[Senate Hearing 110-125]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-125
 
                        ECONOMIC CHALLENGES AND 
                     OPPORTUNITIES FACING AMERICAN 
                      AGRICULTURAL PRODUCERS TODAY 

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

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION


                               __________

                             APRIL 18, 2007

                               __________

                       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):

Economic Challenges and Opportunities Facing American 
  Agricultural Producers Today...................................     1

                              ----------                              

                       Wednesday, April 18, 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

Carstensen, Peter C., Professor of Law, University of Wisconsin 
  Law School, Madison, Wisconsin.................................     4
Hamilton, Scott, Poultry Grower, Phil Campbell, Alabama..........    12
Hayes, Lynn A., Farmers' Legal Action Group (FLAG), Inc., St. 
  Paul, Minnesota................................................     6
Muth, Mary K., Director, Food and Agricultural Policy Research 
  Program, RTI International, Research Triangle Park, North 
  Carolina.......................................................     8
Schmidt, Tim, Pork Producer, Hawarden, Iowa......................    10

                                Panel II

Johnson, Burdell, President, American Sheep Industry Association, 
  Tuttle, North Dakota...........................................    38
Nelson, Eric, Ranchers-Cattlemen Action Legal Fund, United 
  Stockgrowers of America (R-Calf USA), Moville, Iowa............    30
Philippi, Joy, National Pork Producers Council, Bruning, Nebraska    34
Queen, John M., President, National Cattlemen's Beef Association, 
  Waynesville, North Carolina....................................    32
Roenigk, William P., Senior Vice President, National Chicken 
  Council, Washington, DC........................................    39
Truex, Ron, United Egg Producers, Warsaw, Indiana................    36
                              ----------                              

                                APPENDIX

Prepared Statements:
    Grassley, Hon. Charles.......................................    50
    Roberts, Hon. Pat............................................    52
    Carstensen, Peter C..........................................    53
    Hamilton, Scott..............................................    64
    Hayes, Lynn A................................................    79
    Johnson, Burdell.............................................   102
    Muth, Mary K.................................................   107
    Nelson, Eric.................................................   116
    Philippi, Joy................................................   137
    Queen, John M................................................   157
    Roenigk, William P...........................................   170
    Schmidt, Tim.................................................   177
    Truex, Ron...................................................   179
Document(s) Submitted for the Record:
National Association of State Departments of Agriculture (NASDA), 
  prepared statement.............................................   186
Question(s) and Answer(s):
Grassley, Hon. Charles:
    Written questions for Peter C. Carstensen....................   192
Harkin, Hon. Tom:
    Written questions for Mary Muth..............................   194
Roberts, Hon. Pat:
    Written questions for Mary Muth..............................   196
Carstensen, Peter C.:
    Written response to questions from Hon. Charles Grassley.....   197
Muth, Mary K.:
    Written response to questions from Hon. Tom Harkin...........   199
    Written response to questions from Hon. Pat Roberts..........   202
    Written response to questions from Hon. Charles Grassley.....   205
Nelson, Eric:
    Written response to questions from members...................   206



                        ECONOMIC CHALLENGES AND

                     OPPORTUNITIES FACING AMERICAN

                      AGRICULTURAL PRODUCERS TODAY

                              ----------                              


                       Wednesday, April 18, 2007

                                       U.S. Senate,
                                  Committee on Agriculture,
                                   Nutrition, and Forestry,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 9:30 a.m., in 
room SD-106, Dirksen Senate Office Building, Hon. Tom Harkin, 
Chairman of the Committee, presiding.
    Present: Senators Harkin, Lincoln, Salazar, Casey, 
Klobuchar, Chambliss, Thune, and Grassley.

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

    Chairman Harkin. The hearing will come to order, as soon as 
I turn on my microphone, and we welcome you to one of our 
smaller hearing rooms that we have here in the Capitol. We have 
a number of votes coming up, but we will start and we will see 
how far we can get, and we will have to take some breaks and go 
vote and come back. But that is life around this place.
    Over the last several months, we have heard from a wide 
range of interested stakeholders to gain their input for 
writing the next farm bill. Today we will focus on hearing from 
representatives of the livestock, poultry, and egg industries.
    Animal agriculture is very important to the United States. 
The Economic Research Service estimates the value of U.S. 
livestock and poultry production in 2007 will be about $125.7 
billion. The new farm bill can help play a role in expanding 
this. The farm bill will be critically important for expanding 
access to conservation programs, developing much needed 
research on distillers' dry grains for animal feed, for animal 
diseases, promoting market access, cellulosic ethanol, and 
ensuring fair and competitive markets.
    As with any farm bill, there will be many different 
perspectives on all these issues, and I look forward to 
listening and learning from the witnesses here today.
    In the past 15 years, the animal industry has become more 
consolidated and vertically integrated. Basic open fairness and 
competition in markets have become a big issue. Today, in some 
regions of the country, there are only a handful of buyers of 
livestock left, and they frequently do not buy off of the open 
market. For some producers, they have only one buyer left, and 
this is a huge change from the time when I was young.
    This sets up an overly tilted marketing system where 
producers have difficulty getting bids for the livestock or are 
forced into some take-it-or-leave-it contracts with unfair 
terms. These producers have nowhere else to go to market their 
livestock or poultry, and for those producers that speak out 
against unfair practices or complain, they face retaliation. 
They stop getting bids on the open market, or they can lose 
their contracts.
    Producers of marketing livestock and poultry in 
consolidated markets are becoming less inclined to speak out 
about what they see going on in the marketplace. Producers fear 
that if they speak out, they will face retaliation, so I 
especially want to thank the witnesses today for providing 
testimony before the Committee.
    Congress worked to provide fairness in the marketplace 
before, and it can do so again. In 1921, Congress passed the 
Packers and Stockyards Act to keep markets fair. The Department 
of Agriculture has this important authority to enforce the act. 
But just last year, a report by USDA's Inspector General--a 
report I commissioned--found widespread inaction, efforts to 
block investigations of unfair and anticompetitive conduct, and 
even efforts to cook the books to give the appearance of actual 
enforcement by the Grain Inspection, Packers, and Stockyards 
Administration at the Department of Agriculture.
    So basic fairness and transparency in the marketplace 
should be guaranteed in Federal law. If we are going to have a 
market-based system, if we are going to have true competition, 
then you have to have transparency.
    That is why I introduced the Competitive and Fair 
Agricultural Markets Act--to improve USDA's enforcement of the 
Packers and Stockyards Act and to strengthen the Agriculture 
Fair Practices Act. That is why I have also worked to improve 
the Livestock Mandatory Reporting Act, along with other 
important market reforms.
    So, again, I look forward to hearing from today's witnesses 
and working with you all on crafting a forward-looking farm 
bill that enhances and protects a market-based system.
    With that, I would yield to my colleague and our Ranking 
Member, Senator Chambliss.

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

    Senator Chambliss. Well, thank you very much, Mr. Chairman, 
and I thank you for holding this hearing, and I certainly 
welcome all of our witnesses here today and look forward to 
hearing your testimony on the importance of livestock in the 
2007 farm bill.
    Today's hearing will allow key stakeholders in the 
livestock industry to detail their priorities on the upcoming 
farm bill. Last year, I had the honor of chairing eight farm 
bill field hearings across the Nation to gather information 
from farmers and ranchers regarding their farm bill concerns 
and priorities. I consider this an important part of an open 
and balanced legislative process. The information obtained 
during those field hearings and the testimony provided in 
hearings such as this one today will serve the entire Committee 
well as we begin our farm bill deliberations.
    The hearing today pays particular attention to an issue 
that is not new to this Committee or to the farm bill process: 
competition in livestock markets. This issue has been a 
constant topic since my arrival in Congress in 1994. Everyone 
who is concerned with agriculture understands the need for 
cattle, pork, poultry, and other producers to have every fair 
option at their disposal to market and sell their animals. I, 
like all of the members of this Committee, understand the 
importance of enforcing the Packers and Stockyard Act and other 
important antitrust laws that ensure an open and competitive 
marketplace.
    While I look forward to hearing from all of our witnesses 
today, I am a little disappointed that certain segments of the 
livestock industry are not included in this hearing. I am 
hopeful that as we construct a farm bill that will affect the 
entire livestock industry, we will include the input of all 
stakeholders, including the producers who raise the animals; 
the stockers, feeders, and background operations that feed 
them; the processors and packers that break them down into 
salable commodities; and the retailers that ultimately sell the 
finished product. All of these segments are critical to a 
competitive thriving livestock industry and marketplace.
    I believe in a fair and open marketplace for livestock 
market participants, and that is why I fought so hard last year 
alongside Chairman Harkin to reauthorize the Livestock 
Mandatory Price Reporting Act. That process demonstrated what 
we can accomplish when we work together with all interested 
stakeholders to arrive at consensus legislation that enjoys 
broad-based support. It is not always the easiest approach, but 
I believe it achieves the best results.
    In fiscal year 2003, Congress specified that the Grain 
Inspection, Packers, and Stockyards Administration of the U.S. 
Department of Agriculture use $4.5 million to conduct a study 
to address issues surrounding a ban on packer ownership. We are 
fortunate to have with us today Ms. Mary Muth of the Research 
Triangle Institute, the firm that conducted this 
congressionally mandated study. In attempting to address 
complex issues such as the proposed ban on packer ownership, it 
is critical that Congress carefully consider all expert 
analysis, such as the RTI study, before we determine whether 
restrictions on the use of captive supplies are warranted.
    In my part of the country, the livestock industry is 
dominated by cow-calf operators who utilize auction markets and 
alternative marketing arrangements to sell their animals. Many 
Georgia cattlemen and pork producers utilize alternative 
marketing arrangements to obtain higher prices for their 
animals and to accommodate niche markets, such as certified 
Angus beef. They also use these arrangements in an effort to 
satisfy export markets and to ensure the production of the 
higher-quality products that consumers demand. The proposed 
elimination of these types of arrangements could have a 
negative impact on my producers. Livestock and poultry 
producers today must compete in an imbalanced international 
marketplace that often rejects their product for unjustified 
and unscientific reasons.
    In addition, producers must compete for corn supplies with 
ethanol facilities, further raising their cost of production 
and making it more difficult for producers to be profitable. I 
urge my colleagues to employ a cautious approach as we consider 
legislative proposals that would potentially limit the options 
of producers by banning these types of arrangements.
    Finally, Georgia is the No. 1 producer of poultry in the 
United States, producing over 1.3 billion in broilers and over 
4.8 billion eggs in 2005, amounting to over $2.7 billion in 
cash receipts. The poultry industry is obviously an integral 
component of the Georgia agricultural sector, and I look 
forward to hearing from our witnesses today who will discuss 
the poultry and egg industries. It is important that growers 
are treated fairly as they compete in the marketplace. It is 
also equally important that we continue critical research in 
areas such as avian influenza that will have tremendous 
benefits for humans and animal health.
    I again would like to thank everyone for attending this 
hearing. I look forward to hearing the testimony from all of 
our witnesses, and, Mr. Chairman, I once again thank you for 
your cooperation and for calling this hearing today.
    Chairman Harkin. Thank you very much, Senator Chambliss. I 
again want to thank you, when you guided this Committee last 
year, for having all those field hearings around the country. 
They laid great groundwork for our farm bill and relieved me of 
going around the country and having all those hearings this 
year. So I really appreciate that.
    Also, I just for the record want to say that our staff had 
invited the American Association of Meat Processors to testify 
at this hearing, and they were unable to come--or they did not 
come up with a witness, but they were invited.
    Now, I am going to recognize this panel, and we will just 
go down the line here: Mr. Carstensen and Ms. Hayes, Dr. Muth, 
Mr. Tim Schmidt, and Mr. Scott Hamilton. All of your statements 
will be made a part of the record in their entirety. Because we 
are confronting and facing some possible votes here soon this 
morning that will cause us to be gone, I am really going to be 
fairly strict on asking you to hold it to about 5 minutes, give 
us the essence of what it is that you want us to know, and so 
we can have more of an interchange with you.
    I would recognize Peter Carstensen, Professor, University 
of Wisconsin Law School, and he has worked a lot on the series 
of issues involving the relationship of regulation to 
competition. Professor Carstensen, we will start with you and 
then just work down the line. Welcome to the Committee.

STATEMENT OF PETER C. CARSTENSEN, PROFESSOR OF LAW, UNIVERSITY 
          OF WISCONSIN LAW SCHOOL, MADISON, WISCONSIN

    Mr. Carstensen. Thank you very much, Senator. It is a great 
honor to be here, and I am particularly pleased to see the 
bipartisan support for reform in the framework that we have for 
regulating agriculture.
    The thing that I think is most important to appreciate is 
that agricultural markets, both in the input and the output 
side, represent special problems in terms of risks of 
dysfunction in the market. This is partly because of the lags 
between the time one starts to plant a crop or acquire an 
animal and the time that it is available for market. But it 
also has to do with the disproportionate relationship of small 
producers, large buyers--that is, you have some inherent buyer 
power problems--with informational issues, with other kinds of 
negative consequences for the market. And added to that we have 
serious problems of increased concentration on both the input 
side and the output side.
    The role of law here, and especially the kind of law that 
this Committee addresses, is to facilitate fair, open market 
transactions. This legislation, like the Securities Exchange 
Act, like the Commodity Futures Trading Act, is one that is 
designed to facilitate the efficient operation of the market, 
and, unfortunately, it has really not functioned well in a 
whole variety of agricultural markets. And in my statement, I 
emphasized the problems first in the dairy world that come from 
increased concentration and the distortions that have resulted 
in purchases, buying processes of fluid milk; second, and the 
primary focus for your concerns here, I think, the livestock 
and poultry markets that we have, where, again, we are seeing 
increased concentration. I particularly here am concerned about 
the pending merger of Smithfield and Premium Standard brands 
that will greatly increase concentration not only in the 
Midwest but in the eastern part of the United States. In North 
Carolina, it will reduce the number of competing processors 
from two to one. We call that ``monopoly,'' and I am appalled 
that the Justice Department has not yet moved on that.
    I have looked somewhat at the RTI study, and, 
unfortunately, I think it is deeply flawed in terms of a 
forward-looking evaluation of alternative means and methods of 
marketing agricultural products, the marketing particularly 
here of livestock, in that it makes a simple-minded distinction 
between the cash market, which is bad apparently, and all other 
forms of contracting, whatever their flaws, which are 
apparently good. That is simply not the way to go about a 
forward-looking study that identifies desirable features of 
contracting, desirable features of particular cash 
transactions, and then ask how best can we adjust between and 
among these different instruments of policy.
    As I think you are aware, Mr. Chairman, there are some very 
serious problems with the way the courts have interpreted the 
Packers and Stockyards Act, especially in the recent Pickett 
decision. There is, I am pleased to report, a case out of Texas 
which takes a better view of the law. Whether that will be 
upheld on appeal, I do not know. But it is long overdue to 
revisit how the Packers and Stockyards Act's provisions are 
interpreted because they absolutely require modernization so 
that they address unfair practices, discriminatory practices, 
especially denial of access to the market in a world where 
contracting is going to be a much more common feature.
    I want briefly also to emphasize another area which I think 
your proposal, Mr. Chairman, would provide important coverage 
in the market for various kinds of crops, especially corn and 
soybeans. I have spent some time in my written statement 
explaining both the emergence of contracting as a major new 
force in these markets and the particularly pernicious problems 
that exist because of the use of patented genetics on seeds and 
the kind of anticompetitive conduct of the genetic patent 
holders, especially I will name specifically Monsanto here 
because they are overwhelmingly dominant, in foreclosing 
important competition in the input side of the seed market. And 
my prediction of things to come unless Congress does something 
is that Monsanto is going to start imposing a tax on valuable 
corn and soybeans because, as I read the law, Monsanto has the 
legal right, right now, to tell farmers who raise Monsanto 
genetic soybeans or corn, ``Here is the person you will sell 
to.'' That is, they can sell the right for Monsanto to 
foreclose competition downstream.
    So the agenda you have got is an enormous one, and I wish 
you all the good luck in the world in dealing with it.
    [The prepared statement of Mr. Carstensen can be found on 
page 53 in the appendix.]
    Chairman Harkin. Thank you very much, Professor Carstensen.
    Now we will turn to Lynn Hayes from the Farmers' Legal 
Action Group. Lynn was the founding attorney and program 
director at Farmers' Legal Action Group in St. Paul, Minnesota. 
She received her BA degree in English from Coe College in Cedar 
Rapids, Iowa, and a J.D. degree from Columbus School of Law, 
Catholic University of America--my alma mater.
    [Laughter.]
    Chairman Harkin. Welcome to the Committee, Ms. Hayes.

