    [House Hearing, 111 Congress]
    [From the U.S. Government Publishing Office]

     HEARING TO REVIEW U.S. AGRICULTURE POLICY IN ADVANCE OF THE 2012 FARM
                                      BILL

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

                                    HEARING

                                   BEFORE THE

                            COMMITTEE ON AGRICULTURE
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 SECOND SESSION

                                   __________

                          APRIL 21, 2010; MAY 13, 2010

                                   __________

                               Serial No. 111-48

                                   __________

                                     Part 1

                                   __________

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

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                                 APRIL 21, 2010

                            COMMITTEE ON AGRICULTURE

                    COLLIN C. PETERSON, Minnesota, Chairman

    TIM HOLDEN, Pennsylvania,            FRANK D. LUCAS, Oklahoma, Ranking
        Vice Chairman                    Minority Member
    MIKE McINTYRE, North Carolina        BOB GOODLATTE, Virginia
    LEONARD L. BOSWELL, Iowa             JERRY MORAN, Kansas
    JOE BACA, California                 TIMOTHY V. JOHNSON, Illinois
    DENNIS A. CARDOZA, California        SAM GRAVES, Missouri
    DAVID SCOTT, Georgia                 MIKE ROGERS, Alabama
    JIM MARSHALL, Georgia                STEVE KING, Iowa
    STEPHANIE HERSETH SANDLIN, South     RANDY NEUGEBAUER, Texas
    Dakota                               K. MICHAEL CONAWAY, Texas
    HENRY CUELLAR, Texas                 JEFF FORTENBERRY, Nebraska
    JIM COSTA, California                JEAN SCHMIDT, Ohio
    BRAD ELLSWORTH, Indiana              ADRIAN SMITH, Nebraska
    TIMOTHY J. WALZ, Minnesota           DAVID P. ROE, Tennessee
    STEVE KAGEN, Wisconsin               BLAINE LUETKEMEYER, Missouri
    KURT SCHRADER, Oregon                GLENN THOMPSON, Pennsylvania
    DEBORAH L. HALVORSON, Illinois       BILL CASSIDY, Louisiana
    KATHLEEN A. DAHLKEMPER,              CYNTHIA M. LUMMIS, Wyoming
    Pennsylvania                         ------
    BOBBY BRIGHT, Alabama
    BETSY MARKEY, Colorado
    FRANK KRATOVIL, Jr., Maryland
    MARK H. SCHAUER, Michigan
    LARRY KISSELL, North Carolina
    JOHN A. BOCCIERI, Ohio
    SCOTT MURPHY, New York
    EARL POMEROY, North Dakota
    TRAVIS W. CHILDERS, Mississippi
    WALT MINNICK, Idaho
    ------

                                     ______

                               Professional Staff

                        Robert L. Larew, Chief of Staff

                         Andrew W. Baker, Chief Counsel

                     April Slayton, Communications Director

                     Nicole Scott, Minority Staff Director

                                      (ii)

                                  MAY 13, 2010

                            COMMITTEE ON AGRICULTURE

                    COLLIN C. PETERSON, Minnesota, Chairman

    TIM HOLDEN, Pennsylvania,            FRANK D. LUCAS, Oklahoma, Ranking
        Vice Chairman                    Minority Member
    MIKE McINTYRE, North Carolina        BOB GOODLATTE, Virginia
    LEONARD L. BOSWELL, Iowa             JERRY MORAN, Kansas
    JOE BACA, California                 TIMOTHY V. JOHNSON, Illinois
    DENNIS A. CARDOZA, California        SAM GRAVES, Missouri
    DAVID SCOTT, Georgia                 MIKE ROGERS, Alabama
    JIM MARSHALL, Georgia                STEVE KING, Iowa
    STEPHANIE HERSETH SANDLIN, South     RANDY NEUGEBAUER, Texas
    Dakota                               K. MICHAEL CONAWAY, Texas
    HENRY CUELLAR, Texas                 JEFF FORTENBERRY, Nebraska
    JIM COSTA, California                JEAN SCHMIDT, Ohio
    BRAD ELLSWORTH, Indiana              ADRIAN SMITH, Nebraska
    TIMOTHY J. WALZ, Minnesota           DAVID P. ROE, Tennessee
    STEVE KAGEN, Wisconsin               BLAINE LUETKEMEYER, Missouri
    KURT SCHRADER, Oregon                GLENN THOMPSON, Pennsylvania
    DEBORAH L. HALVORSON, Illinois       BILL CASSIDY, Louisiana
    KATHLEEN A. DAHLKEMPER,              CYNTHIA M. LUMMIS, Wyoming
    Pennsylvania                         ------
    BOBBY BRIGHT, Alabama
    BETSY MARKEY, Colorado
    FRANK KRATOVIL, Jr., Maryland
    MARK H. SCHAUER, Michigan
    LARRY KISSELL, North Carolina
    JOHN A. BOCCIERI, Ohio
    SCOTT MURPHY, New York
    WILLIAM L. OWENS, New York
    EARL POMEROY, North Dakota
    TRAVIS W. CHILDERS, Mississippi
    WALT MINNICK, Idaho

                                     ______

                               Professional Staff

                        Robert L. Larew, Chief of Staff

                         Andrew W. Baker, Chief Counsel

                     April Slayton, Communications Director

                     Nicole Scott, Minority Staff Director

                                     (iii)

                                 C O N T E N T S

                                  ----------
                                                                       Page

                           Wednesday, April 21, 2010

    Lucas, Hon. Frank D., a Representative in Congress from Oklahoma,
      opening statement..............................................     4
        Prepared statement...........................................     5
    Peterson, Hon. Collin C., a Representative in Congress from
      Minnesota, opening statement...................................     1
        Prepared statement...........................................     3

                                    Witness

    Vilsack, Hon. Thomas J., Secretary, U.S. Department of
      Agriculture, Washington, D.C...................................     6
        Prepared statement...........................................     9
        Slides.......................................................    29
        Supplementary material.......................................    75
        Submitted questions..........................................    79

                             Thursday, May 13, 2010

    Lucas, Hon. Frank D., a Representative in Congress from Oklahoma,
      opening statement..............................................   145
        Prepared statement...........................................   145
    Peterson, Hon. Collin C., a Representative in Congress from
      Minnesota, opening statement...................................   143
        Prepared statement...........................................   144

                                   Witnesses

    Babcock, Ph.D., Bruce A., Director, Center for Agricultural and
      Rural Development; Professor, Department of Economics, Iowa
      State University, Ames, IA.....................................   146
        Prepared statement...........................................   148
    Hamilton, J.D., Neil D., Dwight D. Opperman Distinguished
      Professor of Law and Director, Agricultural Law Center, Drake
      University Law School, Waukee, IA..............................   157
        Prepared statement...........................................   158
    Kinsey, Ph.D., Jean D., Professor, Applied Economics Department,
      and Director, The Food Industry Center, University of
      Minnesota, St. Paul, MN........................................   161
        Prepared statement...........................................   163
    Paarlberg, Ph.D., Robert, B.F. Johnson Professor of Political
      Science, Wellesley College; Adjunct Professor of Public Policy,
      Harvard Kennedy School, Watertown, MA..........................   172
        Prepared statement...........................................   173
    Brown, Ph.D., D. Scott, Research Assistant Professor and Program
      Director for Livestock and Dairy, Food and Agricultural Policy
      Research Institute, University of Missouri, Columbia, MO.......   201
        Prepared statement...........................................   203
        Submitted report.............................................   233
    Doering III, Ph.D., Otto C., Professor of Agricultural Economics,
      Purdue University, Lafayette, IN...............................   206
        Prepared statement...........................................   207
    Ellinger, Ph.D., Paul N., Head and Professor, Department of
      Agricultural and Consumer Economics, University of Illinois,
      Urbana-Champaign, Urbana, IL...................................   210
        Prepared statement...........................................   212
    Ray, Ph.D., Daryll E., Professor, Blasingame Chair of Excellence
      and Director, Agricultural Policy Analysis Center, University
      of Tennessee, Knoxville, TN....................................   218
        Prepared statement...........................................   219

     HEARING TO REVIEW U.S. AGRICULTURE POLICY IN ADVANCE OF THE 2012 FARM
                                      BILL

                                  ----------

                           WEDNESDAY, APRIL 21, 2010

                              House of Representatives,
                                      Committee on Agriculture,
                                                       Washington, D.C.
        The Committee met, pursuant to call, at 11:00 a.m., in Room
    1300 of the Longworth House Office Building, Hon. Collin C.
    Peterson [Chairman of the Committee] presiding.
        Members present: Representatives Peterson, Holden,
    McIntyre, Boswell, Baca, Scott, Herseth Sandlin, Cuellar, Walz,
    Kagen, Schrader, Halvorson, Dahlkemper, Bright, Markey,
    Kratovil, Schauer, Kissell, Murphy, Pomeroy, Childers, Minnick,
    Lucas, Goodlatte, Moran, Johnson, Graves, King, Neugebauer,
    Conaway, Smith, Roe, Luetkemeyer, Thomas, Cassidy, and Lummis.
        Staff present: Aleta Botts, Dean Goeldner, Craig Jagger,
    Keith Jones, John Konya, Clark Ogilvie, James Ryder, Lisa
    Shelton, Anne Simmons, Cherie Slayton, Tamara Hinton, Josh
    Mathis, Josh Maxwell, Nicole Scott, Pelham Straughn, and
    Sangina Wright.

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

        The Chairman. The hearing of the Committee on Agriculture
    to review U.S. agriculture policy in advance of the 2012 Farm
    Bill will come to order.
        Good morning, everybody. Welcome to today's hearing of the
    Committee. Mr. Secretary, welcome. We appreciate very much you
    taking the time to be with us today and look forward to you
    sharing with us your views on how things are going with the
    current farm bill and where we are heading in the future.
        It seems like we just finished work on the 2008 Farm Bill,
    and we are here again. I guess that is probably my fault. I
    think it is good for us to get an early start to take a look at
    where we are, where we are heading and if there are things we
    can do in a better way.
        The 2008 Farm Bill was more than just about farms. It did
    continue the safety net that protects farmers and ranchers,
    provides them with some certainty that they rely on to stay in
    business. But, the farm bill also made historic investments in
    nutrition, conservation, renewable energy for the first time,
    research, rural development, fruit and vegetables, and organic
    agriculture. In fact, when you consider farm bill funding, less
    than 14 percent of the farm bill's funding is spent on
    traditional farm programs and crop insurance. In reality, we
    maybe shouldn't be calling this a farm bill. It should be the
    food bill. I think we did name the bill, the Food, Conservation
    and Energy Act of 2008.
        While traditional farm programs are a relatively small
    portion of the proportion of the funding, these programs are
    seen as essential by a lot of folks in U.S. agriculture. We
    have a system of independent farmers and ranchers working the
    land and without some certainty that farm programs provide,
    these farmers would have a much more difficult time getting
    financing, putting their crops in the ground and staying in
    business. There are very few farmers today, small, medium or
    large, who have enough up-front capital to put a crop in the
    ground without financing from a bank or some other financial
    institution, and without farm programs, many farmers wouldn't
    have the backing or the resources to be able to get that
    financing from those institutions.
        For those who complain about agribusiness and big farmers
    controlling farming today, I can assure you that if we got rid
    of farm programs or the safety net like some ideologues want us
    to do that we would end up with corporate agriculture running
    and then producing the food in this country. Our farms then end
    up being in the hands of people that have deep pockets and that
    is in my opinion the exact opposite direction of what we want
    to do.
        Just as agriculture has evolved over the years, I believe
    that our farm programs must also evolve to ensure that the
    safety net or risk management tools, whatever you want to call
    them, for farmers and ranchers are there. Considering today's
    economic realities, we need to decide if the existing farm
    programs are providing adequate protection and to take a look
    at kind of where we are. I have asked the farm groups to
    consider new policies or programs that might do a better job of
    giving them the risk management tools that they need to stay in
    business.
        Yesterday the Committee had a hearing in Pennsylvania. I
    thought it was an excellent hearing. The dairy industry is
    ahead of the curve. I would have been shocked to say this 2 or
    3 years ago but I guess $9 milk, $10 milk gets people's
    attention and they have seriously engaged on an effort to
    reform the dairy program. I am very impressed with the progress
    that has been made, the way the industry is coming together,
    and frankly, they are ahead of the curve. They are ahead of all
    of the other farm groups because they were forced to be ahead
    of the other farm groups. I would encourage all the other folks
    that haven't been in a crisis necessarily to take a look at
    things now before they get in a crisis and find out that what
    is in place is not going to be adequate to get them through it.
        So we also have to be realistic in terms of our budget
    situation. I think most of us on this Committee are not
    interested in running up the deficit. In fact, we are probably
    more interested in trying to get the deficit under control. And
    so as we move ahead with this farm bill, I am not going to be
    looking for additional resources. I think we have to live
    within the baseline that we currently have for the farm bill
    and we will proceed in that manner.
        So I want to welcome the Secretary to the Committee today.
    Over the last year and a half, the Secretary, Members of this
    Committee, and I have worked closely to see that for the most
    part the 2008 Farm Bill has been implemented in the way
    Congress intended. There have been some challenges along the
    way but I appreciate the good communications and the
    relationship that we developed in the process. I very much
    appreciate, Mr. Secretary, that you are not out having 50 town
    meetings around America with your own farm bill. That is very
    helpful from my perspective. We understand that you are going
    to have ideas and we welcome your ideas and input as we move
    ahead with this. But, I want to see us work together so that we
    are all heading in the same direction. There aren't enough of
    us left in agriculture to be heading in different directions.
    We need to work together. We have been doing that and I very
    much appreciate the relationship that we have developed.
        I also want to say as we did in the last farm bill that I
    am committed to this process being open, transparent,
    bipartisan. I look forward to working with any of my colleagues
    on both sides of the aisle from all regions to make sure that
    we put together a bill that supports food, fiber, conservation,
    energy, rural development and the needs of people in rural
    America. There is a lot of ground to cover. It is time to get
    started.
        [The prepared statement of Mr. Peterson follows:]

      Prepared Statement of Hon. Collin C. Peterson, a Representative in
                            Congress from Minnesota
        Good morning and welcome to today's hearing of the House
    Agriculture Committee. I know that it seems like we just finished work
    on the 2008 Farm Bill, and here we are again to talk about the next
    farm bill, which we will come up in 2012.
        The 2008 Farm Bill was about much more than just farms. It did
    continue the safety net that protects farmers and ranchers and provides
    the certainty they rely on to stay in business. But the bill also made
    historic investments in nutrition, conservation, renewable energy,
    research, rural development, fruit and vegetable products, and organic
    agriculture.
        In fact, when you consider farm bill funding, less than 14 percent
    of the farm bill's funding is spent on traditional farm programs and
    crop insurance. In reality, we could be calling this the ``food bill''
    instead of the ``farm bill.''
        While traditional farm programs have a relatively small proportion
    of funding, these programs are essential to the continuing success of
    U.S. agriculture. We have a system of independent farmers and ranchers
    working the land, and without the certainty that farm programs provide,
    these farmers would not be able to get the financing that they need to
    put a crop in the ground. There are very few farmers--small, medium, or
    large--who have enough up-front capital to put a crop in the ground
    without financing from the bank. Without farm programs, many farmers
    would not be able to stay in business. And for those who complain about
    agribusiness and big farmers controlling farming today, I can assure
    you that if we got rid of farm programs, like some ideologues want,
    corporate agriculture would become the only reality.
        Now, just as agriculture has evolved over the years, I believe that
    our farm programs must also evolve, to ensure that the safety net
    provides adequate support for our farmers and ranchers. Considering
    today's economic reality, we need to decide if the existing farm
    programs are providing adequate protection, and I have asked farm
    groups to consider new policies or programs that might provide a better
    safety net for producers.
        When considering economic realities, we also have to recognize that
    the fiscal situation facing this country is serious, and we are going
    to have to live within the budget we currently have for farm bill
    programs when we write the next bill. I will not ask for money outside
    of the farm bill budget as we did during the last farm bill because it
    is just too complicated to involve other Committees in the process.
        I want to welcome Secretary Vilsack to the Committee today. Over
    the past year and a half, Secretary Vilsack has worked closely with the
    House Agriculture Committee to see that, for the most part, the 2008
    Farm Bill has been implemented in the way Congress intended. There have
    been some challenges along the way, but I appreciate the good
    communications and relationship that we have developed in the process.
        This hearing is the first step in the process of writing the next
    farm bill. A bill this large and that covers so many important issues
    takes a lot of time and effort to get it right, and I am committed to a
    process that is open, transparent, and bipartisan. I look forward to
    working with my colleagues on both sides of the aisle and from all
    regions of the country to be sure that we put together a bill that
    supports the food, fiber, conservation, energy and rural development
    needs of this country.
        We have a lot of ground to cover, so let's get started.

        The Chairman. I am going to recognize the Ranking Member,
    and Mr. Secretary, we will put you on for whatever time you may
    consume after that. Mr. Lucas.

     OPENING STATEMENT OF HON. FRANK D. LUCAS, A REPRESENTATIVE IN
                         CONGRESS FROM OKLAHOMA

        Mr. Lucas. Thank you, Mr. Chairman, and I want to thank you
    for being so proactive in starting these hearings in
    anticipation of writing the 2012 Farm Bill. As you are aware,
    we have quite a challenge ahead of us. I look forward to the
    Secretary's remarks. I hope we can all work together towards
    producing another viable safety net for our producers.
        The 2008 Farm Bill was another investment in the future of
    rural America. Not only did we provide a viable safety net for
    producers but we also made substantial investments in
    conservation and nutrition programs during a time of need for
    many Americans. A lot of people do not realize that 75 percent
    of farm bill spending goes to nutrition programs. Yes, 75
    percent of the farm bill spending. In addition to these
    investments, this Committee, led by Chairman Peterson,
    accomplished substantial reforms in the realm of payment
    limits. This is a fact that should not be forgotten by those
    who always seem ready to attack our programs.
        This next farm bill is shaping up to be one of the most
    difficult since I have been in Congress. There are many
    challenges. Not least of all is the uncertainty of the budget
    parameters under which the next farm bill will be written. In
    2002, the Agriculture Committee received $79.5 billion in
    additional funding. In 2008, we received an additional $7
    billion that was targeted mostly towards nutrition programs.
    This time we will be lucky to receive level funding, but even
    that is a bit deceiving since many of the popular conservation
    programs do not have funding past the 2012 date. In essence, we
    already start with a deficit.
        Another big challenge is the competing interest for
    precious funding. The Administration has made it clear that it
    wants to cut funding in Title I. The Administration proposed
    cuts to direct payments and crop insurance. It also proposed
    cuts to Title II funding such as EQIP, CSP and others. Those
    interests must be balanced to have a successful farm bill.
        While I appreciate the Chairman's proactive spirit, I do
    have concerns about whether we have enough perspective
    regarding the effectiveness of many of the new programs
    authorized under the 2008 Farm Bill. For example, the ACRE
    program, which signed up nearly 13 percent of the base acres,
    has yet to make a single payment. The new SURE Program has had
    one sign-up and has issued payments only for the 2008 crop. The
    new CSP Program which this Committee did not even have in its
    original House version does not have final rules yet. I
    question if we can realistically look ahead to crafting the
    2012 Farm Bill when we haven't had a full year or 2 of
    participation in some of these new programs.
        In addition to all the challenges mentioned, we also have
    many non-farm bill issues that could have a much larger effect
    on our producers. The prospect of cap-and-trade or other carbon
    tax proposals still hangs over the head of our producers. The
    effect of cap-and-trade legislation must be considered
    regardless of whether we believe, like I do and many of my
    colleagues do on this Committee, that it will have a
    devastating impact on the agricultural community or agree with
    the Secretary, who stated that our farmers and ranchers will
    benefit from cap-and-trade.
        I also have serious concerns about the effect of an EPA
    that is overreaching and what effect that will have on our
    producers. It seems every day that the EPA, the Environmental
    Protection Agency, is coming out with a new regulation that
    makes it harder for producers to make a living. The Department
    of Agriculture needs to be more of an advocate for our
    producers in this Administration.
        With that said, I welcome the challenge. I welcome the
    debate we will have about the future of the safety net for our
    producers. I look forward to going into the field next week and
    simply listening. I want to hear from producers about what is
    working and what is not, and I have said it before and I will
    say it again, our farmers and ranchers produce the safest, most
    abundant, most affordable food and fiber supply in the history
    of the world. It is our job to produce policy that enables them
    to continue. I look forward to hearing from Secretary Vilsack
    today and hear about what the Department thinks of current and
    future agriculture policies. Thank you, Mr. Chairman.

    Prepared Statement of Hon. Frank D. Lucas, a Representative in Congress
                                 from Oklahoma
        Mr. Chairman, I want to thank you for being so proactive in
    starting these hearings in anticipation of writing the 2012 Farm Bill.
    As you are aware, we have quite a challenge ahead of us. I look forward
    to the Secretary's remarks. I hope we can all work together toward
    producing another viable safety net for our producers.
        The 2008 Farm Bill was another investment in the future of rural
    America. Not only did we provide a viable safety net for producers, but
    we also made substantial investments in conservation and nutrition
    programs during a time of need for many Americans. A lot of people do
    not realize that 75 percent of farm bill spending goes to nutrition
    programs.
        In addition to those investments, this Committee led by Chairman
    Peterson accomplished substantial reforms, especially in the realm of
    payment limits. This is a fact that should not be forgotten by those
    who always seem ready to attack our programs.
        This next farm bill is shaping up to be one of the most difficult
    since I've been in Congress. There are many challenges. Not least of
    all is the uncertainty of the budget parameters under which the next
    farm bill will be written. In 2002, the Agriculture Committee received
    $79.5 billion in additional funding. In 2008, we received an additional
    $7 billion that was targeted mostly toward nutrition programs. This
    time we will be lucky to receive level funding, but even that is a bit
    deceiving since many of the popular conservation programs do not have
    funding past 2012. In essence, we already start with a deficit.
        Another big challenge is the competing interests for funding. The
    Administration has made it clear that it wants to cut funding from
    Title I. The Administration proposed cuts to direct payments and crop
    insurance. It also proposed cuts to Title II funding such as EQIP, CSP,
    and others. Those interests must be balanced to have a successful farm
    bill.
        While I appreciate the Chairman's proactive spirit, I do have
    concerns as to whether we have enough perspective regarding the
    effectiveness of many of the new programs authorized in the 2008 Farm
    Bill. For example, the new ACRE program which signed up nearly 13
    percent of the base acres has yet to make a single payment. The new
    SURE program has had one sign-up, and has issued payments only for the
    2008 crop. The new CSP program, which this Committee did not even have
    in the House version, does not have final rules. I question if we can
    realistically look ahead to crafting the 2012 Farm Bill when we haven't
    had a full year or 2 of participation for some of these new programs.
        In addition to all of the challenges mentioned, we also have many
    ``non-farm bill'' issues that could have a much larger effect on our
    producers. The prospect of cap-and-trade or other carbon tax proposals
    still hang over the head of our producers. The effect of cap-and-trade
    legislation must be considered regardless of whether you believe like I
    do--and many of my colleagues on this Committee do--that it will have a
    devastating impact on the agriculture community, or you agree with the
    Secretary who has stated that our farmers and ranchers will benefit
    from cap-and-trade.
        I also have serious concerns about the effect an overreaching EPA
    will have on our producers. It seems every day the EPA is coming out
    with a new regulation that makes it harder for producers to make a
    living. The Department of Agriculture needs to be more of an advocate
    for our producers in this Administration.
        With that said, I welcome the challenge. I welcome the debate we
    will have about the future of the safety net for our producers. I look
    forward to going into the field next week and simply listening. I want
    to hear from producers about what is working and what is not. I have
    said it before and I will say it again: our farmers and ranchers
    produce the safest, most abundant, most affordable food supply in the
    history of the world. It's our job to produce policy that enables them
    to continue.
        I look forward to hearing from Secretary Vilsack today and hear
    what the department thinks of current and future agriculture policy.

        The Chairman. I thank the gentleman for his statement and
    for the continued good way that we have been able to work
    together and look forward to doing that through this process.
        The chair would request that other Members submit their
    opening statements for the record so that the witness may begin
    the testimony and we ensure that there is enough time for
    questions. Without objection.
        So with that, I would like to welcome our witness, the
    Secretary of Agriculture, Mr. Vilsack, to the Committee one
    more time and we appreciate you being here and look forward to
    your testimony.

    STATEMENT OF HON. THOMAS J. VILSACK, SECRETARY, U.S. DEPARTMENT
                    OF AGRICULTURE, WASHINGTON, D.C.

        Secretary Vilsack. Mr. Chairman, thank you very much for
    the opportunity to appear this morning in front of this
    Committee, and I want to thank you and the Ranking Member for
    the opportunity that you have provided to me.
        I want to first and foremost recognize the important role
    that this Committee has in beginning important work for rural
    America today with this conversation and discussion. You have
    my written testimony, but what I would like to, with your
    permission, is to speak from the heart today about the
    condition of rural America.
        I want to first and foremost recognize the important role
    that rural America plays in our country and the significant
    role that the farm bill plays in assisting rural America in
    doing its job. It is, as the Ranking Member indicated, the
    source of our food, our fiber, our feed, our fuel, often not
    appreciated also, our water, and I would suggest to this
    Committee it is also the source of our values. When this
    country was founded many years ago, 90 percent of those in this
    country were farmers, suggesting that our value system began
    and was rooted very deeply in the soil of our natural resources
    in our rural areas.
        With the Chair's permission, I would like to use a few
    slides to essentially show folks where we have been, where we
    are and hopefully as a guide to where we can go.
        [The information referred to is located on p. 29.]
        Secretary Vilsack. The first slide I want to present, and I
    believe the Committee has been furnished copies of these
    slides, is to simply suggest and to reinforce the comments of
    both the Chairman and the Ranking Member about the productivity
    of American agriculture. Back in 1940, one American farmer was
    responsible for feeding 19 people around the world. Today, one
    American farmer helps to feed 155 people. That number continues
    to grow. It is a fact and a statistic that is not fully
    appreciated by many in this country, in large part, because
    many are now more than several generations removed from those
    who farmed the land.
        You would think, given the productivity of American
    farmers, the most productive in the world, that they would, as
    would be the case in most other occupations, be recognized for
    it, appreciated for it and would be able to make sufficient
    income from it to be able to support their families. But the
    reality is, and the next chart will show, what a challenge it
    is for American farm families. This chart essentially shows the
    percentage of income family farmers have in America today that
    comes from their farming operation. You can see that as of
    2009, 81 percent of farm income comes from something other than
    the farm. Only nine percent comes from family farm operations.
    This suggests the need for a continuation and support for a
    very strong safety net, a safety net that includes investments
    in research and development to increase productivity, continued
    investment in conservation programs, particularly for small
    landholders, a continued emphasis as this Administration is
    focused on expanding exports, the development of additional
    domestic markets, the appropriate balance of crop insurance,
    disaster payments and direct payments. But, it also suggests
    that there is another aspect of the safety net that is often
    overlooked and under-appreciated by those outside of rural
    America, and that is the significance and importance of jobs,
    good-paying, high-paying, quality jobs. Unfortunately today,
    too many of America's farm families are requiring off-farm
    income, and that makes it a challenge for us to focus on how we
    can create new and better opportunities in rural America.
        At the same time that we are challenged with an income
    level that only creates nine percent of family farm income, we
    also see a significant aging of the farm population, which is
    another challenge that must be addressed as we discuss the next
    farm bill. This slide indicates and shows the rapid
    acceleration of the aging nature of American farmers today. In
    1945, the average age of the American farmer was 39 years of
    age. Today it is 58. In just the last 5 years, we have seen an
    increase of 2 years. There is a substantial percentage of
    American farm families with farmers that are over the age of
    65. In fact, it is roughly 28 percent of the entire farming
    population. That comes to about eight percent of the general
    working population. So this is a significant issue and it is
    one that directs us to focus on a robust effort to promote
    beginning farmers, expanding the good work that was started in
    the 2008 Farm Bill with the Beginning Farmer Program, but
    indicating a need for us to really focus over the next couple
    of years on how we can encourage development of new and
    innovative programs that will allow for sweat equity that will
    enable a young person to pursue the dream of being a farmer.
        The aging nature of farms, the continued challenges of
    income are also reflected in the general economic conditions of
    rural America. This chart essentially shows the rapid increase
    of unemployment in rural America, which is a concern of all of
    us, and again suggests and directs that we need to make a
    renewed effort in developing quality jobs in rural America. In
    addition to unemployment, we also see a substantial difference
    between incomes, between those who live in rural areas and
    those who live in metro areas. This chart suggests that there
    is as much as $11,000 to $12,000 difference in income per
    capita between rural areas and metro areas. I think it is
    incumbent upon us to try to figure out strategies and ways in
    which we can reduce that gap so that people who want to live in
    rural America can afford to do so. Next slide.
        The workforce in rural America also faces challenges in
    terms of education level. This chart suggests that those who
    work and live in rural America have fewer college degrees, more
    high school diplomas and more people without a high school
    diploma, a serious challenge in terms of creating a quality
    workforce. So some attention needs to be paid not just in this
    Committee but in other committees as well to the disparity in
    educational achievement levels. If we are going to build a
    quality workforce, then it has to be a well-educated workforce,
    and time and attention needs to be directed in this area. Next
    slide.
        As is the case with farmers, it is also true in rural
    America that we are seeing an aging population. We have a
    substantially greater percentage of people in rural America
    that are over the age of 65, as this chart indicates. And so
    when you have high unemployment, low educational achievements,
    substantially lower incomes, what you have will ultimately be a
    loss of population. And this is a deep concern to me, and I
    believe a deep concern to this Committee, that we continue to
    see many of our rural counties losing population.
        Let me suggest that this Committee should be congratulated
    for the work it did in 2008 on the farm bill and that this
    Congress and Administration should receive some credit for
    additional resources provided under the Recovery and
    Reinvestment Act. The reason being is what you have done with
    the work in the farm bill and additional investments through
    the Recovery Act and broadband is, I believe you have created a
    framework for a new rural economy, one that can help create
    quality jobs that keep people not only on the farm but in rural
    areas. The reality is that additional resources in broadband
    expansion, the energy title, the farm bill, additional
    opportunities in ecosystem markets, linking conservation
    payments to expanded hunting and fishing opportunities, as well
    as our efforts to try to link local production with local
    consumption, create a new dynamic in rural America. I think we
    need to build on that foundation. I think we need to continue
    to expand those opportunities.
        I fully appreciate the challenges, economically, that this
    Committee faces and we will work and pledge to work with you to
    preserve as much of the baseline as is possible so that you
    have as much flexibility in your work as possible. Recognizing
    that this framework is in place, let me suggest that there is a
    need for better coordination between the programs that the USDA
    has and programs that are offered by other Federal agencies.
    Right now what we have are agencies working in isolation from
    each other. There is not much coordination. There is not the
    opportunity to leverage resources and to coordinate and
    consolidate resources so that they have a substantial outcome
    in changing the dynamic of the rural regional economy.
        In addition, we can do a much better job of working with
    our local partners at the local level and a regional effort to
    try to stimulate growth and development around communities that
    will be the engines of economic opportunity. That will require
    us to have greater flexibility and a suggested opportunity for
    this Committee to focus our efforts on the specific results
    that you want us to obtain. I think those results ought to be
    about growing substantial income opportunities. It ought to be
    about continuing to expand innovatively the safety net that
    allows farmers to stay on the farm and to be able to expand our
    numbers. We have seen a loss of production agriculture in terms
    of numbers over the last several years. That is a trend which
    we ought to at least commit ourselves to trying to reverse.
        Candidly and in conclusion, what I will simply say is this:
    The President and I have a vision which you all share, and that
    vision starts at a kitchen table in a rural community and could
    very well be on a farmstead in which a mother and a father are
    sitting around the table talking to their adult son or their
    adult daughter or it could be a grandchild. In that
    conversation, instead of encouraging them to look elsewhere for
    opportunities, they are encouraging them to stay in rural
    America, to build their life, to pursue their dreams and to
    create real opportunity for their families in rural America.
    The great thing about our country is that we have a strong
    core, and that core is rural America. While it only represents
    one in six of the country's population, 45 percent of the
    people that serve us in uniform come from rural America. That
    gets back to the point I made at the beginning, which is that
    our values are rooted in rural America. We cannot, we should
    not, and we must not allow opportunity to continue to be
    squeezed in rural areas because if we do, not only will farm
    families suffer, not only will small towns suffer, but our core
    values will suffer.
        Mr. Chairman, again I appreciate the opportunity to be
    here. I recognize that our job is to help and assist this
    Committee in producing the very best bill it can produce, and I
    look forward to working with all of you to do so. Thank you.
        [The prepared statement of Secretary Vilsack follows:]

         Prepared Statement of Hon. Thomas J. Vilsack, Secretary, U.S.
                  Department of Agriculture, Washington, D.C.
        Mr. Chairman, Ranking Member and Members of the Committee, thank
    you for the opportunity to appear here today to discuss the
    implementation of the Food, Conservation and Energy Act of 2008, as
    well as to discuss future directions for farm policy. This hearing
    provides us with a chance to reflect on the many successes of the 2008
    Farm Bill and discuss its implementation, all while thinking ahead to
    its reauthorization in 2012. I look forward to working with Members of
    this Committee, and other Members of the House and Senate, to help
    develop future policies, programs, and initiatives.
        Let me start off by acknowledging the hard work of the Members of
    this Committee and your staff. Having worked diligently with my own
    staff across the country over the past 15 months to implement the bill,
    I can now fully appreciate the months of hard work that went into
    crafting this important piece of legislation. You are all to be
    commended for the strong bipartisan bill that overcame multiple
    obstacles before becoming law.
        As you know, the breadth and depth of the farm bill is incredible.
    With the programs and authorities that Congress provided to USDA in the
    2008 Farm Bill, we are in turn working to ensure that America's farmers
    and ranchers have the tools that they need to remain viable and on the
    farm. It is also with these authorities that we work to fund rural
    hospitals, schools and fire stations, maintain a safe food supply, and
    sustain export markets for the commodities produced by our nation's
    farmers and ranchers. Congress has given USDA an amazing opportunity to
    assist not only rural America with these tools and authorities, but the
    world.
        Let me begin by focusing on the subject of the hearing and why I am
    here before you today, to review the status of implementation of the
    Food, Conservation and Energy Act of 2008.
    2008 Farm Bill Implementation
        The Food, Conservation, and Energy Act of 2008 was enacted into law
    on June 18, 2008. Since that time, USDA has worked diligently to draft
    and clear final farm bill regulations. Upon enactment of the 2008 Farm
    Bill, USDA began developing rules, procedures and policies to make
    efficient use of taxpayer resources and maximize program benefits to
    production agriculture and other rural constituents.
        I believe that the United States Department of Agriculture and our
    partnership delivery system have an excellent story to tell in terms of
    implementing the 2008 Farm Bill. When I became Secretary I inherited
    the job of implementing the farm bill roughly 6 months after its
    enactment into law. I believe that USDA has taken aggressive action on
    every aspect of program delivery, with impressive results for our
    customers.
        Mr. Chairman, you and Members of this Committee are to be commended
    for your work and vision on the many key provisions and policy
    modifications contained in the 2008 Farm Bill. While there are many
    excellent programs, initiatives, and provisions contained in the bill,
    I wanted to take a moment to highlight a few provisions that I feel are
    worth noting. The 2008 Farm Bill set a new course for agricultural
    research at USDA and substantially reorganized our structure in
    interacting with the academic community on key research initiatives.
    These provisions of the 2008 Farm Bill are far-reaching and provided
    the opportunity to better focus our scientific efforts on key
    priorities for agriculture and for the nation.
        I am pleased to report that development and launch of the new
    National Institute of Food and Agriculture, authorized by the 2008 Farm
    Bill is complete. This exciting new organization is now under the
    capable and visionary leadership of Dr. Roger Beachy who is working to
    strategically apply resources, funding and staffing to effectively meet
    the most high priority research objectives. Just 2 weeks ago, NIFA
    announced an important round of grant competition aimed at addressing
    critical issues such as climate change mitigation and adaption,
    sustainability, and development and transfer of key agriculture
    technologies. These steps could not have happened without the foresight
    and action of this Committee during development of the 2008 Farm Bill.
        A second example is the authorization of a new Office of Advocacy
    and Outreach at USDA. As you are aware, this Administration has taken
    clear and decisive action in settling the Pigford case and associated
    claims against the United States Department of Agriculture on the
    grounds of Civil Rights. In my time as Secretary, it is clear that in
    addition to getting serious about addressing Civil Rights complaints,
    USDA must have a firm commitment everyday toward better customer
    service, and improved customer outreach and support. In the 2008 Farm
    Bill, Congress authorized the creation of a new Office of Advocacy and
    Outreach at USDA. The mission of this new entity is to do a better job
    up front of assisting a diverse customer base and to better tailor the
    Department's services and activities toward meeting unique needs of
    communities and individuals. By better connecting with customers, we
    feel assured that fewer complaints will be filed in the future as the
    Department and its customers are better connected in a better working
    relationship. I am proud that USDA has taken aggressive and proactive
    steps to launch the new Office of Advocacy and Outreach. This new
    entity is now a visible part of the USDA leadership structure at our
    National Headquarters office and has been staffed by experienced and
    trained veterans of the USDA. By drawing upon the expertise and unique
    experiences of a diverse group of trained professionals, USDA has sent
    a clear message that the mission, roles, and functions of this office
    be central to the mission of the Department.
        Beyond the implementation of special initiatives under tight
    timeframes at the beginning of this Administration, I am proud of the
    overall speed and through implementation record of our Department on
    the farm bill. For example, turning to our Commodity programs, USDA
    quickly published regulations in the Federal Register pertaining to key
    provisions of the 2008 Farm Bill. These provisions included all Title I
    provisions related to cotton, the Milk Income Loss Contract (MILC)
    program, and Farm Loan Programs. We also published regulations related
    to the Direct/Counter-Cyclical Payment Program (DCP) and the Average
    Crop Revenue Election (ACRE) Program, as well as payment limitation
    reform.
        In 2009, USDA published nine farm bill regulations in the Federal
    Register, including all Title I sugar provisions, Marketing Assistance
    Loans and Loan Deficiency Payments (MAL & LDP), and the Biomass Crop
    Assistance Program (BCAP) Notice of Fund Availability, as well as the
    Conservation Reserve Program, Livestock Indemnity Program, Farm Storage
    Facility Loan Program, Emergency Livestock Assistance Program (ELAP),
    Livestock Forage Program (LFP), and the Supplemental Revenue Assistance
    Payments Program (SURE).
        Mr. Chairman, the volume, complexity, and public policy impact of
    these provisions are great. Beyond the sheer number of rules and
    provisions that have been developed, deployed, and implemented, a
    massive volume of work has gone into appropriately weighing the voices
    of farmers, ranchers, and other constituents. In addition, economic
    analyses and environmental impact considerations, as well as an
    assessment of civil rights and business impacts, have been thoroughly
    considered. Combined with these efforts, the achievements of our
    Department in successfully delivering these key programs to farmers and
    ranchers are all the more impressive.
        USDA was given the opportunity by Congress to implement fifteen
    titles and many special provisions. A full appraisal of the current
    implementation of those titles is attached as an appendix to this
    testimony. I am proud of the dedicated professional staff of the United
    States Department of Agriculture at all levels of the organization, and
    pleased to be working in partnership with Congress and our nation's
    producers, ranchers and a wide array of stakeholders on these important
    programs.
        Beyond ensuring that rules are published and programs are made
    available through our field office delivery system, we have made great
    strides in ensuring that better policies for accountability are
    adopted. An example of this is a change in policy on base acreage
    calculations for key commodity programs. This change will formally
    reverse the decision by the prior Administration to eliminate base
    acres on federally-owned land. The decision by the prior Administration
    adversely impacted the market/rental value of federally-owned lands by
    eliminating the ability of buyers/renters to enroll in counter cyclical
    and crop revenue election programs.
        Mr. Chairman, through successive farm bill legislation, Congress
    has provided the critical tools to ensure that America has access to a
    safe, affordable food supply and basic building blocks of the American
    economy. You and all of the Members of this Committee are to be
    commended for your staunch support and advocacy for rural America. The
    results of your work truly affect every American every day. And I would
    advocate that the 2008 Farm Bill has a more extensive impact on
    Americans than any other statute.
    The Importance and Challenges of Rural America and its Future
        Regardless of the positive impacts of the farm bill, many
    American's continue to question the efficacy of dedicating current
    levels of Federal resources and support through farm bill legislation.
    I believe that there is an important story that must be told regarding
    the importance of rural America, which serves as a basic building block
    for the rest of the economy. Despite the hardships, rural America is
    strong. At a time when our nation is experiencing one of the worst
    economic times in our history, it's our rural farm and ranch families
    that are working every day to provide food, feed, fiber and fuel for
    the rest of our nation.
        In fact, it's our American farmers and ranchers who are responsible
    for a trade surplus at a time when our country talks only of trade
    deficits. American agricultural products represent a trade surplus,
    which provides $22.5 billion to the U.S. economy. Moreover, estimates
    show that agriculture is responsible for one out of every twelve jobs
    in the nation.
        In addition, the actions that rural Americans take and their
    stewardship of the land directly impact water quality. As a result,
    rural Americans have a critical role in protecting the safety and
    security of our drinking water and the quality of our nation's rivers,
    lakes, and streams.
        Rural America represents so much more than farming and ranching
    alone. Rural America also plays a critical role in our national
    security. For example, even though only one in six citizens call rural
    America home, forty-five percent of our nation's military is composed
    of Americans from rural areas. By providing food and fiber, a clean
    water supply, and security to our great nation, rural America truly
    serves as our backbone. In many ways, the welfare of rural America--its
    infrastructure, health, and education--is of vital importance to the
    success and well being of all Americans.
        In the past 40 years, the United States lost more than one million
    farmers and ranchers. During that period, income from farming
    operations, as a percentage of total farm household income, plunged to
    half of the previous level. Today, only 11 percent of family farm
    income comes from farming. In order to maintain viable households,
    rural Americans have been forced to seek alternative sources of
    support, and benefits such as health insurance. These factors have
    changed the face of rural America.
        From the perspective of employment and income, recent studies
    indicate that the per capita income in rural America is approximately
    $11,000 below the urban and suburban workforce. In addition, job loss
    rates are higher in rural areas, and rural Americans are finding it
    more difficult to find and maintain quality jobs. Specifically, loss of
    employment in light manufacturing sectors has been more severe in rural
    areas, meaning that rural families have reduced access to the key
    benefits that these quality jobs provide.
        The difficulties for rural America mean that young rural people
    have fewer opportunities. Without viable employment opportunities,
    secure healthcare, modern infrastructure, and the growth of new
    industries, young people are choosing to leave their rural homes in
    search of jobs and opportunities elsewhere. As a result of these
    factors, the population of rural America faces significant challenges.
    The challenges described above and the nearly 2 decades of recession
    for rural America can seem overwhelming, but with the tools that
    Congress provided to USDA in the 2008 Farm Bill we are working to make
    rural America stronger. These needs can be even further addressed in
    the next farm bill.
        We need to reverse population declines, increase educational
    opportunities and opportunities for our young people in rural America.
    It's not just about the economic connections that rural America
    provides, but it's about the value system that it provides. We need to
    develop new strategies to bring prosperity back to rural America in a
    sustainable and significant way.
        I believe one model for the kinds of new creative approaches we can
    take in the next farm bill is found in USDA's new Regional Innovation
    Initiative. This new and innovative regional and collaborative approach
    will center on five separate pillars promoted by the Administration and
    arising from USDA's programs that assist rural America. Major emphasis
    will be placed on the following five key areas:

       Broadband,

       Renewable Energy and Biofuels,

       Regional Food Systems and Supply Chains,

       Forest Restoration and Private Land Conservation,

       Ecosystem Market Incentives.

        USDA will work with Federal and private partners to develop metrics
    to measure and demonstrate the success of the approach. Based upon the
    sustained economic difficulties that rural America has faced, USDA will
    begin by measuring job development and preservation, along with growth
    of income. It is vitally important that rural America not only become a
    desired place for young people to secure long-term, quality employment.
    But even more importantly, rural America must become an attractive
    place for young people to establish homes and raise families. As such,
    the measures of success will be expanded to also track and report on
    population changes in rural places. In order to be truly successful in
    this endeavor, rural America must be at the heart of a thriving 21st
    Century American economy.
        Another critical component of the next farm bill must be a
    continued focus on energy. Clearly energy conservation, development,
    and energy use policies have played an increasingly important role in
    agricultural and rural policy. I believe that the approach this
    Committee took in the 2008 Farm Bill was both visionary and very
    innovative. The mixture of research initiatives, grants for technology
    development and transfer are critical. In addition, program development
    and modifications that encourage the development of alternative and
    renewable energy sources is quite impressive. While many of the basic
    tools are in place, I would suggest that as a next step we need to
    better weave and integrate all of the tools into a more strategic
    framework. It is important to ensure that all of our authorities,
    program implementation practices, and future directions on energy and
    greenhouse gas issues are all working in concert. In addition, it will
    be important that we work on these issues within the framework of
    emerging ecosystem markets and thoroughly integrate these factors
    together along with public and private sector considerations. We will
    be doing a significant amount of work in the coming months to better
    assess and identify the kinds of changes that might best assist in this
    endeavor, and I look forward to working with this Committee on a
    holistic approach to energy in rural America.
    Working Toward the Next Farm Bill
        Mr. Chairman, as we move forward toward development of the next
    farm bill, it is important that we approach this new legislation with
    an eye toward truly making a difference in the future of the lives of
    millions of rural Americans. If we set our goals appropriately, we can
    properly assist and strengthen production agriculture, while also
    building and reinforcing the future of rural communities. Every
    opportunity for bettering rural America should be considered. We need
    to adopt innovative approaches and listen to the needs of production
    agriculture and rural communities. Again, I believe it is important to
    be ambitious and set our goals as high as possible. Rural America
    deserves no less from the next farm bill.
        Over the past year, I embarked on a rural tour. During this
    process, I traveled more than 45,000 miles and met with countless local
    farmers, ranchers, town leaders, teachers, etc. While the process took
    time and involved very difficult travel, I came away with a greater
    appreciation for the will and determination of rural America to
    succeed. I also came away with a stronger appreciation for the needs
    and challenges that rural America faces.
        In the coming months as we engage in development of the next farm
    bill, I look forward to bringing the experiences of these rural
    Americans, and others I have worked with to the table. I also look
    forward to offering the insights and expertise of our professional USDA
    staff, who have had the experience and pleasure of partnering with and
    learning firsthand about the needs of producers in the field. It is my
    pledge to appropriately assist, provide technical assistance and help
    better frame and push the debate toward the topics and issue areas that
    are most important to our constituents. I look forward to working with
    you, Mr. Chairman, and every Member of the Committee on that endeavor.
        I would be happy to respond to any questions that Members might
    have.
        Thank you.
                                    Appendix
    Title I--Commodity Programs
    Title II--Conservation
    Title III--Trade
    Title IV--Nutrition
    Title V--Credit
    Title VI--Rural Development
    Title VII--Research and Related
    Title VIII--Forestry
    Title IX--Energy
    Title X--Horticulture and Organic Agriculture
    Title XI--Livestock
    Title XII--Crop Insurance and Disaster
    Title XIV--Miscellaneous
    Title XV--Trade & Tax

    Title I--Commodity Programs
        Nearly all Title I provisions have been implemented through either
    interim or final rules. The Department is actively moving to address
    public comments received on the interim rules in final rules. Recent
    progress on Title I programs include:
        Payment Limitations and Payment Eligibility (Sec. 1603, 1604): A
    final rule was published in the Federal Register on January 7, 2010.
    The rule addresses the over 5,000 public comments received on the
    interim rule published in December 2008.
        Partnership with IRS (Non-Farm Bill): On December 31, 2009, USDA
    announced a partnership with the Internal Revenue Service to reduce
    fraud in farm programs. The actions are intended to strengthen the
    integrity and defensibility of USDA farm safety net programs and help
    the agricultural industry to meet requirements included in the 2008
    Farm Bill. USDA has finalized a Memorandum of Understanding with the
    Internal Revenue Service to establish an electronic information
    exchange process for verifying compliance with the adjusted gross
    income provisions, of the 2008 Farm Bill, for programs administered by
    USDA's FSA and Natural Resources Conservation Service. The electronic
    process that USDA developed with IRS reviews data from tax returns and
    compares these values to the AGI limitations from the 2008 Farm Bill.
    FSA and NRCS will receive a record that indicates whether or not the
    program participant appears to meet the income limits. Written consent
    will be required from each producer or payment recipient for this
    process. No actual tax data will be included in the report that IRS
    sends to USDA. As part of the review and evaluation process,
    participants whose AGI may exceed the limits will be offered an
    opportunity to provide third party verification or other information to
    validate their income.
        Durum Wheat Quality Incentive (Sec. 1613): Provision authorized
    appropriations for payments of up to 50 percent of the actual cost of
    fungicides to control Fusarium head blight on durum wheat. The 2010
    Appropriations Act provided funding for this program. A final rule
    implementing the program is under development and is expected to be
    published in June 2010.
        Geographically Disadvantaged Farmers and Ranchers (Sec. 1621):
    Final rule is currently in Agency clearance and is expected to go to
    the Office of General Counsel during the next few weeks. Program will
    reimburse producers in Alaska, Hawaii, and U.S. territories and
    protectorates for high costs associated with transporting agricultural
    commodities and production supplies.
        Base Acres on Federally-Owned Land (Sec. 1603): Final rule was on
    display at the Federal Register on April 13, 2010, and effective the
    same day. The final rule makes several technical corrections and will
    also amend existing regulations for DCP/ACRE to formally reverse the
    decision by the prior Administration to eliminate base acres on
    federally-owned land. The decision by the prior Administration
    adversely impacted the market/rental value of federally-owned lands by
    eliminating the ability of buyers/renters to enroll in the DCP/ACRE
    programs. The restriction has been waived for the 2009 and subsequent
    crop years allowing producers to maintain eligibility for DCP/ACRE.
        Dairy Import Assessment (Sec. 1507): Required that dairy promotion
    and research assessments apply to all states, D.C., Puerto Rico and
    importers. The assessment rate was set at 15 cents per hundredweight
    for domestic milk and 7.5 cents per hundredweight for imported dairy
    products. The proposed rule was published May 19, 2009, with a comment
    deadline of June 18, 2009. A final rule is being prepared.
        Dairy Commission (Sec. 1509): Created a Commission to conduct a
    comprehensive review and evaluation of the current Federal Milk
    Marketing Order (MMO) system and the other non-Federal MMO systems. The
    establishment of the commission was subject to the availability of
    appropriations and no funding has been provided. However, on January 6,
    2010, USDA announced the selection of 17 members to a Dairy Industry
    Advisory Committee (DIAC), which will provide the Secretary with
    guidance on future dairy industry policy. The first meeting of the DIAC
    occurred in Washington, DC. on April 13-15, 2010.
    Title II--Conservation
        Nearly all Title II provisions have been implemented through either
    interim or final rules. The Department is actively moving to address
    public comments received on the interim rules and final rules. Recent
    progress on Title II programs include:
        Wetlands Reserve Program (WRP) (Subtitle C--Sec. 2201): An interim
    rule was published in the Federal Register on January 15, 2009. An
    amendment was published on June 2, 2009, to ensure NRCS is able to
    restore all lands enrolled in the program despite events subsequent to
    enrollment, corrected the eligibility criteria related to closed basin
    lakes and potholes, and notified the public of the agency's continued
    dedication to proactive restoration. The amendment reopened the public
    comment period. A final rule is under development that responds to
    public comment received on the 7 year ownership requirement, riparian
    land eligibility, pothole eligibility, property transfers, various
    program definitions, and payment limitations.
        Wetlands Reserve Enhancement Program (Subtitle C--Sec. 2206): A
    notice of funding availability for FY 2010 was published April 9, 2010.
        Conservation Stewardship Program (CSP) (Subtitle D--Sec. 2301): An
    interim rule was published in the Federal Register on July 29, 2009.
    The public comment period closed September 28, 2009, but was extended
    30 days on September 21, 2009 to October 28, 2009. A final rule is
    under development.
        Farm and Ranch Lands Protection Program (FRPP) (Subtitle E--Sec.
    2401): An interim rule was published in the Federal Register on January
    16, 2009. A correction was published on July 2, 2009, that clarified
    the ``contingent right of enforcement'' and reopened the public comment
    period. A final rule is under development to respond to public comment
    on the contingent right of enforcement, Federal appraisal reviews,
    certification process, forest management plans, impervious surface
    limitation, national ranking criteria, credit for public access, and
    hazardous materials review.
        Grassland Reserve Program (GRP) (Subtitle E--Sec. 2403): An interim
    rule was published in the Federal Register on January 21, 2009. An
    amendment was published on August 21, 2009, that clarified the
    ``contingent right of enforcement'' language, removed the prohibition
    of producing energy for off farm use, and reopened the public comment
    period for 30 days from date of publication. A final rule is under
    development that responds to public comments on various program
    definitions, wind power, native species, landowner contributions, long-
    term management funding, ranking priorities, state level priorities,
    and the terms and conditions of the GRP deed.
        Environmental Quality Incentive Program (EQIP) (Subtitle F--Sec.
    2501): An interim rule was published in the Federal Register on January
    15, 2009. The interim rule was both corrected and amended. A correction
    was published on March 12, 2009, that corrected the application of
    payment limitation provisions as they apply to joint operations. An
    amendment was published on May 29, 2009 that reestablished policy that
    enables certain producers, who lease public lands, to be able to use
    EQIP funds on the public lands. A final rule is being developed to
    respond to public comment received on the following topics, public land
    eligibility, payment limitation, water rights, organic conservation
    assistance, at-risk species, and national priorities.
        Agriculture Water Enhancement Program (AWEP) (Subtitle F--Sec.
    2510): A notice of request for proposals for FY 2010 was published
    April 2, 2010. The FY 2009 notice was published March 26, 2009.
        Wildlife Habitat Incentive Program (WHIP) (Subtitle G--Sec. 2601):
    An interim rule was published in the Federal Register on January 16,
    2009. The interim rule was both corrected and amended. A correction was
    published on March 12, 2009, that corrected the application of payment
    limitations as they apply to joint operations. An amendment was
    published on July 15, 2009, that expanded the definition of
    agricultural lands to enable producers to enroll all lands included in
    their farming operation.
        Chesapeake Bay Watershed Program (Subtitle G--Sec. 2605): A notice
    of funding availability for FY 2010 was published March 12, 2010. The
    FY 2009 notice was published January 22, 2009.
        Regional Equity (Subtitle H--Sec. 2703): An interim rule was
    published in the Federal Register on January 13, 2009. This rule
    incorporated changes required by the 2008 Act and formalized agency
    regional equity provisions to establish consistency and certainty with
    implementation. NRCS evaluated the public comments and published a
    final rule in the Federal Register on December 4, 2009. The final rule
    responds to public comment received on the allocation process,
    contributing programs, obligation thresholds, and established
    deadlines.
        Cooperative Conservation Partnership Initiative (CCPI) (Subtitle
    H--Sec. 2707): A notice of request for proposals for FY 2010 was
    published April 2010. The FY 2009 notice was published March 10, 2009.
        State Technical Committees (Subtitle H--Sec. 2711): An interim rule
    was published in the Federal Register on November 28, 2008. The
    National policy, Standard Operating Procedures was published in the
    Federal Register on April 7, 2009. The final rule responds to public
    comment received on committee responsibilities, composition of local
    working groups and the State Technical Committee, communication,
    subcommittees and other issues related to matters of discretion and
    meeting organization. The final rule was published December 17, 2009.
        Technical Service Provider Assistance (TSP) (Subtitle H--Sec.
    2706): A final rule was published in the Federal Register on February
    12, 2010. The rule included changes required by the 2008 Act, clarified
    the agency's role with training TSPs, and established a process to
    ensure fair and reasonable payment rates and responded to public
    comments on TSP agreements, certification, definitions, evaluating
    TSPs, general program rules, outreach, payments, procurement and
    socially-disadvantaged producers.
        Conservation Practice Technical Assistance (Subtitle H--Sec. 2706):
    A notice that provided the results of a preliminary review of technical
    assistance and requests comments about how to improve the conservation
    practice standards was published in June 2009 with an initial 60 day
    comment period. An additional 30 days was subsequently added to the
    comment period.
        Agricultural Management Assistance Program (AMA) (Subtitle I--Sec.
    2801): An interim rule was published in the Federal Register on
    November 20, 2008. This rule incorporated changes required by the 2008
    Act and incorporated changes to improve program administration and
    align program implementation with other financial assistance programs.
    A correction related to the application of payment limitation
    provisions was published on March 12, 2009. NRCS evaluated the public
    comments and published a final rule in the Federal Register on December
    8, 2009. The final rule responds to public comment on program purposes
    and applicability, various program definitions, national priorities,
    program requirements, State Technical Committee applicability to the
    program, payments, reestablishing failed practices, violations, agency
    access to operating units, and other minor clarifications.
        NRCS Compliance with NEPA (Non-Farm Bill): An interim rule was
    published in the Federal Register on July 13, 2009, that identified
    additional categorical exclusions applicable to NRCS programs, which
    are actions that NRCS has determined do not individually or
    cumulatively have a significant effect on the human environment and,
    thus, should not require preparation of an environmental assessment
    (EA) or environmental impact statement (EIS) under the National
    Environmental Policy Act (NEPA). A final rule addressing comments
    received on the interim rule was published in the Federal Register on
    February 10, 2010.
        Conservation Reserve Program (CRP) (Subtitle B--Sec. 2101-2111): An
    interim rule implementing mandatory CRP provisions was published in the
    Federal Register on June 29, 2009, and was effective on that day as
    well. On October 7, 2009, the distribution of CRP rental payments of
    $1.7 billion for FY 2010 was announced. A second interim rule
    implementing farm bill provisions pertaining to transition incentives
    is being developed. The rule is targeted for publication in spring
    2010. FSA is in the process of completing a Supplemental Environmental
    Impact Statement (SEIS) for the remaining CRP provisions as required
    under the National Environmental Policy Act (NEPA). The SEIS must be
    completed before the remaining provisions can be implemented.
    Title III--Trade
        Consultative Group (Sec. 3205): On September, 23 2009, Agriculture
    Secretary Vilsack appointed 13 members to the Consultative Group to
    Eliminate the Use of Child Labor and Forced Labor in Imported
    Agricultural Products. The group represents a diverse set of
    government, private sector and non-governmental organization entities,
    and has been charged with developing and making recommendations to the
    Secretary of Agriculture regarding guidelines to reduce the likelihood
    that agricultural products imported into the United States are produced
    with the use of child or forced labor.
        The Group has been meeting monthly in order to develop
    recommendations which are due to Secretary Vilsack by June 2010. An
    open meeting to provide an opportunity for public input was held on
    March 29. By June 18, 2011, the Secretary is required to release
    guidelines for a voluntary initiative to enable entities to address the
    issues raised by the Trafficking Victims Protection Act of 2000 (22
    U.S.C. 7101 et seq.). The guidelines must be published in the Federal
    Register and made available for public comment for a period of 90 days.
    The Consultative Group will terminate on December 31, 2012.
        Local and Regional Food Aid Procurement (Sec. 3206): In FY 2009,
    USDA awarded a total of $4.75 million under the Local and Regional Food
    Aid Procurement Pilot Project to the UN World Food Program for field-
    based projects in Mali, Malawi and Tanzania. In FY 2010, USDA has an
    additional $25 million available to fund field-based projects. The
    majority of this funding will be used in emergency programs to expedite
    the provision of food assistance to populations affected by food crises
    and disasters in sub-Saharan Africa. To date, four proposals for
    funding have been received. Two of the proposals were from a Private
    Voluntary Organizations and two were from WFP. USDA is in the process
    of reviewing these proposals and expects to award all of the available
    funding by the end of the fiscal year.
    Title IV--Nutrition
        Programmatic Provisions: All Title IV mandatory programmatic
    provisions were implemented by states pursuant to the statute's October
    1, 2008 deadline. USDA provided statutory information and responded to
    technical questions, and monitored states to assure timely
    implementation. FNS will be following up with rulemaking to formalize
    the directives in 2010, as well as implement certain administrative
    provisions.
        Healthy Incentive Pilot Projects and Evaluation (Sec. 4141):
    Authorizes and provides $20 million for pilot projects to determine if
    incentives at the point-of-sale increase the purchase of fruits,
    vegetables, or other healthful foods among SNAP participants. FNS has
    solicited (1) applications from state SNAP agencies to administer the
    Healthy Incentives Pilot, and (2) proposals to evaluate the Pilot.
    Links to the solicitations and related information is on the project
    web page at (http://www.fns.usda.gov/snap/hip/).
        Reports: FNS is working on a number of reports, including:

      b School Food Purchase Study (Sec. 4307): This study will collect
            data for Fiscal Year 2009 food purchases under the National
            School Lunch Program. A data collection notice was published in
            the Federal Register Dec. 22, 2008. The study is intended to
            provide statistically valid national estimates of the types,
            amounts, and costs of food acquisitions (both purchased foods
            and USDA donated commodities) made by public school districts
            participating in the National School Lunch Program. The
            contract for data collection has been awarded and work is
            underway.

      b Fresh Fruit and Vegetable Program Evaluation (Sec. 4304): This
            study will assess the impact of the FFVP, which was expanded to
            high-poverty schools across the nation by the FCEA, on fruit
            and vegetable consumption. A contractor has been selected and
            work is underway.

      b Study on Comparable Access to Supplemental Nutrition Assistance for
            Puerto Rico (Sec. 4142): This study will examine the potential
            cost, policy and operational implications of transitioning
            Puerto Rico from their block grant for nutrition assistance to
            the SNAP. FNS expects to submit the report to Congress in May
            2010.

      b Commodity Procurement (Sec. 4404): Directed USDA to make Section 32
            specialty crop purchases of (in addition to the 2002 Farm Bill
            amounts): $190 million for 2008, $193 million for 2009, $199
            million for 2010, and $203 million for 2011, and $206 million
            for 2012 and thereafter. AMS purchased $390.3 million in
            specialty crops in FY 2008 and $472.8 million in FY 2009. As of
            March 26, AMS has purchased $203 million in specialty crops for
            FY 2010.
    Title V--Credit
        Loan Servicing Activities (Sec. 5304, 5305, 14002): A proposed rule
    was published in the Federal Register on August 7, 2009. FSA has a
    target publication of a final rule in Summer 2010.
        Loan Making Activities (includes land contract guarantees),
    Conservation Loan and Loan Guarantees, Highly Fractionated Indian Lands
    (Sec. 5002, 5005, 5501): Proposed regulations are under development and
    are expected to be published in the Federal Register by fall 2010. The
    agency is conducting consultations with Native American Tribal
    Governments in the development of the regulations.
    Title VI--Rural Development
        Most provisions in Title VI were implemented for 2009 through a
    Notice of Funding Availability (NOFA). The Department is developing
    regulations for these programs for 2010.
        Broadband (Sec. 6110): Rural Development is drafting a rule that
    would implement the farm bill's broadband provisions. Revised
    regulations will be completed once Recovery Act funding has been fully
    utilized. Priority is being given to applications received under the
    NOFA implementing the broadband provisions of the Recovery Act. This
    work is being done in close coordination with the Department of
    Commerce, which also has funding for a similar program. Over 2,200
    applications were received in response to the first NOFA for Recovery
    Act funding that was published in the Federal Register on July 9, 2009.
    Over $1.067 million in awards have been made to 68 broadband projects.
    Rural Development published a second NOFA in the Federal Register on
    January 22, 2010; the application window closed on March 29, 2010.
        Rural Micro-entrepreneurship Assistance Program (Sec. 6022): This
    is a new program for providing both loans and grants for intermediaries
    to establish revolving funds to make small loans to micro-entrepreneurs
    and grants for technical assistance. Rural Development published a
    proposed rule to implement this provision October 7, 2009. Rural
    Development received over 400 comments, which were used to develop the
    interim rule. Funding will be made available after the final
    regulations are published.
        Value-Added Producer Grants (Sec. 6202): A NOFA making available
    $18 million for FY 2009 was published in the Federal Register on May 6,
    2009. However, that NOFA was withdrawn due to concerns related to
    certain new restrictions, including a $500,000 limit of producer income
    and scoring preference for innovative projects. A revised NOFA was
    published on September 1, 2009; the application window closed on
    November 30, 2009. Rural Development received 550 applications in
    response to the FY 2009 NOFA. The applications are currently under
    review and awards will be made in the third quarter of FY 2010. USDA is
    currently revising regulations for the value added program as required
    by the 2008 Farm Bill.
        Rural Transportation Study (Sec. 6206): Required USDA and DOT to
    conduct a study of transportation issues regarding the movement of
    agricultural products, domestically produced renewable fuels, and
    domestically produced resources for the production of electricity for
    rural areas of the U.S., and economic development in those areas. A
    cooperative agreement with Washington State University has been
    approved. The report is being finalized for submission to Congress.
    Title VII--Research and Related
        Veterinary Medicine Loan Repayment Program (VMLRP) (Sec. 7105): An
    interim rule was published in the Federal Register on July 9, 2009. A
    Solicitation for Veterinarian Shortage Situations was published in the
    Federal Register on January 22, 2010. On March 25, 2010 NIFA submitted
    a final rule which establishes the process and procedures for
    designating veterinary shortage situations and administering the VMLRP
    as authorized by the National Veterinary Medical Services Act. In April
    2010, NIFA anticipates simultaneously publishing in the Federal
    Register the Notice of Selected Veterinarian Shortage Situations and
    the Request for Applications for participation in the VMLRP which will
    be solicited for a 60 day period. NIFA expects to make loan repayment
    offers prior to the end of the fiscal year.
        High Priority Research and Extension Areas (Sec. 7204): The Annual
    Report on Response to Honey Bee Colony Collapse Disorder was sent to
    Congress in June 2009.
        Organic Agriculture Research and Extension Initiative (OREI) (Sec.
    7206): In FY 2009 OREI funded twenty-seven awards, totaling $17.2
    million. Further, the FY 2010 RFA was posted on Grants.gov on November
    18, 2009, and closed on February 9, 2010. Total program funding of $19
    million will be competitively awarded in FY 2010.
        Specialty Crop Research Initiative (SCRI) (Sec. 7311): In FY 2009
    SCRI funded thirty-five awards, totaling $46.6 million. Further, the FY
    2010 RFA was posted November 3, 2009 and closed on January 14, 2010.
    Total program funding of $47.3 million will be competitively awarded in
    FY 2010.
        Beginning Farmer and Rancher Development Program (BFRDP) (Sec.
    7410): In FY 2009, $17.2 million was available to fund BFRDP. The
    competitively awarded FY 2009 BFRDP request for applications (RFA)
    closed on May 13, 2009. Twenty-nine (29) awards, totaling $17.2 million
    were processed prior to the end of the year. Further, the FY 2010 RFA
    was posted February 5, 2010 and will close on April 6, 2010. Total
    program funding of $18 million will be competitively awarded in FY
    2010.
        Agriculture and Food Research Initiative (AFRI) (Sec. 7406): In FY
    2009, approximately $185 million was available to fund AFRI projects.
    Awards totaling $92 million were processed prior to the end of the year
    and $93 million was carried forward to FY 2010. On March 23, 2010, Dr.
    Beachy hosted a webcast to announce the availability of $262 million in
    FY 2010 for the AFRI Program as well as the release of six requests for
    applications (RFAs). One RFA calls for research projects addressing the
    six AFRI priority areas. The other five RFAs address these five
    societal challenge areas: childhood obesity, climate change, food
    safety, global food security, and sustainable bioenergy. In addition, a
    single, separate NIFA Fellowship Grant Program RFA to fund
    opportunities for pre- and post-doctoral fellowships will be released
    shortly. NIFA also will publish joint RFAs utilizing FY 2010 AFRI funds
    (e.g., Joint Climate Change Prediction Research Program with the
    Department of Energy (DOE) and the National Science Foundation (NSF)).
        Hispanic-serving Agricultural Colleges and Universities (HSACUs)
    (Sec. 7129): NIFA anticipates the publication of proposed rules
    associated with the HSACU certification process by June 30, 2010, and
    the HSACU Endowment Program by July 31, 2010.
        Study and Report on Food Deserts (Sec. 7527): A study assessing the
    incidence and prevalence of food deserts was sent to Congress in June
    2009.
        REE Roadmap (Sec. 7504): The Roadmap was delivered to the House and
    Senate Agriculture Committees on Wednesday, March 31, 2010.
        National Institute of Food and Agriculture (Sec. 7511): On October
    1, 2009, Cooperative State Research, Education, and Extension Service
    (CSREES) became the National Institute of Food and Agriculture (NIFA).
    Dr. Roger Beachy, founding president of the Donald Danforth Plant
    Science Center, was introduced as the first director of NIFA on October
    8, 2009. NIFA will be publishing revised delegations in the Federal
    Register to reflect the authorities that were transferred to the
    Institute from CSREES.
        Plan of Work (Sec. 7505): In 2010, NIFA will convene a Panel of
    Experts chosen with input from the Regional Executive Directors for
    Research and Extension. The panel will be run in a manner similar to
    the external Portfolio Review panels NIFA convenes every 5 years to
    assess specific program portfolios, except as a collaborative effort
    with members from both the Land-Grant Universities and NIFA.
        This membership on this panel will include a total of approximately
    ten persons from the Land-Grant University partners; at least two from
    each of the five regions for both research and extension. Of the
    approximately ten regional representatives, the panel will include at
    least two directors of research and two directors of extension. Other
    regional members of the panel from the Land-Grant University partners
    will include persons responsible for writing the Plans of Work in the
    state from research and extension, accountability and evaluation
    specialists, and budget officers. Membership on the panel from NIFA
    will include Planning and Accountability staff, Policy staff, National
    Program Leaders, and Information Technology staff. The Accountability
    and Reporting Leader from the Office of Planning and Accountability
    will provide primary panel support.
        This Plan of Work and Annual Report of Accomplishments panel of
    experts will assess the relevance, quality, and usefulness of the
    performance data received from the Plan of Work and Annual Report of
    Accomplishments and Results beginning with the FY 2007 Plan of Work.
    Moreover, the panel will focus on, and make recommendations for
    improving and further streamlining the Plan of Work and Annual Report.
    These improvements include, but are not limited to, citing specific
    data elements for inclusion and exclusion. The panel will complete a
    written report to NIFA with these recommendations for implementation.
    Every 5 years a panel of experts will reconvene to further assess the
    relevance, quality, and usefulness of the performance data received
    from the Plan of Work and Annual Report of Accomplishments and Results
    and make recommendations to further its improvement if necessary.
    Title VIII--Forestry
        Forest Resource Coordinating Committee (Sec. 8005): The charter for
    the FRCC was signed by former Secretary Schafer. The nomination period
    ended on January 6, 2009 and the Forest Service received over 45
    nominations. Once selections are made, selected members will be
    notified and a press release drafted. The target is to have the first
    meeting of the committee in 2010.
        State Assessments and Strategies (Sec. 8002): State Forestry
    agencies are actively working on these documents which are due to be
    completed and submitted to the Forest Service by June 18, 2010. The
    Deputy Chief for State and Private Forestry will approve the
    Assessments and Strategies. They will define forest conditions, issues,
    and strategies for each state and will be used in to develop and
    implement programs and policies for the protection, conservation, and
    enhancement of forest resources.
        Community Forest and Open Space Conservation Program (Sec. 8003):
    The FY 2010 budget included $500,000 to initiate implementation of the
    new Community Forest and Open Space Conservation Program. The Forest
    Service completed drafting the proposed rule for this program in
    February 2010. The working title for the Community Forest and Open
    Space Conservation Program is the Community Forest Program (CFP).
        Cultural and Heritage Cooperation Authority (Sec. 8101-8107): The
    Forest Service Office of Tribal Relations is coordinating agency
    efforts to implement all provisions of the Cultural and Heritage
    Cooperation Authority. Three provisions (8103, 8104, and 8105) will
    require updates to direction provided in the agency's manual and
    handbook. While agency direction is updated, National Forest System
    units are accepting applications from Tribes wishing to utilize the new
    authorities on a case-by-case basis.
        Temporary Closure for Traditional and Cultural Purposes (Sec.
    8104): A revision to the regulation at 36 CFR 261 and updates to Forest
    Service Manual 2300 and 2330 and FS Handbook 2309.13, Chapter 50, are
    under development.
        Reburial of Human Remains and Cultural Items (Sec. 8103): The
    Reburial Interim Directive has been issued providing guidance to field
    employees. A final directive will be issued once consultation with
    Tribes is completed.
        Green Mountain National Forest Boundary Adjustment (Sec. 8301): The
    Green Mountain National Forest (Vermont) completed a boundary
    modification in 2008 to include 13 designated expansion units as
    authorized in Section 8031.
        Lacey Act (Sec. 8204): The Lacey Act places strict controls on
    trade and domestic commerce in any plant, with some limited exceptions,
    taken or traded in violation of the laws of the United States or a U.S.
    state or most foreign laws. The Act also makes it unlawful to import
    certain plants and plant products without a plant import declaration.
    APHIS, in cooperation with other agencies, has taken a phased approach
    to enforcement of the declaration requirement and has taken into
    account comments received from foreign governments as well as
    commercial and environmental interests. On September 2, 2009, APHIS
    published a notice to inform the public of the Federal Government's
    revised plan to phase in enforcement of the plant import declaration
    requirement and other implementation plans. Among other issues
    addressed, the revised plan responds to earlier, comments stating that
    the requirement to identify the plant genus and species in composite
    and recycled or reused materials would be difficult and in some cases
    impossible. In response, enforcement of the declaration for such
    commodities has been delayed. Review of experience implementing the
    declaration is underway and rule making to define exemptions for common
    food crops and common cultivars is in process.
        Healthy Forests Reserve Program (HFRP) (Sec. 8205): A final rule
    was published in the Federal Register on February 10, 2010. The rule
    included changes required by the 2008 Act, made minor administrative
    adjustments, and responded to public comment received during the 2006
    interim rule comment period. The final rule also responds to public
    comment on landowner protections, ranking and funding allocations,
    compatible use authorizations, appraisals, carbon sequestration,
    coordination with state agencies, environmental credits, native
    species, conservation practices, restoration plan modifications, state-
    listed species, and other program requirements. HFRP is administered by
    the Natural Resources Conservation Service.
    Title IX--Energy
        Biobased Markets Program (Sec. 9002): A proposed rule to establish
    a voluntary labeling program for biobased programs was published on
    July 31, 2009. The comment period closed on September 29, 2009, and 35
    comments were received. USDA is currently developing the final rule.
        Biorefinery Assistance (Sec. 9003): In response to a Notice of
    Funding Availability (NOFA) that was published on November 20, 2008,
    USDA approved a conditional commitment for an $80 million guarantee for
    a cellulosic ethanol plant in Soperton, Georgia on January 16, 2009.
    The recipient, Range Fuels, also received a $76 million grant from
    Department of Energy (DOE) for this plant on November 6, 2007.
    Construction of the plant is underway. A second loan for $25 million
    was awarded and since cancelled after the applicant was unable to
    secure alternative private sector financing when the original lender
    pulled out of the project. A third loan was recently approved for
    Sapphire Energy for $54.5 million, in conjunction with a $50 million
    grant from DOE. A NOFA was published on March 12, 2010, making the
    residual amount of funding from the FY 2009 available. Rural
    Development anticipates the publication of permanent regulations in
    September 2010. A proposed rule was published in the Federal Register
    on April 16, 2010.
        Repowering Assistance (Sec. 9004): The farm bill provided $35
    million in 2009. A NOFA for $20 million to make payments for the
    conversion of biorefinery heating and power systems to renewable
    biomass was published in the Federal Register on June 12, 2009. Five
    applications for $13.2 million in funding were received in response to
    the NOFA. The applications are located in Minnesota, Kansas and Iowa.
    All applicants were ethanol facilities and use natural gas, electricity
    or coal for heat and power. A NOFA was published on March 12, 2010,
    making the residual amount of funding, $6.8 million, available. The
    application window closes on June 15, 2010. A proposed rule was
    published in the Federal Register on April 16, 2010.
        Bioenergy Program for Advanced Biofuels (Sec. 9005): The farm bill
    provided $55 million in 2009. A Notice of Contract Proposals for $30
    million to make payments to biorefineries for the production of
    advanced biofuels (other than kernel corn starch) was published in the
    Federal Register on June 12, 2009. USDA has provided 161 tentative
    contracts for execution by applicants; payments can be made to
    biorefineries for the production of advanced biofuels (other than
    kernel corn starch) by the end of December 2009. A NOFA was published
    on March 12, 2010, making the remaining funding from the 2009 NOFA
    available, $15.5 million; the application window closes on May 30,
    2010. A proposed rule was published in the Federal Register on April
    16, 2010.
        Biodiesel Fuel Education Program (Sec. 9006): The $1 million in
    funding available for FY 2009 has been obligated by the National
    Institute of Food and Agriculture (NIFA) to the National Biodiesel
    Board and the University of Idaho. NIFA awarded continuation grants for
    an initial project period of 1 year and agreed to support the efforts
    for a predetermined period contingent upon the availability of
    appropriated funds and the satisfactory progress of this project. If
    these elements are met, additional support will be provided to the
    funded project in each of FYs 2010 through 2012.
        Rural Energy for America Program (REAP) (Sec. 9007): A Notice of
    Solicitation of Applications (NOSA) soliciting applications for about
    $2.4 million in grants for energy audits was published in the Federal
    Register on March 11, 2009. A NOSA for the remaining portion of the $60
    million available for FY 2009 was published in the Federal Register on
    May 26, 2009. This funding may be used for guaranteed loans and grants
    for a wide range of energy efficiency improvements and renewable energy
    systems and grants for energy audits and feasibility studies. Over
    1,500 awards for grants, loan guarantees and loan guarantee/grant
    combinations were made in the 4th quarter of 2009. The 2010
    Appropriation Act provided $39 million in funding for grants and loan
    guarantees in addition to the $60 million of farm bill mandatory
    funding. The combination of mandatory and discretionary funding will
    provide $408 million in program level in 2010. A NOSA to solicit
    application for grants and loan guarantees is under development. A
    proposed rule to incorporate the audit and feasibility provisions into
    the current regulation will be published soon.
        Biomass Research and Development Initiative (BRDI) (Sec. 9008):
    Awards totaling $25 million were provided at the end of Fiscal Year
    (FY) 2009 from USDA and DOE's Office of Biomass Programs. The BRDI
    board met in March 2010 and was briefed on the development of the FY
    2010 Notice of Solicitation of Applications. The 2008 Farm Bill
    provides $28 million for grants for FY 2010, in addition to $5 million
    of funding provided by DOE for a total of $33 million available in FY
    2010. Grants funds are provided to eligible entities to research,
    develop, and demonstrate biomass projects for (1) Feedstocks
    Development, (2) Biofuels & Biobased Products Development, and (3)
    Biofuels Development Analysis. Administration of the BRDI grants
    program was delegated to NIFA. NIFA expects to release the RFA shortly.
        Feedstock Flexibility Program (Sec. 9010): The program is on
    standby status until such time as the Commodity Credit Corporation
    acquires an inventory of sugar.
        Biomass Crop Assistance Program (BCAP) (Sec. 9011): On June 11,
    2009, FSA published a Notice of Funding Availability (NOFA)
    implementing BCAP provisions pertaining to payments for the collection,
    harvest, storage, and transportation (CHST) of biomass material
    delivered to an eligible biomass conversion facility. The CHST portion
    of BCAP operated under this NOFA until its termination with the
    publication of the proposed rule. CHST payments were authorized to
    continue through March 31, 2010, pending completion of regulatory
    development. FSA published a proposed rule, on February 8, 2010,
    implementing the BCAP program, the 60 day public comment period closed
    on April 9, 2010. The public comments are undergoing review and will be
    taken into consideration in the development of a final rule which is
    expected to be published later this year. A draft Programmatic
    Environmental Impact Statement (PEIS) was published in August 2009 with
    a 45 day comment period. The comments will be addressed in the final
    PEIS which will be published in the near future. Payments for CHST in
    FY 2009 were about $14.5 million and $165 million in FY 2010.
        Forest Biomass for Energy Program (Sec. 9012): This program
    included an authorization to appropriate up to $15 million per year
    from 2009 through 2012. No funding has been appropriated. The FY 2011
    budget requests $15 million to implement this program.
        Community Wood Energy Program (Sec. 9013): This program included an
    authorization to appropriate up to $5 million per year from 2009
    through 2010. No funding has been appropriated. The FY 2011 budget
    requests $5 million to implement this program.
    Title X--Horticulture and Organic Agriculture
        Section 32 Study (Sec. 10101): Required USDA to arrange for an
    independent study and evaluation of the purchasing processes
    principally devoted to perishable agricultural commodities provided in
    Section 32. AMS signed a cooperative agreement with the University of
    California at Davis on Sept. 19, 2008. The report will be released
    shortly.
        Quality Requirements for Clementines (Sec. 10102): Added
    clementines to the list of products in Section 8e of the Agricultural
    Adjustment Act. Section 8e provides that whenever specified
    domestically produced commodities are regulated under a Federal
    marketing order, imports of the commodity must meet the same or
    comparable grade, size, quality and maturity requirements. Industry
    must request the establishment of a Federal clementines marketing order
    for the farm bill language to be implemented. No such request has been
    made.
        Mushroom Promotion and Research (Sec. 10104): Allowed for the
    development of a program for good agricultural practices and good
    handling practices under the Mushroom Promotion, Research and Consumer
    Information Order, as well as reapportioned the membership of the
    Mushroom Council to reflect shifts in domestic mushroom production. AMS
    published the final rule implementing these provisions in the Federal
    Register on October 2, 2009.
        Farmers' Market Promotion Program (FMPP) (Sec. 10106): Extended the
    FMPP through 2012 and provided $33 million in CCC funds: $3 million in
    2008, $5 million in 2009 and 2010, and $10 million in 2011 and 2012.
    Sec. 10106 specified statutorily the categories of farmer-to-consumer
    direct marketing activities eligible for funding under the program, and
    required that not less than ten percent of the funds used to carry out
    the program in a fiscal year are to be used to support the use of
    electronic benefits transfers (EBT) at farmers' markets. AMS issued a
    Notice of Funding Availability (NOFA) on March 13, 2009 and AMS awarded
    86 grants totaling more than $4.5 million covering 37 states for FY
    2009. The 86 awards went to 65 nonprofit organizations, 16 local
    governments, two agriculture cooperatives, two Tribal governments, and
    one producer network. Thirty (30) of the 86 grants promote the use of
    new EBT projects. AMS is developing regulations for FY 2011 and
    subsequent years and anticipates publication of a final rule in
    December 2010. The 2010 NOFA was announced in the Federal Register on
    March 1, 2010.
        Specialty Crops Market News Allocation (Sec. 10107): Authorized $9M
    for each FY 2008-2012, to remain available until expended, to carry out
    market news activities for fruits and vegetables. Although funding was
    not appropriated, AMS continues to carry out specialty crop market news
    activities as the Agency collects information on the current supply,
    demand and prices on nearly 400 domestic and 70 foreign grown fruits,
    vegetables, nuts, ornamental and specialty crops.
        Expedited Marketing Order for Hass Avocados (Sec. 10108): Provided
    for an expedited marketing order for Hass avocados relating to grades
    and standards. The order is to become effective within 15 months of the
    date that the Department began the procedures for determining if the
    order should proceed. AMS has not yet received an industry proposal
    that would start the process.
        Specialty Crop Block Grants (Sec. 10109): Provided the following
    CCC funding levels: $10 million in 2008, $49 million in 2009, and $55
    million for 2010-2012. The section also: amended the definition of
    specialty crops by adding horticulture; added Guam, American Samoa, the
    U.S. Virgin Islands and the Commonwealth of the Northern Mariana
    Islands to the list of ``states'' eligible to apply for grants; and
    changed the grant allocation formula. These changes required AMS to
    undertake rulemaking which was completed on March 27, 2009 with the
    publication of the final rule in the Federal Register. AMS awarded 56
    grants totaling $9.5 million in Fiscal Year 2008 and approximately $49
    million for 745 projects in Fiscal Year 2009. The 2010 NOFA
    (approximately $55 million) was released on January 29, 2010.
        National Organic Certification Cost-Share Program (Sec. 10301):
    Provided $22 million for FY 2008 for cost share activities to remain
    available until expended and increased the cost share reimbursement
    from $500 to $750. USDA is required to submit by each March 1 an annual
    report to Congress on program expenditures. The required report to
    Congress was delivered on March 20, 2009. For Fiscal Year 2008,
    $3,905,000 was allocated to the states while in Fiscal Year 2009
    $4,320,000 was allocated to the states. On September 30, 2009, USDA
    announced the availability of funds for the cost share program for
    Fiscal Year 2010 at $4,660,000. The 2009 report was delivered to
    Congress on March 20, 2009. The 2010 report will be released shortly.
        Organic Production and Market Data Initiatives (Sec. 10302):
    Directed USDA to collect data on production, pricing, and marketing of
    organic agricultural products. The farm bill provided $5 million in
    mandatory funding which was to remain available until expended and
    authorized additional appropriations of up to $5 million for each FY
    2008-2012. The farm bill required a report to Congress within 180 days
    of enactment on the progress made implementing these activities and
    identifying additional production and marketing data needs. The report
    was delivered to Congress on Dec. 29, 2008 detailing how the money was
    allocated and would be used by each agency--AMS ($3.5 million), NASS
    ($1.0 million), and ERS ($0.5 million). AMS Market News (MN) has
    improved existing reporting of organic products and has planned for
    further enhancement of organic reporting and the development of
    additional organic market information tools. Specifically, AMS is
    undertaking modifications to the Market News Information System (MNIS)
    to: segregate organic data from conventional data; allow for input of
    data specific to organic commodities; migrate existing organic data
    from disparate systems; and create new reports and modify existing
    reports for presentation of organic market information.
        National Honey Board (Sec. 10401): Made a number of amendments to
    the Honey Research, Promotion, and Consumer Information Act. First, the
    farm bill directed AMS to consider a national research and promotion
    program for honey packers and importers. AMS received a proposal for
    this packers and importers program and conducted a referendum on that
    proposal from April 2-16, 2008. In the referendum, 78 percent of those
    voting, representing 92 percent of the volume of those voting in the
    referendum; approved the program. The program became effective on May
    22, 2008; 1 day after the final rule was published in the Federal
    Register. The first board meeting took place on September 4, 2008. With
    the approval of this new program, the collection of assessments under
    the Honey Research, Promotion and Consumer Information Order--
    authorized under the Honey Research, Promotion and Consumer Information
    Act--was suspended. A termination order for that program was published
    in the Federal Register on April 17, 2009.
        The second major requirement under Sec. 10401 directed USDA to
    consider establishing a research and promotion program for domestic
    producers. On July 14, 2009, AMS published a proposed rule and
    solicited comments through September 14, 2009 for a domestic honey
    producer program. AMS reviewed the comments it received and determined
    that a program is warranted. As a result, AMS has drafted referendum
    procedures which are currently awaiting publication in the Federal
    Register. The referendum will be held May 10-28. A final rule will be
    published if the program is approved in the referendum.
        Honey COOL (Sec. 10402): Provided country of origin labeling (COOL)
    requirements for honey that bears any official certificate of quality,
    grade mark or statement, continuous inspection mark or statement,
    sampling mark or statement or any combination of the certificates,
    marks, or statements of USDA. The Interim Rule was published in the
    July 8, 2009 Federal Register with comments due by September 8. This
    rule, which became effective October 6, 2009, would establish a new
    regulation addressing country of origin labeling for packed honey
    bearing any official USDA mark or statement and would add a new cause
    for debarment from inspection and certification service for honey. The
    final rule is under development.
        Plant Pest and Disease Management and Disaster Prevention Program
    (Sec. 10201): APHIS hosted several stakeholder meetings from May-
    September, 2009, to seek input on the allocation of $45 million in farm
    bill funds to build and preserve critical plant health safeguarding
    infrastructure nationally for Fiscal Year 2010. Funding will be
    distributed to enhance state and national efforts for pest detection
    and mitigation as well as ensure the viability of small farms and
    specialty crops through protection from economically devastating plant
    diseases and pests. APHIS has allocated funding to more than 50 state
    cooperators, universities, Federal agencies, and nonprofit cooperators,
    supporting over 200 projects that will not only enhance pest detection
    and mitigation but will benefit both technology development and job
    creation.
        National Clean Plant Network (NCPN) (Sec. 10202): By July 2009, two
    specialty crops; fruit trees (including apples, pears, peaches, plums,
    cherries and other stone fruits) and grapes (including table, juice,
    raisin, and wine fruit) were fully operational under the NCPN banner.
    As a result, five associated clean plant centers located in California,
    Missouri, New York, South Carolina, and Washington received $3.1
    million in NCPN funding in September 2009 for pathogen diagnostics,
    therapy, and establishing disease free foundation plantings. Three
    other specialty crops are anticipated to be fully operational in FY
    2010. They are citrus (serving both the fresh fruit and juice
    industry), berries (including strawberries, the blueberry/cranberry
    group, and raspberries, blackberries, and other bramble fruit), and
    hops. In FY 2010 it is anticipated that NCPN funding of around $5
    million may support five specialty crop groups involving pathogen
    detection to produce disease free plants at 10-12 clean plant centers
    located in 9-10 states.
        From July 2009 to January 2010, NCPN stakeholders also met on
    numerous occasions to advance several critical issues impacting the
    network. This included establishing a new grape clean plant foundation
    in the Middle Atlantic States and working towards strengthening audit-
    based state nursery certification programs to ensure that NCPN-
    developed clean plant material provided to industry remains uninfected
    as it moves through plant nursery systems.
        The 3rd NCPN Annual Stakeholders meeting is planned for May 11-13,
    2010 at the University of California at Davis. Since initiating the
    NCPN stakeholder database in FY 2007, the number of persons enrolled
    has increased from 125 to over 350 scientists, regulators, extension
    agents, and industry supporters in FY 2010. It is anticipated that 75-
    100 of these stakeholders shall attend the FY 2010 annual meeting and
    represent fruit trees, grapes, citrus, berries, and hops as well as
    potatoes, sweet potatoes, olives, roses, and other specialty crops.
        Pest and Disease Revolving Loan Fund (Sec. 10205): Due to the
    absence of a suitable partner to act as the loan agent for the program
    the proposed rule for the Pest and Disease Revolving Loan fund has been
    withdrawn from the regulatory calendar.
        Biotechnology Regulations (7 CFR Part 340) (Sec. 10204): In
    response to the proposed revision of plant-related biotech regulations,
    APHIS received over 66,000 comments from members of the public, which
    includes over 15,000 comments from an earlier open comment period last
    fall. APHIS is continuing to analyze those comments and working with
    policy officials to determine next steps.
        Biotechnology Quality Management System (BQMS) (Sec. 10204): BQMS
    is a voluntary, audit-based compliance assistance program that assists
    universities, small businesses, and large companies develop sound
    management practices to enhance compliance with regulatory requirements
    for field trials and movement of regulated genetically engineered
    organisms. The draft audit standard for the BQMS was published on June
    3, 2009, with a comment period which closed on October 23, 2009. BQMS
    pilot registration audits were successfully completed for all five
    pilot participants. APHIS is currently evaluating the pilot, including
    public comment and feedback from the pilot participants, to inform
    future iterations of the BQMS program.
    Title XI--Livestock
        Notification, Documentation, and Recordkeeping Requirements for
    Inspected Establishments Proposed Rule (Sec. 11017): Requires official
    establishments to (1) prepare and maintain current, written procedures
    for the recall of meat and poultry products produced and shipped by the
    establishment for use should it become necessary for the establishment
    to remove product from commerce; (2) document reassessments of their
    process control (HACCP) plans and; (3) notify FSIS if they have reason
    to believe adulterated or misbranded product is in commerce. The
    proposed rule was published in the Federal Register on March 25, 2010.
    Comments are due by May 24, 2010.
        Catfish Inspection Proposed Rule (Sec. 11016): USDA is working to
    finalize the proposed rule establishing a mandatory catfish inspection
    program.
        Catfish Grading (Sec. 11016): Directed USDA to establish a
    voluntary fee based grading program for catfish. AMS has conducted
    several meetings with representatives of the catfish industry, one
    meeting with National Marine Fisheries Service officials, and with FSIS
    officials to discuss grading and inspection services. AMS is drafting
    proposed standards, which will be published in the Federal Register.
        Federal-State Interstate Shipment Cooperative Meat and Poultry
    Inspection Program (Sec. 11015): FSIS' published proposed regulations
    on Wednesday, September 16, 2009, (74 FR 47648). The comment period was
    extended from November 16, 2009 to December 16, 2009. FSIS held two
    teleconference public meetings on October 27 and November 5 to gather
    comments from stakeholders on the proposed rule. FSIS is analyzing
    comments received in response to the proposal. FSIS has projected that
    a final rule will be published in September 2010. FSIS is reviewing the
    public comments in preparation for development of a final regulation.
        Livestock Mandatory Reporting (Sec. 11001): Required USDA to
    undertake a study on the effects of requiring packers to report
    information on wholesale pork cuts, due 1 year following enactment of
    the farm bill. USDA was also directed to implement an enhanced system
    of electronic reporting and to carry out a market news education
    program. AMS is seeking to develop and implement a proof-of-concept
    project that would add an improved user interface, including tools for
    data visualization, to its primary system for disseminating Livestock
    Mandatory Reporting information through the Web. Also, AMS finalized in
    August 2009 a cooperative agreement with a team of university
    researchers identified by the Livestock Marketing Information Center to
    complete the study of pork reporting. A draft report was received on
    November 23, 2009, and the final report was transmitted to the House
    and Senate Agriculture Committees on March 22, 2010.
        Country of Origin Labeling (COOL) (Sec. 11002): Required country of
    origin labeling for muscle cuts and ground beef (including veal), pork,
    lamb, goat, and chicken; wild and farm-raised fish and shellfish; fresh
    and frozen fruits and vegetables; peanuts, pecans, macadamia nuts, and
    ginseng sold by designated retailers. The final regulation was
    published in the January 15, 2009 Federal Register and became effective
    on March 16, 2009. FSIS issued its Interim Rule for Country of Origin
    Labeling for Various Meat and Poultry Products on August 28, 2008, and
    the Final Rule on March 20, 2009. AMS' education and outreach program
    will assist industry in achieving compliance with the provisions and
    requirements of the agencies' rules.
        National Sheep Industry Improvement Center (Center) (Sec. 11009):
    Provided for the re-establishment of the Center and its revolving fund
    to promote the strategic development activities and collaborative
    efforts that strengthen and enhance the production and marketing of
    sheep or goat products in the United States. The authorization provided
    $1 million in mandatory spending for Fiscal Year 2008 to remain
    available until expended. AMS continues to work with other USDA
    agencies to re-establish the Center.
        Packers and Stockyards Act Regulations (Sec. 11005, 11006): GIPSA
    is in the final stages of developing a proposed a rule. OMB review of
    the proposed rule was completed on March 8, 2010. Proposed Rule is
    under final review for publication in the Federal Register. The
    proposed rule would establish criteria to be used in determining: (1)
    whether an undue or unreasonable preference or advantage has occurred
    in violation of the Act, (2) breach of contract, suspension of a
    contract, and unfair capital investment, and (3) whether the
    arbitration process provided in a contract provides meaningful
    opportunity for the grower to producer to participate fully in the
    arbitration process.
        Annual Report (Sec. 11004): This section requires the Secretary to
    submit to Congress by March 1 of each year a report on investigations
    into possible violations of the Packers and Stockyards Act. The
    Secretary is required to report the number of investigations conducted
    by GIPSA and the number of referrals to the Office of the General
    Counsel and the Department of Justice. The 2009 report was submitted to
    Congress and posted on GIPSA website on March 20, 2009. The 2010 report
    was submitted to Congress and posted on GIPSA website on April 5, 2010.
    Title XII--Crop Insurance and Disaster
        Definition of Organic Crop (Sec. 12001): An interim rule with the
    new definition for organic crop was published in the Federal Register
    on 11/24/2008, and was in effect for 2009 spring crops and 2010 fall
    crops. The final rule was published 9/3/2009.
        Reduction in Loss Ratio (Sec. 12003): The results from a contract
    to perform a comprehensive review of crop insurance rating methodology
    have been received and were released on the RMA website for public
    comment. RMA and the contractor have reviewed the public comments
    received and will be finalizing the report by April 15.
        Premium Adjustments--Rebating (Sec. 12004): This was included in
    the 2009 Mandatory SRA Amendment.
        Controlled Business Insurance (Sec. 12005): This was included in
    the 2009 Mandatory SRA Amendment.
        Administrative Fee (Sec. 12006): A final rule was published 6/27/
    2008.
        Catastrophic Coverage Reimbursement Rate (Sec. 12008): This was
    included in the 2009 Mandatory SRA Amendment.
        Grain Sorghum Price Election (Sec. 12009): The farm bill required
    that RMA contract with participants from the grain sorghum industry and
    institutes for higher learning to develop a new process for
    establishing price elections. Five experts from USDA, the grain sorghum
    industry and institutions of higher learning proposed pricing
    methodologies. RMA solicited public comments on its proposed selected
    methodology in the Federal Register on July 24, 2009, and via a public
    meeting held August 20, 2009, in Kansas City, MO. RMA is implementing
    the selected methodology for establishing grain sorghum price elections
    for the 2010 crop year. The reports received from the expert reviewers
    and RMA's 2010 pricing methodology are available for review at RMA's
    website, www.rma.usda.gov.
        Premium Reduction Authority (PRP) (Sec. 12010): PRP submission
    criteria were removed by a final rule published 2/26/2009.
        Enterprise and Whole Farm Units (Sec. 12011): RMA implemented the
    revised subsidies for enterprise and whole farm units via Information
    Memorandum PM 08-057 effective for 2009 crop year crops with November
    30, 2008 and subsequent contract change dates. A final rule revising
    the definition of enterprise unit in the Common Crop Insurance
    Regulations was published for purposes of program integrity on 11/23/
    2009.
        Payment for Portion of Premium for Area Revenue Plans (Sec. 12012):
    Informational Memorandum PM-08-041 was posted 8/21/2008.
        Denial of Claims (Sec. 12013): Included in the 2009 Loss Adjustment
    Manual.
        Settlement of Crop Insurance Claims on Farm-Stored Production (Sec.
    12014): The interim rule was published 11/24/2008. The final rule was
    published 9/3/2009.
        Farm Stored Production Efficacy of Pack Factors (Sec. 12014(b)): A
    study to determine the efficacy and accuracy of pack factors used in
    the measurement of farm stored production is being conducted. RMA has
    entered into a partnership with the Agricultural Research Service (ARS)
    to conduct the required study, as well as develop a risk management
    tool for use by producers. A preliminary report is expected in FY 2010.
        Time for Reimbursement (Sec. 12015): The farm bill requires that
    for the 2012 and subsequent reinsurance years, FCIC move the date the
    Agency pays the Administrative and Overhead (A&O) payment to Approved
    Insurance Providers out to October 1 from the current date of when the
    acreage report is submitted to the Agency. This will be incorporated
    into the 2011 SRA currently being drafted and negotiated.
        Reimbursement Rate (Sec. 12016): Revisions were included in the
    2009 Mandatory SRA Amendments.
        Renegotiation of the Standard Reinsurance Agreement (SRA) (Sec.
    12017): Beginning with the 2011 reinsurance year, the Agency may
    renegotiate the SRA once every 5 years. RMA intends to negotiate a new
    SRA for the 2011 reinsurance year. RMA notified the appropriate
    Congressional Committees of the commencement of the negotiations, and
    has entered into discussions with Approved Insurance Providers. A
    second draft of RMA's proposed 2011 SRA has been posted on the RMA
    website.
        Change in the Due Date for Corporation Payments for Underwriting
    Gains (Sec. 12018): Beginning with the 2011 reinsurance year, the farm
    bill requires that FCIC move the date of underwriting gain payments
    from February following the reinsurance year out to October following
    the reinsurance year. This will be incorporated into the 2011 SRA.
        Malting Barley Quality (Sec. 12019): This was implemented in the
    2009 Crop Year Special Provisions of Insurance.
        Crop Production on Native Sod (Sec. 12020): The interim rule was
    published 11/24/2008. The final rule was published 9/3/2009.
        Information Management (Sec. 12021): The farm bill provided a
    mandatory source of funding for the RMA Information Technology
    Modernization (ITM) initiative. Analysis of system requirements is
    completed and development is in process. Full implementation is
    scheduled for 2011.
        Data Mining (Sec. 12021): The farm bill provided a mandatory source
    of funding for continuation of the data mining project ($4 million for
    FY 2009 and subsequent years). Data mining is a critical component of
    RMA efforts to eliminate fraud and abuse in the Federal crop insurance
    program.
        AGR for Beginning Farmers (Sec. 12023): A contract for research and
    development to modify the AGR programs to permit coverage of beginning
    farmers is anticipated to be solicited in Fiscal Year 2010.
        Energy Crops (Sec. 12023): A study regarding a policy for selected
    energy crops, including switchgrass, has been completed. The study
    determined that while crops studied could be suitable for coverage
    under the existing pasture, rangeland and forage concept, the
    industries did not appear to be mature enough for inclusion under the
    program at this time. RMA has also learned through its own consultation
    with producers and industry representatives that they may have more
    desire for an individual yield based plan of insurance. A solicitation
    for proposals to conduct research and development of the feasibility of
    developing an insurance product for dedicated energy crops closed March
    1, 2010. RMA is currently evaluating proposals submitted.
        Poultry Insurance (Sec. 12023): RMA awarded a contract to research
    the feasibility of developing an insurance product for poultry to Watts
    and Associates on February 25. Work is underway, with a final
    feasibility study expected in Fall 2010.
        Apiary Policies (Sec. 12023): RMA awarded the contract to conduct
    research and development regarding the feasibility of insuring
    honeybees to Ag-Force. Work began in October, 2009. A final report is
    expected in June, 2010.
        Aquaculture (Sec. 12023): The farm bill required RMA to execute
    three or more contracts for research and development (R&D) of new
    aquaculture (insurance) policies for Bivalve species, Fresh water
    species and Salmon/Shrimp.

