with the original six, we will have 
something in the order of 600 manufacturers producing over 
2,000 branded products that will then be designated by final 
rulemaking for preferred procurement under the program.
    In addition to that, we have expanded greatly our outreach 
efforts to other Federal agencies under our Assistant Secretary 
for Administration, who has taken a tremendously enthusiastic 
approach to reaching out to Federal agencies to ensure that 
their own procurement regulations in each Federal agency meet 
the requirements of the law and that they are up and ready to 
run in March of 2007.
    Chairman Harkin. I appreciate that. I do intend to use my 
position as Chairman of this committee to call in the 
Secretaries of Defense, Interior, Commerce, and a few others 
and ask them why they are not implementing this part of the 
law. It applies to them. It does not apply to the Department of 
Agriculture, just for you for the rulemaking and coming up with 
the products. But we need to find out why the rest of the 
Federal Government is not focusing on this. Now, Gordon 
England, the Deputy Secretary of Defense, gets it and he was 
very promotive of this, but I just want you to know I will be 
calling up these other people, too.
    Mr. Collins. You are correct, though. We are required to 
have the Federal Acquisition Regulation modified, but then in 
addition to that, every Federal agency that has their own 
procurement regulations have to modify those. At Agriculture, 
we have a thing called AGAR, which is equivalent to the FAR, 
and we had to revise that, as well. Every Federal agency has 
that obligation.
    Chairman Harkin. I know that, and I intend to ask them 
that, too, call them up and ask them what they know about it.
    Fruit and vegetable program, snack versus lunch, I notice 
you geared toward the school lunch program there, then later on 
you said schools should make the decision. But keep in mind 
that you can just keep putting more and more and more stuff in 
the school lunch program, Mr. Secretary, but as teachers told 
me and principals told me, kids come to school in the morning 
and they get the growlies right around about nine o'clock in 
the morning, or maybe they have had a sugar breakfast and then 
they crashed on that sugar and what do they get? They go to the 
vending machines or they eat cookies or something like that.
    So what has happened is with this snack program is they are 
able to get fresh fruits and vegetables which get them through 
that, evens them out. We had all kinds of information about how 
they study better and everything. So I just want you to think 
about that in terms of how we move ahead on that.
    And the question I have--I am running out of time--is why 
do we not have a rule yet updating the school meal patterns to 
conform to the recent dietary guidelines if you are going to 
move into school lunch programs? We do not have a rule yet, and 
I am just wondering. If you do not have an answer, maybe you 
can submit it for the record.
    Secretary Johanns. I will submit that for the record, if I 
could.
    Chairman Harkin. I appreciate that. I have 17 seconds. 
Technical problems. I agree with you on changing the food stamp 
name program. That is good. And you said about providing a 
bonus or something like that, up to 25 percent or something 
like that if they buy fruits and vegetables. I do not know if 
you have put that in or that is my own head work. But I need to 
know about technical problems. If you use your EBT card and you 
go through and let us say you give a bonus to someone to buy 
fresh fruits and vegetables, what are the technical problems? 
What if we wanted to say, OK, if you buy $10 worth of fruits 
and vegetables and you swiped your card, you will get a bonus 
of 25 percent on that. I just need to know what technical 
problems, and again, if you do not know that, you can submit 
that for the record.
    Secretary Johanns. We will answer--we will get a technician 
to answer that, but just so the record is clear, our proposal, 
we have not submitted a proposal to bonus people. What we do 
have is a pilot program working with States to try to find 
innovative solutions to obesity problems. Something like that 
could fit here.
    Chairman Harkin. I hope we would look at that bonus 
problem.
    Senator Lincoln?
    Senator Lincoln. Thank you, Mr. Chairman. I just have, I 
think, three more questions and one comment, and I apologize 
for taking up all your time.
    Your comment in closing on the payment limitations, you 
noted that it has a history, and certainly last year was 
prevalent in the 2002 farm bill, or the last time, and that is 
true, but it was there as a compromise. I will just make sure 
that just to go one step further, if you noticed in that 
compromise, it was stated that 75 percent or more of the 
adjusted gross income had to be derived from farming. That has 
been eliminated in what you have proposed. The problem with 
that is when you look at AGIs, as indicated on the Federal tax 
forms, that means it would all be farm income and non-farm 
income.
    The purpose of what we were trying to do in that compromise 
was, as I remember, I think it was called the Scotty Pippin 
rule, to make sure that people, not to harm the farmers that 
were doing a good job in farming as they were supposed to, but 
to make sure that it was not directed to people who were non-
farm income and non-farmers.