STATEMENT OF LYNN A. HAYES, FARMERS' LEGAL ACTION GROUP (FLAG), 
                   INC., ST. PAUL, MINNESOTA

    Ms. Hayes. Thank you. Over the past several decades, the 
markets for farmers' agricultural commodities have experienced 
rapid consolidation of market share in the hands of a few large 
companies and a dramatic increase in vertical integration by 
packers and processors. This has resulted in the vast reduction 
in the number of buyers to compete for farmers' products, a 
loss of transparency in the markets, manipulation of prices 
paid to producers, and an increase in the use of production 
contracts, and, most importantly, a horrendous imbalance of 
bargaining power between the farmers and processors.
    Today I want to discuss two principal ways the packers and 
processors have vertically coordinated their production. First 
is production contracts, using the poultry industry as an 
example, and the second is captive supply procurement methods 
in the red meat packing industry.
    The vast imbalance of bargaining power is exemplified in 
the poultry industry, which now 90 percent of production is 
done production contracts, where the company owns the birds and 
the producers on contract raise those birds. Those contracts 
are take-it-or-leave-it contracts written by the companies. 
There is no negotiating by the farmers for the terms of those 
contracts, and consequently, they leave farmers with huge risks 
under those contracts. Farmers are encouraged to participate in 
these contracts through oral representations of their financial 
feasibility and the lifestyle benefits, which often are not 
borne out in the contract terms whatsoever.
    For example, the poultry interest broiler growers indicate 
they receive much less money, have much higher costs, and they 
have to work many more hours than the companies represented 
would be the case. However, once they find this out, they have 
already--by the time they find this out, they have already made 
hundreds of thousands of dollars in investments in buildings 
and other facilities to raise the poultry, and at that point 
they are at the whim--they are left to the mercy of the 
companies because in many cases there is only one or two 
companies that would pick up birds from the growers' area. This 
leaves the growers with no bargaining power, but when they try 
to form bargaining associations, they are often retaliated 
against by the companies, by either manipulating inputs that 
reduce their prices or possibly just terminating their 
contracts.
    In the poultry industry, particularly the broiler growers 
are paid under tournament system where the growers are ranked 
against other growers in feed efficiency. However, the 
companies control most of the inputs that really control how 
well the producer is going to play on the feed efficiency 
front.
    Many of the contracts are for only one 7-week period for 
broiler contracts. The companies usually have the opportunity 
to terminate the contracts at will. They can require the 
growers to install thousands of dollars in equipment upgrades 
during the course of the contract. And the contracts also 
usually require disputes to be resolved there binding 
arbitration.
    Things that Congress can do to level the playing field on 
the bargaining power for growers is to require that all 
production contracts be in plain language and include a cover 
sheet that summarizes the material risks to the farmers, 
prohibit any confidentiality clauses or binding arbitration 
clause in the contracts, prohibit the tournament system of 
payment for poultry contracts, require that companies negotiate 
in good faith in all dealings with the growers, and to improve 
the Agricultural Fair Practices Act by requiring companies to 
bargain in good faith and not to retaliate against growers who 
are organizing in associations, and to make it unlawful for 
companies to participate in production contracts by using 
unfair, deceptive, or discriminatory practices.
    The other area I want to mention is captive supplies in the 
red meat industry. The Packers and Stockyards Act has for years 
prohibited unfair and deceptive practices. When Congress passed 
the act, it intended to prohibit both anticompetitive practices 
and unfair and deceptive and price-manipulating practices 
between packers and producers.
    Unfortunately, because USDA has failed to effectively 
regulate and define what kinds of practices are unfair and 
unjustly discriminatory, as the industries have changed we have 
lost much of the original intent. And this was demonstrated in 
the London court cases and the Pickett case that Mr. Carstensen 
mentioned, where the court had required producers to show 
anticompetitive practices in order to show unfair practices.
    To address these issues, the Packers and Stockyards Act 
should be amended to close the poultry loophole so that USDA 
can enforce the act in the same way against poultry dealers as 
red meat packers. And it should prohibit formula price forward 
contracts for the procurement of slaughter livestock, and all 
forward contracts should be traded in open public market. 
Packer ownership of cattle and hogs more than 7 days before 
slaughter should be prohibited, and the act should be amended 
to make it clear that anticompetitive effect is not required to 
show an unfair, deceptive, or price-manipulating practice in 
violation of the Packers and Stockyards Act.
    Producers should also be allowed to file lawsuits to 
enforce the act in Federal district court and to be awarded 
attorneys' fees when successful.
    Thank you.
    [The prepared statement of Ms. Hayes can be found on page 
79 in the appendix.]
    Chairman Harkin. Thank you very much, Ms. Hayes.
    We have just been notified that a 15-minute roll call vote 
started at 9:48. I think we can hear from one more witness 
before we have to make a mad dash out of here, and so--and I do 
not know. I am trying to find out if there is one or two votes. 
I do not know. There are two votes? Well, let us hear from one 
more witness.
    Dr. Mary Muth, Director of the Food and Agricultural Policy 
Research Program at RTI International, an independent, not-for-
profit research institute in the Research Triangle Park, North 
Carolina. She was the project manager for the congressionally 
funded GIPSA Livestock and Meat Marketing Study that was 
completed earlier this year. She has a Ph.D. in economics from 
North Carolina State University, an M.S. in ag economics from 
Cornell University, and a B.S. in agricultural and managerial 
economics from the University of California at Davis.
    Welcome to the Committee, Dr. Muth, and please proceed.

  STATEMENT OF MARY K. MUTH, DIRECTOR, FOOD AND AGRICULTURAL 
 POLICY RESEARCH PROGRAM, RTI INTERNATIONAL, RESEARCH TRIANGLE 
                      PARK, NORTH CAROLINA

    Ms. Muth. Thank you. Good morning, Senator Harkin and 
members of the Committee. I also wanted to add in with my bio 
that my husband's family owns a cow-calf operation in western 
Kentucky, so some of the issues that I talk about hit pretty 
close to home. I am pleased to be here, and thank you for the 
opportunity to provide an overview of the findings of the 
Livestock and Meat Market Study.
    The study was conducted from July 2004 through January 2007 
by a team of researchers at RTI International, Iowa State, 
North Carolina State, Montana State, and Colorado State 
universities and the Wharton School at the University of 
Pennsylvania. The study addresses the economic effects that 
alternative marketing arrangements have on the livestock and 
meat industries. As you know, the cash or spot market includes 
auction, direct trade, and use of dealers and brokers. In 
contrast, alternative marketing arrangements include all other 
marketing methods, such as marketing agreements, marketing and 
production contracts, packer ownership, and forward contracts.
    In the final report for the study, we analyzed the extent 
of use and price differences across marketing arrangements and 
the effects of using alternative marketing arrangements on cash 
market prices; the costs and benefits of various marketing 
arrangements, particularly as they relate to quality, cost of 
production, and risk; and the implications of using marketing 
arrangements on livestock producers, meat packers, and 
consumers. We used state-of-the-art economic modeling and 
statistical analysis methods to address the requirements of the 
study using industry survey data, transactions data, and 
profit-loss statements from packers, industry interviews, and 
publicly reported data, including mandatory price reporting 
data.
    In general, the study found that use of alternative 
marketing arrangements provides benefits not only to meat 
packers but also to livestock producers and to meat consumers. 
Therefore, restricting their use would have negative economic 
consequences on most segments of the industry. However, the 
cash market serves an important role in the industry, 
particularly for small producers and packers.
    Next I would like to give a broad overview of the specific 
results of the study.
    First, regarding the volumes and prices of livestock under 
different types of marketing arrangements, based on the data 
available for the study, we estimate that alternative marketing 
arrangements represent 38 percent of the volume for fed cattle, 
89 percent for finished hogs, and 44 percent for fed lambs sold 
to packers.
    Furthermore, we estimate that packer ownership volumes 
represent less than 5 percent of fed cattle and fed lamb 
volumes and 20 to 30 percent for finished hogs. Based on the 
industry surveys and industry interviews we conducted, we 
expect use of alternative marketing arrangements in the beef 
and pork industries to remain similar to past use, but to 
increase somewhat in the lamb industry.
    In the beef industry, prices for fed cattle are similar for 
direct trade and marketing agreements, higher for the small 
percentage of auction barn cattle, and lower for the small 
percentage of forward contract cattle. We found that a 
reduction in the volume of spot market transactions, assuming 
that volume is shifted into alternative marketing arrangements, 
results in an extremely small decrease in the spot market 
price.
    In the pork industry, prices for finished hogs are higher 
for marketing contracts and lower for packer-owned hogs 
relative to the cash market. We found that there would be a 
relatively large effect of further increases in the use of 
alternative marketing arrangements on cash market prices for 
hogs.
    Second, regarding the costs and benefits of alternative 
marketing arrangements related to costs of production, in the 
beef industry procurement of cattle through alternative 
marketing arrangements is associated with lower production 
costs per head than through cash markets, but we found that 
this result actually does not hold for all packing plants in 
the data set. In the pork industry, procurement of hogs through 
alternative marketing arrangements is associated with a very 
small decrease in production costs at the packer.
    Related to quality of beef and pork, in the beef industry 
we found that cattle sold through marketing agreements were 
higher quality and had less variation in quality than cattle 
sold through direct trade methods. Similarly, in the pork 
industry, we found that hogs sold through marketing contracts 
are higher quality than hogs sold through direct trade.
    Related to market access and price risk, across all 
species, alternative marketing arrangements offer some 
guarantee of market access for both livestock producers and 
meat packers. Furthermore, use of alternative marketing 
arrangements generally reduces price or income risk for cattle 
and hog producers.
    Third, regarding implications of the use of alternative 
marketing arrangements, we conducted simulations of various 
hypothetical scenarios in which alternative marketing 
arrangements were restricted. Across all species, the economic 
modeling simulations indicate losses to livestock producers, 
meat packers, and consumers due to losses in efficiencies in 
the market. These losses in efficiencies translate into higher 
prices for consumers purchasing meat and lower prices for 
producers selling livestock.
    Mr. Chairman, I would like to enter into the record Volume 
1 of the report for the Livestock and Meat Marketing Study. 
This volume contains the executive summary and the overview for 
the study.
    Thank you.
    [The prepared statement of Ms. Muth can be found on page 
107 in the appendix.]
    Chairman Harkin. Dr. Muth, thank you very much, and we are 
into the second phase of the vote right now. I guess we have 
two votes, so if we leave now, we should be able to be back in 
about 15 minutes, I think. So we will stand in recess for about 
15 minutes. We will go vote and we will be right back.
    [Recess.]
    Chairman Harkin. The Committee will resume its sitting. 
Next we will hear from Mr. Tim Schmidt, a pork producer from 
Hawarden in northwest Iowa. He farms with his three partners in 
a diversified operation that includes farrow-to-finish hogs, a 
cattle feedlot, along with growing corn and soybeans. And I am 
told that most of the corn produced on their farms is used by 
their livestock enterprises. Tim also serves as the President 
of the Sioux County Pork Producers. His wife, Mary, and two 
daughters, Karen and Callie, who both attend West Sioux 
Community School in Hawarden, so a real family farmer.
    Welcome to the Committee, Mr. Schmidt, and please proceed.

    STATEMENT OF TIM SCHMIDT, PORK PRODUCER, HAWARDEN, IOWA

    Mr. Schmidt. Thank you. Good morning, Chairman Harkin and 
members of the Committee. Thank you very much for inviting me 
here today to discuss some of the changes and challenges 
occurring in the U.S. meat production industry. I am Tim 
Schmidt, a third-generation pork producer from Sioux County, 
Iowa. My partners and I operate a 250-sow, farrow-to-finish hog 
operation on a century farm. Prior to entering the partnership, 
I worked for a major packer in Nebraska for several years and 
also for an agricultural co-op. The strength and vitality of 
the U.S. pork industry is very important to me, and I serve in 
a leadership role in my county pork producer association.
    My comments today are about market access and market price 
changes that I have seen in the industry, stemming from 
consolidation in the US packing business.
    Over the years we have sold weekly loads of hogs after 
shopping around for bids from packers. Ten years ago, our farm 
could get multiple competitive bids from several hog buyers. 
Around 5 to 6 years ago, we began having a hard time getting 
more than one bid from a group of buyers. Since we were only 
getting one bid, we ended up selling mostly to just one buyer. 
Today it is almost impossible to get a competitive bid on the 
80 hogs we sell every week. So I have a less competitive bid 
and fewer market options. When you only receive one bid, the 
market price liquidity is poor, and market price transparency 
is questionable at best.
    So what changed between 10 years ago when bids were readily 
available and 5 years ago when they stopped? The packers began 
aggressively signing contracts for hogs with producers. Those 
contracts lock in hog deliveries to the buyers and push my cash 
sale hogs into a residual supply situation which drops buyers' 
interest in competing for my hogs.
    The interesting thing about these contracts is that most of 
them have price components that are formulas based upon the 
open cash market. This means that those hogs get priced based 
on my residual supply. On rare occasions when the hog supply is 
really short, that spot cash market can spike higher, but when 
hogs are in adequate supply--which is most of the time--the 
market is residual and soft. A high supply of hogs can break 
the market downward hard.
    The consolidation of hogs under contract has made the 
market less liquid and less reflective of the true value of the 
hogs.
    Another point about changes in the approach of the packing 
industry revolves around our county pork producer association's 
annual market contest. Each year eight or ten producers would 
bring in 20 hogs each to a packer on the same day and at the 
same time. We would have the hogs processed and compare the 
carcasses to see how well we were marketing and how our hogs 
compared for meat performance. Because we scheduled the hogs 
well in advance, the packer always knew when the hogs were 
coming. They handled that as a spot cash sale. We stopped doing 
it because the packers would not pay competitively the day the 
hogs were delivered. Association members, myself included, sold 
hogs to the same packer on that day that were not part of the 
market contest and received a higher market price. In essence, 
the packer took advantage of our desire to improve our hogs and 
work together as a group. That was disappointing to those that 
participated.
    Currently the Iowa Legislature is debating a bill that 
would require meatpackers to buy 25 percent of their animals 
from non-affiliated livestock producers. The bill, SF 504, was 
passed by the Iowa Senate last month. It is currently awaiting 
action in the Iowa House.
    I support the 25 percent open market bill because it would 
ensure more liquidity in the market and would ensure that 
contracts formulated off of the open market accurately reflect 
market conditions.
    I also believe that in order to ensure true market 
transparency, we need mandatory price reporting so that all hog 
prices are reported to the USDA and publicly reported each day. 
Factual information about all market price transactions--cash 
sales and contract deliveries--is an important key to market 
transparency.
    Besides my personal issues, I am concerned about the next 
generation of hog producers. Without open, transparent, and 
competitive markets, the young men and women who are the future 
of our industry will not have the opportunity to be independent 
pork producers. Without a level playing field, our rural youth 
with an interest in hog production will only have two options: 
to work for an integrator or to find another occupation. To 
limit their opportunity in pork production because we do not 
give them a free, open, and transparent marketplace would be a 
real shame.
    At issue today is not whether big farms or small farms are 
best. It is about independence and freedom that can only be 
achieved by having and maintaining a fair, free, and honest 
marketplace. In order to have that, we need more open market 
transactions in a reportable and transparent market.
    Thank you for listening. I appreciate this opportunity. If 
you have any questions, I would be happy to answer them.
    [The prepared statement of Mr. Schmidt can be found on page 
177 in the appendix.]
    Chairman Harkin. Mr. Schmidt, thank you very much.
    Now we will turn to Scott Hamilton, a poultry grower from 
Phil Campbell, Alabama. He got into the poultry growing 
business in 1995, after graduating from Auburn University. He 
also raises cattle on his farm, lives on the farmstead with his 
wife and two children, so another real family farmer.
    Welcome to the Committee.