       Bivalve: Clam pilot complete; Oyster policy implemented
            February 2009.

       Fresh Water: Trout and Catfish policies completed expert
            review. RMA withdrew products from consideration by the FCIC
            Board due to issues with product design and will be initiating
            further research and development in Fiscal Year 2010.

       Salmon/Shrimp: Under review. Policies may be available in
            the private sector which would preclude FCIC involvement.

        Skiprow Cropping Practices (Sec. 12023): A contract for research
    into needed modifications to corn and grain sorghum policies that
    permit skiprow planting practices was awarded to Windsor Strategy
    Partners. Work on the contract began in October 2009.
        Organics (Sec. 12023): A contract for a study regarding organic
    price elections and rating (surcharge) was awarded February, 2009, to
    Watts and Associates. The initial report regarding available data was
    completed; as well as development of specific pricing methodologies for
    selected crops. Any pricing methodology developed would be applicable
    to crop year 2011 at the earliest. A final report on the rating review
    has been received and is under review.
        Camelina Pilot Program (Sec. 12025): RMA is continuing to evaluate
    options for addressing the farm bill requirement to develop a pilot
    program for camelina. A study of the feasibility of including camelina
    under the existing pasture, rangeland and forage concept indicated that
    while camelina could be suitable for inclusion, the industry does not
    appear to be mature enough for inclusion at this time. In addition,
    RMA's own interactions with producers suggested that their interest was
    in an individual production based policy. RMA has included camelina as
    a crop to be studied further in a study of the feasibility of insuring
    dedicated energy crops, which is currently in the process of being
    awarded.
        Sesame Pilot Program (Sec. 12025): The farm bill called for
    development and implementation of an insurance program for sesame
    production in Texas. A contract to develop a production based policy
    was awarded to Promar on January 6, 2009. The proposed Actual
    Production History Sesame pilot crop insurance program was approved by
    the Federal Crop Insurance Corporation Board of Directors for selected
    counties in Texas and Oklahoma on November 19, 2009. The APH-Sesame
    pilot will be effective for crop year 2011, pending identification of
    pay-go offsets for Oklahoma. Sufficient pay-go offsets have been
    located, so the Sesame APH pilot will be initiated for the 2011 crop
    year.
        Grass Seed Pilot Program (Sec. 12025): The farm bill directed
    development and implementation of a policy for Grass Seed production in
    Minnesota and North Dakota. A contract to develop a production based
    policy was awarded to Watts and Associates on March 27, 2009. The
    Federal Crop Insurance Corporation approved referral of proposed
    program materials to expert review on November 19, 2009. Final action
    by the FCIC Board of Directors is anticipated for early 2010.
        Risk Management Education for Beginning Farmers and Ranchers (Sec.
    12026): Special emphasis was put on this activity beginning with the
    2009 Outreach Partnership Agreements.
        Declining Yield Report (Sec. 12030): The farm bill required reports
    to the appropriate Congressional Committees containing details about
    activities and options that address declining yields for APH histories
    and perennial crops including Pecans. Two reports are being developed,
    one that focuses on the specific issues of perennial crops (including
    Pecans), and a second that focuses on declining yield issues for annual
    and perennial crops. The report specific to perennial crops including
    Pecans has been completed and was submitted by the Department to the
    Senate and House Agriculture Committees. The second report on declining
    yield issues for annual and perennial crops should be complete by May
    15, 2010.
        Tobacco Definition of Basic Unit (Sec. 12031): The final rule was
    published on 3/26/2009.
        Crop Insurance Mediation (Sec. 12032): A final rule was published
    2/26/2009.
        Livestock Indemnity Program (LIP) (Sec. 12033): A final rule was
    published in the Federal Register on July 2, 2009. Producers were able
    to begin applying for benefits on July 13, 2009. For livestock losses
    that occurred from January 1, 2008 to July 13, 2009, producers had
    until September 13, 2009 to file a notice of loss with their local FSA
    office. For livestock losses occurring after July 13, 2009, producers
    have 30 days from the date the death becomes apparent to file a notice
    of loss. A manual enrollment process is being used.
        Emergency Assistance for Livestock (ELAP) (Sec. 12033): A final
    rule was published in the Federal Register on September 11, 2009.
    Producers were able to begin applying for benefits on September 14,
    2009.
        Livestock Forage Program (LFP) (Sec. 12033): A final rule was
    published in the Federal Register on September 11, 2009. Producers were
    able to begin applying for benefits on September 14, 2009.
        Supplemental Revenue Assistance Program (SURE) (Sec. 12033): A
    final rule was published in the Federal Register on December 28, 2009.
    Producers were able to begin applying for benefits on January 4, 2010
    for 2008 crop losses.
        Tree Assistance Program (TAP) (Sec. 12033): A final regulation is
    under development in FSA. The target publication date is the spring of
    2010.
    Title XIV--Miscellaneous
        Office of Advocacy and Outreach (Sec. 14013): The FY 2010
    appropriations bill provided $1.7 million to establish the Office of
    Advocacy and Outreach (OAO). In addition, OAO will receive $20 million
    provided by the 2008 Farm Bill for the 2501 Grants Program (previously
    managed by NIFA); $4 million for the section 14204 Grants Program of
    the 2008 Farm Bill for agricultural labor force improvements that was
    transferred from RD; and an estimated $5.7 million in reimbursements
    for programs previously managed by the Office of Civil Rights (1890 and
    1994 programs) and ARS (Hispanic Serving Institutions Program). This
    funding will allow OAO to begin efforts to lead USDA's outreach efforts
    for small, beginning, and socially disadvantaged producers. OAO will be
    responsible for: overseeing the Advisory Committees on Minority Farmers
    and Beginning Farmers and Ranchers; administration of the Outreach to
    Socially Disadvantaged Farmers Grant Program (2501 Grants Program);
    overseeing the activities of the Office of Small Farms Coordination and
    the Farm Worker Coordinator; managing the 1994, 1890, and Hispanic
    Serving Institutions Programs; and other outreach functions.
        Race, Ethnicity, and Gender (REG) Data Collection (Sec. 14006):
    ASCR is moving forward on efforts begun in conjunction with Section
    10708 of the 2002 Farm Bill to initiate Department-wide collection
    authority for RESNODA data. A working group has been formed consisting
    primarily of the Service Center Agencies (SCA), which includes Rural
    Development, Natural Resources Conservation Service, and the Farm
    Service Agency. The Risk Management Agency (RMA) is also participating.
    The working group has been meeting to draft the information collection
    package and associated Departmental regulation.
        Outreach and Assistance for Socially Disadvantaged Farmers and
    Ranchers (OASDFR) (Sec. 14004): OASDFR was transferred from NIFA to the
    Office of Advocacy and Outreach on October 1, 2009.
        Cotton Classification User Fee Increase (Sec. 14201): Provided
    permanent authority for cotton classification services and allowed USDA
    to enter into leases of longer than 5 years or take title to property
    for the purpose of obtaining cotton classification facilities. The 2009
    user fee for grower's cotton classification service will be increased,
    as determined by a new method allowed in the farm bill. The final rule
    was published June 4 with a July 1, 2009 effective date.
        Cotton Research & Promotion (Sec. 14202): The provision adds
    Kansas, Virginia, and Florida to the definition of a cotton-producing
    state to be included in the Research and Promotion's State Support
    Program. A hearing on the proposed rulemaking was held at USDA on
    December 5, 2008. On October 5, 2009, the Federal Register published a
    proposed rule and final referendum requirements. The referendum was
    held October 13, 2009 through November 10, 2009. On January 25, 2010,
    AMS announced that the amendments were approved in the referendum. A
    final rule is being prepared.
        Definition of Central Filing System Regulations (Sec. 14215): The
    provision amends Section 1324(c)(2) of the Food Security Act of 1985 (7
    U.S.C. 1631(c)(2)) commonly referred to as the ``Clear Title Program''
    to allow states to maintain a master debtor list with a SSN or EIN
    number and provide a method for lien searches. A proposed rule is under
    development.
    Title XV--Trade & Tax
        Qualified Forestry Conservation Bonds (Sec. 15306): The Internal
    Revenue Service has published a public notice soliciting applications
    for authority to issue qualified forestry conservation bonds. The
    notice was published on August 22nd and eligible entities have 60 days
    to file an Expression of Interest with the IRS. The Forest Service
    worked with Dept. of the Treasury on developing the notice.
        Comprehensive Study of Biofuels (Sec. 15322): Requires Treasury,
    Agriculture, Energy, and the Environmental Protection Agency to
    contract with the National Academy of Sciences (NAS) for the study. A
    contract with NAS was signed in September 2009, and is expected to be
    completed over the next 2 years. In early December NAS announced the
    roster of the Committee on Economic and Environmental Impacts of
    Increasing Biofuel Production. The first meeting of the committee was
    held on January 15 and 16, 2010, in Washington, D.C. A report is
    expected in approximately 19 months.
        At the first meeting, the committee concluded that additional
    expertise is needed to carry out the tasks. As a result, four new
    members have been appointed to the committee.
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        The Chairman. Thank you very much, Mr. Secretary. I could
    first of all ask, we are going to be going out the weekend
    after next, in a couple of weekends we are going to travel
    around the country and listen to people. You have set up this
    dairy committee or whatever it is called, and I think that is
    good. What other things do you have planned at this point in
    terms of your involvement in this process or haven't you
    finalized anything too much?
        Secretary Vilsack. Mr. Chairman, the advisory committee met
    for the first time in person last week. They did have a
    conference call in March. I spoke to the advisory committee and
    tasked them with getting straight to work. I think there is a
    consensus of large producers, small producers from most
    regions, if not all regions of the country, that there is a
    dissatisfaction with the current system. What we saw last year
    was a concerted effort by Congress and by the Administration to
    try to respond by providing additional commodity purchases, by
    providing additional price supports, by providing additional
    resources at the end of the year, which we tried to get out in
    an expeditious way.
        We saw herds being reduced systemically and appropriately
    in the latter part of 2009. If that had continued, one assumes
    that prices would have continued to improve as they were at the
    latter part of last year. Unfortunately, what we have seen in
    the first part of 2010 is an increase in herd sizes. That is
    the reason why the advisory committee is so intent on getting a
    process in place that will allow us to have predictability and
    stability to broaden the price band. So we are focused on
    providing technical expertise and experience and information to
    that committee at their request, with the hopes that they will
    come up in a fairly expeditious way with a consensus for you as
    to what precisely needs to be done.
        In the meantime, we are going to continue to monitor the
    situation. We are focused right now on trying to expand credit
    opportunities, recognizing that there are some serious
    challenges. We are suggesting that some dairy operations are
    large enough to consider the possibility of using the Business
    and Industry Loan Program, which often is not thought of as a
    vehicle for credit but is available and one that ought to be
    looked at, especially for larger operations. We are continuing
    to encourage our commercial banking friends to open up the
    credit. What we see is that for those who are very creditworthy
    there is not a problem getting credit. For those who are a
    little higher risk, whose equity has been diminished because of
    the recent losses, or those who wish to expand, or those who
    wish to get into the business are having an increasingly
    difficult time. We are going to continue to work with our own
    loan program to continue to press the guaranteed and the direct
    loan program and to work with farmers who are having a
    difficult time making payments. We have seen about 1,600 loans
    recently restructured, not just in the dairy industry.
        I would say one other thing, and that is that our hope is
    that this advisory committee can come up with a consensus view.
    Our hope is that whatever Congressional regulatory action that
    is required to implement that program can be done in an
    expeditious way and that we can bring stability back to this
    market.
        The Chairman. Thank you. In terms of other commodities,
    other parts of the farm program, do you have any plan at this
    point to be doing any hearings or any----
        Secretary Vilsack. As I indicated to you, Mr. Chairman, if
    I understand your question, we see the responsibility of the
    USDA to work with this Committee. It is not our intention to go
    off on a separate track. It is not our intention to have a
    series of public meetings or hearings that are focused on the
    farm bill. Obviously, I am going to be out there listening to
    people as I did last year and obviously will be willing to
    share information with this Committee and hopefully with the
    folks behind me respond to any concerns that you have.
    Historically, this Committee has received from the USDA an
    outline or a framework. I would anticipate that we would
    probably provide that to you at some point when it is
    appropriate, but there is no intent to furnish you with a
    complete farm bill as I think has been done in the past.
        The Chairman. Thank you very much.
        Yesterday in the hearing in Pennsylvania, when they were
    asked--when the producers were asked what their number one
    priority was, it was to have a mandatory price-reporting system
    for dairy products. That came up again and again. It was said
    at the time by a couple of the people that, apparently, they
    have been in discussion with some people and been in discussion
    with your department, and that your response was that you don't
    have the resources to implement this. You know, we have to
    reauthorize the mandatory price-reporting bill this summer, and
    do you have the authority, first of all, to do the mandatory
    price reporting for dairy by component, and do you need any
    additional authority from us, and if it is a resource issue,
    what is the amount of the resource issue that is out there?
        Secretary Vilsack. Mr. Chairman, we have the capacity to
    provide or the responsibility to provide some kind of report
    which we are attempting to do more frequently, but it is not as
    frequent or as complete. AMS estimates the cost of expanding
    the reporting program to be about $2.5 million.
        The Chairman. That would be expanding it to like, for
    example, cheese and maybe different kinds of cheese? That is
    what people want. There is a lot of dissatisfaction with the
    CME price. It is a thinly traded market. We could go back into
    the history of how we ended up there, which I never thought was
    a good idea. But in any event, so it is about $2.5 million?
        Secretary Vilsack. Yes, sir. We are currently doing this on
    a weekly basis, and this has to do with the need for,
    obviously, additional software and things of that nature.
        The Chairman. Well, we need to work together to address
    this issue because we could set--the dairy industry is doing a
    great job in being forward looking and really looking at their
    program. We could set the stage for a productive farm bill
    outcome in dairy if we could get this price-reporting thing
    resolved. So I would like to work with you on that.
        Secretary Vilsack. Well, I think there is momentum for that
    and we want to contribute to it and continue it.
        The Chairman. And one last thing on the chart here, you and
    I have discussed this before, but one of the things that I am
    big on is transparency and everybody understanding what is
    going on. We are going do that during this farm bill process
    for the Members. I have had my staff putting together
    information by commodity and overall in terms of getting a
    better understanding of where this money is going and to what
    commodities and so forth, so we can kind of take a look at
    things. In that regard, this statistic kind of bothers me about
    the percentage of total farm income. We have discussed this
    before, and I think what the situation is: if you have 2.2
    million farmers in this statistic. We are still using the
    definition that if you could produce $1,000 of income then you
    are considered a farmer. You don't have to produce $1,000 of
    revenue but if you could you are considered a farmer, right? We
    are still using that definition?
        Secretary Vilsack. And it is 2.2 million farmers. That is
    correct.
        The Chairman. And that is fine to look at it that way but I
    would like to see you provide some information to the Committee
    where if you boil this down to the 300,000 people that are
    producing 85, 90 percent of the ag products in this country,
    that statistic would be completely different. I would like to
    see it presented to us in those different ways so that we can
    understand.
        Secretary Vilsack. It would be, Mr. Chairman, but it is
    important for me to respond to your comments. Fifty-four
    percent of American farmers do not identify farming as their
    principal occupation. I think this is a very important point.
    You and I have had this conversation so we will now have it
    publicly. To me, it is an important point in terms of
    repopulating rural communities, that we have to focus on the
    fact that we are not creating the kind of quality jobs in rural
    areas that we need to be able to create to give people an
    opportunity. There are many, many farm families, particularly
    smaller operations, that would like to keep the farm but have a
    hard time keeping the farm or even thinking about expanding the
    farm unless they have that off-farm income. So while taking
    nothing away from the 300,000 folks that produce the bulk of
    our food, and they clearly need a safety net, they clearly need
    the programs that you all are looking at, it is important to
    the base of rural America that we continue to focus on job
    opportunities and to recognize that we need to pay attention.
    We meaning not just this Committee but the country, the country
    needs to pay more attention to rural America. It needs to
    understand what is happening in rural America because candidly,
    when 80 percent of the folks live outside of rural America,
    they don't think about the poverty levels, the unemployment
    levels, the wage differences and the aging nature of rural
    America. If we don't continue to think about that and focus on
    it, we are going to have a harder and harder time meeting the
    food needs, not just of ourselves, but of a growing world
    population. I think it is an important statistic to focus on.
        The Chairman. Well, I don't disagree. I am not saying I
    disagree with you. I understand that there are people moving
    out to the country that are working in town and they may
    eventually move over to being full-time farmers. Sometimes if
    you are into a niche market type of area, you can make a good
    living on 100 acres, depending on what you are doing. So that
    is not really the issue. I think that we need--we have gotten
    some information that we have asked for but I just think we
    need to have the information put out there to understand that
    there are different aspects of this.
        Secretary Vilsack. We can furnish the Committee with that,
    but let me just simply say that these 300,000 folks you are
    talking about are the greatest farmers in the world. Now, if
    you were the greatest fill in the blank, lawyer, doctor,
    athlete, whatever, you would be making whatever the number is
    these folks are making, you would be making substantially more
    than these folks are making, and that----
        The Chairman. We don't disagree on that.
        Secretary Vilsack. That is part of the challenge.
        The Chairman. I apologize for going over my time. Thank you
    very much, Mr. Secretary.
        Mr. Lucas.
        Mr. Lucas. Thank you, Mr. Chairman.
        Mr. Secretary, to be quite honest, in your written
    testimony under the heading ``the importance and challenges of
    rural America and its future,'' nowhere do you talk about the
    farmer, the safety net or production ag. I worry that this may
    be symbolic of an issue that has become much more of a concern
    out in the countryside, and that is, is this Administration,
    does it have a disconnect with rural America. So I guess my
    question is, are you telling me, are you telling the Committee
    and myself that the Administration's key areas of emphasis in
    the next farm bill will be broadband, renewable energy,
    biofuels, regional food systems, supply chains, forest
    restoration, private land conservation and ecosystem market
    incentives? Are those really the primary issues where the
    Administration is going to go in this next farm bill?
        Secretary Vilsack. Representative, I think that they are
    significant issues that need to be addressed, recognizing that
    this Committee will obviously focus on risk management tools,
    on direct payment programs, on the traditional safety net. I
    think it was important for us to expand the discussion, to
    understand and appreciate how important broadband is, how
    important potential ecosystem markets can be in terms of
    additional income sources for farm families, how significant it
    is that some of these other areas can create jobs that are,
    back to the discussion with the Chairman, necessary for people
    to be able to keep the farm. I just think it is important for
    us to see this as an expansion of the safety net, which is
    important to farm families.
        Mr. Lucas. So Secretary, can I assume that the Department's
    proposed proposals for the next farm bill will look something
    like the budget submissions that the Department has made during
    the appropriations process with the proposals for cuts in
    direct payments and crop insurance subsidies and most of the
    conservation programs? Will we see those kind of proposals in
    the next farm bill that we have seen in the annual budget
    submission?
        Secretary Vilsack. Well, it is important for us,
    periodically, to sort of re-calibrate and there may be
    opportunities for us to utilize those resources in an effective
    way to help farm families, and to help build economic
    opportunity in rural America. There are 60 million people that
    live in these rural communities and obviously there is a
    tremendous amount of work based on these charts that needs to
    be done. So as you well know, Congress instructed us to take a
    look at the crop insurance program, which we are doing. We are
    working with the industry. I believe that the negotiations have
    gone pretty well, and my hope is that they ultimately culminate
    in a good agreement for the taxpayers. It is fairly clear that
    we have seen substantial increases in the amount of money that
    insurance companies are getting. The return on their investment
    is about 17 percent. We just want to get it down to about 14
    percent, which is still a pretty good return. And we will work
    with this Committee on making sure as best we can to protect
    the baseline, which I know you all need to be able to do your
    work.
        Mr. Lucas. Absolutely do, Secretary. I am very focused on
    the conservation issues representing a district that was the
    abyss of the Great Depression, the Dust Bowl of the 1930s, and
    the horrible droughts of the 1950s, and as the Subcommittee
    Chairman under the 2002 Farm Bill, worked diligently on it, and
    under Subcommittee Chairman Holden's leadership in the 2008
    Farm Bill I worked as a Ranking Member on those issues. Can you
    tell me how many of the conservation programs including EQIP
    and CSP and WRP and GRP actually have final rules in place now?
        Secretary Vilsack. Well, we have rules that we are working
    under and we are getting resources out the door. We are in the
    process of finalizing the work, but it hasn't stopped us from
    entering into contracts. In EQIP, for example, there are a
    substantial number of contracts that have been entered into,
    about 13 million acres, close to $1 billion being provided, so
    we are continuing to work. There were 737 rules and action
    steps that needed to be taken to implement the farm bill that
    you all passed in 2008. Obviously this was a unique
    circumstance. Oftentimes farm bills are passed in the midst of
    or in the middle of an Administration so you don't have to work
    in terms of transition. We are working hard to make sure that
    we are getting the money to farmers and getting these programs
    up and running.
        Mr. Lucas. But Mr. Secretary, my concern and those shared
    by many people out in rural America, if we haven't had time to
    finalize the rules on things as popular as these conservation
    programs, yet in your budget proposal you called for reductions
    in spending in those conservation programs. If we are in
    effect, I guess, saying that the production agriculture
    component of the farm bill is not the relevant part that it
    used to be, then I almost have to ask the question I think that
    would be asked in my town meetings: With the focus that you
    have provided both budget and conceptual-wise, are you talking
    about turning rural America into a bedroom community?
        Secretary Vilsack. Not at all, Congressman.
        Mr. Lucas. For people----
        Secretary Vilsack. First of all----
        Mr. Lucas.--for people to go to work every and drive back?
        Secretary Vilsack. No, no. This is a great question and I
    appreciate you asking it. First of all, it is fair to say that
    while what we are proposing doesn't get to the authorized level
    on many of these conservation programs, there are additional
    resources that have been added to and we are proposing
    additional resources in a number of these conservation
    programs. For example, the budget submission indicated a $28
    million increase in EQIP. It is also important to note that the
    NRCS is under an audit in which, over the course of the last
    couple of years, there have been serious issues raised with the
    way in which these programs were administered in the past. We
    want to make sure that we administer them properly, so we are
    increasing our commitment as we can handle it appropriately and
    making sure that we are not paying folks for stuff that they
    weren't supposed to get paid for, or paying folks for things
    that they never promised to do. So that is one thing.
        The second thing, as to your question about the rural
    economy, the reality is, if we can create better-paying
    opportunities within rural America, if you can create centers
    of energy production, for example, biorefineries, people who
    have to build those refineries, people have to maintain them,
    people have to work at them, and they are good-paying jobs, and
    you sprinkle and dot the landscape with those biorefineries. If
    you create broadband opportunities that allow, not only farmers
    and ranchers to have real-time information, but small
    businesses that they may be operating or that their spouse may
    be operating to have expanded opportunities to expand their
    markets from local to global markets, you are creating economic
    activity. If you keep the resources that are produced in the
    fall in the community by linking local production and local
    consumption, you create wealth and you allow that wealth to
    generate within the community. This is not about bedroom
    communities, this is about making rural areas vibrant places
    where young people, in particular, are anxious and interested
    in setting up their families and establishing a life.
        Mr. Lucas. Mr. Secretary, I just offer notice that in the
    past Administration, which was Republican, I am a Republican,
    when they chose to veto the farm bill that we in a very
    bipartisan fashion worked out together here, we overrode that
    veto. We did the right thing for rural America. The resource
    situation got tighter and tighter in 2008. It appears that it
    will be even tighter and tighter in 2012. I just note to you
    and to the Administration that you represent that this
    Committee will once again, I believe, work in a bipartisan
    interest for the best interests of rural America, and
    personally turning us into a bedroom community is not in the
    best interest of rural America, or production agriculture, or
    our food and fiber supply in this country.
        I respectfully serve that notice and yield back my time,
    Mr. Chairman.
        Secretary Vilsack. Mr. Chairman, I feel compelled to
    respond.
        Representative Lucas, I want to make sure that you
    understand, that is not what we are suggesting, and----
        Mr. Lucas. Mr. Secretary, when you turn down the spending
    on all these programs----
        Secretary Vilsack. Well, we are not----
        Mr. Lucas. When you chart down the direction of a certain
    course, you have to assume that is the ultimate outcome.
        Secretary Vilsack. No, that is not true, sir. We are
    actually increasing the resources and we are suggesting that
    there could be a more creative way to use the resources.
    Instead of focusing on individual community investments within
    individual siloed programs, what we are suggesting is that we
    work with the local folks and have them understand what they
    are operating under is a regional economy; and that there are
    small towns, towns of 8,000, 10,000 that can be economic
    engines that create opportunities for folks both on the farm
    and off the farm; that if we really work this properly we can
    leverage additional resources from the Energy Department, the
    Transportation Department, HHS. If we leverage and coordinate
    those resources, we can have a much greater and more profound
    impact on creating economic opportunity. That is what this is
    about. It is not about bedroom communities. Let me be clear
    about that. I just want to make sure you understand that.
        Mr. Lucas. And I just ask as the President's representative
    on these agricultural issues, I believe to be the good and
    competent person that you are, deliver the message back.
        I yield back, Mr. Chairman.
        The Chairman. I thank the gentleman.
        The gentleman, the Vice Chairman from Pennsylvania, Mr.
    Holden.
        Mr. Holden. Well, thank you, Mr. Chairman.
        Mr. Secretary, Mr. Goodlatte and myself have been working
    in a very bipartisan manner to address the research concerns in
    the Chesapeake Bay. One issue we would like to explore is the
    concept of reasonable assurance, and we recently learned of the
    sage grouse initiative between USDA and the Fish and Wildlife
    Service. Can you tell us about this initiative and what do you
    think the benefits of this type of an agreement would give to
    the producer? Does it provide reasonable assurance, and do you
    think USDA and other Federal agencies should strive to enter
    into these types of agreements?
        Secretary Vilsack. There is a deep concern about the sage
    grouse in terms of it potentially being indicated as an
    endangered species, which carries with it responsibilities for
    those who live in areas where this is an issue. Now, in an
    effort to try to help increase the population and also avoid
    the necessity of regulations that might make things more
    difficult rather than easier, we entered into this memorandum
    in which we essentially are putting roughly $16 million into an
    effort to try to rebuild the sage grouse habitat. In doing so,
    if farmers essentially enter into an arrangement to utilize
    these resources in a proper way, they will receive assurances
    that if the sage grouse is identified as an endangered species
    that they will in a sense already be in compliance with the
    rules and regulations. So it essentially creates an incentive
    rather than a regulation, and this is something that is going
    to be well received in the countryside. It is something that,
    frankly, we ought to be thinking more of opportunities to do in
    rural areas, especially in the Bay area in particular where you
    have a lot of folks who want certainty, they want to do the
    right thing for their operation, they want to do the right
    thing for the environment. They just simply want to know what
    the rules are and they want certainty, and this is a mechanism
    by which we can provide them that certainty.
        Mr. Holden. Well, we are glad to hear that and we have an
    idea we are going to run by you.
        Mr. Secretary, getting back to crop insurance, the
    Department has a great deal of emphasis on promoting more help
    for underserved states which includes Pennsylvania. At the same
    time, USDA's latest position would reduce delivery
    reimbursement by more than \1/3\. Pennsylvania takes risk
    management seriously enough that it provides monetary
    incentives to farmers who buy policies. I am concerned about
    how the RMA strikes a balance between putting more resources
    into making crop insurance available in underserved states
    versus making policy delivery more difficult in a state like
    Pennsylvania which is underserved.
        Secretary Vilsack. Well, here is the dilemma that we face
    with reference to crop insurance, and that is, that we have
    seen a dramatic increase in the amount of money being paid to
    agents and companies without a corresponding increase in the
    number of policies. In fact, since 2000 we have seen a
    substantial decline in the number of policies written, and the
    compensation that is being paid is based on crop prices as
    opposed to policies issued. What we are proposing and
    suggesting is something that would on average provide an agent
    about $1,000 per policy for each policy that is written. We
    think that is a fair rate of return.
        And in terms of the insurance companies, as I said earlier,
    our studies have suggested that over the course of the last
    several years their return has been about 17 percent on their
    money. We think an average return would be somewhere in the
    neighborhood of 12 percent, but we are not proposing that as a
    vehicle. We are suggesting 14 percent. We are trying to strike
    the balance which this Committee instructed us to do in terms
    of making sure that we have a fair deal for taxpayers, a fair
    deal for producers and one that provides greater stability, and
    taking some of that resource instead of redirecting it in other
    areas redirecting it back into the program to make sure that we
    level out the availability of crop insurance in all parts of
    the country.
        Mr. Holden. Mr. Secretary, I understand the direction that
    we gave you in the last farm bill, but we have made a lot of
    progress in Pennsylvania in crop insurance participation. So
    just take into consideration underserved states as we proceed.
        And finally, Mr. Secretary, maybe you can clarify something
    on TEFAP for me. The Central Pennsylvania Food Bank came to me
    with a growing need for more food and additional administrative
    funding beyond even what was provided in the farm bill and the
    stimulus bill. Early in 2009, however, we were told that TEFAP
    was unable to spend all of the funding increase it received in
    those pieces of legislation. Can you clarify this for me and
    speak about the need for more emergency food assistance?
        Secretary Vilsack. Let me just simply say that in terms of
    TEFAP, our focus recently has been on getting resources to
    folks to increase their equipment, to respond to their
    equipment needs, which we determined was a fairly significant
    effort. We did provide additional administrative resources. I
    will have to get back to you in terms of your specific
    question. My understanding was that those resources were
    utilized in a fairly rapid way. I have traveled to a number of
    food banks and a number of areas around the country, and I know
    that those resources were put to good use. That system,
    generally the food bank system has been under substantial
    stress because of hard economic times, and we have seen the
    same thing in terms of expanded involvement with our SNAP
    program. Obviously, when the economy improves and we're
    beginning to see some signs of that, our hope is that that
    takes some of the pressure off those food banks, and hopefully
    takes some of the pressure off of the SNAP program.
        Mr. Holden. Thank you.
        I yield back, Mr. Chairman.
        The Chairman. I thank the gentleman.
        I now recognize the former Chairman of the Committee, a
    good friend of mine from Virginia, Mr. Goodlatte.
        Mr. Goodlatte. Well, thank you, Mr. Chairman, and
    Secretary, welcome. We are delighted to have you with us today.
        I want to follow up on a question that Congressman Holden
    asked regarding the Chesapeake Bay but shift over to a
    different aspect of it, in particular with regard to the
    Environmental Protection Agency pressing forward with mandating
    a Federal TMDL for the Chesapeake Bay. The impact on farmers
    could be enormous, and I want to know if the USDA is
    communicating with the EPA about the potential impact on
    agriculture with regard to the EPA's Chesapeake Bay strategy
    and trying to ameliorate the impact on farmers who in my area,
    and I know in the gentleman from Pennsylvania's area as well,
    are very alarmed by the sudden Federal intervention in an area
    where they have been working with their state regulators for a
    long time and have made a tremendous amount of progress, by the
    way. The phosphorus and nitrogen discharges from farms in that
    entire mid-Atlantic region is down very substantially by 50
    percent or more. There has been ongoing success in the farm
    contribution to the impact on the Bay. There are other problems
    that need to be addressed as well but farmers are feeling a
    little bit, in fact more than a little bit pressed by the EPA
    and we wonder if the USDA can help with that.
        Secretary Vilsack. Let me first of all say that we have
    engaged with the EPA in conversations and discussions to inform
    them on precisely what steps have been taken in farm country to
    respond to some of the concerns that we are now dealing with in
    the Bay area. We will continue to do that, but we also felt it
    was necessary for the EPA to actually hear from farmers
    themselves, and so what we have proposed and EPA has agreed to
    do are a series of meetings which began last month and will
    continue next month. Last month we brought in the major heads
    of all the commodity groups to EPA to meet with Administrator
    Jackson. It was a very interesting conversation because there
    is a lot of misunderstanding about some of the rules and
    regulations. It was an opportunity for there to be
    clarification and a commitment to set up working groups with
    the EPA and the commodity groups. Next month the livestock
    producers will have that opportunity at USDA. We will be
    hosting a breakfast and a meal for livestock, those who are in
    charge of the livestock groups, and EPA Administrator Jackson.
    We will set up the same kind of regular conversation, regular
    communication system that for whatever reason has not been set
    up in the past, should have been set up, ought to be set up. We
    are learning is that EPA has a lot to learn and the commodity
    groups are learning a little bit about EPA's thought process. I
    think that kind of dialogue is quite helpful in clearing up
    confusion, in making sure that regulations are reasonable and
    take into consideration steps that have already been taken by
    the best stewards of the environment that we have which are
    farm families.
        Mr. Goodlatte. Thank you. And to follow up on that, going
    beyond just the total maximum daily load issue, the EPA has
    also taken an aggressive stance toward agriculture in enforcing
    the Clean Water Act, and this is particularly true in the Bay
    watershed but my guess is it is happening elsewhere as well.
    Now, last week the EPA conducted meetings, I think they have
    been in the gentleman's district as well, but they conducted
    one in my Congressional district that was very much not like
    the meeting you just described which would be productive. It
    was more along the lines of the EPA coming in and dictating to
    farmers and telling them what they expect will happen as
    opposed to the kind of dialogue that would create a greater
    understanding on the part of the EPA with regard to the
    challenges that are faced by farmers. I don't know that USDA
    was a participant in these meetings. Do you know if they were
    even notified of the meetings or did they participate?
        Secretary Vilsack. I can't tell you for certain that they
    were notified or that they participated, but I will certainly
    be happy to go back and check and will provide that information
    to you, and in the event we were not notified, we will
    certainly make the request to be notified.
        Mr. Goodlatte. I don't know the answer to that. It is
    possible you were and it is possible you even had somebody
    present.
        Secretary Vilsack. The challenge here obviously is to
    create a process in which people will listen to each other and
    to appreciate steps that have been taken, people get credit for
    the steps that have been taken. The more we can bring these
    folks together to talk, the better the outcome will be for
    everyone, and we are committed to that at USDA, and that is
    what we have been attempting to do for the last year.
        Mr. Goodlatte. Thank you, Mr. Secretary. I appreciate your
    help.
        The Chairman. I thank the gentleman.
        I recognize the Subcommittee Chairman from North Carolina,
    Mr. McIntyre.
        Mr. McIntyre. Thank you, Mr. Chairman.
        Good to see you again, Mr. Secretary. When do you expect
    the regulations for the Rural Entrepreneur and Micro-enterprise
    Assistance Loan Program to be published?
        Secretary Vilsack. We anticipate that they will be
    announced shortly. We had some issues in terms of precisely the
    structure and format which had to be worked out. We were
    initially going to go with a NOFA, but we decided not to
    publish a NOFA but to go with a proposed rule. The interim rule
    has been drafted and we are in the process of negotiating it
    through the OMB process, and our hope is we get that completed
    soon.
        Mr. McIntyre. And just roughly when you say soon, do you
    mean like 3 to 4 weeks or do you mean 3 to 4 months? What do
    you mean by soon?
        Secretary Vilsack. If I had complete control of this, it
    would be tomorrow.
        Mr. McIntyre. Amen.
        Secretary Vilsack. You know, I can't commit OMB. I can tell
    you that this is an issue that is important to us. We recognize
    the significance of helping those who wish to help create
    equity opportunities for small business development. This is
    very consistent with what we need to be doing more of in rural
    America, so we are going to be working on this as quickly as we
    can. We have been focused with EPA this week on trying to get
    some of the energy title issues resolved.
        Mr. McIntyre. Thank you, because that obviously leads to
    when people will be able to start applying for loans under the
    program. I guess that application can occur as quickly as
    possible after the regulations are published.
        Secretary Vilsack. Yes, sir.
        Mr. McIntyre. On another note, how do you see our Regional
    Economic Development Commissions? They were three that were
    added to the last farm bill including one that yours truly
    authored, the Southeast Crescent Regional Commission. The seven
    southeastern states of the United States unfortunately have the
    double whammy effect, as I like to call it, because it is an
    unfortunate situation with both the highest levels of
    unemployment and the highest levels of poverty. So obviously
    the Southeast Crescent Regional Commission is in a prime
    position now to bring economic growth and infrastructure
    developed to some of the underserved and distressed areas of
    our country. How do you see these commissions working alongside
    USDA's new Regional Innovation Initiative so that we can
    complement one another in getting these things going?
        Secretary Vilsack. Well, first and foremost, those regional
    associations and efforts can help educate us in terms of the
    nature of the economy that exists and what the potential
    opportunities are in a particular region. One of the things
    that I don't think we have taken full advantage of in many of
    our rural areas are the natural resources that are located in
    rural communities, and there are ways in which we could
    substantially increase economic activity associated with
    natural resources. So, we need a better understanding of
    actually what is occurring. There is a process by which you
    essentially chart emerging industries, declining industries,
    potential opportunities, and with that chart you can better
    inform where resources need to be invested, how they need to be
    invested, who needs to be brought to the table in addition to
    USDA. As I said earlier, part of the challenge is that we do
    not reach across Federal agencies to figure out where is
    Transportation investing its money, where is DOE investing its
    money, where is HHS investing its money. If we create this kind
    of regional effort, what you will see is you will have greater
    cross-cooperation within Federal agencies, and if we can
    coordinate the investments, we will get a bigger bang for our
    buck than we currently are getting.
        At the same time, if we do the same thing with state
    economic development efforts, these regional folks will have a
    better tie-in to state economic priorities and where state
    economic development resources are being invested if we can
    leverage those resources, and then they will know of local
    economic development efforts. There is a great deal of venture
    capital, things that are occurring in small ways. There are
    micro-enterprise opportunities that are occurring in small
    ways. If there is a way in which we can essentially coordinate
    all of that activity instead of what is happening today, which
    is happening in isolation of one another.
        Mr. McIntyre. And when you say there is a way to chart
    emerging initiatives and declining industries, has that
    charting been done, so to speak, by anyone in your department
    that we could share?
        Secretary Vilsack. There are a number of different groups
    that do these. It is essentially based on a proposal that
    Michael Porter from the Harvard Business School has put
    together. A lot of state economic development offices are doing
    this. We would be working with them if we are given the
    opportunity, but here is the challenge. The challenge is that
    we have siloed a lot of our programs. We have 41 different
    rural development programs and they all have different
    qualifications, different requirements, different thresholds.
    There is no capacity to reach across those individual programs
    to be able to utilize them in a consolidated and focused way to
    really fundamentally change the dynamic in the area. Right now
    what is happening is, somebody may get a community facility
    grant, and someone in isolation may get a rural enterprise
    grant, and someone might get a B&I loan but they are not
    necessarily coordinated. My view is, and the emerging view of
    many in economic development circles is that if you could ever
    get them coordinated, you would have much greater return for
    your investment, which is what you all want, and given the
    scarce resources, it is what we need to do.
        Mr. McIntyre. Absolutely. Thank you, Mr. Secretary.
        Thank you, Mr. Chairman.
        The Chairman. The chair thanks the gentleman and recognizes
    the gentleman from Kansas, Mr. Moran.
        Mr. Moran. Mr. Chairman, thank you very much.
        Mr. Secretary, thank you for joining us today. I have three
    relatively specific questions and I will ask all three of them
    so that I don't run out of time.
        I asked your Under Secretary Tonsager last October about
    eligibility for the advanced biofuels producers grants, and the
    concern I raised was that your notice for contract proposal
    indicates that the companies must be owned by United States
    citizens. Yet, we have two companies in Kansas who in my
    opinion should be eligible for the grants but are not 51
    percent owned by U.S. citizens. I have tried on numerous
    occasions to get a response, a justification for the
    Department's decision and the Under Secretary told me during
    that hearing that that's just the way we have done it in the
    past. Since then despite a couple of requests, no response, and
    we are in the process, in my opinion, of excluding a company
    that uses Kansas biofuels, employs Kansas people and this is an
    awfully important component of their financing.
        Second, you indicated earlier, and I appreciate the
    announcement, that we are going to have a CRP sign-up, but we
    are beginning to run out of time. My question is, when is that
    sign-up going to occur? In July we will start preparing land
    for planting wheat and particularly the western part of Kansas,
    but if we don't have a CRP sign-up in the next month or 2, we
    are once again in trouble in making any kind of planting
    decisions. I guess if you tell me that the sign-up will occur
    in July or August, we probably need to have a short-term
    extension that takes land coming out of CRP of which a lot of
    it is in Kansas, and have an extension until next year.
        And finally, I want to raise my concern with the crop
    insurance, the SRA negotiations, and in particular I want to
    talk about A&O expenses. It seems to me that in the first two
    drafts we are still not taking into account the appropriate way
    of setting the reference price for A&O methodology. And the
    reason I raise this topic is because I want to make sure these
    negotiations are based upon good policy that allow crop
    insurance companies and their agents to write policies,
    particularly in high-risk states, and it is not just another
    opportunity for crop insurance to be a bank for funding other
    proposals that USDA--that are outside the department.
        Secretary Vilsack. I appreciate the question about the
    advanced biofuels assistance program. We obviously have
    received concerns in a number of different areas of the country
    about this issue. There is the consistency argument that has
    been addressed, that you have addressed, that we have
    essentially created this policy. I have asked in the rules that
    are being submitted for consideration in these programs that we
    solicit comments from folks about whether or not they want us
    to continue this proposal, the 51 percent, the reason being
    that there was a real desire to make sure that these resources
    were used to help create opportunities for American producers,
    and for opportunities for American business owners, and for
    American workers and to generate activity in rural areas. There
    is such an interest in this industry that I think we need to
    ask whether we should be rethinking that approach and whether
    or not we are giving up a lot more than we are getting with
    this program. We will be interested to see what the comments
    are and we will certainly respond to those comments. So that is
    on the front burner, so to speak, as is the case of whether or
    not these facilities ought to be solely located in rural areas,
    or whether or not they ought to be allowed to be located in
    urban centers and that is an issue that has cropped up because
    people say well, they want to locate here and it is going to
    help producers, but here it doesn't comport with our many
    definitions of rural. So there are two issues that we are going
    to ask for additional comment on.
        On the CRP, we are awaiting the additional environmental
    information that has to be completed as a condition precedent
    to the general sign-up. Our hope is that we get this done
    expeditiously. Our hope is that we recognize the pressure that
    producers are under, landowners are under, and that we are
    under to try to get this done as quickly as possible. I am a
    little concerned about committing to you on a specific month
    because I just don't feel comfortable. In the limited time I
    have been in Washington, I have seen too often when I say July
    and it ends up being July of 2011 instead of July of 2010, but
    I will commit to you that we are very anxious to get this done
    quickly, as quickly as possible. As soon as that environmental
    work is done we are going to be ready to move.
        Mr. Moran. Can you commit to a quarter?
        Secretary Vilsack. Well, I will be happy to commit to a
    quarter if you are a forgiving individual. We are going to do
    the very best we can to get this done as quickly as we can in
    all seriousness. It is the reason why we made the announcement.
    It is the reason why we are putting pressure to get the
    environmental work done.
        On the crop insurance, we are obviously still in
    negotiation, and I will say that the negotiations have been
    good. They have been solid negotiations in which we put a
    proposal out, the industry responds. We try to respond to the
    industry's concerns. We are currently in the process on this
    A&O issue of looking at a variety of different methods and so
    that issue is part of the discussion that is going into the
    third draft that is going to be submitted soon.
        Mr. Moran. I thank you for your answers and particularly on
    the advanced biofuels. I am pleased to know that you are aware
    of this and in my world it is not about creating jobs or
    economic benefits for a foreign company or country, it is about
    jobs in rural America.
        Secretary Vilsack. You know, it is an issue that we are
    confronting in a number of different programs and it is one
    that this debate is going to expand to other aspects of our
    program.
        Mr. Moran. Thank you, Mr. Secretary.
        The Chairman. I thank the gentleman.
        The Subcommittee Chairman, Mr. Boswell from Iowa.
        Mr. Boswell. Thank you, Mr. Chairman.
        I think with the Secretary being here, I would like to say
    to you, I appreciate the fact that you are calling to our
    attention that these are tough times and to be faced with this
    deficit situation that we may have to do things a little
    different. I appreciate that and that is the history that we
    have had to go through this, so we think that with you, Mr.
    Secretary, that we at Agriculture will be at the table and we
    want to be there. We want to be part of the discussion, part of
    the proposal and part of the solution, so we look forward to
    that, and I know we can depend on you to include us in that. We
    hope you will keep communicating with your peers at the Cabinet
    level that we expect to be part of it.
        I have two or three questions. I am going to follow Mr.
    Moran and ask them all at once, but I would like to know where
    are we at on the proposed rule regarding catfish? I don't think
    I need to reiterate what I saw when I was over there a few
    months ago. I would like to know something about how we are
    coming on the SURE payments. Overvaluing was made of forage
    crops and it has caused offsetting problems, and I know you
    have been working on it. We have a problem probably across the
    country.
        I appreciate what you just said on the crop insurance. We
    are walking into this with deliberation and going slow and
    trying to do it right, and you are in your third response time,
    comment time. I just want to compliment you and your staff from
    RMA and SRA that are really cooperating and working hard
    together and we are trying to do this and do our best to do it
    right.
        And last, yesterday you were quoted, the fact that ``so
    many youngsters are not fit for military service is a wake-up
    call for this country,'' said Agriculture Secretary Tom
    Vilsack. I, over the last several years, became aware of a
    program going on in our state, which I think you are at Grundy
    Center, the PE for Life, and it is very important. I know in
    the 2008 Farm Bill we included provisions to provide
    competitive matching grants for school to access local foods
    and create school gardens. We would like for you to share what
    you can, to tell us about what is going on there, if you can,
    and provide any data on utilization rates or suggestions on how
    we might improve it. I am curious also about the results from
    the EBT, the SNAP debit card at the farmers' markets. That has
    expanded in my district at a great rate, and it is like going
    to the county fair or state fair, if you will, if you go into
    Des Moines on farmers' market day.
        So with that, I would like to say before you start,
    congratulations on being a grandfather and tell the grandmother
    as well.
        Secretary Vilsack. Thank you. We had a major event in that
    regard this weekend when our grandson was baptized. Everything
    but the water on the head was fine. We had a little trouble
    with that.
        The issue of catfish--we have a rule pending before OMB. We
    are in the process of refining and we expect sometime this
    spring to basically put it out for comment and discussion. You
    know, it is obviously a complex issue and we are trying to
    figure out precisely what the intent of Congress was relative
    to what catfish are covered.
        Mr. Boswell. Let me just say this from my part, and I won't
    speak for the Chairman or anybody else, but I just think we
    want to have it defined and so it is safe, and having went and
    looked, and I won't again--I know some of your folks have too
    that it is a concern.
        Secretary Vilsack. I don't disagree that that is certainly
    a major consideration. It also has to do with the fact that
    there are apparently a multitude of varieties of catfish. You
    know, raising my kids near the Mississippi River, I thought
    there was only one kind of catfish, but I find out there are 39
    different varieties and so it makes it a little bit complex.
        On the SURE issue, this is a complicated issue made a
    little bit more complicated because the Recovery Act made
    changes. We paid out $281 million under the regular program,
    $149 million has been paid out under the Recovery Act, so a
    total of $430 million has been paid out. Obviously in order to
    be able to determine the pay-outs, you have to have specific
    information about crops and pricing, which obviously results in
    you being essentially 12 months behind. You have to accumulate
    the information, you have to analyze it and then you can make
    payments. So we are making payments and we will continue to
    work hard to get those resources out. We have also, for
    whatever it is worth on the livestock indemnity program, we
    have paid out about $82 million and we have also paid out
    substantial resources on the livestock forage program.
        On the issue of fit for military service, I mean, just
    frankly retired generals and admirals became concerned about
    this and put together a program called Mission Readiness, in
    which they put together a report that was issued yesterday
    suggesting that a significant number of our youngsters 17 to 24
    are physically not fit for service. This shrinks the pool of
    available folks for military service, which is further
    complicated by a variety of other activities so that a
    substantial number of our youngsters today, for a variety of
    reasons, are not fit for military service and that ought to be
    a concern. So, part of our effort is to obviously improve the
    nutritional value of our school lunch and school breakfast
    program to make sure that snacks at schools are consistent with
    what we are trying to do with the school lunch and school
    breakfast program.
        The First Lady's Let's Move Initiative recognizes, as you
    have suggested the PE for Life program recognizes, it is not
    just about nutrition, it is also about physical activity and
    the necessity of that. We have teamed up with the NFL and the
    Dairy Council to promote the Play 60 program in which they want
    you to fuel up with dairy products so you can play for 60
    minutes a day in organized or unorganized physical activity. We
    have made an effort to try to promote gardening as a way at
    schools to not only get kids physically active, but to
    reconnect people with their food supply. It is a growing
    concern for me that we are multiple generations removed from
    those who do produce our food in terms of our own family
    histories in terms of agriculture. As a result too many
    Americans unfortunately believe that food comes from a grocery
    store. They do not understand the hard work that is involved in
    producing the food and putting it on the table, nor do they
    have a full understanding of the difficult economic
    circumstances of those who do produce our food, and if they
    did, they might have a more understanding attitude towards food
    production.
        So by gardening, by encouraging a connection with local
    production and local consumption, we are trying to reconnect
    people with their food supply, and we think that this is
    important because as the Chairman indicated, we have 2.2
    million farmers. When I was born in 1950, 15 percent of our
    population were farmers. Today it is less than one percent. And
    if we are going to continue to have support for these programs
    that are vital to production agriculture, we are going to have
    to expand our base of folks who understand why it is important
    beyond the 2.2 million farmers and their families. That is why
    I think it is important to reengage America in a discussion
    about the future of rural America.
        Farmers' markets are expanding at a rapid rate. EBT makes
    it easier for folks to utilize their cards, and we are also
    working on a promotion for seniors and their capacity to use
    farmers' markets and the resources available to them under the
    Senior Farmer Market Promotion Program.
        Mr. Boswell. Well, thank you, and just to close, would you
    take the opportunity--maybe you have--to talk to your colleague
    at the Cabinet, Secretary of Education, who was out and visited
    the PE for Life program and it does have those complications.
    Thank you very much.
        The Chairman. I thank the gentleman.
        The gentleman from Iowa, Mr. King.
        Mr. King. Thank you, Mr. Chairman.
        Mr. Secretary, welcome. I appreciate you coming forward to
    testify here before the Agriculture Committee today, and I
    appreciate your service as the Secretary. I think back on some
    of the conversations we had the last time you were before the
    Committee, which has been some time now, but the number one
    thing that I want to ask you if you could speak to is that we
    are watching the biodiesel plants across the country be
    mothballed and shut down. I think I can count 14 of them in
    Iowa. I can count one that is being dismantled and shipped to
    India and they are waiting yet for a decision from this
    Congress on the blenders credit. I think there are some in
    Congress that don't understand that there are millions of
    dollars that have been invested to try to follow the direction
    of the government's lead on renewable fuels. Now they found
    their capital frozen or devalued and waiting for this Congress
    to follow through. If you could speak to that issue, I would
    appreciate it.
        Secretary Vilsack. Congressman, I appreciate you raising
    this issue, and from my perspective it is long overdue that we
    address this issue and that we provide this industry, which is
    vital to our capacity to be more independent in terms of our
    fuel sources and creating the kind of economic opportunity I
    talked about earlier. That tax extension has to take place and
    it needed to take place yesterday. There has been some
    indication, hopefully, that it gets done before Memorial Day.
    That would certainly be my wish and my hope and my prayer.
        Mr. King. Thank you very much, Mr. Secretary, and I would
    just inquire, is there dialogue among the Cabinet? I know that
    the Administration seems to be supportive of this. Is there
    dialogue or is there anything where we can find a place where
    we can bring our argument to get this to move, or is it just,
    do you think, tied up because of the legislative process?
        Secretary Vilsack. My sense, and I could be wrong about
    this Congressman, is that there is more of the Congressional
    process in play here. I don't think there is any question that
    the Administration is supportive of this. I have talked to the
    President specifically about this issue and I know where he is,
    and I have talked to White House officials about this issue. I
    know where they are. They see this as important. If it were by
    itself, it would be one thing but apparently it is tied up in a
    series of other issues. But my hope is that it gets done, and
    frankly, if I can take your question and just take it one step
    further, I really think all of us collectively need to do more
    work on how we can build the infrastructure that can support
    this industry, this biofuels industry. We have a lot of
    programs that you all put in the 2008 Farm Bill and we are
    beginning to get money out the door, but we have to go to the
    next step of what is the distribution system going to look
    like, how do we bring to bear, nationally, the capability of
    the biofuels industry so that it is not just the Congressman
    from Iowa that is asking these questions, but it is folks in
    all parts of the country that understand that they can play in
    this game and that they have an important opportunity in this.
        Mr. King. Well, I appreciate that and I hear from the
    strongest of voices that we stand together on that same issue
    and that we want to follow through on our commitment as part of
    the overall energy independence this country needs to move
    towards.
        And so as we transition into a subject, I recall an
    exchange that we had the last time you testified before the
    Committee, and it had to do with the cap-and-trade piece of
    this thing. A lot has happened since that period of time with
    revelations of how the data was managed and how credible some
    of the scientists who have been the lead voices in global
    warming argument or let me say the climate change argument.
    Have you had an opportunity to go back and review that science,
    and are you of the same position today, or has anything changed
    within that position on the science component?
        Secretary Vilsack. Well, I have reviewed the science and it
    doesn't fundamentally change my attitude about this,
    Congressman. I tell you, I deal with the consequences of this
    every day. Probably the most prime example of this is the issue
    that we are dealing with out in the western part of the country
    with the bark beetle infestation. I mean, the reality is that
    because winters are not as severe as they once were, these
    beetles in part survive the winter when before they died. I
    have been told, and I don't know whether the statistic is
    accurate or not, but I think it may be. There are over 7
    million acres that are now impacted by this bark beetle and we
    expect and anticipate 100,000 trees a day to fall because of it
    for the next decade.
        Mr. King. Thank you, and I recall I went up to Canada and
    heard their presentation also about 80 percent of the timber in
    British Columbia was going to perish because of the bark
    beetle. One of the things they told us up there was that there
    had to be a sustained temperature of 45 below in order to kill
    the bark beetle off in the wintertime, so that is a piece of
    data that I would inject into this processing. I don't want to
    have a debate on this. I was just interested in your
    perspective, and I very much appreciate your perspective on the
    renewable fuels component.
        The blenders credit that is necessary at this point and the
    viability of this first generation of ethanol and biodiesel has
    to be there if we are ever going to get to the second
    generation of renewable fuels, and that is what I would close
    with, Mr. Chairman. I thank the Secretary and I yield back the
    balance of my time.
        The Chairman. I thank the gentleman.
        Subcommittee Chairman Baca from California.
        Mr. Baca. Well, thank you very much, and thank you, Mr.
    Secretary, for being here this morning. I want to thank you for
    your leadership at USDA and your efforts to move the Department
    forward in a positive direction that helps the America rural
    communities and urban communities. We look forward to working
    together, preparing the process of reauthorization of the farm
    bill in 2012.
        I would like to get into some of the areas--as you know,
    recently my Subcommittee held a hearing in Colton, California,
    this past January to explore SNAP participation rates and their
    links to obesity. We recently had a hearing here last week that
    dealt with obesity and healthy food which also included fresh
    fruits and vegetables and the farmers' market. As you know, the
    State of California has one of the lowest SNAP participation
    rates in the country at around 50 percent. One of the main
    reasons why it is low in California is undoubtedly the state
    finger-imaging requirement for SNAP participation. Can you
    clarify for the full Committee the Obama Administration's stand
    on the use of finger imaging?
        Secretary Vilsack. Congressman, I think we are discouraging
    that type of activity. We are trying to figure out ways in
    which we can encourage participation. I know in California we
    are spending additional resources in an outreach effort to try
    to educate people on precisely what the program is and how they
    can qualify.
        Mr. Baca. Thank you. The other question, I know it was
    addressed earlier, but is one of very much concern and you
    addressed it from a military perspective. As you know, obesity
    continues to be America's costliest medical condition and
    threatens many of the segments of a population including
    children and underserved populations and elderly. The Ranking
    Member of the Committee and I have both addressed this in our
    Subcommittee and nearly \1/3\ of the children in America are
    now overweight or obese. Our nation spends nearly $150 billion
    a year to treat obesity-related disease. This accounts for
    nearly ten percent of all medical spending. The 2008 Farm Bill
    made major progress in trying to provide more nutritional foods
    to communities, particularly schoolchildren, but much work
    needs to be done. In general, can you explain how the
    Administration is responding to the growing obesity epidemic,
    and what is USDA's strategy for addressing this situation, and
    are you coordinating a government-wide response including
    coordination with state and local governments?
        Secretary Vilsack. I think it is fair to say that we are
    taking an aggressive effort on obesity. There are several
    things we are doing. First, we are obviously fulfilling the
    responsibilities that you all created in the 2008 Farm Bill as
    you expanded the fresh fruit and vegetables program for snacks
    to all 50 states, trying to focus this on areas where we think
    it can do the most good with the highest enrollment levels of
    free and reduced lunch, and so we are in the process of doing
    that.
        We are also working through the SNAP program on an
    initiative that was outlined in the farm bill in which we are
    trying to figure out ways in which we can create point-of-sale
    incentives for individuals using SNAP benefits to be able to
    purchase fruits and vegetables. There is the concern that
    fruits and vegetables are oftentimes potentially more
    expensive, and, therefore, you have to address that issue. We
    are in the process of completing the Request for Proposal for
    the evaluator of the program. We anticipate using about 7,500
    individuals in this pilot to see if we can create a discount
    that works based on a limited number of fruits and vegetables,
    and see what kind of mechanical problems occur through the EBT.
        We are suggesting and proposing after a study established
    that four percent of the American population, roughly 11
    million people, live in urban centers and in rural areas more
    than a mile from a grocery store that would provide them fruits
    and vegetables and a wide array of quality and good foods. So,
    we are trying to address the issue of food deserts by creative
    use of resources between the Treasury Department, Health and
    Human Services and USDA. I could go into great length about
    this as I think you and I talked briefly about this. It is a
    very complicated issue because each area of the country, each
    rural area and each urban center, there may be different
    reasons why a full-scale grocery store is not located. You have
    to use the tools that are available to try to craft ways in
    which you can get a grocery store in that community and make it
    prosperous and allow it to survive economically. We are
    committed in that regard.
        And finally, in the interest of time, we are fully engaged
    with the First Lady in her Let's Move Initiative, which is a
    combination of state, local, nonprofit, non-governmental
    entities trying to encourage better nutrition and a strong
    Child Nutrition Reauthorization Act that really focus on
    improving significantly the quality of the food that we feed
    our children at school as well as reintroducing physical
    activity into the daily activities of youngsters. They spend
    far too much time in front of a computer screen and a TV and
    the result is, you have \1/3\ of the youngsters obese or at
    risk of being obese.
        Mr. Baca. Good. I hope we can continue to coordinate our
    effort in this area.
        Let me ask one final question, and can you update us on the
    status of the 14,000+ administrative claims that were filed
    against the Department claiming civil rights discrimination? I
    know that we dealt with the Pigford situation, but many of
    these claims have been carefully investigated. Do you have any
    estimation of the funding that will be needed to allocate the
    settlement process and when these settlements may occur?
        Secretary Vilsack. Settlement of any litigation,
    Congressman, obviously requires two people, two groups to reach
    a consensus. The problem with the Garcia, the challenge, I
    guess, with the Garcia case is that it is not one single case
    as was the case with Pigford, which was certified as a class
    action. In essence, you had one case with multiple claimants.
    In the Garcia circumstance, because the court did not classify
    it as a class action because of differences between the claims,
    what you have is potentially tens of thousands of individual
    lawsuits. So it is a little bit more complicated to try to
    reach resolution, but the Department of Justice and the USDA
    have been engaged in ongoing conversations with both the Garcia
    plaintiffs, the Love plaintiffs in an effort to try to reach
    resolution, either on a structure that would lead us to
    answering your question of precisely what is the liability, or
    an amount which all the parties can agree represents the
    liability. We are not there yet, but we are continuing to work.
    I will tell you from a USDA perspective, we are committed to
    trying to get these issues resolved. The Pigford matter does
    require Congressional action and we are hoping to work with
    Congress to get this done as quickly as we possibly can. We
    want to close this chapter. It is an unfortunate chapter in our
    history. We want to close it.
        Mr. Baca. Thank you very much. I know that my time has run
    out, but I have dealt with the civil rights issue that
    pertained to the black farmers and now the Hispanic farmers and
    Native American farmers also that are impacted, so I look
    forward to working with you on this.
        Thank you. I yield back.
        The Chairman. I thank the gentleman.
        The gentleman from Texas, Mr. Neugebauer.
        Mr. Neugebauer. Thank you, Mr. Chairman.
        Mr. Secretary, good to see you again. I guess the new thing
    here is to ask one big long question and then get----
        Secretary Vilsack. Try not to do more than three. That is
    about all I can handle.
        Mr. Neugebauer. Well, this is really all one subject, and
    of course, currently it has been mentioned that your department
    is renegotiating an SRA, and I know some progress has been made
    in that. While this may not have any direct impact on the
    producers' premiums, it does have some impact on service. So
    the question I have is, number one, if producers have a loss or
    any of the pending cuts likely to impact the ability to bring
    the claim agents to the field, relatively quickly, so that if
    there is a second crop, the decision can be made and really
    made so that the producers can move forward.
        The other impact, and it is from one of your charts, is
    that for agriculture, and particularly in this country to be
    profitable, there is productivity and that productivity has
    caused a lot of the farms to grow in size. In my district, as
    you and I have discussed, folks used to make a living on a half
    a section, a quarter section. Now it takes five to six sections
    to do that. We are looking at taking money out of crop
    insurance. We already see that the crop insurance program is
    not working for all producers, particularly in the shallow
    losses, and when you start multiplying shallow losses over
    thousands of acres, it is not a small number. The question that
    I have is, are we moving in the right direction of taking this
    money out of crop insurance, putting it somewhere else and
    shouldn't we actually be putting crop insurance back into the
    program? Some on this Committee have said that possibly in the
    future that crop insurance would become the safety net, but
    right now many of the producers that are in my district have to
    take very high deductibles because the cost of insuring a lower
    deductible is cost prohibitive for those crops. And so I guess
    the question today is, should we lose this baseline and should
    we be taking money out of crop insurance and moving it in other
    places when, in fact, the program is not working for many of
    the producers that are already participating?
        Secretary Vilsack. Congressman, I would say to your first
    question that customer service is important, and we ought not
    to be compromising that in any way. So, if someone is faced
    with a loss, the last thing that they want to do is to be faced
    with a delay in having that loss calculated and getting
    satisfied for it. We ought to be doing whatever we can to make
    sure that service is not compromised. I don't believe it is but
    your question will prompt me to ask in great detail of the
    folks who are negotiating this to make sure that that is not
    compromised, and I appreciate you bringing it to my attention.
        As it relates to the baseline, just simply let me say that
    our hope is that we can work with the Chairman and others on
    this Committee and conserve and preserve these savings, so that
    you all have the flexibility to do what you need to do as you
    begin to address the 2012 Farm Bill and rural development bill
    with as much flexibility as you possibly need, because I don't
    envy your work. I know how difficult this is, and so we are
    committed to working with you to convince OMB to basically not
    redirect these resources in a way that doesn't give you the
    flexibility you need. Now, whether it goes into the existing
    program or whether it goes into a new concept, an innovative
    concept that provides greater risk management opportunities and
    a substitute for, an addition to other parts of the safety net,
    I think that is a policy decision that you all will be making.
    We will be happy to provide our advice and technical experience
    and advice and assistance as you formulate that decision.
        The Chairman. I thank the gentleman.
        I recognize Subcommittee Chairman Scott from Georgia.
        Mr. Scott. Thank you.
        Welcome, Secretary Vilsack. How are you?
        Secretary Vilsack. Good.
        Mr. Scott. Let me ask you about the Pigford case. I would
    like to get your understanding of what the status is now. My
    understanding is that the President has submitted emergency
    funding. What is your understanding of the status of the
    process now?
        Secretary Vilsack. My understanding, Congressman, is that
    the Congress is required under the settlement to appropriate
    the money to be able to satisfy the agreed-upon settled amount
    that under the current system that you all have engaged under
    PAYGO there is a responsibility to identify offsets or to
    designate that settlement as an emergency which would supersede
    the PAYGO responsibilities. The challenge with this is that
    when Pigford was essentially reopened by activity within the
    2008 Farm Bill, you essentially made the determination not to
    make the judgment fund available for payment. If you were
    trying to reverse that and go back and say well, now that we
    think about it we would like to use the judgment fund, our
    understanding of your rules is that that legislative action
    triggers PAYGO. So we are working with leadership and those
    interested in this issue to try to identify precisely the
    course of action that will allow Congress to move forward to
    appropriate the money.
        Mr. Scott. There was a press conference we held today where
    there was great concern about this. Many of these black farmers
    and the families have been waiting for over 10 years. Several
    of them have died. They have gotten older. It is justice
    denied. And I just take this opportunity to urge a greater
    sense of urgency for us to work this out.
        Now, in the President's funding request, how much was that
    for?
        Secretary Vilsack. I am going to give you a rough number.
    It is somewhere in the neighborhood of $1.1 billion in addition
    to the $100 million that was part of the 2008 Farm Bill. I
    think that is the correct amount.
        Mr. Scott. Also, one of the reasons we are in this second
    round is because of the lack of information, improper
    information for individuals who are concerned about this and
    discriminatory practices. One of the unfortunate, as I
    understand in your statement in February when you announced
    this, which was very welcome and very well done, but
    unfortunately, there was no information in terms of what they
    were to do, what the farmers needed to do, where they were to
    go. We understand there was a hotline but there is no voice at
    the end of the hotline and it says somebody will get back to
    you. The farmers are saying no one gets back to us. So there
    needs to be better coordination even with where we are now, and
    what the impression is, is that out in the community and as we
    talk about the rural development, there is absolutely no group,
    no group that has tilled the soil with the energy as the black
    farmers have done with little return. Many of us are concerned
    about getting younger people back into farming and especially
    younger African Americans. So it is important that we seize
    this opportunity, correct this with the kind of energetic
    leadership that we have. Find a way to work our way through
    this wrinkle of the funding. It is overdue. It is there. I
    think we can really do a great thing in reenergizing the
    interest in farming with the African American community if we
    do right by settling this past discrimination that has been
    done to them.
        Secretary Vilsack. Congressman, I don't disagree at all
    with anything you have said, and as it relates to the process,
    once the money is appropriated, we have worked with the
    plaintiffs' lawyers for a process. But, it is a bit premature
    to start the process because we don't have the resources, and
    the process will engage and involve farmers making a choice and
    a decision whether to accept a set amount and some debt relief,
    or whether they want to pursue a more formal evidentiary
    hearing in the hopes of being able to obtain more than the set
    amount which may be as much as $50,000.
        Mr. Scott. And I commend your energy on this, Mr.
    Secretary. I have talked with you personally about it. I know
    your commitment to it. I just ask you to keep everybody's irons
    in the fire.
        Now, one final question on the 1890s. We, in the farm bill,
    worked to increase that authorization these 1890 traditionally
    African American colleges, and again, most of these colleges
    based in agriculture are in the rural areas, but the
    President's budget request for these programs has been woefully
    inadequate, and as requests for these funds come in, could you
    give us a very quick status report on where we are with the
    1890s and why has the Administration chosen to shortchange
    these programs in its budget given the dire need of funding for
    these African American institutions?
        Secretary Vilsack. Well, this is what I can tell you,
    Congressman. In Fiscal Year 2010, $48.5 million was
    appropriated for the Evans-Allen ag research at the 1890 land-
    grant universities and colleges. The funds have been
    distributed to the eligible institutions under that program.
    There was also the 1890 capacity building grants program in
    which $18 million was appropriated. Proposals were due in
    February and we are in the process of having those peer
    reviewed, and we anticipate awards will be made this summer.
    Extension at 1890 universities, roughly $42.6 million was
    appropriated and the funds have been distributed to eligible
    institutions. Then there was an 1890 facilities grant, $19.7
    million appropriated for the program. These funds are being
    awarded on a competitive basis. Proposals were done earlier
    this month and they will be peer reviewed, and we hope we get
    the resources out this summer.
        We are also in the process of working through our newly
    created National Institute of Food and Agriculture and working
    on a series of competitive grants, and Roger Beachy, who is the
    director of that effort, recently met with the 1890
    representatives. We just executed a new Memorandum of
    Understanding. I met with him recently and we are talking about
    how they might be able to participate in that competitive grant
    program. I think we are sensitive to the need to provide
    resources for these institutions and for the Hispanic colleges
    and universities as well and the Native American entities.
        Mr. Scott. Thank you, Mr. Secretary, and again, I
    appreciate the sterling leadership you are providing on both of
    these issues. Thank you.
        The Chairman. I thank the gentleman.
        The gentleman from Texas, Mr. Conaway.
        Mr. Conaway. Thank you, Mr. Chairman.
        Mr. Secretary, thank you for being here. I appreciate it.
    Good to see you again. I want to continue to beat the SRA horse
    a little bit, but before I get to that one, I will ask at least
    4 minutes' worth of questions and then take your 6 or 7 minutes
    to answer.
        You used the phrase earlier in the conversation about
    nationalizing the biofuels industry, and I want you to clarify
    that, that you really didn't mean the Federal Government taking
    over all of that.
        Secretary Vilsack. No. It needs to be in all areas of the
    country.
        Mr. Conaway. Okay. Nationalizing an industry has a unique
    phraseology among our colleagues.
        Secretary Vilsack. Good point.
        Mr. Conaway. And so we want to make sure the folks in the
    back----
        Secretary Vilsack. How would you suggest I do that in the
    future? I don't want to----
        Mr. Conaway. Well, I suggest letting the market do it and
    the Federal Government get out----
        Secretary Vilsack. Well, no----
        Mr. Conaway. You mean just describe it?
        Secretary Vilsack. Yes, how do you describe the hope that
    it is able to flourish in all parts of the country?
        Mr. Conaway. Well, the hope has to be driven by the market
    and it is the classic example of the Federal Government getting
    ahead of a market, incenting folks to make investments and now
    they are stranded. Now they want the Federal Government to bail
    them out, those kind of things. So maybe we could try to keep
    the Federal Government out of the business a little bit, but I
    didn't think you meant for the Federal Government to take it
    over.
        Asking the question about the reinsurance agreement. The
    $6.9 billion in cuts that are being proposed for A&O, I hope a
    part of that is you are able to have your team describe to the
    folks that are going to suffer those cuts that there are better
    ways to do what they are doing. In other words, that there are
    efficiencies involved, that we are in fact not going to have
    diminution in services, and that this isn't some sort of an
    arbitrary number that was picked out and said all right,
    squeeze your business into this number, that your rationale for
    why these cuts make sense to the taxpayer versus why it ought
    to make sense to the reinsurance folks as they try to comply
    with that.
        And then a couple comments, if you would, on the Colombia
    Free Trade Agreement and your view that if whether or not that
    remains of importance to agriculture in this country, and the
    impact it would have if we could actually get that done.
        And then a statement on the nutrition programs. During the
    conversation, the debate last year on the stimulus bill,
    Chairman Obey said, funding for nutrition programs goes up and
    funding for nutrition programs goes down. As we look at ways to
    try to deal with the fiscal responsibility of our country, are
    nutrition programs among those that were looked at for ways to
    trim the deficit?
        Secretary Vilsack. In terms of the crop insurance, our view
    is that a fair deal can be reached without the necessity of
    reducing services, and let me start with the companies
    themselves. They obviously have to make a profit and we don't
    begrudge them that profit, and they obviously have the
    potential for a year in which they will lose money and they
    need to have the capacity to weather that difficulty. Well, in
    the 15+ years that we have been engaged in this, there have
    been 2 years where there have been small losses and 13 years of
    fairly significant profits, and recently those profits have
    been rather dramatic. They have dramatically increased to the
    point where we had a study done of the industry to determine
    what would be a fair return for the company to be able to
    maintain its stability and at the same time be reasonable to
    the taxpayers. The study came back from an entity that often is
    used by the industry itself in studying itself that roughly 12,
    13 percent would be a reasonable return for stability, and what
    was actually happening in the marketplace was about a 17
    percent return. So we suggested in the proposal that we, in a
    sense, split the difference and that we provide for about a 14
    percent opportunity. In doing so we initially proposed
    increasing the exposure and the profit opportunities that the
    government would have under the circumstances, and that has
    been in the process of being discussed and negotiated.
        As it relates to the agents, the issue here is how many
    policies are you selling and how difficult is it to sell. I
    realize that you have to go out in the field and you have to
    talk to farmers about the various options that are available,
    but it is slightly different than it was when we first
    introduced this concept because now banks, in particular, are
    requiring this as a condition of their loans, so it is a little
    bit easier, and there are actually fewer policies. There are
    about 200,000 fewer policies being sold today than there were
    in the year 2000 but what we have seen is dramatic increases in
    agents' compensation. So talking to the companies, how do we
    deal with this, we proposed in essence what would be about
    $1,000 a policy, as opposed to what was just a couple years ago
    $600 to $800 a policy. So it is actually over the course of,
    perhaps not last year, but over the course of time it would be
    an overall increase. So we think that they can live within
    that, but discussions are ongoing, and they will continue to be
    ongoing until we hopefully reach an understanding and agreement
    that we can live with and that everyone is satisfied with. And
    I will say again that the negotiations have been fruitful. I
    think they have been in good faith. People have listened to
    each other and we have tried to respond with our proposal, and
    we have come off quite a ways from the initial proposal and we
    have yet to continue to the negotiations.
        On the Colombia Free Trade Agreement, obviously it would be
    a benefit to agriculture as would the Panamanian Free Trade
    Agreement, as would the Korean Free Trade Agreement. There are
    issues outside the purview of USDA involved with all of these
    trade agreements. We are certainly encouraging our counterparts
    who are dealing with environmental issues or labor issues or
    tax issues or auto issues to be able to deal with them so that
    we get to a point where hopefully these agreements can come
    before the Congress and they can be passed, and we are
    encouraged by the President's commitment to expand the exports.
    We certainly have been engaged and involved in that commitment
    and we are going to continue to aggressively travel,
    aggressively promote reduction in barriers that exist in the
    world today as recently with Russia and China on a variety of
    issues involving pork and we are in the process of still
    working with the Russians on poultry.
        On the nutrition side, we are constantly looking for ways
    in which we can do a better job of using the resources we have.
    But, the economic reality is that in the SNAP program there are
    actually fundamentally more people who qualify for the program,
    which is why we have seen a rather significant increase in the
    participation. As the economy improves and people are getting
    back to work, you would think that there would be a
    corresponding decline in those programs.
        On the school lunch and school breakfast program, I mean,
    the reality is that we have been criticized for the quality of
    the meals that are being served to youngsters in terms of too
    much sugar, too much sodium, too much fat, and not enough low-
    fat dairy and whole grains and fruits and vegetables. We need
    to do something about that. There is a cost associated with
    that. We are looking for ways in which we can economize. One
    idea that has been proposed, which I think is a valid one, is
    how we might be able to reform the SNAP-Education component of
    SNAP. We spend a significant amount of money with the states to
    try to expand outreach. It is a matching program. We are
    suggesting that maybe there is way in which we could cap the
    amount that we spend on education, take over the state share
    and over the course of time save money and utilize that money
    for lots of other purposes. I think we are looking at ways in
    which we can economize.
        Mr. Conaway. Thank you, Mr. Chairman, and Mr. Secretary,
    thank you.
        The Chairman. I thank the gentleman.
        The gentleman from Wisconsin, Mr. Kagen.
        Mr. Kagen. Thank you, Mr. Chairman.
        Thank you, Secretary Vilsack, for the hard work that you
    have put in. Never before has government been asked to do so
    much for so many with so little resources. My northeast
    Wisconsin corner of the world, we have had a 60 to 70 percent
    increase in the use of the Food Stamp Program, and if these
    children weren't eating breakfast and lunch at school, they
    quite frankly wouldn't be having the meals that they require to
    get the energy into their body to get the education that they
    need. We won't be able to solve all of the world's problems or
    the farm bill's issues in the 5 minutes I have allotted to me.
    I thought I would go over a few areas that are of particular
    concern to my constituents, and I provided you and your staff
    with some written questions that we could get responses to at a
    later time.
        First off, I would like to align myself with Mr. King's
    remarks with regard to the tax credit for biofuels, and I would
    like to work with your department, and this whole Committee
    would work in a bipartisan way to guarantee that the plants
    that have already received the investment of local investors
    and investors around the country understanding that when these
    businesses are mothballed and if they go out of business, they
    don't come back. So we have these startups and we need to make
    sure that Congress does its job and the Administration works
    together to make sure that that tax credit becomes renewed as
    soon as possible.
        The other thing that we worked so hard to do in a
    bipartisan way was to make sure that our agricultural producers
    could grow food locally, and then get it into our local school
    systems so that it is grown local, bought locally, and get it
    into our children. But there is a competitive disadvantage
    there because of other support programs that quite frankly have
    allowed these other food products, the carbohydrate-based foods
    and grains, to come in for breakfast cereals that quite frankly
    we can't compete with because of their subsidies. We just
    can't--sugar is cheaper than protein any way you look at it,
    but I think that is one of the obstacles you are going to be
    faced with in trying to work with what resources we have to
    make sure our children get a higher quality meal. So I would
    like answers at a later time, not here in this hearing, about
    what strategy your department is using to improve the
    nutritional content of the meals offered at both breakfast and
    lunch and other programs at school.
        Isn't it strange that we have an obesity epidemic in our
    children and yet we are providing them with more and more food
    at schools? I am wondering if there is a correlation there.
        Also, I would like to work with you on our forestry
    efforts. In northeast Wisconsin, we have some national forests,
    and like elsewhere in the country we have had difficulty in the
    fulfillment of contracts and bids that were successful and let
    out, difficulty in terms of litigation. We took it upon
    ourselves to have a field hearing in northeast Wisconsin on
    this issue, and we brought together the litigants from Chicago
    who were not really understanding what we are doing in
    forestry, and when they visited the forest and took down a few
    trees with our ag people, our forestry and our lumber industry
    people, some of those lawsuits just disappeared. They
    understand that there is a lumberyard, there is a forestry
    industry, that these people make a living out of the forest and
    that more importantly, these very mature trees don't suck out
    as much carbon dioxide as young saplings do as they grow more
    rapidly. So I would like to work with your department to make
    sure that we can eliminate, wherever possible, any spurious
    litigation that would prevent the implementation of programs
    that have been financed by this Congress.
        Two other areas on food safety in particular: Irradiated
    foods have been proven to be safe and I am wondering if it
    isn't time to consider discussing the possible irradiation of
    all imported foods to eliminate five million cases of foodborne
    illness? I would like to take that up at a later time.
        And with the remaining 1 minute of my 5 minutes, I want to
    turn to the primary focus of my attention. Wisconsin is still
    the dairy state, and we have a great number of dairy producers
    and farm families that have made a living for generations. I
    want to thank you on behalf of everybody in Wisconsin for
    helping our dairy farms to continue to exist with all the
    support that you have provided since you came into office. I
    want to thank you from the bottom of my heart.
        And then I want to ask you a pretty straightforward
    question because they are asking me what is in this Trans-
    Pacific Partnership free trade deal for dairy? What are the
    benefits for dairy?
        Secretary Vilsack. Well, Congressman, I don't know that
    that is a question that can be answered because the
    negotiations really have not started in earnest in terms of the
    Trans-Pacific Partnership. I think that we are aware of the
    fact that there is concern about how that agreement might
    impact either negatively or positively dairy, and I can tell
    you that that is an issue that will be discussed and negotiated
    as we participate. What we are interested in obviously is a
    broad-based, regional, rules-based, science-based trading
    system which is consistent with virtually every other aspect of
    our trade policy. So I can't say today that there is a pro or
    con. I know that there is concern, and because of that, it
    needs to be discussed, it needs to be negotiated, but the
    negotiations really generally have not really started on those
    issues.
        Mr. Kagen. Our dairy interest is very interested in having
    balanced trade deals to make sure that we can penetrate their
    market to the exact degree that they might able to penetrate
    ours.
        The other, I would like to align myself with the Chairman
    with regard to transparency in price discovery. We found out in
    our financial system the horrors that can come upon our entire
    economy when a pricing system is opaque and nontransparent. I
    wouldn't think it would be that difficult to have in a
    straightforward immediate lifetime Internet-based system where
    we could discover prices to make sure that there is no
    advantage given to the processors versus the producers.
        Secretary Vilsack. You know, in some areas of agriculture
    that is easier said than done in others because of the nature
    of contracts and the nature of the market, but certainly we
    agree with the Chairman. I think the Chairman is right about
    this, the more transparency there is, the better you can
    understand whether you are getting a good deal or not, and the
    better opportunities you may have to negotiate a good deal. But
    some of these markets by the nature of the market today are
    more closed. It is more difficult to get real-time information
    and accurate information, and that is part of the challenge,
    and the second challenge is of course the software issue which
    has costs associated with it.
        If I might in just 30 seconds, I appreciate you bringing up
    the forest issue because all too frequently people don't
    realize that forestry is part of this Department's
    responsibility. We do have a restoration strategy which we
    think will not only be beneficial to the timber industry, but
    can create more recreational opportunities and certainly more
    energy opportunities, and we would certainly be willing to work
    with you on your forest issues.
        Mr. Kagen. I thank you very much for your cooperation and
    for your hard work, and I will just finish up on dairy by
    saying that not everyone in dairyland will be in strong support
    of a single Federal milk order and they have some other issues
    and some concerns about reducing the number of classes of milk.
    As everybody here understands and across the country, the
    quality of the milk being produced in Wisconsin is superior to
    anything else in the world.
        Secretary Vilsack. I don't see anybody from California, New
    Mexico--well, I know you are from Pennsylvania----
        Mr. Kagen. With that comment, I will yield back my time.
        The Chairman. I thank the gentleman.
        The gentleman from Nebraska, Mr. Smith.
        Mr. Smith. Thank you, Mr. Chairman, and thank you, Mr.
    Secretary.
        I was just wondering if perhaps you might be able to give
    us an update on the Foreign Agricultural Service, what they
    have been doing, where they are headed from here and resources
    necessary to carry out their mission of trade export promotion.
        Secretary Vilsack. We have proposed and suggested three
    additional resources be provided to the Foreign Agricultural
    Service as it relates to the President's national export
    initiative. One area that has been relatively flatlined for a
    considerable period of time has been the resources that we
    provide through the Foreign Agricultural Service to our in-
    country collaborators and cooperators. These are commodity
    groups and organizations that are essentially in individual
    countries that are promoting the American brand of beef, the
    American brand of pork. Because they have been flatlined, they
    have not been able to expand research opportunities to try to
    break down some of the barriers that are now being constructed
    throughout the world in terms of phytosanitary issues that
    sometimes make it difficult for us to get products into a
    country.
        The second, is in the specialty crop area, again, it is an
    opportunity for us to expand our exports. We think that there
    are additional resources that need to be put into that area.
        And then finally, we have seen a rather dramatic increase
    in the number of teams that we have to put together, from a
    technical experience perspective, that need to travel to
    countries to negotiate for lengthy periods of time as these
    barriers are being constructed to remove them. The most recent
    example is the H1N1. Thirty-eight countries basically banned
    pork exports, and we had to go through the process of trying to
    break down those barriers and convince people that there wasn't
    a threat. So we think that there is a need for additional
    resources in that area to beef up our capacity to do that in
    more places simultaneously.
        Mr. Smith. How do we, I guess, gauge or weigh the
    priorities relating to agriculture development for other
    countries as well within the Foreign Agricultural Service?
        Secretary Vilsack. Well, we have a very strong trade team
    and we are part of administration and countrywide effort to
    promote the global feeding initiative which has been announced
    by this Administration, and which is being supported by the G8
    ag ministers and the G8 country leaders as well as the G20. I
    mean, the reality is that Americans are capable of producing
    high-value-added agricultural products, and in order for that
    market to expand, the income levels of people around the world
    need to expand. As they do, they become more interested in
    buying our protein, for example. So to the extent that we can
    help countries stabilize their economy--I will use Afghanistan
    as an example. We have roughly 55 people in Afghanistan right
    now working with Afghan farmers. Now, part of how we think you
    stabilize that country is by creating an agricultural economy
    that isn't necessary reliant on poppy. To be candid, the Afghan
    farmers are doing the rational thing with reference to poppy
    production. The way it works is, those who want poppy
    production front the cost of inputs. There is no risk, in other
    words, to the farmer because he is not financially at risk to
    put the seeds in the ground, and at the harvest time they come
    and say we will pick it up at the gate, the farm gate. There is
    no transportation expense, no hazard, no issue with
    transporting it to a market. So we have to create a structure
    with credit systems, with seed assistance, with technical
    assistance that minimizes the risks associated with traditional
    agriculture, and encourage them to utilize it. We have seen
    this work in a couple of areas where we have seen dramatic
    reductions in poppy production. That is part of what our
    Foreign Agricultural Service needs to be doing and is doing,
    and I am proud of the work that they are doing.
        So it is a balance, but clearly the President has
    challenged all his Cabinet Secretaries to contribute to
    doubling exports and we want to be part of that. We are proud
    of the fact that within agriculture we have an ag surplus in
    terms of trade and that every billion dollars of trade
    generates somewhere between 8,000 and 9,000 jobs at home. So,
    it is not only good for producers, it is also good for
    employment.
        Mr. Smith. I appreciate that. And my time is about to
    expire, but I do want to share some of my constituents'
    frustration on these pending trade agreements that we were
    told, some time ago, were ready to go. Certainly a 40 percent
    tariff on red meat going to Korea, taking that 40 percent to
    zero is obviously good for American agriculture and producers,
    and do you think we can see that vote here in the next couple
    months?
        Secretary Vilsack. I would certainly hope so, and if the
    issues were in the ag area, we would be working on them night
    and day. They aren't necessarily in the ag area. They are in
    other areas of the economy which I don't have jurisdiction
    over. We are encouraging the trade representative. We are
    encouraging the Commerce Secretary and others to engage
    forcefully on all three of these trade agreements that could
    potentially give rise to expanded agricultural opportunity in
    Colombia, Panama and Korea.
        You know, we are at the same time working with other
    countries to try to reopen markets that have been closed for
    far too long, and, hopefully, we will be able to continue some
    progress in that area.
        Mr. Smith. Thank you.
        The Chairman. I thank the gentleman.
        The gentleman from Missouri, Mr. Luetkemeyer.
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        Thank you, Mr. Secretary, for enduring a couple hours of
    all these questions here. It is getting long.
        You and I come from the same part of the country and we
    each have Missouri River and the Mississippi River knowledge.
    My question is with regards to the program that the Army Corps
    of Engineers has initiated at the behest of the Fish and
    Wildlife folks with regards to the series of challenges or
    chutes or slews along the side of the river to allow the pallid
    sturgeon to habitat in those areas. In doing that we are
    dumping 548 million tons of soil into the river, and these are
    things that my farmers along those rivers, the Missouri River,
    anyway, they are being penalized for. Now we have an $80
    million study to study the effects of the dumping down at the
    gulf of the Mississippi River. So can you tell me where you
    stand on this issue, what we are doing about it and where we
    can have hopefully some help from USDA to try and stop this
    nonsense?
        Secretary Vilsack. I think a good place to start, although
    it is not on the Missouri, it is on the Mississippi, is the
    work that we are doing in the upper Mississippi River basin as
    a model for how we can approach other areas of the country
    where watershed issues are problematic. We are utilizing
    resources from our conservation programs as a way of
    incentivizing farmers to help us continue the enormous progress
    that has already been made nationwide in reducing the amount of
    soil erosion. It was not long ago that roughly 3 billion tons
    of soil was being lost. Today we have cut that down to about
    1.7 billion tons. To give you a sense of that, it is about 150
    million dump trucks of soil that go into those rivers and
    streams across the country. We need to continue to use our
    conservation programs to prevent that from happening because it
    not only preserves the soil, it also makes it easier to
    maintain the water quality. And I think that there are ways in
    which perhaps on the Missouri we can work with the farm
    community to better utilize or expand opportunities in terms of
    conservation programs patterned after what we are doing with
    the Mississippi River.
        Mr. Luetkemeyer. My question is not with regards to what we
    are doing with the farmers, which is fine. I don't have a
    problem with that. But we have the Army Corps of Engineers who
    have given themselves their own permit to go out and dump
    hundreds of times more soil into the river than what our
    farmers are allowed to do, and that is having a much more
    dramatic effect on the water quality of the Mississippi River
    and all the other that come up with that. I mean, this is
    asinine that we are pursuing this policy and we certainly could
    use some help.
        Secretary Vilsack. Congressman, I am sorry. I didn't
    understand your question obviously, and you make a good point
    which is that we are spending resources to try to prevent it in
    other parts of my state, the State of Iowa, and we are
    contributing to it in your state. So that is something we need
    to look into.
        Mr. Luetkemeyer. Well, you have an $80 million study that
    determined the effects of what is going on.
        Secretary Vilsack. Well, we kind of know what the effects
    are.
        Mr. Luetkemeyer. I am sure you and I do. We could certainly
    use some help. Can we get a commitment from you today to work
    on that issue?
        Secretary Vilsack. I will certainly be happy to take a look
    at it and be able to communicate with the Army Corps and find
    out what the rationale is, and whether or not there is another
    way of doing what they need to do. I know this is a contentious
    issue, having been the governor of the state, and Congressman
    King remembers the discussions we had with Missouri and South
    Dakota and everybody else about river flows. It is very
    complicated.
        Mr. Luetkemeyer. One final question. As I talk to farmers,
    what is in the farm bill quite frankly is usually secondary to
    any questions that I get from them. The question I get almost
    all the time from those farmers now is the regulation that is
    impacting their lives that comes out of Washington, whether it
    is the Clean Water Act and talking about pesticides, whether it
    is EPA on greenhouse gases, we have spray drift stuff coming
    up. I mean, the list goes on and on and on of how the Federal
    Government is impacting their lives in a negative way, not in a
    positive way. And it has nothing to do with the farm bill. It
    has everything else to do with all the other agencies. Mr.
    Secretary, we need some help. What can you do? This has to be
    an issue, I am sure, for you as well to see how it is impacting
    our farmers and the cost of production, the cost of how they
    can live their lives on the farms and produce our product and
    our food. We are not going to be able to compete anymore on an
    international basis if we keep raising the cost of production
    and run people out of business.
        Secretary Vilsack. Well, when I was at the commodity
    classic several months ago, I asked the heads of the major
    commodity groups how I could be of greatest help to them and to
    the folks that they represent and care about, and they
    suggested that we establish a much closer, more effective
    dialogue with the regulators and the folks who are making these
    regulations. And so what we have done, and what we are going to
    continue to do, is to create an opportunity for those commodity
    groups and livestock groups to be able to actually visit with
    and talk to the EPA Administrator specifically and directly
    about precisely what those concerns are. We had a breakfast at
    EPA where we talked about the drift issue, and there was
    clarification in terms of precisely what EPA was considering. A
    lot of times there is an assumption or a supposition that the
    regulation is going to do X, and once it is explained they
    realize well, maybe that is not precisely what it is going to
    do, it is going to do something different, and so we need to
    create a dialogue. We need to create a better understanding,
    and we also need to look for opportunities for EPA officials to
    visit the farm, to actually see what is happening on the farm.
    There has been a tremendous change in agriculture, as you know
    better than most, but not everybody knows that, and certainly
    not everybody in Washington knows that. We are encouraging
    visits, encouraging ways in which they can actually physically
    see the steps that farmers are taking. By improving dialogue,
    creating working groups, developing a relationship between
    representatives of commodity groups and livestock groups with
    the EPA Administrator personally that we may get a balance to
    this process which farmers and ranchers would love to see.
        Mr. Luetkemeyer. Well, my concern is that we are losing
    control of the farming entities that are out there as a result
    of all these other departments coming in and putting rules and
    regulations in place. If there could be some way that we would
    have to, some sort of a clearinghouse that anytime they have a
    rule that impacts agriculture to go through the Department of
    Agriculture, which should have jurisdiction over those issues,
    it would certainly be helpful. I mean, something along that
    line.
        Secretary Vilsack. That is something that you all have to
    decide to do, but I would say that in the meantime what we are
    focused on at USDA is how can we use the tools that we have to
    more effectively provide incentives. The sage grouse, which I
    discussed earlier, is an example of that where we basically say
    look, if the farmers do X, can they essentially be deemed to
    have already satisfied a regulation that may be forthcoming.
    And those are kind of innovative and creative ways that we need
    to look at to allow farmers to do what they do best, which is
    not only to farm but also as stewards of the land and the
    water, and at the same time make sure that we have clean water
    that we can utilize and for a multitude of purposes. I mean, a
    balance can be struck here and we just need to work harder at
    doing it.
        Mr. Luetkemeyer. Thank you, Mr. Secretary. I appreciate
    your comments and look forward to working with you.
        Thank you, Mr. Chairman.
        The Chairman. I thank the gentleman.
        The gentleman from Pennsylvania, Mr. Thompson.
        Mr. Thompson. Thank you, Mr. Chairman.
        Mr. Secretary, thanks so much for your leadership. My first
    question really comes back to what Mr. Smith raised back with
    trade, I mean, the market opportunities for our farmers, our ag
    production. The simple fact is, I think it was Secretary
    Redding from Pennsylvania yesterday that cleverly described it
    as there are 303 million stomachs in America and today seven
    billion around the world and growing to ten billion, so that is
    our market potential in terms of for our agriculture here. So,
    one of the things that was enlightening, for me, anyway, was
    the discussion yesterday that was fairly consistent where it
    looks like--and the hearing obviously was on dairy but where
    subsidies, agriculture subsidies strongly influence the end
    products that our agricultural products get made into. Many
    times that seems to fall in contrast to not just the national
    market needs but more the world market needs, those overall
    seven billion stomachs that are out there, potential markets of
    folks to be fed. And so it really seems to discourage
    innovation and flexibility in responding in innovative ways to
    the new emerging world markets of food needs. I was very
    pleased to hear the President's recent statement about doubling
    our exports. I wanted to know, are there ideas or thoughts on
    the table in terms of how to approach unleashing innovation in
    terms of agriculture to be able to meet that goal of doubling
    our exports within the next few years?
        Secretary Vilsack. A couple of things. I think first and
    foremost a recognition of the uniqueness of each individual
    country and each individual market within the country. In the
    area of trade, one size clearly does not fit all and so what we
    have begun to do is we have begun to develop a process within
    USDA in which we sort of individualize our approach to
    countries based on their place in the continuum of markets.
    There are fragile markets like Afghanistan. There are closed
    markets, more restricted markets like in India and so your
    strategy in India is obviously different than it is in a
    fragile market. There are emerging markets that are small in
    comparison to a China, but still important like a South Africa,
    and so there are ways in which you need to approach introducing
    American products into that market. There are countries like
    China that are exploding, and what we see is oftentimes
    sanitary and phytosanitary barriers being constructed that we
    have to knock down consistently in order to be able to get into
    those countries. And then there is a place like Japan where you
    have a very mature market but there is an awful lot of
    competition, to your point, and what we need to be able to do
    is to continue to focus on the fact that we can provide high
    quality, quantity and cost-competitiveness to the rest of the
    world. We need to have a chance to compete, which is why we are
    spending a good deal of time talking to the Japanese about
    reopening the beef market that was so significant for us in
    Japan. Hopefully, over time we can--we are on divergent paths
    now but hopefully we can get on the same path.
        It is complicated by the fact that we in the United States,
    and properly so, believe in a rules-based and science-based
    system, but oftentimes what we find is the science here is a
    little different than the science in other countries or either
    rightly or wrongly is different, and so it is about dialogue.
    So that is number one.
        Number two, it is incumbent upon us to elicit more support
    and help in selling the American product. We see this
    particularly in biotechnology where there is a resistance on
    the part of the rest of the world because they see this,
    potentially, as a competitive advantage the United States has
    and so there is a pushback, there is a resistance to it. Well,
    if we can get farmers talking to farmers, our farmers talking
    to other farmers in other countries, if we can get our
    scientists talking to their scientists, if we can get our NGOs
    and our environmental folks talking to their environmental
    folks, maybe we can break down those barriers and make that
    market more accessible than it is today. So it is a complicated
    process. We have new strategies in place which we think will be
    more effective. We have a focus on collaborators and on market
    assistance which we talked about earlier. Then, we have to make
    sure that we do this in a way that doesn't get us crosswise
    with international trade agreements that end up creating
    problems for us in other areas.
        Mr. Thompson. My second question really is on policy
    balance with ag. Organic agriculture really is a great niche
    industry. It takes all types obviously of production
    agriculture working together in concert to really feed the
    folks of this nation and the world where we can contribute to
    that. Organic is still more expensive than conventional
    agriculture, rightfully so, and it rightfully has really a
    prominent place in our industry today. My concern is that the
    Administration is trying to shove the movement down the throats
    of the entire production agriculture industry really to the
    detriment of the consumers who are relying on not only a safe
    source, but also an affordable food supply. We need to keep in
    mind that agriculture is only sustainable when it is profitable
    in the end. And so how do we ensure that we proceed with a
    balanced agriculture policy that doesn't favor any one segment
    of agriculture to the detriment of others?
        Secretary Vilsack. Well, that is really a good question,
    and I am glad you asked it because it gives me an opportunity
    to talk a little bit about the need for unity. As I said
    earlier, there are only 2.2 million farmers. Whether they are
    organic or production agriculture, or whether they are very
    small farmers, or whether they are large farmers, there are
    only 2.2 million of them, and that number, at least on the
    production agriculture side, is shrinking. So the question is,
    how do we make sure that agriculture and agricultural
    production is always at the table and has enough political
    support to be able to do the things that have to be done to
    give people an opportunity to stay in the business.
        When populations in rural communities decline, as you well
    know, this next Census will show that we probably will continue
    that chart of 56 percent of rural counties losing population.
    What happens is that there is a realignment of legislative
    representation and you get more urban-centered folks in
    Congress, and you get fewer rural folks in Congress and it
    becomes more difficult. So we have to figure out strategies to
    repopulate rural America so that it stays in the game. One way
    to do that is by making sure that USDA works to better connect
    people to their food supply, and one way we do that is with our
    program called Know Your Farmer, Know Your Food. Now, some
    folks think that that is only about organic. It actually is
    not. It is about all of agriculture production. We have teams
    of folks going out now across the country, in a number of
    states, where we are sitting with local school districts and we
    are asking the question, do you know what is produced in your
    area, do you know the food that is produced in your area, and
    have you thought about maybe making a deal with the local
    farmers to buy from them instead of processed food from some
    supplier 1,000 miles away. Well, we find that a lot of folks
    don't know what is being grown in their area or that there is
    not the infrastructure in place that allows them to purchase
    enough in bulk. So, let us use the rural development resources
    to create that local supply chain, let us figure out how we
    might be able to create new business opportunities to aggregate
    what is being produced and create a local market, better for
    local farmers, more competition for their crops. It isn't
    organic. It is all agricultural production. And it allows a
    better connection, okay?
        And the same thing is true with job growth. If we create
    better-paying jobs and folks have the capacity to say to their
    youngsters there is real opportunity in rural America, then we
    are going to see a resurgence. I honestly believe people are
    looking for what rural America offers, but they feel that
    $28,000 per capita and they could make $40,000 per capita in a
    metro area, they are doing the rational thing. Well, let us
    figure out how do we close that gap. And there are so few of us
    that we really can't afford to be talking to each other or
    fighting with each other. We actually have to talk to the
    people in those urban centers about why rural America is
    important to their existence, why it is not just their food, it
    is their water. Eighty percent of the surface water and
    groundwater comes through the forests and working private lands
    of this country. That is the water supply. That is pretty
    important. Forty-five percent of the military folks in uniform
    come from rural America. That is important. The rest of the
    country needs to pay attention to rural America. And so part of
    my job is to make sure that I am speaking to enough audiences
    that people understand and appreciate the diversity and variety
    that is in rural America, and that they understand the
    connection between their life and rural life in the hopes that
    it makes your job a little easier with your colleagues in terms
    of the kind of support that you need to make sure folks stay on
    the farm.
        So it is an expanded conversation I think that needs to
    take place, and it is a conversation where we have to not be
    talking and fighting with each, we have to be talking outside
    of our area and trying to increase our sphere of influence, if
    you will, and we can do that. We have a heck of a product to
    sell and that is what I am trying to do.
        Mr. Thompson. Thank you, Mr. Secretary. I appreciate your
    perspective and your leadership for rural America.
        Thank you, Mr. Chairman.
        The Chairman. I thank the gentleman.
        The gentleman from Louisiana, Mr. Cassidy.
        Mr. Cassidy. Thank you, Mr. Secretary. Now, as I try to
    integrate your testimony, on the one hand you speak about rural
    development and the other hand you speak about farm income and
    such like that. We know the two are related but they are indeed
    also distinct, fair statement. For example, you talk about
    biodiesel fuels or such like that. It is related to but
    distinct from a farm activity. Now, the cap-and-trade issue
    concerns me. If you just want to look at rice, for example, we
    have heard testimony from USDA economists, I believe, but also
    from others that because of the increased cost of input there
    will be a 25 percent decrease in rice production, or maybe
    acres under cultivation because of cap-and-trade within, like,
    15 years or so, a fairly immediate impact. It almost seems like
    if you decrease the amount of acreage by 25 percent, inherently
    you depopulate that area, inherently you damp down the economy.
    You have spoken in your previous testimony how there are
    offsets for that but there was an article in Harpers Weekly
    recently and indeed the testimony before us is that to hold
    down the costs of those offsets, many of them will be shipped
    to agriculture production overseas. So it almost seems that we
    are on the one hand saying we want to develop rural economies,
    and on the other hand we are increasing their cost of input
    such that inevitably they shall suffer.
        Secretary Vilsack. Well, there are a number of studies on
    this issue and the last study that I saw suggested that rice is
    about a break-even point, that other major commodities actually
    benefit from appropriately established and appropriately
    structured offset programs.
        Mr. Cassidy. Now, clearly the assumptions are key. None of
    the testimony that we heard in this Committee, that I recall,
    at least, regarding that suggested anything as optimistic as
    that.
        Secretary Vilsack. I think it is the University of
    Tennessee study.
        Mr. Cassidy. Okay. We will look that up. So continue,
    please. I am sorry I cut you off.
        Secretary Vilsack. Well, as we look at this, essentially if
    there are opportunities to set up a properly structured offset
    system, then you have by most of the studies that I have
    reviewed tens of billions of additional resources coming into
    rural communities, which create new opportunities.
        Mr. Cassidy. Now, the offsets that you are speaking of, and
    again properly structured must be key because the Harpers
    Weekly study showed how Brazil precisely endorsed the program
    because they have a lower cost way of creating offsets. Others
    indeed have come up with other ways of doing it including
    China, et cetera.
        Secretary Vilsack. We are actually beginning to see in a
    very, very small way the emergence of these ecosystem markets
    in a variety of areas, not just carbon but also water and
    conservation. You know, there are areas in the country where
    farmers are being paid to do what is right with their land so
    that communities don't have to spend a substantial amount of
    money on wastewater treatment facilities, things of that
    nature. Again, I think this is a strategy. It is not by any
    means the silver bullet. But, what you need is a
    diversification opportunity so there are a wide variety--you
    mentioned the biodiesel as not being necessarily farm related.
    Well, the reality is, if you see the connection between off-
    farm income and people being able to keep the farm, if there is
    a refinery in the area----
        Mr. Cassidy. Yes, I actually see that connection. In fact,
    when I see that the rice production will go down by 25 percent,
    I think there is that much less stalk to make renewable energy
    with.
        Secretary Vilsack. But I am not sure that that is--I mean,
    again, there are different studies so you and I can have the
    war of studies here, but it doesn't necessarily have to be--
    there are a number of studies where the assumptions were at
    best incorrect and in some cases pretty far off. So----
        Mr. Cassidy. By the way, it is also your USDA study that I
    am partly quoting, although I can't remember chapter and verse.
        Secretary Vilsack. As you probably know, we are in the
    process of reviewing the basis of some of our studies, the
    FACET model, and we are in the process of reviewing. There were
    several assumptions within that FACET model relative to
    productivity that aren't necessarily lined up with what is
    happening in the real world.
        Mr. Cassidy. Let me ask you a different issue before I run
    out of time. I am struck that again we seem to be on the one
    hand saying that we have a problem with obesity, so many of our
    kids are unready for service, and on the other hand we are
    creating--we are supplementing and expanding greatly the amount
    of money going for food stamps and such like that. Yet, if you
    draw a correlation there will be a tight correlation between
    people receiving food stamps and obesity. I am a physician. I
    do this for a living when I am not here. And there is a fairly
    tight correlation between SNAP and the amount of obesity in a
    population. So have we looked at--are we just like--it almost
    seems like we have met the enemy and he is us.
        Secretary Vilsack. Well, obviously, you know a lot more
    about medicine than I do, Doctor, but I will tell you this. The
    studies I have seen suggest it isn't so much access to food
    generally as it is access to certain types of food, and the
    reason why food deserts becomes an important issue is that a
    lot of----
        Mr. Cassidy. I accept all that. That is a great point and I
    agree you entirely. So why are we--you mentioned SNAP is under-
    funded. Why are we putting more money in a program which is
    correlated strongly with obesity and not more money into
    another program which may ameliorate the ill effects of the
    first?
        Secretary Vilsack. Well, I don't know that I necessarily
    said that SNAP was under-funded, but SNAP is the program that
    has been created to provide nutritional assistance. We are in
    the process of trying to figure out ways in which we can
    encourage fruits and vegetables purchases and things of that
    nature, the healthy food initiative that I talked about
    earlier. That is part of it. Part of it is food deserts because
    of the fact that there is access to convenience and fast food
    as opposed to a grocery store. I mean, that is a significant
    aspect of this. And part of it is what we are doing with the
    Child Nutrition Act Reauthorization in terms of schools. So it
    is a combination of all that, plus physical activity. And
    candidly, we have to do a much better job in this country, as
    you know better than I do, about getting people moving.
        Mr. Cassidy. I accept that. One last question. Has anyone
    looked at the specific, if there is a specific role for the
    Food Stamp Program in contributing to obesity?
        Secretary Vilsack. The studies I have seen have suggested
    that there is not necessarily a correlation between the SNAP
    program and obesity.
        Mr. Cassidy. Will your office forward that?
        Secretary Vilsack. Sure.
        Mr. Cassidy. I appreciate that. Thank you very much. I am
    over time. I yield back.
        The Chairman. I thank the gentleman.
        The gentleman from North Dakota.
        Mr. Pomeroy. Hello, Mr. Secretary. I was here for just a
    brief portion of the meeting because I have had a conflict
    running with the other committee all morning, and I apologize
    for that. I met this week with North Dakota's FSA director
    regarding the administration of the SURE program, and we had
    disaster losses of a significant magnitude in 2008 and the
    checks are being teed out. Some of them have moved, more are
    moving in the weeks ahead. I understand, Mr. Secretary, that
    one of the reasons in 2010 we are sending payments for 2008 is
    even though this program was provided for in the farm bill
    enacted in the summer of 2008, not much had been done on this
    permanent disaster program by the time you assumed leadership
    of USDA. Is that correct?
        Secretary Vilsack. I don't know that that is correct. I do
    know that we have put a focus on trying to get these disaster
    programs up and going, and that we were in the process of
    working on it. Then Recovery Act came in and we had to sort of
    read just some of our numbers, and part of this is a technology
    issue which we are trying to address over the long haul of
    improving our technology. So, it is a combination of a lot of
    things, and this is unusual because from one Administration to
    the next, it takes us a little time to get up to speed, so it
    may be a combination of a lot of things. That may be part of
    it. I don't know.
        Mr. Pomeroy. That is a very fair response. My view is that
    prior group that twice vetoed the farm bill wasn't all that
    eager about implementing the farm bill, and I think that the
    delay on the checks might be some refection of that.
        The important factor, however, most importantly, this thing
    and combined with the crop insurance recovery seems to be a
    very meaningful program. It has taken care of the disaster
    dimension in our state, and I am not getting appeals for yet
    additional disaster ad hoc programs. We put this in place so
    the ad hoc program would not be required. It seems to meet that
    bill. Do you have an evaluation on that, Mr. Secretary?
        Secretary Vilsack. Well, it is a combination of the fact
    that you in setting up the 2008 Farm Bill created a number of
    vehicles that provided outlets in the event of disaster from
    the Forage Program to the Livestock Indemnity Program to SURE.
    Obviously, those programs in concert provide a good part of the
    safety net, by no means all the safety net but a good part of
    the safety net. So we are trying to get these resources out. As
    I said, we have about $430 million in SURE that has been out,
    roughly $82 million on the LIP program and a substantial amount
    on the Forage Program. So it hopefully does take some of the
    pressure off although it is tough out there.
        Mr. Pomeroy. Senator Conrad from North Dakota took a lead
    in making sure there was some additional money added into the
    computer systems. I understand that people have waited up to 3
    hours to get their SURE claims processed, and I haven't had
    complaint about it. I believe people understand this is the
    beginning of a permanent program and there are some start-up
    issues. How about your computer system capabilities in the
    county offices to deal with these programs, and most
    particularly the SURE program in addition to everything else?
        Secretary Vilsack. Well, first of all, I want to thank
    Chairman Peterson for his advocacy for this and his
    understanding of the importance of supporting it. Part of the
    challenge has been that we couldn't just simply focus on
    modernization, we actually had to stabilize the current system
    for fear that it would collapse as it did in 2007. Now, we have
    completed the stabilization efforts, and now a good part of our
    efforts will be over the next 2 years continuation of the steps
    that have been taken to modernize. You know, frankly, Chris
    Smith is far more capable of responding to your question in
    terms of the details, but I can tell you that there is a
    systematic process. I check with him on a quarterly basis in
    terms of what is moving and what isn't and we are committing to
    getting this done. The people need better service and we are
    intent on trying to provide it, and with additional resources
    and support for a year or 2 you will see changes and
    improvements to the system.
        Mr. Pomeroy. The SURE system backstops crop insurance
    system and the SRA renegotiation which has been the subject of
    some back and forth with Committee Members and you this
    morning, I understand, is under review as the SRA is being
    negotiated.
        Secretary Vilsack. Yes.
        Mr. Pomeroy. I would just underscore the critical role crop
    insurance plays in risk protection for farmers. I always think
    renegotiation is appropriate, make sure the program is working
    well, make sure we are getting fair treatment in the public,
    good value for taxpayer dollars in the public-private
    partnership representing crop insurance. I would be extremely
    concerned, however, if negotiations took a track where the
    ability to maintain present service delivery is adversely
    impacted, the competitive nature of the marketplace is
    adversely impacted, or a big chunk of baseline in support of
    the farm bill would go away without us getting any credit for
    it whatsoever relative to the future, but I understand you have
    addressed the baseline issue in the course of this hearing. But
    those would be concerns I would have. My time is up, Mr.
    Secretary. If you would respond and I will yield back.
        Secretary Vilsack. I want to check with Mr. Murphy on one
    thing. I just wanted to make sure I was correct when I said
    this. There is a new company that has expressed an interest in
    entering this market during the course of the negotiations
    which is an indication that what we are proposing is not
    necessarily an end to crop insurance as we know it, but that
    they see an opportunity here. I think the negotiations have
    been conducted on a very good level, very substantive level. I
    think our folks have listened intently in an effort to try to
    work through the issues. We are certainly aware of the baseline
    issue, and we are working with the Chairman and others to make
    sure that the baseline is as protected as it could possibly be.
    At the same time, I think it was time, and the farm bill
    recognized it was time, to rethink and relook at whether this
    could be improved. To the extent that we can smooth out some of
    the rough edges of the crop insurance program where it may not
    be as readily available, to the extent that we can make sure
    that the deal if fair to taxpayers, we have a responsibility to
    do that and we are going to try the best we can to make sure we
    do that.
        Mr. Pomeroy. With the Chairman's leave, I would just
    observe that the last time the--I believe that every insurance
    primary writer and a reinsurer has periodic discussions in
    terms of renegotiating their reinsurance treaties. So it only
    made sense for us to have these renegotiations within the
    context of an SRA. The last time we did it, I actually was very
    active in getting that into earlier legislation, and the last
    time, to my dismay, that we understood this SRA renegotiation
    basically a savings number was cooked up in OMB and the USDA
    negotiators were just supposed to extract these savings from
    the system. That is not what I envisioned in terms of an SRA
    renegotiations, and I don't think that is how it is proceeding
    this time. I do think it is a very reasoned look at how this
    program is working with adjustments being made as required. I
    am pleased that this Committee listened as closely as it did to
    the Oversight Committee and to others within the Congress
    raising questions about crop insurance. I think the agreement
    advanced by Bill Murphy before he became head of our RMA to
    retain Milleman to basically have external consult evaluate
    what is appropriate profitability, what makes sense in the
    context of how insurance works in other lines that might have
    applicability to what we are delivering here in terms of profit
    to our private sector partners. I think all of this has really
    increased and made more sophisticated our understanding, and it
    is going to help us answer critics of the program and make the
    adjustments as appropriately directed. I thank you and your
    team for your leadership in this area. Thank you.
        Secretary Vilsack. Thank you, sir.
        The Chairman. I thank the gentleman, and I think that is
    the last of the Members that need to be recognized.
        Mr. Secretary, 20 minutes better than you thought. We
    appreciate your patience and we appreciate you being with us
    and answering all the questions. I look forward to working with
    you as we move ahead sorting out all this stuff.
        Secretary Vilsack. Thank you, Mr. Chairman.
        The Chairman. With that, I recognize the Ranking Member for
    any closing statement.
        Mr. Lucas. Just simply to note, Mr. Chairman, that this is
    2\1/2\ hours that begins 2\1/2\ years.
        The Chairman. Thank you very much.
        Under the rules of the Committee, the record of today's
    hearing will remain open for 10 calendar days to receive
    additional material and supplementary written responses from
    the witness to any question posed by a Member.
        This hearing of the Committee on Agriculture is adjourned.
        [Whereupon, at 1:45 p.m., the Committee was adjourned.]
        [Material submitted for inclusion in the record follows:]