    So I would say that I hope that we can look at coming about 
at compromises and taking that into consideration and certainly 
not just assuming that all large farmers are old and greedy. 
The fact is, many of our large farmers are large because they 
have to be and they have to farm an economy of scale to be 
competitive in the global marketplace.
    Senator Grassley mentioned keeping farmers young. Many of 
our large farmers are young. They are the next generation. And 
the reason they farm large farms is because of the crops they 
grow in the areas that they live and those crops are what are 
suited to be grown there. And if they do not grow that economy 
of scale, they cannot be competitive.
    So I just hope that we will take that into consideration. I 
know there are a lot of greedy people, but I hope we do not 
just assume that. There are greedy CEOs, there are greedy 
people in all professions. But just assuming that they are 
trying to circumvent laws or circumvent rules, I think is the 
wrong approach. I hope that what we will do is look and see 
that diversity exists in all areas and that this is one where 
if we are looking particularly--and when I talk about 
marketplaces, that is where I go to my next question.
    Our own OMB Director Rob Portman has stated many times that 
there is no economic sector more distorted than the world 
agriculture market. The fact is that all of our farmers face 
the lopsided playing field, be they big, small, or in between, 
quite frankly. And I wonder oftentimes why our administration 
continues to criticize the support that we provide our farmers 
instead of focusing on foreign tariffs and subsidies that again 
are far, far higher and greater than anything we provide our 
producers.
    So we look at our farm families producing crops, Mr. 
Secretary, and I look through your proposal and note that there 
is $11 billion in cuts to the farm safety net and that number 
jumps to about $13.5 billion if we include the crop insurance 
cuts. So if you offset it by adding back the direct payments, 
which you indicate is a part of what you are trying to provide 
in terms of relief, the direct payment increases and some of 
the other items, we are still looking at nearly an $8 billion 
cut to our farm families.
    So I hope that--well, my question really is, in trying to 
accomplish what you are trying to accomplish in the context of 
this farm bill rewrite, I hope it is not to from a side door go 
back to ``freedom to farm,'' meaning unilaterally trying to 
disarm our farmers in an international global marketplace, 
particularly in the midst of a trade negotiation in terms of 
the WTO. I mean, I would like to see us encouraging our trading 
partners to step up to the negotiating table to reduce their 
tariffs and subsidies before giving away our farm, as it is 
sometimes said, or just throwing away the farm, perhaps, in 
those negotiations. I know you are not the trade man, but 
nonetheless, I think it is an important part of this equation.
    Secretary Johanns. I appreciate your comments. We do not 
make an assessment about greed or anything like that. I believe 
in all of agriculture. People sometimes ask me if we are for 
the big guy, or if we are for the little guy. I say, look, I am 
for farmers. I am for ranchers. I am for agriculture. You are 
right, some are of a size that is required by the economic 
circumstances that they are dealing with. Some are smaller. But 
I believe in supporting agriculture.
    I would also make the case, Senator, that if you really 
look at the proposal, very respectfully, I believe we have 
improved the safety net. Let me give you an example, and 
farmers told us about this.
    When Katrina hit, we had about a 2-month interruption of 
transportation down the Mississippi that was significant. It 
lasted longer than that, but it rippled across America and it 
affected the corn and soybean price. The corn price dropped 
from about $2 a bushel to $1.55, $1.60. At that point in time, 
farmers locked in their LDP and they got 40 to 45 cents a 
bushel to do that, and you can do the math, absolutely legal 
and appropriate under the 2002 farm bill. But I do not think 
that is what Congress intended. I think Congress intended a 
true safety net where we would be there to help farmers when 
they needed the help.
    So when farmers are telling me this and then telling me, 
look, it was when I needed you most you were not there because 
the price went up and I did not get the countercyclical, I am 
going, something is not working very well here. Again, what we 
tried to do is keep the structure, try to figure out how to 
operate this system better, try to recognize that it was safety 
net that farmers were focused on, you know, and try to make 
proposals to Congress that were based upon that good policy.
    I was in Iowa--I was in Des Moines recently in the release 
of this and I talked about that LDP phenomena with Hurricane 
Katrina. You know what? Farmers were out in the audience 
nodding, and again, it was entirely appropriate. I am not 
suggesting anything other than I am not sure that in the end 
that is what Congress headed out to do here. I think what 
Congress headed out to do was provide a safety net.