  STATEMENT OF SCOTT HAMILTON, POULTRY GROWER, PHIL CAMPBELL, 
                            ALABAMA

    Mr. Hamilton. Chairman Harkin, Ranking Member Chambliss, 
and members of the Committee, thank you for the opportunity to 
testify before you today on this important topic.
    As stated, my name is Scott Hamilton. I am a poultry grower 
from Phil Campbell, Alabama. I also raise cattle on my farm, 
where I live with my wife and two children. I graduated from 
Auburn University with a degree in zoology and later graduated 
from Auburn's Agriculture and Forestry Leadership Program.
    The structure of U.S. agriculture has changed significantly 
in recent decades, and farmers are rapidly losing their 
independence. For many of us, that independence was lost long 
ago.
    I am here today to tell you a few of my experiences as a 
poultry grower with regard to the abusive practices that have 
become commonplace in poultry.
    Because of the large size of the poultry loan, growers 
usually have to put up their farmland and their homes as 
collateral. For most growers, you cannot shop around for other 
companies if you disagree with your company's practices. There 
is very little competition in local areas.
    There are no negotiations. Either you sign what is put in 
front of you, or they do not bring you chickens. If they do not 
bring you chickens, you cannot make you mortgage payments, and 
you lose your family farm.
    Growers are ranked against each other for their pay. 
Basically, this means you can grow the heaviest bird and the 
least amount of feed. This is called the feed conversion. The 
company controls all of the inputs that determine your success 
in adding weight to the bird, the quality of chickens and feed, 
the length of time you keep your birds relative to the other 
growers. No matter how successful you are at raising their 
birds, the system is rigged so that half the growers get pay 
cuts to compensate for the other half that get bonuses.
    I am also here today to tell you that retaliation in the 
poultry industry is real. After I started to be more active in 
the Alabama Poultry Growers Association, I saw my ranking file 
and was placed on a probation program. I had sick birds through 
no control of my own. When you are put on this program, you 
need to show improvement in the ranking or the next step is 
termination, even though you have made a huge investment for 
the purpose of the contract and your ranking may have nothing 
to do with your own performance.
    Perhaps the most abusive contract clause that growers are 
facing currently in the mandatory arbitration clause. As 
poultry growers started to win lawsuits against poultry 
companies over contract abuses, companies started to present 
new contracts to their growers. These new contracts included 
provisions that essentially said that growers were waiving 
their right to take the company to court for any reason. 
Instead, the growers would be forced into a private system 
called ``mandatory arbitration,'' where a private group of 
arbitrators would hear their case and render the decision.
    But the up-front costs of this process are prohibitive. 
Some growers have been handed bills for as much as $20,000 just 
to get an arbitration hearing. Further, unlike the public court 
process, there is limited right of discovery in arbitration, 
meaning that the grower cannot get access to the evidence that 
they need to prove their case.
    So what is the solution? Senators Harkin and Enzi have 
introduced legislation, S. 622, that addresses many of the 
concerns that I raise in my testimony. The bill would amend the 
Packers and Stockyards Act to give GIPSA the full authority, 
like in the red meat sector, to crack down on unfair and 
deceptive trade practices over the entire poultry industry, 
including breed hen and pullet growers.
    It would set a minimum contract standard, such as 
prohibiting pre-dispute, mandatory arbitration clauses, and 
assure that equipment upgrades are not made solely at the 
grower's expense. It would also require companies to bargain in 
good faith with bargaining associations.
    As a poultry farmer from Alabama, I am honored to be here 
today providing this testimony. But at the same time, it is a 
sad commentary on the state of our Nation that I had to 
seriously consider whether or not my testimony here today would 
put me in financial jeopardy because of retaliation.
    Contracts are vital to the economy in this country. But it 
also vital that basic standards of fair dealing apply to 
contract relationships.
    In recognition of that fact, over 1200 organizations sent a 
letter to this Committee in January of this year, urging that a 
comprehensive competition title be in the 2007 farm bill. A 
copy of that letter is attached to my written statement.
    It is my hope that this Committee will include all of these 
provisions when the farm bill is drafted later this year.
    Thank you.
    [The prepared statement of Mr. Hamilton can be found on 
page 64 in the appendix.]
    Chairman Harkin. Mr. Hamilton, thank you very much. Thank 
you all for your testimony. I will start now a round of maybe 7 
minutes. If you can give me about 7 minutes, Bob, we will start 
a round of 7-minute questions here.
    I would just like to start where Mr. Hamilton just left 
off. You said in your testimony, ``In no way am I arguing that 
contracting is a bad thing. Contracts are vital to the economy 
in this country. But it also vital that basic standards of fair 
dealing apply to contract relationships.''
    I cannot think of a better place to start than that because 
I tend to agree with that sentiment. I have often said that 
forward contracts and things, if they are done with 
transparency and with openness, with at least some semblance of 
equality between the contracting parties, can be a good thing. 
But there also ought to be a place in there for open markets 
also and for those that want to partake in an open market 
system. And as long as contracts like that are open, are 
transparent, as long as individuals who perhaps do not have a 
lot of economic power, as long as they are given some abilities 
to examine it, to be able to discuss those contracts with their 
families and their attorneys, then that could be OK. But that 
is not the situation we have right now.
    I just wanted to clear up a couple things about the study 
because, Dr. Muth, you were in charge of that study that we had 
set up. Now, again, you said it was a scientifically based 
sample, but there are about 67,000 hog producers nationwide. 
Your survey team surveyed 229 producers. Now, again, I am not a 
statistician so I do not know, but it seems to me that 229--can 
you assure us that that is a statistically valid sample? And 
why didn't you get more than just that number?
    Ms. Muth. Well, one thing to explain is that we did draw a 
much larger sample, it was a random sample drawn from the 
population, and we drew a much larger sample--a lot more 
producers than that were given the opportunity to respond to 
the survey. But ultimately we received 229 responses.
    Based on conversations with our statistician, who 
specializes in survey sampling procedures, this is close to 
adequate to represent the practices in the industry. You need a 
certain number to represent a large population, but it does not 
need to be a very large number.
    Chairman Harkin. The RTI study assumes that hogs are sold 
through a national market where all producers are treated the 
same and have the same number of buyers. But, again, that is 
not realistic. The marketing of hogs is regional. Some regions 
have fewer buyers than others. So area's producers have only 
one buyer, as we have heard. Market power is clearly different 
for different regions of the country, especially if one packer 
can dictate complete control over the producer. RTI stated that 
further investigation into market power was outside the scope 
of the report.
    So my question is: Why didn't RTI examine the hog industry 
as a regional marketing system?
    Ms. Muth. When we conducted the study, we were following 
the specific scope of work that was given to us under the 
contract, and under that contract, we were to look at the 
national-level effects of these alternative marketing 
arrangements. And we developed economic models to represent 
those relationships within the industry based on the questions 
we were asked to address in the study. And in terms of the 
specific regional differences, those were accounted for in a 
lot of the analyses by use of binary variables to account for 
differences in the regions.
    Furthermore, I did want to point out that in the study we 
did look at testing for the existence of market power in the 
pork industry. We used two different methods--one that is a 
more traditional, new empirical industrial organization 
approach, and another that was based on a more state-of-the-art 
modeling technique. In both of those instances, we did, in 
fact, find that there is evidence of the existence of market 
power in the pork industry. However, I also want to emphasize 
that in developing those models, you can find evidence of 
market power, but you cannot find intent to exercising that 
market power to take advantage of producers. So that goes 
beyond what we can say.
    Chairman Harkin. So what you are saying is that the 
Department of Agriculture's instructions to you was to base it 
on a national market rather than looking at regional? Is that 
right?
    Ms. Muth. Right, to base the core economic models on a 
national market and to make adjustments for differences in 
regions.
    Chairman Harkin. But could you have not looked at the 
regional markets to see how they operate and fold that into a 
national market?
    Ms. Muth. Based on the data that are available, further 
analyses of regional differences could be conducted.
    Chairman Harkin. Well, you said that RTI thought that 
further investigation into market power was outside the scope 
of the report. Is that right?
    Ms. Muth. Actually there were analyses of market power in 
the study. That statement that comes from one portion of the 
report is at the conclusion where we have looked at two 
different methods of testing for market power.
    The study did not ask us to investigate whether or not--it 
was not focused specifically on market power, but on the use of 
alternative marketing arrangements. So we focused our analysis 
primarily on the use of alternative marketing arrangements and 
the effects of those on the market.
    Chairman Harkin. I guess that is a criticism I have of the 
study, but maybe I have to direct this also to the Department 
of Agriculture. But we will figure that one out, you know, 
where the responsibility lies, whether it lies with RTI or with 
the Department of Agriculture. I am not certain about that yet.
    But, again, the conclusions in the report, I think, assume 
that Congress wants to prohibits contracts. There is currently 
no legislation in Congress that would prohibit contracts. This 
report also assumes that if there was a ban on packer 
ownership, the packers would incur increased costs that could 
then be passed on to producers and consumers.
    Why did RTI assume that if there is a ban on packer 
ownership, packers will have increased costs due to having to 
buy off the open market? Don't you think that packers would 
instead increase the number of contracts they enter into with 
producers instead?
    Do I need to repeat the question?
    Ms. Muth. Yes, there are multiple parts to that question.
    Chairman Harkin. Why does RTI assume that if there is a ban 
on packer ownership, packers will have increased costs due to 
having to buy off the open market? Why wouldn't you assume that 
they might just increase the number of contracts they have?
    Ms. Muth. Well, when we conducted the analyses, we were 
asked to develop simulation scenarios to look at what the 
effects of different types of restrictions would be. Those were 
developed by the study team because the intent was not that we 
would give policy recommendations, but that we would look at 
some different types of scenarios that might possibly exist 
based on the judgment of the team members.
    When we looked at the ban on packer ownership, it was one 
of three scenarios that we looked at. We applied that in the 
hog industry to look at what those effects would be. One of the 
reasons why we assumed that there would be increased costs is 
because we assumed that if there was a ban on packer ownership, 
those hogs would be on the spot market. A different assumption 
could have been developed, but these were based on scenarios as 
we designed them for the study to look at some different 
alternatives.
    Chairman Harkin. Well, I guess I am just wondering why that 
other scenario was not looked at, because obviously since there 
is no legislation that would ban contracts pending, then a ban 
on packer ownership, then you would have to look both at maybe 
increased contracts as well as open markets. But you only 
looked at one aspect.
    Ms. Muth. Yes. Well, we also looked at a couple of other 
scenarios, and understand, again, these were not to look at 
particular policies that had been under consideration. These 
were just to give some comparisons so that you could see some 
relative magnitudes of differences, depending on what the 
situation might be.
    Chairman Harkin. Thank you very much. My time has more than 
run out.
    Senator Chambliss?
    Senator Chambliss. Thank you, Mr. Chairman.
    Mr. Carstensen, in your testimony, you request that 
Congress correct problems in the livestock market 
legislatively. You then go on to say, ``The enforcement of 
current law, despite its limitations, is also a critical 
concern.'' And I agree with that assertion that current law 
must be enforced if we are to have an open and competitive 
marketplace. I am concerned, however, that one of the remedies 
you advocate is the limitation of options for producers.
    Do you think it is appropriate for the Federal Government 
to decide how producers should and should not market their 
livestock?
    Mr. Carstensen. Well, sir, the law constructs most markets. 
There are contract terms that are illegal for the sale of any 
kind of good. Where we get to more complex markets--and here, 
again, as I said in my earlier testimony, I think of securities 
markets and complex futures markets--there are all kinds of 
contract terms, practices of buyers and sellers that are 
outlawed because Congress has reviewed what makes markets work 
efficiently.
    The problem with a completely unstructured market is that 
you do not get the most efficient behaviors because the 
advantage of strategic conduct, of insider trading, of other 
kinds of behavior, outweigh the community's benefit from having 
an efficient, fair, and open market.
    So that the law from the very earliest times has tried to 
restrict the alternatives that buyers and sellers can use to 
focus them on efficient market practices. This does not mean--
and I think the Chairman has emphasized this--that I am against 
contracts. I think that contracting needs to be regulated so 
that we have fair and just terms, so that we make the market 
work efficiently.
    Senator Chambliss. OK. Is there any available data for the 
Committee's review that supports the argument that livestock 
producers would enjoy less volatility and higher prices if 
alternative marketing agreements were limited or prohibited?
    Mr. Carstensen. Again, as we have just heard, one of the 
problems with the RTI study is that they did not do the kind of 
sophisticated forward-looking analysis that would have 
permitted us to identify those contractual practices that 
really contribute to market stability, those practices that 
contribute to market volatility and, therefore, help us 
identify the alternative marketing agreements, as I think is 
the generic term here, that were economically, competitively 
desirable.
    I am going to be very interested to talk to some of my 
colleagues in the ag econ department at Wisconsin to see 
whether we can mine the data because it does sound as though 
there may be some very useful information in this very 
expensive project that collected a lot of data that might help 
us answer your question. But it appears that RTI, which has the 
data, was not asked those questions and, therefore, has not 
done the analysis that would be necessary.
    Senator Chambliss. But you do not know of any other study 
that parallels that that might provide some of that data?
    Mr. Carstensen. Not off the top of my head. I will make 
further inquiries, sir, and if I come up with some suggestions, 
I will let you and the Chairman know.
    Senator Chambliss. Good. Thank you.
    Ms. Muth, in your testimony you state that the use of 
alternative marketing arrangements provides benefits not only 
to meat packers but also to livestock producers and meat 
consumers. You conclude that restricting their use would have 
negative economic consequences on most segments of the 
industry.
    Can you expand on those statements for the benefit of the 
Committee? I am particularly interested in how livestock 
producers can benefit from these types of arrangements.
    Ms. Muth. There are essentially three key ways. The first 
one is in reduced price risk and income volatility, and looking 
at the different types of marketing arrangements, we did find 
that there was substantially less price volatility under 
alternative marketing arrangements, particularly under 
marketing contracts for hog producers and marketing agreements 
for cattle producers, and also reduced income volatility under 
production contracts for hog producers that use those.
    The second thing is that they can benefit producers who use 
them when it allows them market access so that they can ensure 
that they have a market for their animals.
    And the third way that it can benefit them is in terms of 
providing the capital that they need in order to operate their 
production operations. In many cases, by having an ensured 
buyer for their animals, that allows them to raise the capital 
that they need to continue their operations.
    Senator Chambliss. It is a common belief in some circles 
that alternative marketing agreements limit the marketing 
capability of small producers and will ultimately force them 
out of business. Based on that logic, limiting the use of 
alternative marketing agreements would ensure small producers a 
more competitive marketplace where they would enjoy higher 
prices.
    Your testimony seems to contradict that belief. For 