                    Supplemetary Material Submitted by USDA
        During the April 21, 2010 hearing entitled, Hearing To Review U.S.
    Agriculture Policy in Advance of the 2012 Farm Bill, questions were
    asked of Secretary Vilsack. The questions are [paraphrased] from the
    hearing. The following are supplementary information submissions for
    the record.
    Insert 1
              The Chairman. [The percentage of the total farm income
            statistic that you've used bothers me. 2.2 million ``farmers''.
            If you could produce $1,000 of income you're a ``farmer''. If
            you boil this down to the 300,000 producing 80-90% of the
            product you'd get different numbers. Would you boil this down
            to the 300,000 who are actually farmers? Please present this to
            us--it would be useful.]
              Secretary Vilsack. And it is 2.2 million farmers. That is
            correct.

        The Census of Agriculture defines a farm as any place from which
    $1,000 or more of agricultural products were produced and sold, or
    normally would have been sold, during the Census year. The 2007 Census
    reports that of the 2.2 million farms, 688,833 reported sales of LESS
    than $1,000 in 2007. These farms accounted for less than 0.1 percent of
    total sales.
        Approximately 357,000 farms had sales over $100,000. These farms
    accounted for 92% of total sales in 2007.
    Insert 2
              Mr. Kagen. [Can you describe the efforts your department has
            taken to assist local farmers in getting their products into
            local schools? What more can Congress do to help our schools
            buy fresh local products from farmers in surrounding areas?]

        Secretary Vilsack recently transmitted a report to Congress
    entitled ``Procurement of Local Food for Schools'' prepared by the Food
    and Nutrition Service (FNS). This report responds to a Congressional
    directive included in House Report 111-181, that accompanied the
    Agriculture, Rural Development, Food and Drug Administration, and
    Related Agencies Appropriations Act, 2010 (Public Law 111-80) that
    directed the Department of Agriculture (USDA) to submit a report to
    Congress that provides information on: ``(a) opportunities to
    streamline procurement rules for schools wishing to purchase food
    locally; (b) suggestions for making food procurement data more readily
    available to local jurisdictions, to the states, and for the food and
    nutrition service; and (c) suggestions for requirements of new
    legislative authority or programs that may be needed if schools and
    jurisdictions are unable to purchase food locally.'' This report has
    been sent to the Chairmen and the Ranking Members of both the House and
    Senate Appropriations Committees. In this report, USDA has provided
    Congress with suggestions for future Congressional actions that may
    assist USDA in encouraging and streamlining local food purchasing by
    schools.
        One effort of note that we have recently taken up in this area is a
    new initiative to better connect children to their food and create
    opportunities for local farmers to provide their harvest to schools in
    their communities as part of USDA's ``Know Your Farmer, Know Your
    Food'' initiative. A key objective of the initiative is to support
    local and regional food systems by facilitating linkages between
    schools and local food producers. We believe that this effort will
    provide us with innovative approaches to encourage local agricultural
    purchases and Farm to School success.

              Mr. Kagen. [The farm bill provided funding for a Local and
            Regional Purchase Pilot program to analyze the effects of using
            local and regional purchase of commodities in food aid
            programs. How has the FY 2009 funding that went to local and
            regional purchase been used? What metrics will you use to
            report back to this Committee regarding the pilot's
            effectiveness and possible need for future program changes?]

        In FY 2009, USDA awarded a total of $4.75 million to the UN World
    Food Program (WFP) for local procurement projects in Mali, Malawi and
    Tanzania. In March and April, WFP took delivery of 1,023 metric tons of
    commodities from small-holder farmers in Mali. In Malawi, due to recent
    drought conditions, WFP expects to begin purchasing commodities in
    June. Purchases in Tanzania will take place in July and August. The
    2008 Farm Bill identifies required factors for evaluating the pilot's
    effectiveness. The 2008 Farm Bill required factors are built into data
    reporting requirements of each agreement with participants in the
    pilot. The 2008 Farm Bill also requires USDA to have a third party
    provide an independent evaluation of the pilot using data collected
    from each project. The report is to be delivered to Congress by
    November 2011. In determining the effectiveness of the pilot, the
    evaluation is to examine: impacts of the procurement of commodities on
    producer and consumer prices in the market; benefits to local
    agriculture; impact on low-income consumers; impact on food aid
    delivery time; quality and safety of procured commodities; and
    implementation costs.

              Mr. Kagen. [Can you talk about efforts to improve the
            nutritional value of food products our children receive at
            school? Are there any tools you require that you do not have
            currently to provide all of our kids with quality and healthy
            food options?]

        Improving the nutrition and health of all Americans is a top
    priority for the Obama Administration. That's why we are committed to
    ensuring that all of America's children have access to safe,
    nutritious, and balanced meals and we have set a goal of ending
    childhood hunger by 2015. We have proposed an historic investment of
    funding over the next 10 years through the up-coming Child Nutrition
    Reauthorization to improve our country's Child Nutrition Programs. USDA
    believes that schools play a vital role in helping children develop
    healthy eating habits and active lifestyles. School meals can be a
    critical tool to help children eat a nutritious diet and achieve a
    healthy weight.
        At this time, we are working with Congress to reauthorize the Child
    Nutrition Programs and to make a significant investment in improving
    the quality of the National School Lunch and Breakfast programs,
    increasing the number of kids participating in those programs, and
    ensuring that our schools have the resources they need to make program
    changes. We are in the process of working with Congress to ensure that
    the Administration's goals are part of the child nutrition
    reauthorization. Some of the specific issues that we expect Congress to
    address in the reauthorization include: harnessing opportunities the
    Child Nutrition Programs offer to promote healthier eating among our
    nation's children by implementing higher nutrition standards for both
    school meal programs and the range of other foods sold in schools.
        A recent USDA report showed that 16.7 million children lived in
    households that experienced hunger multiple times throughout the year
    in 2008. At the same time, obesity is growing faster than any other
    public health issue in the United States. Roughly \1/3\ of American
    children are overweight or obese. School meals can be a critical tool
    to help children eat a nutritious diet and achieve a healthy weight. As
    required by the Richard B. Russell National School Lunch Act, school
    meals must reflect the latest Dietary Guidelines for Americans (Dietary
    Guidelines). The 2005 Dietary Guidelines call for significant changes
    in the eating habits of individuals to promote health and reduce the
    risk for major chronic diseases. To update the school program meal
    patterns in compliance with the Dietary Guidelines, USDA enlisted the
    assistance of the Institute of Medicine (IOM) of the National
    Academies. According to the Institute of Medicine Report (released
    October 2009), school age children eat:

       Less than half of the recommended level of vegetables and
            less than 20% of the recommended levels of dark green and
            orange vegetables and legumes that are of particular
            importance.\1\
    ---------------------------------------------------------------------------
        \1\ Institute of Medicine of the National Academics. ``School
    Meals: Building Blocks for Healthy Children.'' October 20, 2009.

       Less than \1/4\ of the recommended level of whole grains.\2\
    ---------------------------------------------------------------------------
        \2\ Institute of Medicine of the National Academics. ``School
    Meals: Building Blocks for Healthy Children.'' October 20, 2009.

       Far too many calories from solid fats and sugars, which
            contribute food energy without the nutrition that growing
            bodies need.\3\
    ---------------------------------------------------------------------------
        \3\ Institute of Medicine of the National Academics. ``School
    Meals: Building Blocks for Healthy Children.'' October 20, 2009.

        The IOM report provided recommendations for new meal patterns for
    the National School Lunch and Breakfast programs to bring them into
    conformance with the 2005 Dietary Guidelines. At this time, USDA is
    carefully reviewing IOM's recommendations and is developing a proposed
    regulation updating the meal patterns for public comment. In the
    meantime, we are providing technical assistance to schools and
    encouraging them to increase the fruits and vegetables, whole grains
    and fat-free and low-fat dairy products served in the National School
    ---------------------------------------------------------------------------
    Lunch and Breakfast programs.

              Mr. Kagen. [Please share your Department's strategy on
            providing high quality product to our school children.]

        USDA continues to make improvements in all of its USDA Foods
    (commodities for donation) to align them with the Dietary Guidelines
    for Americans. These improvements also fit in well with recent 10M
    recommendations for new meal patterns. For the past 20 years we have
    required all canned fruit we purchase to be packed in light syrup,
    water, or natural juices. USDA recently worked with the industry to
    produce low sodium (140 milligrams or less per \1/2\ cup serving)
    canned vegetables for schools and other outlets. We continue to
    purchase other lower salt items such as reduced sodium turkey ham and
    chicken fajitas, and we have reduced the salt limit for mozzarella
    cheese.
        We have also increased whole grain offerings. In addition to whole-
    grain foods such as brown rice, rolled oats, whole-wheat flour, whole-
    grain dry kernel corn, and parboiled brown rice, we are now purchasing
    whole-grain rotini, spaghetti, macaroni, pancakes, and tortillas for
    schools. For many years, USDA has offered schools low-fat and reduced-
    fat ordering options for beef, poultry, and cheese. For example, USDA
    offers a 95 percent lean beef patty, lower-fat turkey taco filling, 97
    percent lean ham, 95 percent lean turkey ham, 96 percent lean diced
    chicken, and several types of reduced-fat and lite cheeses.
    Additionally, trans fats have been eliminated from frozen potato
    products, and a fat free potato wedge is offered to schools.
        Through the Department of Defense Fresh Fruit and Vegetable
    Program, USDA has been able to offer schools a wider variety of fresh
    produce than would normally be available through USDA purchases. In
    School Year 2009, this Program provided $54 million in fresh produce to
    schools. Over the years, states have been pleased with the quality,
    condition, and appearance of the fresh produce and the extensive
    selection offered.
        We plan to continue to pursue healthful options for USDA Foods,
    such as fresh fruits and vegetables, lower fat, fat-free, salt-free,
    and sugar-free products that are palatable to school children and suit
    the needs of the school food service community.
        In addition we have been working to provide training and resources
    to schools to help them prepare more healthful and nutritious meals. We
    recently released a Menu Planner for Healthy School Meals, which will
    help schools improve their menu plans: serving more whole-grains,
    fruits, and vegetables, and lower amounts of sugar, sodium, and
    saturated and trans fats in school menus. And we are preparing to
    release an online toolkit for assisting schools in meeting the
    HealthierUS School Challenge to assist schools in assessing and
    improving their food offerings, including an online calculator to
    determine the nutritional content of meals sold outside of the meal
    programs. We also provide support and assistance for school wellness
    policies, through which communities can work together to support a
    healthful food and physical activity environment for their children at
    school.
        Team Nutrition is an initiative of the USDA Food and Nutrition
    Service to support the Child Nutrition Programs through training and
    technical assistance for food service professionals, nutrition
    education for children and their caregivers, and school and community
    support for healthy eating and physical activity.
        Team Nutrition's goal is to improve children's lifelong eating and
    physical activity habits by using the principles of the Dietary
    Guidelines for Americans and MyPyramid.

              Mr. Kagen. [Dairy farm families in northeast Wisconsin are
            struggling. Last year, at my urging, the USDA acted to assist
            the sinking U.S. dairy industry. What program do you believe
            helped dairy producers the most?]

        Since April 2009, USDA has spent or committed more than $1.5
    billion in support of dairy producers in the United States. Every
    program delivered by USDA plays an important role in helping dairy
    producers weather tough times.
        MILC, under which USDA has made more than $920 million in payments,
    benefits smaller producers (especially those who don't meet the
    production limit) the most. At the same time, purchase prices were
    increased under the Dairy Product Price Support Program (DPPSP) last
    August-October, which increased price levels and benefits all
    producers. USDA also expedited the Dairy Economic Loss Assistance
    Program, which provided $290 million in direct payments to dairy
    producers to help offset losses, and provided an additional $60 million
    for the purchase of dairy products by USDA. In addition to the
    temporary increase in purchase prices for cheddar blocks, cheddar
    barrels, and nonfat dry milk under the Dairy Product Price Support
    Program during August-October 2009, the Dairy Export Incentive Program
    (DEIP) remains available and USDA stands ready to award DEIP bonuses as
    provided by statute. USDA has also used full administrative flexibility
    to make alternative loan servicing options available to dairy producers
    under Farm Service Agency loan programs.
    Insert 3
              Mr. Holden. [Hearing that our Pennsylvania food banks need
            more money. Can you clarify?]

        In Fiscal Year (FY) 2009, the Department provided almost $710
    million of food to the nation's emergency feeding organizations through
    the Emergency Food Assistance Program (TEFAP). This was a record level
    of TEFAP food assistance which included $100 million through American
    Recovery and Reinvestment Act of 2009 (ARRA) and $373.7 million in
    bonus foods. We also provided $49.5 million in regularly appropriated
    administrative support for state and local agencies and $25 million in
    ARRA TEFAP administrative support.
        In FY 2010, Congress appropriated $248 million for food purchases
    in TEFAP, based on the statutory formula established in the 2008 Farm
    Bill, and $49.5 million in administrative support to states and local
    agencies. An additional $25 million in administrative support was
    provided through ARRA. In addition to ARRA and the regularly
    appropriated food and administrative funds, Congress also appropriated
    $60 million for cheese and other dairy products for TEFAP in FY 2010.
    We will continue to direct bonus foods to TEFAP to the extent that
    resources permit. Currently, we estimate that we will provide about
    $348 million in bonus foods to the emergency feeding network in FY
    2010. By statute, TEFAP food and administrative resources are provided
    to states based on their poverty and unemployment levels.
        In addition, the 2008 Farm Bill authorized an Emergency Food
    Program Infrastructure Grant to support and expand the activities of
    the Emergency Food Network. In FY 2010 Congress appropriated $6 million
    for this grant. The Department released the Request for Application on
    April 1, 2010. The application period has closed and the Department
    expects to make awards later this summer.
        In this current economic climate, the Department continues to hear
    of growing numbers of American turning to food pantries and soup
    kitchens to feed their families. We have heard this increase in demand
    is placing an increased burden on the food bank community, both in
    terms of need for additional food and funds. The food bank community
    continues to absorb all resources that the Department has made
    available.
        FNS is deeply committed to to supporting the efforts of local
    feeding organizations, though TEFAP provides a relatively small amount
    of food for the emergency food assistance system as a whole; the
    remainder comes from corporate and private donations and food bank
    purchases. In addition, many food bank clients may be eligible for
    SNAP. Helping eligible clients to enroll in SNAP can help stretch food
    bank resources even farther.
    Insert 4
              Mr. Cassidy. [Please provide the study that discussed that
            SNAP participation and obesity were not directly linked.]

        There are two reports that look across multiple studies to assess
    relationship between SNAP participation and obesity--the links are
    provided below:

        http://www.fns.usda.gov/ora/menu/Published/NutritionEducation/
            Files/ObesityPoverty.pdf

        http://www.ers.usda.gov/AmberWaves/June08/Features/
            FoodStampsObesity.htm

        Here are the key points of what they say with respect to a
    relationship between SNAP participation and obesity:

       The available evidence does not demonstrate that SNAP
            participation causes obesity.

       There is, however, a positive association between
            participation and obesity for adult females. That is, program
            participation increases the probability of being obese for
            adult females--but not for children or adult males.

       Research about the causes underlying these results is not
            conclusive. To determine the relationship between obesity and
            food assistance program participation, it is necessary to
            consider the difficulties and complexity of separating the
            effects of poverty from the potential effects of food
            assistance on any health or social outcome including obesity.

       The consistent relationship between SNAP participation and
            body weight found for women only make it difficult to identify
            appropriate changes to the program to address obesity. Most
            SNAP benefits go to households that contain a child, elderly
            adult, or non-elderly disabled adult. Program changes that are
            appropriately targeted to household members, who may be at risk
            of gaining weight, without harming those who are not, would be
            difficult.
                                     ______

                              Submitted Questions
    Response from Hon. Thomas J. Vilsack, Secretary, U.S. Department of
            Agriculture
    Questions Submitted by Hon. Collin C. Peterson, a Representative in
            Congress from Minnesota
    Title I--Commodities (Including Dairy, Peanuts and Sugar)
        Question 1. Actively engaged rules--Explain the process by which
    USDA reviewed the rules for being ``actively engaged'' in farming. What
    should Congress consider with regard to modifying these changes in the
    future?
        Answer. The 2008 Farm Bill made minor changes to existing
    ``actively engaged in farming'' provisions. The most significant change
    to these provisions made it easier for the spouse of an individual who
    is ``actively engaged'' to be also be considered ``actively engaged.''
    An interim rule with request for comments was published in the Federal
    Register at 7 CFR Part 1400 on December 29, 2008. Included in the
    interim rule was a new requirement that each partner, stockholder, or
    member in a limited partnership, limited liability partnership, limited
    liability company, corporation or other similar entity must contribute
    active personal labor or active personal management on a regular basis
    and that the contributions must be identifiable, documentable, and
    separate and distinct from the contributions of any other partner,
    stockholder or member in the farming operation. The Department received
    over 5,000 comments on the interim rule and 73% of those comments
    stated the need for the payment eligibility rules to be more
    restrictive, particularly in the area of active personal management, a
    component of ``actively engaged.''
        A final rule was published on January 7, 2010. The final rule
    addressed comments received on the interim rule. The final rule
    retained the requirement for each partner, stockholder or member to
    make labor or management contributions, but provided an exception for
    smaller operations whose payments do not exceed the payment limit for
    one person.
        Congress may want to consider defining what constitutes an
    acceptable contribution of active personal management if it believes
    the current definition of ``actively engaged in farming'' is
    insufficient.

        Question 2. ACRE--Sign-up for the ACRE program was considerably
    lower than anticipated (just eight percent of eligible farms
    representing 13 percent of the base acres). To what do you attribute
    that response? You have indicated there are regional disparities in the
    sign-up, but we have also heard of some counties being particularly
    well represented with ACRE participants due to active county FSA
    offices generating interest in the program. Do you see many counties in
    that situation? How can you use this experience to improve consistency
    across county offices?
        Answer. There were several reasons farmers may not have signed up
    for ACRE in 2009:

       Producers were concerned about making an irrevocable
            decision to give up a ``known'' payment for the possibility of
            receiving an ``unknown'' payment. The cost of participating in
            ACRE for a farm is a 20 percent reduction in the direct payment
            amount, a 30 percent reduction of the loan rate for all covered
            commodities and peanuts on the farm, and no countercyclical
            payments in return for possibly receiving an ACRE payment.

       Producers who traditionally receive countercyclical payments
            on cotton, rice, and peanuts would not elect to eliminate the
            countercyclical payment in exchange for a participation in ACRE
            and possibly receiving an ACRE payment.

       Producers who grow crops that take advantage of the
            marketing loan program such as cotton, rice, and peanuts will
            not elect to reduce the loan rate in exchange for participation
            in ACRE and possibly receiving an ACRE payment.

       The commitment to enroll for the life of the 2008 Farm Bill.
            The statute requires that farms enrolled in ACRE are
            irrevocably enrolled in ACRE for the life of the 2008 Farm
            Bill. Because of this 4 year commitment, many landowners shied
            away from participating in ACRE.

       To receive a payment under ACRE, two triggers must be met.
            The first trigger is at the state level and the second trigger
            is at the farm level. In comparison, only one trigger must be
            met at the national level under countercyclical payment program
            and there are no triggers under the direct payment program. The
            dual triggers make the ACRE program more difficult for
            producers to evaluate and understand than the traditional
            direct and countercyclical payment programs.

        We have not conducted any studies that would provide an analysis of
    the varying ACRE participation levels. USDA published information on
    ACRE as did several agriculture industry publications.
        The decision to participate in ACRE required owners and producers
    to evaluate their farming operation in a way typically not required for
    a commodity program. Many tools were provided by USDA and other
    agricultural organizations to assist the owners and operators in making
    the ACRE decision.
        USDA's objective is to administer programs consistently and
    equitably across the nation and works diligently to ensure that County
    Offices do so.

        Question 3. Delivery--As this Committee considers new approaches to
    protecting the income safety net for most agricultural producers, one
    concern is how USDA can evolve as well to accommodate whatever new
    programs are developed and enacted. What considerations should Congress
    make with regard to USDA's fundamental structure and how that structure
    could impact program design?
        Answer. USDA is working to evolve through efforts to modernize
    business processes, IT and delivery abilities. Moreover, USDA is
    working to better coordinate administrative work across Agencies and
    create synergies where possible to ensure a ``team'' mentality in
    implementing programs. We look forward to working with the Committee to
    discuss how these efforts will facilitate the next generation of
    programs that are developed and enacted.

        Question 4. Delivery--What is the status of updating the FSA
    computer system?
        Answer. FSA is incrementally deploying new capabilities and major
    upgrades across the Agency. Major upgrades will occur primarily in FY
    2011 through FY 2014. In 2009, Congress provided funding for the multi-
    year information technology stabilization and modernization initiative.
    The FY 2011 budget proposal includes the resources to move ahead on
    schedule with IT modernization for FSA. It will support the
    continuation of the Modernize and Innovate the Delivery of Agricultural
    Systems (``MIDAS'') project as planned along with necessary conversion
    of software for supporting activities to facilitate transition of FSA
    IT from the obsolete legacy system.
        In addition, USDA's 2011 budget provides for a needed refreshment
    and upgrade of the Common Computing Environment to support the
    continued modernization process for FSA and the other service center
    agencies.

        Question 5. Delivery--Are there new programs first enacted in the
    2008 Farm Bill that posed particular challenges for USDA's operations?
    What aspects make those programs harder to implement?
        Answer. SURE is the most complex and difficult program FSA has had
    to administer.
        Two issues that added most to the complexity of SURE include:

       The requirement that all of a participant's farms and crops
            be considered as one farm. Many participants have multiple
            farms across several state and county lines.

       An insurance requirement for eligibility--Due to the many
            different types of crop insurance policies and coverage levels,
            including the Non-insured Crop Disaster Assistance Program
            (NAP), that may be in place on one farm, the administrative
            burden of tracking both the guarantees and indemnities is very
            challenging.

        Similarly, the ACRE program is a very complex new program that
    required producers to do a significant amount of ``homework'' to
    understand how it would work for their farms. This was further
    complicated by explaining ACRE to landlords and those involved with
    financing farming operations.

        Question 6. Direct payments--One issue with the current program
    structure is that the one element that is considered the least trade-
    distorting (fixed, direct payments) is also the same element for which
    the American public has the most trouble understanding the rationale,
    given that the payments are distributed without regard to the need of
    the producer and the price of a commodity. The Doha trade negotiations
    only continue the United States down the path of decoupled payments.
    How can the United States step off this path that is becoming more and
    more untenable to the American taxpayer?
        Answer. I look forward to working with the Congress on this topic
    as Members begin work on the next farm bill. Various types of direct
    payments have been an integral part of the U.S. Government's farm
    commodity programs for almost a decade. They provide support to farmers
    compatible with WTO rules for non-trade distorting support and have
    become an important component of the farm safety net that farmers have
    come to rely on during periods of low prices and low returns. I look
    forward to working with Congress as we address how programs can best
    meet the needs of farmers, ranchers, and rural communities.

        Question 7. Appointment of FSA State Committees/SEDs--A problem
    many Congressional offices heard about this past year was the
    considerable delay experienced in getting both state executive
    directors and state committees in place. In fact, many were only
    announced this February, over a year after the transition to the new
    Administration. To what do you attribute this delay? Is it similar to
    Administrations past? What kind of backlog at state offices is there as
    a result?
        Answer. USDA was committed to finding the right people for these
    jobs, out of a record number of applicants. USDA appointments for State
    Executive Directors and State Committee Members underwent a stringent
    vetting process and staff was appointed as quickly as we confirmed they
    were the candidates who would best serve the Agency.
        In state offices, as in county offices, field staff is working hard
    every day to deliver a wide array of farm assistance, conservation and
    credit programs. There are backlogs at many offices due to the high
    volume of customer traffic we've seen participating in new 2008 Farm
    Bill programs. This high backlog is not attributable to the transition
    process.

        Question 8. Sugar/Feedstock Flex Program--The Feedstock Flex
    program in the farm bill provides for an emergency outlet for sugar to
    ensure a continued no-cost sugar program for taxpayers. This program
    has not yet been implemented due to lower sugar stocks than what would
    be required to establish the program. However, given the design of this
    program as a ``safety valve,'' how quickly could USDA ramp up such a
    program if necessary?
        Answer. By statute, this new program is to be used to avoid
    forfeitures of sugar to the CCC by diverting surplus supplies to
    bioenergy production. Due to the relatively high level of sugar prices
    (and low likelihood of forfeitures), use of this program is not
    foreseen in the near term. As a result, issuing the regulation
    associated with it has been a lower priority than for numerous other
    2008 Farm Bill regulations. The proposed rule and the cost-benefit
    analysis have been drafted and are in the FSA clearance process.
    Publication is expected in the summer of 2010. If market conditions
    change, this regulation will move to a higher priority status.

        Question 9. Section 1619/Privacy of data--Are you hearing from
    groups that would like to make changes to the data privacy provisions
    that were included in Section 1619 of the 2008 Bill? Are FSA and the
    other agencies involved looking at any situations where Congress may
    want to reconsider or provide more direction, such as the use by state
    and local governments?
        Answer. Section 1619 prohibits disclosure of information regarding
    an agricultural operation, farming or conservation practices or land
    itself that is provided by an agricultural producer or landowner, or
    GIS information maintained about such operations or lands, except to
    Federal, state, tribal, and local agencies, and persons, working with
    the Secretary in any Department program (i) ``providing technical or
    financial assistance with respect to the agricultural operation,
    agricultural land, or farming or conservation practices;'' or (2) when
    necessary to assist the Secretary to in responding to a disease or pest
    threat to agricultural operations.
        The lack of additional exceptions providing for disclosure to other
    Federal, state, tribal, or local agencies, or persons, in circumstances
    not related to USDA farm or pest and disease programs, has created
    serious difficulties for USDA to share information that previously it
    could share under routine uses promulgated under the Privacy Act. In
    the pest and disease area, it also has impacted the ability to share
    information with foreign nations causing potential for adverse trade
    impacts.
        For example, Section 1619 has prevented or made it difficult for
    USDA to provide information barred from disclosure by that statute to
    states to carry out important state environmental and historic
    preservation analyses, in which USDA has no role. Section 1619 has
    prevented USDA from providing state and local prosecutors with
    information that could have aided the prosecutors with their cases,
    such as investigations of water rustling. Also, 1619 has almost shut
    down the ability to provide 1619 information to other Federal agencies.
    For example, USDA was unable to provide 1619 information to the
    Department of Justice regarding a legal issue associated with the
    building of the border fence between Mexico and Texas; USDA has been
    unable to share information with the Department of Justice, the
    Internal Revenue Service, and the Drug Enforcement Agency for
    investigations or prosecutions of tax fraud and other criminal matters
    that are unrelated to farm programs; USDA was unable to share 1619
    information with another agency when information was needed to plan the
    course of an cross-border oil pipeline. USDA could not share 1619
    information related to a National Environmental Policy Act matter with
    the Council on Environmental Quality.
        Further, even with respect to authorized disclosures provided for
    the purposes of certain USDA farm and pest and disease programs, such
    disclosures are authorized only if the cooperator does not disclose
    this information further.
        In this respect, Section 1619 has impacted a number of cooperative
    programs between USDA's Animal and Plant Health Inspection Service
    (APHIS) and state counterparts that require the routine sharing of
    information. For example, Section 1619 permits USDA and its cooperators
    to share producer and landowner information provided in USDA programs
    with other Federal, state, tribal, or local agency cooperators, or
    individual cooperators, only if the cooperator does not disclose this
    information further. In the case of states, this has made more
    difficult the routine sharing of pest detection and identification
    information for pests that are not currently under regulation and for
    the management of endemic pests when their populations grow to
    destructive levels. In those states that cannot provide assurances to
    the Secretary that Section 1619 information will not subsequently be
    disclosed, certain APHIS plant pest and disease detection programs--
    such as those funded under Section 10201 of the farm bill and the pest
    detection appropriation--may have to cease.
        Additionally, the Farm Service Agency (FSA) regularly fields
    complaints regarding Section 1619; largely from realtors, real estate
    appraisers and other entities whose day-to-day operations and
    activities have been hampered by restricted access to USDA information,
    and parties interested in FSA GIS information for a variety of data
    manipulation purposes.

        Question 10. Impact of bioenergy on commodity prices--USDA has come
    out with figures in the past that show the impact of biofuels
    production on commodity prices. Has the Office of the Chief Economist
    done anything recently to give you an idea of the impact on crop prices
    and in return the impact on money being spent on under Title I
    programs?
        Answer. At a June 12, 2008 U.S. Senate Energy and Natural Resources
    Committee hearing, U.S. Department of Agriculture's Chief Economist,
    Joseph Glauber, testified on the effects of the expansion in biofuels
    production in the United States on commodity markets and food prices.
    In that testimony, the effects of increased ethanol and biodiesel
    production on corn and soybean prices are presented for marketing years
    2006/07 and 2007/08. Assuming the amount of corn used for ethanol
    production and soybean oil used for biodiesel production in 2006/07 and
    2007/08 remained unchanged from the amounts used in the 2005/06
    marketing year, corn prices would have averaged $0.24 per bushel lower
    in 2006//07 and $0.65 per bushel lower in 2007/08. Soybean prices would
    have averaged $0.18 per bushel lower in 2006/07 and $1.75 per bushel
    lower in 2007/08. Despite the drop in corn and soybean prices,
    commodity program spending would have remained essentially unchanged,
    since corn and soybean prices would have continued to exceed levels
    that would have triggered either countercyclical payments or marketing
    loan benefits. The scenario presented above was selected to depict the
    effects of increased ethanol and biodiesel production on corn and
    soybean prices and does not represent a specific policy scenario.
        In May 2007, USDA's Office of the Chief Economist and the Economic
    Research Service analyzed two alternative scenarios of biofuel
    production at the request of Senator Saxby Chambliss. Under scenario 1,
    annual domestic ethanol production increases to 15 billion gallons by
    2016 and annual domestic biodiesel production increases to 1 billion
    gallons. Under scenario 2, ethanol production increases to 20 billion
    gallons by 2016 and annual biodiesel production increases to 1 billion
    gallons. These scenarios compare with about 12 billion gallons of
    ethanol and 700 million gallons of biodiesel production in 2016 in
    USDA's long-term baseline agricultural projections released in February
    2007. Under scenario 1, the price of corn increases by $0.31 per bushel
    and the price of soybeans increases by $0.45 per bushel above the
    baseline in 2016. Under scenario 2, the price of corn increases by
    $0.65 per bushel and the price of soybeans increases by $1.20 per
    bushel above the baseline in 2016. These price increases would not have
    reduced commodity program payments, since prices for both corn and
    soybeans were above levels that would have triggered countercyclical
    payments and marketing loan benefits for corn and soybeans.

        Question 11. Dairy--USDA did a lot last year to help the struggling
    dairy industry. What government program do you believe helped the dairy
    industry and dairy producers the most last year? What tools, if any,
    should be continued in order to ensure we protect the dairy industry in
    the U.S.?
        Answer. USDA has been working to help the dairy industry for many
    months. Since the beginning of the dairy crisis, USDA has paid dairy
    producers more than $900 million under the Milk Income Loss Contract
    (MILC) Program. The Fiscal Year 2010 Agriculture Appropriations Act
    authorized $290 million in additional direct payments to dairy
    producers, as well as $60 million for the purchase of cheese and other
    products. In addition, USDA temporarily increased the purchase prices
    for cheddar cheese and nonfat dry milk under the Dairy Product Price
    Support Program during August-October 2009 and reactivated the Dairy
    Export Incentive Program (DEIP). USDA has also used full administrative
    flexibility to make alternative loan servicing options available to
    dairy producers under Farm Service Agency loan programs.
         Not all dairy farmers are the same, so it is difficult to say
    which program helped the most. The largest expenditures were made under
    the MILC program. Since production eligible for payment under the MILC
    program is capped at 2.985 million pounds per fiscal year, MILC
    payments may have been more beneficial to smaller producers than larger
    producers. In addition, all producers benefited from the re-activation
    of DEIP and the assistance provided under the 2010 Agriculture
    Appropriations Act. Farm Loan Program policies to forebear foreclosure
    proceedings and extend additional credit also were very beneficial to
    struggling dairy producers.
        The Secretary has appointed the Dairy Industry Advisory Committee
    (DIAC) to examine what dairy policy would be best for aiding the dairy
    industry. The Committee had its first meeting in April and second
    meeting in June 2010. Committee recommendations will be important in
    guiding decisions on what dairy policy tools to continue using and what
    new tools are needed to better assist dairy producers.

        Question 12. Dairy--Current policies focus mainly on the final
    price that a dairy farmer receive, but pays little attention to overall
    profitability. As we consider new farm policies, should we emphasize
    profit over price?
        Answer. Milk and dairy product prices are an important focus of
    current policies. In addition, the 2008 Farm Bill incorporated costs--
    an important component in determining profitability--into the MILC
    program. The 2008 Farm Bill did so by adjusting the trigger price used
    to calculate the MILC payment rate for changes in feed costs. This
    feature increased MILC payment rates for Fiscal Year 2009 program
    payments. Production costs such as feed often are quite variable
    regionally and also by producer size. I look forward to receiving
    recommendations from the Dairy Industry Advisory Committee regarding
    the issue of profitability versus price and improving the safety net
    for dairy producers.

        Question 13. Restoration of base acres on Federal lands--The
    implementation update mentions that you have reversed the policy of the
    previous Administration and are restoring base acres on Federal lands.
    Can you tell us whether this decision had a cost under Administrative
    PAYGO? And what that cost was if there was a score?
        Answer. This decision had no cost under administrative PAYGO, nor
    was USDA credited with any administrative PAYGO savings when the
    decision to remove base acres from Federal land was implemented. USDA
    estimates that removing base acres from Federal land would save about
    $15 million.
    Title II--Conservation
        Question 14. CRP general sign-up--You announced during your
    appearance at Pheasant Fest that there would be a general CRP sign-up
    this year, and you also released additional SAFE acres. You're probably
    aware those SAFE acres have been used up already and people are still
    coming into local FSA offices asking about enrolling more. Is there any
    more definitive news you can give us on timing of a new sign-up? The
    demand for more SAFE acres seems to be a direct result of having no
    general sign-up for the last several years.
        Answer. Budgetary savings from the draft Standard Reinsurance
    Agreement are to be used for CRP proposals that require PAYGO offsets.
    The proposals, including new and amended CREPs, initiatives, and an
    increased FY 2010 general sign-up (to reach 32 million acres) The CRP
    general sign-up is expected to begin in August after the completion of
    a mandatory 30 day no-action period, issuance of a Record of Decision
    (ROD) on the CRP Supplemental Environmental Impact Statement (SEIS),
    which ended July 19, and the publication of Farm Service Agency's rule
    implementing changes to CRP mandated by 2008 Farm Bill that is
    currently under review by the White House Office of Management and
    Budget.