    And so I think we have provided a more secure safety net, a 
more predictable safety net, a safety net that farmers can plan 
on, and it is more in accordance with what I think Congress was 
trying to do with the 2002 farm bill----
    Senator Lincoln. Well, I think you kind of make the point, 
too, here that there are variables that we deal with in 
agriculture, much of which we have no control over----
    Secretary Johanns. Yes.
    Senator Lincoln [continuing]. And you point out Katrina and 
the weather that existed. We suffered from that, but we did not 
get the disaster because we were not in the area, but it still 
comes up the river and it still comes across the--you know, the 
weather patterns still come straight up and blow down our rice 
and damage our cotton when it is getting ready to be harvested, 
along with the fact that the input costs, the energy costs were 
drastically high both starting then and through the following 
year. So there is a lot of that that occurs.
    I go back to something else Senator Grassley talked up. He 
talked about images being portrayed, and it seems like the 
Department of Agriculture is always concerned about the image 
of whether or not what you are doing is going to be portrayed 
in the press by certain groups as being something that it is 
not, quite frankly.
    But what I would say is that if you deeply cut the programs 
that have helped farmers when they need it, when you talk about 
the marketing loan rates, and then you increase the direct 
payment slightly and temporarily, which pays the farmer 
regardless of what happens, even when prices are good and 
production is good, do you not think that that is going to 
invite bad publicity? If prices and production turn out to be 
good in the future, as they are predicted but certainly not 
assured, or that absolute calamity comes about and you are 
billions and billions of dollars in emergency relief that we 
are all having to hassle about, if those predictions turn out 
wrong, it is kind of what Senator Thune was saying. If price 
and production are bad----
    Secretary Johanns. Here is what I would say, Senator, and 
again, very respectfully, but your question does misstate our 
proposal and I just have to put it out there for you.
    Senator Lincoln. Yes.
    Secretary Johanns. If you look at the adjustment in the 
loan rate for cotton and go over to the full life of the farm 
bill, all 5 years, you will see that we increase their direct 
payment by 65 percent, 66, and there it is. It is more 
predictable for those cotton farmers. They know what they are 
going to get. They are not going to get cut out on that payment 
when their crop is short because they had dry conditions and 
are not on irrigated land.
    When you look at adjustment in the loan rates for the other 
four major commodities, it is basically a wash. It does not 
save any money. We are not getting those billions of dollars of 
savings that you are suggesting, not at all.
    But we went out there and we said, look, let us find a 
billion dollars that we can put out there for them to increase 
their direct payment. Again, they can take it to the bank 
through the third, fourth, and fifth year. During the first 
couple of years, we have got very high prices, very high 
prices, and I will study the same thing that you will be 
studying, because in the end, as I said to Senator Thune, you 
are going to start exactly where we did. What is in the 
baseline, what is out of the baseline? What does the 2002 bill 
look like if we passed it for the next 5 years and what 
baseline does that create? I will tell you it is not a 
reduction. Run the baseline on the 2002 bill, compare our 
proposals, we are $5 billion over.
    So if you say, Mike, you really made a nice presentation 
here but I like the 2002 bill, I am going to stick with it, I 
am going to fight to get it passed, somewhere out there, $5 
billion has just been taken away from people because our 
proposal is $5 billion over the baseline.
    Senator Lincoln. Well, I am not so stuck in the gumbo, as 
we call mud in the Delta, to say that I have to have the 2002 
bill, but I do think--and I hope that you will be willing to 
work with us to come up with some compromises that may be more 
reflective of the diversity that exists, and we thank you, Mr. 
Secretary. Thank you, Mr. Chairman.
    Chairman Harkin. I just have a few more, but I have to 
respond to Senator Lincoln. You cited Rob Portman as saying 
that the biggest distortions in trade were in agriculture, is 
that what he said?
    Senator Lincoln. World agricultural markets.
    Chairman Harkin. Well, I like Rob Portman a lot. He is a 
fine guy. I may have to call him up on that one. I happen to 
think the biggest distortions are in manufacturing, where 
people are paid basically slave wages, where they are provided 
no kinds of retirement benefits or anything else, where they 
use child labor in many cases. I think those provide some of 
the biggest distortions in terms of our world trading 
agreement. Where we at least try to pay our workers a living 
wage and provide different benefits and things, they do not get 
that same thing in other countries and they are just 
undercutting us, a lot of times using child labor, too. So I 
would say that that may be a bigger distortion than what we see 
in agricultural trade.