example, you state that increasing the hog cash market share to 
25 percent from the current 11 percent would cause hog 
producers and pork consumers to lose economic surplus. This 
would indicate that small producers would not benefit from 
banning alternative marketing arrangements.
    Can you explain that a little bit further?
    Ms. Muth. Well, in terms of, going back to looking at what 
some of the benefits might be, there is increased efficiencies 
at the packer level, that this allows them to continue their 
operations and to ensure that they have sufficient capacity 
utilization to operate their plants. By operating those plants, 
they are allowing a market for smaller producers. In some 
cases, packers are not able to secure enough livestock to 
operate their plants. There are substantial economies of scale 
in the packing industry. When you reduce volumes at those 
plants, their costs increase substantially and makes it less 
viable for the packer. If you have packing plants closing, that 
is also reducing market access for producers, including small 
producers.
    Senator Chambliss. Mr. Hamilton, you raised several 
concerns about unfair contracting practices in the poultry 
industry, and you cite several instances that you have 
personally observed. And as you know, the poultry industry 
today is defined by vertical integration and companies that 
contract with family farmers.
    If there is one thing that could be done legislatively to 
address the many issues that you raise, what would it be?
    Mr. Hamilton. If I had to pick one thing for you to do to 
help us?
    Senator Chambliss. Right.
    Mr. Hamilton. Get rid of arbitration, because if we can get 
rid of arbitration to where that we can discover what is going 
on, if we can go back to the courts, I think that you will see 
some of the companies, if they are doing what they are doing, 
they will stop it, because you are going to see it show up in 
the courts.
    Right now there is no cop on the beat. We have a hard time 
proving anything because we do not have access to the records, 
for one thing. We have to take everything as it is right now at 
face value. If they say they have brought me X amount of weight 
of feed, if they say they have brought me this type of bird, 
that they have been held to anything, I do not have access to 
the records of that flock number to indeed prove that.
    So if I had to choose one thing, it would be get rid of 
arbitration in my contract because then the court--that will 
give us access to the courts. You will probably see a rush of 
some lawsuits, and then after that, I think you will see it 
decline back down because you are going to have a cop on the 
beat regulating what is going on, and that will force them to 
eliminate some of the practices that they are doing.
    Senator Chambliss. OK. Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Chambliss.
    Let's see. Down the list next would be Senator Salazar.
    Senator Salazar. Thank you very much, Chairman Harkin and 
Senator Chambliss. Thank you for holding the hearing on the 
economic challenges and opportunities regarding livestock, 
poultry, and competition issues. I would also like to thank the 
witnesses for sharing their time and their expertise with our 
Committee today.
    Mr. Chairman, I would like to commend you for the hearing 
process so far on the farm bill. This is the first farm bill 
that I work on, and I have found the hearings that we have had 
thus far to be immeasurably valuable.
    In 2002, in the chairman's mark at that time, there was a 
title on competition, and it included such subjects as country-
of-origin labeling, packer ownership ban, contract items, USDA 
enforcement, and management provisions of USDA, and a whole 
host of other things. Let me ask a couple of questions of the 
witnesses.
    In terms of country-of-origin labeling, you probably have 
taken a look at that and have an opinion on it. Is it something 
that you think that we ought to move forward with? I know that 
in the agricultural community in Colorado there is a split of 
opinion and that there are some who think we ought to move 
forward with country-of-origin labeling and others who do not.
    Mr. Hamilton, I noticed in your testimony and in the letter 
that was submitted by all of the producers that signed up on 
your letter, country-of-origin labeling was included in there 
as something that we ought to do. So can you provide me and the 
Committee with some of your positions relative to country-of-
origin labeling?
    Mr. Hamilton. Yes. As a consumer, I want to see country-of-
origin labeling because as a producer and being active as I 
am--and I think I keep up with things pretty well--I realized 
that there are some things going on in some other countries 
that we are not allowed to do here. In Alabama, for instance, a 
few months back the Commissioner of Agriculture condemned a 
load of catfish imports into Mobile because they had been using 
a substance that had been banned in this country for quite some 
time. So as a consumer, I am for it because I have seen it as a 
producer that some of these other countries, they are doing 
things that we cannot do, for whatever reason. And, you know, I 
do not want to get into that. But from the production 
standpoint of it, it has shown me--I believe that we have the 
safest and best food supply. And as a consumer, that is what I 
want to buy. If you want to buy different, have that choice. 
But if there are oranges from Florida and there are oranges 
from Mexico, give me the choice in the grocery story and let me 
as the consumer choose which ones I want to buy.
    Senator Salazar. Thank you.
    Mr. Schmidt?
    Mr. Schmidt. I would agree with Mr. Hamilton. I have 
supported country-of-origin labeling, and I believe the county 
pork board that I am on also supports that.
    I know there are some issues with country-of-origin 
labeling as far as it does not have enough scope, does not 
cover some products, especially hotel retail, institutional 
products. I also know there are some concerns that maybe some 
agricultural commodities are not covered in that. But from my 
standpoint, I believe in country-of-origin labeling, and I 
think it needs to be done.
    Senator Salazar. Dr. Muth?
    Ms. Muth. Yes, in terms of what we looked at for our study, 
we did not look specifically at country-of-origin labeling, but 
one of the implications of country-of-origin labeling is that 
it would actually encourage individuals in the industry to move 
more toward alternative marketing arrangements so they can 
increase traceability in the industry.
    Senator Salazar. Ms. Hayes?
    Ms. Hayes. I believe that country-of-origin labeling is 
necessary, I think both for the reasons that Mr. Hamilton and 
Mr. Schmidt said, that there is concern about production 
practices in other countries, and that is a concern of the 
consumers as well as the producers in this country and that 
they should be allowed--consumers should have the opportunity 
to make choices on the kinds of production practices that they 
want to meet.
    I think it is also appropriate, however, that producers and 
consumers be able to support American industry by choosing to 
buy American products and American-raised products, not just 
because they are a higher quality but also because it is a way 
of supporting economically our own communities.
    Senator Salazar. Mr. Carstensen?
    Mr. Carstensen. I would join in the general consensus that 
better consumer information is desirable. It is part of making 
markets transparent.
    Senator Salazar. Let me ask you, Peter, a question 
regarding your testimony. In your testimony, you state the 
importance of properly enforcing the laws that we have on the 
books, and so my question to you is: Do we need more laws or do 
we just need to have proper enforcement of the laws through 
USDA?
    Mr. Carstensen. Both. That is, the problem--and the 
Chairman, when he started, mentioned the Packers and Stockyards 
Act was written in 1921. It has been modified a little bit. As 
Mr. Hamilton, I think it was, discussed, with poultry it no 
longer works in terms of the way the industry has evolved.
    So the arbitration issues, a number of issues like that, I 
think are best addressed by a revisiting of the statutes, 
expanding their coverage so that they will cover crops, so that 
they will be much more comprehensive than just the particular 
fixes that Congress imposed at various times in the past.
    I put dairy on the table as well because I think that that 
is a major area that needs reform.
    That said, Congress can only do so much. After that, you 
have got to have somebody who is willing to enforce the law. If 
there is some way to do something to get the Department of 
Agriculture under, I regret to say, both Democrats and 
Republicans, to understand that it is supposed to be a law 
enforcement agency and not a tool of special interests, that 
would solve a great deal of our problems. If that is not going 
to happen, then we are going to need to find other ways to make 
those laws workable. And, again, as Mr. Hamilton pointed out, 
if poultry growers can go to court, get some damages, get some 
injunctions, that is an alternative way to enforce the law, and 
you really need to think through how the law will be enforced, 
not just----
    Senator Salazar. Let me interrupt you, since we have very 
limited time.
    Mr. Carstensen. Yes, sorry.
    Senator Salazar. In terms of, you said, both Democratic and 
Republican administrations have failed to enforce the law out 
of USDA, why do you think that happens?
    Mr. Carstensen. My guess is that there is a certain kind of 
political pressure brought on the Secretaries of Agriculture 
and those who make decisions in the Department of Agriculture 
that causes them to ignore their duties to enforce the law.
    I think there are also some complexities in terms of the 
history of how GIPSA has operated, the kind of economic support 
it has had; that is, it has not had an adequate staff, it has 
not had adequate enforcement authority within the Department of 
Agriculture. So that combination of factors and a long history 
of inactivity makes it very hard to get it restarted.
    Senator Salazar. Thank you very much. My time is up.
    Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Salazar.
    Let's see. Next would be Senator Casey.
    Senator Casey. Mr. Chairman, thank you very much. I want to 
thank you and Senator Chambliss for this hearing today, and 
especially with regard to the challenges and the opportunities 
that face the livestock industry. If the Chairman will permit 
me to do a little bragging about my State, we are known as the 
Dairy State, as members of this panel know, but I am also happy 
to inform you that we have got a tremendous ag production 
history, and we are about No. 3 in that. We have a great deal 
of hog farming in Pennsylvania. So the issues that you are 
discussing today are critically important to Pennsylvania and, 
of course, the Nation. And a lot of the farmers in our State 
who have come to visit us recently have discussed important 
issues like the classification of manure as a toxic waste under 
Superfund access to new export markets, and a whole range of 
other issues. We are going to be spending even more time with 
them.
    But I think one thing that I wanted to focus on today in 
the limited time that we have are the questions surrounding 
dairy farmers in Pennsylvania. Professor, I wanted to ask you 
one or two questions about this.
    First of all, with regard to your testimony today on a 
whole range of issues, but in particular with regard to dairy 
farming, do you think that allowing dairy farmers to forward 
contract directly with the processor of their choice would help 
alleviate some of the problems associated with having just a 
few processors control the market? And I have one additional 
question after that.
    Mr. Carstensen. First of all, as somebody from Wisconsin, 
of course, we claim to be the Dairy State. I just need to get 
that into the record here.
    There is a potential for forward contracting or other 
direct contracting with fluid milk processors to provide an 
alternative. I think one has to be--because what we have heard 
from chicken, pork, beef, you really need to think through 
carefully the terms and conditions for the forward contracting, 
and you need--and this is the access point. Then you need to 
really say to fluid milk processor, ``You have got to engage in 
this activity. You have got to offer those contracts,'' because 
right now the problem is that the fluid milk buyer, the 
dominant one, has entered into an exclusive dealing contract 
with a single cooperative, which has foreclosed access to the 
market. And if you are not willing to block that kind of 
contracting, your forward contracts will not exist.
    Senator Casey. And I wanted to ask you about the principal 
dairy problem in our State, which is the gross differential 
between what it costs the dairy farmer to produce the milk that 
he or she will produce versus the price that they can obtain. 
And I have spent a good deal of time not just talking about 
this issue, but also visiting people kind of on the ground, so 
to speak. One of them up in Wayne County in northeastern 
Pennsylvania, Joe Davitt, and his family have been doing dairy 
farming for years, but he is at the end of his rope. He said 
something which really made an impression on me. This young man 
is a college graduate, but he said, because of the challenges 
he faces, ``What I have learned as a dairy farmer''--and the 
struggles he has had to endure, he said, ``There is not a wall 
big enough to fit that diploma.'' And I thought it was an 
insightful way of talking about how difficult this work is.
    But do you have any advise or any comments on the question 
of how we can bridge that gap between the cost of production 
and the price that our farmers can obtain for fluid milk?
    Mr. Carstensen. It is an extremely difficult problem to 
resolve. I was quite enthusiastic about the--I think it is the 
MILC program.
    Senator Casey. MILC, right.
    Mr. Carstensen. Because it provided a guarantee that varied 
with the degree to which your milk was used for fluid milk so 
that it had the appropriate direction. It was also capped so 
that it focused on supporting the small to middle-size dairy 
farm and left the very large cow operations, if they want to be 
in the market, they can be in the market.
    I think that something like MILC is probably the best route 
to provide the underlying support for dairy farmers to assure 
them of a basic kind of income. There are also market reforms 
that would facilitate increased price flowing down to the farm 
gate. One of the problems we had is that the price of milk has 
gone up at the grocery store because of concentration there, 
and that increased price has been split between the fluid milk 
processor and the grocery chain, and the farm gate has not seen 
any of that increased revenue.
    And so there are some other proposals out there that I am, 
frankly, a little more leery of that might put collars on 
prices and essentially say if you are going to raise the price 
of milk, that increased price has got to flow down to the 
farmer. But I think that is the goal. If price can go up in the 
market, the farmer needs to get a share of that.
    Senator Casey. Thank you.
    Chairman Harkin. Thank you, Senator Casey.
    Senator Klobuchar?
    Senator Klobuchar. Thank you, Mr. Chairman, and thank you 
for holding this hearing on the issue of competition in the 
livestock industry.
    The State of Minnesota has many livestock producers. In 
fact, we produce about $1 billion worth of beef and nearly $2 
billion worth of pork each year, and a little-known fact is 
that we are the Nation's leading turkey producer. You did not 
know that, Senator Casey.
    My question is first of our Minnesota witness, Ms. Hayes, 
and I wanted to follow up first about what Mr. Hamilton was 
talking about, and that is the arbitration clauses. Do you 
think there is a legitimate need for mandatory arbitration 
clauses in livestock contracts, or are these being used to a 
farmer's disadvantage?
    Ms. Hayes. I think the arbitration clauses are definitely 
being used to a farmer's disadvantage. One thing about 
arbitration to keep in mind is that the farmer, in order to 
attempt to resolve a dispute through arbitration, actually has 
to pay what can be quite large arbitration proceeding expenses 
as well as the fees for the arbitrator. So it is essentially 
like having to pay for a judge to hear your case. So it can 
cost tens of thousands of dollars to go to arbitration, even on 
a relatively small issue.
    In addition to that, arbitration is the problem because it 
does not have any precedential effect, so once a case decides, 
for example, that the use of the tournament contract system was 
an unfair practice or something under the Packers and 
Stockyards Act, something like that, it is not going to hold 
true for any other grower, that it is going to apply just to 
the individual growers.
    And then another issue that was raised earlier was that 
there is no discovery in an arbitration proceeding in most 
instances, and discovery is the way in a court system you would 
have the opportunity to find out all of the evidence, 
essentially. So growers go into arbitrations without adequate 
evidence essentially to prove their case because that evidence 
is in the hands of the company rather than the grower 
themselves.
    Senator Klobuchar. So what do you think would be a better 
way to help the farmers in this situation?
    Ms. Hayes. Definitely, I think, a ban on arbitration 
provisions in this. You know, there may be a rare instance 
where a grower, fully informed of the consequences of 
arbitration, could, after a dispute was raised, agree to go to 
arbitration. But, generally, I think they should be banned from 
being included in production contracts, partially because 
production contracts are essentially contracts of adhesion. 
They are written wholly by the company, but the growers have 
absolutely no negotiating power on the terms of those 
contracts. Therefore, the contracts protect the company, not 
the grower.
    Senator Klobuchar. And I also noted you were nodding your 
head when Senator Casey was asking Mr. Carstensen about the 
enforcement issues with the Agriculture Department. Could you 
talk a little bit about that?
    Ms. Hayes. Yes. I think there are a couple of important 
things to keep in mind under the Packers and Stockyards Act. 