        Question 15. CRP general sign-up--Can you tell us what level of
    acreage in the CRP you are considering as you move forward with a
    general sign-up? Are you aiming to stay as close to the current 32
    million acre cap as you can? Are you leaving some room for continuous
    practices or new CREPs?
        Answer. We are planning to conduct a general sign-up this summer.
    By incorporating funds realized through the Standard Reinsurance
    Agreement (SRA) savings, the budget baseline has been updated to
    include a general sign-up in FY 2010 (up from 2.9 million acres in the
    President's Budget), and to reach 32 million acres in FY 2011 and
    remain there throughout the baseline period. We cannot provide a number
    on the amount of acreage we plan to enroll because that depends on the
    level of interest and the characteristics of the land that is offered.
    We will evaluate the offers once they are all in and make a decision
    based on the environmental benefits of the land offered. We do know
    that contracts on 4.3 million acres of land enrolled under general
    sign-up are set to expire this year, and that we expect many of the
    contract holders to submit offers, as may many of the holders of 2.7
    million acres under contracts that expired last year. This large
    expected interest is supported by the responses to contract extension
    offers we made over the past several years. Contracts on over 80
    percent of eligible lands were extended during these opportunities.
        What we do not know is the amount of ``new'' lands that will be
    offered. It's been a number of years since a general sign-up has been
    held, so it is difficult to judge the level of interest there will be.
    But we know that there are always new lands offered--lands that owners
    have decided they want to devote to wildlife, protect from erosion, or
    for a variety of other reasons.
        When accepting general CRP sign-up acres, we will keep in mind that
    room must be left for CREP and continuous sign-up enrollment. Because
    the enrollment of environmentally-valuable conservation buffers,
    wetlands, and other practices is very important, we will continue to
    allow producers to enroll acreage in continuous sign-up practices.
    Because the enrollment of environmentally-valuable conservation
    buffers, wetlands, and other practices targeted by continuous and CREP
    practices is very important, we will continue to allow producers to
    enroll acreage in continuous sign-up practices and plan to expand the
    number of CREPs and increase acreages in existing CREPs using SRA
    savings.

        Question 16. Open Fields--What is the status of implementing the
    Open Fields provision in the 2008 Farm Bill? It's my understanding
    we've lost two hunting seasons, and potentially a third, because the
    rules haven't been written and the money hasn't make it out to the
    field. What's been the hold-up?
        Answer. We are pleased to report that an interim rule for the
    Voluntary Public Access and Habitat Incentive Program was published on
    July 8, 2010. FSA also issued requests for application on July 8, 2010
    and applications are due by August 23, 2010.
        Implementation of the Voluntary public Access Program is important
    to the Department and it has been elevated in USDA's 2008 Farm Bill
    priority list as other critical programs have been rolled out.
        Because this program provides grants to states and tribal
    governments on an individual basis, we wanted to be sure that our rule
    does not make any state program ineligible for its share of these
    funds.
        Additionally, our USDA Office of Tribal Relations is working
    closely with us to ensure equitable participation in this program by
    tribal governments.

        Question 17. Outdoor Initiative--Some of us didn't get to attend
    the President's Great Outdoors Initiative. Can you update us on what
    happened last week and provide some details on this is?
        Answer. During the White House Conference on America's Great
    Outdoors held April 16, the President talked about our treasured
    landscapes and the tremendous value of our nation's vast and varied
    natural resources. He also recognized that Americans increasingly are
    losing touch with the outdoors. The President referenced Theodore
    Roosevelt's tremendous conservation accomplishments and stated that his
    goal is to enrich that legacy by developing a 21st century strategy for
    America's Great Outdoors. To that end, the President signed a
    memorandum to the Secretary of the Interior, the Secretary of
    Agriculture, the Administrator of the Environmental Protection Agency
    and the Chair of the Council on Environmental Quality establishing the
    America's Great Outdoors Initiative. The goal of the initiative is to
    (1) reconnect Americans, and children in particular, to America's
    working landscapes, including ranches, farms and forests, to landscapes
    of national significance, to rivers and waterways, and to great parks
    and coastal areas; (2) build on state, local, private and tribal
    conservation priorities and determine how the Federal Government can
    best advance those priorities; and (3) use science-based management
    practices to restore and protect our lands and waters for future
    generations. Regional listening and learning sessions--public
    conversations about America's Great Outdoors--will be held across the
    country. By November 15, 2010, the initiative will provide a report on
    America's Great Outdoors that includes a review of successful and
    promising non-Federal conservation approaches; an analysis of existing
    Federal resources and programs that could be used to complement those
    approaches; proposed strategies and activities to achieve the goals of
    the Initiative; and an action plan to meet the goals of the Initiative.
        After the President signed the Memorandum, attendees heard from two
    panels. The first panel was on conserving working lands. Panelists
    included a historian, a farmer, a rancher, a member of the Nez Perce
    Tribe, and the Mayor of Newark, NJ. The second panel was on connecting
    lands and people, and panelists included a historian, a State Governor,
    a retired state wildlife official, a youth program director at a
    National Park, and the CEO of REI, Inc.
        Break-out sessions held Friday afternoon served as the first in a
    series of conversations about America's Great Outdoors. After the
    conference ended, a website was launched on America's Great Outdoors at
    http://www.doi.gov/americasgreatoutdoors/. Members of the public may
    post stories about experiences in the great outdoors, as well as ideas
    for conserving America's great places, to the website.

        Question 18. WHIP--In the 2008 Farm Bill, we changed the
    eligibility requirements on Wildlife Habitat Incentives Program (WHIP)
    to ensure that money was going to producers. What impact has that had
    on the program delivery? Have any states complained about this change?
        Answer. The 2008 Farm Bill focused participation in the Wildlife
    Habitat Incentive Program (WHIP) to private and Tribal agricultural
    lands. The change has had consequences for private landowners
    interested in the program and has impacted some wildlife habitat
    development efforts, particularly the provision pertaining to public
    land eligibility.
        State agencies and interest groups have expressed concern that the
    WHIP program is no longer eligible for projects that they have been
    planning to implement for some time on public land. During the comment
    period for the WHIP interim final rule many agencies and groups such as
    the Association of Fish and Wildlife Agencies, the Wildlife Society,
    The Nature Conservancy, Trout Unlimited, and others expressed this
    concern.
        Some regions of the nation have been impacted more than others
    because of the change. Although public land projects represented only
    six percent of the WHIP contracts between 2005 and 2008, NRCS and
    public partners developed wildlife habitat projects with significant
    public and private benefits. For instance, the implementation of 57
    fish passage projects benefited hundreds of miles of streams by opening
    channels to aquatic wildlife that benefit all landowners along the
    water courses.
        Because of the limit on landowner participation, potential private
    landowners are excluded from the program because the stream or river
    that goes through their properties is considered public land. Federally
    listed threatened and endangered fish and wildlife species that could
    benefit from these public land projects are placed at risk. To date, a
    total of 28 states have the potential of being unable to participate in
    WHIP because of their public ownership of stream or riverbeds.
        In the State of Rhode Island, the state agency has expressed
    concern that projects involving dam removal or fish ladder
    installations are ineligible due to non-agricultural producers owning
    dams. Fish species that are of state concern are not able to benefit
    from the WHIP program in such projects.

        Question 19. Farmland Protection Program--We rewrote the Farmland
    Protection Program in the 2008 Farm Bill. How many states have asked
    USDA for certification?
        Answer. Under provisions of the Farm and Ranch Lands Protection
    Program Interim Final Rule, entities were not required to request
    certification. When a state or non-governmental organization (NGO)
    submits an application for funding, the entity may request
    certification by USDA. States or NGO's were certified when they
    demonstrated they met or exceeded certification standards as proposed
    in the Interim Final Rule. NRCS received 64 comments regarding this
    issue and these comments are being reviewed.
        FRPP certification standards include demonstrated ability to
    complete acquisition of easements in a timely manner, ability to
    monitor easements on a regular basis, ability to enforce provision of
    the easement deed, experience in enrolling parcels in the Farmland
    Protection Program, and the existence of dedicated fund for the
    purposes of easement management, monitoring and easement stewardship.
        Since enactment of the 2008 Farm Bill, the following seven entities
    have been certified:

       Kentucky Purchase of Agricultural Conservation Easement
            Corporation,

       Fayette County Kentucky Division of Purchase Development
            Rights,

       Ohio Department of Agriculture,

       Delaware Agricultural Lands Preservation Foundation,

       Pennsylvania Department of Agriculture,

       Massachusetts Department of Agricultural Resources, and

       Vermont Housing and Conservation Board.

        Question 20. CSP--When will the final CSP rule be published? And
    what advice do you have for producers who are hesitant to sign their
    CSP contracts without knowing whether several issues that have been
    brought to USDA's attention may be fixed? Such as the treatment of
    entities and the additional payment limitation that was imposed
    administratively.
        Answer. The final CSP rule was published in the Federal Register
    June 3, 2010. The final rule was effective on release, will be used for
    future ranking periods, and is not retroactive to the initial CSP
    ranking period. NRCS implemented the initial CSP ranking period under
    the interim final rule, published July 29, 2009. Participation in CSP
    is voluntary and producers approved for contract had the option to sign
    pending contracts or reapply under final rule provisions. With the
    final CSP rule in place, NRCS has announced a ranking period cut-off of
    June 25 to accommodate the enrollment of an additional 12,769,000
    authorized for Fiscal Year 2010.
        Key changes in the Final Rule:
        Payment Limitations: NRCS raised the contract limitations for
    formal joint operations from $200,000 to $400,000 for the contract
    period and from $40,000 to $80,000 per year. Each person or legal
    entity will still be limited to $40,000 per year. This change follows
    the logic used for EQIP that enables spouses, farming as joint
    operations, to each earn the $40,000 annual limitation.
        Minimum Payment: NRCS will make a minimum payment of $1,000 to
    historically underserved participants with small-scale operations in
    any fiscal year that a contract's payment amount total is less than
    $1,000.
        Pastured Cropland: NRCS established a ``pastured cropland'' program
    designation for land maintained in a grass-based livestock production
    system that is suitable for cropping. Pastured cropland will be
    provided higher program compensation than pastureland due to the higher
    forgone income costs associated with keeping that land in grass.
        Definition of Resource-Conserving Crop: Based on public input, the
    definition of resource-conserving crop was revised to require the use
    of grass and/or legumes in the system in order to provide a sufficient
    level of environmental benefit above the prior definition and qualify
    for the supplemental payment.
        Enhancement Bundles: NRCS evaluated the enhancements available to
    participants in the first sign-up and added enhancements requested by
    the public. Additionally, NRCS is offering participants the option to
    select enhancement bundles whose application as a group addresses
    resource concerns in a more comprehensive manner. Producers'' ranking
    scores and payments are positively influenced when they choose
    enhancement bundles.

        Question 21. CSP--Has interest in CSP been regional or has interest
    been nationwide? How are people reacting to the payment rate per acre?
        Answer. NRCS received over 21,000 applications from across the
    nation including Caribbean and Pacific Island areas on an estimated 33
    million acres.
        Applicants appear to be satisfied with the CSP payment for
    performance payment rates as indicated by the 10,522 participants that
    have signed contracts totaling over 12.2 million acres at a cost of
    nearly $142.4 million.
        There have been no landowner complaints and there have not been
    complaints' regarding the payment rate as indicated by the number of
    contracts/enrolled acres across all four of the land uses (cropland,
    pastureland, rangeland, and non-industrial private forest (NIPF).
        In CSP, participant's annual payments are not determined using the
    traditional compensation model where they receive a percentage of the
    estimated practice installation cost or a per acre rental rate. Instead
    participants' annual payment level will be unique for their operation
    and land-uses based on the combined total of environmental benefits
    from existing and new activities. Participants are paid for
    conservation performance--the higher the operational performance, the
    higher their payment.

        Question 22. CSP--Are you hearing that a lot of producers actually
    came in and gave CSP a try in 2009? And are you hearing of producers
    who wanted to and could have done more on their operations if not for
    the $200,000 cap on payments?
        Answer. Yes, NRCS received numerous comments and feedback from
    joint operations who would have offered more conservation had there not
    been a $200,000 contract payment limitation. In the Final Rule, NRCS
    raised the contract limitations for formal joint operations from
    $200,000 to $400,000 for the contract period and from $40,000 to
    $80,000 per year. Each person or legal entity will still be limited to
    $40,000 per year. This change follows the logic used for EQIP that
    enables spouses, farming as joint operations, to each earn the $40,000
    per person annual limitation.

        Question 23. EQIP--We all know that EQIP is a very popular program,
    but I'm wondering if you can tell us exactly how popular it is and what
    the current backlog is of requests that are eligible but can't be
    funded?
        Answer. EQIP is a very popular program that provides flexibility to
    farmers, ranchers, livestock producers and forest landowners to receive
    financial and technical assistance to address natural resource concerns
    on their operations.

       In Fiscal Year 2009, USDA obligated $1.054 billion in
            financial and technical assistance through EQIP entering into
            approximately 32,000 contracts.

       In Fiscal Year 2009, the number of contracts that were not
            funded totaled 54,329 contracts valued at $1.36 billion.

        Question 24. EQIP Organic Initiative--What has been the interest
    level in the EQIP organic provisions?
        Answer. The EQIP Organic Initiative authorizes payments to be made
    for conservation practices on operations related to organic production
    or transition to organic production. It is in the second year of
    administration. In FY 2009, NRCS provided $36 million to organic
    producers through the EQIP program to develop and carry out an Organic
    System Plan (OSP), or to install conservation practices related to
    organic production.
        NRCS has continually worked with the organic stakeholder and will
    continue to work with the stakeholders to improve organic
    administration. Fiscal Year 2009 was a pilot year for the Organic
    Initiative (OI); although we obligated over 36 million dollars NRCS
    felt a need for improvement. NRCS worked closely with several
    organizations to make improvements on program delivery.
        In Fiscal Year 2010, NRCS provided guidance to the states to
    increase outreach within the states as well as providing updated
    information on the national NRCS program website. NRCS provided
    guidance to states and field offices that compared National Organic
    Program regulations and requirements to NRCS resource concerns and
    practices.
        The Fiscal Year (FY) 2010 EQIP Organic Initiative is currently in a
    reallocation period; moving money from states with unobligated Organic
    Initiative funds to states with need for additional Organic Initiative
    funds. All states are still updating ProTracts with contract
    obligations.

       July 2, 2010 is the deadline for states to have the
            reallocated funds obligated.

       Current estimates show that there are about 1,600
            applications nationwide worth a total of $24.4 million as
            estimated future obligations.

       In FY 2010, NRCS is still enrolling organic operations into
            EQIP under this initiative. To date, we have received about
            1,600 applications that request a total of $24.4 million, and
            we expect to ultimately enroll the large majority of these
            applicants. As of mid-May, 980 contracts have already signed
            contracts for approximately $16.3 million.

        For FY 2011, we plan to look at expanding our partnerships and
    working with state agencies to increase our marketing and promotion of
    the EQIP Organic Initiative. NRCS is already working on additional
    guidance to NRCS state offices to help them improve their ability to
    service Organic producers' needs.

        Question 25. Waiver report--The Committee is still waiting for the
    report that was required by the farm bill on any waivers that are
    granted for payment limitations as well as the easement terms under the
    Wetland Reserve Program. Do you know when we can expect this report? In
    the meantime, do you know how often the waiver authority has been used,
    and for what?
        Answer. The report has been completed and was signed on May 10,
    2010. The number of waivers granted under section 1001D(b)(2) of the
    Food Security Act of 1985, as added by the Food, Conservation, and
    Energy Act of 2008 in order to protect environmentally sensitive land
    of special significance in FY 2009 is four: two in New Hampshire (FRPP
    and WRP), one in California (WRP) and one in New Jersey (WHIP).

        Question 26. Wetland Reserve Program 7 year ownership requirement--
    Your implementation update paper mentions responding to public comments
    on the 7 year ownership requirement. Can you share any more with us on
    what those comments were? And what you may be contemplating in this
    regard since the statutory language is fairly specific?
        Answer. NRCS received 52 public comments regarding the 7 year
    ownership requirement during the WRP interim final rule public comment
    periods. The respondents expressed concern that the 7 year ownership
    requirement discriminates against many private landowners and defeats
    the purpose of the program. More particularly, the respondents felt the
    term of ownership requirements should not be more restrictive than
    other USDA conservation programs. Other respondents recommended
    incorporating a waiver for landowners who have existing WRP lands and
    subsequently purchase eligible adjacent lands. Many comments
    recommended returning to the 1 year requirement, and some recommended
    that a 2 year requirement might have merit.
        The WRP statute requires that the land be owned during the
    preceding 7 years unless the landowner received the land by will or
    succession, underwent foreclosure and exercised a right of redemption,
    or provided adequate assurances the land was acquired for reasons other
    than enrollment in WRP. NRCS does not have authority to change this
    statutory requirement, and agrees that the statutory language is
    specific on the land ownership requirement.
        If an applicant has not owned the land for the requisite time
    period, NRCS notifies the applicant that the application will be
    determined ineligible unless the applicant submits a written waiver
    request and documentation that one of the three criteria for waiver
    applies to their circumstances. The local NRCS office forwards any
    documentation to the national office for action.
        NRCS Chief, Dave White, reviews all waiver requests based upon the
    adequate assurances criteria and is the only NRCS official with
    authority to waive the 7 year ownership requirement on this basis. In
    particular, upon review of the particular circumstances, the Chief
    determines whether adequate assurances support a finding that the
    landowner did not purchase the land for purposes of enrolling in WRP
    and whether a waiver request should be granted. The Chief provides the
    determination to the State Conservationist, and the State
    Conservationist will notify the landowner of the determination and the
    landowner's rights to appeal, if applicable.

        Question 27. Wetland Reserve Enhancement Program--How many and what
    states have expressed an interest in the WREP authority given in the
    2008 Bill?
        Answer. On March 2, 2010, NRCS published a request for proposals
    for implementation of the partnership component of WREP under the
    Mississippi River Basin Initiative (MRBI). NRCS also published on April
    9, 2010, a request for proposals for partnership WREP implementation
    nationwide. The deadline for MRBI-WREP proposals was May 3, 2010, and
    the deadline for all other WREP proposals was May 24, 2010. NRCS
    received 21 MRBI-WREP proposals, and received nine WREP proposals from
    the following states: North Carolina, Indiana, Nebraska, Iowa,
    Minnesota, Missouri, and Illinois.
        The following projects in five states were approved for financial
    assistance in Fiscal Year 2010 for a total of $9,847,500 covering 2,440
    acres of wetlands:
    Indiana/Illinois
            Wabash River Floodplain Corridor Project.
            Sponsoring Entity: The Nature Conservancy.
            Fiscal Year 2010 Financial Assistance: $3,255,000.
            Acreage: 1,000.
    Iowa
            Wetland Restoration and Enhancement for Water Quality and
            Habitat Benefits--Des Moines Lobe.
            Sponsoring Entity: Iowa Department of Agriculture and Land
            Stewardship.
            Fiscal Year 2010 Financial Assistance: $3,842,500.
            Acreage: 600.

            Des Moines Metro Forest Initiative.
            Sponsoring Entity: Iowa Natural Heritage Foundation.
            Fiscal Year 2010 Financial Assistance: $2,000,000.
            Acreage: 600.
    Minnesota
            Sand Creek & Prior Lake/Spring Lake Watershed.
            Sponsoring Entity: Scott Soil and Water Conservation District.
            Project to begin in FY 2011.
    Nebraska
            Rainwater Basin Water Complex.
            Sponsoring Entity: Pheasants Forever.
            Fiscal Year 2010 Financial Assistance: $750,000.
            Acreage: 240.

        Question 28. Partnership authorities--As you mentioned, you have
    held a number of meetings out in the countryside. During these meetings
    have you heard from producer or non-governmental entities that work
    with landowners about their ability to use the partnership authorities
    that were included in the farm bill? And what they might like to see
    changed? Such as the ability for them to receive technical assistance
    dollars.
        Answer. The Cooperative Conservation Partnership Initiative (CCPI),
    authorized in the 2008 Farm Bill, provides NRCS with unique authority
    to help focus conservation program benefits along with our partners
    contributed resources to address important natural resource issues
    throughout the nation. NRCS reviews and evaluates proposals submitted
    by eligible partners based on criteria set forth in a Request for
    Proposals as published in the Federal Register. There has been good
    response by many partners, non-governmental entities, to the recent
    requests for proposals for CCPI in the Mississippi River Basin
    Initiative announced in March, but also the Chesapeake Bay and the
    National announcements that were issued in April.
        In July, USDA announced the selection of 26 approved CCPI projects
    in 15 states that will help farmers and ranchers implement conservation
    practices on agricultural and nonindustrial private forest lands.
        Below is the list of approved CCPI projects and Fiscal Year 2010
    program funding by state:

    ------------------------------------------------------------------------
                                                         Fiscal Year 2010
              State             Number of Projects            Funding
    ------------------------------------------------------------------------
           California                         7              $2,495,017
                Idaho                         2                $250,000
             Illinois                         1                $100,000
              Indiana                         1                 $43,000
                     Louisiana                1                $246,150
             Missouri                         3                $559,200
             Nebraska                         2                $287,478
         New Mexico a                         1                $800,000
             New York                         1                $160,000
         North Dakota                         1                $100,000
             Oklahoma                         1                 $99,943
               Oregon                         1                $624,594
       South Dakota b                         2                $817,140
           Washington                         1                 $10,000
        West Virginia                         1                 $50,000
                             -----------------------------------------------
      Total.................                 27              $6,642,522
    ------------------------------------------------------------------------
    a Multi-state project between New Mexico and Arizona.
    b Includes one multi-state project among South Dakota, North Dakota,
      Kansas, and Nebraska.

        As authorized by Congress, this is not a grant program to partners.
    This is a program whereby partners with approved projects will enter
    into multi-year agreements with NRCS to help enhance conservation
    outcomes on agricultural lands and private nonindustrial private forest
    lands. One purpose of CCPI is to leverage resources of certain Federal
    Government programs along with services and resources of non-Federal
    partners to implement natural resource conservation practices. No
    technical assistance funding may be provided to a partner through the
    CCPI partner agreement.
        NRCS has heard from some partners that they would like the ability
    to receive technical assistance funds directly under the CCPI
    authorities. However, partners can work with State Conservationists to
    develop separate contribution agreements to provide funding for the
    delivery of technical services to producers participating in an
    approved CCPI project.
        Congress also provided USDA the ability to continue to work with
    Technical Service or Third Party Providers. The 2008 Farm Bill required
    the development of a certification process, a 1 to 3 year agreement
    period and fair and reasonable payment rates. The Interim Final rule
    for TSP was published on January 16, 2009 and the Final Rule was
    published on February 12, 2010.
    Title III--Trade
        Question 29. WTO case--The 2008 Farm Bill made considerable changes
    to export credit guarantee programs at the request of the previous
    Administration. These changes eliminated some of these programs and
    brought the remaining GSM-102 program in line with the conclusions in
    the Brazil WTO cotton case. Yet it was determined that this action was
    not in compliance with the panel's findings in the case. How can we
    avoid similar circumstances whereby the Administration advocates for
    changes from Congress to meet trade commitments and then we discover
    that such changes were insufficient?
        Answer. The previous Administration's farm bill proposal requested
    that the particular provisions for two programs subject to the dispute,
    be repealed in the 2008 Farm Bill; the GSM-103 program and the Supplier
    Credit Guarantee Program, the latter of which was no longer in
    operation in any event. The farm bill also removed the previously
    applicable fee cap for guarantees under the GSM-102 program and
    required the program to cover its long-term operating costs and losses.
    In addition, changes to the GSM-102 program were made administratively.
    Brazil requested a WTO compliance panel to assess these actions by the
    United States with respect to the adverse determinations of the
    original panel. The modifications to the guarantee program for the
    period examined were viewed as inadequate by the WTO. Following the
    compliance proceedings, Brazil requested WTO authorization to impose
    countermeasures on U.S. trade. The United States objected, and so an
    arbitrator determined the amount of authorized countermeasures as a
    result of the previously determined non-compliance. The arbitrator did
    not examine the current operation of the program, but the arbitration
    award nevertheless implies the need for further changes to the program.

        Question 30. Food aid local purchase pilot--The farm bill provided
    funding for a Local and Regional Purchase Pilot program to analyze the
    effects of using local and regional purchase of commodities in food aid
    programs. How has the FY2009 funding that went to local and regional
    purchase been used? What metrics will you use to report back to this
    Committee regarding the pilot's effectiveness and possible need for
    future program changes?
        Answer. In FY 2009, USDA awarded a total of $4.75 million to the UN
    World Food Program (WFP) for local procurement projects in Mali, Malawi
    and Tanzania. In March and April, WFP took delivery of 1,023 metric
    tons of commodities from small-holder farmers in Mali. In Malawi, due
    to recent drought conditions, WFP expects to begin purchasing local
    commodities in June. Purchases in Tanzania will take place in July and
    August. The 2008 Farm Bill identifies required factors for evaluating
    the pilot's effectiveness. These factors are built into data reporting
    requirements of each agreement with a participant in the pilot. The
    2008 Farm Bill also requires USDA, not later than November 1, 2011, to
    have a third party conduct an independent evaluation of the pilot using
    data collected from each project. USDA will submit a report to Congress
    that contains the analysis and findings of this independent evaluation.
    In determining the effectiveness of the pilot, the evaluation is to
    examine factors such as the impacts of the procurement of commodities
    on producer and consumer prices in the market; benefits to local
    agriculture; impact on low-income consumers; impact on food aid
    delivery time; quality and safety of procured commodities; and
    implementation costs.

        Question 31. Global Food Security Initiative--The Administration
    has placed a priority on alleviating global hunger and is soon expected
    to announce its Global Food Security Initiative which will call for a
    substantial increase in development assistance, with USDA playing a
    significant role in its implementation. While it has yet to be
    announced, can you give us an idea of how USDA has contributed to this
    effort so far, and how you think existing food aid programs authorized
    by the farm bill can meet the ambitious goals of the Administration?
    Does FAS need to be given additional authority or resources to meet
    these goals?
        Answer. USDA is an integral part of the process to develop the U.S.
    Government's Feed the Future Initiative. USDA, together with our
    colleagues at the State Department, the Treasury Department, the U.S.
    Agency for International Development and the Millennium Challenge
    Corporation, are at the core of developing the long-term, sustainable,
    ``whole-of-government'' approach to addressing global food insecurity.
    Our contributions to date have primarily been working with these
    agencies in developing the overall strategy and implementation plans
    for the U.S. Government, specifically in designing the results
    framework, the policy and economic indicators, and the global research
    strategy. USDA's role is to leverage the wealth of knowledge and
    expertise that we possess in agricultural research, markets, trade,
    nutrition, natural resource management, and animal, plant and food
    safety to support the U.S. Government initiative. Our USDA food aid
    programs are also a critical part of the solution to this longstanding
    problem, as a long-term development tool that supports education,
    agriculture and health, and mitigates or reduces risks to the most
    vulnerable poor. USDA food aid programs can be targeted to Feed the
    Future Initiative priority countries to help create synergies with
    other development assistance efforts in each country. It is important
    to note that, although much of our food aid programming may be closely
    aligned to Feed the Future Initiative priority countries, we will still
    be mindful of the needs of other food deficit countries that may not be
    a part of this initiative.

        Question 32. MAP--The Administration proposed cutting funding for
    the Market Access Program and increasing funding for the Foreign Market
    Development Program? Can you explain the rationale for that move and
    how it fits with the Administration's goal of doubling exports?
        Answer. The President established the National Export Initiative to
    enhance the U.S. Government's efforts to facilitate the creation of
    jobs through the promotion of exports. As part of this effort, the
    President has established an Export Promotion Cabinet to develop and
    implement the Initiative. USDA will participate in the work of the
    Cabinet.
        As part of the National Export Initiative, USDA's 2011 budget
    requests increased discretionary spending of $54 million to enhance
    USDA's export promotion activities. The budget proposes a series of
    adjustments in the funding levels among the various market development
    programs to provide a better balance among them and to reflect the
    changing nature of agricultural trade competition.
        This includes $34.5 million to supplement funding for the Foreign
    Market Development (Cooperator) Program. This funding would be in
    addition to that provided by the Commodity Credit Corporation under the
    farm bill and would double overall funding for the program to $69
    million in 2011. The additional funds would provide new opportunities
    for participation and innovative activities, such as providing broader
    international acceptance of the products of biotechnology.
        Also, $9 million is proposed for the Technical Assistance for
    Specialty Crops (TASC) Program, which would supplement CCC funding and
    double overall funding available for TASC to $18 million. The TASC
    program, which was first authorized in 2002, is specifically directed
    at addressing barriers to exports of specialty crops. The requested
    increase in funding reflects the growing importance of specialty crops
    for U.S. agricultural trade growth and the contribution the program has
    made in resolving numerous trade barriers.
        Although annual MAP funding would be reduced, the program would
    still provide assistance for overseas market promotion of $160 million
    per year. Annual MAP funding has grown substantially since 2001, when
    the program level was $90 million. Although the 2011 funding level is
    reduced from 2010, it still provides a program level that is nearly 80
    percent above 2001.
    Title IV--Nutrition
        Question 33. SNAP--In October 2009, Indiana cancelled its $1.3B
    contract with IBM. Since then, we have tracked the development of its
    so-called ``Hybrid System.'' However, there seems to be no assurance
    that this hybrid model will be any more effective than the failed IBM
    plan. Meanwhile, \1/2\ of the cost of both the IBM plan and this
    untried hybrid continues to be the responsibility of the U.S. taxpayer.
        Add to this the three lawsuits that have been found in favor of the
    plaintiffs, SNAP recipients, and against the state for a lack of
    timeliness in processing applications, the need for face to face
    appeals, and a ``failure to cooperate'' in recertification decisions.
        Finally, in a letter sent to states from Under Secretary Concannon
    earlier this year, it was made clear that these sorts of plans would
    not receive a waiver under the Obama Administration.
        Certainly, USDA has the authority to revoke the waiver that
    permitted the Indiana pilot in the first place. There is a mountain of
    evidence that this didn't work and none that it will work. What more do
    you need to take drastic corrective action that will ensure fair and
    compliant SNAP participation for all citizens of Indiana?
        Answer. Since Indiana terminated the contract with IBM, the state
    agency took over management of ten separate contracts that once made up
    the modernization project coalition. The state also developed a
    corrective action plan to address deficiencies in its modernized
    service delivery model. Indiana began piloting a hybrid solution in the
    ten county Vanderburgh Region in Southeastern Indiana in January 2010.
        The hybrid solution features regional/local office-based service
    delivery with more face-to-face contact with SNAP customers. The hybrid
    also utilizes technology that allows the state to direct tasks and
    telephone calls within the region, as opposed to the centralized call/
    change center, for better accountability and improved service.
        The state also implemented a new State Management and Resource
    Tracking (SMART) tool throughout the modernized areas of the state to
    support the move to a case-based versus task-based processing of work
    and to provide better management and oversight of the work.
        The Food and Nutrition Service (FNS) is continuously monitoring the
    implementation of the hybrid through on-site visits, management
    reports, and conference calls.
        FNS is monitoring several measures to determine the success of the
    hybrid pilot. These are improved customer experience, elimination of
    the backlog of tasks, improved application processing timeliness,
    improved payment accuracy, successful handling of phone calls within
    the region, and infrastructure readiness. This last measure includes
    staffing moves from service center to local offices to support the
    hybrid solution, training, facilities, integrated voice response
    changes, and telephone system changes.
        Although the timeliness and error rate data available to FNS lags,
    we have seen timeliness trending up and the error rate trending down.
    FNS has also seen a decrease in the number of complaints received. FNS
    on-site observations also indicate that the hybrid is an improvement to
    the modernized model.
        After running the pilot successfully for several months, the state
    agency has indicated that they will seek FNS approval to expand the
    hybrid pilot to the Vigo Region. The Vigo Region contains 11 counties
    and approximately 6.5 percent of the state's caseload. FNS expects to
    receive the formal request for expansion this month.

        Question 34. SNAP Education and Training Programs--Since 2005, the
    state of Washington has worked with FNS/Western Region to develop an E
    and T pilot program in conjunction with 12 community colleges in 39
    counties. The model for this pilot used a third-party match to receive
    the 50% Federal reimbursement, with the full support of FNS/Western
    Region. However, a reinterpretation of OMB Circular A-87 in March, 2010
    indicates that this pilot will no longer qualify for matching funds
    effective June 30, 2010. Please provide an explanation of this
    inconsistency in Washington and other programs in Wisconsin, New York,
    Connecticut, California and Colorado that may be affected by the OMB
    review.
        Answer. Office of Management and Budget Circulars require that
    costs charged to a Federal grant be accorded consistent treatment. This
    is long standing Federal financial policy. This requirement is re-
    enforced and applied to the Supplemental Nutrition Assistance Program
    (SNAP) through regulation.
        Community colleges, community-based organizations, and other SNAP
    Employment and Training (E&T) partners cannot charge the Federal
    Government for services that are provided at no cost to participants
    and are not charged to other Federal, state and local grants.
        The Food and Nutrition Service (FNS) realizes and regrets that this
    policy will affect E&T programs in many states; however, as stewards of
    Federal funds we must enforce this policy.
        To enable Washington and the other affected states to sustain their
    SNAP E&T programs in a manner consistent with Federal policy, FNS is
    working closely with them to identify appropriate and allowable funding
    streams.
        During this difficult economic environment, FNS continues to
    support states initiatives to provide SNAP E&T participants with
    skills, training, work or experience that will increase their chances
    of self-sufficiency. FNS spent more than $300 million in Fiscal Year
    2009 to assist nearly 1.6 million SNAP recipients gain skills and
    experience that improved their ability to obtain regular employment.
    Title V--Credit
        Question 35. Term limits--Can you tell us how many borrowers in
    each state are facing being ineligible to borrow from FSA next year?
        Answer. Currently there are 12,623 direct FSA borrowers who will be
    ineligible for additional direct operating loans in 2011. Additionally
    there are 5,577 guaranteed operating loan borrowers who will become
    ineligible to receive additional guaranteed operating loan funds in
    2011 if the current suspension of the guaranteed operating term limits
    is allowed to expire on December 31, 2010. The table at the end of this
    document, see Attached Tables on p. 140, provides a state by state
    breakdown of those currently ineligible and those who will become
    ineligible at the end of 2010 upon receipt of an operating loan this
    year.

        Question 36. Credit availability--The credit crisis is still being
    felt by many ag sectors. What is USDA doing to make certain the FSA
    loan program is there for producers? Have you seen an increase in
    applications? Which states and which programs?
        Answer. FSA management is closely monitoring consumption of loan
    funds. The agency will use all administrative tools, such as pooling
    and reallocation of unused loan funds, to assure that all available
    funds are utilized in efforts to satisfy the demand for credit. There
    has been a dramatic increase in demand for FSA direct and guaranteed
    loan assistance in FY 2010. As of April 30, direct and guaranteed loan
    funds provided to family farmers has increased by 30 percent compared
    to the same period a year ago. This increased demand for FSA assistance
    is being experienced in all direct and guaranteed loan programs. The
    increases are not confined to particular areas; almost every state is
    experiencing increases in loan applications and loan volume.

        Question 37. Credit availability--During your travels in the field,
    what are you hearing about the availability of credit for ag producers?
        Answer. Turmoil in the financial markets, increased regulatory
    scrutiny, and concerns about institutional safety and soundness has
    caused commercial lenders to become much more sensitive to credit risk
    and as a result, to impose more rigorous credit standards. One effect
    of this change is that lenders now request FSA guarantees for loans to
    customers who previously met lending standards without a guarantee.
    Thus, the demand for FSA guaranteed loan assistance has increased
    significantly. Compared to FY 2009 for the same time period,
    obligations of unsubsidized guaranteed farm operating loans has
    increased by 24 percent, guaranteed farm operating loans with interest
    assistance by 28 percent, and guaranteed farm ownership loans by 23
    percent. Assistance provided to beginning farmers (those who have
    farmed less than 10 years) has increased by 16 percent compared to a
    year ago. Many lenders consider beginners to be higher credit risks and
    as a result this group is more dependent on FSA for financing.

        Question 38. Conservation Loan Program--What is the reason for the
    delay on the conservation loan program? It would seem these dollars
    could be leveraged given the current economic situation.
        Answer. The 2008 Farm Bill included several new programs that FSA
    was required to implement. Because agency resources are limited,
    priority was given to implementation of direct and disaster payment
    programs which impact the largest number of farmers, and those programs
    with mandated implementation time-frames. With the completion of the
    highest priority implementations, FSA has moved the conservation loan
    program to the top of its priority list and anticipates publishing
    program regulations before the end of this fiscal year. Upon issuance
    of these regulations, the FY 2010 appropriated direct and guaranteed
    conservation loan funds will be available to qualified farmers.

        Question 39. Livestock and credit--This has been a difficult time
    for many sectors of animal agriculture. Producers have struggled with
    low prices and high costs of production. What is USDA doing to ensure
    that credit remains available to livestock and dairy producers?
        Answer. FSA has instructed field staff to use all available
    authorities to assist producers in this period of short term
    unprofitability. The agency has issued policy directives to field staff
    emphasizing the importance of using all available loan making and
    servicing authorities to assist financially stressed producers. Through
    extension of repayment terms when making new loans, release of
    commodity sales proceeds, and modifying repayment terms of existing
    loans, FSA is working to help farmers maintain their businesses.

        Question 40. Outreach and demand for mediation--Do you think
    producers are aware of the USDA loan programs? What is the Department
    doing to reach out and counsel producers? Have you seen an increase in
    interest for state mediation program services or states looking to
    start or expand their programs?
        Answer. In 2008, FSA Farm Loan Program (FLP) launched a
    comprehensive program marketing initiative. This ongoing effort
    requires every state to have a FLP marketing coordinator and a state
    marketing plan; and every service center with a credit presence to have
    a local FLP marketing plan.
        This Farm Loan Program Marketing initiative compliments the already
    existent Outreach and program education efforts of the Farm Service
    Agency. Each state and territory is required by FSA to designate a
    State Outreach Coordinator and County Outreach Coordinators. National
    Office of External Affairs staff work with the state and county
    Outreach Coordinators to craft state-specific outreach plans that
    outline how best to strategically leverage FSA resources to ensure that
    constituents are well-informed about and able to access FSA farm and
    loan programs. These outreach plans detail general outreach efforts as
    well as targeted outreach efforts, which are devoted to increasing
    participation in FSA programs by populations deemed by congressional
    statute to be ``socially disadvantaged.''
        As a result of the coordinated efforts of Farm Loan Program staff
    and state and county outreach coordinators, FY 2009 saw over 40 percent
    of direct Farm Operating Loans go to new applicants--farmers who did
    not have an FSA loan the previous year. In FY 2010, the amount of new
    applicants increased to over 45 percent. In FY 2010, total loan demand
    has also risen 30 percent, and many requests are from new borrowers.
    These trends are not only indicative of the current credit challenges
    facing American producers, but are also indicative of an increasing
    public awareness of FSA loan programs, as well as facility with
    accessing these programs.
        It is also important to note that once producers accesses FSA Farm
    Loan programs, that producer will benefit from on-going technical
    assistance from FSA Farm Loan Staff (if she or he accesses credit
    through the direct loan program--producers who receive a guaranteed
    loan will work directly with the lending establishment in question).
    FSA works with each direct loan borrower to develop an assessment of
    their farm business, and conducts annual updates to help borrowers
    identify areas where improvement is needed. Some borrowers are
    required, as a loan condition, to complete a financial management
    training program. FSA staff also meets with new and financially
    stressed borrowers to review and analyze the past year's business and
    develop a business plan for the coming production cycle. FSA's goal is
    to help borrowers progress and move to commercial credit.
        The State Mediation program demand varies by state, agricultural
    sectors and economic trends. Although we do not have 2010 data reported
    to date, we would fully expect demand to rise in certain states due to
    economic conditions in certain sectors such as dairy, hogs, and
    poultry. The request for mediation services has been consistently
    strong in the 35 states that have established USDA Certified Mediation
    Programs. Two additional states (Pennsylvania & Idaho) have been
    certified as new states for mediation in 2010.
    Title VI--Rural Development
        Question 41. Microentrepreneurship Assistance Program--When can we
    expect to see the regulations published for the Rural
    Microentrepreneurship Assistance Program? What did your Department take
    from the public comment period to construct regulations to meet the
    unique needs of small business startups in rural areas?
        Answer. Rural Microentrepreneur Assistance Program--The Interim
    Final Rule was published in the Federal Register on May 28, 2010 and
    the NOFA on June 3, 2010.
        All changes to the rule resulting from public comments are
    explained in detail in the preamble of the Interim Final Rule.

        Question 42. Definition of ``rural''--The 2008 Farm Bill directs
    the Department to report on the various definitions of ``rural'' it
    uses by next month and to assess the impacts these definitions have on
    program delivery. Can you give us an idea of what you have found so
    far, particularly if you think the varying definitions of the term is
    causing problems with targeting loans and grants where they are most
    needed?
        Answer. Any targeted program is apt to create difficult boundary
    issues, and the various 2008 Farm Bill definitions of ``rural'' are no
    exception. The difficulties typically arise with regard to communities
    that ``look and feel'' rural but that fall on the wrong side of an
    arbitrary line drawn on the basis of geographic location, income, or
    population size. These issues are of course not unique to rurality; any
    means tested program, for example, will face similar issues related to
    the appropriate definition of income.
        The challenge is therefore not to identify problems with the
    current definition. That is easy. The real challenge is to devise some
    other definitional scheme that reduces or at least simplifies these
    issues, given the reality that the boundary issues are unavoidable. We
    are continuing to study these issues.

        Question 43. Section 502 Housing funding--Mr. Secretary, although
    Rural Development's housing programs are not authorized in the farm
    bill, many constituents in my district are concerned about the funds
    for the Section 502 Single Family Housing guaranteed loans running out
    before the end of the month. This is one of the few programs out there
    able to help people finance home buying since the private lenders
    aren't lending in rural America. Why have the funds run out so soon and
    what ideas does the Department have to keep this program going?
        Answer. The reason why funding for the Section 502 Single Family
    Housing Guaranteed Loan Program (SFHGLP) will run out so soon is due to
    the unprecedented increased demand for mortgage financing resulting
    from the housing crisis. In the current economic climate, private
    sector lenders are reluctant to make home loans in rural American
    without government backing and the SFHGLP has filled a void in the
    availability of mortgage credit. The SFHGLP has been very successful
    with delinquency and foreclosure rates lower than other mortgage
    industry participants. The USDA supports legislation in which the
    SFHGLP guarantee fee structure would make it subsidy neutral, meaning
    the program would collect enough in fees to fully offset estimated
    losses resulting from new guarantees and not require further
    appropriation of budget authority to continue serving rural America. In
    addition, ample funding is available under the Section 502 Single
    Family Housing Direct Loan Program (SFHDLP) to provide homeownership
    opportunities to low and very low income households.

        Question 44. Regional Innovation Initiative--Mr. Secretary, can you
    please talk about how you envision a proposed Regional Innovation
    Initiative working with existing rural development programs? Do you
    expect this approach to be locally-driven, state driven, or from the
    top-down here in Washington? What is lacking in current RD programs
    that you think would be solved by moving to a regional approach?
        Answer. We fully expect and encourage the regional innovations to
    be driven at the community and regional level. For example, in one of
    our current funding announcements, the program is encouraging regional
    innovation strategies around regions and projects self-defined by the
    applicant. USDA only provides broad areas of interest, such as access
    to capital or renewable energy. What has been lacking in current RD
    programs is that they are mostly project-based and individual in
    nature. By implementing our rural development programs in a more
    regional approach based on locally developed, comprehensive strategic
    plans, Rural Development can first work with a region on identifying
    its needs or issues, establish priorities, and determine what program
    linkages and sequences that need to take place to address those needs.
    It can also encourage broader community involvement and ``buy-in''
    critical to long-term, sustainable development.

        Question 45. Regional Innovation Initiative--What's different
    between your regional approach and the Empowerment Zone/Enterprise
    Community Initiative, first authorized in the 1990s, or the Rural
    Economic Area Partnership Zones, which began in the same time frame and
    was reauthorized in the 2008 Farm Bill? Does your regional approach
    propose to utilize these programs or replace them?
        Answer. The regional approach uses many elements of the Empowerment
    Zone/Enterprise Community Initiative (EZ/EC), such as the emphasis on
    creating partnerships and community-led strategies. The Rural Economic
    Area Partnership Zones (REAP) were somewhat of a precursor to our
    Regional Innovation Initiative. The REAPs are mostly multi-county in
    scope, and encourage participants to develop a common strategic plan
    around a locally defined set of priorities. What is different is that
    the EZ/EC program targeted specific census tracts based on a poverty or
    outmigration criteria. EZ/EC had both urban and rural components, and
    while census tract-based designations worked for urban areas, at times
    they proved to be more problematic for rural areas in that they led to
    disjointed, or ``un-natural'' looking area boundaries. For example,
    some designations included of 3-6 counties, with some only having one
    Census tract in the designation. Our regional strategies will focus on
    the county level, the most consistent governmental unit for rural
    areas. We are currently reviewing policies for our programs that will
    place a more targeted emphasis on specific areas of need like the EZ/EC
    Initiative did, but will do so at the county level. Broad community
    participation at the grassroots level and locally-driven priorities, a
    cornerstone of the EZ/EC Initiative, is being considered as an element
    of our regional approaches.

        Question 46. Regional Innovation Initiative--How would population
    thresholds that currently apply to rural development programs work
    under a regional approach? Would a regional area be ineligible for
    programs it contained one or more cities above the population limit for
    a given program, even if the surrounding rural areas qualified?
        Answer. The Regional Innovation Initiative does not propose to
    change the population limits of the current programs. While a regional
    plan may include larger communities, the recipient of any recipient of
    dollars from a Rural Development program will need to meet current
    eligibility requirements. As long as the program dollars and projects
    do not occur in jurisdictions above the population limit, the rest of
    the region under the population limit is eligible.
        The United States Department of Agriculture (USDA) through Rural
    Development identified strategies that offer promise to maximize on the
    benefit of the strong local market while at the same time taking a
    systems approach to capture the supply chain activity linking regional
    clusters. By focusing on the Secretary's Five Pillars of prosperity for
    Rural America, USDA is positioning Rural America to become more
    innovative and competitive in regional and global markets.
        Now more than ever, metropolitan economic activity stands to gain
    market share by tapping into the natural and human capital resources of
    Rural America and advance industry cluster activity by transforming
    from cost-based strategies to quality-innovation strategies that are
    more productive and can support higher wages.
        There is a beneficial interest between metropolitan centers and
    rural communities in the active support of regional industry cluster
    activity. An example of this is the recent impacts on the automobile
    industry which raised the awareness of the linkage between automobile
    production to marketing, sales, and land use and supply chain activity.
        USDA through its initial work recognizes the rural-urban linkages
    in a global economy and recognizes that a greater policy focus and more
    attention should given to local variations which cannot be done in
    isolation of the wider dynamics of national and international economic
    activity.

        Question 47. Regional Innovation--Some rural development
    specialists believe regionally-based rural development is long overdue.
    What are your views on regionally based rural development?
        Answer. From my experience as Governor, I have seen firsthand the
    value of a place based regional approach to community and economic
    development. Of course we are not taking a Department wide position
    that regionalism is the answer to all problems. We do however recognize
    that in some communities we only have to support a project while in
    other communities they are struggling with developing an economic
    strategy that requires a regional approach in order to connect to the
    regional economic activity in their area. The current research points
    to the value of regional planning, collaboration, partnership and
    leverage of resources.
        Many rural communities have already coalesced to take a more
    regional approach to common problems and issues. Education and the
    consolidation of schools into Intermediate School Districts, regional
    transportation authorities, and regional hospital centers are a result
    of market forces and increasingly scarce resources. Communities are
    learning they need to leverage resources, and the approach to rural
    development needs to be more regionally-oriented to assist rural
    communities in collectively addressing these market forces. In terms of
    market-based economies, they have long been regional in scope. Many
    Rural Development programs have long been tethered to either a
    community or a county as the geographic basis for funding and projects.
    The move to regionally-based development will promote growth in many
    rural areas.

        Question 47a. Is there value in viewing regional food systems as a
    viable, long-term opportunity for rural development?
        Answer. Regional food systems are just one of many viable economic
    strategies for rural development. More importantly, they are grounded
    in keeping the dollars involved in food production, marketing, and
    consumption more local in scope to direct the benefits of these
    activities to the communities involved. While most Rural Development
    programs do not directly fund agricultural production they can fund
    many of the key components of a regional food system, such as the
    processing and delivery of the food products, and even the markets or
    stores that sell them.
        A clear trend in all parts of the food system is greater
    concentration of ownership, which means that decisions affecting
    communities are increasingly made by absentee business owners. Mergers
    of chain supermarkets often result in the closure of stores, thereby
    lowering the tax base and employment. Another trend, vertical
    integration, leads to increased consolidation of different activities
    such as food production, processing, and distribution under the control
    of single entities. While there is little doubt that this
    ``industrial'' food system will remain dominant and play a vital role
    in rural economies, more communities and regions are acting to resolve
    some of these issues by developing alternative, local, and sustainable
    food systems. Significant activity is already occurring around the
    country on regional food systems. There are many area-wide economic
    development plans that incorporate food production, processing,
    wholesale, retail, and waste management activities as well as
    consideration of the impacts these activities have on the local and
    regional economy in terms of jobs, tax and sales revenues, and
    multiplier effects. Also important is that regional food systems are a
    means or mechanism for establishing urban-rural linkages critical to a
    vibrant regional economy by collectively considering the needs and
    impacts of the rural sources of food and the more urban areas where it
    may be consumed.

        Question 48. Population limits--Are the limits for population in
    current law adequate for administering Rural Development programs? If
    not, how do you think they should be changed?
        Answer. For many Rural Development programs, the population limits
    have not presented a challenge. However, for some programs, as
    demographics have shifted in the U.S. and the scope of needs may have
    changed, the current population limits may no longer be valid. This may
    inhibit USDA's ability to serve areas that still consider themselves
    ``rural,'' and are not connected to the more urban-based programs. In
    promoting regional initiatives, these population limits may also
    inhibit the development of the urban-rural linkages that may be
    critical to that region's success. The population limits should be
    reviewed not on a program by program basis, but rather in a
    comprehensive review of both USDA and other Federal programs with
    population limits to address gaps and impediments in program delivery.

        Question 49. Status of Loan Portfolio--What is the status of Rural
    Development's loan portfolio given the economic downturn? Are payment
    delinquencies and default rates rising? Are some programs performing
    better than others in this regard?
        Answer. As a lending agency with a portfolio of more than $130
    billion, we have of course seen some impact from the recent recession.
    With regard to the housing crisis, however, it is important to note
    that much of rural America did not experience the housing bubble that
    affected many urban and particularly coastal markets; rural America did
    not ride the roller coaster up, and it has been less affected by the
    downturn. In addition, due to our prudent underwriting standards and
    prompt intervention with and servicing assistance to troubled
    borrowers, our portfolio has performed adequately.

        Question 50. Broadband--What is the status of the regulations for
    the broadband loan program? How has this program integrated with the
    sizable amount of Recovery Act funds provided for broadband deployment?
        Answer. The regulations for the 2008 Farm Bill broadband program
    are in their final stages of redevelopment. Through our experience with
    the Recovery Act broadband program, we have had the opportunity to
    publish two Notices of Funding Availability and have learned a
    tremendous amount regarding delivery of broadband service to unserved
    and underserved rural communities. The lessons learned through the
    Recovery Act program can be used to enhance our 2008 Farm Bill
    regulations. For example, we have been able to process an unprecedented
    number of applications within a short timeframe. We hope to incorporate
    some of the streamlined processes used in the Recovery Act program to
    reduce application burden and shorten the timeframe between loan
    application and approval in our 2008 Farm Bill program. We are also
    looking for ways to ensure a bridge between Recovery Act and farm bill
    funding. Our goal is to publish the 2008 Farm Bill broadband
    regulations as soon as possible.

        Question 51. Broadband--How do you envision the landscape for
    broadband deployment in rural areas after the Recovery Act financing is
    expended at the end of this fiscal year? How will you provide loan
    servicing for so many projects with your existing resources?
        Answer. The Recovery Act has provided both USDA and the Commerce
    Department with the ability to bring broadband service to many rural
    areas that were unserved or underserved. Even with this large infusion
    of funds, there will still remain many areas that will not have
    broadband service. These areas will be easier to identify when the
    Commerce Department publishes a National Broadband map early next year.
    Our goal is to assess the results of the Recovery Act broadband
    programs, participate in discussions of the FCC's National Broadband
    Plan, and determine steps that are needed to realign our programs with
    the needs of unserved and underserved areas. The Rural Utilities
    Service and Rural Development have extensive experience in managing
    large loan and grant portfolios. We are confident that we will be able
    to continue to service our portfolio with our 60 years of experience.
    We are also developing contingency plans to ensure that we protect the
    taxpayer's investments in all of our Recovery Act programs.

        Question 52. Business Loans--Are you seeing more Rural Business
    loan and grant applicants interested in developing local food marketing
    and supply chains? If so, how are you responding to meet the need? Do
    you feel additional authority in this area would be beneficial?
        Answer. Rural Business and Cooperative Programs (RBCP) have seen an
    increased interest in local food, regional food systems, and supply
    chains. Although RBCP have always been available for these purposes,
    Rural Development (RD) has experienced an increase in the number of
    projects self-identifying as local food/food systems and inquiries from
    customers. There is a direct correlation with the 2008 Farm Bill, the
    launching of the Know Your Farmer, Know Your Food initiative, an
    increase in marketing Rural Business programs for these types of
    activities at the state level, and the increased interest from local
    food marketing and supply chain applicants in RBCP programs.
        To meet the increased interest, RD has been actively participating
    in outreach efforts to assist prospective applicants become familiar
    with RD programs. In addition to developing program materials, RD staff
    members have participated in numerous meetings, workshops, and webinars
    with groups and individuals interested in local food systems. RD staff
    members have also participated on the Know Your Farmer, Know Your Food
    team. Through publications, meetings, and other media, the Agency has
    worked to make the availability of program funds known to the public,
    as well with working with the public to overcome any obstacles to
    accessibility.
        The current authority is adequate for this initiative.

        Question 53. Business Loans--Are rural lenders still willing to
    participate in the Business and Industry Loan Guarantee Program given
    current credit conditions?
        Answer. Yes. We have made commitments for 426 B&I ARRA loan
    guarantees for $1.25 billion. In addition to that, we have made
    commitments for 285 regular B&I loan guarantees totaling $748 million
    as of July 20, 2010. This combined volume represents a new obligation
    record for the B&I program with 4\1/2\ months remaining in the fiscal
    year. We currently have loan applications and preapplications on hand
    totaling over $1 billion; though we expect not all of these loans will
    be eligible or be awarded.

        Question 54. Water and Waste--How much are you able to use the
    authority for loan guarantees on water and waste disposal programs?
    What changes could be made to increase the use of the loan guarantee
    programs?
        Answer. The program has been authorized to issue up to $75 million
    in guarantees annually. Usage of this authority has varied.

                     Water and Waste Guaranteed Loan History
    ------------------------------------------------------------------------
                                                           Total Dollars
           Fiscal Year         Number of Guarantees          Obligated
    ------------------------------------------------------------------------
                 2009                         3              $1,996,100
                 2008                        17             $18,402,000
                 2007                         7             $26,003,318
                 2006                         3             $2,5000,000
    ------------------------------------------------------------------------

        One factor impacting the use of the guarantee program is that,
    under current Federal tax law, a federally guaranteed bond is not tax
    exempt. The Farm Security and Rural Investment Act of 2001, Section
    6007 (Farm Bill), provided limited authority to guarantee types of tax-
    exempt financing for specific types of projects. However, this law did
    not give the customer the ability to accept such tax-exempt financing
    without giving up its tax-exempt status.
        As an example, if a loan guarantee is made to an entity providing
    tax-exempt security, then that entity could potentially lose its tax-
    exempt authority for that bond issue. As a result, there is less
    interest in the guarantee program than we would like from the majority
    of applicants for Rural Development water and waste financing as they
    are public or municipal bodies with tax-exempt status.

        Question 55. Community Facilities--What types of facilities are
    getting the most funding under the Rural Community Facilities Program
    account? Are the loans going to rural health care facilities, another
    type of facility, or does it vary?
        Answer. A summary table for FY 2009 is attached at the end of this
    document, see Attached Tables on p. 140, and provides a representative
    sampling of the Community Facilities Program project distribution.
    Title VII--Research
        Question 56. Roadmap--USDA recently released a roadmap for ag
    research. Can you briefly outline that roadmap and how you envision
    leading into the 21st Century?
        Answer. The roadmap lays out a very aggressive plan to change the
    way USDA science is conducted. In the future USDA scientific research
    will be focused, leveraging other resources and concentrating on select
    priorities at a large scale to produce valued results. What our country
    produces, how we produce it, and with what productivity outcome,
    determine the availability and, to some degree, cost of food, fiber,
    and fuel. This analysis relies on science to provide answers. Solutions
    to the most intractable problems demand a strong, physical, biomedical,
    and curiosity-driven fundamental science renaissance. This roadmap lays
    out such a plan to change the way USDA conducts science.

        Question 57. Roadmap and Tribal Extension Program--Have you had a
    dialogue with the tribes, interested institutions and outside groups
    about the future of the Extension Services on tribal lands? The farm
    bill called for an analysis of the FRTEP and whether it was meeting the
    needs for Extension services on Indian reservations. Has this analysis
    been done?
        Answer. NIFA is working with the USDA Office of Tribal Relations
    (OTR) on an approach that, when implemented, will address the report
    language, satisfy the need for proper consultation and provide NIFA
    with a fair and accurate analysis of extension program needs in tribal
    lands. To date, a dialogue with the tribes, interested institutions and
    outside groups about the future of the Extension Services on tribal
    lands has not been completed.
        NIFA envisions and is working on a four phase approach:

       Gather information from other Federal partners with an
            interest in Indian Country Extension.

       Convene a design team in conjunction with representatives
            from tribal lands to develop plans and budget for an assessment
            of the current state of federally supported extension services
            in tribal lands and the extent to which there is unmet need and
            to delineate that need.

       To implement the needs assessment.

       To draft a report back to Congress with the results of the
            assessment.

        NIFA and OTR conducted the first phase on May 4, 2009--a Federal
    partner meeting. The design team meeting is being scheduled and will
    include representatives from the tribes, tribal lands agriculture and
    Extension. The design team meeting requires considerable planning since
    it involves the needs of 500 tribes.

        Question 58. FRTEP--It is our understanding that not all of the
    programs that had been receiving funding under FRTEP before passage of
    the farm bill submitted successful applications for the competition
    that was held after the farm bill passage. Can you tell us the results
    of that competition?
        Answer. FRTEP (formerly known as the Extension Indian Reservation
    Program) was authorized in the 1990 Farm Bill and has been funded since
    1991. This program supports Extension agents on large American Indian
    Reservations and Tribal jurisdictions to address the unique needs and
    problems of American Indian Tribal Nations. The program is administered
    through the USDA National Institute of Food and Agriculture (NIFA).
    Currently, there are 28 funded projects serving federally-recognized
    tribes on 37 Reservations or tribal communities.
        Section 7403 of the Food, Conservation and Energy Act of 2008
    designated all programs funded under Smith-Lever 3(d), including FRTEP,
    as competitive. Eligibility is designated for 1862 and 1890 land-grant
    institutions. A requirement for competition was not included in the
    original FRTEP legislation.
        In response to the 2008 Act, NIFA implemented a competitive
    selection process in FY09 to make new awards for 4 year continuation
    grants. Based on the applications received, three existing projects--
    University of Arizona, Navajo Nation, Window Rock; New Mexico State
    University, Zuni; and New Mexico State University, Jicarilla Apache--
    were not recommended for funding by a peer panel. The USDA REE Under
    Secretary directed that $120,000 be made available in FY09 to support
    the three existing projects not funded through the competitive process.
    As a result, all applicants were funded.

        Question 59. Under Secretary for REE--Can you tell us how soon a
    new Under Secretary for Research, Economics and Extension will be
    named?
        Answer. Dr. Catherine Woteki, USDA's nominee for Under Secretary
    for Research, Economics, and Extension, is a distinguished nutritional
    epidemiologist who has held senior positions in academia, the United
    States government, and in business. We are delighted to have her join
    the USDA team to enhance our success in improving the lives of farmers,
    ranchers and those living in rural areas of our country.
        From 1997-2001, Woteki served as the first Under Secretary for Food
    Safety at USDA, overseeing the Food Safety and Inspection Service and
    the U.S. Government's Office for the Codex Alimentarius Commission, and
    coordinated U.S. Government food safety policy development and USDA's
    continuity of operations planning. She worked for 2 years in the White
    House Office of Science and Technology Policy where she co-authored the
    Clinton Administration's policy statement, ``Science in the National
    Interest,'' and served as the Deputy Under Secretary for Research,
    Education and Economics in the USDA. From 2002-2005, she was Dean of
    Agriculture and Professor of Human Nutrition at Iowa State University,
    where she also was the head of the Agriculture Experiment Station.
        Since 2005, Woteki has served as Global Director of Scientific
    Affairs for Mars, Inc., a multinational food, confectionery, and pet
    care company. In this role she has managed the company's scientific
    policy and research on matters of health, nutrition, and food safety.
        Dr. Woteki appeared before the Senate Agriculture Committee at her
    confirmation hearing on May 27th. She awaits Senate action.

        Question 60. REEO--How has the new REEO organization been received?
    Is it still in place?
        Answer. The Research, Education, and Extension Office (REEO) board
    was established by the previous Administration in 2008 following
    passage of the farm bill. They conducted many stakeholder meetings and
    contributed to the production of the roadmap for USDA Science that was
    recently presented to Congress.
        USDA takes very seriously the coordination of science and
    technology in the department. The Department began as a science mission
    agency and since 1862 science continues to be an important component of
    nearly every enterprise at Agriculture. Ensuring science informs policy
    and program decisions across the Department demands close coordination
    and cooperation. In the Food, Conservation, and Energy Act of 2008
    Congress provided an excellent framework for this coordination,
    directing the establishment of the REEO.
        In the same legislation, Congress reaffirmed the need to coordinate
    agricultural research through establishment of the position of Chief
    Scientist at USDA, whose responsibility also includes oversight of the
    overall science enterprise in the Department. To best ensure that the
    Chief Scientist has access to the expertise envisioned in creation of
    REEO, I took the action of having the REEO staff assigned to coordinate
    science portfolios that will continue to carry out those duties as
    senior advisors reporting to the Chief Scientist. Establishing the
    office does not incur additional costs to the Department yet continues
    to meet the intent of the establishment of the REEO board.

        Question 61. AFRI and competitive funds versus earmarks--One of the
    biggest challenges we face in research is that agriculture has often
    not spoken with one voice and groups have sought individual earmarks
    instead of pushing for more general ag research dollars. Do you think
    this has changed given the new limitations on earmarks? Do you think
    the new AFRI program has helped unify ag groups on ag research?
        Answer. NIFA is shaping AFRI programs to meet important societal
    challenges for the nation by bringing together interdisciplinary groups
    of researchers, as well as formal and extension educators, to solve
    problems. In this way, AFRI is helping disciplinary interest groups to
    see how working together on issues of common interest will support
    disciplinary-based work while creating value for the public. For
    example, effectively addressing food safety issues requires
    microbiologists, animal scientists, economists, engineers and a range
    of others to work together. The 2010 AFRI requests for applications are
    offering large grants for this kind of interdisciplinary work and the
    applicant community is responding favorably. This is direct evidence
    that the new AFRI program is bringing together different disciplinary
    interest groups. In addition, AFRI is also offering smaller grants for
    more traditional, disciplinary-based research to continue building a
    foundation of knowledge to address current and future problems. We
    believe that this approach has had a positive effect on many
    agriculture groups and in fact has reduced the number of earmark
    requests.
        It should be noted, however, that in creating programs with focus,
    scale and impact we have not been able to meet all recognized needs. In
    the case of food safety, this year we support research, education, and
    extension focused on E. coli in beef and foodborne viruses. We also
    support research on Salmonella and other pathogens through the AFRI
    foundational programs. Climate change programs in 2010 have been
    limited to specific agricultural systems of cereal grains, southern
    conifers, and swine or poultry.
        In summary, agricultural organizations and disciplinary-based
    groups have realized that their interests are addressed, to the extent
    possible given limited resources, through AFRI programs focused on
    supporting basic research, and especially through those focused on
    solving societal challenges. This new type of collaboration has already
    begun to change the research, extension, and educational working
    relationships and capacity building within and between institutions and
    external organizations. This should result in a greater degree of
    support for the AFRI program and the continued reduction in earmarks.

        Question 62. AFRI--How has AFRI been received? Has there been a lot
    of interest in the new authority?
        Answer. The AFRI program has undergone substantial change in FY
    2010. While many potential applicants have embraced this change, others
    have expressed frustration at the magnitude of the changes. However,
    most applicants are finding that opportunities still exist in their
    interest areas. The change in AFRI has been to create programs of focus
    and scale to achieve impact and solve problems. This typically calls
    for interdisciplinary groups of researchers as well as formal and
    extension educators. Many are recognizing this opportunity and seeking
    out information and showing interest in participating in
    interdisciplinary teams applying for grants. As direct evidence of
    interest, our Requests for Applications have been downloaded thousands
    of times and the online webinars about the AFRI programs were viewed
    more than two thousand times since being posted on March 23, 2010. Many
    AFRI programs require a letter of intent and we have received 1,523
    letters as of July 20, 2010. This puts AFRI on a pace to receive
    slightly more applications this year than last. This would, however,
    represent a dramatic increase in the number of scientists and educators
    involved since many more of our programs will support multidisciplinary
    and multi-state teams of scientists. New support for direct extension
    and educational projects is creating new interest of professionals
    working in these areas, who previous had not felt that there were
    specific opportunities for them.

        Question 63. Ag research--We often hear ag groups want ag research
    to similar to NIH. How do you think we can make that happen?
        Answer. Congress has taken an important first step in creating the
    National Institute of Food and Agriculture (NIFA). This name clearly
    communicates to the scientific community, industry and the public the
    mission of the agency and its scope of responsibility and begins to
    bring greater visibility and recognition for what is being
    accomplished. NIFA is changing in many ways to follow the successful
    NIH model. We have a new emphasis on pre- and postdoctoral fellowships
    in AFRI which now are offered in a NIFA Fellows program. This is
    similar to the NIH Fellows program. We have moved to support larger
    grants, as NIH does, to reduce the repeated application process for
    productive scientists. We are also currently evaluating the advantages
    of creating sub-institutes within NIFA, similar to the NIH model, to
    bring focus and facilitate better coordination of our programs.

        Question 64. Extension Service--Have you and your staff had any
    discussions about the impact of state and local government cuts to
    Extension Service funding across the country? Any ideas on how to
    ensure the wealth of knowledge isn't lost?
        Answer. Individual staff members have been in discussions with
    land-grant university extension personnel. In addition, some
    Cooperative Extension Service (CES) personnel have presented seminars
    at NIFA, which allowed for direct question and answer interactions.
        States across the U.S. are finding it necessary to reduce or
    eliminate Extension programs at the state or local level in response to
    shrinking budgets. These cuts are also diminishing the capacity for CES
    to deliver knowledge-based solutions to current problems in rural,
    agricultural, and urbanizing communities. Minnesota's answer to this
    dilemma, for example, is to drastically reduce staff and move into
    focused multi-disciplinary teams with specific industries like dairy
    and horticulture. In essence, state extension personnel now do a few
    things well while letting others fall by the wayside.
        Fee-for-service is a common practice and increasing the number of
    these services could generate some income. eXtension is another tool
    being used to ensure that the wealth of knowledge is not lost. By
    providing free and open availability of information to the public,
    eXtension is one way to ensure that information is more widely
    disseminated and used. However, because eXtension distributes
    information freely on the Internet, there is no easy way to capture any
    revenue or even attribute credit to the Land-Grant University that
    developed the content.
        The opportunity exists to re-examine program priorities within CES
    and focus on a smaller number of critical issues. A major challenge,
    however, is achieving alignment between Federal research, education,
    and extension priorities and needs at the state or local level as
    viewed by CES. Where that alignment occurs, new or expanded Federal
    competitive grant opportunities that provide funding for extension and
    outreach programs can supplement state or local budgets. On the other
    side, where alignment does not exist, shrinking state and local budgets
    will result in loss of critical programs. Furthermore, when Federal
    priorities are created that don't align with those of CES, it's
    possible that those Federal programs will not achieve the intended
    level of impact since they will not have access to the land-grant
    universities' unique knowledge-delivery system.
        Availability of competitive funding that supports extension or an
    integration of extension and research activities may be one solution to
    the growing problem. Moving forward, Federal and CES planning and
    visioning efforts need to focus on achieving critical alignment of
    goals and expectations that facilitate effective problem solving in
    rural, agricultural, and urbanizing communities.
        4-H National Headquarters of the Families, 4-H, and Nutrition
    (F4HN) unit has monthly calls with the state 4-H program leader
    regional representatives. The Directors Working Group, composed of six
    Extension Directors has also had this as a topic. At regional 4-H
    program development meetings and the national state 4-H program
    leaders' meeting this past March, this topic has been discussed. Points
    that have been shared include how institutions are re-structuring
    programming and personnel to meet the programmatic demands. Leveraging
    of resources both of personnel and dollars are being explored. Surveys
    of program development fees are being initiated between land-grant
    institutions via a state 4-H program leader list serve. On a Federal
    level, program staff is encouraged to solicit and develop relationships
    with other Federal agencies to leverage resources for the land-grant
    extension system. From a 4-H Youth Development perspective, a
    concentrated effort to be engaged with eXtension is occurring.

        Question 65. Specialty Crop Research--The Specialty Crop Research
    Initiative (SCRI), initiated in the 2008 Farm Bill is seen by many
    specialty crop producers as very successful, bringing a
    multidisciplinary teamwork approach to problem identification; research
    planning and execution; and extension/outreach activities to help
    ensure that growers truly are the ultimate beneficiaries of the
    available funding. Will the department have any recommendations
    regarding the SCRI in the 2012 Farm Bill?
        Answer. USDA will conduct an external review of SCRI later this
    year. Following that review and based on its results, the Department
    may formulate some recommendations for the program for the next farm
    bill.

        Question 66. Specialty Crop Research--During a recent NIFA
    stakeholder meeting, some stakeholders expressed concern that the
    current Agriculture and Food Research Initiative (AFRI) discourages the
    involvement of the plant science community in identifying priorities
    and facilitating recognition of the best science while also failing to
    maintain the broad base of research necessary support the agricultural
    diversity of the United States. The SCRI provides an excellent model
    for collaborative involvement of the plant science research and grower
    communities, not only as a way to identify appropriate ``priorities and
    the best science'' but also to ensure that the work, even in its most
    basic form, will yield positive benefits for U.S. agriculture and
    dividends for the world. Has the department considered applying the
    SCRI planning, research and outcome delivery model more broadly to
    other NIFA programs in the coming farm bill?
        Answer. Rather than wait for the next farm bill, NIFA is actively
    working to systematically engage scientific, producer and public
    interest groups to inform the structure of our programs. For example,
    in April of 2010, NIFA participated in a multi-day workshop focused on
    needs and concerns related to agricultural animal health and disease.
    Later that same month, NIFA engaged stakeholders interested in plant
    biology, plant diseases and pests with a workshop in Washington, D.C.
    In each of these workshops participants had the opportunity to submit
    written comments and make oral presentations about needs they have
    identified. NIFA staff led discussions of these issues to clarify needs
    and in the case of the plant and pest biology workshop, reported out
    about how input received in a previous workshop had been used to shape
    agency programs. Such general sessions are used to inform all NIFA
    programs.
        We also hold targeted workshops and listening sessions for specific
    programs. For example, we recently published a Federal Register notice
    announcing a listening session in Washington, D.C. to gather input for
    the FY 2011 AFRI program. Since not everyone can travel to Washington,
    we will also be accepting written comments and hosting a series of
    webinars to gather additional input. It is our experience that the
    range of identified needs will be large and it is the responsibility of
    NIFA to determine the best uses for the limited agency resources
    available. While spreading resources thinly over a large number of
    issue areas may make all interested parties feel they have been heard
    it could also have the opposite effect, and, it is not proven effective
    in resolving problems. NIFA will carefully analyze all stakeholder
    input to identify areas that provide the best scientific opportunity
    for producing impact and solving problems. Concomitantly, to minimize
    duplication and identify areas for collaboration, NIFA will continue to
    evaluate the activities of other Federal agencies. We will also weigh
    information from the National Research Council and other authoritative
    sources in determining the most advantageous use of limited resources.
    Title VIII--Forestry
        Question 68. FS Coordinating Committee--One of the small but
    important things we accomplished in the farm bill was setting national
    priorities for forestland, and creating the structure to carry out
    those priorities in a cooperative way between Federal and state
    entities, forestland owners, and the forestry community. This seems
    simple enough but I'm puzzled by why it is taking the Forest Service so
    long to select members of the Coordinating Committee mandated in
    Section 8005? The committee is a fundamental piece to evaluating the
    state assessments to carry out the national priorities, so it seems
    that we have a bottleneck until those positions are filled. Your
    appendix says the charter was signed well over a year ago, and you have
    45 applicants to fill about a dozen slots. What is the hold up?
        Answer. The naming of the members of the Forest Resource
    Coordinating Committee is moving forward. The original charter called
    for a maximum of 20 members, but with the wide range of diverse
    interests who wish to advise the Secretary of Agriculture on private
    forestry matters, the Department has decided to consider additional
    potential applicants. This entails amending the original charter and
    allowing time for additional applications to be submitted and subjected
    to background checks. The charter should be amended by July, the
    committee members appointed, vetted and notified by September, and a
    first meeting held by December.

        Question 69. Managing Stands of Dead Trees--It is my understanding
    that the state of western forests due to bark beetle kill has moved
    into a new phase. With few means to save trees, the focus is now on
    managing the vast areas of dead trees and the risks they create for
    fire, watersheds, and public safety. Please provide an explanation of
    how you plan to meet these challenges in the national forests and the
    affected areas that surround them.
        Answer. Regions 1, 2 and 4 are all experiencing various phases of
    infestation and collectively have made significant investment over the
    last several years to address the bark beetle infestation. In 2010
    across these three Regions, an additional $67 million has been invested
    for management efforts to mitigate the bark beetle infestation in the
    high priority and high use areas (Table 1). These investments will
    enable the regions to better provide access to most recreation sites,
    priority roads, and reduce hazardous fuels around communities. Health
    and Safety is a major focus of these investments.
        The Rocky Mountain Region is spending $35 million on the most
    heavily impacted forests (Medicine Bow-Routt, White River and Arapaho
    Roosevelt National Forests). An additional $5 million is allocated for
    accomplishing insect and disease mitigation on the western slope and
    southern Colorado, the Shoshone National Forest in Wyoming and the
    Black Hills National Forest in South Dakota.
        The Northern Region is also spending $17.5 million on the most
    heavily impacted forests (Helena, Beaverhead-Deerlodge, Lewis and
    Clark, Bitterroot, Lolo Nez Perce and Clearwater National Forests).
    Infestation affects the states of Idaho and Montana.
        The Intermountain Region is spending over $9.3 million on the
    Forests in Southern Idaho (Boise, Caribou-Targhee, Salmon-Challis,
    Sawtooth, and Payette National Forests). The Region is also in the
    beginning planning phases of performing some much needed right-of-way
    corridor/facility hazard tree removal efforts across the Bridger-Teton
    National Forest in Southwestern Wyoming. High priority Wildland Urban
    Interface areas, across the entire Region, will be targeted for
    hazardous fuels reduction work.
        The following tables display how funds are being allocated and
    spent in 2010 within current capacity.

                         Table 1. FY 2010 Additional Funding Allocation to Western Bark Beetles
    ----------------------------------------------------------------------------------------------------------------
                                                                         Funding Amount ($000)
                   Branch/Activity                ------------------------------------------------------------------
                                                          Region 1              Region 2              Region 4
    ----------------------------------------------------------------------------------------------------------------
                  Hazardous Fuels Reduction                  $1,367                $23,104                  $763
       Recreation (trails, rec sites, etc.)                      $0                 $6,988                  $641
                                      Roads                 $11,768                 $9,002                $1,445
                              Noxious Weeds                      $0                   $906                    $0
      Vegetation and Watershed Mgt. (Weeds,                  $4,296                     $0                $6,465
                                   Watershed
      restoration, thinning, Forest Management)
    Forest Health Protection (targeted on special               $25                     $0                    $0
                                      sites)
                                                  ------------------------------------------------------------------
      Total......................................           $17,500                $40,000                $9,314
    ----------------------------------------------------------------------------------------------------------------

                Table 2. FY 2010 Projected Accomplishments for Table 1 Investment Within Current Capacity
    ----------------------------------------------------------------------------------------------------------------
                                                                     Estimated (Acres, Miles, Etc.)
               Accomplishment/Activity            ------------------------------------------------------------------
                                                          Region 1              Region 2              Region 4
    ----------------------------------------------------------------------------------------------------------------
    Wildland Urban Interface Fuels Reduction           13,900 Acres           11,400 Acres           2,777 Acres
                     Road Hazard Mitigation               280 Miles              266 Miles             107 Miles
                                     Trails               210 Miles               79 Miles             198 Miles
          Recreation Site Hazard Mitigation               205 Sites              185 Sites                1 Site
        Vegetation and Watershed Management            20,000 Acres                                 21,324 Acres
    ----------------------------------------------------------------------------------------------------------------

        More specifically, the regions are implementing the following:

        Recreation:

        Rocky Mountain Region--The vast majority of recreation sites within
    the bark beetle area will remain open. Of the 223 recreation sites
    (campgrounds and day use sites) eight will be fully closed, nine will
    be partially closed and 21 will have a delayed opening. The Region is
    coordinating with ski areas on timber settlement sales and ski area
    vegetation plans in light of beetle mortality. We are working closely
    with the ski areas to aggressively address the hazard trees within
    their permitted boundary. The Region is prioritizing motorized trail
    work throughout the beetle impacted area--over 90% of the hazard tree
    removal work will be done on motorized trails.
        Northern Region--All of the 828 recreation sites (campgrounds and
    day use sites) within the bark beetle area will remain open unless
    increased infestation and advancing stages in decay in currently dead
    trees require temporary closure until the hazards can be mitigated.
    Priority is being given to pre-season hazard tree removal and public
    education. While some dead trees remain, the ``Look Up'' program is
    designed to educate users in identifying potential risks. In 2010, 205
    sites have already been treated with pre-season hazard tree removal.
    The Region is coordinating with two of the eight ski areas to develop
    ski area vegetation plans in light of beetle mortality. We are working
    closely with the ski areas to aggressively' address the hazard trees
    within their permitted boundary. The Region is prioritizing trail work
    throughout the beetle impacted area. Trails with higher use are the
    priority. Nearly 4,225 miles of trails are impacted; however, 210 miles
    are being treated to remove hazard trees directly adjacent to the
    trail. Trail heads are being signed to inform users of potential
    hazards.
        Intermoutain Region--Of the 350+ recreation sites (campgrounds, day
    use sites, and trailheads) estimated to be affected by bark beetle
    infestations in the Region, only a small portion will have to be closed
    (permanently or temporary) until hazard removal is competed for the
    summer field season. The Region continues to work with its permitted
    ski areas to perform necessary treatments within the permitted
    boundaries. Like the Rocky Mountain Region, the Intermountain Region is
    prioritizing trail work that is needed to be done throughout beetle
    impacted areas--we expect to accomplish a significant amount of this
    work on the highest use trails across the Region.

        Fuels:

        Rocky Mountain Region--Over 11,000 acres of hazardous fuels are
    being removed mechanically with service contracts which will establish
    up to a 1.5 mile buffer around communities and mitigate the threat of
    catastrophic wildfire and protect watersheds at risk. Mechanical
    treatment, while a more expensive method to treat fuels than
    stewardship contracts, is necessary because of the lack of markets in
    Colorado for dead trees. The Region will also be completing a
    watershed/fuel assessment to identify priority watersheds for future
    strategy development regarding watershed restoration needs.
        Northern Region--Over 13,000 acres of hazardous fuels are being
    treated with a mix of stewardship contracts, service contracts for
    mechanical treatments (utilizing both machine and hand tools) and
    burning to mitigate the threat of catastrophic wildfire and protect
    watersheds at risk. The Region has completed an Integrated Restoration
    and Protection Strategy to identify priorities needs for watershed
    restoration.
        Intermountain Region--The Region plans on accomplishing over 2,700
    acres Wildland Urban Interface (WUI) hazardous fuels reduction in high
    priority areas across Southern Idaho. The Region is also working with
    its state partners on performing high priority treatments, as defined
    by the various state working groups, and through the implementation of
    community wildfire protection plans.

        Infrastructure:

        Rocky Mountain Region--The Region is finalizing the Environmental
    Assessment for powerline hazard tree removal with 14 companies in
    Colorado and working with Carbon Power & Light in Wyoming to implement
    the powerline hazard tree project decision. In addition, we are doing
    49 miles of landline location in support of WUI fuels treatments. We
    are working closely with the Federal, state and county highway
    departments to coordinate over 260 miles of hazard tree removal
    treatment along the primary travel routes (level 2 roads) on the
    forests.
        Northern Region--The Helena National Forest has begun an EA for
    powerline hazard tree removal forestwide. It is an adaptation of the
    Rocky Mountain Region's approach and will provide a test case for a
    regional approach that addresses points from recent Northern Region
    appeals. In addition, we are working closely with the Federal, state
    and county highway departments to coordinate over 280 miles of hazard
    tree removal treatment along the primary travel routes (level 3-5
    roads) on the forests.
        Intermountain Region--The Region plans on performing over 100 miles
    of hazard treatments along road corridors, as well as almost 200 miles
    of hazard tree treatments along trails. We are working with all of our
    various special uses permit holders to implement hazard tree removal
    projects along all powerline and other utility line corridors. Like
    Region 2, we are working closely with the Federal, state and county
    highway departments to coordinate hazard tree removal treatment along
    the primary travel routes on the affected Forests.

        Noxious Weeds:

        Rocky Mountain Region--The Region is spraying 1,745 acres of
    noxious weed treatments of new infestations along roads where roadside
    hazard tree removal was conducted in 2009. Additionally, we are
    spraying 740 acres of high value recreation sites with insecticide to
    prevent mortality of trees from bark beetle.
        Northern Region--The Region is spraying over 1,500 acres of noxious
    weeds treatments which are planned to occur along roads and at
    administrative and recreational facilities.
        Intermountain Region--The Region is continuing to spray for noxious
    weeds in hazard tree removal areas wherever the need is identified. We
    are also continuing to identify and treat high value recreation sites
    to prevent mortality of trees from bark beetle.