    Mr. Secretary, the fastest growing segment of the food 
industry is organics, 20 percent per year going up right now. 
In the 2002 farm bill, we started to address some of this in a 
couple of ways. There is this sort of valley of death, as they 
say. If somebody wants to do organics and they have got program 
crops and program acres, to grow organics, you have to be 
certified for 3 years. I mean, you have to do 3 years before 
you get your USDA certification, but they cannot market it as 
organics.
    So we tried to provide some funds in that bill to get them 
through that and then to do some more research, and what we 
provided was $3 million a year for research and extension. Your 
proposal has only $1 million a year. So the way I see it, that 
is a two-thirds cut in the fastest growing area and an area 
where, for a small amount of money, we can provide niche 
markets for a lot of farmers all over this country and people 
who want to grow organics.
    So I am just wondering why there is this back-off in your 
proposal.
    Secretary Johanns. Our proposal is at page 166 of the book 
we have submitted and it lists a whole bunch of initiatives 
under the organic title. I will not--the hour is getting late 
and I will not detail those, but these basically were built on 
suggestions that the organic industry had been touting or 
proposing. So I think we hit everything.
    The other thing I would mention is that if you look at our 
proposals, we have mandatory funding there, also. Again, 
because there is this issue, you can put a lot of discretionary 
money out there. It does not tend to get funded, and you look 
back 5 years later and say, well, that was a nice idea. It did 
not go anywhere because the money was not there.
    If you look at our proposals, I think they are 
comprehensive. I think it is along the lines of what the 
organic industry wanted plus there is mandatory money there 
that will help.
    Chairman Harkin. I think the mandatory is just in the 
Market Access Program. That is the way I see it.
    Secretary Johanns. I would have to study that a little 
more.
    Chairman Harkin. Well, we will have to get into this----
    Secretary Johanns. Yes.
    Chairman Harkin [continuing]. Because in your budget, in 
the budget, it is $18 million over 10 years--no, that is not 
right----
    Secretary Johanns. Yes, it is 69----
    Chairman Harkin. It is $10 million over 10 years.
    Mr. Conner. It is $61 million, Senator Harkin, I think, 
over 10 years, and that is all mandatory funding in our bill, I 
believe.
    Secretary Johanns. I think the organic industry--I am not 
aware of whether they have weighed in on our proposal, but I am 
thinking this is pretty close, plus it is mandatory money and 
that, as you know, is always hard to come by.
    Chairman Harkin. I will look at it. I thought it looked 
like you were cutting it from the $3 million, which I thought 
was a paltry sum anyway.
    I had a big meeting this weekend with a number of organic 
farmers in Iowa. We had a big gathering there. Their need is 
for regional processing facilities. They need small regional 
processing facilities to be able to take their goods there and 
have them regionally processed, packaged, whatever, and then 
put out. So I look forward to discussing that with you.
    But I have got to clear up the amount of money on organics. 
We have got to do more on organics. We have got to provide more 
money--Mark tells me that the organic research, what I am 
talking about, and extension is cut, but the overall organic 
does go up, so we will take a look at that. We will work on 
that.
    One last thing, and it is late and I appreciate your 
staying here so long. We will work on the Food and Nutrition 
Program, on the technical problems regarding how we give a 
bonus to food stamp recipients. We will work on that.
    My last question, again looping back to where I started, my 
favorite subject, CSP.
    Secretary Johanns. OK.
    Chairman Harkin. Again, one more time, as I understand your 
plan to provide the increase of $500 million over the 10 years, 
we spread the baseline back. I understand all that. It is going 
in the right direction. But here is what I do not understand, 
Chuck. The President's budget released Monday would reduce 
spending for the Conservation Security Program in 2008 by $135 
million and reduce the cap on CSP by $80 million between now 
and 2015. So it seems to me there is an inconsistency here, and 
if you can clear it up a little bit now or provide a more 
detailed analysis later on, I would appreciate it. Or Mr. 
Secretary--I just said Chuck because we have beentalking about 
this.
    Mr. Conner. Senator Harkin, I think to underscore what the 
Secretary had said earlier, the budget that we submitted 
earlier this week does reflect all of the current CSP contracts 
that we have already awarded and also provides some additional 
funding so that those same contract recipients can actually 
upgrade their contract, if you will, and receive additional 
assistance and exchange for additional conservation benefits. 