For the poultry industry, one of the enforcement problems is 
that USDA does not have the authority to bring adjudicatory 
actions to enforce the unfair and deceptive trade practices 
section of the act against poultry dealers. They do have that 
authority to bring enforcement actions against red meat 
packers. They have not done a very good job of that, and I 
think that another way that the agency has failed to enforce 
the act is they have very broad regulatory authority, and it is 
very clear in the legislative history of the Packers and 
Stockyards Act that it was intended to be used to keep up with 
the changing structure of the industry. So they should have 
been looking at the industry as it became more concentrated and 
more vertically integrated and started defining what is unfair, 
what is unjust discrimination, what is price manipulation in 
this new context. And they have not been doing that.
    As a result of that, we have essentially through court 
decisions started to lose some of the original intent of the 
Packers and Stockyards Act--not that it was not there, it is 
just that it is not getting enforced because the agency is not 
doing it and the courts now have come out and started saying 
that you have to prove anticompetitive effect. Essentially you 
have to prove there is an anticompetitive effect between the 
packers in order to prove that a practice is unfair to a 
producer, which was never the intent of the statute.
    That is the reason why we need specific legislation that 
comes in and makes it clear that in order to prove an unfair 
practice or a price-manipulating practice, you do not have to 
prove an anticompetitive effect. So those are ways that the 
statute needs to be amended.
    We will always need the enforcement authority of the agency 
because, to a great extent, producers cannot afford many times 
to bring actions to enforce the act. Another way that you could 
improve that would be to authorize the award of attorneys' fees 
for private causes of actions to enforce. But the agency will 
always be needed to be there, and what needs to be impressed 
upon them is the need to start defining unfair, unjust price-
manipulating practices in the structure of this current 
industry.
    Senator Klobuchar. Thank you.
    Mr. Carstensen, you talked about how the consolidation of 
the livestock industry is having the effect of putting farmers 
at an economically disadvantaged and vulnerable position. What 
would you say to producers who say that they actually prefer a 
production contract with the animal feed supply because then 
they do not bear a risk or have the liability?
    Mr. Carstensen. Well, it may be individually rational to 
enter into various kinds of contracts in the context where your 
next best alternative is worse. So that a production contract 
that guarantees you something is going to look better than a 
cash market that we are now being told by the RTI study has an 
increasingly bad price consequence for farmers, as the point 
was made earlier in the pork industry in Minnesota and Iowa. So 
that, you know, compared to my alternative, this contract is 
good if we can regulate--this is why I keep saying the law 
needs to construct a set of rules that facilitate fair, 
efficient market operation, whether it is by contract or by 
cash market transaction.
    So it is perfectly rational to take a bad choice if your 
alternative is worse. That does not make the bad choice 
desirable.
    Senator Klobuchar. Nicely put. Thank you.
    Chairman Harkin. Thank you very much, Senator.
    Now we go to Senator Thune.
    Senator Thune. Thank you, Mr. Chairman, and I want to thank 
the panel for your testimony. These are important issues, and 
based on my experience in my home State of South Dakota with 
livestock growers and organizations, sometimes these are not 
issues that generate agreement. There are differences of 
opinion between different agricultural organizations, as there 
are differences between individual neighboring producers in 
some cases. But to me the competition title in the farm bill 
ought to strengthen our antitrust laws to ensure that no single 
entity has so much market power that livestock producers and 
consumers are negatively impacted. And in my home State of 
South Dakota, we have a proposed acquisition of Premium 
Standard Farms by Smithfield. If approved, this merger would 
eliminate Premium Standard Farms as a buyer of hog and hog-
feeding services.
    Now, the Department of Justice is currently reviewing this 
particular merger, which would have serious repercussions for 
hog producers throughout the Midwest and other parts of the 
country. In my view, this is a clear example of why our 
antitrust laws need to be strengthened, particularly as they 
pertain to the agricultural industry.
    What I would like to do is direct a question, if I could, 
to Mr. Carstensen regarding that merger. You referenced it in 
your testimony. What do you think would be the impact of the 
Smithfield-Premium Standard Farms merger on the competitiveness 
of the Midwestern hog market?
    Mr. Carstensen. Well, as Dr. Muth pointed out, we already 
have clear evidence of market power in hog processing. This 
merger will significantly increase that kind of market power 
and will cause two kinds of problems in the Midwest. I should 
say it is going to cause even more problem in North Carolina, 
but I realize your focus is on the Midwest, sir.
    In the Midwest, we have two things that will happen. As you 
eliminate the competition between Smithfield and Premium 
Standard, you will reduce the ability of farmers to get the 
benefit of competition, and in the buyer power world, we need 
multiple competitors. And although Premium Standard's operation 
is in northern Missouri, this is going to have a spillover or a 
reverberating effect, where I think it is very likely to see 
Smithfield pull out of South Dakota, move out of that more 
competitive part of the Midwest hog market, relocate its 
activities to the less competitive southern part of the 
Midwest, and thus, all hog producers throughout the Midwest are 
going to suffer lower market prices.
    The other thing that will happen is because Smithfield will 
be more vertically integrated after this merger, its incentive 
to engage in both price manipulation on the cash market which 
directly affects its contract prices and its incentive to use 
that strategically to harm both hog producers and its 
competitors will be increased.
    So, in my view, it is a very, very bad merger, and I am 
perplexed as to why the Justice Department has not objected to 
it strenuously already.
    Senator Thune. And I want to follow up on that question, 
your view on Justice's role in this, the Department of Justice, 
and whether or not they have been thorough in adequately 
reviewing this merger, if I could get you to comment on that as 
well. I know you have made some reference again to it in your 
testimony.
    Mr. Carstensen. I did have the privilege of talking with a 
major investigative team from the Justice Department last 
October, along with some others, to raise concerns. My sense is 
that at a staff level, they have staffed this adequately. They 
have got people who are well trained--since one of them is one 
of my former students--and quite able to do the analysis.
    They have a terrible track record of following through and 
getting the top management to actually bring lawsuits. They 
have not brought a major merger lawsuit now in a number of 
years. And at this point, there is no transparency in their 
process.
    I know that they have asked for a further delay in the 
merger. They have got another 30-day delay in the closing of 
the merger so that they can continue their review. That is 
somewhat unusual, and it suggests that they are giving serious 
attention. The proof of the pudding is whether they are 
actually going to take action, and on that one I wish I knew 
more. I could make a fortune in the stock market, I suppose. 
But, no, that would not be right. But, more importantly, we 
would all be able to know what is going on. But, unfortunately, 
I do not and I do not think anybody outside of Justice does.
    Senator Thune. Let me ask you another question with regard 
to another proposed merger, and that has to do with, in the 
past several years, Monsanto, the world's biggest seed 
enterprise, has acquired considerable market power in 
biotechnology, trademarked most notably its Roundup Ready corn 
and soybeans. Does the Delta Pine and Monsanto merger have 
additional anticompetitive implications for the corn and 
soybean market in the Midwest? And how is Monsanto's increasing 
market power affecting the independent seed companies? If you 
could address that.
    Mr. Carstensen. Yes. Again, this is another merger that has 
been under study at Justice for a long time. They actually had 
objected to it in 1998 when it was first proposed. The parties 
backed away. Now they are back again seeing whether they can 
sneak it through.
    The harm to the broad market is this: Delta and Pine Land 
is a major cotton seed producer and has contractual 
arrangements with several competitors of Monsanto. They are 
developing competitive genetic--herbicide-resistant genetic 
pesticide characteristics.
    If the merger is blocked, Delta Pine will be a principle 
developer of the technology and application first in cotton, 
but what that means is that it opens the door to being able to 
transfer these genetic characteristics to corn and soybeans. 
The minute we get competing genetic technologies for herbicide 
resistance and pesticide resistance in corn and soybeans, the 
price of corn and soybean seed is going to go down.
    So farmers in the Midwest have an enormous stake in how 
this merger is evaluated because, on the one side, we are going 
to get a much more competitive market in genetics, and that is 
very much to the benefit of farmers. To the other side, if it 
is not blocked, that competition is going to be further 
impaired as we go down the road, as new technologies are not 
made available. And as I laid out in my statement, the 
additional risk for farmers is that Monsanto, dominating all of 
this, is going to be in a position to start imposing a tax on 
the farmer. Every time the farmer wants to sell a soybean or a 
corn kernel that has a Monsanto gene in it, the farmer may have 
to pay a tax to Monsanto, or Monsanto will sell the right to 
buy from that farmer to particular grain elevators.
    A very, very serious problem here that needs to be 
addressed.
    Senator Thune. Thank you.
    Mr. Chairman, I have questions for other members of the 
panel. I did not want to turn this into a two-way dialog here, 
but I do think as we review this issue that obviously the 
market works when there is competition, and in order for 
competition to be effective, there has got to be good 
transparency. And I hope as we look at these issues with regard 
to the next farm bill that we will keep that in mind, and we 
obviously want to be sensitive to making sure that the market 
can work and that the producers can manage their risk 
effectively, but that we have got an appropriate, effective 
level of competition out there and the transparency that is 
necessary to ensure that.
    So I thank you all for your testimony, and thank you, Mr. 
Chairman, for holding the hearing.
    Chairman Harkin. Thank you, Senator Thune. Again, I look 
forward to working with you on this in the farm bill and 
obviously ask for any advice and consultation that you have on 
this issue. Obviously you know a lot about this, and I would 
respect your views and any input that you would have on this. 
So I ask for that.
    Next I turn to my colleague from Iowa, Senator Grassley.
    Senator Grassley. Thank you, Senator Harkin, for holding 
such a very important hearing. Probably over the long haul, 
getting more competition in agriculture will do more for 
farmers' income than what we do through the farm bill, although 
we will be doing both, hopefully, having competition very 
strongly involved in the debate in the Senate. And I think I 
made it clear that my position is to ban packer ownership of 
livestock and to get rid of mandatory arbitration clauses. 
Those are things that I worked on in the last farm bill. We did 
get it through the Senate. It did not survive conference, but 
hopefully this year these things of that nature will survive 
Congress.
    I am going to put an opening statement in the record, Mr. 
Chairman, and I have just a few questions.
    [The prepared statement of Hon. Charles Grassley can be 
found on page 50 in the appendix.]
    I am going to start with Mr. Carstensen. Isn't it true that 
when the spot market drops to less than 10 percent with fewer 
packers--I said that wrong. Isn't it true that when the spot 
market drops to less than 10 percent with a few packers, the 
risk of price manipulation increases?
    Mr. Carstensen. Definitely.
    Senator Grassley. OK. Do you agree that consumer meat 
prices do not follow cheaper livestock prices?
    Mr. Carstensen. I am sorry. Say that again?
    Senator Grassley. Do you agree that consumer meat prices do 
not follow cheaper livestock prices?
    Mr. Carstensen. The correlation is very weak.
    Senator Grassley. OK. If you were selling, for example, a 
handmade product at a local auction, isn't it true that you 
would rather have ten bidders than two or one?
    Mr. Carstensen. Again, definitely.
    Senator Grassley. OK. And then for Tim Schmidt, we have 
heard from the packers that contracting is necessary to provide 
quality incentives. But isn't it true that the quality payment 
system and quality incentives are the same for hogs sold under 
both contract as well as in the open market?
    Mr. Schmidt. Yes, exactly. I follow all their quality 
requirements and need to meet those in order to sell my hogs to 
their facilities.
    Senator Grassley. OK. Mr. Chairman, I have no other 
questions, and I will submit the others for the second panel.
    Chairman Harkin. Thank you very much, Senator Grassley.
    Our time is running out, but I just want to ask one 
question. I will just go down the line and just kind a one-
sentence or two-sentence answer I would certainly appreciate to 
this one question that I hope kind of sums it up.
    What do you think needs to happen to ensure that there is a 
fair and open market for small and medium-size hog operations 
and poultry operations like Mr. Schmidt and Mr. Hamilton, small 
and medium-size livestock operations? What do you think needs 
to happen to ensure that there is a fair open market for small 
and medium-size livestock operations? Mr. Carstensen.
    Mr. Carstensen. First of all, we need full disclosure of 
contract terms; second, we need access for all producers 
through some form in which they can tender their livestock; and 
we need fair contract terms whenever we are going to be using a 
contract, and that is the regulatory structure that I have 
talked about.
    Chairman Harkin. You are talking about getting rid of 
mandatory arbitration.
    Mr. Carstensen. Yes.
    Chairman Harkin. Ms. Hayes?
    Ms. Hayes. I believe that we need a ban on packer ownership 
of livestock. We need a restriction on forward contracting that 
would require all forward contracts to have a fixed-based 
price, not a formula-based price, because it is through the 
formula pricing that manipulation can occur, that all forward 
contracts be traded in an open and public market that makes it 
available to all producers, including small producers, and 
ensures transparency of those transactions. And then we also 
need to ensure that the Packers and Stockyards Act can be 
enforced for unfair and deceptive trade practices and make sure 
that terms in production contracts are fair and that there is 
adequate bargaining power between growers and the companies.
    Chairman Harkin. Thank you very much.
    Dr. Muth?
    Ms. Muth. Based on our experience working with transactions 
data from packers and profit-and-loss statements, to ensure the 
ability to conduct thorough analyses, to look at the 
relationships in the industry, standards for how transactions 
data and profit-and-loss statement data are maintained would 
facilitate analyses of those relationships over time.
    Chairman Harkin. Mr. Schmidt.
    Mr. Schmidt. I believe that pork producers should be 
allowed to sell at least a portion of their hogs on the open 
negotiated spot market, and I believe that those prices should 
be reported to the USDA Market Service along with alternative 
contracts, with the prices those producers are receiving also.
    Chairman Harkin. Thank you very much.
    Mr. Hamilton.
    Mr. Hamilton. We need balance. We need negotiation with our 
companies. We need them as much as they need us. The problem is 
everything is shifted to their side right now.
    Chairman Harkin. But what needs to happen to ensure there 
is a fair open market for small and medium-size operations?
    Mr. Hamilton. We need transparency in the market, and on 
the poultry side of it, the arbitration is the biggest thing. I 
think that needs to go.
    Chairman Harkin. OK. Good enough. Thank you all very much 
for your testimony and for being here today. We appreciate it 
very much. You have added greatly to our thoughts and our 
information on developing this aspect in the farm bill. So we 
will dismiss this panel. Thank you again very much.
    We will call up our second panel: Mr. Eric Nelson, Mr. John 
Queen, Ms. Joy Philippi, Mr. Ron Truex, Burdell Johnson, and 
Mr. William Roenigk.
    Now, again, while the previous panel that we had was 
focused on the competition title in the farm bill, what we are 
going to do strictly on competition, this panel is more broadly 
based. I have asked you to come and just basically testify on 
broader issues. It does not have to be on competition at all, 
but on areas that affect you or the organizations that you 
represent.
    And so, again, the same thing, if you can sum up in 5 
minutes--we are supposed to be out of here by 12:30, so we are 
going to have to move. So I would ask you if you could just sum 
it up in 5 minutes or so, I would sure appreciate it, and we 
will just down the line.
    Mr. Eric Nelson and his wife own and operate a beef feedlot 
along with a cow-calf farming operation in western Iowa near 
Moville. Eric is a fourth-generation farmer-cattleman and 
operates the same land his great-grandfather purchased in 1920. 
They have five children. He serves as Region VI Director of R-
CALF and the Iowa Membership Chair.
    Mr. Nelson, welcome to the Committee and please proceed.