        Public Outreach:

        Increasing public and employee awareness of the health and safety
    hazards is a critical element of the three Regions strategy and our
    individual actions. We are working very closely with the local
    communities and stakeholders to ensure appropriate signing of roads and
    trails. Education signs are being posted to remind visitors they need
    to be aware of the possibility of falling trees. Forest Service
    employees, concessionaires, contract sawyers and crews are properly
    outfitted and trained when working in hazardous areas.
        In addition, there are some unique outreach efforts taking place.
    For example: the Northern Region has completed a Mountain Pine Beetle
    public information toolkit (including website and hard copy materials)
    in cooperation with Montana Department of Natural Resources, Montana
    Fish and Game and the University of Montana to inform private owners of
    the risks and potential treatments. The Region is working to expand the
    public awareness program, similar to that currently used to address
    risks after a wildfire to educate and inform forest visitors about the
    need to ``Look Up--J'' as they camp, hike or otherwise recreate in
    infested areas. Additionally, work is underway with local stakeholders
    to ensure appropriate signing of roads and trails.
        The Rocky Mountain Region has been working with the Colorado Bark
    Beetle Cooperative (a collection of eleven local county
    representatives, industry, environmental groups and other stakeholders
    to develop and disseminate bark beetle educational materials including
    posters, brochures, website, and table tents for use in hotels and
    restaurants. The Region created a video designed to educate employees,
    contractors and volunteers about working in this hazardous environment.
    Additionally, we have developed a series of interpretive panels that
    will be used throughout the impacted area to help visitors understand
    what is happening to the forest and wildlife. The Region has also
    worked very closely with the Bark Beetle Cooperative on emergency
    procedures in the event of a wildfire. Local public information
    officers from local county, state and Federal agencies routinely work
    together on emergency planning efforts including joint media training
    and holding public discussions about current situations and where and
    how people can recreate safely.
        All three regions are implementing an aggressive program of work
    for 2010 in addition to doing the necessary planning and layout for
    2011 and beyond.
    Title IX--Energy
        Question 70. Biodiesel--Do you think that our domestic biodiesel
    industry will be able to survive if the tax credit isn't extended by
    Memorial Day? Are you concerned that a number of plants won't resume
    production, even if something is done soon?
        Answer. The President's FY 2011 Budget proposes to extend the
    biodiesel tax incentives for the period from January 1, 2010, through
    December 31, 2011. Both the House and Senate have passed bills that
    provide a 1 year retroactive extension of the biodiesel tax incentives.
    The Administration strongly supports the prompt enactment of this
    extension.

        Question 71. Biodiesel--Have you spoken to the industry about any
    assistance that USDA might be able to provide under its programs to
    help keep plants operating?
        Answer. USDA has several Rural Development Programs that provide
    funding for the development and commercialization of renewable energy
    sources, including wind, solar, geothermal, hydrogen, ocean waves,
    hydroelectric, biomass, and biofuel (ethanol, biodiesel, etc.). We have
    spoken to the biodiesel industry about USDA programs that could provide
    some limited relief during these very difficult times. However, it is
    very difficult for firms to move forward in their business planning
    without knowing if Congress is going to pass legislation to extend the
    biodiesel tax credit.

        Question 72. Bioenergy Program/Advanced Biofuel Payment Program--
    USDA published a proposed rule on April 16th that asks for comment on
    the eligibility requirement you had for the FY09 funding that did not
    allow companies with 51% non-U.S. ownership to utilize the program,
    despite the fact that they're purchasing U.S. commodities to make and
    sell biofuels in the U.S. I am wondering why USDA feels the need to
    make energy title programs operate just like our rural development
    programs when there are may be some different goals.
        Answer. The Agency implemented the program consistent with other
    RBS programs. The currently published proposed rule solicits comments
    concerning this issue. The Agency will use the comments to develop the
    Final Rule.

        Question 73. Biofuels tax credits--This isn't our jurisdiction, but
    we are all aware of the expired and expiring tax credits for biofuels.
    If these lapse, what can USDA do to help the growers and industry?
        Answer. USDA has several Rural Development Programs that could
    assist biofuel producers to make the transition to other industries. In
    addition, USDA operates several programs that provide price and income
    support to growers.

        Question 74. REAP--The current REAP rules have not allowed ag
    producers in non-rural areas to participate in REAP. Will this be fixed
    for the FY10 funding that we hope will be going out shortly? This is
    directly contrary to what the statute says. And is there a reason why
    it has taken longer each year for the REAP funding to be made
    available?
        Answer. For FY 2010, the REAP program requires both agricultural
    producers and rural small businesses be located in rural areas. We are
    planning to address this issue in a Proposed Rule and make the Proposed
    Rule available for public comment.
        The timing of REAP funding has been impacted by other 2008 Farm
    Bill program implementation priorities.

        Question 75. Biorefinery Assistance Program--What has been the
    interest level for the Biorefinery Program? Has there been more
    interest from one segment of the industry over another?
        Answer. In anticipation of the Section 9003 Extension Notice of
    Funding Availability for remaining funds from FY 2009 and the FY 2010
    Section 9003 Notice of Funding Availability, Rural Development has
    responded to a number of inquiries involving a broad array of advanced
    biofuel technologies including--the retrofitting of existing facilities
    to accommodate pretreatment and processing of cellulosic feedstocks
    (mostly, corn residue and woody biomass) to make fuel ethanol; the
    construction of new facilities for either the biochemical or
    thermochemical conversion of: perennial grasses--switchgrass, reed
    canary grass, and Miscanthus; energy cane, sorghum, and/or woody
    biomass--poplar, hybrid poplar, willow, and silver maple. Rural
    Development has also responded to a number of inquiries that involve
    biorefineries to process oilcrops--oilseeds (camelina) and algae into
    third generation biofuels (so-called, ``drop-in'' or ``pipeline ready''
    replacement fuels for existing fossil fuels such as gasoline, diesel,
    and aviation fuel).

        Question 76. Biorefinery Assistance Program--Have you discussed
    with your staff what changes you might suggest to the Biorefinery
    Assistance Program to make it more useful given current credit
    conditions?
        Answer. Rural Development recognizes the magnitude of the financial
    exposure and risk borne by guaranteed lenders that participate in
    Section 9003. The use of alternative financial instruments to help
    distribute the risk among a number of participants is being considered.
    We will also consider changes to the program as a result of comments
    received from the public during the public comment period for the
    proposed rule.

        Question 77. Biorefinery Assistance Program--USDA has just issued
    the proposed rulemaking for the Biorefinery Assistance loan guarantee
    program, Sec. 9003, to assist in the development, construction or
    retrofitting of commercial biorefineries. This program was established
    in 2008, but has only made two loan guarantees. And, as we all know,
    DOE has not issued a single loan guarantee to a biorefinery. Are
    requirements for loan guarantee programs to evaluate risk of projects
    too stringent for new biofuel technologies? How will administration of
    the USDA program be different than administration of the DOE program?
    And what will you do to ensure that we start getting loan guarantees
    out to these vital projects?
        Answer. Of the 17 applications to the Section 9003 Biorefinery
    Assistance Program received in FY 2009, ten were returned to the
    applicant as ``Incomplete'' (as required by the Section 9003 Notice of
    Funding Availability) due to the fact that there was no lender of
    record in the application. Rural Development (RD) believes these events
    were unfortunately reflective of the very difficult financial
    environment that all of America was enduring at the time. There was
    concern in the lending community for risk in general, and particularly
    more so for biofuels projects that involved significant technology
    risk. Based on comments we receive from the lending community through
    comments made on the proposed rule, we will consider suggestions for
    improving the delivery of this program in the final rule.
        USDA has met with the Department of Energy (DOE) and has a general
    understanding of the DOE program. To adequately respond, we would need
    to complete a thorough analysis of the DOE program.
        USDA meets with numerous bioenergy companies and various lenders to
    discuss our programs. We are currently training our Energy Coordinators
    on all of our programs including marketing and outreach.

        Question 78. Biobased products and Biorefinery Assistance Program--
    As you know, non-fuel biobased products, such as bioplastics, also made
    from renewable biomass, provide similar benefits to biofuels--such as
    boosted rural economies, substantial job growth, greenhouse gas
    reductions and reduced use of petroleum. The modern biorefinery will
    need to mimic the petroleum refinery platform in that it will produce
    multiple products and materials from one feedstock. USDA has provided
    some support for biobased materials through programs such as the
    Biobased Markets Program but how can USDA further incentivize these
    products? Should these products qualify for the grants and loan
    guarantees under the Biorefinery Assistance Program?
        Answer. The Biorefinery Assistance Program is intended to assist in
    the development and construction of commercial-scale biorefineries and
    the retrofitting of existing facilities using eligible technology for
    the development of advanced biofuels. Projects where the primary
    product is an advanced biofuels can produce biobased products as a
    secondary product. Consistent with Congressional intent, preference is
    given to projects where first-of-a-kind technology will be deployed at
    the commercial scale. Providing support under the Biorefinery
    Assistance Program to companies that produce biobased materials but do
    not produce biofuels would be inconsistent with the current statutory
    authority for this program. Furthermore, extending the program to
    include companies that produce biobased products but do not produce
    biofuels with no increase in program funding would reduce the funding
    available for the development of advanced biofuels.

        Question 79. Repowering Assistance Program--In light of the change
    in credit markets since passage of the 2008 Farm Bill, do you believe
    that not providing applicants for the Repowering Program with any
    funding until after their project is completed to be the best use of
    the funds provided and the best incentive to get plants to undertake
    repowering projects? Did you consider utilizing the program to assist
    plants in undertaking the repowering, in other words, helping them
    finance the projects since they may not be able to get the financing
    from third parties?
        Answer. In implementing this program, USDA took into consideration
    the managers' language in the farm bill conference report that
    encouraged the Secretary to consider providing payments over a period
    of time to assure that the repowering projects are operating as
    intended and that the goals of a reduction in fossil fuel usage are
    being met. We considered many options with the goal of assisting
    successful projects.

        Question 80. BCAP--We have heard a lot of concerns regarding the
    implementation of BCAP. Can you explain why the program implemented the
    way it was? With just the delivery payment portion being implemented
    and not the establish payments.
        Answer. On May 5, 2009, a Presidential directive was issued to the
    Secretary of Agriculture to accelerate the investment in and production
    of biofuels. In response to that directive, I announced that we would
    help lead an unprecedented interagency effort to increase America's
    energy independence and spur rural economic development. One of the
    targets of the Presidential directive was the expedited delivery of the
    matching payment portion of BCAP as a way to support the nation's
    biofuel and alternative energy goals.
        In June 2009, USDA published a Notice of Funds Availability (NOFA)
    for the matching payment portion of the BCAP.
        USDA published a proposed rule for the entire program on February
    8, 2010, with a public comment period that was open until April 9,
    2010. We received over 24,000 comments and are working to develop a
    final rule as quickly as possible.

        Question 81. BCAP--Can you please describe who got payments under
    BCAP? What do you see moving forward for this program?
        Answer. BCAP payments so far have gone to eligible material owners
    which include farmers, loggers, landowners, and aggregators of biomass
    that delivered eligible material to biomass conversion facilities. USDA
    entered into about 4,600 contracts with participants who were to
    deliver biomass to over 450 facilities in 31 states. The biomass
    delivered was utilized by a mix of established and emerging industries
    including manufacturers, utilities, fuel pellet makers, and school
    districts.

        Question 82. BCAP--Creating sustainable feedstocks for a growing
    advanced biofuels industry is vital to meeting the Renewable Fuels
    Standard enacted by Congress. The Biomass Crop Assistance Program
    (BCAP) in the 2008 Farm Bill is a promising program that could help a
    lot of farmers get started growing dedicated energy crops, but I have
    heard from farmers that USDA has been slow to implement the
    establishment payment portion of the program, and that the restrictions
    and requirements that USDA has proposed could really hamper its impact.
    What can USDA do to get the establishment part of BCAP up and running
    quickly?
        Answer. USDA is well on the way to delivering the establishment
    part of BCAP. Moreover, a proposed rule covering matching payments for
    collection, harvest, storage, and transportation of eligible material
    and farm level establishment and annual payments for eligible crops was
    published on February 8, 2010. Over 24,000 public comments were
    received and we are moving to issue a final rule as soon as possible
    consistent with completion of a Programmatic Environmental Impact
    Statement.

        Question 83. Renewable biomass definition--The debate seems to be
    continuing over what the best definition is for renewable biomass
    definition. Do you want to wade into this discussion?
        Answer. USDA is responsible for implementing the 2008 Farm Bill in
    accordance of the statutory requirements and definitions. All programs
    created or modified under the 2008 Farm Bill reflect the statutory
    definition of renewable biomass.

        Question 84. E15--Has USDA been working with EPA on E15?
        Answer. Approval of the E15 waiver request would allow for a 15
    percent ethanol blend level in gasoline and is primarily a technical
    issue. USDA has been discussing with EPA at the policy level the
    various ramifications of E15. EPA is keeping us apprised of the status
    of the research and the decision making process.

        Question 85. ILUC and EPA--We heard a lot of concern about the
    relationship between USDA and EPA during the ILUC debate and that EPA
    did not consult enough with USDA. Do you think this is the case?
        Answer. USDA worked with the EPA as the EPA conducted its analyses
    and preparation of the Notice of Proposed Rule Making (NPRM) for the
    RFS2 implementation, including work on ILUC. After the NPRM was
    published, the USDA continued working and collaborating with the EPA
    prior to the final rule being published.

        Question 86. Role of USDA--What do you see as USDA's role in the
    renewable energy debate? We keep hearing that USDA has the lead for
    developing energy crops, but then we see that DOE is the one that seems
    to have most of the money to give out in this area.
        Answer. USDA plays a prominent role in the effort to address the
    nation's bioenergy goals. Renewable energy presents tremendous
    opportunities for our farmers, foresters, and rural America to enhance
    rural growth and development, create green jobs, reduce our dependence
    on fossil fuels, and improve our environment. USDA's role ranges from
    the research and support for the production of biomass to the
    deployment and commercialization of technologies that produce biofuels
    and renewable energy.
        Approaching the nation's bioenergy goals from an agricultural
    perspective, USDA focuses on research to develop and produce bioenergy
    crops, as well as efforts to build biorefineries and retrofit existing
    biorefineries. For decades, USDA research has focused on plant variety
    development, taking advantage of its scientific and research
    infrastructure and broad understanding of agricultural production, and
    is uniquely prepared to continue to take the lead in developing energy
    crops.
        For instance, the Agricultural Research Service (ARS) has a
    national program in biofuels research based on three legs: feedstock
    development (taking advantage of USDA-held crop germplasm resources and
    a long success in crop breeding); sustainable feedstock production
    (emphasizing research on biomass production on a large scale while
    managing pests as well as soil, water, and air resources); and
    conversion science and technology (especially development of co-
    products from agricultural feedstocks, adding value to the production
    of the biofuels themselves). For years, ARS has been doing research to
    enable development of forage grasses, turf, and other perennial
    grasses; sorghum; energy cane; oilseed crops; and other crops that are
    now being applied to bioenergy feedstock development. Additionally, ARS
    has a strong understanding of issues surrounding environmental
    sustainability--including soil and water conservation--and the use of
    marginal farmland. ARS, along with the National Institute of Food and
    Agriculture (NIFA) and the Forest Service (FS), continues to focus on
    germplasm breeding and evaluation, and increased genomic understanding
    of cell wall content and synthesis, with a goal of creating, deploying,
    and processing feedstock varieties yielding a range of renewable fuels
    and other valuable products.
        Historically, the National Institute of Food and Agriculture (NIFA)
    has supported biomass feedstock genetic development through the Small
    Business Innovation Research (SBIR) Program (about $1 million per
    annum). NIFA has partnered with DOE's Office of Biomass Programs (OBP)
    on the two joint programs outlined above. The NIFA contribution to the
    BRDI Program increases to $30 million in 2011 and $40 million in 2012.
    In addition the NIFA competitive grants program, AFRI will award grants
    totaling $40 million in 2010 and $73 million in 2011 for research in
    sustainable production of biomass feedstock; capacity/formula funding
    from NIFA supports an additional $17 million in bioenergy crop
    production.
        The Rural Development mission area is committed to fostering
    productive investments which enhance and support the development of
    renewable energy. Since 2003, Rural Development has assisted in making
    over $200 million in grants to improve the energy efficiency and aid in
    development of renewable energy technology for agricultural producers,
    investing in grain harvesting and drying efficiencies, irrigation
    technologies and in the infrastructure of rural communities which
    produce food, fiber, and support mechanisms for rural communities,
    rural small businesses, farmers and ranchers. Factoring in loans, loan
    guarantees, and loan grant combinations, Rural Development has assisted
    in approximately $1.2 billion of development, including renewable
    energy technologies which lower our dependence on fossil fuels.
        New initiatives such as the Biorefinery Assistance program, the
    Advanced Biofuel Payment program and the Repowering Assistance program
    are directly related to investing in renewable energy projects which
    will use oil seeds, crop residues, biomass and reduce our dependence on
    fossil fuels.

                 Rural Development Energy Investments, 2003-2009
    ------------------------------------------------------------------------
      Fiscal Year      Projects        Loans      Combinations     Grants
    ------------------------------------------------------------------------
            2003             187    $83,793,961            --    $31,898,480
            2004             190    $44,045,844            --    $31,324,278
            2005             185    $33,327,230            --    $29,279,064
            2006             487    $82,898,882            --    $35,212,697
            2007             489   $201,271,570   $18,114,430    $14,508,907
            2008             840    $82,987,820   $30,172,387    $33,171,678
            2009           1,610   $352,674,413   $76,782,101    $35,337,827
                   ---------------------------------------------------------
      Total.......         3,988   $880,999,720  $125,068,918   $210,732,931
    ------------------------------------------------------------------------

    Title X--Horticulture and Organic Agriculture
        Question 87. The 2008 Farm Bill was a landmark in U.S. agricultural
    policy for many reasons, namely the recognition of specialty crops
    including fruit, vegetables, tree nuts, floriculture, and nursery
    crops, and organic agriculture. The 2008 Farm Bill dedicates almost $3
    billion in funding over 5 years to areas of critical importance to
    these sectors including nutrition, research, pest and disease
    management, trade, conservation and expansion of market opportunities.
    For the first time, the 2008 Farm Bill established a separate title to
    deal, specifically, with issues related to specialty crops and organic
    agriculture. It is within Title X that these sectors of American
    agriculture find their home and proper place in the living history of
    U.S. agriculture policy.
        Mr. Secretary, would you describe your views on the importance of
    Title X and its long-overdue recognition of specialty crops and organic
    agriculture?
        Answer. USDA commends Congress for including, for the first time, a
    specialty crop and organic agriculture title in a farm bill. This
    Administration is committed to the importance of fresh, nutritious food
    and raising the profile of locally grown food, including specialty
    crops and organic agriculture. President Obama has made a safe,
    sustainable, and nutritious food supply a central goal for USDA.
        I assure the Committee that USDA is committed to the integrity of
    the organic label and recognizes organic farmers as leaders in
    environmental stewardship. Organic farmers deserve a high-quality
    program that penalizes farmers and operators who violate the law and
    jeopardize consumer confidence in organic products.
        Question 88. Plant Pest and Disease--In Section 10203 of the 2008
    Farm Bill, Congress amended the Plant Protection Act so that the
    Secretary has final say over the funding necessary for plant pest
    emergencies. The Plant Protection Act gives USDA the authority to tap
    other funds of the USDA as needed to address these emergencies. Yet,
    for many years, USDA's experts at fighting pest infestations have seen
    the Office of Management and Budget refuse to release funds identified
    as crucial to the effort.
        Please tell us how the process of obtaining emergency funding has
    changed in light of Section 10203 and please provide this Committee
    with all instances in which USDA sought such emergency funding under
    the Plant Protection Act and if OMB's response to those requests.
        Answer. USDA appreciates the flexibility that the Plant Protection
    Act provides in enabling the Department to effectively respond to new
    and emerging pest and disease threats. USDA continues to work through
    OMB in order to consult with the President on fiscal matters. OMB
    consultation on emergency funding requirements provides an important
    mechanism to ensure that sound funding decisions are made. Since
    becoming Secretary of Agriculture, I have sent only two emergency
    funding requests under the Plant Protection Act. OMB fully supported
    the request for $41.5 million in Commodity Credit Corporation funding
    to address the Asian longhorned beetle in Massachusetts, as well as the
    request for approximately $11 million for grasshopper outbreaks
    expected in some western states.

        Question 89. Plant Pest and Disease--Section 10201 of the farm bill
    identified the plant pest safety net as badly in need of repair. It
    dedicates $50 million a year to improve operations at the Federal and
    state levels. While early indications are this program is a success, it
    is not enough. Producers continue to face new invasive pests that close
    markets at home and abroad and that attack the natural environment.
        As we begin consideration of the next farm bill, please provide
    this Committee with the Department's recommendations on how we may
    improve the detection of pests to avoid infestations and the response
    to those infestations when they occur?
        Answer. Early returns of the Plant Pest and Disease Management and
    Disaster Prevention programs of the 2008 Farm Bill indicate the success
    of this program. In Fiscal Year (FY) 2010, the Animal and Plant Health
    Inspection Service (APHIS) provides $45 million in Section 10201
    funding to over 50 cooperators, including state departments of
    agriculture, universities, nonprofit organizations and USDA agencies.
    These cooperators are conducting over 200 projects to enhance and
    protect American agriculture and natural resources. This is on top of
    the $12 million released during the FY 2009. APHIS is also seeking
    funding proposals through June 18, 2010, for $50 million in funding in
    FY 2011.
        I would like to share two examples of how this program has helped
    APHIS protect American agriculture from invasive pests. Funding from
    Section 10201 was provided to the California Department of Food and
    Agriculture to implement the California Agriculture Detector Canine
    Teams program for enhanced inspection and surveillance of plant
    products entering the state via parcel delivery facilities and
    airfreight terminals. These dog and officer teams are trained at APHIS'
    state-of-the-art National Detector Dog Training Center in Newnan, GA,
    through use of innovative methods to detect agricultural contraband. A
    prime example of the great work the canines are doing was when the
    Fresno County Dog Team picked up on a canvas gym bag at the Fresno
    Airport, finding ten Asian citrus psyllids in leaf material, which
    later tested positive for citrus greening disease. The gym bag was on
    its way to a residence in Fresno, California, a major citrus-producing
    area where this devastating disease has not yet been detected. By
    apprehending such contraband, these teams safeguard agriculture by
    preventing plant pests and diseases from entering California.
        In addition to new initiatives funded under Section 10201, the
    funding has also helped provide the final push needed to address plant
    diseases such as plum pox. It took 10 years to eradicate plum pox virus
    in Pennsylvania, with the first detection made in a peach orchard in
    September 1999 and eradication declared on October 29, 2009. Section
    10201 funding enabled us to complete the last stage of intense
    monitoring in order to declare plum pox eradication in the Commonwealth
    of Pennsylvania.
        As we look towards the next farm bill, I believe that it is
    important that we take stock of the successes we have had with our
    existing plant pest and disease programs and examine whether there are
    areas that can be improved upon to better meet our shared goal of
    preventing and effectively responding to invasive pest incursions. Our
    agricultural safeguarding system in the United States consists of a
    comprehensive, interlocking set of programs that together work to
    protect U.S. livestock and crops from foreign pest and disease risks.
    Our goal is to address plant pests and diseases as early as possible
    through activities such as aggressive domestic surveillance, offshore
    pest risk analysis and reduction, and inspections at inspection
    stations, combined with robust emergency response and anti-smuggling
    activities. This layered system goes hand-in-hand with activities
    carried out by U.S. Customs and Border Protection, states, and our
    other partners.
        As we examine the successes under Section 10201, we will also
    determine whether additional actions can be taken to strengthen our
    overall agricultural safeguarding system. USDA is committed to this
    effort, and looks forward to working with this Committee as we identify
    any additional needs.

        Question 90. Biotech regs--You reference new biotechnology
    regulations in the appendix to your testimony as mandated per the farm
    bill. It has been reported that USDA is considering requiring full
    Environmental Impact Statements for all new biotech trait approvals.
    How would a proposed mandated EIS work within APHIS given the agency's
    resources and the lengthy delays in approval for many biotech traits
    already in the pipeline?
        Answer. USDA is not considering requiring full Environmental Impact
    Statements (EIS) for all new biotech trait approvals. APHIS will
    continue to evaluate on a case-by-case basis the appropriate
    environmental document to prepare to inform regulatory decisions on
    petitions for nonregulated status. When APHIS is asked to review a
    petition to deregulate a biotechnology product, the decision on whether
    to complete a full EIS or an environmental assessment is based on the
    Council for Environmental Quality (CEQ) National Environmental Policy
    Act (NEPA) implementing regulations and Agency NEPA implementing
    procedures. In all cases, APHIS carefully considers the possible
    environmental impacts of each regulatory action to ensure the
    appropriate level of science-based analysis required for a decision is
    adequate and sufficient.
        If APHIS were to complete an EIS for every trait approval, it would
    add significant time and expense to approve each new product. We
    estimate that an EIS, on average, costs $1 million--$1.5 million and
    takes approximately 3 years to complete. By contrast, an environmental
    assessment costs less than $100,000 to prepare and takes less than a
    year. We currently have 19 requests to deregulate, or approve,
    genetically modified products before the Agency.
        We have limited resources to carry out our biotechnology regulatory
    activities. However, recognizing that the time it takes to complete
    these petitions is increasing, I have taken a number of steps to
    address the backlog, such as establishing a new NEPA team in APHIS
    devoted to preparing high quality and defensible environmental
    documents that inform regulatory decisions. Additionally, I have
    requested $5.8 million in additional funding in the FY 2011 budget
    request, which would allow APHIS to hire additional staff to keep up
    with the increased workload.

        Question 91. Know Your Food, Know Your Farmer--Local Food--The
    Committee supports local agriculture and local food systems. Often the
    Department's statements about local food tie it to economic development
    but shouldn't this message be tied to a message to eat more
    agricultural products like fruits and vegetables? Otherwise, any
    economic gain made locally is an economic loss somewhere else. Western
    states, particularly California, supplies fruits and vegetables for the
    country and for the world.
        Is USDA telling East Coast consumers that they should not purchase
    products grown in the West and Northwest?
        Answer. No, encouraging consumers to learn more about where their
    food comes from and how it is grown helps them to better understand and
    appreciate the challenges farmers face, which benefits all agriculture.
    In addition, educating consumers on the source of their food enables a
    greater appreciation for the energy involved in transporting food from
    field to market.
        USDA's priorities, initiatives, and budget must be targeted to
    innovative approaches that drive economic opportunity in rural
    communities. Place-based economic development strategies and marketing
    strategies are one approach to helping support rural economies grow
    jobs and increase farm income. Local and regional food systems are a
    small but fast-growing market. We are working to help producers and
    rural communities take advantage of these market opportunities.
        We are also working to increase access to nutritious food and to
    promote healthy diets including increased consumption of fruits and
    vegetables, low fat dairy products and lean proteins. One of the
    benefits of linking these efforts together in the Know Your Farmer,
    Know Your Food initiative (KYF2) is that they can be mutually
    reinforcing, for example by linking education about farming, nutrition,
    and the importance of rural America.

        Question 91a. We have noted more inclusive messaging from the
    Department in the last few weeks regarding Know Your Food, Know Your
    Farmer, but I have a question, as consumer preferences continue to
    shift and change, how does the Department ensure that its messaging
    does not seemingly pit producers against each other with regards to
    size, production practices or location?
        Answer. USDA programs aimed at supporting producers are size
    neutral. Our emphasis is on identifying emerging economic opportunities
    in the direct and local marketing sector that producers of any scale
    could conceivably pursue if they were interested. At no point do we
    make claims that any type or scale of production is superior to any
    other. The revitalization of the rural economy through more
    concentrated efforts to build local and regional food systems must
    target all sizes of agricultural.

        Question 92. Pesticides--Endangered Species Act--As a result of a
    recent court decisions ranging from intersection of pesticide
    application and the Clean Water Act to inter-agency consultation
    required under the Endangered Species Act, EPA seems to be forced into
    developing restrictions on critical crop protection products that will
    likely result in the prohibition or significant restriction of their
    use. No one wants to harm the environment, however, recent court
    actions have growers increasing worried about their ability to access
    tools essential to their operations.
        Would you describe for the Committee the interaction of the
    Department with EPA on pesticide related issues in general and the ESA
    in particular?
        Answer. NRCS has been in communication with EPA on a continued
    basis working with the Pesticide Program Dialogue Committee on
    pesticides applications. To address concerns of agro-ecosystems that
    may affect various endangered species habitats, NRCS has recommended
    that the conservation planning process be used to develop a
    conservation plan. The purpose of the conservation plan will be to
    allow the producer to use the practice standards that are best suited
    for the treated site or tract of the farm ``Best Management Practices''
    that does not degrade natural resources (soil, water, plants, animals,
    air, and human).

        Question 93. Organic--Mr. Secretary, the National Organic Program
    is the Department's most visible programmatic component in its efforts
    to recognize the growing demand for organic agricultural products. In
    the past it has been a lightning rod for criticism. I commend you and
    Deputy Secretary Merrigan for the program's new leadership and
    direction, particularly its new focus on enforcement.
        How do you see the role of the NOP in ensuring that consumers are
    getting what they pay for when they buy USDA certified organic?
        Answer. Organic farmers deserve a high-quality program that
    penalizes farmers and operators who violate the law, thereby
    jeopardizing consumer confidence. USDA has developed a comprehensive
    plan for evaluating and improving the NOP for producers and consumers
    alike.
        USDA's Office of Inspector General (OIG) recently announced the
    findings of their audit of the NOP. The review provided valuable
    information and highlighted the necessity for the reforms USDA is in
    the process of implementing. All of these activities will enhance
    compliance with program regulations and ensure the integrity of the
    organic label.
        One of the many improvements that the NOP is implementing is the
    development of the NOP Handbook. The handbook will provide clarity and
    consistency to certification agencies, organic producers and handlers
    concerning the NOP regulations and address many of the OIG findings.
        In February 2010 the Access to Pasture final rule was published.
    This rule is intended to build consumer confidence that organic milk
    and meat comes from organically raised animals that are actively
    grazing on pasture during the grazing season. The final rule allows the
    NOP to efficiently administer and enforce the integrity of the organic
    seal with regards to livestock feed and living conditions.
        A $3.1 million increase has been proposed in the NOP budget for
    2011. These funds will be used to: conduct more surveillance of foreign
    accredited certifying agents; increase the program's capacity to
    investigate complaints and violations (both domestic and foreign); and
    educate certifying agents worldwide to ensure the organic regulations
    are consistently implemented.
        In response to a National Organic Standards Board (NOSB)
    recommendation for a third party review, the NOP is undergoing an audit
    and peer review process with the National Institute of Standards and
    Technology (NIST). This process along with the development of a quality
    management system will improve the quality of the program and enhance
    the program's ability to protect organic integrity. We expect to
    receive the findings of the NIST audit by the end of the 2010 Fiscal
    Year.
        In September 2009, USDA announced that the NOP would become an
    independent program area within AMS because of the increased visibility
    and emphasis on organic agriculture throughout the farming community,
    evolving consumer preferences, and the enhanced need for governmental
    oversight of this widely expanded program.
        The NOP will be implementing a program for periodic residue testing
    as outlined in the Organic Foods Production Act of 1990. Residue
    testing will be used to identify problems and enhance organic
    integrity.

        Question 93a. We have heard a lot about organic agriculture being
    integrated into all departments at USDA. Can you describe what exactly
    the Department is doing to ensure that organic agriculture is
    recognized within all USDA program areas?
        Answer. In addition to the National Organic Program, there are a
    number of programs and policies implemented by USDA to support organic
    production. Many of these programs were included in the 2008 Farm Bill
    as organic agriculture, and horticulture had its own title for the
    first time. The 2008 Farm Bill included a five-fold increase in
    mandatory funding for organic programs over funds mandated in the 2002
    Farm Bill, and authorized additional funding for many of these
    programs. Most of the mandatory funds are for two existing organic
    programs--the organic research program and cost-share assistance
    program to help growers and handlers with organic certification costs.
    The legislation also included new organic provisions on credit, trade,
    crop insurance and conservation.
        USDA implemented a new organic conservation initiative in 2009
    under the Environmental Quality Incentive Program (EQIP) aimed at
    assisting organic and transitional farmers. This new initiative makes
    conservation practices related to organic production and transition to
    organic production eligible for payments under the EQIP conservation
    program. The EQIP Organic Initiative obligated over $36 million last
    year in financial assistance under nearly 1,500 contracts with
    certified and transitioning organic farmers in 49 states. Over 300,000
    acres of farmland are enrolled under these contracts.

        Question 94. Farm Structure--As we head into deliberations on the
    2012 Farm Bill some have questioned whether we are developing a
    bifurcated agricultural system in the U.S. with a disappearance of the
    traditional mid-sized family farm.
        Can you tell us how some of your new efforts including Know Your
    Farmer, Know Your Food can help producers too big to sell directly in
    farmers markets find markets in which they can earn fair value for
    their product?
        Answer. Know Your Farmer, Know Your Food (KYF2) is working to
    enhance opportunities for the so-called ``disappearing middle'' in
    several ways. For example, one challenge we have heard from farmers who
    are too big for farmers markets is a lack of infrastructure, both
    physical and logistical, for aggregating, processing, and distributing
    to local and regional markets. We are working to support and enhance
    the needed infrastructure by coordinating our work under existing
    authorities and programs to identify and address the needs, such as for
    slaughter capacity for livestock for local and regional markets, and
    for ``food hubs'' that aggregate and distribute produce and other
    agricultural products. Our farm-to-school tactical teams are working to
    understand the bottlenecks and opportunities in supplying more local
    products to schools, making it easier for farmers to serve this
    rapidly-growing market.

        Question 95. Farm Structure--With the success and popularity of
    programs like farm to school in which producers sell directly to their
    local school district, I have a question, do you see other
    opportunities to maximize nutritional benefit for participants and
    stimulate local ag economies by linking nutrition programs directly
    with regional agriculture?
        Answer. USDA's Know Your Farmer, Know Your Food (KYF2) initiative
    is a USDA-wide effort to create new economic opportunities for farmers
    and ranchers by better connecting consumers with local producers. This
    initiative is one of many efforts by the Obama Administration to
    revitalize rural American communities.
        One key component of KYF2 is the creation of an interagency Farm to
    School Team. During this fiscal year, the Farm to School Team is
    visiting 15 school districts in nine areas across the country of varied
    demographics and implementation stages of a school's farm to school
    efforts. During these visits, the Team will work with local farmers,
    local and state authorities, school districts, and community partners
    to analyze and assess variables that support or deter farm-to-school
    activities, both from the school and farmer perspectives, as well as
    the effects the district's farm to school activities have had on the
    school and community. The information gathered during these site visits
    will be used to develop and update appropriate resource materials,
    guidance, and technical assistance for both schools and farmers. We
    also expect the visits will provide valuable information on proven and
    practical ways to link nutrition programs with regional agriculture
    that can be adopted in other areas across the country to help increase
    the consumption of fresh fruits and vegetables and other local
    agricultural products, including organic products.
        The Supplemental Nutrition Assistance Program (SNAP) also offers a
    linkage with local and regional agriculture. It is a Food and Nutrition
    Service (FNS) priority to increase the number of farmers' markets that
    accept SNAP benefits to ensure that participating SNAP households can
    access the healthy and nutritious food offered at markets.
        In the past 3 years, the number of SNAP authorized direct marketing
    farmers and or farmers markets has increased by at least 200 each year.
    Currently, more than 1,100 farmers' markets are authorized as SNAP
    retailers. The President's Fiscal Year 2011 budget offers an
    opportunity to expand SNAP participation to non-participating farmers'
    markets by proposing $4 million to equip farmers' markets with the
    wireless Electronic Benefit Transfer (EBT) equipment that is usually
    needed in the environment in which farmers' markets operate.
        In the past year, FNS has also simplified the authorization
    processes for farmers' markets to become SNAP retailers and the
    approval process to offer incentive bonuses to SNAP customers. The
    incentive bonuses are funded by private foundations, nonprofit
    organizations and local governments. SNAP customers may also access the
    local and regional agriculture through authorized community supported
    agriculture and roadside stands.
    Title XI--Livestock
        Question 96. Animal ID/Traceability--Millions of taxpayer dollars
    have been spent to support the implementation of a Federal animal
    identification and traceability system, whether voluntary or mandatory,
    with very disappointing results. Without a functioning and efficient
    traceability system in place, a foreign animal disease incursion such
    as food and mouth disease would have absolutely devastating effects on
    animal agriculture in this country. USDA's current traceability
    initiative puts the responsibility on the states to develop animal
    identification and traceability systems. Does USDA believe that state
    control will increase participation? If so, why? How will USDA
    coordinate these various state systems to control and oversee
    interstate movement? Are USDA's current statutory authorities adequate?
    In the face of an animal disease outbreak, what confidence do you have
    that this approach to traceability will be effective?
        Answer. USDA believes state control is crucial to increasing
    participation in animal disease traceability. USDA will establish new
    regulations that will require that animals moving interstate be
    traceable and that the animals be officially identified. The
    regulations will be outcome based in the form of traceability
    performance standards. Each state and Tribe will develop a traceability
    plan with input from their producers that meets the performance
    standards. Working with producers on the local level, states will be
    able to enhance traceability in areas that need the most improvement.
    The use of official animal identification will increase in animals that
    move interstate. During last year's listening sessions, producers
    indicated their desire that identification data be managed at the state
    level.
        USDA is working with the states and Tribes to ensure that
    traceability approaches are coordinated and integrated. For example,
    USDA will continue to be responsible, in collaboration with states and
    Tribes, for determining nationally which forms of identification can be
    considered official. We will also work with the states and Tribes to
    ensure that their databases and other information technology are
    compatible and can communicate with one another. The new framework
    calls for USDA to establish, through regulation, specific traceability
    performance standards that states and Tribes must meet in order to
    establish effective traceability programs to allow interstate movement
    of livestock.
        Our new approach builds off USDA's existing disease programs, such
    as the bovine tuberculosis and brucellosis programs. Many cattle
    producers are used to tagging their cattle as part of these successful
    control and eradication programs. The sheep scrapie program also relies
    on this kind of tag-based system--it's cost effective and producers are
    very pleased with the approach. USDA has held data for these programs
    for many years without FOIA concerns. As diseases are eliminated in
    states, producers no longer need to participate; this is why gaps in
    animal disease traceability exist today. Our new approach to animal
    disease traceability would close these gaps while building off of
    systems that are successful and trusted by producers.
        USDA's current statutory authorities are adequate to carry out its
    traceability responsibilities. The Animal Health Protection Act of 2002
    (7 U.S.C. 8301-8317) gives the Secretary of Agriculture broad authority
    to detect, control, or eradicate pests or diseases of livestock or
    poultry. Under this law and current regulations, USDA has the authority
    to enact proper response measures in the event of an animal disease
    event.
        Implementing the new framework, with focus on interstate livestock
    movements, supports our efforts to increase the timeliness of a
    response by implementing a performance based traceability system. As
    the new framework is put in place, we will evaluate our capabilities in
    accordance with the traceability performance standards and will work
    with states needing improvement. This approach ensures gaps in
    traceability are resolved before an outbreak.

        Question 97. Competition--There continues to be concern about
    competition and market manipulation. Are you seeing areas of concern
    with regard to market manipulation? If so, what are they? The 2008 Farm
    Bill directed USDA to promulgate regulations within 2 years on this
    matter under the Packers and Stockyards Act. What is the status of
    these regulations? When can we expect them to be published?
        Answer. In some areas such as the Texas, Oklahoma, New Mexico
    marketing region for cattle, committed procurement has increased from
    an average of 55 percent in 2009 to above 70 percent at the end of
    2009. In late 2008, the volume of cattle traded through contracts
    exceeded the volume of cattle traded through the negotiated market.
        Today's cattle and hog market is highly concentrated and
    coordinated. Negotiated markets are thin, with fewer and fewer
    negotiated transactions. In these market conditions, the negotiated
    price may not accurately reflect actual supply and demand, and a single
    packer could possibly manipulate prices and the timing of purchases to
    distort prices. Thin markets also have the potential to affect contract
    prices. In hogs, the spot market is now eight percent. GIPSA is
    actively monitoring the market and will take action when justified to
    prevent unfair or anti-competitive practices.
        Competition in the livestock marketplace will be a source of review
    at the Colorado competition workshop on August 27, 2010 in Fort
    Collins. Livestock markets are very complex, and that is why having an
    open and transparent dialogue with farmers and experts on these issues
    are important. Over the next several months we will be having a series
    of public workshops jointly with the Department of Justice to discuss
    agricultural competition. With these workshops, we do not prejudge
    outcomes at this time, but they will help inform our decisions.
        GIPSA is in final clearance on a proposed rule to carry out
    regulations as required by the 2008 Farm Bill's livestock title, with
    the intention to publish this rule by late spring.

        Question 98. COOL--The final rule on the implementation of COOL was
    published in March 2009. How is the implementation going? What is the
    level of compliance? Is compliance increasing? What is USDA doing to
    ensure compliance?
        Answer. On March 16, 2009, the newly implemented COOL final rule
    took effect requiring retailers to label covered commodities with the
    country of origin for beef, pork, lamb, chicken, goat meat, wild and
    farm-raised fish and shellfish, perishable agricultural commodities,
    peanuts, pecans, ginseng, and macadamia nuts. Approximately 37,000
    retail establishments are covered by COOL. The USDA entered into
    cooperative agreements with all 50 states to carry out the reviews. The
    state inspectors recently received additional training to ensure review
    procedures and COOL requirements are consistently and accurately
    applied. The in-store reviews for all covered commodities began in June
    2009.

       USDA plans to review 12,741 covered retailers by the end of
            the first full year of enforcement, which ends September 30,
            2010. As of April 30, 2010, approximately 8,300 of the 12,741
            scheduled retail reviews have been conducted.

       In calendar year 2009, COOL reviews were performed in 3,871
            retail stores where approximately 1.16 million item types
            (e.g., U.S. Choice Strip Steak, pork chops, bin of tomatoes,
            packaged carrots, Tilapia fillet, etc.) were evaluated. The
            reviews were conducted during the final 6 months of the year.

       Out of the 1.16 million item types reviewed at retail from
            June 2009 through December 2009, greater than 96% were properly
            labeled for country of origin.

        Question 99. Food Safety--America has the safest food supply in the
    world, yet there have been a number of recalls of adulterated or
    potentially adulterated product in recent years. What is USDA doing to
    not only ensure a safe food supply but also to reassure the public that
    their food is safe?
        Answer. I agree that recalls and foodborne illnesses indicate a
    breakdown in the food safety chain, and would like to reiterate that
    reforming our food safety system is a priority of President Obama's
    Administration. This is why the President created the Food Safety
    Working Group, co-chaired by me and Health and Human Services Secretary
    Kathleen Sebelius. The Food Safety Working Group's top priority is
    preventing foodborne illness.
        The Food Safety Working Group made recommendations last year to
    improve our food safety system, and we have already implemented a
    number of those recommendations to protect consumers. For example, USDA
    has expanded sampling for E. coli O157:H7 in raw ground beef.
        Another priority for the Working Group was to redesign and update
    www.foodsafety.gov, the government gateway through which consumers can
    access food safety information. The new website was launched in the
    fall of last year, and is one way that USDA is reminding the public
    about what we do every day to maintain a safe food supply and prevent
    foodborne illness, as well as what consumers can do to handle food
    safely.
        USDA is also improving its efforts to combat foodborne pathogens.
    The Department has had a zero tolerance policy for E. coli O157:H7 in
    ground beef for more than 15 years, and USDA continues to develop new
    policies, to further protect public health, on emerging pathogens, such
    as six strains of non-O157 Shiga toxin-producing E. coli (STEC) that
    are found in food and cause serious foodborne illness. In order to
    effectively regulate these pathogens, USDA has been working to develop
    a validated laboratory method to test for each of the strains of non-
    O157 STEC that are of public health concern. To date, a screening test
    has been developed to detect four of the six strains, and a
    confirmatory test is under development.
        In addition, we are intensifying our efforts to combat Salmonella
    and Campylobacter in poultry products by tightening existing
    performance standards for Salmonella and instituting performance
    standards for Campylobacter for the first time. By revising current
    performance standards and setting new ones, FSIS is encouraging
    establishments to make continued improvement in the occurrence and
    level of pathogens in the products that they produce.
        Finally, we are continuing to develop the Public Health Information
    System to help the Agency more rapidly and accurately identify trends,
    patterns, and anomalies in data and thus allow us to more efficiently,
    effectively, and rapidly protect public health.

        Question 100. Market price volatility--Many of the problems in
    recent years can be traced to price volatility. How can price
    volatility be addressed in the next farm bill without getting
    government further involved in management of the markets?
        Answer. Price changes that reflect shifts in underlying supply and
    demand conditions help markets adjust production and consumption
    patterns. Market transparency is one critical factor that facilitates
    price discovery and helps foster fair, efficient, and competitive
    markets. Many agricultural commodity markets have shifted away from
    open spot market trading toward privately negotiated trading and a wide
    variety of marketing agreements, formula pricing arrangements, forward
    contracts, and other vertical coordination mechanisms. A consequence of
    the shift away from open market trading has been a reduction in the
    quantity of publicly availability information on marketplace prices,
    volumes, and related characteristics, which can put producers at a
    disadvantage. While programs such as Livestock Mandatory Reporting
    impose reporting requirements on segments of the agricultural and food
    production system, such requirements do not involve government being
    involved in the management of markets. The increased market
    transparency can assist price discovery and allow markets to more
    accurately reflect supply and demand conditions, however as the open
    spot markets become thin as they have in recent years they also become
    increasingly volatile due to a loss in liquidity. They also become
    increasingly susceptible to price distortions, intentional or
    unintentional, regardless of the increased information, which again can
    put producers at a disadvantage and may require governmental
    interventions in certain situations.
    Title XII--Crop Insurance and Disaster Assistance Programs
        Question 101. SURE/disaster--One of the complaints of the SURE
    program is that a major factor in the calculation is the level of crop
    insurance coverage purchased, when this type of disaster assistance is
    often most needed in areas where crop insurance has not typically
    worked well and therefore where there are not high levels of buy-up
    coverage. SURE payments have been distributed for 2008. Have you been
    able to compare the geographic distribution of these payments with
    where disasters certainly caused crop loss to determine how well
    targeted this program is to need?
        Answer. First, it is important to remember that SURE is but one
    component of the safety net, along with Direct and Counter-Cyclical
    Payments, the Average Crop Revenue Election, Federal Crop Insurance,
    Non-Insured Crop Disaster Assistance, and Loan Deficiency Payments and
    Marketing Assistance Loans.
        SURE is a revenue based crop-loss assistance program which requires
    that all of a producer's farms or land in the United States be
    considered as one farm. By calculating disaster payments on a crop-by-
    crop basis rather than by considering all crops on all farms, more crop
    losses would probably qualify for disaster payments. Therefore a
    normal, or better than normal, crop on one or more farms would very
    likely offset losses due to natural disaster of one or more crops on
    another farm.
        I look forward to working with you regarding the disaster programs
    during upcoming work on the next farm bill.

        Question 102. Sodsaver and Breaking Lands Working Group--What is
    the status of the working group's discussions? Couldn't RMA help
    address the concerns that new land is still being broken out for
    production by changing its policy on APH transferability?
        Answer. An APH database from land with existing actual yields
    (i.e., APH transferability) is generally not used to provide a
    guarantee on newly broken acreage. The Common Crop Insurance Policy--
    Basic Provisions provides that acreage which has not been planted and
    harvested or insured in at least one of the three previous crop years
    is generally uninsurable, unless the acreage was planted to comply with
    another USDA program (e.g., Conservation Reserve Program (CRP)); or
    such acreage constitutes five percent or less of the insured planted
    acreage in the unit; otherwise, such acreage must be insured by written
    agreement. The written agreement is an individually reviewed offer of
    insurance to a producer made by RMA's Regional Offices. Insurance
    coverage by written agreement requires the date the land was broken out
    and agricultural experts' agreement that sufficient time existed for
    the organic matter to break down and allow the soil moisture to
    regenerate; soil surveys supporting production of the commodity,
    including the appropriate soil types of the newly broken acreage and
    consideration of any additional risks such as salinity, drainage,
    moisture problems, etc. The majority of requests for these types of
    written agreements are due to long crop rotations and land that has set
    idle for too many years after coming out of CRP. These written
    agreements require that the crop planted on the newly broken acreage,
    prior to insurance attaching, must appraise at a yield equal to or
    greater than 90 percent of the approved yield used to determine the
    production guarantee. Approximately 70 percent of all written
    agreements nationwide for newly broken acreage offered a production
    guarantee per acre equal to, or less than, the county T-yield, not the
    existing actual yield of an existing APH database.
        RMA is near completion of an evaluation of its procedures for newly
    broken acreage and plans to make its findings available.

        Question 103. Organic--The Department has recently completed its
    study on crop insurance for organic production.
        What course of action the Department is heading in moving forward
    on this issue and how does it fit in the broader framework of plans to
    reform the crop insurance program.
        Answer. RMA continues to move forward in improving crop insurance
    coverage for organic producers so they will have viable and effective
    risk management options like many of the conventional crop programs.
    This includes establishing dedicated price elections for organic crops
    when supported by data and sound economic pricing principles. RMA will
    continue to capitalize on improved data collection and sharing of
    organic production and price data occurring throughout USDA, an
    initiative to better leverage the resources of all of our agencies to
    address this important segment of agriculture.
        RMA will also continue to evaluate the loss experience of both
    organic and conventional practices to ensure that premium rating is
    commensurate with the level of risk for each. This includes revising
    surcharges for those areas or situations that merit such consideration.
    Finally, RMA will review its program materials to ensure that existing
    procedures specific to organic production is accessible and more
    readily understood by producers.
        While challenges remain, we believe important steps are occurring
    that will lead to establishment of effective risk management protection
    for the various organic growers and crop industry that will position
    them to better utilize this important program in their management and
    financing practices. A viable and prudent risk management program for
    organic growers is consistent with our efforts of making the Federal
    crop insurance program available to a broader spectrum of producers in
    all areas of the country, and doing so in a fiscally responsible
    manner.
        Last, as RMA has negotiated with the crop insurance industry for a
    new Standard Reinsurance Agreement, several initiatives have been
    included to better balance the needs of states that previously have
    been underserved, or less served, to enhance the service and risk
    management options that may be available similar to that experienced in
    many of the traditional row crop states.
    Title XIV--Miscellaneous (Includes Minority Farmer Outreach and Ag
            Security)
        Question 104. Office of Advocacy and Outreach--I am pleased to see
    that you have made creation of the Office of Advocacy and Outreach
    (OAO) a priority, through your commitment of both personnel and
    resources. Housing programs that support beginning, small,
    disadvantaged, and minority farmers and ranchers in one place is not
    only sensible from an economic and administrative standpoint, but it
    clearly elevates the importance of these groups, which is long overdue.
    One of the most important things that OAO can do is to collect and
    track the data that informs us about the effectiveness of targeted
    programs. I notice that, in your appendix, Section 10708 is not yet up
    and running. When do you expect to begin department-wide data
    collection?
        Answer. Thank you for your support for the Office of Advocacy and
    Outreach (OAO). We are moving forward with implementation of Section
    10708. The USDA agencies have agreed on a uniform format and process to
    collect the data. The Farm Service Agency (FSA) and the Natural
    Resources Conservation Service (NRCS) will collect customer declared
    data from farmers and ranchers using a new Data Collection Form. Rural
    Development (RD) will continue to collect the data from applicant and
    participants as they have in the past, and will modify their system to
    collect whether an applicant or participant is a farmer or rancher.
    OAO, FSA, NRCS, RD and the National Agricultural Statistic Service
    (NASS) have consensus on requirements and process for data to be sent
    to NASS for publication. Data from a pilot effort this fiscal year will
    be published in 2011.

        Question 105. Assistant Secretary for Civil Rights--My
    understanding is that the Office of the Assistant Secretary for Civil
    Rights was originally created in the 2002 Farm Bill to follow all civil
    rights issues, both administrative and programmatic. However, it seems
    that ASCR is currently focusing just on old administrative claims. Can
    you clarify the role of the ASCR in the larger revamped organization,
    under an Assistant Secretary for Administration?
        Answer. USDA leadership has established civil rights as one of its
    top priorities. To be successful, all employees must be committed to
    making the Department a model in the Federal Government for respecting
    the civil rights of its employees and constituents. USDA is in the
    process of changing the direction of its equal employment opportunity
    and civil rights programs. This new approach will ensure fair and
    equitable treatment of all employees and applicants. It also will
    improve program delivery to every person entitled to services. This
    effort will assist the Department to address past errors, learn from
    its mistakes, and move forward to a new era of equitable services and
    access for all.
        USDA's plans include:

       Increasing Alternative Dispute Resolution (ADR) usage in
            program civil rights and equal employment opportunity
            complaints;

       Reducing the inventory of program civil rights complaints;

       Aggressively providing civil rights training for USDA
            employees and political appointees, with specific concentration
            on those persons in the field offices of the Farm Service
            Agency and Rural Development where increased filings of
            discrimination complaints have occurred;

       Revamping the Civil Rights Enterprise System (the database
            for management of the employment and program complaints); and

       Providing greater focus and attention on civil rights issues
            and accountability for implementation of civil rights policies
            through Agency Head Assessments.

        The mission of OASCR remains the administrative and programmatic
    processing of all complaints of discrimination. Certain administrative
    functions have been strengthened with the placement of OASCR in
    Departmental Management which will enhance the efficiency of overall
    operations.

        Question 106. Data Mining--Data mining has been used successfully
    under RMA to combat fraud and abuse. Are you considering any expansion
    of that the use of data mining to other programs, like SNAP for
    example?
        Answer. The Food and Nutrition Service (FNS) currently uses data
    mining technology to combat fraud in SNAP. Since 1997, SNAP has used a
    fraud detection system, called ALERT (Anti-Fraud Locator for Electronic
    Benefits Transfer (EBT) Transactions), to monitor electronic
    transaction activity and identify suspicious retail grocers for
    analysis and investigation.
        ALERT provides monitoring of fraudulent activity by retailers and
    support to the individual states' integrity efforts. The system
    receives daily transaction records from EBT processors and conducts
    analysis of patterns in the data, which indicate potential fraudulent
    activity by stores. FNS investigators and compliance offices use system
    reports and queries to identify and document cases. Other users include
    USDA Office of the Inspector General (OIG) investigators and FNS staff
    members of regional and field offices. The system enables investigators
    to focus their efforts more efficiently and provides them with the
    necessary audit trail to support legal action in cases where fraudulent
    or unauthorized activity is confirmed. Illegal activity can thereby be
    quickly thwarted, and program costs reduced.
        ALERT has proven to be a critical tool in the Agency's fight
    against SNAP benefit trafficking, which is the exchange of SNAP
    benefits for cash. The FNS Office of Research and Analysis conducts
    periodic assessments of trafficking rates. The first assessment
    evaluated SNAP redemptions in 1993 and determined that $811 million in
    program benefits were trafficked annually. The most recent estimate
    analyzed the period of 2002-2005 and determined that trafficking
    diverted $241 million in program benefits annually, or 1 cents of each
    dollar. The introduction of EBT and ALERT contributed in important ways
    to this decline in trafficking, resulting in a trafficking total that
    is less than 20 percent of the value diverted in 1993.
        FNS is continuing to look for ways to improve the ALERT system. The
    Agency is currently updating the ALERT system to a web-based
    application that will take full advantage of enhanced fraud detection
    technologies not available in the existing system in an effort to
    increase the volume of fraud detection on an ongoing basis. Following a
    national procurement, FNS awarded a new contract to SRA International
    in August 2009 to conduct additional data mining and incorporate the
    use of Geographic Information System (GIS) tools to interpret complex
    relationships among billions of SNAP electronic transaction records
    that might otherwise be difficult to detect.
        In coordination with SRA International, FNS is already developing
    the following data mining techniques to improve SNAP fraud detection
    capabilities:

       Network and Link Analysis: identifies network or linkage
            patterns between retailers that may indicate fraudulent
            behavior using a variety of approaches;

       Advanced Geospatial Analysis;

       Trafficking Predictive Models: identifies retailers most and
            least likely to be engaging in trafficking of SNAP benefits to
            better target Agency resources; and

       Retailer and Client Behavior: profiles the normal behavior
            for retailers and clients across multiple dimensions, such as
            geographical location or transaction amount. The intent is to
            derive multidimensional profiles that can be used for analysis,
            anomaly detection and additional input into predictive models.
    Implementation Process and Next Farm Bill
        Question 107. Drafting regs--How long does it take the Department
    to get a regulation written for a program? In other words, how much
    lead time do we need to give USDA in the next farm bill to have
    programs up and running for Fiscal Year 2013 so we don't face the
    situation we've got now where a number of programs still don't have
    final rules?
        Answer. Since enactment of the 2008 Farm Bill, USDA has worked
    diligently to draft and publish final farm bill regulations. I am proud
    of the overall speed and thorough implementation record of our
    Department on the farm bill. There are a number of factors that make
    the time it takes to write and issue a final regulation highly
    variable, including the volume of regulations, complexity of
    programmatic changes, Executive Branch review, the extent of public
    notice and comment, and analytical requirements. Prior to publication
    in the Federal Register, agencies must draft the rule and conduct
    required analyses. This can vary considerably based on the complexity
    of the rule and the need to develop software and other administrative
    tools necessary to implement program changes. Furthermore, under
    Executive Order 12866, the Office of Management and Budget is provided
    up to 90 days review for each stage of a significant or economically
    significant rulemaking (although OMB has worked closely with us to
    clear several regulations under significantly tighter time-frames). In
    addition, a regulation requiring an environmental impact analysis can
    take anywhere from 18 to 24 months to complete. Notice and comment
    rulemaking for a proposed rule can include a public comment period
    ranging from 30 to 120 days plus additional time to analyze public
    comments prior to issuing a final rule. For other titles, agencies have
    utilized direct final or interim rulemaking authority as appropriate to
    facilitate the rapid implementation of mandatory program changes or
    non-significant updates to existing programs. However, given the sheer
    number of regulations needed to implement the farm bill, the limited
    number of staff available for drafting regulations, and the breadth and
    depth of the 2008 Farm Bill, it still takes considerable time to
    address and fully implement every provision of the 2008 Farm Bill.
    Given the massive volume of work, we have been careful to give the
    highest priority to writing the regulations that have the greatest
    impact on farmers, ranchers, and other constituents.

        Question 108. Drafting regs--We have heard anecdotal stories that
    some agencies have to contract out the regulation writing process. Is
    this the case? If so, how much time does this add to the process?
        Answer. Yes, some agencies within USDA utilize contractors to
    facilitate the development of regulations. Because the regulatory work
    load needed to implement a farm bill is significantly higher than other
    times, some agencies rely on contractors to provide regulatory drafting
    and analytical services. Utilizing outside sources augments the work of
    existing dedicated staff and increases the ability of an agency to
    implement regulations in a more timely fashion.
    Questions Submitted by Hon. Stephanie Herseth Sandlin, a Representative
            in Congress from South Dakota
        Question 1. Sun Grant Initiative--Mr. Secretary, as you know, the
    Sun Grant Initiative has been operating since the 2002 Farm Bill, was
    reauthorized in the 2008 Farm Bill, and received programmatic funding
    through the Fiscal Year 2010 Agriculture Appropriations Bill. South
    Dakota State University helps to lead the initiative, which is a
    national effort of regionally based competitive biomass research
    programs.
        The Growing America's Fuel document released by the Administration
    mentions that five regional centers will be developed to lead the
    nation in terms of bioenergy feedstock research and development.
        The Fiscal Year 2011 budget request proposes $33 million, out of an
    overall increase of $163 million for USDA's Agriculture and Food
    Research Initiative, to be targeted to bioenergy research, including
    funding for university-based biomass research centers. Another $10
    million in proposed increases in FY11 for the Agricultural Research
    Service would be designated to support five new, regionally diverse
    bioenergy feedstock research centers.
        I believe the SGI centers have the requisite expertise, experience,
    regional diversity, and working partnerships with private industry, to
    both carry out its authorization and accommodate the regional biomass
    research program proposed by the Administration.
        If the five centers mentioned in the Growing America's Fuel
    document aren't the five Sun Grant Initiative regional centers, how
    would the department explain the need for additional centers and that
    five new centers would not be duplicative?
        Answer. The USDA Centers are being created by coordinating current
    research conducted by the USDA Agricultural Research Service (ARS) and
    Forest Service, thus building on existing USDA research strength to
    support Congress' goal to provide 36 billion gallons of renewable fuels
    by 2022. The USDA centers, organized from ongoing ARS and Forest
    Service research on alternative energy sources, will not duplicate but
    complement SGI efforts by taking full advantage of current Federal
    capabilities and resources. Without taking action, the nation may not
    be able to produce the large amounts of feedstocks required to achieve
    this goal.
        The five USDA Regional Biomass Research Centers will fully leverage
    relevant research capacities at university, for-profit, and other
    governmental research partners. Thus, the Centers are fully
    complementary to the Sun Grant Initiative's regional projects, and
    their partnership with the USDA Centers will enhance the impact of both
    Sun Grant and USDA Centers' research. As stated in the President's
    budget proposal, each Regional Center will ``[c]oordinate efforts with
    research conducted by the DOE Biomass Program's Regional Feedstock
    Partnership [Sun Grant Initiative (SGI) efforts], the Integrated
    Biorefinery project, and the Office of Science's Bioenergy Research
    Centers.'' Further, the ``Growing America's Fuels'' document states
    that ``The existing multibillion-dollar national USDA science and
    research infrastructure will be used to support the establishment of
    USDA Regional Feedstock Research Centers along with robust partnerships
    with land grant and other universities, industry, and other Federal and
    state agencies [emphasis added].'' USDA is committed to ensuring that
    work at the Regional Biomass Research Centers will be closely
    coordinated with complementary efforts through SGI and elsewhere in
    order to maximize the returns from public investments in the USDA
    Centers.
        ARS has coordinated its biofuels research with SGI and other
    relevant research programs and institutions. USDA scientists continue
    to help coordinate activities for research performed under the SGI-DOE
    Regional Feedstock Partnership and to support review of SGI research
    proposals. ARS welcomes programmatic involvement by SGI and other
    federally-funded programs in the USDA Regional Research Centers.

        Question 2. Agriculture and Food Research Initiative Competitive
    Grants Program (AFRI)--I understand that the Agriculture and Food
    Research Initiative Competitive Grants Program has yet to make its
    first awards for its feedstocks and climate change programs. My office
    recently has been told that the current Request for Applications will
    be committing funds for 5 years out at levels greater than the current
    budget. Is that information accurate? And we've also been told that
    USDA plans to increase the AFRI to levels that are greater than the
    program's current budget. If that information is also accurate, how
    does USDA plan to accomplish that funding increase for the AFRI?
        Answer. NIFA is moving to manage competitive grants funding in a
    different way. However, this change will not commit funds greater than
    the current appropriation. NIFA will be funding the larger AFRI grants
    on a year-by-year basis, making what are known as ``continuation''
    grants. This allows for a much higher level of post-award oversight and
    quality control since funds are allocated in the out-years only after
    NIFA makes an evaluation of progress based on site visits and
    documentation provided by the grantees. Future years of funding are
    dependent on awardees reaching the milestones identified in the funding
    agreement. This funding mechanism is routinely used by NIH and NSF and
    brings AFRI into alignment with the best practices of other competitive
    science agencies. The flexibility in the management of AFRI funds will
    allow NIFA to adjust to any appropriation level determined by Congress.

        Question 3. Rural Energy for America Program--One of my priorities
    in the 2008 Farm Bill was the Rural Energy for America Program. I'd
    like to thank the department for issuing proposed rules last week for
    the Biorefinery Assistance Guaranteed Loan program, Repowering
    Assistance Payments to Eligible Biorefineries, and the Advanced Biofuel
    Payment Program. I believe that streamlining delivery of REAP to
    farmers and rural businesses is critical. My understanding is that the
    department hasn't released the REAP funding notice for Fiscal Year
    2010. The sooner we get REAP funds going out the door going the more
    jobs will be created and clean energy and energy efficiency technology
    deployed. Is there anything Congress can do to with respect to the
    rebates, pre-approved technologies, or something else, to speed
    delivery and make funding decisions faster and more efficient, and less
    staff and applicant time-intensive?
        Answer. The REAP funding notice was published on April 26, 2010.
    The Agency is currently drafting a Proposed Rule which will streamline
    the application process, potentially reducing the paperwork burden and
    cost to applicants. In addition, the streamlined process will require
    fewer staff hours to review applications.

        Question 4. Possible Native American Farm Bill Title--Mr.
    Secretary, as you know, there are very high poverty and unemployment
    rates among Native Americans who live on reservations in the Northern
    Great Plains, including in South Dakota. To a large extent, the private
    sector economy for these Tribes is dependent on agriculture, unlike
    many other tribes in other parts of the country. I believe USDA can do
    a great deal to help these Tribes and their enrolled Tribal members.
        I am considering proposing an Indian Title to the next farm bill
    where we can adapt all USDA programs to the special needs of the
    Tribes, from commodity programs to rural development and broadband to
    nutrition programs. What are your thoughts on such a proposal?
        Answer. USDA has numerous programs that were designed to address
    the creation of farm safety nets, improved rural economic development,
    broadband, and nutrition, among others. There is a long and sustained
    history of poverty and unemployment in Tribal areas, and often programs
    designed to address general needs do not reach the unique circumstances
    in Tribal communities. While we agree with Congresswoman Herseth
    Sandlin that these circumstances are acute in the Northern Great
    Plains, many Tribes throughout the rest of the country could benefit
    greatly by programs tailored more specifically to meet their unique
    needs. The unique land status of reservation Tribes; the high rates of
    diabetes and obesity in some Native communities; the housing and jobs
    creation needs of these citizens living in sometimes the most remote
    areas of our country, call for unique and focused ways to address long-
    term unemployment and the need for rural economic development.
        Within USDA's Action Plan in Response to the Presidential
    Memorandum on Tribal Consultation and Collaboration, USDA committed to
    Tribal consultation regarding the farm bill. USDA also reaffirmed its
    commitment to take steps to improve Tribal consultation generally and
    address the needs of Tribes through improved collaboration and
    cooperation with Tribal governments. Should the Congresswoman choose to
    move forward with an Indian Title to the next farm bill, USDA will work
    with Congress and the Administration to craft such a Title and would
    incorporate drafts of such Title in pre-farm bill consultation efforts.

        Question 5. Prevented Planting--I have recently held eight meeting
    in northeastern South Dakota to address the ongoing complications with
    flooding that occur in the Northern Great Plains. It's clear that
    agricultural producers have been some of the hardest hit by flooding.
    Many suffered losses a year ago and are again watching as their fields
    are covered by water. As part of the Federal Crop Insurance Program
    updated in the 2008 Farm Bill, prevented planting payments play an
    integral part in the farm safety net. Crop insurance agents have been
    telling producers that, although they have insured the land for the
    last several years and the land would be planted in a non-flood year,
    they may not see prevented planting payments this year.
        Some of my producers are concerned about being able to obtain
    prevented planting. Can you explain the interpretation changes of the
    policies regarding prevented planting payments the Risk Management
    Agency (RMA) intends to enforce?
        Answer. There have been no changes in RMA's prevented planting
    policy provisions for many years, including the 2010 crop year.
        RMA issued Claims Advisories on May 29, 2007, (IS-07-007) and May
    10, 2010, (IS-10-002.1) and a Final Agency Determination (FAD-110) on
    February 25, 2010. Approved Insurance Providers (AIPs) were advised to
    remind their agents and inform their policyholders of the following
    FCIC-issued procedure contained in the 2007 Prevented Planting Loss
    Adjustment Standards Handbook, which addresses acreage that is
    generally ``unavailable for planting'' and not eligible for prevented
    planting coverage:

            Acreage that in normal weather patterns is normally wet
            throughout the final and late planting period and that would
            only be available to plant in abnormally dry conditions.
            Because of the normally wet conditions from year to year on
            such acreage, this acreage is likely to have well established
            cattails, perennial weeds, and perennial grasses that increase
            the likelihood of the acreage being unavailable for planting
            even in the driest year. Unavailability of such land increases
            in this situation because of the time, expense, and labor
            needed to remove the well established cattails, weeds, and
            grasses in time to plant the insured crop.

        Prevented planting payments can only be approved when there is an
    insured cause of loss that occurs during the insurance period that
    prevents producers from planting an insured crop on eligible acres, and
    that acreage not available for planting or that does not otherwise
    comply with policy provisions, is not considered acreage eligible for
    prevented planting coverage. Claims Advisory IS-10-002.1 advised that
    increased moisture levels in the Prairie Pothole Region have left some
    acreage that was once planted in a perpetual state of inundation (Class
    V Permanent Ponds and Lakes), and other land in a cyclic state of
    inundation (Class IV Semi-Permanent Wetland). These wetlands are
    usually, but not necessarily, evident by the presence of cattails and
    perennial wetland grasses and weeds. Such acreage is not considered to
    be ``available for planting'' because it generally cannot be planted
    even when there are no adverse weather conditions.
        FAD-110 provided an interpretation of the provision contained in
    section 17(f)(8) of the Common Crop Insurance Policy Basic Provisions
    (Basic Provisions), which states prevented planting coverage will not
    be provided for any acreage that exceeds the number of eligible acres
    physically available for planting. FAD-110 confirmed that an insured
    cause of loss is required to occur within the insurance period to be
    eligible for prevented planting, and is consistent with section
    508(a)(1) the Federal Crop Insurance Act (Act), which states in part,
    ``To qualify for coverage under a plan of insurance, the losses of the
    insured commodity must be due to drought, flood, or other natural
    disaster (as determined by the Secretary),'' because normal weather
    conditions are not a covered cause of loss.
        Acreage that a producer is prevented from planting due to an
    insured cause of loss that occurs during the insurance period will
    continue to be insured provided all policy provisions have been met for
    such acreage.
    Questions Submitted by Hon. Bobby Bright, a Representative in Congress
            from Alabama
        Question 1. Mr. Secretary, as you may know, my district is one of
    the largest peanut producing districts in the country. As I travel
    around southeast Alabama, one of the most frequent complaints I hear
    from my peanut producers is a lack of transparency in determining
    weekly peanut prices. From my vantage point, peanut producers should
    have the same pricing predictability as my cotton farmers--who are able
    to more easily plan for the future because of a simple, transparent
    pricing scheme. Are you aware of this issue? What are your thoughts on
    how we could fix this problem in the next farm bill?
        Answer. USDA has devoted significant time, expertise, and resources
    over the past several years to improving peanut price transparency and
    intends to continue this effort. The National Agricultural Statistics
    Service (NASS) developed a weekly by-type peanut price survey in 2006
    as a first step to addressing this issue. Prior to then, farmer stock
    peanut prices had only been reported on a monthly basis to NASS.
        NASS has made periodic survey improvements since then, including
    the addition of questions that specifically: (1) ask buyers to report
    peanut option prices, and (2) attempt to differentiate between cash and
    contract transactions. Although the quality of reported peanut prices
    has continually improved, the voluntary nature of the survey, in
    addition to incentives on the part of buyers to underreport peanut
    prices, has thus far prevented USDA from obtaining full and accurate
    peanut prices.
        USDA's Office of the Inspector General (OIG) completed an audit of
    farmer stock peanut prices reported to NASS and used by the Farm
    Service Agency (FSA) to determine program benefits. In its March 2009
    Semiannual Report to Congress, OIG concluded that peanut prices are not
    based on reliable market data and recommended that FSA seek authority
    to establish mandatory price reporting of peanut purchases by buyers,
    as well as the authority to verify buyers' reported data to NASS. FSA
    agreed to seek mandatory reporting authority no later than September
    30, 2010.
        Grower interest in Congressionally-mandated reporting of farmer
    stock peanut prices appears to be expanding in response to recent
    efforts to establish a revenue insurance program for peanuts. Expected
    farmer benefits of mandatory reporting include reduced risk for
    insurance providers considering a peanut revenue insurance option, as
    well as maximum coverage levels under such a program; increased
    coverage levels under RMA's existing peanut crop insurance program; and
    additional price information to strengthen the negotiating position of
    peanut farmers.
        USDA suggests that Congress include mandatory price reporting
    language for farmer stock peanuts in the next farm bill. USDA expects
    that the new requirement would bolster survey response levels and lead
    to more timely and accurate price information published by NASS. It
    might also allow for greater precision in program payments and reduced
    exposure for CCC and taxpayers.
        The enumerated benefits to mandatory price reporting
    notwithstanding, USDA would not expect peanuts to gain the level of
    price transparency available for cotton without significant changes to
    the way peanuts are marketed and an increase in the volume of peanuts
    traded. The Adjusted World Price (AWP) mechanism mandated for upland
    cotton is possible because cotton is traded in high volumes on the
    world market, and USDA has access to unbiased and reliable world market
    price data. Comparable data for international peanut prices does not
    exist. Also, there is little information available on the quality
    standards for foreign quotes in the international peanut market--unlike
    for upland cotton, which can be described by up to seven
    internationally-accepted quality standards.
        Peanuts in the U.S. are typically contracted prior to planting and/
    or harvest, so that transactions often reflect prices negotiated months
    in advance rather than current market-clearing prices. As a result,
    USDA often must draw from varying sources to obtain valid price
    information for its weekly National Posted Price (NPP), which precludes
    a more transparent process, even under the auspices of mandatory
    reporting.

        Question 2. Mr. Secretary, crop insurance is also a big issue to
    producers in my district. My producers often feel like there aren't
    affordable options, considering historical losses in the southeast are
    more frequent and more severe than in other parts of the country.
    Compounding this problem is the fact that the new SURE program
    established in the 2008 Farm Bill favors producers who have higher
    levels of buy-up coverage. As we move forward, it is vitally important
    that we figure out a way to make crop insurance more economical for
    producers in the Southeast. How would you suggest solving this problem?
    Is there a way to make crop insurance work better without spending more
    Federal dollars?
        Answer. In general, RMA reviews crop insurance premium rates every
    3 to 5 years. Premium rate changes are driven by the historical loss
    experience. RMA recently had an external panel of experts conduct a
    comprehensive review of its APH-based premium rating methodology. This
    study was opened up for public comments in order to give concerned
    parties a chance to review and provide feedback for the recommendations
    made. This also served to make the rating process as transparent as
    possible. Both the final study and responses to comments received were
    posted on RMA's website on April 23, 2010. The study concluded that
    RMA's general approach to developing premium rates is actuarially
    appropriate, but also identified several recommendations for potential
    improvements which are being considered.
        RMA completed a comprehensive crop insurance study in Arkansas and
    Mississippi in 2008. One of the recommendations of the study was to
    differentiate rates for irrigated and non-irrigated practices.
    Currently, irrigated and non-irrigated rates are, in many cases, the
    same. RMA is reviewing the irrigated and non-irrigated practices for
    crops in the Southeast and will make changes as necessary. Such changes
    may result in lower rates for some practices, which would make higher
    levels of coverage more affordable.
    Questions Submitted by Hon. Travis W. Childers, a Representative in
            Congress from Mississippi
        Question 1. Secretary Vilsack, I want to first thank you for
    joining us today to begin discussion of the 2012 Farm Bill. Over the
    course of my 2 years in Congress, I have met with hundreds of producers
    throughout the state of Mississippi. As you may know, the entirety of
    Mississippi agriculture suffered devastating crop losses in 2009 after
    excessive amounts of rain fell during the months of September and
    October.
        Crop Insurance--Recently, many of my producers have expressed
    concerns over their ability to obtain affordable crop insurance.
    Mississippi currently has 42,300 farms employing approximately \1/3\ of
    the state's residents. However, only 19,865 crop insurance policies
    were sold so far in 2010.
        The overwhelming consensus among producers and the Mississippi Farm
    Bureau is that producers would prefer to be able purchase affordable
    crop insurance and participate in permanent disaster assistance
    programs. Mississippians understand that ad hoc disaster assistance is
    not the way forward. However, Mississippi and other Southern states
    rely on unique farming practices. Unlike the Midwest, crop rotation and
    crop diversity on a farm is standard. Specialty crops, including sweet
    potatoes, are produced in large quantities and, as you know, are unable
    to find crop insurance outside of NAP. Agriculture is the number one
    industry in my state and we need to make sure that the 29% of the
    families in Mississippi that make their living in the agriculture
    industry can continue to do so with adequate support from the USDA.
        How can we begin to ensure that programs in the 2012 Farm Bill
    better address the unique farming environment in Mississippi and other
    southern states? What possible solutions can the USDA provide to this
    Committee to further our discussions surrounding 2012 farm legislation?
        Answer. In 2008, RMA completed a contracted comprehensive review of
    the Federal crop insurance portfolio in Arkansas and Mississippi. The
    review found that the prevalence of irrigation was a major non-
    insurance mechanism to mitigate risk. Cotton, rice and soybeans are the
    predominant crops planted. Currently, RMA does not distinguish between
    irrigated and non-irrigated practices for corn and soybeans in
    Mississippi. While rates reflect historical experience, premiums are
    perceived as high by producers for irrigated crops. RMA is in the
    process of reviewing the rating methodology and may adjust by practice,
    irrigated and non-irrigated crops which may reduce rates for irrigated
    crops. The study also found that rates for cotton and rice, which
    account for much of the planted acreage, are similar to those in other
    states that grow these crops.
        In addition, RMA has engaged with several grower organizations,
    including rice growers, to evaluate and discuss potential alternative
    risk management strategies including that of lodged or ``downed'' rice
    resulting in increased input costs at time of harvest.

        Question 2. SURE--In light of the 2009 crop disaster, my producers
    have become intimately familiar with the SURE program and a majority of
    them have concerns regarding the programs ability to adequately protect
    their farming operations. In addition, it has come to my attention that
    in 2008 the State of Iowa received $135,292,768 (only $39,497,100 was
    due to the Recovery Act plus up) in SURE payments while Mississippi
    received only $1,092,756 with half of this amount coming from the
    Recovery Act SURE plus up. (And Mississippi suffered extreme losses due
    to Hurricane Gustav).
        How do you suggest we address the inequalities in the SURE program,
    particularly in the State of Mississippi and the Southeast?
        Answer. It is difficult to make state-to-state comparisons
    regarding SURE. Although the dollars currently paid under SURE in
    Mississippi and Iowa are significantly different, SURE sign up and
    assistance provided under SURE for 2008 crops is by no means is close
    to being complete. State comparisons are also made difficult as the
    agricultural commodities and number of acres farmed in different states
    varies significantly, and individual states are impacted to varying
    degrees by natural disasters in any particular year.
        SURE is the first permanent disaster program that has compensated
    producers for losses of production, quality, and revenue on all crops
    for which they have an interest. Also, it is the first program that
    bases its assistance on the risk tools and levels of insurance coverage
    a producer elects to protect their crop investment. Producers have
    historically been compensated for crop losses by crop rather than
    looking at the overall loss for the farm. Producers who have larger
    farming operations spanning multiple counties, grow more diversified
    crops, or are in an area that has a longer growing season may find that
    it may be more difficult to qualify for SURE due to the fact that a
    crop not suffering a loss can offset the loss of other crops suffering
    a loss. Finally, there are areas of the country where producers do take
    greater advantage of the insurance tools available to them and this may
    impact how much producers in any area receive in SURE payments.
    However, USDA has not done any analysis to determine whether this is a
    factor that explains the variability in SURE payments across states.
        As work begins on the next farm bill, I look forward to working
    with you regarding USDA's permanent disaster programs.
    Questions Submitted by Hon. Jerry Moran, a Representative in Congress
            from Kansas
        Question 1. Research Priorities--It has come to my attention that
    USDA recently suggested it will no longer fund research projects
    through the National Institute of Food and Agriculture (NIFA) if the
    research is related to either grain-based or cellulosic ethanol. This
    suggestion is linked to language contained in the March 30, 2010,
    ``Agriculture and Food Research Initiative Competitive Grants Program,
    Sustainable Bioenergy, FY 2010 Request for Applications.'' The specific
    statement of concern is on page four, where the document states:
    ``Bioenergy grants will support the start up and growth of a network of
    Regional Bioenergy CAPs focusing on five dedicated energy crops . . .
    These crops will serve as feedstocks for the production of advanced
    non-ethanol, infrastructure-compatible fuels and biobased pro-
    ducts . . . .''
        Is USDA discontinuing or considering discontinuing the funding of
    research related to grain-based or cellulosic ethanol, and if so why?
        Answer. The focus of USDA NIFA research is on cellulosic feedstock
    development and sustainable production. However, USDA NIFA continues to
    provides support for first and second generation biofuels (grain-based
    and cellulosic ethanol) through competitive and non-competitive
    programs, with additional strong focus on accelerating third generation
    (drop-in) biofuels development--gasoline, biodiesel diesel, aviation
    fuels, and other alcohols such as biobutanol through the Agriculture
    Food Research Initiative.
        The USDA NIFA Agriculture and Food Research Initiative (AFRI)
    Sustainable Bioenergy Program portfolio supports the development of
    regional systems-based approaches for the sustainable production of
    biofuels, biopower, and biobased products. This regional systems
    approach is in concert with the USDA Agricultural Research Service
    (ARS) and the Department of Energy (DOE)-sponsored regional feedstock
    partnerships, and includes these elements:

       Deployment of superior genotypes of regionally-appropriate
            dedicated energy crops.

       Refinement and implementation of sustainable regional
            feedstock production practices.

       Seamless feedstock logistics.

       Scalable, sustainable conversion technologies that can
            accept a diverse range of feedstocks.

       Regional marketing and distribution systems.

       Regional sustainability analyses, data collection and
            management, and tools to support decision-making.

       A well trained workforce with the capacity to fill the
            cross-disciplinary needs of the biofuels industry.

        Question 2. USDA currently funds research in many areas where
    technology or management practices have been in existence for numerous
    years. For instance, USDA funds research related to crop systems like
    wheat, corn, and soybeans and livestock systems like cattle, hogs, and
    poultry. If USDA continues funding research in these areas, why would
    it consider discontinuing funding of either grain-based or cellulosic
    ethanol?
        Answer. DOE has primary responsibility for conversion technology
    research. During the last decade DOE and the private sector, as well as
    USDA, have made large research investments in support of grain-based
    ethanol and cellulosic ethanol. Commercial-scale facilities are
    operating for grain-based ethanol and are coming on line for cellulosic
    ethanol. The USDA Rural Development Agency has made large investments
    toward the commercial production of ethanol.
        Historically, USDA Cooperative State Research, Education, and
    Extension Service (CSREES) supported the development of ethanol
    conversion technologies ($3-$4 million per annum) as part of the
    National Research Initiative. Although several technologies with
    commercial potential were developed in part with support from NRI, the
    investment was small compared with similar investments by DOE and the
    private sector.
        The formation of NIFA and the restructuring of AFRI have allowed
    NIFA to take a portfolio approach to support research for bioenergy and
    biobased products. Research support for ethanol may be found across
    several programs. The AFRI Sustainable Bioenergy Program referenced
    above is focusing funds on bringing together regional systems
    approaches with emphasis on non-food dedicated feedstock and
    sustainable feedstock development. Since DOE has the lead in
    conversion, only a small proportion of the available AFRI funding will
    target conversion.

        Question 3. If USDA is not discontinuing or considering
    discontinuing the funding of research related to grain-based or
    cellulosic ethanol, please explain the purpose of the above language in
    the Sustainable Bioenergy, 2010 Request for Applications, and what USDA
    is doing to further research on feedstocks, co-products, and production
    processes of grain-based and cellulosic ethanol?
        Answer. AFRI is looking to maximize/leverage its program funds to
    address complete supply chains, and accelerate the commercialization of
    advanced biofuel production. The AFRI Sustainable Bioenergy Program
    integrates research, education, and extension toward these goals with
    the majority of funding targeting feedstock genetic development and
    feedstock production, as well as environmental, economic, and social
    sustainability.
        As stated above, AFRI is one of a suite of programs in NIFA
    targeting bioenergy and biobased products. In 2010, NIFA will provide
    $28 million in the joint Biomass Research and Development Initiative
    (BRDI) with DOE providing $5 million for a total of $33 million
    available to support research, development, and demonstration projects
    that may include cellulosic ethanol.
        NIFA also supports grain-based and cellulosic ethanol through the
    Small Business Innovation Research (SBIR) program, including feedstock
    logistics, and conversion technologies for biofuels and biobased
    products. Additional NIFA support for research, education, and
    extension related to grain-based and cellulosic ethanol comes through
    leveraging state investments from programs like the Hatch or McIntire-
    Stennis Formula Grants, and other programs.