We have not--so that is built into the President's budget, 
current contracts plus opportunities to upgrade those contracts 
with more conservation.
    Chairman Harkin. OK.
    Mr. Conner. Now, beyond that----
    Chairman Harkin. No new contracts?
    Mr. Conner. That is right. As the Secretary has noted, we 
have in our book proposed, in addition to the additional 
funding, we have proposed changes to some aspects of CSP. For 
that reason, we do not believe that there is going to be new 
contracts awarded in this fiscal year and therefore----
    Chairman Harkin. Two-thousand-eight.
    Mr. Conner. I am sorry, in fiscal year 2008, and for that 
reason have not included any of the additional increases to 
begin in that fiscal year. Obviously, they would begin then in 
2009 and beyond with the adoption of a new farm bill proposal. 
But again, I think the important point, Senator, is we have 
covered the existing contracts plus their opportunity for 
additional conservation dollars within those contracts.
    Chairman Harkin. Well, again, as you can imagine, I do not 
think that is acceptable. For 2 years, we are going to go 2 
years without one new contract, and I just do not know why it 
would take so long to come up with rules and regulations. We 
have an existing program. We will get a good idea probably 
soon, by early summer, the direction we are going on this. I 
think when you did the EQIP funds after the 2002 farm bill, 
that happened pretty rapidly. So I just think we just cannot 
afford to have 2 years like that.
    Again, one more time, how does the $80 million reduction, 
the $80 million reduction in the President's budget through 
2015 square with the purported $500 million additional over the 
10 years?
    Secretary Johanns. Chairman, if I might offer a thought, we 
have our budget person here and maybe if he can caucus with 
your folks to try to----
    Chairman Harkin. OK.
    Secretary Johanns. We can tie each other around the axle on 
these numbers and I think we are successfully doing that.
    Chairman Harkin. All right. But go ahead, Keith. Maybe 
Keith can give us a----
    Mr. Collins. I can try very quickly, Mr. Harkin. First of 
all, we are not proposing a decrease in CSP funding in our 
budget request for 2008. For 2007, our CSP funding is $259 
million. Our budget request----
    Chairman Harkin. That is right. I am aware of that.
    Mr. Collins. Our budget request is $316 million. That is an 
increase. That is to do exactly what Deputy Secretary Conner 
said, to fund existing contracts plus enhancements. The $80 
million you are talking about is a decrease from our baseline 
level and that decrease in the baseline level simply results 
from the fact that we are not holding additional enrollments in 
2007 and 2008. So we are slightly below our baseline. But then 
we would make up for that in our farm bill proposal by adding 
the $500 million, pulling the out year funding forward, and 
enrolling in the order of ten to 11 million acres a year and 
going from 15.5 million acres today to 96.5 million acres in 
2017.
    Chairman Harkin. OK.
    Mr. Collins. And if I might say, the question of----
    Chairman Harkin. Then that seems to me, from where I have 
been, it seems to me then that is $420 million. We will just 
deduct the $80 million off of it.
    [Laughter.]
    Chairman Harkin. You are right. We can get around the axle 
on this one. We will work it out. We will work it out. We will 
work it out.
    Let me see, did I have anything else here that I wanted to 
bring up? No, I think that really does it. You are very 
generous with your time, Mr. Secretary. Again, I thank you for 
a very, as I said in the beginning, a very challenging and, I 
think, forward-looking proposal. I hope we can get to work on 
it soon. My goal along, I hope, with Congressman Peterson on 
the House side is to get this thing put to bed and get it to 
the President sometime hopefully by September. I look forward 
to working with you on it.
    Secretary Johanns. I look forward to working with you, 
Chairman. We really appreciate your leadership in pulling this 
hearing together. I think this is what farm bill policy is all 
about. You get together and you start talking about the issues 
and try to figure out where to go. We are excited about our 
proposal. As you can tell, I probably answered longer than I 
should have. I get fired up about the things that we have got 
here, but we do appreciate the hearing and the opportunity to 
visit with you and your committee.
    Chairman Harkin. Thank you very much, Mr. Secretary.
    The committee will stand adjourned subject to the call of 
the chair.
    [Whereupon, at 12:48 p.m., the committee was adjourned.]
      
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                            A P P E N D I X

                            February 7, 2007



      
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                   DOCUMENTS SUBMITTED FOR THE RECORD

                            February 7, 2007



      
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                         QUESTIONS AND ANSWERS

                            February 7, 2007



      
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