STATEMENT OF ERIC NELSON, RANCHERS-CATTLEMEN ACTION LEGAL FUND, 
   UNITED STOCKGROWERS OF AMERICA (R-CALF USA), MOVILLE, IOWA

    Mr. Nelson. Good morning, Chairman Harkin, Ranking Member 
Chambliss, and members of the Committee. I appreciate the 
opportunity to testify about including livestock and 
competition issues in the 2007 farm bill.
    Again, as stated, my name is Eric Nelson and, along with my 
wife, Carol, and our five children, we do operate a beef 
feedlot, cow-calf, and farming operation in western Iowa, and 
as was stated, I am a member of the board of directors of R-
CALF USA and am President of the Independent Cattlemen of Iowa.
    R-CALF USA is a nonprofit cattle producer association that 
represents thousands of U.S. cattle producers in 47 States, 
along with over 60 State affiliates and local affiliates. R-
CALF USA's mission is to ensure the continued profitability and 
viability of independent U.S. cattle producers. The 
demographics of the R-CALF USA's membership are reflective of 
the demographics of the U.S. cattle industry, with membership 
ranging from the largest of U.S. cattle producers to the 
smallest. R-CALF USA's membership consists primarily of cow-
calf operators, cattle backgrounders, and feedlot owners. The 
2007 farm bill presents an important opportunity to strengthen 
the cattle sector and create a competitive playing field, at 
home and abroad, for United States cattle producers.
    Ensuring a market framework that provides participants in 
the U.S. live cattle industry with the opportunity to remain 
profitable should be a central focus of the 2007 farm bill. A 
profitable and vibrant U.S. cattle industry is vitally 
important to the health of our citizens and the overall welfare 
of rural America. Today's production agriculture, which, in 
addition to its principal role of producing an abundance of 
safe, wholesome, and high-quality food, now includes the 
development of biofuels and a heightened emphasis on 
international trade. This makes for a highly complex and 
dynamic industry that has created many overlapping and 
interconnected relationships.
    To effectively address the new complexities that were 
brought about by changes in national policy, we must adhere to 
sound market principles. For example, R-CALF USA believes that 
each segment of U.S. agriculture should have the opportunity to 
prosper at the same time, without pitting one group against 
another. This belief is based on our knowledge that competitive 
markets have long assimilated increased production costs 
without rendering entire industry segments unprofitable.
    When applying this principle to the Nation's current policy 
of achieving more energy independence through alternative 
energy promotion, R-CALF USA does not join critics who claim 
the Government's ethanol incentives are inappropriate. Instead, 
R-CALF USA believes the proper response by the U.S. cattle 
industry to this National Energy Policy is to work aggressively 
to remove the barriers that currently prevent the U.S. cattle 
market from assimilating necessary increases in productions 
costs. If appropriate reforms are made to enable U.S. cattle 
producers to begin receiving their competitive share of the 
consumer's beef dollar and their competitive share of the 
consumer beef market, then they will be able to recover 
increased production costs from the competitive marketplace. 
Such reforms should be included in the farm bill's competition 
title. These reforms would be inclusive of limiting packer 
ownership of livestock and packers' use of certain captive 
supply contracts, strengthen the Packers and Stockyards Act, 
improve price transparency, allow interstate shipment of State-
inspected beef, and, very importantly, put mandatory country-
of-origin labeling into place.
    The removal of current market competition barriers from the 
U.S. cattle market would generate another benefit for the U.S. 
cattle industry, besides that of accommodating the Nation's 
desire to achieve energy independence. Production agriculture 
is a capital-intensive endeavor, making it very difficult for 
young people to gain entrance. For generations, livestock 
production has served as the means by which young entrepreneurs 
have gained entry into agriculture.
    In 1930, my grandfather, with help from my great-
grandfather, built a barn that still stands on our home farm. 
It took a lot of faith to build that large structure back in 
1930, just months after the stock market crash of 1929. But 
they were livestock producers, and less than 10 years earlier, 
the Packers and Stockyards Act had reestablished a competitive 
livestock market, which provided hard-working entrepreneurs 
with a genuine opportunity to prosper in the livestock 
industry. The 2007 farm bill could again reestablish 
competitive livestock markets that would afford that same 
opportunity to a whole new generation of livestock producers. 
The core problem facing the cattle industry today that the 2007 
farm bill can help to correct is that the overall framework 
that defines how our industry operates is no longer adequate to 
ensure a balanced and properly functioning competitive 
marketplace. The present industry framework comprised of the 
statutes, regulations, and policies that govern contracts and 
market competition, consumer information, and information 
disclosure, heath and safety, and trade have evolved under the 
considerable influence of the Nation's largest meatpackers, and 
without sufficient counterbalance from producers. As a result, 
the balance of power within the present industry framework is 
tilted in favor of the meatpackers, resulting in a pricing 
advantage for them and an erosion of competition for livestock 
producers.
    Independent producers cannot match the economic or 
political power held by the Nation's largest meatpackers. We 
cannot expect to level the playing field by correcting the 
deficiencies within our industry's framework through 
negotiations with the meatpacking sector. Ironically, we are in 
an intense competition to win back competition. Therefore, our 
success in winning back our competitiveness will depend on you, 
the Congress.
    Thank you again for allowing me the opportunity to provide 
input in this important hearing. I welcome any questions from 
members of the Committee.
    [The prepared statement of Mr. Nelson can be found on page 
116 in the appendix.]
    Chairman Harkin. Thank you very much, Mr. Nelson.
    Now we will turn to John M. Queen, President of the 
National Cattlemen's Beef Association. He is the own of John 
Queen Farms, a third-generation cattle farm founded in 1917 and 
located in the western mountain region of North Carolina. His 
background in the beef industry includes cow-calf producer, 
stocker, backgrounder, feeder, and grazer. He is now currently 
serving as President of the National Cattlemen's Beef 
Association.
    Welcome to the Committee, Mr. Queen, and please proceed.

  STATEMENT OF JOHN M. QUEEN, PRESIDENT, NATIONAL CATTLEMEN'S 
         BEEF ASSOCIATION, WAYNESVILLE, NORTH CAROLINA

    Mr. Queen. Thank you, Mr. Chairman. My name is John Queen, 
and I am a third-generation cattle producer and livestock 
market operator from Waynesville, North Carolina. I am 
President of the National Cattlemen's Beef Association and am 
pleased to be with you to discuss our policy on market 
structure issues, a policy which was brought forward by, 
debated by, and voted on by our rancher members. This is grass-
roots policy where one-member/one-vote has always been the 
standard.
    When it comes to market structure and competition issues, 
the National Cattlemen's Beef Association's position is simple: 
We ask that the Government not tell us how we can or cannot 
market our cattle. The way we market cattle has changed 
significantly over the years, and it has come from recognition 
within our industry that we are not just cattle producers but 
beef producers and must be responsive to the consumers' 
demands. The consumer focus has led to many innovative 
marketing programs that have improved the quality of beef, 
giving the consumer what they are asking for and allowing 
ranchers to get paid for the value they add to the animal.
    In addition to being responsive to our consumers, 
participation in these marketing arrangements provides a 
rancher with tools that help their operations and herd 
management. The ability to manage price risk is one of the most 
valuable of these tools. Taking advantage of marketing 
arrangements such as forward contracting allows producers to 
make a price that allows him to be profitable. If the price 
does not fit their needs, they can walk away and find another 
buyer. Being a ``price maker'' rather than a ``price taker'' 
puts ranchers in control of their business. Many ranchers who 
participate in these programs get information back from the 
feedlots telling them how their cattle performed. Information 
also comes back from the packer in the form of yield and 
quality grades. This information is critical in managing our 
herd and focusing on the traits which produce the highest 
quality animals.
    The benefits of the AMAs, or the alternative marketing 
arrangements, which we heard about earlier, was commissioned by 
GIPSA under the direction of Congress. The study took 3-1/2 
years and $4.5 million of taxpayer dollars and was billed as 
the ``definitive answer'' on these issues we are discussing 
here. The study supports what many ranchers across our country 
have known all along--a market-driven system works. The 
overwhelming conclusion of this study is that overall, 
alternative marketing arrangements help all sectors of the 
industry, not just those that participate.
    The report states that the leading reasons ranchers 
participate in AMAs are the ability to buy or sell higher-
quality cattle, improve supply chain management, and obtain 
better prices.
    When talking about improved supply management, we have to 
once again go back to the consumer. The consumer does not come 
into their local Safeway looking for Rancher's Reserve beef 
only on Tuesdays. The consumer demands the convenience of 
picking up a package of Rancher's Reserve beef any day of the 
week. To meet that demand, the retailer and packer need a 
steady and consistent supply of cattle that meet the 
qualifications of the store-branded program. If the packer is 
limited in its ability to source those cattle, the branded 
programs go away, the consumer chooses other products, and cow-
calf producers get less money.
    So far, I have talked only AMAs, but approximately 62 
percent of the cattle marketed today is done through cash or 
spot markets. Spot markets, such as auction barns, are 
critically important to the U.S. cattle industry. Ranchers who 
market this way cite several reasons for their choice. One 
reason is independence. Flexibility is also important to these 
producers. Selling on the spot market gives ranchers the 
opportunity to participate in market rallies. We must remember, 
however, that this only gives them the opportunity to catch the 
rally. Timing the market is always a difficult task and adds to 
their price risk.
    Even with traditional means of marketing, we have seen 
innovations that have been market-driven. One of these 
innovations is video livestock auctions. With this method, 
ranchers can auction their animals by video and reach consumers 
all across this country.
    The results of these innovations are telling. Demand for 
beef has grown over 20 percent since 1998--never heard of 
before in the history of our country. Consumers spent a record 
$71 billion dollars on beef in 2006. And consumer confidence in 
our product is at 91 percent--higher than it was in 2003, when 
we had the BSE cow in Washington State.
    The study concludes that restrictions on AMAs would cause a 
decrease in the supply of cattle, quality of beef, and feed or 
cattle prices. These results would set our industry back and 
place the burden on the individual cow/calf producer.
    At a time where we continue to see an increase in feed 
costs due to competition with ethanol for corn, as well as an 
increase in fuel costs, the last thing we need to do is add 
more burdens to our ranchers. Keep in mind that for every 
agreement made by a packer, there is an individual rancher on 
the other side of that transaction who has decided that that 
agreement is in their best interest, and they should be allowed 
to conduct that business privately, just like any other 
industry. Restrictions or bans on AMAs will eliminate or 
significantly reduce these programs and hamper the progress we 
have made in keeping ranching a viable industry.
    In the end, we must have a Government that works to help 
our industry and not one that limits or removes choices for 
cattlemen in the marketing of their cattle.
    Thank you.
    [The prepared statement of Mr. Queen can be found on page 
157 in the appendix.]
    Chairman Harkin. Thank you very much, Mr. Queen.
    Now we will turn to Joy Philippi, a pork producer, a row 
crop farmer from Bruning, Nebraska; Immediate Past President of 
the National Pork Producers Council, co-chair of the NPPC Farm 
Bill Task Force, and Chair of the NPPC's Working Group on Foods 
and Ethanol and Livestock.
    Ms. Philippi, thank you very much for being here. Please 
proceed.

  STATEMENT OF JOY PHILIPPI, NATIONAL PORK PRODUCERS COUNCIL, 
                       BRUNING, NEBRASKA

    Ms. Philippi. Good morning, Chairman Harkin, Ranking Member 
Chambliss. My name is Joy Philippi. I am a pork producer from 
Bruning, Nebraska, and a row crop farmer, and I am also the 
Immediate Past President of the National Pork Producers 
Council. NPPC is an association of 43 State pork producer 
organizations and represents the interests of America's 67,000 
producers.
    Pork producers have a keen interest in the next farm bill. 
NPPC formed a 2007 Farm Bill Policy Task Force to gather input 
from producers from around the country. As the next farm bill 
is written, we hope Congress will consider the needs of the 
Nation's pork producers. Our desire is to maintain the 
industry's competitive advantage globally, strengthen our 
competitiveness, and defend our competitiveness by opposing 
unwarranted and costly provisions and regulations. Please let 
me address some of the issues that likely will be considered in 
the next farm bill.
    Pork producers support the development and the use of 
renewable and alternative energy as a way to reduce our 
country's dependence on foreign oil. But we continue to have 
the jitters over the rapid expansion of the corn-based ethanol 
industry and the challenges that expansion presents to 
maintaining our competitiveness.
    We are concerned about not having an adequate transition 
period to adjust to this expansion, the availability of corn to 
feed our pigs, and about market prices. And that is why we 
support allowing a 51-cent-per-gallon blender's tax credit and 
the 54-cent tariff on imported ethanol to expire, incentives 
for capturing and digesting methane from swine farms as an 
alternative energy source, and releasing early and 
incrementally, without penalty, CRP acres so they can go back 
into crop production. As you fashion your energy title, please 
consider our concerns.
    With regard to conservation, pork producers would like to 
see dismantled the regulatory hurdles we face in trying to 
incorporate conservation planning into our operations. Pork 
producers want to continue participating in USDA's Working 
Lands Conservation Programs such as EQIP, but EQIP funds have 
not been allocated fairly to pork producers who, from 2003 
through 2005, received just 3 percent of the cost share 
assistance provided for all livestock. NPCC would like more 
EQIP funds for pork operations and would like those funds to be 
allocated for specific on-farm practices that have a clear 
environmental benefit.
    Animal well-being is a top priority for myself and for my 
fellow pork producers. We raise our pigs in a humane and 
compassionate manner, and our industry has a 20-year history of 
developing and using progressive animal well-being programs 
such as pork quality assurance and trucker quality assurance. 
We have invested hundreds of millions of dollars in research 
and practical applications that enhance our swine well-being.
    But our industry is under attack by those who would 
legislate how farmers raise livestock and poultry for food. In 
the next farm bill, so-called animal rights groups are planning 
to push for a number of provisions that, if adopted, would be 
very detrimental to the viability of the U.S. pork industry, 
including a ban on non-ambulatory or fatigued hogs from 
entering the food supply, a ban on certain antibiotics, and a 
ban on the use of sow stalls on farms that produce food animals 
that are purchased by the Federal Government.
    There are also efforts to limit how we market our pigs. The 
U.S. pork industry has enjoyed unparalleled prosperity over the 
past 3 years, and this success has come while the structures of 
the U.S. pork industry and the pork and hog markets have 
changed. We urge Congress to focus not on structural issues but 
on the more important efficiency measures of conduct and 
performance as you deliberate the wisdom of any Government 
intervention.
    But we believe--and a recent GIPSA study concurs--that U.S. 
pork producers will not be well served if a particularly 
marketing or pricing mechanism is eliminated or mandated. Pork 
producers strongly support free trade agreements, but the 
extent of any future increase in global pork trade hinges 
heavily on continued efforts to bring about further 
agricultural trade liberalization. We support funding increases 
for the Market Access Program and the Foreign Market 
Development Program. We also encourage Congress to pass trade 
agreements which were negotiated with Peru, Colombia, Panama, 
South Korea, and also extend trade promotion authority.
    To protect the U.S. pork exports, we support programs such 
a Federal revenue-based assurance option that would assist 
producers should our export markets ever be interrupted. And, 
last, we would like to see continued funding for Government 
research related to our industry, including research on 
improving the swine genetics by completing the mapping of the 
swine genome, testing and deploying new and improved animal 
vaccines, further increasing animal productivity, and 
developing new and environmental and management and mitigation 
technologies.
    NPPC and the many pork producers we represent thank you for 
holding this hearing, allowing us to share the U.S. pork 
industry thoughts. We look forward to working with you, the 
Committee, as you craft the 2007 farm bill, and I would be glad 
to answer questions at the appropriate time.
    [The prepared statement of Ms. Philippi can be found on 
page 137 in the appendix.]
    Chairman Harkin. Thank you very much, Ms. Philippi.
    And now we turn to Ron Truex, President and General Manager 
of Creighton Brothers, LLC, United Egg Producers. Mr. Truex is 
the President and General Manager of Creighton Brothers and an 
egg producer in northeast Indiana. He has been in the egg 
production business for 37 years, has held several leadership 
positions in the industry, having served as President of the 
Indiana State Poultry Association, Chairman of the American Egg 
Board, and currently as Chairman of the Government Relations 
Committee of United Egg Products. Ron also serves his community 
as an elected county commissioner in Indiana.
    Mr. Truex, welcome to the Committee and please proceed.