        Question 4. Conservation Reserve Program--It is my understanding
    the Farm Service Agency (FSA) has issued an exemption related to
    eligibility for the continuous sign-up Conservation Reserve Program
    (CRP) on expired general CRP acres. The exemption applies to the
    general rule that requires eligible cropland to have been planted to an
    agricultural commodity 4 of the previous 6 crop years from 1996 to
    2001. For those CRP acres that expired Sept. 30, 2009, I understand the
    exemption expires June 1, 2010. It is also my understanding that after
    June 1, 2010, at least portions of the remainder of the field would
    have to be broken out of grass before these buffers would qualify for
    enrollment in continuous CRP.
        Some of my agricultural producers in Kansas, who had general CRP
    acres expire on September 29, 2010, would like the opportunity to
    participate in any potential general sign-up FSA might conduct this
    year. At the same time, these producers do not want to lose the
    opportunity to enroll part of their land in continuous CRP without
    destroying the current grass should they be unsuccessful during the
    general sign-up period. Since it is unlikely the next general sign-up
    will be completed prior to June 1, 2010, would the USDA consider
    extending the previously mentioned continuous CRP exemption until after
    completion of the next general CRP sign-up for those general CRP acres
    that expired on September 30, 2009?
        Answer. Producers with suitable CRP contracts that expired on
    September 30, 2009, were offer the land for re-enrollment into CRP
    continuous sign-up if the offer was submitted by June 1, 2010. Land
    with contacts expiring at the end of September of 2009 will generally
    be eligible, in addition, except for land in trees, to be offered for
    enrollment under the general sign-up that is anticipated this summer.
    The contract effective date of the continuous sign-up offer may be
    deferred until after the announcement of the results of the general
    sign-up. This provides producers the opportunity to offer the land for
    both general and continuous sign-up.
    Questions Submitted by Hon. Steve Kagen, a Representative in Congress
            from Wisconsin
        Question 1. School Nutrition/Farm to School--Can you describe the
    efforts your department has taken to assist local farmers in getting
    their products into local schools? What more can Congress do to help
    our schools buy fresh local products from farmers in surrounding areas?
        Answer. As part of the Know Your Farmer, Know Your Food initiative
    (KYF2), USDA has established an interagency Farm to School Team. During
    this fiscal year, the Team is visiting fifteen school districts in nine
    areas across the country of varied demographics and implementation
    stages of a school's farm to school efforts. During these visits, the
    Team will work with local farmers, local and state authorities, school
    districts, and community partners to analyze and assess variables that
    support or deter farm-to-school activities, both from the school and
    farmer perspectives, as well as the effects the district's farm to
    school activities have had on the school and community. The information
    gathered during these site visits will be used to develop and update
    appropriate resource materials, guidance, and technical assistance for
    both schools and farmers to help expand farm to school initiatives
    across the country.
        In addition, USDA recently transmitted a report to Congress
    entitled ``Procurement of Local Food for Schools,'' prepared by the
    Food and Nutrition Service. This report responds to a Congressional
    directive included in House Report 111-181, that accompanied the
    Agriculture, Rural Development, Food and Drug Administration, and
    Related Agencies Appropriations Act 2010 (Public Law 111-80). In this
    report, USDA provided Congress with suggestions for future
    Congressional actions that may assist USDA in encouraging and
    streamlining local food purchasing by schools. These suggestions were
    gathered from on-going discussions with various program stakeholders
    and represent some of their ideas for providing incentives and
    eliminating barriers to the purchase of local food products.

        Question 2. The farm bill provided funding for a Local and Regional
    Purchase Pilot program to analyze the effects of using local and
    regional purchase of commodities in food aid programs. How has the
    FY2009 funding that went to local and regional purchase been used? What
    metrics will you use to report back to this Committee regarding the
    pilot's effectiveness and possible need for future program changes?
        Answer. Please see response to Question 30. under Questions
    Submitted by Hon. Collin C. Peterson, p. 90.

        Question 3. Can you talk about efforts to improve the nutritional
    value of food products our children receive at school? Are there any
    tools you require that you do not have currently to provide all of our
    kids with quality and healthy food options?
        Answer. To update the school program meal patterns in compliance
    with the latest Dietary Guidelines, USDA enlisted the assistance of the
    Institute of Medicine (IOM) of the National Academies. IOM released a
    report in October 2009 with recommendations for new meal patterns for
    the School Meal Programs to bring them into conformance with the 2005
    Dietary Guidelines. At this time, USDA is carefully reviewing IOM's
    recommendations and is developing a proposed regulation updating the
    meal patterns for public comment. In the meantime, we are providing
    technical assistance to schools and encouraging them to increase their
    fruits and vegetables, whole grains and fat-free and low-fat dairy
    products.
        We recently released a Menu Planner for Healthy School Meals, which
    will help schools improve their menu plans: serving more whole grains,
    fruits, and vegetables, and lower amounts of sugar, sodium, and
    saturated and trans fats in school menus. We also have an online
    toolkit available to assist schools in assessing and improving their
    food offerings, including an online calculator to determine the
    nutritional content of meals sold outside of the meal programs.
        In addition, USDA has been working to reduce or eliminate the
    levels of fat, sodium, and sugar in foods it makes available to schools
    and other outlets. Improvements in USDA-purchased food offerings
    include: more fresh fruits and vegetables; canned fruits packed in
    natural juice or light syrup; low sodium vegetables; 95% lean turkey
    ham; 97% fat free water-added hams; 85% lean ground beef; 95% lean
    ground beef patties; tuna packed in water; low fat bakery mix; whole
    wheat flour; whole grain rice, oats, pastas, tortillas, and pancakes;
    meatless spaghetti sauce; reduced fat and reduced sodium cheeses; fat
    free potato wedges; etc.
        Improving the nutrition and health of all Americans is a top
    priority for the Obama Administration. That's why we are committed to
    ensuring that all of America's children have access to safe,
    nutritious, and balanced meals and we have set a goal of ending
    childhood hunger by 2015. We have proposed an historic investment of
    funding over the next 10 years through the upcoming Child Nutrition
    Reauthorization to improve our country's Child Nutrition Programs. USDA
    believes that schools play a vital role in helping children develop
    healthy eating habits and active lifestyles. Improving the quality of
    school meals and the health of the school environment is critically
    important to the overall health of our kids, in addition to their
    academic achievement. At the same time, we must improve access to these
    vital programs and take steps to reduce hunger. For this reason, we
    have urged Congress to pass a robust reauthorization bill that supports
    the President's request of $10 billion in additional funding over 10
    years.
        This piece of legislation will make it possible for us to set
    standards for food served in the school environment, reduce gap periods
    when children lack access to critical nutrition, improve the meal
    pattern standards for School Lunch and Breakfast for the first time
    since 1995, expand direct certification to allow more children to be
    automatically qualified for the program, establish training
    requirements for cafeteria workers, upgrade cafeteria equipment,
    promote breastfeeding in a meaningful way, and establish school meal
    report cards for parents.

        Question 4. Dairy--Dairy farm families in northeast Wisconsin are
    struggling. Last year, at my urging, the USDA acted to assist the
    sinking U.S. dairy industry. What program do you believe helped dairy
    producers the most?
        Answer. USDA has been working to help the dairy industry for many
    months. Since the beginning of the dairy crisis, USDA has paid dairy
    producers more than $900 million under the Milk Income Loss Contract
    (MILC) Program. The Fiscal Year 2010 Agriculture Appropriations Act
    authorized $290 million in additional direct payments to dairy
    producers, as well as $60 million for the purchase of cheese and other
    products. In addition, USDA temporarily increased the purchase prices
    for cheddar cheese and nonfat dry milk under the Dairy Product Price
    Support Program (DPPSP) during August-October 2009 and re-activated the
    Dairy Export Incentive Program (DEIP) USDA has also used full
    administrative flexibility to make alternative loan servicing options
    available to dairy producers under Farm Service Agency loan programs.
         Not all dairy farmers are the same, so it is difficult to say
    which program helped the most. The largest expenditures were made under
    the MILC program. Since production eligible for payment under the MILC
    program is capped at 2.985 million pounds per fiscal year, MILC
    payments may have been more beneficial to smaller producers than larger
    producers. In addition, all producers benefited from the increase in
    purchase prices under the DPPSP, re-activating DEIP DPPSP, and the
    assistance provided under the 2010 Agriculture Appropriations Act. Farm
    Loan Program policies to forebear foreclosure proceedings and extend
    additional credit also were very beneficial to struggling dairy
    producers.
        The Secretary has appointed the Dairy Industry Advisory Committee
    (DIAC) to examine what dairy policy would be best for aiding the dairy
    industry. The Committee had its first meeting in April and its second
    meeting in June 2010. Committee recommendations will be important in
    guiding decisions on what dairy policy tools to continue using and what
    new tools are needed to better assist dairy producers.

        Question 5. Biofuels Tax Credits--I have heard from biodiesel
    producers in my district that they're concerned about tax credits that
    expired as of December 31st. They are concerned the industry can't
    survive without these credits. Do you think that our domestic biodiesel
    industry will be able to survive if the tax credit isn't extended by
    Memorial Day? Are you concerned that a number of plants won't resume
    production, even if something is done soon?
        Answer. Both the House and Senate have passed bills that provide a
    1 year retroactive extension of the biodiesel tax incentives. The
    Administration strongly supports the prompt enactment of this
    extension.

        Question 6. Constituent Concerns and Questions on Dairy Proposals--
    Mr. Secretary, I would also like to share with you some questions and
    comments from farmers in my district regarding proposed changes in
    dairy policies:
        Suggested Proposals--

        Question 6. (Proposal 1.) Moving away from the product price
            formula to a competitive pay price.

        I believe the product price formula is necessary because producers
    are paid on the quality of the fluid milk and the cheese yield, which
    enhances our bottom line pay price.
        Answer. Currently USDA utilizes product price formulas to establish
    minimum prices under the Federal milk marketing order program.
    Producers often receive more for their milk than the minimum prices
    established under Federal orders. These premiums reflect a variety of
    factors, including the quality of a producer's milk. Since the pricing
    of a very large percentage of producer milk is regulated by Federal and
    state orders, a new competitive pay price series would most likely
    require that a significant portion of milk be unregulated or sold not
    subject to minimum pricing regulations. This could put some producers
    at a competitive disadvantage relative to the firms that purchase their
    milk and the producers that continue to have the firms they sell to
    fully regulated under Federal orders. Thus, it is unclear whether a
    competitive pay price would lead to higher or lower prices paid for
    milk than the current product price formulas. Nevertheless, many
    producers are concerned that ``thinly'' traded spot market transactions
    influence the prices used in the current product price formulas to
    establish minimum prices under Federal orders and these ``thinly''
    traded spot market transactions may not adequately reflect supply and
    demand conditions and the true price of milk.
         Various options are being explored by the dairy industry to use an
    alternative price discovery process, including competitive pay prices.
    Objectives are to have an accurate price signal that reflects the
    current supply-demand balance yet tempers price volatility that has
    occurred over the past 10 years. Any changes to the minimum pricing
    provisions of the orders would require formal rulemaking.

        Question 6. (Proposal 2.) Reduces the number of classes of milk
            from four to two.

        Again changing the classes of dairy products will reduce premiums
    that we now are awarded for value added dairy products such as yogurt,
    protein drinks, etc.
        Answer. Currently the Federal milk marketing order program utilizes
    four classes of milk for establishing minimum prices. In most months,
    the minimum prices established for fluid and soft dairy products are
    priced higher than the minimum prices established for milk used in
    cheese and butter/nonfat dry milk production. Depending on how the
    minimum prices are established, minimum prices for some classes of milk
    could be higher or lower than minimum prices currently established
    under Federal orders. Furthermore, producers often receive more for
    their milk than the minimum prices established under Federal orders.
    Therefore, it is impossible to say whether reducing the number of
    classes of milk from four to two would lead to higher or lower prices
    paid to dairy producers.
         Some industry participants have expressed an interest in having
    two classes of milk but have been unable to agree to specific proposals
    to determine how the two classes of milk would be priced. Any changes
    to the number of classes established under the orders would require
    formal rulemaking.

        Question 6. (Proposal 3.) Eliminating the price support program.

        Should milk always be below the cost of production? Our assurance
    of payments when the CME is far below our cost of production thus
    insuring us for any payment for our cost of milk.
        Answer. The Dairy Product Price Support Program has strengths and
    weaknesses. It is a voluntary program and only works effectively when
    milk processors are willing to sell products to the government at the
    announced purchase price. However, it can be very effective in
    relieving pressure on prices when supply temporarily exceeds the demand
    for milk. Economic theory suggests that in the short run the benefit to
    producers is much larger than government expenditures for product
    purchases, but also that price declines realized by consumers are also
    limited by the program actions and by purchasing product the Federal
    Government incurs storage costs and product disposal may lead to
    displacement of commercial sales. Processors argue that the program
    limits innovation and product development by keeping selected commodity
    products higher priced than they would be in a the absence of the
    program and by ensuring a minimum return. A new payment program that
    insured that producers receive the cost of production would have to be
    authorized by Congress and could lead to lower prices to producers if
    the additional payments cause producers to expand production.
        The Dairy Industry Advisory Committee is examining the Dairy
    Product Price Support Program to determine if it will recommend the
    program's continuation, modification, or elimination. The Committee is
    also examining alternative safety net programs for dairy producers.

        Question 6. (Proposal 4.) Making changes to Federal orders
            including going to a single order.

        A single order means milk will be moved to any region including
    states with shortages like the northeast and southeast. A producer will
    be burdened fully for the cost of transportation if the milk supply is
    short in that region.
        Answer. To meet the objectives of the Agricultural Marketing
    Agreement Act of 1937, the geographic borders of milk marketing areas
    should reflect the common area where fluid milk processors compete for
    milk sales. There are differing opinions regarding the appropriate
    number of orders necessary to reflect competitive marketing conditions.

        Question 6. (Proposal 5.) Implementing a target price deficiency
            payment program.

        Would producers fund this program? This would again add to our cost
    of producing milk like the cwt and advertising costs?
        Answer. The Milk Income Loss Contract program is similar to a
    target price deficiency payment program and is paid from government
    funds. Thus, it does not add to milk production costs. Newly proposed
    programs could be designed with payments from government funds or from
    producer assessments. The advantage of producer-funded programs is that
    producers can choose target price and payment levels; however, they
    also have to fund the program. As you mention, this adds to the cost of
    producing milk through assessments paid on milk marketed.
        Question 6a. Today's price saw the $1.34 Block price which equates
    to 10.2 cheese yield to $13.668 minus the $2.04 make allowance for the
    processor brings us to $11.62 milk price. The operation cost of
    production according to the Farm Service Agency is $16.00.
        Why is the make allowance to reflect only the cost of the
    processor. A cost of production index for the producer is not
    implemented to allow a return to the dairy farmer. This is driving
    rural America to the brink of extinction.

        The suggested proposals above will create complete deregulation of
    the dairy industry. This will lead to vertical integration which will
    increase consumers cost in the grocery store and eliminate independent
    dairy producers the backbone of rural Wisconsin.

        Answer. The make allowance is an estimate of the cost of converting
    milk into a particular dairy product, in this instance cheese. It is
    used under Federal orders to determine the minimum price that a milk
    processor must pay for milk. Producers often receive more for their
    milk than the minimum prices established under Federal orders. In the
    absence of Federal orders, the bargaining position of milk processors
    could be enhanced leading to lower prices to dairy producers.
    Questions Submitted by Hon. Blaine Luetkemeyer, a Representative in
            Congress from Missouri
        Question 1. Along the Missouri River, which traverses my
    Congressional district, the U.S. Army Corps of Engineers is digging a
    series of side channel chutes to provide shallow water habitat for the
    pallid sturgeon. Some calculations indicate that they will dump 548
    million tons of soil into the river in order to meet the Fish and
    Wildlife Service's requirement for increased habitat. They are doing
    this under a Clean Water Act permit that they granted themselves, while
    many of our constituents have been fined for dumping what is,
    comparatively speaking, a miniscule amount of sediment into the river.
    Simultaneously, your conservation programs seek to educate river
    communities on the danger of sediment dumping and nutrient loading in
    rivers. Please share USDA's position on nutrient loading and sediment
    dumping into rivers.
        Answer. Prior to human intervention, the Missouri River was an
    uncontrolled, active river meandering from bluff to bluff and
    constantly cutting new channels resulting in tremendous quantities of
    river-borne sediment from the channel and bank erosion. However,
    alteration of the main stem of the Missouri River has caused a chain
    effect of impacts including the Federal listing of three species onto
    the Endangered Species List (Pallid Sturgeon, Piping Plover and Least
    Tern).
        The U.S. Fish and Wildlife Service's 2003 Amendment to the ``2000
    Biological Opinion of the Operation of the Missouri River Main Stem
    Reservoir System, Operation and Maintenance of the Missouri River Bank
    Stabilization and Navigation Project, and Operation of the Kansas River
    Reservoir System'' requires the USACE to construct 20 to 30 acres of
    shallow water habitat per river mile in the lower reaches of the
    Missouri River as part of the recovery efforts for endangered species.
    The primary means of accomplishing this habitat restoration is through
    the construction of chutes and backwater habitat, which results in
    discharge of the dredged sediment directly into the river.
        The proportion of discharged sediment to sediment already in the
    stream is an important consideration. The 10 year daily average
    suspended sediment load at Nebraska City in June is approximately
    200,000 cubic yards per day, so the discharged sediment was equivalent
    to only 1.5 days of sediment discharge. Therefore, sediment discharged
    into the river from chute restoration projects is a small fraction of
    the total yearly sediment carried by the river. Moreover, sediment
    discharges from restoration activities are a one-time event
        The primary purpose of USDA's investment for upland on-farm soil
    and water conservation practices is to ensure sustained productivity of
    agricultural lands as well as to minimize the impacts of nonpoint
    source pollution in our upstream reservoirs, streams and groundwater
    supplies. On-farm conservation practices ensure sustainability of these
    lands, while allowing for agricultural production.
        Sediment reduction from the upland on-farm soil and water
    conservation practices is generally a separate issue from the concerns
    regarding sediment loading in the Missouri River. Historically, very
    little sediment from the uplands of the Missouri Basin reached the main
    stem of the river because the land was protected by a blanket of native
    prairie grasses. Today's on-farm soil and water conservation practices
    on working lands approximate the effectiveness of the former prairie by
    establishing agricultural sustainability within farming and ranching
    operations. The majority of river-borne sediment is historically
    derived from bank erosion of the river and its main tributaries. Dams
    and channelization have greatly reduced sediment levels in the river,
    but the majority of the remaining sediment flow in the river still
    comes from river bank and bottom erosion.

        Question 2. Are you aware of any collaboration between the Army
    Corps of Engineers, the Fish and Wildlife Service and USDA on this
    issue? In your opinion, how can USDA work with the Fish and Wildlife
    Service, EPA, and the Corps to better educate them on the harmful
    effects of nutrient loading in the Mississippi River and its
    tributaries?
        Answer. There are many ongoing collaborative efforts between USDA,
    EPA, USFWS and the USACE that allow for discussion of nutrient loading
    concerns in the Missouri River and its tributaries.
        The Missouri River Recovery Implementation Committee (MRRIC) is a
    stakeholder group, which includes all of the Federal agencies. This
    group is required by law to provide input to the Missouri River
    Ecosystem and Restoration Planning process led by the USACE. Technical
    teams from that Committee will be providing input to MRRIC, including
    issues related to water quality concerns in the Missouri River and its
    tributaries.
        The Cooperating Agencies Team (CAT) is the group of Federal
    agencies required by law to work with the USACE in the actual
    development of the Missouri River Ecosystem and Restoration Plan. Water
    quality within the river will be a critical component of the planning
    process.
        The Missouri River Authorized Purposes Study (MRAPS) is a
    congressionally mandated study to reevaluate the original purposes of
    the Missouri River Flood Control Act of 1944. MRAPS is the first-ever
    review of the legislation that created the system of dams and
    reservoirs on the Missouri River and major tributaries. The study will
    analyze the current eight authorized purposes in view of current basin
    values and priorities to determine if changes to these purposes and
    existing Federal water resource infrastructure may be warranted. The
    study began in October 2009, and is targeted for completion in 5 years.
    The eight authorized purposes are: Irrigation, Water Quality, Flood
    Control, Recreation, Navigation, Hydropower, Water Supply, and Fish and
    Wildlife. The study team will work collaboratively with Tribes, Federal
    and state agencies, stakeholders, and the general public to seek input
    to the study through a wide variety of communications tools.
        The Missouri River Sediment Action Committee (MSAC) is a citizen
    action group from the Upper Missouri River Basin who is very concerned
    about the loss of recreation and degradation of water quality within
    the reservoirs on the main stem of the Missouri River. They engage all
    of the Federal agencies in their studies and action plans related to
    sedimentation of the reservoirs.
        The USDA Natural Resources Conservation Service's (NRCS) State
    Technical Committees solicit input from a wide range of Federal, state
    and local agencies, farm organizations, conservation groups, individual
    landowners and others to improve implementation of the USDA
    conservation programs. These Committee Meetings provide another forum
    for discussion of water quality issues related to the Missouri River
    and its tributaries.
        These are examples of the many ongoing opportunities for dialogue
    between USDA, EPA, USFWS, USACE and others regarding nutrient loading
    within the Missouri River and its tributaries.
        NRCS also is involved with a number of partners including the U. S.
    Army Corps of Engineers, the U. S. Fish and Wildlife Service and EPA to
    help address Missouri River Basin environmental issues.
        NRCS has established a full-time Missouri River Basin Coordinator
    to work directly with the Cooperating Agencies Team, and the Missouri
    River Recovery Implementation Committee, to ensure that private lands
    conservation is adequately addressed in the Missouri River Ecosystem
    and Restoration Plan. NRCS's commitment to a full-time coordinator also
    allows for direct engagement in other Missouri River issues such as the
    Missouri River Authorized Purposes Study and the Missouri River
    Sediment Action Committee.
        NRCS in Nebraska is working with several partners to restore nearly
    19,000 acres of wetland and associated upland habitat in a corridor
    along the Missouri River through the nation's first Wetlands Reserve
    Enhancement Program (WREP) project. In Fiscal Year 2010, Nebraska will
    use nearly 75 percent of the state's $23 million Wetlands Reserve
    Program (WRP) funding in this WREP area to restore wetlands and
    associated upland habitat. NRCS has cooperated with the USACE to
    incorporate some chute and backwater habitat restoration within WRP
    easements along the Missouri River where such aquatic habitat
    improvement is compatible with the purpose and management of the
    individual easement.
        The agency also is working in partnership with other agencies and
    landowners in Nebraska and South Dakota, through the Missouri River
    Futures, to provide assistance to meet the unique natural resources
    needs of the unchannelized portion of the Missouri River corridor. The
    Missouri River Futures has engaged over 40 organizations in identifying
    potential improvement projects along the river and then seeks funding
    sources to accomplish many of those projects.
        USDA is fully committed to working with Missouri River Basin
    partners and private landowners to continue to find ways to more
    effectively utilize our conservation programs to address the unique
    natural resources needs.
    Questions Submitted by Hon. Scott Murphy, a Representative in Congress
            from New York
        Question 1. Several communities in New York's 20th District
    (Village of Red Hook and the Town of Moreau) have unsuccessfully
    applied for Rural Development loans and grants to fund Water and Waste
    Disposal systems. Although these communities meet the general
    definition of rural community, they have been declared ineligible due
    to USDA's interpretation of population criteria.
        Recently, USDA Rural Development submitted a guidance memo stating
    that when determining if an area is eligible for a Water & Waste
    Disposal loan, loan guarantee or grant, Rural Development employees
    should define ``rural'' or ``rural areas'' as a city, town or
    unincorporated area that has a population of no more than 10,000
    inhabitants. The guidance makes no mention of the project's service
    area, which can be significantly less than the 10,000 person threshold.
        For example, the Village of Red Hook with a population of 1,805--
    well within limits for the Rural Development program--recently received
    an indication from the USDA that because of its inclusion of a small
    portion of the Township of Red Hook in the service area, the project
    may be ineligible due to population restrictions. Using USDA's
    criteria, the Village of Red Hook's population must be added to both
    the populations of the Town of Red Hook and the incorporated Village of
    Tivoli--some 6 miles distant and served by its own sewer system. As a
    result, the project has been determined ineligible because the
    population is calculated to be 10,408--this despite the fact that the
    water system will serve 2,500 people.

    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    Incorporated Village of Red Hook                           1,805
                    Town of Red Hook                           7,440
      Incorporated Village of Tivoli                           1,163
                                               -----------------------------
      Total...................................                10,408
    ------------------------------------------------------------------------

        Why has USDA decided to use city, town, or unincorporated
    population as eligibility criteria for Water & Waste Disposal grants
    and loans when many of these water projects service rural areas that
    fall well below the city, town, or township population limits?
        Answer. The Agency is complying with statutory requirements with
    regard to eligibility. Section 306 of the Consolidated Farm and Rural
    Development Act (CONACT) authorizes the Secretary to issue water and
    waste disposal-related loans and grants to entities serving rural
    areas. The 2008 Farm Bill defines ``rural'' and ``rural area'' as ``a
    city, town, or unincorporated area that has a population of no more
    than 10,000'' for the purpose of water and waste disposal loan and
    grants and guarantees.

        Question 2. What efforts has USDA made to ensure that rural
    communities, like the Village of Red Hook, can take advantage of Rural
    Development Programs, even if these locations fall within larger
    jurisdictions?
        Answer. USDA, through its Rural Development field offices, works
    with communities to determine all possible sources of funding,
    including programs across Rural Development and other Federal, state
    and local funding partners.

        Question 3. The 2008 Farm Bill directs the USDA to report on the
    various definitions of ``rural'' it uses by next month and to assess
    the impacts these definitions have on program delivery. Can you give us
    an idea of what you have found so far, particularly if you think the
    varying definitions of the term are causing problems with targeting
    loans and grants where they are most needed?
        Answer. We will be reporting to the Congress later this summer and
    it would be premature to speculate about our conclusions at this time.
        Any targeted program is apt to create difficult boundary issues,
    and the various 2008 Farm Bill definitions of rural are no exception.
    The difficulties typically arise with regard to communities that ``look
    and feel'' rural but that fall on the wrong side of an essentially
    arbitrary line drawn on the basis of geographic location, income, or
    population size. These issues are of course not unique to rurality; any
    means tested program, for example, will face similar issues related to
    the appropriate definition of income.
        The challenge is therefore not the identification of problems with
    the current definition. The real challenge is to devise some other
    definitional scheme that reduces or at least simplifies these issues,
    given the reality that the boundary issues are unavoidable. We are
    studying these issues and will offer a recommendation to Congress later
    this year.
        The challenge is therefore not the identification of problems with
    the current definition. The real challenge is to devise some other
    definitional scheme that reduces or at least simplifies these issues,
    given the reality that the boundary issues are unavoidable. We are
    studying these issues and will offer a recommendation to Congress later
    this year.
    Questions Submitted by Hon. Timothy V. Johnson, a Representative in
            Congress from Illinois
        Question 1. Mr. Secretary, could you please provide an update on
    the Department's outreach and educational efforts when it comes to the
    Average Crop Revenue Election Program (ACRE)? What are you doing to
    ensure that Farm Service Agency County Staff are adequately trained in
    providing consistent and quality information to producers?
        Answer. FSA remains committed to ensuring FSA's field staff is
    knowledgeable and helpful to producers regarding the Average Crop
    Revenue Election (ACRE) and its relationship with the Direct and
    Counter-Cyclical Payments Program (DCP).
        First, FSA has provided several tools to field staff for educating
    producers on this program. These include informational materials for
    State and County offices, ongoing Public Service Announcements and
    other media outreach from the national office, and targeted outreach at
    the local level (including translation services) to Socially
    Disadvantaged producers. FSA has conducted informational meetings
    regarding ACRE at the local level, and is working closely with state
    extension officials and the private sector to provide as many public
    venues as possible for producers to bring questions to FSA staff.
        At the same time, we understand the particularly complex nature of
    this program for both producers and FSA staff, and we have taken extra
    steps to educate staff regarding the ACRE program. FSA conducted
    standard ``face-to-face'' program training regarding ACRE before the
    program's first sign-up in 2009; for the first time, staff members were
    also trained directly by national program staff during a live webinar
    training session. As sign-up went on, FSA national program staff
    conducted numerous conference calls and online meetings to continue
    answering staff questions regarding the program.
        During the 2010 sign-up, FSA provided all State Offices with ACRE
    enrollment data to enable additional follow-up by state officials to
    County Offices whose DCP and ACRE enrollment rates lag behind the
    national average. FSA is closely monitoring these enrollment figures,
    and national program staff is working closely with State and County
    staff to ensure quality responses to producer questions regarding ACRE.

        Question 2. As you know the ACRE program (created in the 2008 Farm
    Bill) provides a revenue based option for producers. The economic
    safety net is of paramount importance as we continue to work through
    the implementation of the current farm bill and begin earnest
    discussions on the next farm bill. Many producers in the 15th District
    of Illinois have suggested that ACRE could be more effective if it used
    county level triggers as opposed to state triggers. How do you view
    such a proposal?
        Answer. As you know, the state trigger is considered to be met if
    the actual state yield times the higher of the national average market
    price or 70 percent of the national average loan rate is less than 90
    percent of the state 5 year yield times the 2 year national average
    market price.
        If future legislation substituted county yields rather than state
    yields, as indicated above, the impact of a change in yields at the
    county level rather than the state level may be more reflective of an
    individual producer's yields in some situations. Presently, state yield
    information is provided through data obtained from NASS. This would
    increase the difficulty of administering an ACRE program with county
    triggers. In addition, ACRE payments under a county ACRE program could
    vary widely from county to county even though farm yields near county
    boundaries may be quite similar. Furthermore, such a program would have
    to be considered relative to programs currently being offered through
    USDA's Risk Management Agency, and would have to fall within the farm
    bill's budget constraint.

        Question 3. As you know, pollinators play a crucial role in helping
    produce the foods that we eat. According to scientists at universities
    and USDA, it is estimated that pollinators are involved in one out of
    every three bites of food that we eat. A CRS Report by Renee Johnson
    places the commercial value of honey bees between $15 and $20 billion
    annually. The 2008 Farm Bill included a yearly $10 million
    authorization through FY 2012 aimed at research and extension grants
    for pollinator protection. Could you please provide me with an update
    as to how much and how this money has been spent as well as some
    remarks on the cause of and progress against Colony Collapse Disorder?
        Answer. Colony collapse disorder (CCD) has caused beekeepers to
    experience total colony losses in the 30 percent range each year since
    2006. Although a long-term prognosis is not yet possible, the situation
    is not considered sustainable. The Agricultural Research Service (ARS)
    and the National Institute of Food and Agriculture (NIFA) continue to
    co-chair the Federal CCD Steering Committee, which addressed the crisis
    through the CCD Action Plan. The Natural Resources Conservation Service
    (NRCS) chairs the Interagency USDA Pollinator Protection Committee
    which addresses pollinators more broadly.
        Of the $10 million authorized by the 2008 Farm Bill for CCD, the
    new funding has been appropriated as follows:

       ARS has brought its total budget for pollinator research
            from $9.3 million (FY 2007) before the 2008 Farm Bill to $11.7
            million (FY 2010), with an additional $500,000 in the
            President's FY 2011 request. Temporary ARS funding also
            includes a $5 million ($1 million per year) area wide project
            to test best management practices for honey bees.

       NIFA's total spending on CCD and pollinator protection went
            from $1 million in 2007 to $4 million in 2010. Of this $4
            million, $3 million has been appropriated to its Agriculture
            and Food Research Initiative (AFRI). NIFA's funding includes a
            Coordinated Agricultural Project (CAP) which was initiated in
            2008 and is expected to be continued through 2012. The CAP
            focuses on research and extension aimed at producing healthier
            bees and to provide outreach to beekeepers and the public on
            topics relevant to bee health including CCD.

       Since the $2.25 million authorized by the 2008 Farm Bill for
            the bee health survey for each year from 2008 to 2012 has not
            been appropriated, the Animal and Plant Health Inspection
            Service (APHIS) has provided $150,000 in 2009 and $550,000 in
            2010 from existing Section 10201 funding.

        Overall, USDA research has focused on data collection, analysis,
    research, and mitigation, in accordance with the CCD Action Plan. It
    now seems clear that CCD starts with multiple stressors on colony
    health: long distance transportation, loss of bee forage, the
    increasing use of systemic pesticides, the varroa mite and need to
    apply miticides, toxins building up in bee feed, and a variety of
    viruses and other pathogens. In essence, when numbers drop below 10,000
    bees per colony over winter, the colony can no longer produce the next
    generation of bees and collapses. Several studies have documented
    extremely high pathogen and pesticide loads in diseased bee colonies,
    particularly viruses such as the Israeli acute paralysis virus and
    deformed wing virus, as well as the parasite nosema. Moreover, one
    recent study indicates that these stressors may synergize with one
    another; pesticides in particular can stress bee immune systems and
    make them more susceptible to viruses, pests such as the highly
    detrimental varroa mite, and parasites. Collectively, these findings
    indicate that colony collapse is likely the result of stress overload.
    New funding is being used to address these important leads,
    particularly pesticide, pathogen, pest interactions, environmental
    stressors, and providing more robust bees for pollination by breeding
    better bees and providing nutritional supplements for bee build up.
    Questions Submitted by Hon. Deborah L. Halvorson, a Representative in
            Congress from Illinois
        Question 1. Are there adjustments you will be suggesting to the
    farm bill that addresses the safety net provisions for program crop
    farmers and if so, what are they?
        Answer. USDA is looking forward to working very closely with
    Members of Congress and Agriculture Committee Members to provide
    payment, crop and other statistical data that would indicate the scope
    and assistance provided by current safety net provisions. FSA expects
    to offer suggestions that would potentially administrative burdens and
    add to the effectiveness and timeliness of Federal farm program
    delivery.

        Question 2. Will the Department of Agriculture be making specific
    recommendations for farm program provisions and if so when?
        Answer. USDA is looking forward to working very closely with
    Members of Congress and Agriculture Committee Members to provide
    payment, crop and other statistical data that would indicate the scope
    and assistance provided by current safety net provisions. USDA would
    like to work with the House and Senate Agriculture Committees to
    develop a bipartisan 2012 Farm Bill that reduces administrative burdens
    on our farmers and ranchers and improves the effectiveness of the farm
    safety net.

        Question 3. Will revenue based safety nets be able to be considered
    down to at least the county level?
        Answer. Current farm legislation provides that state level and farm
    level data will be used to determine when a farm is eligible for an
    ACRE payment. A change in the Food, Conservation and Energy Act of 2008
    would be required to move the state level trigger down to the county
    level trigger. Data for county level triggers may be significantly
    harder to obtain because NASS does not, in all cases, provide yield
    information at the county level.

        Question 3a. Many farmers in my state are interested in the revenue
    based safety net program and an appealing provision would be county
    level coverage for the ACRE program.
        Answer. A county-based ACRE program would create substantial data
    challenges for FSA. NASS data is considered the first choice as the
    most reliable yield data available. However, there are many counties
    that NASS does not report production and acreage data, particularly for
    the ``other oilseeds,'' pulse crops, and other commodities grown in
    non-major producing areas. Collecting reliable yield data should be a
    priority, if the move is made to a county level trigger.
        Establishing state-level guarantee and actual yields for the ACRE
    program has presented challenges. For example, there are 33 states that
    state-level guarantee and actual yields are needed for sunflower seed
    that NASS does not report a yield. In addition, ACRE payments under a
    county ACRE program could vary widely from county to county even though
    farm yields near county boundaries may be quite similar. Furthermore,
    such a program would have to be considered relative to programs
    currently being offered through USDA's Risk Management Agency, and
    would have to meet the farm bill's budget constraint.

        Question 4. What is USDA doing to improve agriculture exports,
    especially in the dairy and meat sectors?
        Answer. We are putting a renewed emphasis on trade at USDA as we
    work with nations across the world to achieve a level playing field.
    USDA is committed to working to ensure that U.S. farmers have fair
    market access, a strong understanding of key market trends, and support
    in overcoming constraints such as tight credit in international
    markets.
        The Fiscal Year 2011 export forecast for livestock, poultry, and
    dairy products is raised by almost $200 million to $20.3 billion. The
    forecast for broiler meat is revised upward by nearly $300 million to
    $3 billion, as prices have been resilient despite the implementation of
    sanitary requirements by Russia and market access issues in several
    other countries. The dairy export forecast is raised slightly to $2.9
    billion due to strong global dairy prices and expected recovery in milk
    powder sales. Pork exports are reduced by over $100 million to $4.1
    billion on lower quantities as tight domestic supplies and limit U.S.
    shipments. For the same reason, beef and pork variety meats are dropped
    to just over $1 billion. Beef exports are unchanged at $3 billion.
        For U.S. beef, Under Secretary for Farm and Foreign Agricultural
    Services James Miller has traveled to Japan and China where
    restrictions still exist due to perceived risks associated with BSE, to
    revitalize ongoing efforts to further expand access for U.S. beef and
    beef products. The Secretary also recently returned from Japan where he
    pressed for the two sides to develop a mutually agreeable framework for
    negotiating expanded beef access. In the coming months, we will seek
    additional opportunities to further engage Japan, China, Mexico, and
    Hong Kong. Recent efforts with China and Russia opened markets for
    pork, with respect to pork headed to China, we are striving to assure
    that Chinese import requirements are consistent with international
    standards.
        To date for FY 2010, USDA has guaranteed approximately $75 million
    of beef and pork exports under the GSM-102 Export Credit Guarantee
    Program. During times of slow global economic growth and tight credit
    the GSM-102 Program encourages the extension of credit by U.S. banks
    for sales of U.S. agricultural exports, thus encouraging exports to
    buyers primarily in developing countries. In 2010, the U.S. Meat Export
    Federation received $15.7 million in funds under the Market Access
    Program and $1.7 million under the Foreign Market Development program.
        For dairy products, we are engaged in several areas. The Dairy
    Export Incentive Program (DEIP). DEIP helps U.S. dairy exporters meet
    prevailing world prices and encourages the development of international
    export markets in countries or regions where U.S. dairy products are
    disadvantaged due to subsidized dairy products from other countries. On
    May 22, 2009, facing poor domestic market conditions and the
    reintroduction of dairy export subsidies by the European Union, USDA
    announced DEIP allocations for the July 2008 through June 2009 year, as
    allowed under the rules of the World Trade Organization. On July 6,
    2009, the initial tranche of allocations for the July 2009 through June
    2010 year was announced. Since July 2009, USDA has awarded bonuses for
    the export of 37,228 metric tons of nonfat dry milk 17,470 metric tons
    of butterfat and 1,843 metric tons of cheese. The program has
    facilitated sales of U.S. dairy products to Africa, the Middle East,
    Asia/Eurasia, Central and South America, and the Caribbean.
        The Department of Agriculture was able to delay China's
    implementation of any new dairy certification requirements and we are
    advocating science-based requirements that are consistent with
    international guidelines in our continuing engagement with Chinese
    officials.
        In 2010, the U.S. Dairy Export Council received $4.3 million in
    funds under the Market Access Program and $700,000 under the Foreign
    Market Development program.
    Questions Submitted by Hon. Kurt Schrader, a Representative in Congress
            from Oregon
        Question 1. Title X of the 2008 Farm Bill is particularly important
    to my state which is primarily specialty crops. I would like to hear
    your views on the importance of Title X in the next farm bill.
        Answer. USDA commends Congress for including, for the first time, a
    specialty crop and organic agriculture title in a farm bill. This
    Administration is committed to the importance of fresh, nutritious food
    and organic agriculture. President Obama has made a safe, sustainable,
    and nutritious food supply a central goal for USDA.
        As Congress begins discussions for the 2012 Farm Bill, USDA
    encourages members to recognize, as they did in drafting the 2008 Farm
    Bill, the importance of these valuable segments of U.S. agriculture.

        Question 2. The Forest Service is a shadow of what it used to be.
    It appears the FS can no longer help our forests and no longer promotes
    jobs. In my opinion we should either do away with or make enough of
    investment to keep forests healthy, create jobs and make vibrant rural
    communities. With that said, the farm bill asked for national
    priorities for forest land to be established. With this being the case,
    how come it's taken the Forest Service so long to select members of the
    State Forest Stewardship Coordinating Committee?
        Answer. Each state forestry agency is responsible for selecting and
    convening its State Forest Stewardship Coordinating Committee (SFSCC).
    These committees were first established in 1990, and have been
    functioning since then. The 2008 Farm Bill added a member of the State
    Technical Committee (chaired by the Natural Resources Conservation
    Service) to the SFSCC. If there is a question regarding the SFSCC in a
    particular state we can follow up.
        If the question is more focused on the Forest Resource Coordinating
    Committee established to advise the Secretary of Agriculture, please
    see the following:
        The naming of the members of the Forest Resource Coordinating
    Committee is moving forward. The original charter called for a maximum
    of 20 members, but with the wide range of diverse interests who wish to
    advise the Secretary of Agriculture on private forestry matters, the
    Department has decided to consider additional potential applicants.
    This entails amending the original charter and allowing time for
    additional applications to be submitted and subjected to background
    checks. The charter should be amended by July, the committee members
    appointed, vetted and notified by September, and a first meeting held
    by December.

        Question 3. I appreciate the emphasis on renewable biomass in the
    last farm bill and as part of ACES, the House Climate Change bill. It's
    critical to some semblance healthy forests and rural communities. This
    broad definition of renewable biomass is critical to effective
    implementation of those bills. There is some concern the USDA may be
    backing away from that definition when developing BCAP rules. In my
    opinion that would be catastrophic. I would like to hear your comments
    on that. Also, I would appreciate your commitment to support the 2008
    Farm Bill definition.
        Answer. The statutory definition of renewable biomass in the 2008
    Farm Bill is the definition that the Department of Agriculture will use
    when developing the final regulations the Biomass Crop Assistance
    Program (BCAP). In addition to furthering the development of crops of
    renewable biomass for energy, BCAP is designed to improve forest health
    by removing uneconomical forest thinnings, and reducing the risk of
    disease, invasive species, and forest fires. Furthermore, forests
    provide an important sink for carbon dioxide, the most common global
    warming pollutant.

        Question 4. Sec. 502 Rural Housing program has been unqualified
    success and has an exceptional track record. This program is being used
    more than ever before but it's funding has nearly run dry. What is the
    USDA doing to keep program going for the remainder of the year? Are
    there plans to adjust the program going forward to account for the
    increased demand for loans under Sec. 502?
        Answer. The reason why funding for the Section 502 Single Family
    Housing Guaranteed Loan Program (SFHGLP) will run out so soon is due to
    the unprecedented increased demand for mortgage financing resulting
    from the housing crisis. The USDA supports legislation in which the
    SFHGLP guarantee fee structure would make it subsidy neutral, meaning
    the program would collect enough in fees to fully offset estimated
    losses resulting from new guarantees. The guarantee fee structure does
    not require further appropriation of budget authority to continue
    serving rural America. In addition, ample funding is available under
    the Section 502 Single Family Housing Direct Loan Program (SFHDLP) to
    provide homeownership opportunities to low and very low income
    households.

        Question 5. What recommendations is the USDA making to the
    Administration and USTR Kirk on reducing barriers other nations have
    raised as a result of old, outdated trade agreements that no longer
    reflect the increased competitiveness of what were developing nations?
        Answer. Concluding the WTO Doha Round of agricultural negotiations
    is an essential tool in preserving and expanding access to foreign
    markets for U.S. food and agricultural products through the promotion
    of an open, rules-based global trading system. We need to conclude a
    Doha trade agreement that creates real access to key global markets
    including from large, emerging markets such as China, India, and
    Brazil. USDA continues to strongly support and enunciate the
    Administration's clear position that advanced developing economies must
    assume their corresponding leadership responsibilities in trade
    agreements both bilaterally and multilaterally and be willing to
    provide significant, new access to their markets. At the same time, the
    USDA continues to seek the best conditions possible domestically for
    our farmers and ranchers so they can maintain and grow our competitive
    global position in agricultural production, processing, and
    distribution. We also seek new market access opportunities through
    bilateral and regional trade agreements. The Trans-Pacific Partnership
    FTA negotiation brings together a mix of developed and developing
    nations that will effectively help address the competitiveness
    challenges the United States will face in the 21st century. We support
    the Office of the U.S. Trade Representative's efforts to deliver
    economic and strategic trade benefits by resolving outstanding issues
    on the pending FTAs with Panama, Colombia and Korea. When these FTAs
    are implemented, they will significantly expand opportunities for U.S.
    agricultural exports.
    Question Submitted by Hon. Earl Pomeroy, a Representative in Congress
            from North Dakota
        Question. At a January 10, 2007 Senate Agriculture, Nutrition and
    Forestry Committee hearing, U.S. Department of Agriculture's Chief
    Economist, Keith Collins, noted that high crop prices, due in part to
    the strong domestic market for ethanol, led to a $6 billion savings for
    the Federal Government from reduced farm program payments in 2006.
    Thus, with increased tax revenue and reduced farm program costs, the
    taxpayer realized a $4 return for every $1 invested in domestic
    renewable energy last year. Has the Department looked more recently at
    the impact of biofuels policy and the use on commodity prices as well
    as the impact on commodity program spending?
        Answer. At a June 12, 2008 U.S. Senate Energy and Natural Resources
    Committee hearing, U.S. Department of Agriculture's Chief Economist,
    Joseph Glauber, testified on the effects of the expansion in biofuels
    production in the United States on commodity markets and food prices.
    In that testimony, the effects of increased ethanol and biodiesel
    production on corn and soybean prices are presented for marketing years
    2006/07 and 2007/08. Assuming the amount of corn used for ethanol
    production and soybean oil used for biodiesel production in 2006/07 and
    2007/08 remained unchanged from the amounts used in the 2005/06
    marketing year, corn prices would have averaged $0.24 per bushel lower
    in 2006//07 and $0.65 per bushel lower in 2007/08. Soybean prices would
    have averaged $0.18 per bushel lower in 2006/07 and $1.75 per bushel
    lower in 2007/08. Despite the drop in corn and soybean prices,
    commodity program spending would have remained essentially unchanged,
    since corn and soybean prices would have continued to exceed levels
    that would have triggered either countercyclical payments or marketing
    loan benefits. The scenario presented above was selected to depict the
    effects of increased ethanol and biodiesel production on corn and
    soybean prices and does not represent a specific policy scenario.
        In May 2007, USDA's Office of the Chief Economist and the Economic
    Research Service analyzed two alternative scenarios of biofuel
    production at the request of Senator Saxby Chambliss. Under scenario 1,
    annual domestic ethanol production increases to 15 billion gallons by
    2016 and annual domestic biodiesel production increases to 1 billion
    gallons. Under scenario 2, ethanol production increases to 20 billion
    gallons by 2016 and annual biodiesel production increases to 1 billion
    gallons. These scenarios compare with about 12 billion gallons of
    ethanol and 700 million gallons of biodiesel production in 2016 in
    USDA's long-term baseline agricultural projections released in February
    2007. Under scenario 1, the price of corn increases by $0.31 per bushel
    and the price of soybeans increases by $0.45 per bushel above the
    baseline in 2016. Under scenario 2, the price of corn increases by
    $0.65 per bushel and the price of soybeans increases by $1.20 per
    bushel above the baseline in 2016. These price increases would not have
    reduced commodity program payments, since prices for both corn and
    soybeans were above levels that would have triggered countercyclical
    payments and marketing loan benefits for corn and soybeans.
    Question Submitted by Hon. Bill Cassidy, a Representative in Congress
            from Louisiana
        Question 1. Under Cap-and-Trade, farmers would face higher energy
    costs and input costs due to the higher cost of carbon-based products.
    Proponents of Cap-and-Trade have argued that farmers could mitigate
    these added expenses by decreasing carbon emissions and selling the
    resulting ``credits'' as offsets. Yet the Congressional Budget Office
    estimates that \2/3\ of the offset credits would be supplied by
    international sources. Furthermore, USDA Chief Economist Jonathan
    Glauber has said that the primary source of carbon offsets would be
    afforestation of farm land, from which agriculture products may no
    longer be produced. Therefore, is it realistic to expect that these
    carbon offsets will benefit American agriculture and our farmers? If
    so, on what assumptions is this expectation based?
        Answer. The analysis prepared by USDA Chief Economist, Dr. Joseph
    Glauber in December 2009 addresses many of the issues outlined in your
    question. Our findings suggest that under the energy price scenario
    estimated by the Environmental Protection Agency (EPA) for the bill
    entitled the ``American Clean Energy and Security Act of 2009'' (H.R.
    2454), the price and income effects due to higher production costs for
    agriculture will be relatively small, particularly over the short run
    (2012-2018). Impacts on production costs are also mitigated by
    provisions in H.R. 2454 that would provide allowance rebates to
    ``trade-vulnerable'' industries, including fertilizers. When production
    cost impacts are considered in conjunction with likely commodity price
    increases and possible revenues from offsets and increased bioenergy
    production, the impact on net farm income may be positive.
        As you note, providing offsets through afforestation will take land
    out of agricultural production. It is important to note that
    afforestation is only one potential source of carbon offsets for
    agriculture. Since such activities would be voluntary, they would not
    be undertaken by farmers unless they could generate returns on that
    farmland in excess of returns from crop production. Similarly, existing
    cropland could be farmed in a less intensive manner and farmers will
    have incentives to improve fertilizer and manure management. H.R. 2454
    and the recently announced proposal by Senators Kerry and Lieberman
    entitled ``the American Power Act'' provide a long list of potential
    offset activities in the agriculture and forestry sectors. In addition
    to providing offsets to regulated firms, the renewable energy
    provisions in many recent cap-and-trade proposals will promote the use
    of biomass-based energy in generating electricity. Such proposals will
    further provide U.S. farmers with opportunities to participate in the
    nation's efforts to reduce overall emissions of greenhouse gas
    emissions.
        We anticipate that domestic and international offsets will play an
    important role in meeting the emission targets under proposed climate
    change legislation. The American Clean Energy and Security Act (H.R.
    2454), constrains international and domestic offset supply to no more
    than 2 billion metric tons of greenhouse gas emissions in any given
    year. More recent proposals such as the bill entitled ``Clean Energy
    Jobs and American Power Act'' (S. 1733) places tighter restrictions on
    international offset supply and thereby encourage the supply of
    domestic offsets relative to provisions in H.R. 2454. Similarly, the
    proposal by the Senators Kerry and Lieberman would also place further
    restrictions on international offset supply in any given year, thereby
    encouraging domestic offsets.

        Question 1a. In addition, if carbon offsets are supplied
    internationally, what enforcement mechanism does the Administration
    support to ensure the long-term integrity of the offsets supplied in
    other countries?
        Answer. Transparency and verification are critical to any
    international climate agreement and to a robust international carbon
    offsets market. For this reason, the U.S. has consistently supported
    establishing strong measurement, reporting, and verification systems to
    provide for full and accountable reporting. Market instruments will
    require a high level of stringency in order to maintain confidence and
    ensure results are real, additional, and verifiable. An effective
    international system will:

       Include requirements that countries develop plans that
            present detailed descriptions of steps envisaged, including
            policies and measures, estimates for the expected effect of
            those actions on emissions and removals, and their relationship
            to longer-term mitigation scenarios;

       Include complete greenhouse gas inventories using the most
            recent IPCC guidelines;

       Ensure that reductions in emissions or increases in removals
            are new and additional; and

       Establish clear incentives for countries to continuously
            improve their national monitoring and reporting systems.
    Question Submitted by Hon. Tim Holden, a Representative in Congress
            from Pennsylvania
        Question. TEFAP--The farm bill provided large increases to The
    Emergency Food Assistance Program (TEFAP), from $140 million to $250
    million per year, and indexed it for inflation. This additional funding
    has been of vital importance to many American families in the current
    economy. In spite of this increase, however, food banks are reporting a
    growing need for more food and additional administrative funding, even
    beyond what was provided in the stimulus bill. In contrast, early in
    2009, we were told that TEFAP was unable to spend all of the farm bill
    increase. Can you please tell us about the status of TEFAP purchases,
    administrative costs, and what you are hearing at the Department about
    any outstanding need for more emergency food assistance?
        Answer. In Fiscal Year (FY) 2009, the Department provided almost
    $710 million in food for the emergency feeding network, including $100
    million through the American Recovery and Reinvestment Act of 2009
    (ARRA) and $373.7 million in bonus foods. We also provided $49.5
    million in regularly appropriated administrative support for state and
    local agencies and $25 million in ARRA TEFAP administrative support.
        In FY 2010, Congress appropriated $248 million for food purchases
    under TEFAP, based on the statutory formula established in the 2008
    Farm Bill, and $49.5 million in administrative support to states and
    local agencies. An additional $25 million in administrative support was
    provided through ARRA. In addition to ARRA and the regularly
    appropriated food and administrative funds, Congress also appropriated
    $60 million for cheese and other dairy products for TEFAP in FY 2010.
    We will continue to direct bonus foods to TEFAP to the extent that
    resources permit. Currently, we estimate that we will provide about
    $348 million in bonus foods to the emergency feeding network in FY
    2010.
        In addition, the 2008 Farm Bill authorized an Emergency Food
    Program Infrastructure Grant to support and expand the activities of
    the Emergency Food Network. In FY 2010 Congress appropriated $6 million
    for this grant. The Department released the Request for Application on
    April 1, 2010.
        In this current economic climate, the Department continues to hear
    of growing numbers of American turning to food pantries and soup
    kitchens to feed their families. We have heard this increase in demand
    is placing an increased burden on the food bank community, both in
    terms of need for additional food and funds. The food bank community
    continues to absorb all resources that the Department has made
    available.
                                attached tables

               Borrowers of FSA Loans Ineligible Under Term Limits
    ------------------------------------------------------------------------
                     Guaranteed                             Direct
    ------------------------------------------------------------------------
                                       Become                      Become
         State         Currently     Ineligible     Currently    Ineligible
                     Ineligible *      2010 **     Ineligible       2010
    ------------------------------------------------------------------------
               AL              20              4            57            70
              AZ                1              2             2             9
              AR              156             37           126           264
              CA               29              5           104           192
              CO               37             15            51           102
              CT               10              2             5            11
              DE                0              0             0             2
               FL              13              3            12            39
              GA              130             30           105           117
              ID               77             20           102           163
               IL             235             67           170           179
              IN              148             47            68           122
              IA              232             98           367           388
              KS              191             59           160           236
              KY              103             39           328           392
                LA            391            104            39           213
              ME               32             18            36           112
              MD                2              0             0            18
              MA                7              2             3            34
              MI               94             49            94           139
              MN              360            112           241           430
              MS               97             42            60           182
              MO              132             44           190           256
              MT               48             19            51           125
              NE              209             73           420           299
              NV                7              2             5            11
              NH                3              0            10            19
              NJ                2              3             5             7
              NM               18              7            10            29
              NY               38             13            95           175
              NC               87             28           105           160
              ND              141             89           228           369
              OH               64             16            20            58
              OK              112             36            95           254
              OR               17              6            56           169
              PA               27             17           272           372
              RI                0              0             2             4
              SC               57             23            29            66
              SD              138             54           223           272
              TN               83             27            41           142
              TX              447            154           474           923
              UT                2              0            31            53
              VT                7              2            31            55
              VA               27              7            37            64
              WA               59             19            53            91
              WV               10              8            39           100
              WI               36             20           148           254
              WY               13              4             2            36
              AK                0              0             7             6
              HI                0              2            10            15
            Guam                0              0             0             4
              PR                0              0             0             2
              VI                0              0
                   ---------------------------------------------------------
      National....          4,149          1,428         4,819        7,804
    ------------------------------------------------------------------------
    * These borrowers can obtain guaranteed operating loans due to statutory
      suspension of guaranteed limit.
    ** Assuming suspension ends 12/31/2010.

        The following summary for FY 2009 provides a representative
    sampling of the Community Facilities Program project distribution:

    ------------------------------------------------------------------------
                                                  Number
              Project Description               Facilities        Amount
    ------------------------------------------------------------------------
                Pharmacies & Drug Stores
                       Physicians Clinic                13       $6,851,400
               Dental Clinic and Offices                 5       $5,627,020
    Nursing Home (Sr. Citizen Retirement                17      $47,263,845
                                    Home)
    Boarding Home for Elderly--Ambulatory
                                     Care
                               Assisted Living Facility 13      $25,198,292
           Hospital (General & Surgical)                 8      $43,886,003
              Hospital (Critical Access)                30     $201,704,600
                      Hospital Equipment                16       $1,561,971
    Hospital Equipment (Critical Access)                19       $2,712,509
                            Telemedicine
                    Psychiatric Hospital                 1         $183,124
                         Outpatient Care                 5       $7,120,000
        Vocational Rehabilitation Center                 3         $299,500
    Medical Rehabilitation Center or Group               4       $3,528,235
                        Home for Retarded
                        Home Health Care
           Office Building (Health Care)                14      $13,736,226
         Mental Health Physicians Office                 2       $1,761,000
                       (Centers, clinics)
                  Migrant Health Centers
                       Other Health Care                44      $26,536,331
                                            --------------------------------
      Health Care..........................            194     $387,970,056
                                            --------------------------------
            Rescue and Ambulance Service                90       $7,722,430
    Rescue and Ambulance Service--Equipment             14       $2,981,592
                                 Building
                   Communications Center                 7       $2,812,770
             Mobil Communications Center                 3          $19,295
                  Civil Defense Building
              Early Storm Warning System                61         $793,993
                          Police Station                 9       $8,726,500
                              Police Car               268      $11,139,299
                                    Jail                 9      $19,025,185
                Fire Department Building                65      $31,079,562
                             Fire Trucks               175      $27,583,659
               Fire Protection Equipment                72       $2,045,730
                Multi Service Bldg--FRPS                 8       $4,219,655
      Other Fire, Rescue & Public Safety               170      $14,242,511
                                            --------------------------------
      Fire, Rescue, & Public Safety........            951     $132,392,181
                                            --------------------------------
        School Maintenance and Equipment
                           Service Center
        Computers or Other Equipment for                36       $3,495,834
                                 Facility
                           Public School                16      $11,810,727
                               Distance Learning         1          $19,250
                                 College                12       $2,640,000
                          Charter School                12      $29,515,941
                            College Dorm                 4       $9,440,000
                                        Library         25       $6,496,900
                       Vocational School                 3       $2,914,900
    Educational Institution for Disabled                 7       $4,292,000
                        Open Air Theater                 1         $861,200
             All Purpose Campus Building                 8      $24,519,500
                                  Museum                16       $3,873,643
     Transitional Housing for non-tribal
                                residents
           Child Care & Education Center                73      $13,188,267
            Other Cultural & Educational                45      $46,766,141
                                            --------------------------------
      Cultural & Educational...............            259     $159,834,303
                                            --------------------------------
                           Rodeo Grounds
                        Football Stadium
                    Camp Grounds w/cabin
                               Ball Park
                        Basketball Court
                            Curling Rink
                                    Ski Lodge
     Clubhouse for Recreational Facility
    Community Multiple Recreation Center                 3       $2,250,000
                          Community Park
                       Park & Beach Area
                                        Lake
                             Golf Course
                                Ski Area
                           Tennis Courts
                           Shooting Club
                            Camp Grounds
                           Swimming Pool
                                            --------------------------------
      Recreational activities..............              3       $2,250,000
                                            --------------------------------
                      Electrical Service                 2          $67,500
       Electrical Equipment Maint. Bldg.                 1          $10,500
                          Hydro Electric                 1       $5,000,000
                Natural Gas Distribution                 1       $2,530,000
                                            --------------------------------
      Energy Transmission and Distribution.              5       $7,608,000
                                            --------------------------------
             Public Maintenance Building                 4         $990,795
         County Health Department Office                 3       $1,174,600
                        Community Center                31      $10,173,040
                   Adult Day Care Center                 5         $884,529
    Food Preparation Distribution Center                 8         $528,912
                    Home for Delinquents                 1           $9,350
                            Youth Center                 7       $2,284,000
                Social Services Building                 6      $15,950,845
                        Homeless Shelter
    Other Individual & Family Services--                10       $2,514,042
                  Domestic Violence etc.)
                          Fraternal Hall
                  Data Processing Center
      Heating Plant for Public Buildings
                               City Hall                24      $13,402,887
               Office Building (General)                15       $7,418,820
                        Courthouse Annex
                      County Court House                 9      $25,167,130
                      Street Improvement                13      $16,785,500
            Street Maintenance Equipment                47       $3,031,856
                                Railroad
                   Railroad Engine House
                        City Bus Service
                  Special Transportation                 8       $1,149,820
                               Sidewalks                 1          $80,000
                            School Buses                 2          $91,250
             Municipal and County Garage                 6       $5,290,500
                       Offstreet Parking                 8       $1,012,766
                                  Bridge
                                  Marina
       Municipal Dock (Water or Terminal
                               operation)
                          Airport Hangar                 3       $3,692,600
                            City Airport                 2         $347,830
        Other Public Buildings & Improve                55      $24,947,915
                                            --------------------------------
      Public Buildings and Improvements....            268     $136,928,987
                                            --------------------------------
                      Water Improvements
                      Sewer Improvements
                             Drainage & Levee Districts  1          $75,000
               Industrial Parks--CF Only                 3       $2,555,200
                                            --------------------------------
      Industrial Development...............              4       $2,630,200
                                            --------------------------------
                            Agriculture Land for Research Center
                Agricultural fairgrounds                 3       $3,135,000
                          Farmers Market
                          Animal Shelter                 8       $5,185,440
         Grandstands, County Fairgrounds                 2      $10,732,000
                                     Dam                 1       $1,100,000
                                Cable TV
                      Business Incubator
                        Sprinkler System                 2         $284,500
                                Cemetary                 3          $58,799
                              Scout Camp
                   Oceanfront Protection
                                    Dike
                                   Other               125      $20,138,602
                                            --------------------------------
                                                       144      $40,634,341
                                            ================================
        Total Summary......................          1,828     $870,248,068
    ------------------------------------------------------------------------

     HEARING TO REVIEW U.S. AGRICULTURE POLICY IN ADVANCE OF THE 2012 FARM
                                      BILL

                                  ----------

                             THURSDAY, MAY 13, 2010

                              House of Representatives,
                                      Committee on Agriculture,
                                                       Washington, D.C.
        The Committee met, pursuant to call, at 9:05 a.m., in Room
    1300 of the Longworth House Office Building, Hon. Collin C.
    Peterson [Chairman of the Committee] presiding.
        Members present: Representatives Peterson, Holden,
    McIntyre, Boswell, Baca, Cardoza, Scott, Herseth Sandlin,
    Cuellar, Costa, Kagen, Schrader, Dahlkemper, Markey, Schauer,
    Kissell, Boccieri, Murphy, Owens, Minnick, Lucas, Goodlatte,
    Moran, Neugebauer, Fortenberry, Smith, Luetkemeyer, Thompson,
    Lummis, and Cassidy.
        Staff present: Aleta Botts, Claiborn Crain, Nona Darrell,
    Dean Goeldner, Craig Jagger, Keith Jones, Mary Knigge, John
    Konya, Scott Kuschmider, Robert L. Larew, Clark Ogilvie, James
    Ryder, Lisa Shelton, Anne Simmons, April Slayton, Debbie Smith,
    Faye Smith, Tamara Hinton, Josh Maxwell, Nicole Scott, Pelham
    Straughn, and Pete Thomson.

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

        The Chairman. The hearing of the Committee on Agriculture
    to review U.S. policy in advance of the 2012 Farm Bill will
    come to order, and we welcome everybody to the hearing today.
    Before we get started, I want to recognize the newest Member of
    the House Agriculture Committee, Mr. Bill Owens who is from New
    York. Bill, we are glad to have you with us. He represents the
    23rd District in upstate New York and he has already been busy
    working on agriculture issues including dairy, which is an
    important industry in that part of the world. So, we welcome
    him to the Committee and look forward to working with him on
    the farm bill and other important issues for agriculture
    producers.
        Mr. Owens. Thank you, Mr. Chairman. I appreciate it and I
    have received a lot of welcoming remarks from not only
    colleagues on the Committee, but many of my constituents. This
    is a very happy thing to have happen, and I am going to enjoy
    working on this Committee. Thank you very much.
        The Chairman. Well, thank you and we are glad to have you.
        Over the past months, we have started laying the groundwork
    for the next farm bill, and so far we have had a positive
    experience. After our first hearing with Secretary Vilsack, the
    Committee went on the road holding hearings in Iowa, Idaho,
    California and Wyoming, and tomorrow we will travel to Georgia,
    Alabama, Texas and South Dakota to hear from more farmers,
    ranchers and others who use farm bill programs.
        While some people have expressed concern about the policy
    of changing farm programs, almost everybody agrees that there
    are some things that they would like to change in the current
    farm bill. If we can provide a better safety net within the
    budget that we have, everybody, it seems, would at least like
    to consider alternatives to the programs that we have in place
    right now. That is why we are starting early, to give people
    enough time to look at new ideas and consider different
    options, and see what is working and what isn't, and what might
    work better.
        Today we are hearing from some distinguished academics and
    economists who study agriculture policy and can provide insight
    about the trends and emerging issues facing agriculture in
    rural America. These perspectives will help us craft policies
    that will meet the evolving situations facing producers and
    others who use farm bill programs.
        Just as agriculture production has evolved, I believe that
    our farm programs must also evolve to ensure that the safety
    net provides adequate support for our farmers and ranchers. In
    considering the reality of today's economy, we need to decide
    if the existing farm programs are adequate, and we need to be
    sure that we are making the best possible use of the resources
    that we have. When writing a bill as large and comprehensive as
    the farm bill, it is important that we hear as many
    perspectives as possible. That is why I am committed, again, to
    a process that is open, transparent and bipartisan. We are
    collecting feedback on the website, www.agriculture.house.gov,
    so I ask everybody to be involved.
        And again I want to thank the panelists for being us today.
    I look forward to the dialogue.
        [The prepared statement of Mr. Peterson follows:]

      Prepared Statement of Hon. Collin C. Peterson, a Representative in
                            Congress from Minnesota
        Good morning and welcome to today's hearing of the House
    Agriculture Committee.
        Before we get started, I want to recognize the newest Member of the
    House Agriculture Committee, Bill Owens of New York. Bill represents
    the 23rd district in upstate New York, and he has already been busy
    working on agriculture issues, including dairy, which is an important
    industry in that part of the world. We welcome him to the Committee and
    look forward to working with him on the farm bill and other important
    issues for agriculture producers.
        Over the past month, we have really started laying the groundwork
    for the next farm bill, and so far, I am generally happy with what we
    have heard. After our first hearing with Secretary Vilsack, the
    Committee went on the road, holding field hearings in Iowa, Idaho,
    California and Wyoming. Later this week, we will travel to Georgia,
    Alabama, Texas and South Dakota to hear from more farmers, ranchers and
    others who use farm bill programs.
        While some people have expressed concern about the possibility of
    changing farm programs, almost everyone agrees that there are some
    things that they would like to change in the current farm bill. If we
    can provide a better safety net within the budget we have, everyone
    seems willing to at least consider alternatives to the programs we have
    in place right now. That is why we are starting early--to give people
    enough time to look at new ideas and consider different options that
    could work better.
        Today, we are going to hear from some distinguished academics and
    economists who study agriculture policy and can provide insight about
    the trends and emerging issues facing agriculture and rural America.
    These perspectives will help us craft policies that will meet the
    evolving situation facing producers and others who use farm bill
    programs.
        Just as agriculture production has evolved, I believe that our farm
    programs must also evolve, to ensure that the safety net provides
    adequate support for our farmers and ranchers. Considering the reality
    of today's economy, we need to decide if the existing farm programs are
    adequate, and we need to be sure that we are making the best possible
    use of the resources we have.
        When writing a bill as large and comprehensive as the farm bill, it
    is important to hear as many perspectives as possible. That is why I am
    committed to a process that is open, transparent, and bipartisan. We
    are collecting feedback on the Agriculture Committee website from those
    who are not able to testify at one of our hearings, and I hope that
    everyone with an interest in the outcome of this farm bill will take
    the time to share their thoughts with us online.
        Again, I want to thank the panelists for joining us today, and I
    look forward to the dialogue we're going to have.

        The Chairman. I recognize Mr. Lucas, the Ranking Member
    from Oklahoma.

     OPENING STATEMENT OF HON. FRANK D. LUCAS, A REPRESENTATIVE IN
                         CONGRESS FROM OKLAHOMA

        Mr. Lucas. Thank you, Mr. Chairman, and I appreciate your
    continued dedication to the farm bill process. You, many
    Members of this Committee, and I, set out 2 weekends ago and
    traveled across the nation to hear from actual producers about
    the current farm bill, and how they would like to see their
    future farm bills formed. I appreciate your diligence on
    hearing from so many parts of the agricultural community. I
    welcome the witnesses today and await their perspective on how
    we can better form farm policy for the 2012 Farm Bill, and look
    forward to hearing their testimony.
        I am especially interested in hearing about the credit
    situation that our producers are operating under. I worry that
    the continued excessive spending here in Washington will turn
    interest rates up, and make the prospect of farming more
    expensive for producers. I also want to hear the witnesses
    perspective on current programs, especially some of the newer
    programs such as ACRE and SURE. After hearing from many
    witnesses in Iowa, Idaho, California and Wyoming, I have some
    concerns about the current ACRE Program, especially since such
    a large percentage of our producers signed up for the program.
    I want to hear if, under the current budget climate, we have
    the ability to change this program for the good of our
    producers, or if the program just needs to be scrapped. Again,
    I thank the witnesses for the testimony and look forward to
    hearing and observing and listening to what they have to say.
        [The prepared statement of Mr. Lucas follows:]

    Prepared Statement of Hon. Frank D. Lucas, a Representative in Congress
                                 from Oklahoma
        Mr. Chairman, I appreciate your continued dedication to this farm
    bill process. You, many Members of this Committee, and I, set out 2
    weekends ago and traveled across the nation to hear from actual
    producers about the current farm bill and how they would like to see
    future farm bills developed. I appreciate your diligence on hearing
    from so many parts of the agriculture community.
        I welcome the witnesses today and await their perspective on how we
    can better develop farm policy for the 2012 Farm Bill and look forward
    to hearing their testimony.
        I am especially interested in hearing about the credit situation
    that our producers are operating under. I worry that the continued
    excess spending here in Washington will raise interest rates and make
    the prospect of farming more expensive for our producers.
        I also want to hear the perspective of our witnesses on current
    programs, especially some of the newer ones like ACRE and SURE. After
    hearing from many witnesses in Iowa, Idaho, California and Wyoming, I
    have some concerns about the current ACRE program, especially since
    such a large percentage of my producers signed up for the program. I
    want to hear if, under the current budget climate, we have the ability
    to change this program for the good of our producers, or if the program
    just needs to be scrapped altogether.
        Again, I thank the witnesses for their participation and I look
    forward to hearing their testimony

        The Chairman. I thank the gentleman and other Members can
    make their statements part of the record if they have them.
        I would like to have the witnesses come up to the table.
    Dr. Bruce Babcock from Iowa State University, Professor Neil
    Hamilton from Drake University in Des Moines, Iowa, Dr. Jean
    Kinsey from the University of Minnesota, and Dr. Rob Paarlberg
    from Wellesley College in Massachusetts, so welcome to the
    Committee. Your full statements will be made part of the record
    and we will recognize Dr. Babcock. Welcome to the Committee and
    we look forward to what you have to say.

            STATEMENT OF BRUCE A. BABCOCK, Ph.D., DIRECTOR,
       CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT; PROFESSOR,
        DEPARTMENT OF ECONOMICS, IOWA STATE UNIVERSITY, AMES, IA

        Dr. Babcock. Thank you, Mr. Chairman, for the opportunity
    to participate in today's hearing. I want to discuss what can
    be done to the next farm bill to improve the cost-effectiveness
    of delivering financial support to farmers.
        Taxpayer costs of farm support for crops over the last 2
    years are about $13 billion for crop insurance, $10 billion for
    our direct payment, and $2.6 billion for marketing loan
    payments. It is not yet determined what ACRE and SURE will cost
    this year. Of the $13 billion in support for crop insurance,
    more than $7 billion went to the companies. Farmers received $6
    billion in net indemnities. Crop insurance failed the cost-
    effectiveness test because it simply makes no sense for
    taxpayers to spend $13 billion to deliver $6 billion in net
    payments to farmers.
        In contrast to crop insurance, direct payments incur
    minimal delivery costs, but they are increasingly difficult to
    defend. They provide green box payments not subject to WTO
    limits and were originally supposed to transition farmers to
    lower support levels, but we are no longer in danger of
    exceeding WTO support limits. Any transition period is long
    past and farm profitability has been high since 2003.
        There has been a widespread distaste for government
    bailouts of big banks, GM, Chrysler and AIG, but there are
    arguments that can be made to justify those interventions: they
    forestall a more severe economic downturn. In contrast, farmers
    receive $5 billion a year for nothing more than owning or
    renting farm land that happens to have base acres.
        Cotton programs must change in the next farm bill if the
    U.S. is to come into compliance with the WTO ruling that
    Brazilian cotton farmers were harmed by U.S. cotton payments.
    Perhaps the cotton producers should follow the example of milk
    producers who seem poised to propose replacing their
    longstanding price support program with a new margin insurance
    program.
        ACRE and SURE were created in response to dissatisfaction
    with crop insurance, but ACRE has two problems. First, ACRE
    duplicates coverage that is available for crop insurance. Why
    should taxpayers be asked to fund both programs? Second,
    farmers have little faith that state-level yield coverage
    provides adequate farm level protection.
        SURE is a complicated program to ensure that farmers are
    not overpaid for crop losses. It is ironic to see such an
    effort expended to make sure that a farmer suffers a whole farm
    loss before a SURE payment is received when direct payments
    will flow to the same farmer even in the most profitable years.
        ACRE and SURE demonstrate that crop insurance-type programs
    can be administered by FSA, albeit with help from RMA. FSA does
    not pay agent commissions and there is no risk burden taken on
    by private companies, so the delivery cost of FSA can be much
    lower than RMA, but not all programs can be effectively
    delivered through FSA. The private sector is more efficient at
    adjusting on-farm losses, calculating premiums and being
    consumer-friendly. Just as the government is ill-suited to run
    a car insurance program, it is also ill-suited to provide
    individually tailored crop insurance. A recalibration of farm
    programs is needed that gives FSA easy-to-administer programs
    that allows the private sector to provide services that the
    government should not.
        An example of such a new calibration would be to move ACRE
    to the county level, and to eliminate the farm level loss
    trigger. This program would provide a large degree of
    protection against farm level income declines, and it would not
    try to duplicate the kind of services that the private sector
    is better at providing.
        To get an idea of what a county ACRE program would cost, I
    calculated that all planted acres for corn, soybeans, wheat,
    cotton, rice, barley and sorghum at the 95 percent coverage
    level would cost about as much as the direct payment program
    does, and if you move to a 90 percent coverage level for these
    crops, it would cost about $3.8 billion. That is per year.
    Savings from the crop insurance program could cover this latter
    figure because many farmers would find that their farm level
    risk would be adequately covered by a county ACRE program.
    Other farmers would find they need supplemental insurance such
    as crop hail insurance or supplemental multi-peril insurance.
    Both of these type of customized insurance are exactly the type
    of insurance that should be provided by the private sector
    without government involved.
        A county ACRE program would also eliminate the need for
    SURE because the ACRE deductible would be so much lower than
    the traditional crop insurance deductible. Farmers who want
    supplemental insurance could look to crop insurance companies
    to provide it. Though such a change in Federal farm policy
    would be a commonsense approach to providing predictable cost
    effective financial support when farmers need it, large and/or
    wealthy farmers may try to block such a move because crop
    insurance premium subsidies and payments are not subject to
    payment or AGI limits, where FSA-administered programs to date
    are.
        To summarize, adoption of ACRE and SURE in the 2008 Farm
    Bill shows that Congress recognizes that the crop insurance
    program is not cost-effective. The next farm bill represents an
    opportunity to push harder for reform so that the private
    sector provides the individualized insurance and the public
    sector backs up major losses directly. Such a move could be
    accomplished by moving ACRE to the county level and reducing or
    eliminating the Federal control or involvement of the private
    crop insurance companies.
        [The prepared statement of Dr. Babcock follows:]

      Prepared Statement of Bruce A. Babcock, Ph.D., Director, Center for
          Agricultural and Rural Development; Professor, Department of
                   Economics, Iowa State University, Ames, IA
        Thank you, Mr. Chairman, for the opportunity to participate in
    today's hearing.
        I want to focus my testimony today on the commodity title of the
    farm bill. Much has been written about the pros and cons of government
    support for agriculture, and whether agriculture and society are helped
    or hurt by this support. I think that this discussion is intellectually
    useful and interesting, but Congress has shown that this discussion is
    largely irrelevant. Support for agriculture is not going away. So what
    needs to be done in the next farm bill is to design support mechanisms
    that accomplish what they are designed to accomplish, do so in a cost
    effective way, and do so without unintended consequences on the
    agricultural sector, the environment, or on our trading partners.
    Overview of Existing Programs
        The cost of support mechanisms over the first 2 years of the
    current farm bill include crop insurance at $13 billion, direct
    payments at $5 billion, and cotton countercyclical and marketing loan
    payments at $2.6 billion. ACRE and SURE are the other two programs that
    could generate substantial costs in the future. A closer look at each
    of these programs shows that there is a lot of room for improvement in
    the design of support mechanisms.
        The crop insurance program has cost taxpayers $37 billion since
    2000. Of the $13 billion in support over the last 2 years, more than $7
    billion flowed to companies. Farmers received indemnity payments (net
    of premium) totaling $4.5 billion in 2008 and $1.5 billion in 2009. A
    large proportion of the 2008 net payments came about because the price
    guarantees were so high that even the modest price drops that we saw in
    2008 generated lots of indemnity payments. Nobody should begrudge
    farmers these indemnity payments because they were made as a result of
    an insurance contract, but should the government really be in the
    business of running a program that makes payments to farmers even when
    farm income is at an all-time record high? If the price drop in 2008
    had not occurred, then the crop insurance industry would have been paid
    an additional $2 billion in 2008 to run the program. It just does not
    make sense to see such a large portion of farm program costs flowing to
    a middleman.
        The crop insurance program also causes environmental problems. The
    ability of farmers to transfer yield histories on productive ground to
    high-risk grassland that is prone to crop loss can dramatically
    increase the profitability of planting on susceptible ground. Studies
    by USDA and GAO document how subsidizing risk on susceptible land leads
    to loss of native grassland.
        In contrast to crop insurance payments, which incur delivery costs
    of a dollar for each dollar delivered to farmers, direct payments incur
    minimal delivery costs because they are deposited directly from the
    Treasury into farmers' bank accounts. But direct payments fail the
    accomplishment test.
        The two original justifications for direct payments were that they
    provided ``Green Box'' income support payments not subject to World
    Trade Organization limits on trade-distorting support, and that they
    there were transition payments that allowed farmers time to transition
    to lower support levels. But we are no longer in danger of exceeding
    WTO limits on trade-distorting support, and we are long past any
    transition period. Furthermore, farm profits have been high since 2003.
        Direct payments no longer have a public justification, particularly
    in these times of exploding Federal debt. The public and Members of
    Congress have shown widespread distaste for the bailouts of big banks,
    GM, Chrysler, and AIG. But at least these interventions were justified
    in that the economy was threatened with a far more severe downturn if
    these companies were allowed to fail. Farmers receive $5 billion a year
    for nothing more than owning or renting farmland that happens to have
    base acres. Despite mighty efforts by some of the world's best
    agricultural economists to find some market impact of direct payments,
    the evidence suggests that they represent ``money for nothing.'' They
    arrive like clockwork even when high crop prices and high yields
    combine to generate record income levels, leaving nothing in their
    wake. Surely we can accomplish more with $5 billion then simply
    depositing it in the bank accounts of landowners and renters with base
    acres.
        The third program that has generated large payments since 2008 is
    the cotton program. Regardless of what one thinks about marketing loan
    and countercyclical payments for cotton farmers, these two programs
    must change in the next farm bill if the U.S. is to come into
    compliance with the WTO ruling that Brazilian cotton farmers were
    harmed by U.S. cotton payments. We do not know what will replace the
    current program, or if cotton producers will devise a replacement
    program in case Brazil's plans for retaliation finally induce USDA and
    Congress to put the cotton program into compliance. I do know of one
    farm organization that has invested significant resources in designing
    new programs for the new farm bill. The milk producers seem poised to
    propose replacing their long-standing price support program with a new
    margin insurance program that would protect producers against large
    increases in feed costs or large decreases in milk prices. It remains
    to be seen if cotton producers will follow suit.
        Two new programs, ACRE and SURE, were passed in the 2008 Farm Bill.
    ACRE is a state revenue insurance program that generates payments if
    state revenue falls below revenue trigger levels. There are two
    problems with ACRE. The first is that ACRE duplicates coverage that is
    available from the crop insurance program. The major source of crop
    loss at the farm level is excess heat and/or lack of moisture. Because
    growing conditions may not vary substantially across a state, it is
    often the case that state yields are low when farm-level yields are
    low. Thus ACRE payments triggered by low state yields can duplicate
    crop insurance payments. In recent years however, the major source of
    crop insurance payments has not been crop loss but rather price
    declines. And when prices drop, ACRE is likely to trigger payments. In
    either case, farmers are provided duplicate coverage through crop
    insurance and ACRE. Why should taxpayers be asked to fund both
    programs? The second problem with ACRE is that farmers have little
    faith that state-level coverage against yield declines provides them
    with adequate coverage against farm-level yield losses. I will return
    to this topic later.
        The purpose of SURE is to provide supplemental whole-farm coverage
    to provide payments when crop insurance deductibles are not exceeded.
    The problem with SURE is that it is so complicated that almost nobody
    knows when a payment will be triggered. To calculate SURE guarantees
    and payments requires knowledge of what crop insurance a farmer buys, a
    farmer's crop insurance yield, a farmer's countercyclical base yield,
    direct payment levels, crop insurance indemnity payments,
    countercyclical payments, marketing loan payments, and ACRE payments.
    The complexity of the program is caused by the need to make sure that
    farmers are not overpaid for crop losses. It is ironic that such an
    effort is expended to ensure that a farmer suffers a whole-farm loss
    before a SURE payment is received when direct payments will flow to the
    same farmer even in the most profitable years.
        To summarize, our current set of programs consists of crop
    insurance, which costs too much; direct payments, which are no longer
    justified; cotton payments, which need to be brought into compliance;
    ACRE, which duplicates crop insurance but provides inadequate coverage
    against farm yield losses; and SURE, which tries to make up for crop
    insurance deficiencies. This broad look at current programs leads to
    two conclusions. First, providing financial help to farmers when there
    is financial difficulty would seem to be a necessary condition for the
    design of an efficient program. Second, there simply is no reason why
    billions of tax dollars should be spent delivering financial help to
    farmers if much less expensive alternatives are available. Before
    examining one such alternative, the question of whether the public
    sector has the capability of delivering efficient financial help needs
    to be addressed.
    FSA or RMA?
        The two new programs passed in 2008, ACRE and SURE, demonstrated
    that crop insurance-type programs do not have to be administered by the
    Risk Management Agency (RMA). The Farm Service Agency (FSA) administers
    both programs. RMA has assisted FSA with verification of farm yields,
    but FSA has implemented both programs. Delivering programs through FSA
    can cost much less than through RMA because FSA does not pay agent
    commissions and private companies do not have to be paid to take on a
    portion of the underlying risk.
        However, not all programs can be effectively delivered through FSA.
    The private sector does a much better job adjusting on-farm losses,
    calculating premiums for the wide array of available programs, and
    being consumer-friendly in handling applications and paperwork. That
    is, just as the government is ill-suited to run an automobile insurance
    program, it is ill-suited to provide individually tailored crop
    insurance.
        But it does not take the efficiency of the private sector to
    administer a simple program. And a large portion of the risk in
    agriculture can be covered by a simple program. When the price of a
    commodity falls, it is easy to measure the price drop if the commodity
    price is tracked by NASS (USDA's National Agricultural Statistics
    Service). When a widespread crop loss occurs, an easy measure of the
    crop loss is given by the county average yield, if it is measured by
    NASS. Thus for NASS-covered crops, a large proportion of farm-level
    risk can be measured and insured by a program that integrates current
    acreage reporting requirements of FSA with NASS measures of price and
    yield.
        It is common sense to look to the private sector to provide most
    goods and services. But it makes no sense for taxpayers to pay a large
    fee to the private sector to provide a service that the public sector
    can provide at a fraction of the cost. And, as I will discuss next, it
    is straightforward to design a program that covers a large proportion
    of farm-level risk that can be easily administered by FSA, that is
    readily affordable, and that allows the private sector to provide the
    kind of insurance coverage that only the private sector can provide.
    County ACRE Program
        ACRE was developed in the 2008 Farm Bill at the behest of those who
    believe that farm program payments should be targeted at revenue rather
    than price. After all, it is revenue that pays production costs, not
    price or yield. But the usefulness and acceptance by farmers of ACRE
    has been limited because of program design problems caused by budget
    and political considerations. Budget considerations resulted in ACRE
    covering only 83.3 percent of planted acres rather than 100 percent.
    This makes it less suitable as a substitute for crop insurance. In
    addition, farmers who choose ACRE give up 20 percent of direct
    payments, making the participation decision more difficult. Political
    considerations primarily involved justified concerns by the crop
    insurance industry that a strong ACRE program would reduce their
    compensation from taxpayers. Thus there was no integration of ACRE with
    crop insurance, and ACRE insured state revenue rather than county
    revenue. In addition, the requirement that a farmer must demonstrate a
    farm-level loss before receiving an ACRE payment made the program much
    more difficult to administer.
        It would be much simpler and more useful to change the ACRE program
    to a county-level program, increase the coverage to 100 percent of
    planted acres, and do away with any program feature that requires farm-
    level yield reporting. In addition, instead of using the full season-
    average price in ACRE, use of the average price over the first 5 months
    of the marketing year would allow payments to be made as soon as NASS
    releases county yields, which usually occurs in late winter and early
    spring. The many advantages to these changes include that it could be
    easily administered by FSA, it would provide a large degree of
    protection against farm-level revenue declines, and it would avoid
    providing the kind of services that the private sector is better suited
    to deliver.
        To get an idea of what a county ACRE program would cost, I
    calculated what such a program would have paid out had the program been
    in place from 1980 to 2008. Because the ACRE yield is based on yields
    in the previous 5 years, and the ACRE price is based on prices in the
    previous 2 years, yields from 1975 to 1979 were used to calculate 1980
    ACRE yields, and 1978 and 1979 prices were used to calculate 1980 ACRE
    prices. The full NASS season-average price was used as is currently
    done with ACRE because of the difficulty in compiling monthly prices in
    the historical period. To account for how yields and prices have varied
    over time, historical payments were expressed as a percentage of the
    ACRE guarantee in each year. The average percent payment across all
    years from 1980 to 2008 payment was then calculated for each crop and
    county. Figures A1 to A7 (see the appendix) map the results for each
    county and crop when the ACRE guarantee was set at 90 percent of the
    product of the ACRE price and the county ACRE yield. As shown, for corn
    and soybeans, most of the lowest-risk counties reside in the Corn Belt
    as one would expect.
        To estimate average per-acre payments, average percent losses by
    county were multiplied by what 2009 per-acre guarantees would have been
    for three different coverage levels to estimate what the program would
    be expected to cost had it been available in 2009. The results are
    shown in Table 1 by crop. At the 90 percent coverage level, projected
    payments range from around $10 per acre for barley to $36 per acre for
    rice. These average payments reflect both the average percent losses
    shown in the appendix maps as well as the average per-acre value of the
    crop.

          Table 1. Average Annual Per-Acre County ACRE Payments by Crop
    ------------------------------------------------------------------------
                                         ACRE Coverage Level
                       -----------------------------------------------------
                               90%               85%               95%
    ------------------------------------------------------------------------
                                           $/planted acre
                       -----------------------------------------------------
              Corn               22.61             16.05             31.10
          Soybeans               15.87             10.82             22.48
             Wheat               13.63              9.70             18.51
            Cotton               23.55             17.17             31.40
              Rice               36.01             24.30             50.48
            Barley               10.13              6.82             14.49
     Grain Sorghum               12.18              8.66             16.59
    ------------------------------------------------------------------------

        Table 2 multiplies the Table 1 per-acre projected payments by 2008
    planted acres for each crop and county to project total cost for each
    crop and for the entire program. As shown, the projected total cost of
    a 90 percent program for these crops is $3.78 billion. Increasing the
    coverage level to 95 percent would increase projected annual costs to
    $5.4 billion. Decreasing the coverage level to 85 percent would lower
    costs to about $2.5 billion.

     Table 2. Average Annual County ACRE Payments Per Year by Crop and Total
    ------------------------------------------------------------------------
                                         ACRE Coverage Level
                       -----------------------------------------------------
                               90%               85%               95%
    ------------------------------------------------------------------------
                                              $ million
                       -----------------------------------------------------
              Corn               1,620             1,065             2,374
          Soybeans               1,079               709             1,573
             Wheat                 658               475               884
            Cotton                 201               149               265
              Rice                 110                74               154
            Barley                  40                28                55
     Grain Sorghum                  72                52                97
                       -----------------------------------------------------
      Total...........           3,780             2,552             5,401
    ------------------------------------------------------------------------

        To put these costs into perspective, the annual cost of the direct
    payments program is $5.2 billion. This implies that direct payments
    could just about pay for a county ACRE program that covered 95 percent
    of the product of the county ACRE yield and the ACRE price.
    Alternatively, cost savings from the crop insurance program would pay
    for a substantial portion of the costs of a county ACRE program.
        This program would have no farm-level loss trigger and no payment
    limits, both of which would reduce costs. Many farmers would find that
    their farm-level risks would be covered adequately by a county ACRE
    program, so they would drop out of the crop insurance program. Other
    farmers would find that they need supplemental insurance, such as crop
    hail insurance, or supplemental multi-peril insurance. Both of these
    types of customized insurance are exactly the type of insurance that
    should be provided by the private sector without government
    involvement. The amount of cost savings from the crop insurance program
    would depend on whether the crop insurance companies could be set free
    from Federal control or whether there would still be a need for Federal
    involvement. At a minimum, it would make sense for existing crop
    insurance policies to be modified to account for county ACRE payments.
    Such a move could easily result in costs savings in excess of $4
    billion per year.
    Payment Limits
        A redesign of Federal commodity supports away from direct payments
    and crop insurance and toward an easy-to-administer program based on
    county revenue would make more efficient use of Federal tax dollars.
    But such a move would require some decisions about payment limits.
    Currently, crop insurance subsidies and payments are not subject to
    payment limits or limits on adjusted gross income (AGI) whereas FSA-
    administered programs are subject to both.. Thus, moving a significant
    portion of agricultural risk that is currently borne by the Federal
    Government from RMA-administered programs to an FSA-administered
    program with no change in payment limits would not be favored by large
    farms.
        One alternative is to simply do away with payment limits and
    recognize that a large share of the nation's food supply is being
    produced by a decreasing number of large, efficient producers, so if
    Congress's goal is to support agriculture, then it makes sense to
    support those individuals who are making the investments and bearing
    the risk of supplying our food.
        Another alternative is to keep payment and AGI limits in place and
    apply them consistently across all Federal farm programs, including
    crop insurance. After all, the crop insurance industry would not exist
    without Federal support, and the magnitude of taxpayer subsidies
    flowing through the crop insurance program to large farmers is often
    much greater than in other programs. Why does it make sense to apply
    payment limits to direct payments and ACRE payments when there are no
    limits to subsidies from crop insurance?
    Concluding Remarks
        Calls for reform of farm commodity programs have a history as long
    as farm programs themselves. Today's combination of growing and
    unsustainable Federal debt and widespread dissatisfaction with Federal
    control of private business increases the importance of making sure
    that Federal farm programs represent efficient use of taxpayer dollars
    to support agriculture. Current programs fail the efficiency test. The
    crop insurance program supports the crop insurance industry as much as
    or more than it supports production agriculture. And it is difficult to
    figure out why tax dollars should flow to farmers during highly
    profitable years through the direct payment program.
        The new programs passed in the 2008 Farm Bill, ACRE, and SURE, show
    that Congress recognizes the need for a new approach. Adoption of both
    programs revealed dissatisfaction with crop insurance despite the
    billions in tax dollars being spent on the program. The next farm bill
    represents an opportunity to push reform further and more completely.
    If the ACRE program were moved to the county level, then there would be
    less need for SURE and less need for Federal subsidies for crop
    insurance because a greater share of agricultural risk would be borne
    direct by taxpayers rather than indirectly through existing risk-
    sharing agreements. Such a move could be completely funded by savings
    from the crop insurance program or by reductions in direct payments.
    Either way, taxpayers and farmers would be better served.
                                    Appendix
    Average County ACRE Payments Expressed as a Percentage of the Guarantee
    Figure A1. Projected Corn Payments for a 90 Percent County ACRE
            Guarantee

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure A2. Projected Soybean Payments for a 90 Percent County ACRE
            Guarantee

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure A3. Projected Wheat Payments for a 90 Percent County ACRE
            Guarantee

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure A4. Projected Cotton Payments for a 90 Percent County ACRE
            Guarantee

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure A5. Projected Barley Payments for a 90 Percent County ACRE
            Guarantee

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure A6. Projected Grain Sorghum Payments for a 90 Percents County
            ACRE Guarantee

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure A7. Projected Rice Payments for a 90 Percent County ACRE
            Guarantee

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you very much, Dr. Babcock. We
    appreciate your testimony.
        Professor Hamilton, welcome to the Committee.

        STATEMENT OF NEIL D. HAMILTON, J.D., DWIGHT D. OPPERMAN
                   DISTINGUISHED PROFESSOR OF LAW AND
                DIRECTOR, AGRICULTURAL LAW CENTER, DRAKE
                   UNIVERSITY LAW SCHOOL, WAUKEE, IA

        Mr. Hamilton. Thank you, Mr. Chairman. Thank you, Members
    of the Committee, and let me begin by acknowledging my friend
    and colleague and fellow Iowan, Congressman Boswell. This is a
    special opportunity and honor for an Iowa farm boy to speak
    before you; 35 years ago this summer, I was a Congressional
    college intern for a young first-term Congressman from Iowa,
    Tom Harkin.
        I spent my professional career working on agricultural law
    issues, and I want to begin by commending the Committee on your
    work in creating the 2008 Farm Bill. This is, especially, for a
    number of the programs dealing with issues of new and beginning
    farmers, organic production, export promotion, rural
    development and renewable energy and the working lands approach
    of the Conservation Stewardship Program. In that regard, my
    first recommendation is that while you have to turn your
    attention to the 2012 Farm Bill, there is still a great deal of
    work that needs to be done in terms of implementing the good
    things that you enacted in 2008, such as the Individual
    Development Account Pilot Program for beginning farmers.
        That brings me to my second topic, which is that there is
    no more important challenge facing the future of America's food
    and agricultural system than helping identify who the next
    generation of farmers will be. That is why Drake University,
    Farm Credit, USDA, Risk Management and dozens of other partners
    sponsored a 2 day forum here in D.C., in March, on the whole
    issue of policy innovations and opportunities that are
    important to farmers.
        I think the good news is that there is a great deal of
    interest in that issue. There are some exciting things going on
    in the states. I think the even better news is there is a real
    surge in interest among young people, farms kids and others
    alike to become involved in agriculture. But, our challenge is
    that we really haven't developed a comprehensive or national
    commitment to helping the next generation of farmers, and time
    is of the essence. You know what is happening in terms of the
    age of farm population and the concentration of land. The 2008
    Farm Bill began a number of important steps and there are
    additional things that we can do to help create opportunities
    in rural America.
        In that regard, I would like to speak for a moment about
    the whole issue of expanding local and regional marketing. This
    is a subject I have been involved with for many years. A number
    of years ago I wrote this book, The Legal Guide for Direct Farm
    Marketing, for the USDA, and my wife and I have been farmers
    market vendors and today deal directly with restaurants. This
    is a growing and important part of our agricultural system.
    Just last week, the Iowa Department of Agricultural Land
    Stewardship issued a study concerning the $60 million worth of
    activity that Iowa's farmers markets create alone.
        You know, in recent months a number of people have
    criticized local markets as being detached from the realities
    of production agriculture, and have that they are aimed at
    hobbyists and organic growers whose customers are affluent
    local growers. I think that Congressman Boswell will agree with
    me that few of the 30,000+ central Iowans who went to opening
    day of the Des Moines Farmers Market on May 1, either would
    recognize or deserve the label affluent local growers. These
    were people who were looking for fresh food. They were looking
    for an opportunity to see their friends and an opportunity to
    spend some money with farmers and reconnect after the long
    winter. In that regard, the same is true whether you go to a
    farmers market in Wilmer or Enid or Garden City that, if you
    only look at the market, you are only looking at one part of
    the equation. I encourage you to follow the pickups and the
    vans back to Lacona and Mingo, and see the money being counted
    on the kitchen table. Think about the markets as a real way of
    taking urban money back out into rural America onto farms and
    small towns where it is reinvested. That is why I encourage the
    Committee to continue supporting expansion of local and
    regional markets.
        You know, in that regard, there are a number of programs
    and things that you have done in the farm bill that may be
    relatively minor programs and with small budgets, but it is
    important that you realize how important these are to a large
    number of people in rural America. Programs like the Farmers
    Market Promotion Program that received over 500 applications
    for the last grant round and other programs like the Farmers
    Market Nutrition Coupons.
        You know, there is more to say but my time is running out,
    and I guess I would end by saying that I encourage you to
    recognize that all farmers, regardless of their size, and all
    consumers, regardless of their needs, are constituents of the
    Committee. You know, the words of Saint Paul that are etched
    above the door at the USDA says, ``The husbandman that laboreth
    must be the first partaker of the fruits,'' and rural and local
    markets help make that possible for your constituents. I would
    encourage you to take a broad and a big tent approach as we
    think about who it is that is served by the 2012 Farm Bill.
    Thank you very much.
        [The prepared statement of Mr. Hamilton follows:]

       Prepared Statement of Neil D., Hamilton, J.D., Dwight D. Opperman
     Distinguished Professor of Law and Director, Agricultural Law Center,
                    Drake University Law School, Waukee, IA
        Mr. Chairman, thank you for the invitation to testify this morning,
    I appreciate having the opportunity to share thoughts on some aspects
    of the next farm bill. Let me began by acknowledging my fellow Iowans,
    Congressmen Boswell and King. Mr. Chairman this opportunity is very
    special as I have been involved with agriculture since the moment I was
    conceived on a 200 acre farm in Mercer Township, Adams County, Iowa,
    land that has been in my family since the 1870's. Thirty-five years ago
    this summer I was a college intern for a young first-term Congressman
    from southwest Iowa on this Committee, Tom Harkin. My professional
    career of over thirty years has been spent as a lawyer and law
    professor focusing on legal issues affecting farmers, agriculture,
    food, land and rural development. I have taught classes on many aspects
    of agriculture and food law, written numerous books and articles for
    farmers, and lawyers and lectured widely on a variety of topics, in
    particular those relating to sustainable agriculture, direct marketing,
    and policies to create opportunities in our food and farming system. In
    recent years many of my talks are about the 2008 Farm Bill and
    important programs it created.
        I want to begin by commending the Committee on your work creating
    the 2008 Farm Bill, especially your attention to issues like support
    for new and beginning farmers, organic production, innovative
    marketing, export promotion, rural development and renewable energy,
    local and regional food systems, and the working lands approach of the
    Conservation Stewardship Program. In that regard my first
    recommendation is while your attention must turn to the next farm bill,
    there is much work yet to do implementing programs authorized by the
    2008 bill, such as encouraging appropriators to fund the Individual
    Development Account pilot program, urging USDA to implement the land
    contract guarantee loans to encourage sales to beginning farmers, and
    promoting the Conservation Reserve Program Transition Option, to be
    announced by USDA this week.
        Mr. Chairman, like you I have worked on many farm bills over the
    last 30 years and one challenge is making sure the promising ideas,
    often new programs used to attract support, are in fact implemented.
    New developments and budget concerns have sometimes prevented us from
    realizing the promise and hard work that goes into writing a farm bill.
    Some of you have been here long enough to remember the unrealized goals
    of the 1996 Farm Bill's Fund for Rural America. We need stability and
    predictability for agriculture and rural policy so we can plan for the
    future and develop capacity and understanding.
        This brings us to our second topic--new and beginning farmers. To
    my mind there is no more important challenge facing our nation's food
    and farming sector than who will be the next generation of America's
    farmers. This is why the Agricultural Law Center teamed with USDA Risk
    Management, Farm Credit and dozens of other partners to hold a 2 day
    Forum on America's New Farmers: Policy Innovations and Opportunities,
    here in Washington, D.C. in March. The good news is there is wide
    interest in the topic and recognition of its importance. Over 200
    people from 40 states attended and shared promising examples of actions
    being taken at the local and state level to support new farmers. We
    discussed the challenges of financing new farmers and of working with
    landowners to make land available for new operations. More good news is
    there is a strong and growing interest by many young people--farm kids
    and others alike--to be involved in food production. Our nation and
    rural communities need the energy of new families to help steward the
    land, produce our food, and build the rural economy. But we have yet to
    develop a comprehensive approach or national commitment to helping the
    next generation of farmers--and time is of the essence. The aging farm
    population; concentration of land with older owners; transfers to off-
    farm, often out of state heirs; and increasing farm tenancy all create
    significant challenges to the sustainability of agriculture, the health
    of rural communities, and even the design of farm programs.
        The 2008 Farm Bill took several important steps: funding the
    Beginning Farmer and Rancher Development Grants, targeting FSA loans,
    and directing USDA's Office of Advocacy and Outreach to coordinate
    beginning farmer efforts. There are other opportunities, such as
    building on the land matching programs in many states like California
    Farm Link, and the growth in new farmer training and incubator efforts,
    such as the Land Stewardship Project Farm Beginnings work in Minnesota
    and Illinois. I believe there is even an opportunity to create a
    national New Farmer Corps to create public service opportunities in the
    food and agriculture sector. Next week a group will meet in Detroit to
    craft a Food Corps pilot within AmeriCorps, designed to help people
    work with school gardens, educating kids about nutrition, food and
    farming. These efforts build on the farm-to-school marketing program
    authored by the Committee.
        Third, I want to talk with you about expanding local and regional
    markets and the role sound policy can play in creating opportunities
    for farmers, improving food access, and strengthening local economies.
    My wife Khanh and I have been involved with local marketing for years,
    selling at farmers markets and now directly to restaurants. Ten years
    ago I wrote The Legal Guide to Direct Farm Marketing for USDA's
    Sustainable Agriculture Research and Education program, to help educate
    a growing segment of U.S. agriculture. Last week the Iowa Department of
    Agriculture and Land Stewardship released a survey showing in 2009
    Iowa's 223 farmers markets contributed close to $60 million in direct
    sales and an additional $12 million in personal income to Iowa's
    economy. Secretary of Agriculture Bill Northey said, ``Farmers markets
    are a great opportunity to access fresh, nutritious, locally grown
    foods,'' noting the markets let consumers get to know and interact with
    farmers who produce their food.
        In recent months some have criticized local markets as ``completely
    detached from the realities of production agriculture'' and ``aimed at
    small, hobbyist and organic producers whose customers'' are affluent
    urban locavores. I believe these characterizations of the markets,
    farmers and shoppers are inaccurate and unhelpful. I think Congressman
    Boswell will agree few of the 30,000 central Iowans who attended
    opening day at the Des Moines farmers market May 1st would either
    recognize or deserve the label ``affluent locavore.'' They are hard
    working Iowans looking for fresh local food, an opportunity to
    socialize with friends after a long winter, and the chance to spend
    some money and reconnect with the 200 farmers and vendors who make up
    the market. No one went because Iowa's grocery stores were out of food
    or because our food supply is unsafe. They and the millions of
    Americans who buy local, have many motivations for spending money with
    local farmers. They aren't necessarily looking for cheaper food--they
    are looking for better food, whatever that means to them.
        The same is true if we go to the farmers markets in Wilmar, Enid,
    or Garden City. If you look at a farmers market and see only the
    shoppers you are looking at just one end of the equation. I encourage
    you to follow the pickups and vans back home to Mingo and Lacona--and
    hundreds of small towns to see the day's sales being counted on the
    kitchen tables. Then you will see urban money flowing back to farms and
    rural towns where it is spent and invested by thousands of farms and
    businesses. No, these farms will not feed the world, but no one said
    they would. But they do help feed millions of citizens and support
    thousand of farm families--and they create opportunities for new
    farmers to get a foothold in agriculture. This is why I encourage the
    Committee to continue supporting expansion of local and regional
    markets. It is why USDA's Know Your Farmer, Know Your Food effort is
    important. By taking an integrated approach to a range of different
    programs you authorized--USDA is helping make USDA and the Committee an
    important ally for farmers of all sizes.
        My parents farmed for over fifty years and my wife and I have sold
    food locally now for over fifteen. There are two things we experience
    every season my parents never did. They never set the price for what
    they sold--corn was worth what was on the chalkboard and cattle brought
    what the order buyer offered. But when we deliver 100 pounds of fresh-
    picked, ripe tomatoes to a customer's back door we set the price. The
    second difference--perhaps even more important to the idea of being a
    farmer--is my parents never had the satisfaction of anyone thanking
    them for raising their food. No one came to the farm and said ``Ham and
    Zella those were the best soybeans we ever ate.'' It didn't make my
    folks worth less as farmers but it did make it possible for them to
    feel disconnected from, even in conflict with consumers.
        When we go out to eat and see our farm listed on the menu and see
    diners enjoying food we grew it brings a sense of satisfaction. When
    someone tells my wife ``those baby beets were the best ever'' it is
    like another paycheck. It may not pay the gas bill but is the
    psychological encouragement to put in the hard work it takes to raise
    food. In our food system we have severed many of the connections
    between people and their food and between farmers and eaters--and we
    have paid a price for doing so. Efforts to build local and regional
    markets make good economic sense--and help reestablish connections and
    increase understanding of farming. The efforts do not detract from
    programs to support commodities but can be woven into our existing farm
    structure. Many in agriculture are concerned about what they see as
    undeserved criticisms--but it is hard to criticize people you know and
    trust. Local markets put a face on our food and benefit all farmers.
        In that regard the Committee needs to realize how valuable the
    programs you include in the farm bill are for expanding local and
    regional food systems. Some are minor programs with small budgets but
    they are important to farmers and consumers in every state. Programs
    like the Farmers Market Promotion Program--USDA received nearly 500
    applications for a recent round of $5 million in grants; the Women
    Infants and Children (WIC) and Seniors Farmers Market Nutrition coupons
    that help thousands of low income families and seniors buy fresh
    produce; and USDA's community food projects and Risk Management's
    office of civil rights and community outreach. They have funded
    hundreds of initiatives to build stronger, more resilient food and
    farming systems, like the Iowa Food Policy Council I chaired for 6
    years. These programs aid thousands of farmers and connect the
    Committee to a growing part of our food system.
        Another segment of agriculture deserves the Committee's time and
    attention, some refer to it as ``agriculture of the middle.'' These are
    the mid-sized farms like my parents', and whatever name you use, it is
    important the farm bill supports family farms being squeezed by market
    forces but holding on. These farms may be too big or too remote to take
    advantage of direct marketing, but increasingly they are tapping into
    new value-added markets. With the right set of policies we can help
    these farmers thrive. The Committee took several important steps in
    2008 with programs like the new mid-tier value chain program in Rural
    Development's Value-Added Producer Grants and the Local and Regional
    Food Enterprise opportunity in the Business and Industry Loan Program.
    The Conservation Stewardship Program can provide support to care for
    the land as these farms pursue new market opportunities. I encourage
    you to continue and to expand these efforts in the next farm bill.
        Our farm may be different than my parents but they are both farms
    and I encourage you to recognize all farms, regardless of their size,
    and all consumers, regardless of their means, as deserving. In the
    words of St. Paul etched on USDA's Whitten Building, ``The husbandman
    that laboreth must be the first partaker of the fruits.'' These
    programs help many of your farm constituents thrive. This brings me to
    my final observation and that is our need to have a ``big tent''
    approach to America's food and farming system. Corn and soybeans are
    central to our farm economy, I know because we raise them on my farm in
    Adams County. But the farm sector, the food system, and our rural
    economy are about more than just commodities. I have written about
    these forces as food democracy at work in our country creating more
    opportunities for farmers, eaters, and rural residents alike.
        If our thinking is broad in efforts to assist farmers, rural
    communities and landowners we can include the traditional crops and
    forest products we produce, process and market--but also encourage a
    more diverse rural economy with a wide range of products and services.
    Some opportunities will be in renewable energy and new markets for
    environmental services, like carbon sequestration. We can build on our
    experience with ethanol in terms of rural investment, job creation, and
    creating new markets--and thereby help unlock the capital in rural
    America and create new businesses structures and opportunities for
    local owners. Some efforts will expand the range of food products and
    crops we raise, and how they are marketed. And other opportunities will
    involve helping conserve and steward our soil and land resources. We
    can support new uses for rural lands, and add to the farm economy by
    creating new livelihoods so our children can stay in rural America, or
    come home, and so others will want to move there. Your work on the next
    farm bill is critical in helping build a brighter future for America's
    farmers, eaters, and rural citizens. I wish you the best of luck and
    success. Thank you.

        The Chairman. Thank you, Professor Hamilton.
        Dr. Kinsey, welcome to the Committee. You are recognized.

        STATEMENT OF JEAN D. KINSEY, Ph.D., PROFESSOR, APPLIED
                ECONOMICS DEPARTMENT, AND DIRECTOR, THE
      FOOD INDUSTRY CENTER, UNIVERSITY OF MINNESOTA, ST. PAUL, MN

        Dr. Kinsey. Thank you very much. Good morning, Honorable
    Chairman Peterson and other Members of the Committee. I thank
    you for bringing us together to explore the trends in food and
    agricultural industry as you prepare for the 2012 Farm Bill.
        In my time in watching and studying the food and
    agricultural industry, I have seen an evolution in this
    industry across the entire supply chain. I think it is
    important to point out at the beginning, I view this, the
    farming, as a part of a continuum down to the plate and our
    work includes everything from farm to fork, if you will. I have
    also seen in consumers' attitudes towards the quality and
    healthfulness of the food being produced, so I will address
    those trends as I see them, those that are most apparent and
    that are influenced by public policies set in motion by the
    farm bill and the latest legislation.
        In the interest of time, I am going to do this as the
    nature of a few bullet points because there are several that
    need to be considered. First of all, we have seen consolidation
    in all aspects of the food industry up and down the supply
    chain. This has been driven largely by the efficiencies of big
    box stores, and the dominant decision-making partners in the
    food supply chains have moved over the past 7 or 8 decades from
    the farmers, to the processors/manufacturers, to the
    wholesalers which are now merged with the retailers, and to a
    large extent now, retailers representing this revolution in
    consumers' thinking. There is some reversal in this
    consolidation due to a large fragmentation of consumer groups,
    but nevertheless that trend does continue.
        Talking about consumer attitudes and health, there is great
    concern about the quality and healthfulness of the foods and
    diets. There is a merging of knowledge and interest between
    food and health. Food is being held responsible for chronic
    illnesses and the lack of wellbeing. We started at the consumer
    attitude area with organics, which moved into natural, then
    fresh, then sustainable and now local has been mentioned. It is
    being held up as responsible for environmental concerns,
    animal-friendly concerns and minimal processing, and this is an
    international concern. It is not confined to the United States.
    It includes concerns about the climate, as well. There is a
    general lack of trust in the food production and in the
    government's ability to handle the healthfulness of food.
        The food has also been tied to the obesity crisis and is
    being held responsible for that. It is tied to concerns about
    cancer and heart disease and diabetes. As we all know, allowing
    these general health conditions to exist is a very expensive
    proposition. It is a very expensive proposition in the terms of
    healthcare for individuals as well as for the government.
        The most common questions that I get these days from people
    in all walks of life including my own private physician is
    this, why is the government not subsidizing fruits and
    vegetables like they do corn and soybeans? I tell you I hear
    that at least once a week.
        We are at one of the lowest levels of confidence in the
    safety of the food system that we have ever seen. We have been
    tracking confidence in the safety of the food system, now in
    our center on a weekly basis, and we are developing an index of
    this confidence so that we hopefully track it over time and
    find out how it changes. We know it changes with the media.
    After the peanut butter recall more than a year ago now, that
    confidence dipped to 22 percent. In other words, 22.5 percent
    of the consumers in this country were confident in the safety
    of the U.S. food system. Who do they hold responsible for their
    safety? Number one is government. Number two is manufacturers.
    Number three is consumers themselves. You will see this on the
    charts that were submitted. After the spinach recall, the
    responsibility of farmers which was the fourth one down the
    line now popped up to be the third one on the line. So the
    beginning of the food chain on the farm is not exempt from this
    responsibility in the consumers' mind. Food and agricultural
    policies certainly can't alleviate all of these problems, but
    they are related.
        I would just like to put two more quick items on our agenda
    so to speak. I know you are not responsible for school lunch in
    this Committee, but what happens in food and agriculture
    affects that and affects the food that is available and also
    the cost.
        We are still very concerned in this country about food
    insecurity, that is hungry people. About six percent of the
    people are still hungry. That is also a costly proposition in
    terms of the amount of healthcare costs individually, the
    increased cost of special education and related items.
        Food is being called upon to lead the way and participate
    in creating a healthier population. In formulating the 2012
    Farm Bill, we hope you will consider the role of food and
    agriculture in the health of the nation's people. Thank you
    very much.
        [The prepared statement of Dr. Kinsey follows:]

        Prepared Statement of Jean D. Kinsey, Ph.D., Professor, Applied
         Economics Department, and Director, The Food Industry Center,
                                 University of
                            Minnesota, St. Paul, MN
        Good morning, Chairman Peterson, and Committee Members. I am Jean
    D. Kinsey, Professor, Applied Economics Department, and Director of The
    Food Industry Center, University of Minnesota. Thank you for bringing
    us together to explore trends in the food and agriculture industry as
    you prepare for the 2012 Farm Bill.
        In my capacity as a professor of agricultural and applied economics
    for thirty-three years and the director of a research and outreach
    center focused on changes in the food industry and consumer behavior, I
    have seen the evolution of this industry and of policies that
    facilitate efficient production, trade, and a safe, affordable and
    abundant food supply. I have also seen an evolution in the way food is
    delivered to consumers and a revolution in consumers' attitudes towards
    the quality and healthfulness of that food. I will address those trends
    that are most apparent and that are influenced by public policies set
    in motion through the farm bill or related legislation.
    Food Industry Consolidation
        It will come as no surprise to you that firms all across the food
    supply chain have consolidated and become larger, more global, and more
    competitive. Mergers and acquisitions have been largely horizontal,
    i.e., retailers buying other retailers, farmers buying out other
    farmers. In the post-farm gate part of the supply chain it is generally
    observed that this consolidation started in the early 1990's with the
    advent of Wal-Mart, a large and extremely price competitive retailer
    who entered the food retail business. Their use of electronic inventory
    control and data management allowed them to push efficiencies in
    procurement and sales beyond that known to other U.S. retail food
    companies. In order to compete, retail food and food wholesale
    companies began to merge, learned to manage inventory, and pressured
    food processors and manufacturers for lower prices and just-in-time
    delivery. This led to mergers and acquisitions in the food processing
    sector as a way to counter the bargaining power of the new, larger
    retail firms. This trend continues today. However, there is some
    evidence of a reverse trend, one towards smaller, more local, more
    service oriented companies.
        The reverse trend focuses on smaller, niche markets for largely
    middle to upper income households or to immigrant groups with their own
    unique food preferences. Retail food stores have been bifurcating since
    the early 1990's into low price, big box sellers and higher price,
    boutique sellers of food that is merchandised as organic, local,
    natural, environmentally friendly, exotic or global. This reverse trend
    is due in part to the fact that most retail food companies cannot
    compete with the big box stores on price so to survive as a business,
    they appeal to a customer who is more interested in service, a pleasant
    ambiance while shopping, and foods that come in smaller packages, are
    specially sourced to be compatible with a social cause, or are prepared
    to be ready-to-eat. This has turned many stores into semi-restaurants.
    Another trend is for stores of all types (gas stations, drug stores,
    department stores) to sell food. Food can be purchased almost anywhere,
    putting more competitive pressure on the conventional food retailer.
        Also, there has been major investment from Europe in retail food
    stores, where successful companies have little room to expand and find
    this market profitable. (Aldi from Germany, Ahold from the Netherlands,
    Tesco and Sainsbury from England) Food retailers in the U.S. have
    rarely invested off-shore except for Wal-Mart who has expanded into
    Mexico, China, England and parts of South America. On average, the
    profitability of the U.S. retail food sector has not been adequate to
    generate investment capital for global expansion. The run-up in
    commodity prices and food prices in 2008-2009 and the recent recession
    have exacerbated this situation as more consumers seek lower priced
    food and retailers absorb some of the increased costs. In contrast,
    food processors/manufacturers were able to sustain prices that
    increased in 2008-2009 and have been largely profitable. They are in a
    position to negotiate with their suppliers (farmers) for price and
    quality characteristics.
    Consumer Attitudes--Food Quality and Health
        There is a level of awareness and concern about the quality and
    healthfulness of food in the marketplace that exceeds anything in
    memorable history. How did this come about?

       Authors like Michael Pollan (Omnivor's Dilemma), Paul
            Roberts (The End of Food) and many others have been widely read
            quoted and followed leading to serious questions about the
            healthfulness, safety and efficacy of the food available to the
            public.

       The development of organic farming and sustainable
            agricultural practices have been captured by the rest of the
            supply chain--food manufacturers and retailers and consumers
            who demand more organic foods on the belief that they are
            healthier not only for the environment and the earth, but
            healthier for the human body. A large increase in the demand
            for organic foods led to a short supply and questionable
            marketing practices (labeling) to meet the demand.

       The large demand for organic foods cooled during the
            recession because they are more expensive, but it has been
            merged with the demand for foods that are local, natural and
            not highly processed.

       Advice columns and many in the medical profession, among
            others, are advocating that consumers eat much more fresh or
            minimally processed foods. Some processed foods are viewed as
            artificial at worst and tasteless at best. Some of the advice
            is to not eat foods with ingredients that you cannot recognize
            or pronounce. This is putting great pressure on food processing
            companies to reformulate their products with heightened
            concerns about the food's shelf-life and safety. Minimally
            processed foods can be more hazardous due to microbiological
            contamination since the microbes may not be killed or
            controlled during the processing.

        I participated in an international roundtable discussion sponsored
    by Ahold and Wageningen University in the Netherlands (Amsterdam) on
    February 4, 2010. One of the biggest food challenges of the Western
    world was explored--that of how consumers select a healthy diet?
    Sixteen thought leaders from top universities, major institutions and
    food companies spent a day identifying the issues that consumers have
    with selecting a healthy diet. Some findings: (a.) The perceptions of
    ``healthy food'' is that it is expensive, less accessible, less tasty
    and less convenient. (b.) Too many foods are calorie dense and border
    on being addictive; portion sizes are too big; supermarkets compete on
    price not quality; food companies are working too much on ingredients
    and too little on finished foods; and quick service food companies
    apply aggressive marketing (sometimes to children). (c.) Choices are
    confusing due to labeling inconsistencies and inaccuracies; dietary
    habits are very hard to change; some people really do not have a choice
    (no knowledge or low income); future health consequences are not
    accounted for at the time of food selection.\1\
    ---------------------------------------------------------------------------
        \1\ The Roundtable on Encouraging Healthy Food Choices http://
    www.roundtablefoodchoices.wur.nl/UK/.
    ---------------------------------------------------------------------------
        During the roundtable discussion identifying the issues and
    problems was relatively easy; there was little disagreement among the
    global participants. The solutions are harder and involve small but
    persistent efforts from all parties to the food chain. Communication
    and education were widely advocated, but to be effective, retailers and
    food producers alike need to change production and marketing
    strategies. The environment in which food is produced and offered for
    sale must change to correspond with changing consumer habits and
    healthier choices.
        Studies of consumers' motivations to purchase local, natural,
    organic foods show a desire for:

       Authenticity/Integrity (integrity of companies, food,
            information).

         Consumers distrust company information and those who
                speak at them.

         Consumers revert to social networks--friends and
                individuals for information--blogs, Facebook etc. A danger
                here is that everyone is an expert and rumors rapidly
                become ``facts.''

         Freshness is the most important criteria--extremely
                important to \2/3\ of consumers.

         Attributes important to consumers:
           u hormone-free                 35%.
          u all natural                  32%.
          u local                        23%.
          u organic                      15-19% (growth in sales slowed to
                                          1%).
          u gluten free                  14%.

         Minnesota Study \2\--Reasons to buy local food.
    ---------------------------------------------------------------------------
        \2\ Durham, Catherine A.; King, Robert P.; Roheim, Cathy A.
    ``Consumer definitions of `locally grown' for fresh fruits and
    vegetables'' IN: Journal of Food Distribution Research, v. 40, no. 1,
    March 2009, pp. 56-62, 2009.
           u 75% Better quality and freshness.
          u 35% Lower environmental impact/lower transportation.
          u 32% Support small business--(Big local businesses?)
          u 30% Help local economy.
          u 12% Food safety traceability.
          u 10% Better price.

         Reasons to buy local food by demographic attributes:
           u Better quality and freshness--increases with age.
          u Lower environmental impact/lower transportation--highest income
           level
              and younger ages.
          u Support small business--middle age and high income.
          u Help local economy--youngest ages.
          u Food safety traceability--low income.
          u Better price--young age and low income.

    The image of lower prices is most puzzling, because many studies show
    that local food is more expensive. Studies also show that despite fewer
    miles traveled, local food products sometime use more fuel per pound of
    food delivered because they use less efficient modes of
    transportation.\3\ This illustrates the importance of accurate
    communications about the characteristics of the food in our supply
    chain.
    ---------------------------------------------------------------------------
        \3\ King, Robert P.; Gomez, Miguel I.; DiGiacomo, Gigi., ``Can
    local food go mainstream?'' IN: Choices, v. 25, no. 1, 1st Quarter
    2010, 2010. 6 p., 28 cm. http://www.choicesmagazine.org/magazine/
    article.php?article=111.
    ---------------------------------------------------------------------------
        In addition, there is the obesity crisis believed to be largely due
    to the wide availability of calorie dense foods and supersized portions
    throughout the food chain. This has often been construed as an
    unintended consequence of farm policies designed to make food abundant
    and affordable. Subsidized commodities grown in excess of domestic
    demand have been good for the export business and for the farmers.
    There have been many good reasons for these policies. But, these foods
    find their way into school lunches, into food assistance programs, and
    into low priced foods that may be replacing other foods, like fruit and
    vegetables, that have additional nutrients with fewer accompanying
    calories.

       The obesity crisis is real and is especially troublesome as
            it relates to children. Recent reports indicate that 27 percent
            of young people ages 17-24 are too fat to be accepted in the
            U.S. military.\4\ This is shocking and is a concern for our
            national defense.
    ---------------------------------------------------------------------------
        \4\ Grist, ``National Security and the Waistline,'' New York Times,
    Week in Review, April 23, 2010. (http://NYTimes.com)

       Obese children are developing type II diabetes in record
            numbers which means that their health care costs will be higher
            throughout their lifetime and their life expectancy is
    ---------------------------------------------------------------------------
            diminished.

       Obese peoples' health care costs are 42 percent more than
            that of normal weight people, ($4,870 versus $3,400 per year)
            putting excess burdens on their households, on their employers
            and on the public health care bill through Medicare and
            Medicaid. This is an issue for Federal and state deficits.

       Obese people are absent from work an average of 5 days more
            per year than normal weight persons and cost employers an
            estimated 2.25 times as much due to illness. This is a problem
            for productivity as well as the well-being of workers.\5\
    ---------------------------------------------------------------------------
        \5\ Burton et al. Journal of Occupational and Environmental
    Medicine, 1998.

       It is well known that obesity is linked to numerous
            cardiovascular diseases and cancers. A recent study by the
            American Institute of Cancer Research, stipulates that 49
            percent of endometrial, 35 percent of esophageal and 28 percent
            of pancreatic cancers are linked to obesity. The costs of
            health care, loss of productivity and pain and suffering are
    ---------------------------------------------------------------------------
            obviously heightened in these cases.

        Farm policy alone cannot solve the obesity crisis, but it is
    incumbent upon policy makers to carefully examine the consequences
    (intended and unintended) of the supports to agriculture that result in
    an over abundance of inexpensive, high calorie foods, especially to
    children.

       The most common comment I hear in conversations with people
            from all walks of life are, ``Why doesn't our government
            subsidize the production of fruits and vegetables like (or
            instead of) corn and soybeans?''

           u With median farm household incomes between 3 and 21 percent
           higher
              than the incomes in non farm households since 1998, it is hard
           to justify
              subsidies on the basis of farm income supports.6

       Fresh foods are more expensive and they require more of
            consumers' time to prepare. Making them available through the
            support of community and farmers markets helps availability,
            but not the cost. Imports of fresh produce often lower the
            price and are one way to improve availability.
    ---------------------------------------------------------------------------
        \6\ Jones, Carol Adaire, Daniel Milkove, and Laura Paszkiewicz.
    Farm Household Well-Being, USDA, ERS Briefing Paper February 2010.
    ---------------------------------------------------------------------------
    Farm Bill and National School Lunch Program (NSLP).\7\
    ---------------------------------------------------------------------------
        \7\ Thanks to Dr. Ben Senauer for the information on the National
    School Lunch program. His research in this area has been most helpful.
    ---------------------------------------------------------------------------
        As you are well aware, the primary legislation that affects the
    NSLP is the Child Nutrition Act, which is in the process of being
    reauthorized by Congress currently. This legislation is handled by the
    Senate Agriculture Committee, but in the House it is handled by the
    Committee on Labor and Education. However, there are elements of the
    farm bill enacted in 2008 that significantly benefited the NSLP.

       The U.S. Dept. of Agriculture (USDA) is almost certain to
            adopt the 2005 USDA Dietary Guidelines for Americans as the new
            nutritional standards for the NSLP, as recommended by a major
            study by the Institute of Medicine requested by USDA. In
            particular, this will require that the NSLP serve more fruits,
            vegetables, and whole grains. This will raise the cost of
            school lunch since these are relatively expensive foods.

       Specifically, the IOM recommendations will require the
            following:

        i. \3/4\ to 1 cup of vegetables per NSLP serving (varies from
            grades K-12).

        ii. \1/2\ to 1 cup of fruit per day (varies by grade level).

        iii. must include \1/2\ cup of orange, dark green leafy vegetables
            and legumes per week.

        iv. starchy vegetables (i.e., potatoes) limited to \1/2\ cup per
            week, which is much lower than currently for school lunches.

        v. 1 to 2 grains per day; more than 60% must be made with greater
            than 50% whole grain flour.

       The Obama Administration called for spending $1 billion more
            per year on the NSLP. However, the bill that passed the Senate
            Agricultural Committee and is now before the Senate increases
            spending by only $450 million per year, which would work out to
            $0.06 more per school lunch than the current Federal
            reimbursement rate for the NSLP. The additional 6 cents is not
            nearly enough for most school districts to be able to meet the
            likely new nutritional guidelines, in particular to serve more
            fruits, vegetables, and whole grains. The School Nutrition
            Association (SNA) reports that the average cost to prepare and
            serve a school lunch that meets Federal nutritional standards
            was $2.92, that is, $0.24 more than the current reimbursement
            rate of $2.68 per meal. The SNA is recommending an increase of
            $0.35 per meal. If these programs were funded at a much higher
            level the NSLP would be in a much better position to meet the
            new nutritional requirements, plus farmers would benefit from
            greater sales especially of fruits and vegetables.

       The last farm bill contained crucial elements that benefited
            the NSLP, particularly in terms of serving more fruits,
            vegetables, and whole grains. However, most were funded at a
            very low level or were just pilot programs.

        --The Bill provided $70 million for the Fresh Fruit & Vegetable
                Programs per year.

        --The Bill eased bidding restrictions for school districts that
                wanted to buy locally grown foods.

        --The Bill established a pilot program with $4 million of funding
                to provide whole grains in several schools.

        --The farm bill increased to $50 million per year the funding to
                Purchase Fresh Fruits and Vegetables for Schools, in the
                Dept. of Defense (DOD) Fresh Program. The DOD is involved
                because the nutritional status of military recruits affects
                our nation's national security.

        --$10 million was provided for five state pilot programs to
                establish school gardens in ``high-poverty'' schools.

        (Source: School Nutrition Association).
    Food Insecurity
        In spite of an abundant and generally affordable food supply, there
    are still at least 14.6 percent of households without enough food for
    optimum health and 5.7 percent that are hungry.\8\ While conducting a
    study of the returns to investing in eliminating hunger it became
    obvious that poor nutrition, especially in children, is a costly
    phenomenon. Quite apart from the suffering and embarrassment to
    individuals, food insecure people suffer more illnesses and
    hospitalizations; there is more iron-deficiency in children and
    depression in mothers. Emotional and mental disabilities associated
    with chronic food insecurity lead to more absences from school and
    poorer school performance, in turn, leading to the need for expensive
    special educational programs and lower work productivity in later life.
    In sum, tolerating hunger in this land of plenty brings with it social
    and financial costs that can be minimized by programs that ensure food
    security in rural and urban areas alike.
    ---------------------------------------------------------------------------
        \8\ Nord, Mark, Margaret Andrews, and Steven Carlson. Household
    Food Security in the U.S., 2008 USDA, ERS report, November 2009.
    ---------------------------------------------------------------------------
    Food Safety
        I have personally been involved in food safety and food defense
    research through grants from the National Center for Food Protection
    and Defense, a Center of Excellence at the University of Minnesota
    funded by the Department of Homeland Security. Most of this research
    has focused on consumers' attitudes and expectations about food safety,
    but one study benchmarked food firms in the supply chain as to their
    preparedness to defend the food they handle and their other assets from
    a terrorist attack. The benchmark study found that the largest firms
    (manufacturers and foodservice companies especially) were the most
    prepared but there was room for much improvement. The weakest area of
    preparation was the communication and coordination with their supply
    chain partners. This emphasizes the importance of efforts to track and
    trace the source of food up and down the food chain.
        Surveys of consumers regarding their concerns about food safety and
    defense have shown that they are more concerned about companies and the
    government being prepared against food terrorism than about attacks
    with airplanes or other methods.\9\ We have been conducting a
    continuous survey of U.S. consumers since May 2008 to track the changes
    in concern about food safety and food defense as stories in the public
    media rise and fall with various food recalls related to foodborne
    illnesses. The impact of these recalls and lingering consumer concerns
    on retail sales of directly affected foods and their substitutes and
    complements is an ongoing part of this study. It is an important study
    since it is the first time we have had the resources to conduct a
    weekly survey of consumer sentiment related to food safety and develop
    an index to measure changes over time.
    ---------------------------------------------------------------------------
        \9\ Thomas F. Stinson, Jean Kinsey, Dennis Degeneffe and Koel
    Ghosh. ``How Would Americans Allocate the Anti-Terrorism Budget?
    Findings from a National Survey of Attitudes about Terrorism.'' IN:
    Homeland Security Affairs, v. 3, no. 2, June 2007.
        Jean Kinsey, Wes Harrison, Dennis Degeneffe, Gustavo Ferreira, and
    Sakiko Shiratori, ``Index of Consumer Confidence in the Safety of the
    United States Food System,'' American Journal of Agricultural
    Economics, 91:5, 2009, pp. 1470-1476.
        Dennis Degeneffe, Jean Kinsey, Koel Ghosh, Thomas F. Stinson,
    ``Segmenting Consumers For Food Defense Communication Strategies,''
    International Journal Physical Distribution and Logics Management,
    39:5, 2009, p. 365-403.
        Kinsey J., Stinson T., Degeneffe D., Ghosh K., Busta, F. Consumers
    Response to a New Food Safety Issue: Food Terrorism. Global Issues in
    Food Science and Technology, Ed. G.V. Barbosa-Canova G.V., Mortimer A.,
    Colonna P., Lineback D., Spiess W., Buckle K., editors. IUFoST World
    Congress Publication. Elsevier. May 2009.
        Thomas F. Stinson, Koel Ghosh, Jean Kinsey, and Dennis Degeneffe,
    ``Do Household Attitudes About Food Defense and Food Safety change
    Following Highly Visible National Food Recalls?'' American Journal of
    Agricultural Economics, 90:5, 2008, pp. 1272-1278.
    ---------------------------------------------------------------------------
        One of the most important and relevant findings in this survey is
    that consumers confidence in the safety of the U.S. food system is at
    an all-time low. Following the January nationwide Salmonella outbreak
    linked to peanut butter products, consumer confidence in the ongoing
    safety of the U.S. food supply had fallen to 22.5%.\10\ Consumers do
    not trust the food producers, processors, or retailers to consistently
    deliver safe food to their plates. They do not trust the government to
    protect their food either. In an initial survey in 2007 we learned that
    35 percent of consumers ranked the government as the most important
    party responsible for the safety of food. They ranked processors/
    manufacturers as the second most responsible party followed by
    consumers themselves, retailers, then farmers and last, transportation/
    logistics companies. After the large spinach recall in 2007 farmers'
    responsibility surpassed the individual consumers in expected
    responsibility for food safety.\11\ As incidents of foodborne illness
    reoccurs in fresh produce, this perception is likely to persist.
    ---------------------------------------------------------------------------
        \10\ Press release by The Food Industry Center, University of
    Minnesota, February 23, 2009.
        \11\ Dennis Degeneffe, Research Fellow, Jean Kinsey, Director/
    Professor, Tom Stinson, Professor, Applied Economics Department, and
    Koel Ghosh, Post-Doctorate Researcher, The Food Industry Center,
    University of Minnesota. Reinforcing the Circle of Trust: The Impact of
    Food Safety Incidents on Consumer Confidence. Presentation at National
    Grocers Association National Convention & Supermarket Synergy Showcase,
    Paris Hotel, Las Vegas NV February 7, 2008.
    ---------------------------------------------------------------------------
        Tracking confidence in the safety of the food system from May of
    2008 to date and constructing an index of the change in confidence has
    shown that confidence in the current levels of safety fluctuate with
    media stories about food recalls, but recovers in 3 to 4 weeks.
    Confidence in the preparedness of the food system to defend or render
    food safety rises and falls with greater magnitude and recovers more
    slowly. Implications of this research and findings are that both the
    government and food companies need to work hard to improve their
    perceived and actual ability to protect consumers from foodborne
    illnesses. Improved traceability of food ingredients to their origins
    will help as will increased funding for food inspections and increased
    penalties for food companies that cause major food safety incidents.
    The incentives to be vigilant and careful about food safety need to be
    aligned with the consequences.
        Not unlike the health care cost of obesity, the costs of foodborne
    illness are nontrivial. A new study estimates these cost to range from
    $39-$365 billion a year with an average estimate of $152 billion.\12\
    Even though the costs of investing in food safety measures seems high
    and the probability of an event to any given product or company is
    relatively low, the aggregate annual costs of these incidents are high
    and are born not only by individual consumers and their families but by
    employers and the health care system.
    ---------------------------------------------------------------------------
        \12\ Robert L. Scharff. ``Health-Related Costs from Foodborne
    Illnesses in the United States, 2010.'' Pew Trust study at Georgetown
    University.
    ---------------------------------------------------------------------------
    New Role of Food
        We have traditionally viewed food as the source of nutrition and
    livelihood for human beings around the world. Indeed, there are many
    people still starving and the need to increase productivity to feed all
    the people of the world is a critical and immediate problem.
        In the United States and many other countries of the world however,
    over eating and the problems it produces for healthy lives has come to
    dominate food concerns. It is as though, in our abundance, we take the
    production and supply of food for granted. And now, we are asking the
    food system to deliver many other benefits, to be the bearer of
    environmental cleanliness and recovery, good health, and good living.
        The market for food has fragmented as has the market for other
    products and various cultures and lifestyles and philosophies about
    life and the role of government. Our heterogeneous population is
    segmented not so much by ethnicity, religion and race but by a quest to
    be unique, to rise above or move apart from mass cultural beliefs and
    activities. This splintering is facilitated by social media technology
    such as blogs and Facebook. Information about food travels fast whether
    it is true or not. Consumer frustrations are spread rapidly and food
    companies and government agencies have little time to react. There are
    no controls on the facts and fictions that ``go viral'' on the
    Internet.
        As a general rule, legislation and regulation lags behind
    technology and innovation and behind changes in lifestyle and
    attitudes. A careful examination of the way the farm bill influences
    the well-being of not only farmers and the productivity and efficiency
    of the food system but the ability to facilitate healthier lives and
    lower healthcare and education costs is sorely needed and encouraged.
    Nothing is the way it used to be, except the fact that we must all eat
    and what we eat determines who we are. And, what we eat is strongly
    influenced by policies in the farm bill.
        Thank you for seeking to learn more about the trends in consumers'
    perceptions, expectations and needs as it relates to their food and how
    it is being supplied. I look forward to answering any questions you may
    have.
                                   Attachment
    Continuous Consumer Food Safety Confidence Tracking University of
            Minnesota Food Industry Center Louisiana State University
            AgCenter

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Consumer Perceived Responsibility for Food Safety

       The government and food manufacturers are seen as most
            responsible for insuring food safety.

       Since the spinach incident consumers view farmers as more
            responsible and retail stores as less.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    CFST Continuious Tracking of Consumer Confidence in Safety/Defense
    Consumer Confidence Index versus Media Coverage Index

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    CFST Continuious Tracking of Consumer Confidence in Safety/Defense
    Perceived Preparedness Index versus Media Coverage Index

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you very much, Dr. Kinsey.
        Dr. Paarlberg, welcome to the Committee.

    STATEMENT OF ROBERT PAARLBERG, Ph.D., B.F. JOHNSON PROFESSOR OF
      POLITICAL SCIENCE, WELLESLEY COLLEGE; ADJUNCT PROFESSOR OF
                         PUBLIC POLICY, HARVARD
                     KENNEDY SCHOOL, WATERTOWN, MA

        Dr. Paarlberg. Thank you, Mr. Chairman and Members of the
    Committee. It is an honor to be a part of this panel and share
    some of my views on the 2012 Farm Bill.
        My focus as an independent academic is on the politics of
    food and agriculture. I have just published a book called, Food
    Politics, and in my written testimony I examine three
    challenges that could change the politics of the 2012 Farm Bill
    debate and make the drafting of a business as usual farm bill
    more difficult for this Committee. The first two of these
    challenges, the budget challenge, with our current fiscal
    crisis, and the WTO challenge, particularly, the problem of WTO
    compliance for the cotton program. These two are obvious and I
    will skip over those in my oral testimony, but a third
    challenge just mentioned by Dr. Kinsey is the obesity crisis. I
    would like to focus on this.
        Our nation's worsening obesity crisis is going to make
    passage of a business as usual farm bill more difficult in 2012
    because a growing number of critics have become persuaded that
    Federal policy is one important cause of the crisis. You have
    heard the arguments, I am sure, that Federal programs have made
    junk foods and snack foods artificially cheap relative to
    healthier choices; that Federal programs have made livestock
    feed and hence meat, artificially cheap. Federal programs have
    also made corn-based sweeteners artificially cheap.
        In my view, these are all baseless charges. The Economic
    Research Service at USDA has looked carefully at junk food and
    snack food prices. They have found that the price of fruits and
    vegetables has fallen just as rapidly as the price of junk
    foods and snack foods. Our Federal programs do plenty of things
    that could be criticized, and I am a critic of many of them,
    but the one thing you can't say they do is make sweetened foods
    artificially cheap or make corn or corn-based foods
    artificially cheap.
        Our tariff rate quotas on imported sugar make sweetened
    foods artificially expensive, and certainly our subsidies,
    tariffs, tax credits, and mandates for corn-based ethanol have
    driven up the price of corn. It is artificially expensive not
    artificially cheap. Ask the livestock industry. Nonetheless,
    over the past several years a stream of dubious studies and
    popular books and amateur commentary have persuaded most of the
    American people that the farm bill causes obesity and that is a
    political problem. Fortunately, I believe there is something
    this Committee can do in the 2012 Farm Bill to counter this
    impression. Sweetened beverages, particularly caloric sodas
    are, on the consumption side, perhaps the single most important
    contributor to our current obesity crisis. So, it may be time
    to look at the Federal nutrition programs as a place to address
    this concern. The nutrition programs currently take up, most
    critics don't know they take up about 80 percent of the farm
    bill baseline. Maybe this is a more promising place to turn for
    solutions.
        It may be time for these nutrition programs, particularly
    the SNAP program to stop subsidizing the consumption of caloric
    sodas. I would argue that caloric sodas should be made
    ineligible for purchase under the SNAP program. A little bit
    like tobacco and alcohol. This would not be an imposition of a
    tax. It would simply mean the removal of a subsidy and the
    total dollar value of SNAP benefits wouldn't fall. These
    benefits would simply be deployed away from an obesity-inducing
    product, which isn't even a food product after all. And of
    course, there is going to be resistance to this from those in
    the beverage industry that sell caloric sodas, but saying no to
    this segment of the beverage industry would be a good way to
    show the critics that the next farm bill is being drafted with
    the obesity crisis in mind. Thank you and I will stop there.
        [The prepared statement of Dr. Paarlberg follows:]

     Prepared Statement of Robert Paarlberg, Ph.D., B.F. Johnson Professor
      of Political Science, Wellesley College; Adjunct Professor of Public
                 Policy, Harvard Kennedy School, Watertown, MA
    The Politics of the 2012 Farm Bill
        Federal policy in the food and farm sector has long followed the
    preferences of the Agriculture Committees of Congress, most
    specifically this Committee. Over my career as an independent scholar,
    I have repeatedly witnessed this dominating Agriculture Committee role,
    and I have identified it again in a new book published last month by
    Oxford University Press titled ``Food Politics: What Everyone Needs to
    Know.'' My task here is to draw from the thinking in that book and look
    ahead toward the 2012 Farm Bill. Is the politics of the farm bill
    process changing or not? Will this Committee be able to write another
    ``business-as-usual'' farm bill in 2012, or will political realities
    force a break from the past?
        Historically, the Agriculture Committees of Congress have always
    been able to write the farm bill on their own terms, and I suspect this
    will remain the case in 2012. Nobody can ``force'' this Committee to
    make a change. Secretary Vilsack might want a break from the past, but
    Secretaries of Agriculture don't write farm bills. In fact, Secretary
    Vilsack has said he will not even send Congress a suggested farm bill
    for 2012, only perhaps an outline of a bill. Presidents don't write
    farm bills either. Remember that President Bush actually vetoed the
    2008 Farm Bill, calling it ``wasteful,'' yet Congress passed the bill
    over President Bush's veto by a wide margin of three to one in the
    House and six to one in the Senate. In fact, the 2008 Farm Bill was
    wasteful, given that it re-authorized expensive subsidies at a time
    when net farm income in the United States was 40 percent above the
    average of the previous 10 years. Yet the political reality remains: if
    the Agriculture Committees want an expensive business-as-usual farm
    bill, they can get one.
        The continuing power of the Agriculture Committees over the farm
    bill process is at first puzzling, given that farming today represents
    less than one percent of GDP and that farmers are less than two percent
    of our labor force. The Agriculture Committees retain their power
    despite this sectoral shrinkage by employing what scholars of
    legislation call a ``committee-based logroll.'' They draft a bill that
    first unifies all farmers (Republican and Democratic, crop and dairy,
    Northern and Southern, etc.) by providing something for everybody. Then
    they recruit support from beyond the sector by adding benefits for non-
    farmers. In proportion to the relative decline of the farm sector over
    the years, the share of benefits provided to non-farmers has grown.
        This process of bringing non-farmers under the tent began in the
    1960s and 1970s, when farm bills were written to include greatly
    expanded food assistance programs for the poor, valued by Members from
    urban districts. By 2002, more than 60 percent of all farm bill
    spending went for these nutrition programs. The 2008 Farm Bill was made
    attractive to nutrition advocates through an added $7.8 billion in
    spending over 10 years for the Food Stamp Program (renamed SNAP), an
    added $1.26 billion for the Emergency Food Assistance Program (TEFAP),
    and $1 billion for a free fresh fruit and vegetable snack program
    targeted to schools with low-income families (in each of the 50
    states). In the 1970s, several reform-minded Secretaries of Agriculture
    had proposed that such nutrition programs be handed over to the
    Department of Health, Education, and Welfare, but the Agriculture
    Committees kept them inside USDA, to broaden non-farm political support
    for the farm bill.
        In the 1980s, environmental advocates were brought into the farm
    bill tent through the addition of several resource protection measures.
    A Conservation Reserve Program (CRP) in the 1985 Farm Bill gave growers
    cash rental payments for idling portions of their land. Later an
    Environmental Quality Incentive Program (EQIP) was added, paying
    farmers up to 75 percent of the incurred costs and income foregone for
    adopting certain conservation practices. While these payments to be
    ``green'' were primarily beneficial to farmers, they helped add new
    non-farm constituencies to the Farm Bill Coalition.
        Advocates for organic food were brought into the coalition in 1990,
    when that year's farm bill added a title that created an organic
    certification system. Increased subsidies for ``alternative
    agriculture'' are now used to soften criticism of the (vastly larger)
    subsidies provided to conventional agriculture. In the 2008 Farm Bill,
    support for the organic sector was expanded to include organic research
    and extension assistance, certification cost-sharing, and conversion
    assistance.
        Supporters of international humanitarian assistance have also
    become an important part of the Farm Bill Coalition, thanks to the
    longstanding inclusion of a separate title for international food
    assistance programs. Title II of P.L. 480 (administered by USAID) has
    been funded at an average level of about $2 billion annually since the
    farm bill of 2002. It supports the operations of many U.S. private
    voluntary organizations working internationally in relief and
    development. This P.L. 480 program also brings in farm bill political
    support from the maritime lobby, since the law reserves for U.S.-flag
    vessels 75 percent of all gross tonnage of food aid shipped. A number
    of smaller international food aid programs (Food for Progress, Bill
    Emerson Humanitarian Trust, McGovern-Dole International School Feeding
    and Child Nutrition) are actually administered by USDA itself.
        The something-for-everybody logroll approach has the advantage of
    keeping partisan paralysis to a minimum. For example, the legislation
    that eventually became the 2002 Farm Bill emerged from this Committee
    equally supported by Republicans and Democratics, without a single
    dissenting vote. The drawback to the logroll approach, however, is the
    final cost to taxpayers.
        Outside the halls of Congress, a business-as-usual log-rolled farm
    bill in 2012 is likely to encounter several new kinds of pushback.
    Budget hawks and the recently energized Tea Party movement will
    probably pick up on President Bush's concern that farm bills have
    become too expensive. Opponents of corporate agriculture will make a
    more vigorous case that farm subsidies are worsening our nation's
    growing obesity crisis. And advocates for a new multilateral trade
    agreement in the World Trade Organization (WTO) will fight against any
    farm bill in 2012 that introduces new production distortions that might
    make an international agreement more difficult to reach. The new
    pushback from these various directions in 2012 will not be strong
    enough to determine what this Committee does, but it may impose a
    larger political price this time around for continuing a business-as-
    usual approach.
    The Fiscal Crisis
        The 2012 Farm Bill debate is likely to take place in an unusually
    stressed fiscal environment. The Federal budget deficit was $1.4
    trillion last year. It is projected at $1.56 trillion for this year,
    roughly 10.3 percent of GDP, not as high as the disastrous budget
    deficit of Greece in 2009 (13.9 percent of GDP), but clearly a
    worrisome level. The Obama Administration hopes the deficit will shrink
    to only $1.3 trillion next year, but under the Administration's budget
    projections the deficit is unlikely to drop below $706 billion a year
    at any time over the next decade. In recognition of this crisis
    President Obama launched a bipartisan National Commission on Fiscal
    Responsibility, tasked with finding a way to shrink the deficit to
    three percent of GDP within 5 years. In this fiscal environment it will
    be more difficult to hide the high costs of a business-as-usual 2012
    Farm Bill.
    The Obesity Crisis
        The farm bill debate in 2012 will also be shaped by our nation's
    growing obesity crisis. Between 1971 and 2000, the rate of obesity (BMI
    above 30) in the United States doubled from 14.5 percent to 30.9
    percent. The medical costs associated with this crisis are now becoming
    significant. Between 1998 and 2008, the medical costs of treating
    obesity-related diseases in the United States doubled to reach $147
    billion.
        Farm subsidies do not cause obesity. Instead, the most important
    causes are a combination of reduced physical activity (as a constantly
    smaller part of workforce engages in actual physical labor; as
    automobile driving has replacing walking; and as more leisure time is
    spent seated before computers or television screens) plus increased
    calorie consumption (as the price of food has fallen relative to
    income, as cigarette smoking has decreased, and as ``grazing'' on
    super-convenient and energy-dense prepared foods, snack foods, and fast
    foods replaces sit-down meals prepared from fresh ingredients by
    homemakers). Yet influential critics are now blaming a significant part
    of our nation's obesity crisis on farm subsidies, which are said to be
    making animal feed, corn-based sweeteners, and unhealthy snack food
    artificially cheap.
        Such allegations are mostly mistaken. A USDA study in 2008 found
    that the price of fruit and vegetable products in the United States, if
    you control for quality and season of the year, had fallen at almost
    exactly the same rate as the price of chocolate chip cookies, cola, ice
    cream, and potato chips. Nor is it true that Federal programs make corn
    artificially cheap for livestock producers. The corn program in the
    farm bill may lower prices slightly (by less than ten percent), but
    this effect is more than offset by Federal subsidies and mandates for
    corn-based ethanol, which drive up the price of corn, and also
    soybeans. Nor is it true that sweeteners have been made artificially
    cheap by our commodity programs; our tariff-rate quotas on sugar
    imports drive up all sweetener prices (and this further boosts feed
    prices, by diverting corn use to the production of high fructose corn
    syrup). Nor is it true that HFCS is more obesity inducing in drinks
    than natural sugar; HFCS in soft drinks consists of 55 percent fructose
    and 45 percent glucose, not significantly different from ordinary
    sugar, which is 50/50 fructose/glucose.
        So the alleged links between the farm bill and obesity are largely
    bogus, but they are nonetheless becoming a more powerful political
    current, one that could make a business-as-usual farm bill more
    difficult to enact in 2012.
    The WTO Crisis
        In July 2008, shortly after passage of the last farm bill,
    multilateral negotiations in the WTO to liberalize trade came to a halt
    because of disagreements over trade-distorting agricultural subsidies.
    If the 2012 Farm Bill does not leave room for subsidy reductions, these
    multilateral negotiations may be impossible to revive. Also, earlier in
    2005, the U.S. cotton program was found to be in violation of America's
    existing legal commitments in the WTO and the 2008 Farm Bill did not
    correct this flaw, so last August the WTO gave Brazil a right to impose
    punitive tariffs on U.S. exports as compensation for the U.S.
    violation. In order to prevent punitive action, the United States last
    month promised Brazil's cotton growers a ``technical assistance'' fund
    of $147 million a year, to be replenished until the improper U.S.
    cotton subsidies are removed. This costly and embarrassing failure to
    reform our cotton program in 2008 will be at the top of the farm bill
    agenda in 2012. If the offending U.S. cotton program is not changed, or
    if our currently decoupled payments are replaced by trade-distorting
    measures in the 2012 bill, America's larger trade policy interests will
    be put in jeopardy.
    An Alternative Approach the Next Farm Bill
        In view of the above circumstances, a business-as-usual farm bill
    in 2012 will invite wide and damaging criticism. To diminish or avoid
    that criticism, several alternative steps might be taken.

        1. Spend less than the budget baseline. Leaders on this Committee
            have already committed to a 2012 Farm Bill that costs no more
            than the budget baseline. This is the right instinct, but our
            fiscal crisis has emerged because existing spending baselines
            are too high. It would be a bold and worthy step for this
            Committee to write a 2012 bill costing less than the baseline
            funds available.

        Recall that designing farm bills to capture every dollar of
            available baseline spending has led to shortsighted changes in
            the past. For example, in 1996 a switch was made to de-coupled
            payments as a means to ``capture the baseline'' at a time when
            high crop prices were reducing projected outlays under existing
            programs. Congress was unable to discipline itself to stick to
            the new system when crop prices subsequently fell.

        2. Make caloric soda ineligible for purchase under the SNAP
            program. Subsidizing food give-aways, even healthy food give-
            aways, has never been a credible policy response to our obesity
            crisis. Nor is it any longer sustainable within our new budget
            limits. In the Senate, recently, the Agriculture Committee
            passed a child-nutrition bill with an added $4.5 billion in
            spending that had to be financed in part through cuts in EQIP
            spending.

        A better approach would be to stop using the SNAP program to
            subsidize consumption of unhealthy products. Caloric soda,
            which is not a food, might be made ineligible for purchase
            using SNAP benefits (along with various other products such as
            alcohol, cigarettes, and pet food). Removing the soda subsidy
            from the SNAP program would help correct the impression that
            our nutrition programs are hostage to the interests of beverage
            industry.

        3. Continue moving away from product-specific farm income support
            instruments such as countercyclical and loan deficiency
            payments. These distort production and trade. Replace these
            traditional instruments with whole farm revenue insurance. The
            2008 Farm Bill made a move in this direction with the ACRE
            program, which protects farmers against declines in price and
            yield. The attraction of this approach is that taxpayer outlays
            only go up when prices or yields are going down. The
            limitations of the ACRE program are its link to current acreage
            and prices for specific crops, which might require that it be
            counted as production distorting in the WTO, plus the fact that
            the payments will be made against an artificially high price
            standard (the price levels that prevailed in 2008). Also,
            participation has been limited so far (only about 13 percent of
            eligible crop acres were enrolled in ACRE for the 2009 crop
            year) in part because of farmer misgivings about the statewide
            yield trigger and a reluctance to accept the reduced direct
            payments and lowered marketing assistance loan rates that
            accompany the program. If the traditional instruments were made
            less attractive (e.g., through comparable reductions in
            payments and loan rates) more large growers would move over to
            an ACRE-type system.

        4. Commit a larger share of farm bill resources to rural public
            goods and agricultural research. Secretary Vilsack's testimony
            to this Committee last month correctly stressed the value of
            supporting job creation and wellbeing in rural America--both on
            and off the farm--through increased USDA support for rural
            broadband, for regional food systems and supply chains, and for
            rural health and education. I would also stress the importance
            of food and agricultural research, a task we should not hand
            off completely to corporate labs. The private companies have
            produced some wonderful innovations (for example, the
            technologies that are now moving American agriculture toward
            environment-friendly ``precision farming''), but their money
            does not serve all crops or all farmers. The public sector
            should be playing a larger role. The 2008 Farm Bill took an
            important step in the right direction when it authorized
            creation of a new National Institute of Food and Agriculture,
            but NIFA doesn't yet have an adequate research budget. NIFA's
            agriculture and food research initiative (AFRI) competitive
            grant program was funded in FY2010 at only $262 million, only
            \1/90\ the size of the Competitive grants programs of the
            National Institutes of Health.

        In summary, this Committee will face an important set of choices
    when it begins drafting the 2012 Farm Bill. I believe this next farm
    bill should be approached as an opportunity to move U.S. food and
    agricultural policy into greater harmony with our fiscal and social
    needs, and with our larger national interests and international legal
    obligations. Many will be hoping for real change in the 2012 Farm Bill,
    beyond the standard business-as-usual committee-based logroll.