 STATEMENT OF RON TRUEX, UNITED EGG PRODUCERS, WARSAW, INDIANA

    Mr. Truex. Good morning, Chairman Harkin, Senator 
Chambliss. It is a privilege to be here this morning. As you 
said, I am Ron Truex, and I am President and General Manager of 
Creighton Brothers, a family owned farm since 1925 in Warsaw, 
Indiana. I chair the Government Relations Committee of the 
United Egg Producers. The United Egg Producers is the Nation's 
egg organization. Almost 90 percent of all eggs in the United 
States are produced by our members. We appreciate being 
included in this hearing. The farm policies that you adopt will 
definitely affect our industry.
    In the past year, we have been affected by the booming 
demand for ethanol and biodiesel. Production costs for eggs 
have skyrocketed as rising demand for biofuels has driven up 
feed prices. About 55 percent of the cost of producing a dozen 
eggs is feed; 63 to 65 percent of our typical layer diet is 
corn.
    From September of 2006 through the end of February in 2007, 
a typical egg operation saw almost a 60-percent increase in 
feed costs. During that period corn prices rose from around $2 
a bushel to more than $4 per bushel. The cost of getting a 
dozen eggs to the grocery store went up around 10 cents a 
dozen.
    United Egg Producers supports alternative fuels as a part 
of the Nation's strategy for energy independence, but we 
believe that U.S. policies must take into account the needs of 
egg, poultry, and livestock and dairy producers.
    In the 2007 farm bill, Congress should expand research to: 
one, commercialize technologies to make ethanol from cellulosic 
biomass; two, modify the DDGs and other byproducts to expand 
their use in layer rations; three, develop other renewable 
energy sources, such as power generation, using manure and 
mortality.
    Although tax incentives are not a part of the farm bill, we 
believe that any tax credit or similar benefits available to 
ethanol or biodiesel should also be available for other sources 
of renewable fuels, including products of the livestock and 
poultry industries. We also suggest that you explore making tax 
credits countercyclical so that they would be lower when oil 
prices are very high.
    During recent years our organization has spent more time on 
animal welfare than any other single issue. We feel strongly 
that animal welfare standards should be based on science, not 
emotion or politics. In the late 1990's, we commissioned an 
independent, unpaid Scientific Advisory Committee that 
recommended industry-wide guidelines for animal husbandry. 
About 85 percent of the producers have voluntarily adopted 
these guidelines, which are known as the UEP Certified Program. 
These guidelines have been well accepted by our retail and food 
service customers and provide assurance to consumers that the 
eggs they buy were produced under animal husbandry standards.
    We want this Committee to know that the private sector has 
been actively working on animal welfare because we are 
concerned that when you take the 2007 farm bill to the Senate 
floor, a variety of amendments could be offered that would be 
hostile to animal agriculture. These amendments may or may not 
have anything to do with eggs directly, but they might target 
other species groups instead. But our request to you is simple: 
Please vote against hostile, anti-livestock amendments that may 
be offered. Instead, please support our industry and its use of 
science, not emotion, to develop and implement voluntary animal 
husbandry guidelines in the private sector.
    We also feel strongly that the Nation should invest more in 
basic and applied agricultural research extension and 
education. Compared to the other scientific fields, Federal 
funding for agricultural research has been stagnant at best. 
The CREATE-21 proposal endorsed by land grant institutions is 
an important contribution to this debate, and we support its 
goals.
    We do feel that while better coordination between 
intramural and outside research is important, the Agricultural 
Research Service should remain a separate agency. For animal 
agriculture, research can help us not only make our farms more 
viable, but also serve the public goods. For example, the 
Government has paid increasing attention to air emissions from 
livestock and poultry operations. Already there are several 
technologies that show promise in reducing air emissions. The 
next step is to test them on actual farms in order to 
demonstrate their efficacy and economic feasibility. Once this 
is done, producers can begin to adopt new technologies. We hope 
this Committee will consider authorizing air emission 
mitigation research in the farm bill.
    Mr. Chairman, my written testimony provides additional 
details on these and other issues that are important to us. 
Once again, I appreciate your including the livestock and 
poultry industries in your hearings on the 2007 farm bill. 
Thank you.
    [The prepared statement of Mr. Truex can be found on page 
179 in the appendix.]
    Chairman Harkin. Mr. Truex, thank you very much for your 
testimony, but you left out the single most important part of 
your written testimony, and that was knowing that Iowa is the 
No. 1 egg producer in the Nation.
    Mr. Truex. That is true.
    Chairman Harkin. I just want to make note of that for the 
record.
    Now we move to Mr. Burdell Johnson, President of the 
American Sheep Industry Association, a fourth-generation lamb 
and wool producer, who raises Columbia and Hampshire ewes and 
feed sheep through the family business, Diamond J Livestock. He 
also raises cattle and grows several crops, including wheat, 
corn, barley, oats, and sunflowers. He is a former ASI 
Executive Board representative for Region VI and also served on 
numerous ASI committees. He is currently President of the North 
Dakota School Board Association and serves on the North Dakota 
Insurance Reserve Fund. He and his wife have three children and 
two grandchildren. Again, another good family farmer, so 
welcome to the Committee, Mr. Johnson. Please proceed.

    STATEMENT OF BURDELL JOHNSON, PRESIDENT, AMERICAN SHEEP 
           INDUSTRY ASSOCIATION, TUTTLE, NORTH DAKOTA

    Mr. Johnson. Thank you, Mr. Chairman and members of the 
Committee. I am honored to be here today to visit with you and 
follow up with the conversations you had at the field hearings 
with my fellow producers in Montana and Nebraska.
    I am very proud of the accomplishments that our industry 
has made in previous years, not too far off. We had our Flock 
Expansion Program that we have increased numbers in a couple of 
years. We have a successful industry-supported promotion 
program, and we have put American wool on the international 
market. The 2002 farm bill deserves a lot of credit for us 
being able to accomplish a lot of this.
    One of the things that did come out of the 2002 farm bill 
was our Wool Loan Deficiency Program. This was a program for 
shorn wool and unshorn pelts on the LDP program. However, we 
feel that the loan base rate should be set at $1.20 rather than 
what it is right now. The way it is set now, only one out of 
the nine categories are being utilized. If it is set at $1.20, 
it will involve a lot more producers to use it.
    Another successful program for USDA is the National Sheep 
Industry Improvement Center. This is a program used to assist 
lamb and wool businesses through loans and grants to rebuild 
our infrastructure that was declining because of the loss of 
numbers. This came out of the 1996 farm bill. The only problem 
is we did not get to finish it before it run out. There was 
still $20 million that was authorized in the 1996 bill. We 
would like to see it reauthorized so we could continue to 
finish this program. I am a firm believer that once you start 
something, you finish it, and that is why I am pushing to 
reauthorize the National Sheep Industry Improvement Center. It 
has been a great program for industry.
    On the conservation side of the farm bill, we support a 
priority for prescriptive grazing using sheep to control 
noxious weeds and invasive species on the rangelands in the 
U.S., which is a big problem with these, and sheep can 
contribute tremendously in that area.
    We look forward to working with the Committee to 
reauthorize these two programs. They have been helpful not only 
to individual producers, but also to the entire industry.
    On the competitive side, we urge implementation of an 
interstate shipment of State-inspected meat. By allowing this 
to happen, it will open up more marketing opportunities in 
lamb.
    Also, mandatory price reporting is a big issue for us. This 
is what our price protection that we just got approved hinges 
on, mandatory price reporting, and it has a great effect on our 
industry.
    We also support the country-of-origin labeling with lamb. 
We have always been in favor of that.
    On the international level, we would like to see the 
Federal Government look at the sheep meat trade reform. 
Currently, the European government subsidizes their sheep 
industry $2 billion annually, and they have a very strict quota 
system on imported lamb.
    The industry looks forward to working with you in the 
future on a successful farm bill, but I would also like to add 
my appreciation for the disaster assistance that is in the 
works because of drought conditions. Examples of the drought 
conditions like in New Mexico, we have examples of where 
weaning lamb crops was as low as 35 percent because of the 
drought. And the drought has continued all the way from Texas 
to my ranch in North Dakota. With this drought, higher fuel 
costs, and feed costs, disaster assistance will help a lot of 
struggling producers, which is happening at the time.
    Thank you very much.
    [The prepared statement of Mr. Johnson can be found on page 
102 in the appendix.]
    Chairman Harkin. Thank you, Mr. Johnson.
    Now our last witness of the day, William Roenigk, Senior 
Vice President of the National Chicken Council. This 
organization represents companies that produce and process over 
95 percent of the young meat chickens, broilers, in the United 
States. Mr. Roenigk oversees projects that involve industry and 
consumer market surveys. He serves on the U.S. Department of 
Agriculture's Agricultural Technical Advisory Committee for 
Trade in Animals and Animal Products, and prior to his present 
position as Senior Vice President, he was Director of Economic 
Research and Membership Services for the National Broiler 
Council.
    Welcome to the Committee, Mr. Roenigk, and please proceed.

    STATEMENT OF WILLIAM P. ROENIGK, SENIOR VICE PRESIDENT, 
            NATIONAL CHICKEN COUNCIL, WASHINGTON, DC

    Mr. Roenigk. Thank you. Good morning, Chairman Harkin, 
Senator Chambliss. The National Chicken Council appreciates 
this opportunity to present our views and recommendations on 
the important issues in today's hearing. My name is Bill 
Roenigk. I am Senior Vice President of the National Chicken 
Council, and I would note that in today's operating 
environment, the number of challenges seem to far outweigh the 
number of opportunities. And for the record, Chairman Harkin, 
we do wish there were more chickens in Iowa, broiler-type 
chickens. I would also note that Georgia is the largest 
broiler-producing State, and so we are very pleased to be able 
to recognize that.
    Senator Chambliss. If we could ever get them to Hatch some 
eggs, we might keep up with you guys.
    Chairman Harkin. You have got the eggs. We have the 
broilers.
    Mr. Roenigk. I would like to bring the Committee's 
attention to what we think is a rather interesting and serious 
development, and that is, for the first time in 32 years, 
broiler production this year will be less than it was last 
year. Now, it does not happen very often--32 years, the last 
time was 1975. If you have had a chance to look at my chart on 
page 8, you are probably struck by the very sharp and continual 
uprise in our production. But if you notice from 1970 to 1975, 
there was a very flat period during that time. I hope I am 
wrong, but I believe we may be in now a period where we are 
going to go into another flat period of production. This is 
going to limit the opportunities not just for chicken 
companies, but it is going to limit the opportunities for 
growers.
    Companies have lists of people, growers who would like to 
add houses. They have people who would like to become growers. 
Those lists are going to become longer if our production stays 
flat rather than continue to increase.
    The reason production may not increase in the next few 
years is, as my statement says, due to Government policy--not 
entirely but primarily Government policy. That was the case in 
1975 and 1973 when our production last turned down. The primary 
policy I refer to is what some of the other people on the panel 
said, and that is, corn-based ethanol is causing a real change 
in our feeding arrangement.
    You will notice in my statement, if you look a year ago 
when USDA first made the forecast on per capita consumption of 
the various meats, it was a rather rosy forecast, especially 
for broilers, at over 88 pounds per person. Now they say 85 
pounds. When you add up all the meats, it is a change of 5.6 
pounds from the first forecast, not all due to ethanol but a 
significant part of it is. And these fewer pounds mean fewer 
opportunities to generate income, jobs, and local and national 
economic activity.
    The challenge to getting back on the upward track is to 
make sure there is enough corn, not just for ethanol and not 
just for exports, but for animal agriculture also.
    In my statement, I list two ideas that could be applied to 
the Conservation Reserve Program, and time does not permit me 
to get into that. One of those was borrowed from the soybean 
producers, which I think is a pretty good idea.
    I also suggest in my statement that there needs to be a 
relief valve in case there is a significant shortfall in the 
corn crop. And I understand corn has a difficult time going 
into the ground in the Midwest due to the cold and wet ground. 
We need to get the corn in, we need to get it up, and we need 
to have an excellent harvest if we are not going to have a 
problem. If we do have a problem, there needs to be some way to 
address a significant shortfall.
    I also mention in my statement that the USDA and related 
agencies are doing an excellent job on biosecurity safeguards 
and firewalls, keeping highly pathogenic avian influenza out of 
our flocks, and there needs to be continued good budget and 
resources to allow those agencies to do that. If we did get 
influenza in our flocks, I believe the issues before this 
Committee would be much different than whether or not mandatory 
arbitration is the most appropriate mechanism in a contract.
    The Foreign Agricultural Service and APHIS have been very 
supportive in building our exports. We need exports, especially 
our leg quarters. The American consumer prefers boneless 
skinless breast, and the export market allows us to move our 
leg quarters into foreign markets.
    USDA's Environmental Quality Incentive Program, as was 
mentioned earlier, needs to be fully funded. Growers are good 
stewards of the land, water, and air, and EQIP will allow them 
to continue to do that.
    The Committee has talked quite a bit about market 
structure, but we would respectfully submit that priorities for 
the Committee and Congress should be not necessarily on 
restructuring the vertical integration and contract arrangement 
in the chicken industry. It has worked well for more than 50 
years, and as I mentioned, companies have lists of people who 
would like to get into growing chickens. Some of the panelists 
today would like the Committee to believe that somehow the 
companies have been able to successfully misinform for more 
than 50 years not only the growers but the people who provide 
substantial quantities to finance these operations. I submit 
that the system is working pretty well.
    I appreciate the opportunity to provide our views and 
comments and look forward to your questions.
    [The prepared statement of Mr. Roenigk can be found on page 
170 in the appendix.]
    Chairman Harkin. Thank you all very much for your 
testimonies. I just have a few questions, and then I will yield 
to my friend from Georgia.
    I am going to get off of the issue of competition. I heard 
all your testimonies, and I have that. I would like to delve 
into a couple of other areas.
    Ms. Philippi, your testimony points out that pork producers 
have not benefited from the EQIP program as much as other 
producers. You stated that pork producers only receive about 3 
percent of the cost-share assistance provided to other 
livestock producers. Some of this is due to EQIP giving 
priority to producers needing immediate help rather than 
providing assistance to improve existing system. But what 
recommendations would you have to address this issue?
    Ms. Philippi. One thing that we believe we need to do with 
the EQIP dollars is make sure that it is easy, that we can go 
in and with the right application, that they are available for 
us. You know, I talk about getting rid of some of the 
hindrances to the program. One of the things that we need to do 
is look at how operations need to be improved. They go through 
the permitting process, and then quite often they have to wait 
to find out how they could get EQIP dollars.
    We would like to see the livestock industry get the dollars 
that were appropriated the last time. The last time you talked 
about that we should get the lion's share of the EQIP dollars 
to use for our projects. And it seems like we just got slowed 
down in the qualification process, and we did not get access to 
the money as we should.
    Chairman Harkin. For all of you, and if I can just get a 
one- or two-sentence answer to this question, I would 
appreciate it. USDA for several years now has made an attempt 
to implement a national animal identification system. I have 
heard from producers upset that they do not what is expected of 
them or how the system will cost their operations or if the 
information will be kept confidential. I also hear from 
producers concerned that it is taking USDA too long to 
implement the system.
    Again, I am told by my staff that we can expect a report 
coming out soon from GAO, a report of an investigation we asked 
for, that will shed light on how well USDA has implemented the 
system.
    So my question basically is: Do you think USDA has 
implemented the animal identification system in a common-sense 
manner? And what would be the best action to get Animal ID back 
on track to ensure that it is a feasible, practical system? Mr. 
Nelson.
    Mr. Nelson. Well, R-CALF USA I guess would look at the 
journey that Animal ID has been on to date, and, you know, it 
initially started out it was going to be a mandatory program 
and then moved to a voluntary system. And we have actually made 
a proposal that there is a workable program that has already 
been in place, and it revolves around the brucellosis testing 
program that is already in already in place with permanent 
metal ear tags that go on the females in the cow herd, and it 
already allows the traceback system. It has been proven, it is 
workable, and it would not be burdensome, expense-wise, on 
producers.
    Chairman Harkin. I will go down the line, is there anybody 
else that wants to add to this, Mr. Queen?
    Mr. Queen. Yes, Mr. Chairman. We at NCBA have always been 
for a voluntary, cost-efficient, market-driven Animal ID 
system, and I think it should be that way because the ID adds 
value to our commodity, but it should be a willing or voluntary 
effort on those producers. It does not make our commodity any 
safer. There is no science-based evidence out there that shows 
that beef is safer if it has an ID button in it.
    So voluntary ID should be what we strive for in this 
industry, here again not dictating to those producers out there 
what they have to do with that animal.
    Chairman Harkin. Ms. Philippi?
    Ms. Philippi. The swine industry believes that ID should be 
mandatory. We have used it----
    Chairman Harkin. Should be what?
    Ms. Philippi. ID needs to be mandatory. We have used it 
since we had the pseudo-rabies program put in place. It worked 
to eradicate that disease. We believe in mandatory premise 
registration and a mandatory ID system that will protect the 
herd health of our industry.
    Chairman Harkin. Thank you.
    Mr. Truex?
    Mr. Truex. The egg industry has no problem, and as you 
know, we have worked for a flock ID instead of an animal ID 
because of just the numbers of poultry in a building. And then 
our concern would be the confidentiality of that information.
    Chairman Harkin. All right. Mr. Johnson, lambs?
    Mr. Johnson. The American sheep industry already has a 
mandatory identification through the Scrapie Eradication 
Program, and we feel as long as this NIS is put together in 
conjunction with that so we can run it together, we have no 
problem with it.
    Chairman Harkin. Does it affect you at all, Mr. Roenigk?
    Mr. Roenigk. I would suggest that we already have flock 
identification. Essentially, all commercial companies 
participate in the National Poultry Improvement Plan, and that 
does identify the flocks. So I would suggest that we are 
already there.
    Chairman Harkin. Thank you.
    Mr. Johnson, I am intrigued that in your written testimony 
you discussed how invasive species and noxious weeds are 
damaging land productivity, decreasing water quality and 
quantity, and degrading wildlife habitat. And you talked about 
how sheep can provide biological control of weeds.
    Now, again, obviously this has to do with conservation, 
what we are going to be doing on conservation lands and things 
like this. What types of incentives would you like to see in 
the Conservation Title that would encourage the use of sheep to 
control invasive plants?
    Mr. Johnson. Well, if you put programs together where you 
can take sheep into areas where there are noxious weeds growing 
and pay these producers to graze them there, it would give them 
a little more income. Sheep will eat noxious weeds where other 
species will not touch them. It has been proven, especially 
with leafy spurge in my particular area, where we can get lamb 
back into production by grazing sheep on the spurge, and then 
you can follow with cattle afterwards. It works very well.
    Chairman Harkin. Repeat again for me. Are there any 
incentives, anything we need to put in the Conservation Title? 
Tell me again.
    Mr. Johnson. Well, one of the biggest things with this is 
predator management, when you move them out into areas where 
there are wide open spaces. So if you can have more money for 
predator control and also incentive for sheep ranchers to take 
their sheep out into other areas on land that they do not own 
or lease, just to graze, to get a multispecies grazing program 
going to enhance the production of grass.
    Chairman Harkin. I am running out of time. One last 
question. For many years there have been efforts to remove the 
restrictions on interstate shipment of meat from State-
inspected facilities. Somebody mentioned that in their 
testimony. Was that you?
    Mr. Johnson. Yes, Mr. Chairman, I did mention that.
    Chairman Harkin. But to give some perspective on this, I 
have been around this a long time, and I chaired the Livestock, 
Dairy, and Poultry Subcommittee in the House in the early 
1980's, and I chaired a hearing on this issue. For many years 
large meatpackers opposed the legislation. Now they seem to be 
more open. But now the food safety advocates oppose it, so it 
kind of gets bounced around. As I say, I have been watching 
this for 25 years.
    For those on this panel, does everyone agree that there 
should be interstate shipment of meat from State-inspected 
plants? And would interstate shipment of meat from State-
inspected plants help to improve competition in the meatpacking 
industry? So two questions. Do you support that? And if you do, 
do you think this might increase competition?
    I would just, again, go down the line. How would you feel 
about this?
    Mr. Nelson. Yes, we definitely support the interstate 
shipment and feel that it would definitely improve competition.
    Chairman Harkin. Mr. Queen?
    Mr. Queen. We, too, sir, and this is the No. 1 thing that 
can help competition within the packing industry.
    Chairman Harkin. Ms. Philippi?
    Ms. Philippi. Well, that is an issue that we do not talk 
about as much as we probably should at times, and we do not see 
there could be any advantage competitively.
    Chairman Harkin. You do not have a position on interstate 
shipment of State-inspected meat?
    Ms. Philippi. No, we do not.
    Chairman Harkin. Thank you.
    Mr. Truex?
    Mr. Truex. Nor does the egg industry.
    Chairman Harkin. Mr. Johnson, obviously you do.
    Mr. Johnson. We do support it, but we also are a little 
cautious that the State programs have a high enough standard so 
we know the inspection service is there.
    Chairman Harkin. Mr. Roenigk, do you have anything?
    Mr. Roenigk. We would ask the question, if the State 
inspector plant meets all the USDA requirements, why not be a 
USDA plant? If there was a change for poultry, I do not think 
it would, as far as competition, change things very much.
    Chairman Harkin. Well, you know, Mr. Roenigk just raised 
something. My time is up. I assume in your answer you are 
saying as long as they meet the Federal standards, right? I see 
you nodding. I think that is probably generally accepted. Thank 
you all very much.
    I will turn to my colleague, Senator Chambliss.
    Senator Chambliss. We talked about animal ID. What about 
country-of-origin labeling? Mr. Nelson, let's start with you.
    Mr. Nelson. Mandatory country-of-origin labeling is very 
important. We spend a lot of time talking about value-added 
agriculture, and being able to have the country of origin on 
meat is being able to retrieve the value-added price; 
otherwise, you reward imported, lower-quality products that 
could be marketed at a higher price without an identification.
    Senator Chambliss. Mr. Queen?
    Mr. Queen. Well, I do not think there is a cattle producer 
in America that would not approve some type of country-of-
origin labeling. The law as we have it today that will soon be 
implemented is flawed, and to spend the money, if we cannot 
restructure this law the way it is intended to be spent today, 
is not a level playing field, certainly not for the beef 
industry. The purpose of this bill is to identify imported 
product into our country, aside from our domestic products 
here. Less than 8 percent of the imported product would be 
affected by this law. Also, other meat segments in our 
industry--and I was pleased to hear some of the panelists here 
in the chicken industry say earlier that they would like to 
have country-of-origin labeling. At this point they are not 
included in this country-of-origin labeling law. Food service 
is not included in this law, and how we segregate that, I am 
not sure, because, you know, 54 percent of all the beef in the 
United States is served in the form of ground beef, and that is 
a blended commodity using imported product with our domestic 
product.
    So how we differentiate here, I am afraid if we do much 
differentiation, we are going to have a lot of marketplace 
disruption out there. We are going to create a non-safe 
attitude with our consumers, and it could set us back 
considerably if we do this.
    So a lot of issues have to be worked out, but, yes, if we 
can get this worked out, I do not think there is a cattleman 
alive that would not like a country-of-origin labeling law.
    Senator Chambliss. Ms. Philippi?
    Ms. Philippi. The pork industry supports voluntary country-
of-origin labeling because we just think it is all cost and no 
benefit back to the producer, and because of the exclusions of 
poultry and the food service items, it just does not seem like 
it is a program that would be workable for us.
    Senator Chambliss. Mr. Truex?
    Mr. Truex. The egg industry does not have a position on 
country-of-origin labeling, but I can assure you gentlemen that 
if you eat an egg in this country, there is a real high 
probability it was produced here.
    [Laughter.]
    Senator Chambliss. Mr. Johnson?
    Mr. Johnson. Over 50 percent of the lamb that is consumed 
in the United States is imported, and a lot of that is being 
passed off as American lamb because American lamb is a better 
product. So we definitely are in favor of country-of-origin 
labeling.
    Senator Chambliss. Mr. Roenigk?
    Mr. Roenigk. As was mentioned, poultry is excluded from 
COOL at the moment. We are comfortable with that position. If 
there was reason to change, we would be willing to look at it. 
But with food service and prepared products excluded, imported 
product--the burden would fall on retail grocers. I am not sure 
that that would benefit what is trying to be done.
    I will leave it at that.
    Senator Chambliss. Mr. Johnson, I really appreciate your 
comment relative to the European Union subsidies and import 
quotas issue. The problem we have had in our attempts to 
complete the Doha Round, is getting the attention of the 
Europeans relative to import quotas and import tariffs, as well 
as their subsidies, which are significantly higher than U.S. 
support programs. So I am pleased to hear you say that.
    Ms. Philippi is the only one to mention the South Korean 
Trade Agreement. I am actually meeting with the USTR this 
afternoon, and I am curious as to what the attitude of 
everybody else is relative to that agreement. I have got a 
feeling I know what the beef folks are going to say, but let me 
hear from you, Mr. Nelson.
    Mr. Nelson. Well, we definitely need to be able to get the 
beef channels open back to that country before we would look 
favorably on that trade agreement.
    Senator Chambliss. Mr. Queen?
    Mr. Queen. Well, we at the National Cattlemen's Association 
certainly would love to have a free trade agreement with South 
Korea, considering that they do have full trade of all U.S. 
beef at the time that free trade agreement comes forward. If we 
do not have that agreement in June, when it comes time for the 
President to sign onto this free trade agreement, we would 
certainly hope that this Congress would step forward and block 
this free trade agreement until we have full beef trade with 
South Korea.
    Senator Chambliss. Anything else, Ms. Philippi, from you?
    Ms. Philippi. The only thing I am going to add is it is one 
of the best agreements that has ever been put together for the 
pork industry, and we appreciate the effort that went into 
that.
    Senator Chambliss. OK. Mr. Truex?
    Mr. Truex. The egg industry generally supports this 
agreement.
    Senator Chambliss. Do we export eggs?
    Mr. Truex. Yes, sir. Currently this year we have exported 
more eggs than we have in the last 3 or 4 years. But we are 
very actively exporting eggs now.
    Senator Chambliss. Who is our primary customer?
    Mr. Truex. I do not know that. We export through the U.S. 
Egg Marketers, and they do the dealing with those, and then the 
egg industry as a member of U.S. Egg Marketers ships our eggs 
through that system.
    Senator Chambliss. OK. Mr. Johnson?
    Mr. Johnson. I just like to use the term ``fair trade'' 
instead of ``free trade.''
    Senator Chambliss. Mr. Roenigk?
    Mr. Roenigk. The Chicken Council supports a Korean 
agreement. We have issued a statement to that effect. Korea 
last year was our tenth largest poultry market. We think the 
agreement could move that on up in terms of importance. We look 
forward to that agreement getting passed, and there are a 
couple other ones that are ahead of that. We hope those get 
approved, too.
    Senator Chambliss. Well, let me say I share the concern of 
Mr. Nelson and Mr. Queen relative to the beef issue. As I said 
in my public statement, I am losing patience with the Koreans. 
We have been very cooperative with them on the BSE issue, and I 
think it is really ridiculous that they have responded in the 
way they have, particularly with this agreement. And I think 
Senator Harkin and I share this concern, and we want to see 
this agreement come to fruition. It does look like it is a 
positive agreement. But we have got to have the free and open 
trade of U.S. beef going into Korea as a part of this agreement 
before we are going to be able to support it. And I am very 
hopeful that we are going to see that in the short term.
    Mr. Roenigk, you heard the previous testimony, I am sure, 
from Mr. Hamilton relative to these arbitration clauses in 
integrator contracts. What is your thought or position on that?
    Mr. Roenigk. The question was asked of the previous panel 
whether or not they knew of a better mechanism, and I did not 
hear an answer to that question of a better mechanism. We are 
open to a better mechanism. We do not know one. We need 
something that is timely, efficient, and there are differences 
and we need to resolve those. Until someone comes up with a 
better idea, mandatory arbitration seems to be the best 
mechanism.
    Senator Chambliss. Well, I am a little leery of opening up 
a can of worms on litigation even though I am a lawyer myself. 
I am still recovering from that.
    [Laughter]
    But arbitration sounds like a good alternative to 
litigation, but at the same time, if the current situation is 
not working right, as apparently it is not--because I hear this 
all the time from my poultry producers across Georgia--we need 
to either change the rules of the road in the current 
contracts, or some change needs to be made to give them more 
authority from a legal perspective.
    So I do not know what the answer is, but I would just urge 
you to take that message back to your industry because this 
will be up for discussion and I am sure probably some action as 
we move into the farm bill.
    Mr. Roenigk. I will make sure that that message is 
delivered, and I will also assure you that we will come back to 
you with something in terms of a more concrete idea as to what 
might be an alternative.
    Senator Chambliss. Good. Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Chambliss.
    I have no further questions. Again, I thank you all very 
much for your testimony, for being here today, and again, as we 
proceed on with the farm bill, if you have further thoughts, 
suggestions, advice, consultation, please let us know, on these 
or any other issues that we will be addressing in the farm 
bill.
    So, with that, thank you all very much, and the Committee 
will stand adjourned.
    [Whereupon, at 12:22 p.m., the Committee was adjourned.]
      
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