        The Chairman. Well, thank you very much. Thank all of the
    panelists for that excellent testimony.
        We will go to questioning. For those of you who haven't
    heard, we are going to limit our questions. We don't want you
    to ask three questions at the beginning of your time. We will
    ask you to ask one question at a time and when the yellow light
    goes on, you can't ask another question, so we are going to try
    to keep it more on track here. And with that, I would recognize
    the gentleman from Pennsylvania, Mr. Holden.
        Mr. Holden. Thank you, Mr. Chairman.
        Dr. Babcock, you have been instrumental in developing the
    Livestock Gross Margin Program for Dairy. At a recent dairy
    policy hearing in my district in Harrisburg, Pennsylvania,
    producers expressed interest in a Margin Insurance Program but
    their participation in LGM was limited. Now, this program has
    now been in existence for a few years. What have you learned
    and what changes, if any, are you considering making to the
    program to encourage additional participation?
        Dr. Babcock. The changes that we are considering is that we
    are working with RMA to not force producers to pay 100 percent
    of the unsubsidized premium upfront when they sign the contract
    so they may have 6 months of insurance. We are asking them
    right now that they have to pay all of the premium at the time
    they sign the policy. We are going to allow them to stagger it
    because the dairy farming is a cash flow business, and we think
    that that would be fairer. We are also working with the
    Pennsylvania Department of Agriculture to ask RMA to approve a
    small subsidy for an LGM for dairy.
        Mr. Holden. Thank you.
        Dr. Paarlberg, in your written testimony you talk about ag
    research. As you know, the way research works at USDA doesn't
    necessarily follow what we do in a farm bill. The appropriators
    choose to do what they want to do with it. What changes do you
    think should be made in the way that the appropriations are
    made for ag research?
        Dr. Paarlberg. That is a good question. I think the
    Agriculture Committee did its job in the 2008 Farm Bill by
    creating a new research institute inside USDA. Unfortunately,
    the appropriations have not yet given the leadership of that
    initiative the resources needed to produce results. I took a
    look at the Fiscal Year 2010 appropriations for NIFA for the
    Competitive Grants Program inside NIFA, and its only \1/90\ as
    large as the Competitive Grants Program inside the National
    Institutes of Health. So we have the institution in place but
    the money is not there.
        Mr. Holden. Mr. Chairman, that is a big problem. I remember
    Kika de la Garza talking about it in 1993. I yield back, Mr.
    Chairman.
        The Chairman. I thank the gentleman.
        The gentleman from Oklahoma, Mr. Lucas.
        Mr. Lucas. Thank you, Mr. Chairman, and we could spend
    literally a week with this panel alone, but Dr. Babcock, let us
    talk for a moment about Federal Crop Insurance. You make some
    pretty to-the-point comments about the cost of the present
    program and the delivery mechanism and a variety of things. I
    once in awhile have constituents out in the countryside who
    tell me quite simply just give me money and I will go buy my
    own product somewhere. But, the fact of the matter is Federal
    crop insurance, as it is sold today, has to be approved by RMA,
    the products do. If you develop a new product, RMA reimburses
    you and all the companies can sell the same product. So, it is
    which agent sells which company's product that is the same
    product. Discuss for a moment if you would the concept of
    Federal crop insurance working more like other insurance
    products, whether it is competition and the uniqueness in the
    end products, is it a possibility.
        Dr. Babcock. In theory it could, but in practicality it is
    not clear that the purely privatized crop insurance companies
    can find the capital backing to underwrite the amount of risk
    that potentially could be taken on by them, and so it is just a
    risky business to underwrite agricultural losses. So in theory
    it could, but in practicality it is not clear that they could
    find the reinsurance to do it.
        Mr. Lucas. Even with the volume of dollars that would be
    available to farmers to purchase such products if we continued
    to make those dollars available to producers?
        Dr. Babcock. It is not clear that farmers would actually
    buy the belts and braces types of products that we have out
    there today if they were given the dollars to choose the
    insurance products they want. We have seen farmers buy crop
    hail insurance and that was a private market that actually
    worked, but the characteristics of crop hail losses are such
    that it is poolable and it doesn't represent a very large need
    for reinsurance.
        Mr. Lucas. Dr. Paarlberg, your testimony also was
    fascinating and in your written testimony and your writings
    discussing the political process that has created past farm
    bills, if you would look with me towards 2012. I think we might
    have potentially 100 new Members in the United States House. We
    might have ten new Senators. Handicap what the odds are in
    passing the farm bill in 2012.
        Dr. Paarlberg. I think the odds are, do you mean in 2012 as
    opposed to 2013 or do you mean at all?
        Mr. Lucas. I mean in 2012, 2013, 2014, at all.
        Dr. Paarlberg. If you give us out to 2014 I would say 100
    percent.
        Mr. Lucas. And that will be because we still will pass a
    farm bill that will be based on the principals of recent farm
    bills, nutrition, production, conservation, tying the political
    landscape together.
        Dr. Paarlberg. Well, in my written testimony I give maybe a
    less elevated explanation for the repeated success of the Farm
    Bill Coalition. It is based upon a provision of benefits to a
    diverse set of constituency groups, not just farmers from every
    part of the country and every product market, but also
    consumers. In nutrition programs, the environmental community
    likes some of the Conservation Programs. The international
    relief and developmental assistance community likes the food
    aid programs. The organic community likes the organic
    certification programs. The shipping lobby likes the food aid
    program, so it has been successfully log-rolled into the
    coalition.
        Mr. Lucas. Do you find that as a holy or an unholy
    alliance?
        Dr. Paarlberg. I find it as an entirely typical alliance
    and not unique to the farm program.
        Mr. Lucas. I take that as a compliment. Thank you. Mr.
    Chairman.
        The Chairman. I thank the gentleman.
        The gentleman from North Carolina, Mr. McIntyre
        Mr. McIntyre. Thank you, Mr. Chairman.
        Dr. Babcock, I would particularly like you and Professor
    Hamilton to respond to the role that you see agricultural
    policy playing with regards to rural economic development, and
    where you see our policy in agriculture in relation to rural
    development. We know that rural development in the farm bill is
    really much, much broader than only dealing with the great
    issues of farming but also the entirety, such as in North
    Carolina where 85 percent of the state is classified as rural,
    and the impacts on rural health, telemedicine, broadband,
    telecommunication, public facilities, first responders' ability
    to be able to respond adequately and appropriately. Can you
    tell me how you see agricultural policy continuing to affect
    rural economic development?
        Dr. Babcock. All those policies, those rural development
    policies that you mentioned are what is commonly called public
    goods. Their proper role, and they are for government and
    government is the proper place for those to be provided, and
    they are provided in the farm bill. They are part of the grand
    coalition that was just referred to in terms of why the farm
    bill exists. I think that if one was to design a better farm
    bill from a public goods perspective, one would take some and
    find some extra money for those public goods. I think that
    would be a better farm bill. Whether or not it would increase
    the political viability of the farm bill is for you guys to
    decide.
        Mr. Hamilton. Congressman, I have taught a class for
    several years on rural development and rural lands, rural
    livelihoods. Part of the challenge is making sure that people
    in rural communities, particularly bankers and lawyers, the
    people who can help folks work those programs are aware of the
    array of what rural development has to offer. You on this
    Committee have made a number of important improvements in rural
    development. Today you have the producer grants which we make
    great use of in Iowa. The Wheat Program and Rural Energy
    Program that has helped to put on-farm wind turbines on a
    number of operations around our state. These are valuable
    programs. Part of the challenge, I believe, is finding the
    capacity in rural America and the entrepreneurial spirit to
    take advantage of what you have provided in terms of the loan
    guarantees and the other programs. Rural development it seems,
    for a number of years, has been this kind of almost hidden
    entity, at least within the agricultural law community. I think
    that we could play a role in helping people know in fact what
    is available there.
        Mr. McIntyre. I would like to ask any of the panel that
    would like to respond with regard to the importance of
    biotechnology. We know that in our area of North Carolina, that
    I have the opportunity to represent, it has been a cutting-edge
    opportunity to transition for farmers regarding biofuels and
    regarding research that can affect some of the concerns we have
    right now with foreign dependency on other sources for fuel.
    Can you speak to the importance of biotechnology and where you
    see that affecting farm policy, particularly the upcoming farm
    bill? Yes, sir.
        Dr. Paarlberg. I could comment on that very briefly. It is
    interesting. If you look at yield gains in different crops
    across countries, the crops where biotechnology applications
    have been approved, in the United States corn and soybean
    particularly, show yield gains that are dramatically higher now
    than for crops where biotechnology applications have not yet
    been approved such as wheat. And if you look at the same crop
    in countries where biotech applications have been approved, the
    United States versus those where they have not been approved,
    France, the biotech approving countries see dramatically higher
    yield gains then those that reject the technology. The
    technology has been around now for close to 15 years. I think
    it has demonstrated enormous potential to not only boost yield
    but to reduce chemical applications, reduce greenhouse gases,
    and reduce land-use requirements. I think any forward-looking
    farm bill is going to want to find plenty of space for new
    science of all kinds, certainly, including modern
    biotechnology.
        Mr. McIntyre. Thank you, sir.
        Dr. Babcock, do you have a response?
        Dr. Babcock. Yes, it kind of is a double-edged sword from
    commodity policy though because the great success of
    biotechnology in increasing yield, if the food sector had to
    absorb all that extra production, you would first see very low
    prices. Second, you would see a lot of demands on the commodity
    policies from coming in and compensating for those lower
    prices. But we have biofuels that sucks up, soak up about for
    corn 4 to 5 billion bushels of the surplus if you will that is
    created in part due to the biotechnology-led yield gain. I
    think if you look out 10 years, you are going to see that yield
    improvement continuing in corn and to a lesser extent,
    soybeans. I think that we are going to have to grapple a little
    bit with the resulting supply impacts and the price impacts of
    that, and that should be rolled in with our energy policy.
        Mr. McIntyre. Thank you.
        Yes, ma'am.
        Dr. Kinsey. To take just a little different tact on this, I
    think that it is very important to continue supporting as was
    said science of all sorts including biotechnology. Not just
    because it might increase yields of production here in the
    United States, but to the extent that we are a leader in
    increasing yields around the world for the rest of the starving
    people in the world. Biotechnology plays a very important part
    there, and whether we transfer bushels of wheat and corn, or
    whether we transfer the technology to the other countries, is a
    very important aspect of this.
        Mr. McIntyre. Thank you.
        Thank you, Mr. Chairman.
        The Chairman. I thank the gentleman.
        The gentleman from Kansas, Mr. Moran.
        Mr. Moran. Mr. Chairman, thank you. Before I ask my
    question, I would like to recognize the gentleman from Iowa,
    Mr. Boswell. He was in Kansas last Monday and on Tuesday
    morning he was inducted into the General Command and Staff
    College Hall Fame at Fort Leavenworth, Kansas. I want his
    colleagues to know that his military service and the
    recognition for that, as well as his being an instructor at the
    Command College. He is in great company with outstanding
    American military leaders, and I was pleased that Fort
    Leavenworth recognized our colleague, Mr. Boswell's
    contribution to our country.
        Mr. Chairman, let me ask a question that takes us to back
    to the testimony by Secretary Vilsack, when we initiated our
    hearings on the new farm bill here in Washington, D.C. It
    caught some of our attention at least that the Secretary had
    virtually nothing to say about Commodity Programs. His focus
    was on rural development, broadband, farmers' markets, and I
    have heard the witnesses here speak at least to some degree
    about those things. But, in my experience in watching the
    communities of Kansas and yes, we have challenges in still
    stabilizing the population. The demographics continue to trend
    against us, but it is clear to me that the success of the
    production of agriculture is going to determine the future of
    many communities that are located in my state. And if we are
    going to have a prospering Main Street, if we are going to have
    automobile and pickup dealers, we are going to have feed stores
    and grain elevators, it is not going to be because someone has
    a lifestyle as a farmer and has a job in the city and then
    comes home to enjoy a hundred acres. The Secretary in his
    conversation with the National Association of Farm Broadcasters
    then highlighted that that was a goal that we should
    supporting, the opportunity for people to return to that
    hundred acre setting while earning a living some place else.
    The reality is that while that is a great thing, and I
    encourage people to return to their roots and lifestyle of a
    farmer and living in rural America is a great thing, would you
    disagree that if we are going to have economic prosperity in
    rural America, our farmers are the ones who are going to have
    to have economic success on an ongoing basis? Am I missing
    something?
        Mr. Hamilton. Well, Congressman, I certainly agree that the
    farm community is the significant piece of the rural economy,
    but I am not sure that a solid and vibrant farm program is
    necessarily the same thing as a Rural Development program. You
    would have to ask the Secretary what he meant. I know that, as
    I see it, agriculture policy is part of it, but also dealing
    with the opportunities in rural America are part of it as well.
    And that is why part of my remarks focused on putting new
    people back there because if your part of Kansas is anything
    like the part of Iowa I grew up in, it has been a history of
    population decline, farm consolidation, larger operations. And,
    the farm programs are certainly important to those operations,
    but in terms of the health of those small rural communities, I
    would hate to bank on a successful farm program being what is
    going to support a Prescott or a Cromwell or a Corning, Iowa. I
    think there has to be more to it and the Census numbers would
    show that agriculture receives a significant amount of its
    income from non-farm employment and off-farm jobs. It has been
    that way forever and is increasing, so I don't necessarily see
    them as two separate things. I think they are actually woven
    together.
        Mr. Moran. Well, I don't disagree that they are both
    important, but I think that there is a growing emphasis upon
    one over the other. So what you just said, it makes sense to
    me, but we need to make certain that there is not this belief
    that farm programs or a farm bill that is structurally sound on
    behalf of production of agriculture is something that is no
    longer important. I look back to the 1980s in which farmers
    were failing instance after instance after instance and you can
    see the exact corresponding relationship in the changing
    demographics, the reduction in population of communities across
    Kansas. And so to suggest that we--what I worry about is there
    is now a suggestion that we don't have to worry so much about
    the financial success of production agriculture because there
    is something else, that lifestyle farming is going to take its
    place. It is going to repopulate rural America. The point I
    want to make, and I don't know that this panel is going to
    acquiesce to my point, but the point I want to make is that you
    cannot exclude the production agriculture and still expect
    these other things. Broadband is a great thing, but if we do
    not have successful farmers in rural America, those communities
    are not going to be there to enjoy broadband. That core is
    still there and if you look at Main Streets of communities
    across Kansas and it is the feed store and the fertilizer
    dealer. It is the co-op. It is the bank that lends to farmers.
    It is the automobile dealership. Their customers are production
    agriculture and in their absence we are going to see an even
    greater exacerbation of the problem we face in the demographics
    of the population decline of rural America.
        My time has expired, Mr. Chairman. Thank you.
        The Chairman. I thank the gentleman.
        The gentleman from Iowa, Mr. Boswell.
        Mr. Boswell. Well, thank you, Mr. Chairman and Mr. Moran,
    again we are on the same track. I appreciate what you just said
    and I want to make a comment about that. I am not going to
    editorialize, but I will stick to one question, Mr. Chairman.
        I appreciate what Mr. Lucas said early on that we can sit
    with this panel for a week. Thank you for giving us your time
    in being here probably all day and not finish our discussions,
    but you probably are not going to let us do that. No? Okay.
        I, just on that point, that Mr. Moran was making, I look in
    the audience and I see the National Farm Bureau is here and
    many others, and everyone of us wants to provide food and fiber
    for this country and make it plentiful and affordable and safe.
    I have no doubt about that and I don't care who you are. And I
    believe that, Dr. Hamilton, as I have been, I have seen the
    land that you are a steward over several times because I
    believe that your point is well taken. There is room. There is
    not a threat to production agriculture. There is room for both.
    This world population is growing by what, 90+ million per year
    and there is no threat from one to the other. There is room for
    both is my belief, and I have been looking at this for a long
    time. I think that those markets you are talking about it,
    there is a need for it and people want it. It should be
    provided for, but we can't take away. I heard that from all of
    the panel, I think, and we have to keep the research going on
    yield production and the intrinsic values. You folks could tell
    us about what has happened in the different crops, corn
    whatever to get the intrinsic values to do what we want to do
    for the alternative fuels and so on. We must stay on the
    research and I just wish we could move away from worrying about
    one is a threat to the other because there is demand for both,
    and I don't see any threat at all.
        Let us get to a question now. I am very concerned that at
    the hearings we heard about the ACRE Program and it is too
    confusing or whatever. I just wonder, Dr. Babcock or anybody,
    what you would suggest that we can do to put this, when you
    talked about it and maybe you have already answered it. We will
    carefully look at your testimony, but in your opinion if we
    change to county level, I totally agree. I think that is right.
    I think you find probably a lot of us do. You increase the
    coverage to 100 percent of planned acres as opposed to 83.3. In
    your opinion, what are the most important changes we need to
    make? We probably can't do everything or we may not or who
    knows, but what would be the most important?
        Dr. Babcock. In terms of the ACRE Program, a lot of the
    confusion about it came about because there is this farm level
    loss trigger on it and so you had to have a farm level yield
    history. You had to go and get your FSA records or your RMA
    records, and you had to bring them together. It was pretty
    complicated how that all that got implemented, so that is one
    thing. Another thing was that is at the state level and then
    people were going well, what is the state yield and how is that
    going to affect me, because they don't identify so much with
    the state yield. So, two moves that could be made would be to
    move into the county level, so that it would be more local so
    the yield variation in acre would reflect to a large extent the
    yield variations on farms. I would just get rid of the loss
    trigger because then FSA can easily implement it, and farmers
    could easily understand the coverage they were getting. So that
    would be the move that I would make.
        Mr. Boswell. Thank you very much.
        What program do you think, Professor Hamilton, would be the
    most beneficial to the farmers markets? You have talked quite a
    bit on that, and I know you have put a lot of effort into it.
    What would be the most beneficial?
        Mr. Hamilton. Certainly a program that has shown a
    significant amount of demand is the money that you put into
    Farmers Market Promotion Programs. These are grants made by AMS
    to markets to help them deal with expanding their markets. You
    know, they have a $5 million grant round that receives over 500
    applications, and after they went through the review panels
    they believe that they could have funded probably $20 million
    worth of those grants. These are grants at the local
    communities to the market structures themselves. Certainly, the
    programs that you have put a fair amount of money into, the
    Seniors and WIC, Farmers' Market Nutrition Coupon Programs that
    actually provide benefits to shoppers that are redeemed with
    farmers are important, but helping build the capacity of the
    markets. The capacity is also going to help cull the demand and
    increase the opportunities for the farm operations as well I
    believe.
        Mr. Boswell. Well, thank you.
        In closing, Mr. Chairman, I would just say this, I don't
    want the sustainable people to get worried about this. I am
    very enthusiastic, personally, and I think we all are. We have
    to promote and encourage in the yield and the values of
    production agriculture. I am very committed to that, but I
    don't see a threat from what is going on in the sustainable
    side of it because there is room for both. I yield back.
        The Chairman. I agree with the gentleman.
        And I recognize the former Chairman, the gentleman from
    Virginia, Mr. Goodlatte.
        Mr. Goodlatte. Well, thank you, Mr. Chairman, and thank you
    for holding this hearing. I have been interested in hearing the
    discussion about where our priorities should be in the next
    farm bill, in terms of spending. I happen to agree with Mr.
    Moran and Mr. Boswell that the core of successful economies in
    rural America is going to be centered around agricultural
    production and processing and those things related to providing
    a safe and affordable and abundant food supply for this
    country. It worries me that the trend, however gradual it may
    be, is to depend upon agriculture elsewhere in the world.
        But I want to talk a little about the bigger picture that
    we face here in the Congress. We are facing this coming year
    another trillion+ dollar deficit. The President's budget which
    apparently will not be acted upon by the Congress, and may not
    even produce a budget this year, projects a $3.8 trillion in
    spending against $2.2 trillion in revenues and obviously part
    of that is related to the downturn in the economy that we have
    recently suffered. But, even assuming economic growth, which is
    taking place now to a certain extent, and assuming that that
    will continue on for the next decade, at the end of that decade
    the President's budget forecasts a deficit for the year 2020 of
    $1.2 trillion. So the net result of all of this is that the
    average over that decade is going to be adding a trillion
    dollars to our debt each year, and we are going to face some
    really tough decisions in this Congress. The sooner we get
    about facing them, the better off we and our nation's economy
    is going to be, and the more likely we will be able to avoid
    the fate that is now facing an increasing number of European
    countries which have obviously well-developed safety net
    systems in their country to help people in various sense and
    circumstances. But the end result is going to be the same if we
    don't curtail the growth in spending relative to the growth in
    our economy that generates those revenues. The result of that,
    in my opinion, is going to be that this next farm bill is going
    to be under extreme duress. We have no guarantee that we will
    be given the baseline that we have operated under in the past.
    I would just like to go through and ask each one of you where
    you see the maximum savings that can be attained and the best
    bang for the buck that we can get in rural America, and for the
    farmers who are the base economy of that rural economy. Let us
    start with you, Dr. Babcock.
        Dr. Babcock. I would take direct payments and do a county
    ACRE Program, and then let the Crop Insurance Program shrink to
    a more appropriate size. I think that would save about $4 to $5
    billion a year so in my own small, little way that is over 5
    years that is $20 to $25 billion.
        Mr. Goodlatte. Professor Hamilton.
        Mr. Hamilton. Well, it may not answer the question directly
    in the sense of the cost to the government, but I think that
    the issue of looking at nutrition as a responsibility of the
    Agriculture Committee and the agricultural sector, that in fact
    we need to recognize that dealing with nutrition includes the
    needs of society is really a health challenge and looking for
    other places to in fact help fund and support the nutrition
    programs. It may not reduce the cost to the government, but it
    in part reduces the cost of this committee and on that issue, I
    think that as we think about food and its connection to health
    care reform we can deal with some of the cost that the
    government experiences in terms of healthcare by, in fact,
    improving the nutrition and diet of our population and look for
    the savings there.
        Mr. Goodlatte. Can we improve the nutrition and diet
    without spending more money? Can we spend less money in that
    area and achieve better nutritional habits on the part of our
    children and everybody else?
        Mr. Hamilton. Well, Dr. Paarlberg may well speak to this,
    but he mentioned earlier the question of the food that he would
    make accessible under the SNAP Program would be one of those
    potential reforms.
        Mr. Goodlatte. Thank you.
        Dr. Kinsey.
        Dr. Kinsey. Actually, I would just tag along on the tail
    end of what he just said. I think that when you talk about the
    total Federal budget, a big part of that is Medicare and a big
    part of what Medicare pays for is ill health due to obesity and
    due to unsafe food. To the extent that those two issues can be
    addressed through the kinds of foods available, the relative
    costs of food through the increased availability of fruits and
    vegetables and this sort of thing. I think that the reduction
    in costs on the health care side could largely, well maybe not
    largely, but substantially offset some of these costs that the
    total budget is worried about. There is about $40 billion
    estimated on the low side for foodborne illnesses and roughly
    the same amount for the health care costs due to obesity.
        Mr. Goodlatte. Thank you.
        Dr. Paarlberg.
        Dr. Paarlberg. For saving money, if you look at the farm
    bill baseline and I say it is 80 percent for nutrition programs
    so you are forced to take a look at that. You know, it is
    interesting, these nutrition programs were begun when there was
    a serious hunger problem in American, particularly in rural,
    poor communities, but that was many years ago. If you look at
    the data that come out of ERS carefully, you will see that on
    hunger today on an average day only one percent of American
    families now face serious food insecurity. We have fortunately
    because of income growth and because of reduced food prices,
    moved away from the acute hunger crisis that faced this country
    40 or 50 years ago. As I say, we now have an acute obesity
    crisis, and you can try to address that crisis by spending more
    Federal money to push healthier choices through nutrition
    programs. We have tried that or you can combine that approach
    with a removal of some of the subsidies in current nutrition
    programs for unhealthy choices. That would be my first
    preference.
        Mr. Goodlatte. Those are interesting suggestions and if you
    care to expand on those, I am sure the Committee would welcome
    those ideas. I do believe that we are going to have to achieve
    some substantial savings in this farm bill.
        Thank you, Mr. Chairman.
        The Chairman. I thank the gentleman.
        The gentleman from California, Mr. Baca.
        Mr. Baca. Thank you very much, Mr. Chairman and Ranking
    Member, for having this meeting and I appreciate the panelists
    being here.
        I want to look back on a statement that Dr. Paarlberg
    indicated that there is not a serious hunger in America. There
    is a serious hunger in America, 38 million people are going
    hungry right now. There is a high unemployment right now. I
    also believe that obesity is part of the problem that adds a
    lot to it, so we still have a lot of work in trying to make
    sure that we feed many of the people that are going hungry in
    the United States, especially those that aren't employed right
    now. It seems like it is going to continue in that trend for
    awhile until the unemployment changes in the ability to have
    people put food on the table.
        Meanwhile though, I want to ask Dr. Kinsey a question. As
    you note in your testimony, the primary law authorizing the
    National School Law Lunch Program is the Child Nutrition
    Reauthorization Act, but I believe that the farm bill will
    continue to be a positive vehicle for us to work on to improve
    health and the quality of meals. How can we expand the policies
    enacted in 2008 to get more fruits and vegetables and whole
    grains into our schools, and make those affordable to them?
        Dr. Kinsey. Well, I suppose one of the ways to do that is
    to shift some of the farm subsidy dollars away from the major
    crops and towards fruits and vegetables. As I said earlier and
    as I wrote, in terms of public opinion that is the most common
    statement that I hear, or the most common question is why can't
    we subsidize fruits and vegetables to make them less expensive
    not only to school lunch but to the general public. And, we
    have a relatively safe and affordable food supply, but it is
    the matter of the relative prices. You know, the prices of fat
    and sugar are much, much cheaper than the prices of fresh
    fruits and vegetables, and so somehow anything that can be done
    to change those relative prices will help.
        Mr. Baca. Well, definitely because that is how we can begin
    to address the obesity problem. Reorientation, reeducation and
    educational literacy that needs to be disseminated to a lot of
    us because we have a lot of the food deserts that are out
    there. We know very well that parents and kids go out and the
    quickest meal is through a fast food place. We have to change
    that kind of concept, but we have to make sure that whatever we
    provide through the lunch programs, it has to be affordable to
    us. As we look at the budget now we look at the budget in the
    future to make sure that we have these fresh fruits and
    vegetables and whole grains.
        Let me ask you this: In your opinion, are there any
    unintended consequences of the 2008 Farm Bill that may be
    contributing to the current obesity crisis in America? If so,
    what are they and how do you think Congress can best avoid them
    with crafting the next farm bill?
        Dr. Kinsey. Well, some of the unintended consequences have
    been mentioned also by Dr. Paarlberg, but one of the end
    results as we have said before is that the combinations of
    fats, sugars and controlling the intake of salt, although that
    is not part of the purview, have made those kinds of foods
    super palatable. They have also made them super cheap and
    somehow we have to change that relative mix. Now, for school
    lunch, there is no doubt that the recommendations by the
    Institute of Medicine along with the 2008 Farm Bill to
    incorporate more fresh fruits and vegetables is going to cost a
    little bit more unless we can figure out a way to lower the
    cost of those. There are some other, and I can't give you
    specifics on this, but there are some other recommendations or
    maybe even regulations in school lunch that dictates the number
    of calories that must be served to children of certain ages. I
    have heard school lunch people that are planning meals say I
    couldn't serve a fresh pear for desert because it didn't give
    enough calories in this meal by regulation. I think that some
    of those things could be looked at, as well.
        Mr. Baca. Okay and part of the problem, you mention super
    cheap and I am very much concerned that our American farmers
    have the ability to provide a lot of these fresh fruits and
    vegetables and whole grains. We are importing a lot from
    outside the country, and some of them may not be as safe as
    some of those that can be afforded through us. But then we have
    to look at how can we make that affordable too, as well,
    because a lot of parents are concerned with a lot of the
    pesticides and such that have come in from other countries that
    we don't inspect every one of those fresh fruits and vegetables
    that come in.
        Dr. Kinsey. Well, we don't inspect those and we don't
    inspect our domestic ones either, that carefully. I think that
    really is not the biggest issue. But, to provide fresh fruits
    and vegetables around this country, we are going to have to
    have some of those imported. There is no question about that
    and I think that again is part of the equation. There is just
    no one silver bullet here. You have to look at all of the
    pieces that can help provide a more balanced and more
    nutritious diet at the school lunch table.
        Mr. Baca. Okay, thank you.
        I know that my time has expired.
        The Chairman. I thank the gentleman.
        The gentleman from Nebraska, Mr. Fortenberry.
        Mr. Fortenberry. Good morning. Thank you, Mr. Chairman.
    Thank you all for coming today.
        I think that it is important to start at the top of the
    mountain here and think in a little bit broader terms about how
    much general farm support costs the government, less than one
    percent of the overall Federal budget, and how much that
    provides in terms of the impact on the overall economy. Now,
    this Congress a year and a half ago threw $700 billion at the
    credit laundering operations on Wall Street in order to
    stabilize them, and year in and year out we have this set of
    farm programs that comes under a great deal of scrutiny,
    rightfully so. The farm bill isn't perfect, but, nonetheless,
    during this economic downturn throughout the rest of the
    economy, this portion of the economy has remained relatively
    stable. Some pockets of difficulty here and there, but overall
    agricultural product and the well-being of the farm sector has
    provided one of the stabilizing influences in this overall
    economy for a relatively small investment of the public dollar.
    I think it is important for all of us to keep that in mind as
    we look at, appropriately look at potential adjustments to the
    overall farm programs. In that regard though, and I apologize,
    I missed your earlier testimony but what works well? What
    doesn't work well, keeping in mind that earlier statement that
    I said that the main purpose of this is that, again, the
    stabilizing influence of this important sector of our overall
    economy? And I will turn to some of you that have talked about
    nutrition programs as well.
        Dr. Babcock. Well, I will say one thing that worked
    fabulously well is our energy policy in terms of the Energy
    Independence Security Act in terms of raising the demand for
    farm commodities that has put a good floor under the price of
    corn, soybeans, and wheat because soybeans and wheat compete
    with corn. So, that is from the farm sector and has been from
    the crop sector that has been really good. Not so much for the
    livestock sector because the feed costs have gone up of course,
    but overall in agriculture I think that that has been what has
    worked.
        Mr. Fortenberry. This is a good point and my second
    question was going to be about emerging opportunities and that
    is clearly one.
        Mr. Hamilton. Congressman, I would add that I think that it
    is important as you think about people, that you focus on the
    cost of the farm programs to also think about the benefits this
    society receives. One that hasn't been mentioned this morning,
    but is important to remember, is how the farm programs play a
    significant role as an environmental program and as a soil
    conservation program. You know, the 1985 conservation title was
    one of the most significant things that we have done in farm
    policy probably in the last century, and whether it is sod-
    buster or soil-buster or cross compliance, those are important
    programs. They are helping conserve soil and protect water
    quality. Many of you remember the situation before we had the
    CRP. CRP has functioned in part as a production control or
    management program that has really reduced some of the cost and
    other supply management programs. I guess part of my concern or
    at least issue would be as you look at the difficult question
    about how you move forward in structuring whatever the system
    of farm programs or farm support, the whole question about how
    we at least historically have used those as a carrying agent is
    the basis upon which we have rested our soil conservation
    policy and everything that is associated with that. That is
    important that we don't lose that or that we in fact identify
    how that is going to be able to remain.
        Mr. Fortenberry. That is an interesting comment to wed the
    concepts of our environmental stewardship with the program
    itself. One of the other factors I failed to mention as well to
    substantially lower food costs that we actually do enjoy in
    this country compared to other developed nations. Would you
    like to respond as well, Dr. Kinsey?
        Dr. Kinsey. Well, I think that obviously what has worked
    well is the large production of affordable and relatively safe
    food products. What hasn't worked so well is somehow being able
    to gain or regain the cause of this to the public in the safety
    of the food system. They hold the government largely
    responsible for that, whether that is the right party or not,
    and when the public loses confidence in the food system or in
    the safety of the food system, it leads to a lot of what we
    might call some of the more fringe activities around the food
    system. I think that fragments every ones opportunities.
        Mr. Fortenberry. Thank you.
        Dr. Paarlberg.
        Dr. Paarlberg. I would say what has worked particularly
    well in the past are programs that have supported agriculture
    research, rural infrastructure and rural education.
    Historically those have been the strongest contributors to the
    high productivity growth that has made food abundant and
    affordable for Americans and for foreign customers of U.S.
    agriculture exporters. Those are the strong programs. I would
    also include historically some of the well-targeted nutrition
    programs. I am not opposed to nutrition programs. They
    addressed serious problems with hunger in categories of our
    population several decades ago back when we were spending a
    fraction of what we are spending today. What doesn't work so
    well today are first, excessively expensive nutrition programs
    that are trying to solve a hunger problem when we have an
    obesity problem. And second, commodity programs that I agree
    aren't a large part of our nation's fiscal crisis at the
    moment, but they do present a fairness in targeting the issues.
    If you look at the distribution of farm program benefits,
    something like ten percent of farmers are getting 60 percent of
    the benefits. There is an inequitable distribution of benefits.
    Some very large growers with high net worth are receiving
    considerable subsidies from the Federal Government. Also, at a
    time when crop prices are high and the livestock industry is in
    trouble, should we still be providing such generous subsidies
    to feed producers and leaving what, I think, is an imbalance in
    outcomes across the sector as a whole.
        Mr. Fortenberry. Great, thank you very much.
        The Chairman. I thank the gentleman and I have to jump in
    here because I can't take this anymore. I think we need to
    point out that those ten percent of the farmers that are
    getting 60 percent of the subsidies are actually producing 80
    percent of the food. So I mean the way I view this, the so-
    called subsidies which is really a safety net follows
    production and that is what it should do. So I mean in my
    opinion it is working the way it should, but the question I
    have is, how can we have these people come into my office
    talking to me about hunger and about food insecurity and then
    the same people basically coming in and talking about obesity?
    I don't get this. How can you have a hunger problem and obesity
    problem, you know what I mean? I think you rightly, Dr. Kinsey,
    have pointed out that we are losing the PR war, if you will,
    with city people, but these are the folks that are--they have
    some problems within their own thinking. I mean how do you
    square this? Have you checked into this? Have you examined how
    these people can have this conflicting view and does it make
    any sense?
        Dr. Kinsey. Well, let me go back to the question about how
    can you have hunger and obesity existing side-by-side. The fact
    is that you do and you do around the world this exists.
        The Chairman. Well, I am not talking about around the
    world. I am talking about the U.S.
        Dr. Kinsey. Yes, I know and we can even talk about
    Minnesota.
        The Chairman. Yes.
        Dr. Kinsey. Where we have been doing some work with the
    hungry population, if you will, and charities that serve that
    area. Part of the reason that you get obesity and hunger
    coexisting in the same household, sometimes even in the same
    person is the--well I don't have time to get into the sort of
    the metabolics area here--but when people are hungry they eat
    whatever is available and whatever is available tends to be
    cheap. It tends to be fat. It tends to be calorie dense and
    nutrition poor, and so you perpetuate not only a hunger
    situation but you can do it with obesity simultaneously. And we
    have no evidence that in the hungry population there is a
    greater proportion that are obese then there are in the general
    population, but that is a whole lot of people. That is about 60
    percent, so it does exist together and it just has to do with
    the kind of calorie-dense food that tends to be available. We
    find that obesity is greater at low income, and low and middle
    income households than it is in higher income households. Part
    of this is education and information and opportunity and
    exercise and all of that.
        The Chairman. How much of it is marketing?
        Dr. Kinsey. And a lot of it is marketing.
        The Chairman. Are there people marketing to those folks?
        Dr. Kinsey. They are marketing to those folks and they have
    the income and the wherewithal to purchase more expensive food
    basically.
        The Chairman. Dr. Paarlberg, what do you think about this?
        Dr. Paarlberg. I think we have a serious poverty problem.
    We have long-term problems with low income communities in
    serious poverty. These problems do not any longer express
    themselves the way they used to in actual hunger. If you look
    at the diet of the poor and compare it to the diet of the
    middle class, in the past, the poor were undernourished
    compared to the middle class. Today, you compare the diet of
    the poor to the diet of the middle class the intake of protein
    is comparable. The intake of other nutrients is comparable and
    the intake of calories is comparably excessive. So I like the
    nutrition programs to the extent that they address income
    insecurity, and they do that. They provide an income supplement
    to the poor and they provide income insurance to the poor. I
    like that part of it, but I don't like imagining that they will
    be solving a hunger problem, and I don't like the way we try to
    redefine poverty which is a serious problem as hunger when
    among the poor now a greater problem is obesity.
        The Chairman. Well, in other words what you are saying is
    we shouldn't put anymore money into these nutrition programs
    unless we take some of these problems out of the system first,
    because otherwise we will just be making it worse.
        Dr. Paarlberg. No, you can spend exactly the same amount of
    money. You know, in SNAP benefits, if you disqualify from
    eligibility some nonfood products that are contributing to the
    obesity.
        The Chairman. Right and I agree with you on that, but there
    will be pressure to increase spending in nutrition. I guess
    what I am saying is I would be reluctant to do that if we don't
    fix some of these underlying problems. Would you agree with
    that?
        Dr. Paarlberg. I would agree with that.
        The Chairman. Thank you.
        The gentleman from Pennsylvania, Mr. Thompson.
        Mr. Thompson. Thank you, Mr. Chairman.
        Well, I wasn't going to talk about obesity. I was going to
    try to avoid that because when I go for my physical my doctor
    always writes morbidly obese in my record, but I just want to
    throw this out. We talk a lot about obesity and we are hanging
    a lot of it on intake and, obviously, there are more components
    to it. It sounds like the panel, or at least some of the panel,
    have really looked at this very closely in terms of the obesity
    issue and how much is lifestyle activity and level of activity?
    I mean growing up in the country, when I was young, we were not
    indoors. We were outside, our activity level wasn't limited to
    our thumbs. Any opinions in terms of this, and I am looking at
    a broader view in terms of it. We do have an obesity problem in
    this country. My background is healthcare, but I would just
    like your opinion in terms of you have nutrition but also have
    activity, lifestyle choices.
        Dr. Kinsey. Well, you are absolutely right and anybody who
    has looked at this would agree with you. I mean it is a
    combination of the balance of the calories in and calories out
    in any given body and yes, there is a great lifestyle change.
    That is part of the problem. Nobody would deny that but you
    have to operate on both sides of the equation.
        Mr. Thompson. Absolutely, yes, okay, thank you. I just
    wanted to kind of put that out there.
        Dr. Paarlberg, I have heard some of the--from my
    Congressional district, we have a large forest area, 513,000
    acres, Allegheny National Forest, and some of the forestry
    organizations have concerns that the BCAP Program, the Biomass
    Crop Assistance Program is having some unintended affects. And
    I don't know if you were aware of any of those or have any
    comments on that.
        Dr. Paarlberg. No, I am not a specialist on that. I
    shouldn't be guessing.
        Mr. Thompson. Okay, I don't know if any of the panelists--
    what I am hearing from the industry is how it is driving up
    this program is driving up the cost in some areas making it
    challenging for folks who utilize wood chips for making
    wallboard. They are having difficulty getting that because it
    is all with the government subsidy. You only get the subsidy if
    it goes into energy production, so it is driving up the cost of
    building materials. It probably has other impacts as well but I
    didn't know if anybody had any experience or opinions on that.
        Mr. Hamilton. Last week I participated in a White House
    Clean Energy forum, and that was one of the subjects that were
    discussed by several of the biomass people. And the concern
    appears to be that the use of forest products that would
    otherwise have real uses like particle board or low-grade
    lumber, products that we didn't think about as being biomass
    like you would have with the slash from timber stand
    improvement, that you would put into ethanol production. And
    instead we are diverting formerly useful products and that is a
    difficult issue to address, but it would seem that with the
    right type of program guidelines, it might be something that
    was an unintended consequence. Certainly, it wasn't the goal
    when you wrote the BCAP Program.
        Mr. Thompson. Right, okay, well, Professor Hamilton, while
    I have you I will start with you and then see if any other
    panelists have opinions. The estate tax is something I hear a
    lot about from our farmers in my district and they are very
    concerned about it. What in your view will be the affect on our
    nation's farms if nothing is done to fix the estate tax?
        Mr. Hamilton. Well, I will begin by saying this is
    dangerous territory since I don't specialize in estate tax
    planning, and many of you know Neil Harrow as kind of Big Neil
    in Iowa. I am the little Neil, and Neil is a specialist in this
    area. I know I have heard him say that he has difficulty
    finding a farm that has actually had to be sold because of the
    impact of the estate tax. I know that is debated by others, but
    the existing exemptions are, I don't know if you would describe
    them as generous or at least significant, and with appropriate
    tax in business planning most farms, in fact I believe, could
    avoid the negative impact of an estate tax. Now, it may take
    some special planning in terms of how you go about doing it,
    but in the discussion about the impact of the estate tax, we
    have to keep in mind the multiple number of goals of the estate
    tax. One of them was the issue of, not necessarily breaking up
    large land holdings or consolidated land holdings, but that was
    certainly a question as to where we put the discipline on where
    the exemptions were. It has an impact on the availability and
    accessibility of land in the rural marketplace that ties back
    to the new farmer issue that I touched on.
        Mr. Thompson. Okay, thank you, Mr. Chairman.
        The Chairman. I thank the gentleman.
        The gentleman from Georgia, Mr. Scott.
        Mr. Scott. Thank you, Mr. Chairman.
        Before I get into my questions I want to say welcome to all
    of our panelists. As I look down the list of those testifying
    before us today I can certainly say that you are all very
    distinguished, very knowledgeable, very well-respected in your
    fields. Your thoughts on these matters will certainly be
    helpful. But I also notice that our witnesses before us are all
    representatives from the larger 1860s land-grant universities.
    There seems to be no one here testifying before us today
    representing the 1890s land-grant, predominantly African
    American universities or the farmers that they work with. Our
    Committee here has historically shown bias, intentional or
    unintentional, in favoring 1860s universities. This bias shows
    up unfortunately in the voices we hear from often, the programs
    we authorize and most importantly, the funding we provide. The
    1890s universities have just as much to offer as the 1860s in
    terms of expertise. As a matter of fact, their entire
    foundation was founded on agriculture. Agriculture is a part of
    their names, and it is my hope that the Committee will keep
    that in mind the next time we have panels of academics testify
    before us. But fortunately we will have that opportunity to
    hear from a representative of a 1890s university tomorrow in
    Atlanta, but it is a shame that we have to fly 500 miles to do
    so. Policy is made here in Washington. Spending is dedicated
    and made here in Washington, and we should make a concerted
    effort to have all voices represented before us here in
    Washington where the decisions are made and policy is made and
    the money is determined, and so I just wanted to make that
    statement.
        Now, on the issue of obesity, I am firmly convinced that
    one of the serious reasons why we have obesity now within our
    children is that we have disavowed physical education in our
    school systems. If you look back during the times when we had
    physical education, a structured hour in the curriculum where
    our kids would go and exercise. We called it gym. Now, there is
    none, but there is a preponderance of fatty material that they
    are eating. There is a preponderance of sitting time before
    computers, and so I urge the Committee and all of us to make a
    concerted effort to restore physical education in our school
    system if we are serious about bringing down obesity. I am a
    firm believer that the farm bill is a necessary compilation of
    policies that allow our U.S. farmers to produce large amounts
    of safe, quality food for consumption here in the United States
    but also abroad. However, we hear frequently that the United
    States system of agriculture, and the government policies we
    have created to support it, have become a hindrance to the
    creation of a robust agricultural sector in the developing
    world, thereby perpetuating or exaggerating the world hunger
    problems. I would like for each of you to comment on how, if at
    all, our domestic agriculture policies affect the developing
    world.
        Dr. Babcock. Well, in the past, there was a grain of truth
    to what was said in terms of to the extent that we tied the
    production of our crops to the subsidy levels that we provided
    farmers. That tended to depress world prices, and it tended to
    hurt agriculture around the world. I think today we have the
    opposite situation. By and large the programs that we have in
    place have tended to prop up world prices, and that has tended
    to help world agriculture. I don't think we are guilty at all
    of that anymore and particularly with the kind of programs that
    we have adopted.
        Mr. Hamilton. Congressman, I want to say that I agree with
    your comments about the need to hear from the 1890s. But, I
    just want the record to show that Drake University is a private
    university. We are not part of the land-grant system though I
    had an opportunity to be educated there at Iowa State where Dr.
    Babcock is.
        Yes, one of the important changes that the Administration
    is trying to make is changing the mix of how we approach
    foreign aid and agriculture, looking at more transfer of
    technology and knowledge, and an approach toward trying to
    improve the capacity of foreign agricultural systems in Africa,
    in particular, where they had that focus. And so if there are
    problems or had been problems with the impact of our programs
    on the opportunities for producers in those countries, we are
    at least beginning to also broaden our thinking as to how we
    can best assist them.
        Mr. Scott. Okay, thank you.
        Dr. Kinsey. Yes, I think that it is well-known now that the
    problems with the import substitution in other countries by, as
    I mentioned before, importing the corn instead of importing the
    corn technology has worked against the development of
    agriculture in many developing countries. I think we have
    turned the corner on that. I think we are doing a lot better in
    developing indigenous, not only indigenous crops but indigenous
    technology. To the extent that we overproduce and then plug the
    markets with a lot of product, I think it can help the
    development of agriculture in developing countries.
        Mr. Scott. Thank you.
        Dr. Paarlberg. I think it is undeniable that some of our
    commodity programs have lowered international prices at times
    to the disadvantage of small farmers in poor countries
    including for example cotton farmers in Africa. According to
    the dispute settlement body of the World Trade Organization,
    our cotton program hasn't yet corrected all of its tendencies
    to produce that result. So, we do have some changes on the
    agenda there, however, I don't think that poor farmers in
    developing countries are going to magically become prosperous
    if U.S. agricultural commodity programs are reformed. If the
    U.S. cotton program is changed, that is probably going to help
    the world's most productive cotton farmers in places like China
    or Brazil or Australia even more than it will help impoverished
    farmers in Africa, but that is not an argument against changing
    the program. Right now, the program is obliging our government
    to spend $147 million a year to subsidize the cotton industry
    in Brazil in order to deter Brazil from retaliating against us
    following the dispute settlement body judgment against our
    policy. So it is complicated and there is an element of truth
    to the injury argument, but it is only a small part of the
    story.
        Mr. Scott. Thank you.
        The Chairman. I thank the gentleman.
        The gentleman from Texas, Mr. Neugebauer
        Mr. Neugebauer. Thank you, Mr. Chairman. I am sorry I had
    to step out there.
        I want to go back to a little bit of a discussion on the
    safety net and in particular, crop insurance. Dr. Babcock, I
    read your testimony and as you know I have been a fairly strong
    advocate of reforming the crop insurance program because of
    back home when I talk to my producers it is not working for
    them. Now, even though we are investing in the issue, pointing
    out its potential now for the resources to that. One of the
    things that was kind of interesting to me going from the
    statewide to the county was that was a similar scenario that I
    introduced when we were putting together the current farm bill,
    being able to put GRIP or GRIP Program on top of the multi-
    peril which was triggered by the county deal. Your scenario
    though I believe is one where you, basically, convert the whole
    crop insurance program, to the countywide program; or and you
    do mention in there if you want to carry a multi-period or a
    crop hail or something like that. Are you thinking that that is
    a, would that be a revenue program or yield-based or what is
    your proposal?
        Dr. Babcock. It could be either a yield-base or a revenue-
    base. The yield-base would work pretty well because we have
    futures and options markets out there that allow most crop
    farmers to manage their price risk. It is difficult to manage
    their yield risk, and the reason why I suggest that the first
    layer of coverage would be the county rather than the
    underlying farm level is because a lot of the risk is
    represented at the county level. A lot of the farm level risk
    is represented by movements in the county yield. The county
    yields are very easy to calculate. NASS does them every year so
    the administrative costs of that are far lower, and a lot of
    farmers would find they would not need the supplemental
    coverage. In terms of the last comment I would make in terms of
    revenue versus yield, my problem with doing revenue is that
    when the price is very high, you are providing a tremendous
    amount of coverage on price. So, even if the price moves from a
    very high level to not so high but a good level, you could
    still be on the hook for lots and lots of payments. But, it
    seems like the world is moving more towards income insurance,
    so then you would want to do some kind of revenue basis. But,
    that would be the only caveat I had in terms of how much
    protection are you actually providing.
        Mr. Neugebauer. I found this interesting since basically
    what your proposal is kind of reverse of mine. I would look
    forward to talking to you about that. I think one of the things
    that we have to do, and one of the reasons we know it is not
    working, is even though we have added SURE and ACRE, and made
    changes to the crop insurance program, and we have direct
    payments and countercyclical payments, but we still have
    situations where there is a request by the industry for
    disaster payments. So, that means all of these safety nets that
    we have in place today aren't being the exact scenario of
    safety nets that we need. I appreciate the comments of my
    colleagues are making, we do need to focus on production
    agriculture here, but, this is is really not a farm bill
    anymore, folks. This is a nutrition bill and we just happen to
    have a little of a production agriculture title because a very
    small percentage of this bill and it is a fairly big bill, is
    production agriculture. I guess the question I have is do you
    think the move to this kind of a process will make the farm
    bill more compliant, particularly, with things that have been
    mentioned, cotton.
        Dr. Babcock. For cotton it does have the potential to make
    it more compliant if you are targeting income instead of just
    the two programs that were found to be noncompliant. But, it
    would have to be designed carefully, and what level of coverage
    are you actually providing the cotton industry. So, it has the
    potential for being more compliant than a countercyclical
    program and the marketing law program.
        Mr. Neugebauer. Thank you.
        The Chairman. I thank the gentleman. Sorry about that.
        The gentlelady from South Dakota, Ms. Herseth Sandlin.
        Ms. Herseth Sandlin. Thank you, Mr. Chairman.
        Professor Hamilton, nice to see you. I have a former staff
    member of mine who now is a student of yours, Mike Traxinger.
        Mr. Hamilton. Michael is doing very well and he is tearing
    them up.
        Ms. Herseth Sandlin. Very good, glad to hear that.
        Well, as you know, he grew up on a family farm in the
    northeastern part of South Dakota, and in your written
    testimony you emphasized the importance of beginning farmers.
    The 2008 Farm Bill, with the Chairman's leadership and support,
    Congressman Tim Walz of Minnesota and I worked on a number of
    provisions important to beginning farmers. In Des Moines, Iowa
    at a field hearing we had just a couple of weeks ago we heard
    some testimony as to how some of those provisions may or may
    not be working effectively for farmers in different segments of
    the agricultural industry. What are, if you can expound on some
    of your thoughts here, what more we need to do to assist
    beginning farmers and from your perspective and in your
    research and what you are seeing in the developments among the
    younger generation in farming, are they beginning with
    traditional farms, with getting in on the business through
    livestock through one of the commodities. Are they entering
    sort of different, more niche markets with more specialty
    crops? And as they look for more support from farm bill
    programs, what do you think are their major concerns? Is it
    land prices? Is it the amount of a down payment that we could
    help them with, or is it more access to financing to help them
    with operating costs and equipment leases? And then, you had
    also mentioned in your written testimony a New Farmer Corps and
    a Food Corps and if you could expand on those a bit more.
        Mr. Hamilton. Well, thank you, ma'am, and I apologize for
    not being with you in Des Moines. I was in Arizona giving a
    talk to a different agricultural group, in fact, a Kellogg
    Foundation meeting that involves the Farmer Corps. You know, on
    the new farmer issue, we had this forum in the city back in
    March, in fact, Mr. Traxinger and a number of our students came
    to it. Part of my goal with our educational program is to help
    train the lawyers who are going to be out there in the county
    seats or up here helping design those programs, and there are
    two programs that I believe have some real potential. We have
    the various land link and matching programs that exist in a
    number of states, California Farm Link is a good example. There
    is also a growth in incubator and Farm Training Programs, the
    Chairman has a land stewardship project in his state, and they
    have a Farm Beginnings Program in which they are really taking
    people through training, not just in agriculture but also in
    marketing and business planning.
        Yes, but if there was an observation that we came away with
    from the forum, it is that in our effort to focus on new
    farmers, they are certainly important. You know, that is half
    of the equation, but part of the challenge here also is the
    availability of land and dealing with the population of
    landowners who are making the decisions as to do I sell the
    farm now? Do I try to make some type of transition? Do I rent a
    piece of it to a young family or wait until I pass on and then
    whatever my heirs decide to do with it. In fact, if we had
    another project that we will do to follow up it will be trying
    to look at that question of how do we deal with the population
    of landowners.
        I don't think that we have created the recognition within
    our communities for people who make those steps to try to bring
    somebody home or let somebody come back home. I think of the
    awards that we give in agriculture for being the top corn
    producer or soil conserver, I would like to see where we had an
    opportunity to reward and thank people who went out of their
    way to try to put more people back on the school bus and going
    out of their way to do that. Certainly, tax policy is one of
    the ways you can do that. In Iowa, we have a tax credit that is
    available for landowners who rent or sell their land to
    beginning farmers. Briefly, on the New Farmer Corps issue, I
    wrote an editorial on that shortly after the election in
    looking at the whole question of how we could tie national
    service opportunities to try to create a way to reach, what I
    see, is this growing population of young people that are
    interested in being involved in food production. And, just next
    week in Detroit, as part of a larger conference on farm-to-
    school marketing, which is something that the Committee has
    supported in the farm bill, there is a meeting to design a
    pilot Food Corps Program. They are working with the AmeriCorps
    people to fund a pilot that will put people into schools
    helping run school gardens. It is certainly not the same thing
    as being out in the farm in agriculture, but it is involved in
    food production. It is helping educate children about the
    availability of nutrition, and also helping to try to make
    those linkages between farm-to-school marketing and the schools
    that would be involved with those initiatives. And so that is
    at least the next step of where the Farmer Corps and Food Corps
    idea is going.
        Ms. Herseth Sandlin. I appreciate your response and my time
    is up, but I think that you are referring to the Healthy Start
    Program for school breakfasts. Thank you.
        The Chairman. I thank the gentlelady.
        The gentleman from Louisiana, Mr. Cassidy or are you first?
    I am backwards. I am sorry. The gentlelady from Wyoming, Mrs.
    Lummis.
        Mrs. Lummis. Thank you, Mr. Chairman.
        Now, I am dating myself but when I was a kid, we learned
    about the Nutrition Pyramid from 4-H, and a lot of the problems
    that we seem to be addressing as adults now in Congress about
    childhood obesity seem to be addressed pretty well in a rural
    setting, when I was young, through programs like 4-H. Is 4-H
    dead in terms of its influence on these issues? It seemed so
    well embedded within the Land-Grant University System and the
    Land-Grant University Outreach and Cooperative Extension that
    it seemed like the perfect delivery system for nutrition
    guidance and education to young people. I just wondered why
    that is no longer the case, and I pose that question to any of
    the panelists.
        Dr. Babcock. Well, I wouldn't think that 4-H is dead.
    Certainly, the millions of people involved in it wouldn't
    believe that. But, part of the question might be the reach and
    that 4-H may reach those of us who grew up on farms. It
    certainly has expanded some into urban areas but I wouldn't, 4-
    H wouldn't come to my mind necessarily as one of those
    institutions that would be present in a lot of the places to
    deal with questions of nutrition education with children in
    urban settings.
        Mrs. Lummis. Yes, sir.
        Dr. Paarlberg. I would like to see a study on nutrition
    outcomes among 4-H participants versus non-participants in the
    same demographic. That would be fascinating.
        Mrs. Lummis. Anyone else? Yes, ma'am.
        Dr. Kinsey. I really don't know, is the answer. I think
    that the idea that it just doesn't reach where a very large
    population is, I think is part of the answer.
        Mrs. Lummis. Well, thank you.
        My next question is actually for both Dr. Paarlberg and Mr.
    Hamilton, and it goes back to our farm programs and your
    comment earlier that some of the larger industrial farms are
    receiving farm subsidies. When I look at the Internal Revenue
    Code, it provides that as your income goes up, your deductions
    are no longer, you are no longer allowed to take your
    deductions. When I became a Member of Congress and got this
    salary compared to my old salary then my charitable deductions
    to my church and so forth disappeared. I no longer get to take
    them, and I am wondering if there is an analogy that could be
    made to farm programs where the larger you get, essentially,
    the less you need a subsidy, does it make sense to begin to
    phase them out? And, Dr. Paarlberg, in your comments, you might
    seem to agree with that remark. Mr. Chairman, I suspect, would
    not and I am just curious--oh, Mr. Chairman is gone. So I was
    curious about how you might react to that.
        Dr. Paarlberg. Of course, there are longstanding tussles,
    usually between the Executive Branch and the Congress, over
    payment limits for each program, and over eligibility based on
    income for the various programs. The pattern is that the
    President, whether it is President Bush or President Obama will
    propose tighter limits than the Congress is willing to accept,
    and I would count myself on the Executive Branch side of that
    argument.
        Mrs. Lummis. One more question and it deals with Dr.
    Paarlberg, also an issue that I would like to visit with you
    about, and that is you have mentioned in your testimony that
    there are some development programs that don't have sufficient
    public support, whereas the private sector is supporting them
    and these are things like drug programs. I would argue that you
    are correct that Brucellosis, for example is an issue, a
    livestock disease that needs attention. The University of
    Wyoming, my alma mater, is working on some more efficacious
    drugs to deal with the Brucellosis issue around the Yellowstone
    Park area. Do you the think it is a fair statement that that
    may be an appropriate role for grants to universities? I know
    that the emphasis of late has been on dairy-related diseases,
    but other bovine issues as far as disease programs or disease
    eradication programs are unable to access those same funds, any
    comments on that?
        Dr. Paarlberg. No, I think you are right. If you hand over
    responsibility for food and agriculture research to the profit-
    making private sector, some problems will become orphaned
    because they just are not large enough from the vantage point
    of the corporate lab to make a front end investment, but that
    is not how agriculture got strong in America. It wasn't by
    waiting for private corporate labs to make an investment. We
    have a wonderful history of publicly supported agricultural
    research. We drifted away from that tradition in the 1980s when
    it became fashionable to imagine that everything could be met
    by the private sector. But, our history indicates that the
    private sector serves some farmers and some crops extremely
    well, but it doesn't serve all farmers and all crops. The
    dollar value of public investments in research in generating a
    long-term productivity growth just really can't be matched by
    anything else.
        Mrs. Lummis. Thank you, Madam Chairman.
        Ms. Herseth Sandlin [presiding.] I thank the gentlelady.
        The chair now recognizes the gentlelady from Pennsylvania,
    Mrs. Dahlkemper.
        Mrs. Dahlkemper. Thank you, Madam Chairman. Thank you to
    our panel today. It has been very interesting all the questions
    and answers.
        I have a question, Dr. Babcock. I want to kind of go back
    to the first question that Mr. Holden asked you. I was also at
    the field hearing that we had up in Pennsylvania regarding
    dairy a couple of weeks ago, and our Secretary of Agriculture,
    Mr. Redding, had suggested he had already answered one question
    about the LGM Program for dairy. But, Mr. Redding also
    suggested an extension of the sales closing period for LGM
    Dairy, and he thought that would encourage more producers to
    actually take advantage of this new risk management option. I
    was just wondering if you could speak to that.
        Dr. Babcock. Thanks, we already did extend it once. So, if
    we use the sale of the LGM Dairy, when the markets close on
    Friday they had until the opening of the markets the next day.
    That would give a very short window. Now what we do is that we
    sell at the close of market on Friday until 6 o'clock the next
    Saturday, 6 or 8 o'clock, I am not exactly sure but the whole
    day Saturday. I know it is not very good, but the thing about
    LGM is that it is a 100 percent market-based instrument,
    insurance instrument. The philosophy behind it is, is that you
    don't want to sell something that is not market-based, and so
    that is why. So the most we could do is sell it over the
    weekend before the markets open on Monday.
        Mrs. Dahlkemper. What can we do, do you think, to encourage
    our producers to take advantage of this program?
        Dr. Babcock. The frank answer is subsidize it. Make the
    premium more affordable. Right now it is fully priced with a
    load so it is more than fully priced. There is no premium
    subsidy on it at all, and the experience with crop insurance
    and other things are that if you don't help the producer buy
    that risk management, they will choose not to buy it.
        Mrs. Dahlkemper. Thank you. I also want to ask you another
    question. I couldn't help but observe your body language during
    a previous question regarding subsidizing fruits and
    vegetables. Can you give me your opinion?
        Dr. Babcock. Well, the problem with subsidizing fruits and
    vegetables are that those markets are pretty tightly
    integrated. That is, if you subsidize say a subset of a fruit
    or vegetable, the supply response would be so tremendous that
    what you would flood the market and destroy the market. So and
    what I mean by that is I will give you an analogy. If you
    subsidize corn, to a certain degree you will get more corn, but
    we already plant about 90 million acres of corn. We are not
    going to double corn production in response to a subsidy so we
    won't destroy the market for corn. If we subsidize let us say
    carrots. Carrots are produced on maybe 200,000 acres, maybe
    less in the United States. We could easily find another 200,000
    or 300,000 acres of carrots if we subsidize them a little bit,
    and so what would happen if we double production of carrots?
    The price of carrots would fall to nothing. The profitability
    of carrot production would go away and we destroy the market,
    so that is why you saw my body language. For small production
    you have a very, what is called a very elastic supply response
    to subsidies. With big crops, you don't have that very elastic
    supply response. That is why I suggested it. So then on the
    other hand I started thinking most of the price of and the
    purpose is to make it more affordable. Most of the price of
    fruit and vegetables are in the distribution, the shipping, the
    handling, the harvesting. If you wanted to subsidize it, it
    would probably be better to subsidize the delivery to areas
    that don't consume them and to inner-city areas that don't have
    a good market for good fruits and vegetables. That would be a
    better use of money than to pay farmers to grow more of them.
        Mrs. Dahlkemper. Thank you, I appreciate that answer, very
    interesting. I have a huge interest in nutrition and obesity
    issues. I have spent much of my life working on these issues in
    my previous career. I wanted to go back just real quickly
    because I only have about 25 second left but, Dr. Paarlberg,
    you talked about the SNAP Program and you talked about
    eliminating caloric sodas basically. Are there any other foods
    that you would look at as eliminating in terms of SNAP, The
    SNAP Program? Is there anything else that has been
    investigated?
        Dr. Paarlberg. I don't know if you can define candy tightly
    enough to make an enforceable exclusion, but that would be my
    next candidate.
        Mrs. Dahlkemper. Okay, well, thank you and my time is up
    and I have many other questions, but I appreciate your time
    today.
        The Chairman [presiding.] I thank the gentlelady.
        The gentleman from Louisiana, Mr. Cassidy.
        Mr. Cassidy. You know, you can't define candy I suppose,
    but when I lived in California 20 years ago they instituted the
    junk food tax. Now there must be an operational definition that
    California used and I know other states have proposed a junk
    food tax, so to speak. So could you tax not just caloric soft
    drinks but other high density, high calorie foods as California
    tried to do 20 years ago. Could you also remove their
    eligibility for SNAP?
        Dr. Paarlberg. I am not a specialist. My guess is you would
    have to do a lot of preparatory work to make sure that the
    dividing line between a junk food and a near junk food was
    clear enough and would show up on the right bar codes to make
    it enforceable at the checkout counter.
        Mr. Cassidy. Well, that is just a database problem. I mean
    it seems like we could accomplish a database problem.
        Dr. Babcock, going back to subsidy is actually relative
    right? If you will, you don't have to subsidize fruits and
    vegetables if you don't subsidize something else. So, just
    speaking conceptually, if you don't, if you take, I walked in
    and thought what is a guy from Wellesley doing here, but anyway
    now that I have answered the question. If you say okay, we are
    not going to allow SNAP to give you full value for high density
    high caloric foods but you do allow that for fruits and
    vegetables. It is effectively a differential subsidy for fruits
    and vegetables in the inner-city store, correct?
        Dr. Babcock. That is correct because the demand would shift
    over towards the fruits and vegetables because of the relative
    price change. That is correct.
        Mr. Cassidy. Yes, so you wouldn't necessarily increase,
    artificially increase production but you would potentially
    increase the consumption again just by creating a price
    differential, if you follow what I am saying.
        Dr. Babcock. That is correct. You would subsidize
    consumption of it but not the production, and that is what I
    was trying to get at. If you lowered the price, you could
    either directly lower the price through a subsidy or lower the
    price through infrastructure investments to lower the costs of
    getting those fruit and vegetables into inner-cities.
        Mr. Cassidy. So, Dr. Kinsey, what do you kind of think
    about that concept? I was looking at your testimony and
    obviously nutrition is what it focused on in part. So, what
    would you think about taking SNAP, it is not eligible to use
    for however California once defined it and so therefore you
    have a relative subsidy of fruits and vegetables, other high-
    fiber foods, for example, any thoughts about that, wisdom
    thereof?
        Dr. Kinsey. Yes, one thought is that it is very difficult
    to make a dividing line between what some people call good food
    and bad food, and most nutritionists like to talk about good
    diets and bad diets so that no individual food is bad. It is
    just bad when you over-consume it. However, to reduce that over
    consumption, one way to do it would be through the disallowance
    in the SNAP Program or in the school program. We know many
    schools now have or many beverage companies have taken high-
    sugar or high-sweet content beverages out of schools. I think I
    totally agree that the whole object here is not necessarily to
    subsidize the farmers of avocados and almonds and carrots, but
    it is to make those kinds of products relatively inexpensive
    compared to where they are now.
        Mr. Cassidy. It is all relative.
        Now, Dr. Babcock, what I also just learned from you is the
    cost of, on the grocery shelf, of fruits and vegetables related
    to its transportation, harvesting, et cetera. If you increase
    the fossil fuel-based inputs, you are going to
    disproportionately increase the cost of fruits and vegetables.
    So, as we go to a cap-and-trade type system, if you will, I
    have never thought about it but your distribution network
    disproportionately affects fruits and vegetables, fair
    statement?
        Dr. Babcock. Well, disproportionate relative to what? I am
    not sure.
        Mr. Cassidy. Say for a large commodity like rice. You can
    put rice on a truck and take a whole bunch of it and it can sit
    around for awhile before transport because it stores fairly
    well. But, something time sensitive like blueberries, you would
    have to move quickly and doesn't matter what traffic patterns
    are, it has got to move, et cetera.
        Dr. Babcock. When I was saying transportation costs I was
    including all the labor involved in the distribution system,
    that the actual fossil fuel cost of transporting fruits and
    vegetables and rice and other things is relatively low,
    relative to labor and other costs.
        Mr. Cassidy. Okay, I yield back. Thank you.
        The Chairman. I thank the gentleman and I want to thank
    this panel for your excellent testimony and the questions and
    the answers to the questions. I think we have raised a lot of
    interesting questions and had discussions that we normally
    don't have here in the Agriculture Committee which is good, and
    we appreciate you being with us.
        With that, we would like to excuse this panel and call the
    next panel to the witness table: Dr. Scott Brown from FAPRI,
    the University of Missouri, Dr. Otto Doering from Purdue
    University in Indiana, Dr. Paul Ellinger from the University of
    Illinois and Dr. Daryll Ray from the University of Tennessee.
    So, gentlemen, welcome to the Committee. Your full testimony
    will be made part of the record. We encourage you to summarize.
    We have votes coming up possibly in 20 minutes, 30 minutes so
    we might have to put you in a kind of a disadvantage here. We
    may get your testimony in and then we might have to make you
    wait until we get to that voting, if that is okay. You might be
    able to get lunch because it is going to take an hour or maybe
    more so anyway, welcome to the Committee. Dr. Brown, the floor
    is yours.

              STATEMENT OF D. SCOTT BROWN, Ph.D., RESEARCH
      ASSISTANT PROFESSOR AND PROGRAM DIRECTOR FOR LIVESTOCK AND
        DAIRY, FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE,
                        UNIVERSITY OF MISSOURI,
                              COLUMBIA, MO

        Dr. Brown. Chairman Peterson, Ranking Member Lucas and
    Members of the Committee, thank you for the opportunity to
    appear today to review ag policy as the beginning stages of the
    2012 Farm Bill occur. FAPRI looks forward to the opportunity to
    provide this Committee with unbiased analysis of the many
    policy proposals that will surface just as we have done over
    the past 3 decades.
        It is true that animal agriculture has faced extreme
    changes in economic wellbeing in the past 5 years. Livestock
    and dairy producers have found themselves in the position of
    making strategic and tactical decisions that seem correct one
    day but prove to be absolutely disastrous the next. This
    quickly changing economic environment has made everyone look
    for ways to reduce the impacts on market volatility.
        First, it is important to realize the magnitude of changes
    and factors outside of the direct control of animal
    agriculture. The recent economic downturn in the U.S. economy
    was severe by historical standards and has not been experienced
    since the early 1980s. This economic downturn followed strong
    growth in real GDP over the 2003 to 2007 period. World income
    growth also experienced a historically large contraction in
    2009, the first contraction in the last 3 decades. This
    contraction followed above-average growth over 2003 to 2007.
    Many sectors of animal agriculture were gearing up for the new
    and growing demand for their products only to find contracting
    demand just as the production response was kicking in.
        Second, these sectors have also seen a substantial rise in
    production costs over the past 5 years as prices for nearly all
    inputs have experienced large increases. There is some
    interesting observation one can gleam from the ERS' annual
    production cost estimates. For milk, production operating costs
    rose 15 percent in 2007 followed by an additional 22 percent
    rise in 2008, the two largest since 1980. For a long-term
    perspective, milk production operating cost rose by 24 percent
    over the 16 year period, 1990 to 2005, however, in just the
    past 4 years, milk production costs increased an additional 28
    percent.
        Third, disease events and their impacts on trade have added
    to the volatility animal agriculture has faced. BSE and H1N1
    influenza outbreaks are just two examples. These are unlikely
    to be the last disease or trade events these industries will
    experience.
        To understand more about the magnitude of the volatility
    that exists for producers, we can turn to the variability in
    cash receipts from farming. According to USDA, livestock cash
    receipts increased by $20 billion in 2007, and then fell by $22
    billion in 2008, extremely large changes relative to historical
    standards. This certainly highlights the added volatility in
    cash receipts the industry has faced in the last decade, and
    also highlights that the volatility has its ups as well as its
    downs. These industries experienced a severe price cost squeeze
    between 2005 and 2009. Cash receipts declined by $6 billion
    alone while feed cost increased $16 billion.
        The Dairy Product Price Support Program has been a
    longstanding part of Federal dairy policy. This program
    essentially provides price floors for supported dairy products.
    The program can become more challenging to use in an
    environment of commercial exports of dairy products out of the
    United States. More important to the discussion today is the
    effect that the Dairy Product Price Support Program has had on
    producer income volatility. As price support levels have been
    lowered over the past 3 decades, it has allowed for more price
    volatility that the industry began to experience in the late
    1990s. With the rise of production costs that have occurred in
    the past 5 years, the support provided to producers by the
    Dairy Product Price Support Program has weakened considerably.
        The Milk Income Loss Contract Program is a countercyclical
    direct payment program first implemented in the 2002 Farm Bill.
    The annual cap on marketing eligible for MILC payments is
    currently set at 2.985 million pounds. Very large producers
    have not found the MILC Program beneficial, largely as result
    of the limit. In the 2008 Farm Bill, a feed cost adjuster was
    added that raises the target price in months where the reported
    dairy ration value exceeds $7.35 per hundredweight.
        Perhaps the most important parameter to discuss is the 45
    percent factor imposed on the difference between the target
    price and the relevant milk price for the month. Producers get
    45 cents per hundredweight in a direct payment for each $1 the
    relevant milk price falls below the trigger level. This MILC
    feature does not create a solid price floor, but it is a soft
    floor that lets producers feel additional economic pain as
    prices fall further from the trigger level. There are tradeoffs
    between a program that has a hard floor versus one that shares
    the loss of milk revenue between the level of government
    outlays and producer payments like MILC.
        Some of the early discussion surrounding the 2012 Farm Bill
    is focused on offering whole farm insurance options to reduce
    the volatility of producers' bottom lines. Many of these
    options look promising. It remains to be seen the exact program
    operation and parameters of these proposals, as there will
    certainly be tradeoffs between overall program cost versus the
    degree of volatility offered to producers.
        I will be happy to answer any questions that the Members
    may have today.
        [The prepared statement of Dr. Brown follows:]

        Prepared Statement of D. Scott Brown, Ph.D., Research Assistant
       Professor and Program Director for Livestock and Dairy, Food and
        Agricultural Policy Research Institute, University of Missouri,
                                  Columbia, MO
        Chairman Peterson, Ranking Member Lucas and Members of the
    Committee, thank you for the opportunity to appear today to review
    agricultural policy as the beginning stages of the 2012 Farm Bill
    occur. There will be many important choices to be made about future
    farm policy in the coming months as the 2012 Farm Bill is written. The
    Food and Agricultural Policy Research Institute at the University of
    Missouri (FAPRI-MU) looks forward to the opportunity to provide this
    Committee with unbiased quantitative analysis of the many policy
    proposals that will surface just as we have done over the past 3
    decades.
        It is true that animal agriculture has faced extreme changes in
    economic well-being in the past 5 years, in terms of both cash flow and
    equity. Disease outbreaks, trade restrictions, rapidly changing input
    costs, contraction in the United States and other important trading
    partners' economies, and fluctuations in the U.S. dollar are a few of
    the factors that have caused these sectors to experience record-setting
    highs and lows in profitability in just a few months.
        Livestock and dairy producers have found themselves in the position
    of making strategic and tactical decisions that seem correct one day,
    but proves to be absolutely disastrous the next day. This quickly
    changing economic environment has made all market participants look for
    ways to reduce the impacts of market volatility.
        This quickly fluctuating environment has led many to call for
    policy change to help livestock and dairy producers weather the
    difficult economic times they face today. The policy proposals
    currently circulating vary in their ability to reduce producer income
    volatility. In choosing policy instruments that best reduce producer
    income variability, it is instructive to examine the sources of the
    current variability.
        First, it is important to realize the magnitude of change in
    factors outside of the direct control of animal agriculture. The
    economic downturn in the U.S. economy in 2008/09 was severe by
    historical standards with the economy shrinking at an annual rate of
    6.4 percent in the first quarter of 2009. This level of contraction had
    not been experienced since the early 1980s. This economic downturn
    followed strong growth in real GDP over 2003 to 2007.
        World income growth also experienced a historically large
    contraction in 2009 declining overall by one percent. International
    Monetary Fund (IMF) data on world GDP growth suggests this is the first
    annual contraction experienced over the past 3 decades. This
    contraction followed above-average growth of 4.7 percent over 2003 to
    2007. This global contraction certainly reduced the demand for U.S.
    livestock and dairy products in 2009.
        The combination of stronger than average income growth over 2003 to
    2007, coupled with the contraction in 2009, resulted in many sectors of
    animal agriculture caught gearing up for the new and growing domestic
    and international demand for their products in the mid-2000s only to
    find contracting demand just as the production response was kicking in.
    The combination of falling demand and higher output caused prices to
    fall.
        Second, these sectors have also seen a substantial rise in
    production costs over the past 5 years as prices for nearly all inputs
    experienced large increases. Although it is difficult to have a
    completely consistent set of production costs for the entire period
    since 1980, there are some interesting observations to be gleaned from
    the Economic Research Service's annual production cost estimates over
    this period.
        For milk, production operating costs rose by 15 percent in 2007
    followed by an additional 22 percent rise in 2008. These back-to-back
    increases are the two largest experienced since 1980. The next closest
    was the 1988 drought increase of 12 percent. In the past, periods of
    production costs increasing at a faster rate than the historical
    average are often followed by a period of declining production costs,
    thus limiting the overall long-term rise in costs of production. To put
    this in perspective, milk production operating costs rose by 24 percent
    over 16 years from 1990 to 2005. However, in just the past 4 years,
    2006 to 2009, milk production costs have increased an additional 28
    percent.
        Third, disease events and their impacts on trade have added to the
    volatility animal agriculture has faced over the past few years. The
    2003 outbreak of BSE, bovine spongiform encephalopathy, in Canada and
    the U.S. continues to disrupt trade in cattle and beef today. The April
    2009 H1N1 influenza outbreak created domestic and international demand
    challenges for U.S. pork producers. Other trade restrictions such as
    the recent Russian curtailment of U.S. chicken imports have also had
    impacts on animal agriculture. It is impossible to eliminate or to
    predict these sources of added volatility but these are unlikely to be
    the last disease or trade events these industries will experience.
        It becomes clear from this broad review that the volatility
    experienced in livestock and dairy markets is coming from a number of
    factors and cannot be isolated to a single source. It is just not that
    simple. Again, it is instructive to understand the many sources of
    variability as policy proposals surface that attempt to reduce
    volatility. Although the future remains uncertain, it is difficult to
    imagine that a policy that only deals with one aspect of an industry
    can be completely successful in reducing producer income volatility.
        To understand more about the magnitude of volatility that exists
    for livestock and dairy producers, a partial perspective can be found
    in the variability in cash receipts from farming. According to USDA,
    livestock receipts increased by $20 billion in 2007 and then fell by
    $22 billion in 2008. Over the 1980 to 2000 period, the largest year-to-
    year increase occurred in 1996 at $6 billion while the largest year-to-
    year decline occurred in 1991 with a $3 billion decline. This
    comparison certainly highlights the added volatility in cash receipts
    the livestock and dairy industries have faced in the last decade, and
    also highlights that the volatility has its ``ups'' as well as its
    ``downs'' from the producers' perspective.
        Although it is more difficult to get a complete picture on the cost
    side of animal agriculture from the farm income production expense
    accounts, feed costs rose 33 percent in 2007 and another 12 percent in
    2008. For 2009, USDA estimates a six percent decline in feed costs.
        These industries experienced a severe price-cost squeeze between
    2005 and 2009. Cash receipts declined by $6 billion while feed costs
    alone increased by $16 billion. Add to that the escalation of other
    production costs and it equates to the extremely unfavorable financial
    position of many livestock and dairy producers today. Pork and dairy
    producers in particular saw their bottom lines at crisis levels in
    2009. It would have required several billion dollars of support from
    any program attempting to eliminate the volatility in profitability
    seen from 2008 to 2009.
        Let me repeat that the income volatility the livestock and dairy
    industries have experienced the past few years is a result of both cost
    and revenue variability. The biological lag in production response can
    and has exaggerated this variability. If the objective of future policy
    is to reduce variability in producer income, both components of this
    equation must be examined.
        The 2010 FAPRI outlook suggests livestock and dairy producers'
    financial positions will improve slowly in the next couple of years. We
    have begun to see signs of recovery already with feed costs moving down
    from their peaks and output prices moving higher as some demand
    recovery in this country and around the world is beginning to take
    place. However, the economic recovery will likely not be smooth and
    will result in continued variability in the livestock and dairy
    industries. The probabilistic FAPRI baseline certainly shows the
    possibility remains for extreme volatility.
        There has been little direct support provided to meat producers in
    previous farm bills. However, there are a number of support programs
    included in the current farm bill to help support dairy farmers. The
    two I will discuss today are the Dairy Product Price Support (DPPS)
    program and the Milk Income Loss Contract (MILC) program.
        The DPPS program has been a long-standing part of Federal dairy
    policy. It was converted to a specific dairy product support program
    from a milk support program in the 2008 Farm Bill but operates in a
    virtually identical manner to the older program. Under this program,
    the CCC stands ready to buy all specified products offered at the
    supported product price level. This program essentially provides price
    floors for the supported dairy products. There has been times where
    product prices fell below the price floors because of the added costs
    of producing products that meet CCC specifications relative to market
    specifications. The program can become more challenging to use in an
    environment of commercial exports of dairy products out of the U.S. It
    can result in the U.S. being a commercial exporter 1 day to shutting
    off trade and selling product to the CCC the next day.
        More important to the discussion today is the effect that the DPPS
    program has on producer income volatility. As only an economist can
    answer, ``it depends'' is the short answer. In the early 1980s, the
    program had support levels that were above market clearing price levels
    resulting in large CCC inventories of dairy products and little
    volatility in producer milk prices. As price support levels were
    ratcheted downward during the late 1980s and 1990s, it was common to
    find that support prices had fallen below market-clearing levels. This
    allowed for more price volatility that the industry began to experience
    in the late 1990s. With the rise in production costs that have occurred
    in the past 5 years, the support provided to producers by the DPPS
    program has weakened considerably. When the supported level is more
    than $5 per hundredweight below current operating costs, most dairy
    producers do not feel this offers much of a safety net. Since the DPPS
    program offers only price support, it does not adjust as producers'
    costs change over time.
        The MILC program is a countercyclical direct payment program first
    implemented in the 2002 Farm Bill. Once producer milk prices fall below
    a specified target, producers can receive payments up to certain level
    of production. The annual cap on marketings eligible for MILC payments
    is currently set at 2.985 million pounds and will be reduced to 2.4
    million pounds in September 2012 under current law. Very large
    producers have not found the MILC program beneficial largely as a
    result of the limit on the amount of their total marketings that are
    covered each year.
        In the 2008 Farm Bill, a feed cost adjuster was added that raises
    the target price in months where the USDA/NASS reported dairy ration
    value exceeds $7.35 per hundredweight. The feed cost adjustment level
    increases to $9.50 per hundredweight in September 2012. This appears to
    be the only livestock industry that has a countercyclical feed cost
    adjustment under current law.
        The MILC program includes features that adjust producer payments
    for high feed costs and low milk prices. Of all the components that
    determine dairy producer returns, only changes in non-feed production
    costs or production disruptions have no coverage under the MILC
    program. In addition to the production cap issue, other parameters also
    affect monthly MILC payments to producers.
        Perhaps the most important parameter to discuss is the 45 percent
    factor (set to revert to 34 percent in September 2012) imposed on the
    difference between the target price and the relevant milk price for the
    month. This essentially means that once MILC payments are made,
    producers get $0.45 per hundredweight in a direct payment for each $1
    the relevant market price falls below the trigger level. This MILC
    feature does not create a flat or solid price floor but it is a soft
    floor that still lets producers feel additional economic pain as milk
    prices fall further from the trigger level. There are certainly
    tradeoffs between a program that has a hard floor versus one that
    shares the loss of milk revenue between the level of government outlays
    and producer payments like the operation of the current MILC program.
        Some of the early discussion surrounding policy alternatives for
    the 2012 Farm Bill has focused on offering whole farm insurance options
    to reduce the volatility producers have seen in their bottom lines.
    Many of these options look promising in addressing many of these
    concerns. It remains to be seen the exact program operation and
    parameters of these kinds of policy proposals, as there will certainly
    be tradeoffs between overall program costs versus the degree of
    volatility reduction offered to producers.
        Again, FAPRI-MU looks forward to the opportunity to analyze the
    quantitative impacts of proposed policies for the 2012 Farm Bill. I am
    happy to address any questions that Members may have today.

        The Chairman. Thank you very much, Dr. Brown. We appreciate
    that testimony.
        Dr. Doering, welcome to the Committee.

         STATEMENT OF OTTO C. DOERING III, Ph.D., PROFESSOR OF
               AGRICULTURAL ECONOMICS, PURDUE UNIVERSITY,
                             LAFAYETTE, IN

        Dr. Doering. Thank you very much, Mr. Chairman.
        I feel that it is very important that we think a little bit
    about where we have come from while talking about where we are
    going to go. If you go back to Howard Colley, Chief of the
    Bureau of Agricultural Economics, in 1940, he laid out three
    objectives for farm policy. One was to help the large
    commercial farmers maintain viability, another was to raise the
    incomes and improve the conditions of those disadvantaged in
    agriculture, and the third was to encourage better land use,
    conservation and more efficient production. He made the comment
    then that we have done pretty well on the first one but the
    last two are still lagging, and I would agree with that today.
        I think one of the things that we have to recognize is that
    the goal of income parity of farm people versus urban people
    has been achieved. Our chief concern now should be volatility.
    I am less favorably disposed towards direct payments which do
    not address the volatility question. I am also concerned with
    the negative perception of taxpayers with respect to the cost
    of direct payments, and that it doesn't deal with volatility,
    both on the input side which was just mentioned as well as the
    price side.
        I think we are going to have to look seriously I would
    argue at folding down or discontinuing direct payment. But, the
    thing that I would like to emphasize here is that we have a
    three-legged stool of support for farmers. One of these are the
    traditional program, the safety net programs, another is
    insurance that Dr. Babcock has already addressed, and the third
    is disaster payments. If we go ahead with the farm bill, they
    should be crafted together looking at the influence of each
    upon the other. We have not been able to do that successfully
    in the past. Congress has never been willing not to give
    disaster aid to farmers in trouble, irrespective of what that
    does to undermine the insurance or the payments situation.
        Let me turn for a second to conservation which no one else
    has talked about. I think we are doing some terrifically good
    things there. I think there are some things that need to be
    done. I think CRP is doing its job. This is not highly
    productive land that is in the program, this is land that
    primarily shouldn't be farmed. I think EQIP is doing a good job
    and I would hate to see money taken from EQIP for the nutrition
    program. I think NRCS's recent Mississippi River Basin
    Initiative is a big step forward. I think we have to target
    payments. This is something that is against our tradition,
    which I outline in my testimony but to get the most effective
    use of conservation payments we are going to have to target
    them to those areas that cause the biggest problem. The
    Conservation Effects Assessment Program is tremendously
    valuable for trying to ferret out what works, what doesn't and
    allow us to do adaptive management.
        Let me turn for a second to biofuels. I am very concerned
    about the notion of breaking the blending wall by increasing
    the amount of ethanol blended to 15 percent. I think this would
    come largely from corn ethanol. I feel that we are at the edge
    of our land base, and while we are increasing production per
    acre, I think this would put real stress on markets. I think it
    would put real stress on the livestock industry. I also think
    it would affect sustainability, and we just have to think of it
    as to how far do we want to go with this.
        The last thing is related to what Professor Babcock said
    about the demand for various agricultural commodities. When
    petroleum prices are high, the ethanol plant can pay to
    infinity to pay for corn. If we have \1/3\ of the corn crop
    already going for ethanol, you increase that by 50 percent and
    you have high petroleum prices, you are going to see $8 corn
    prices again, and I do not believe this variability is good for
    the system.
        Last, a colleague of mine, some years ago, made the comment
    that in the United States we have a tendency to socialize
    losses and privatize gains. We have seen that in the recent
    financial crisis. We can see it in some agricultural programs.
    This nation no longer has the resources to be able to do this
    continuously and in addition, we aren't even willing to tax
    ourselves to do what needs to be done now, let alone tax
    ourselves to be able to continue to do this.
        Thank you very much.
        [The prepared statement of Dr. Doering follows:]

        Prepared Statement of Otto C. Doering III, Ph.D., Professor of
            Agricultural Economics, Purdue University, Lafayette, IN
    Going Forward While Being Mindful of Our Past
        My remarks will be general in nature representing my overall views
    on policies related to the farm bill. Many of the concerns we have
    about agriculture today echo the concerns of the past. I also find that
    an understanding of the path we set in the past helps guide our path in
    the future. Seventy years ago, Howard Tolley, Chief of the Bureau of
    Agricultural Economics, described three objectives for agricultural
    policy efforts * that I have paraphrased here. These objectives were:
    ---------------------------------------------------------------------------
        * Howard Tolley, ``Some Essentials of a Good Agricultural Policy''
    in the 1940 Agricultural Yearbook, Farmers In A Changing World, USDA,
    Washington D.C., 1940.

       Activities designed to increase the incomes (and preserve
            the economic viability) of commercial farmers producing the
    ---------------------------------------------------------------------------
            bulk of the nation's food and fiber.

       Efforts to raise incomes and improve living conditions of
            subsistence farmers, victims of drought, and others at a
            disadvantage within agriculture itself.

       Activities designed to encourage better land use (and
            conservation) and more efficient production.

        Tolley goes on to say that most of government's activities had been
    directed towards the first objective and that the last two would need
    to receive increased attention in the future. I would argue that today
    we still focus on the first objective and may need to focus more on the
    last two. The first objective is also somewhat different today. We need
    to remember that the level of farm income was critical in the 1930s
    (roughly 40% of urban incomes) and that farm family income is now
    larger than urban family income. The goal of income parity has been
    achieved. Volatility should be the more important concern today.
        My concern for the future with respect to commodity policy is the
    cost of these programs and the trade-offs involved when we create a
    government role to provide a safety net along with a direct income
    payment. Briefly, our history has been that up until the 1996 Farm Bill
    the focus was on financial support that related to crop prices--what I
    see as a classic safety net. With the combination of set asides to
    restrict supply and the loan rates and later target prices we put a
    floor under prices for the program commodities and indirectly supported
    incomes. As U.S. programs were based on the volume of the commodity
    produced we gave the most support to those producing the largest
    volumes of those commodities. In some cases we also ended up attempting
    to support world prices with our direct intervention before we adopted
    target prices. In 1996, with Freedom to Farm, we moved to a direct
    payment system based on past program benefits and participation. The
    political attractiveness for this reflected high commodity prices at
    the time with the knowledge that traditional safety-net payments would
    not be forthcoming so there would be no payments under safety net
    programs. There was also the realization that direct payments would be
    a fixed and predictable budget expenditure. The post 1996 decline in
    commodity prices resulted in Congress making repeated emergency
    payments in addition to the prescribed direct payments to try to
    maintain farm income. Given that experience, in the 2002 Farm Bill we
    returned to the more traditional support payments but we also continued
    the direct payments--taking us back to where we were before 1996 but
    now with the addition of a guaranteed direct payment.
        I am more comfortable with the safety net approach. I am concerned
    about the negative perception and taxpayer cost of direct payments,
    especially when prices are high. I see direct payments as the form of
    government support most likely to be bid directly into land prices. We
    need to move to a more effective and appropriate safety net while
    withdrawing the direct payments, as was begun recently with the ACRE
    program. Direct payments do not deal directly with the volatility
    problem--as we learned in the late 1990s. Today this is volatility not
    only on the price side but also the input side.
        If we were to discontinue the direct payments, then are there ways
    to structure the safety net better than we have in the past? A safety
    net is not only the set of countercyclical payments based largely on
    crop prices, but this tool also must be in balance with crop insurance
    and disaster payments. There is a perception that Congress has always
    been willing to help farmers in a disaster, and this has at times
    undercut crop insurance participation. Even when crop insurance is
    required, the perception is that if the disaster is severe there will
    be overriding disaster payments. Crop insurance is a critical part of
    the safety net. Among other things it allows more participation in
    market based risk tools. Setting a balanced course between the three
    legs of this safety net (program payments, insurance and disaster
    payments) and then sticking to it will take discipline on all sides. We
    need to recognize that a poorly designed or undisciplined approach that
    does not coordinate all three hurts the public perception of
    agriculture, may be more costly than it needs to be, and can invite
    moral hazard. We see evidence of this in irrational cropping patterns
    and ``farming the program''. It also affects conservation efforts when
    we have to buy land unsuitable for agriculture out of production.
        Much of my recent experience is with conservation programs and
    biofuels, and I would like to share some thoughts in these areas as
    well.
        I believe that Congress and the Department have done a good job
    with the Conservation Reserve Program. Most of the land in the program
    today is land that probably should not be farmed at all or farmed
    intensively. Much of the land has high conservation benefit for the
    public. The public appears comfortable with both the costs and benefits
    of this program. It provides valuable environmental protection cost
    effectively in critical geographical and environmental areas.
        The Department has made progress with the Environmental Quality
    Incentive Program and this also appears to be delivering good value to
    the public. I am concerned about the suggestion to take the additional
    money needed for nutrition programs from EQIP. This need for additional
    funds can come equally or more so from the commodity programs in which
    I would target direct payments.
        I am most supportive of NRCS's recent Mississippi River Basin
    Initiative. If we are to get a handle on reducing nutrient run-off, we
    will have to target those watersheds, crops, or management practices
    where we can have the most impact for the dollars spent. Our budget
    situation is such that everyone should not be able to receive benefits
    from conservation program payments unless they can contribute high
    value to solving resource problems cost effectively in return.
        The Conservation Effects Assessment Project (CEAP) has great
    promise to improve our conservation programs and create a better
    accounting of progress (or the lack of it) towards specific
    environmental goals. This effort also provides the information and data
    for meaningful adaptive management of conservation programs. CEAP is
    not a small investment, but it should allow real improvement in
    assessing what works and what does not work as we put practices on the
    land. This must continue to be supported.
        We have a different tradition of government involvement in
    conservation than many other countries--in Europe, as well as Canada
    and Australia. The primary economic need in the U.S. in the 1930s was
    to get cash into rural areas. It was not politically acceptable to send
    farmers an income support or commodity target price payment. The
    solution was to give farmers financial assistance for setting land
    aside for conserving uses and for undertaking practices or improvements
    on the landscape. Note the amounts expended below expressed in constant
    dollars for financial assistance and long term land retirement:

                             Conservation Funding *
    ------------------------------------------------------------------------
                                       1937                    1999
    ------------------------------------------------------------------------
    Financial Assistance         $5,041,700,000            $231,383,000
                     Land Reserve  $261,863,000          $1,711,163,000
    ------------------------------------------------------------------------
    * in constant 2000 dollars.

        Financial assistance related to conservation was the primary
    vehicle for bringing cash to rural areas. The relative financial
    assistance under conservation in 1937 is comparable to the expenditure
    on commodity programs in recent times. My concern today is when
    conservation programs are still viewed as income transfer mechanisms.
    Part of the concern over targeting conservation payments relates to
    this earlier history where the imperative was that everyone in the
    conservation district should be eligible for payments. If we are to
    successfully tackle our resource concerns we will have to target
    resources in the knowledge that these resources are limited and in fact
    probably inadequate.
        Effective conservation programs are a critically important public
    good. This is increasingly the case as we attempt to get increased
    production from a largely fixed land base. We are beginning to realize
    that there are sustainability limits.
        With respect to biofuels, there are key issues of importance to
    this Committee. The greenhouse gas issue is important in making public
    policy supporting biofuels. The indirect land use issue needs to be
    part of the decision process, but is less important than initially
    determined. A key question at this point is what might be done to
    relieve the ethanol industry of the blending wall barrier. Raising the
    blend rate when cellulosic ethanol is some way down the road would
    force an increase in the amount of corn based ethanol production. This
    raises resource use concerns among others.
        Today we are utilizing most all of our high quality agricultural
    land. When corn prices approached record highs a few years ago the new
    land that then went into corn production came largely from soybeans,
    wheat, and cotton. There were not many idle lands of sufficient quality
    waiting to be planted. Since the early 1900s the number of harvested
    acres for major crops in the U.S. has remained relatively stable. As
    acres were taken out of production due to such things as urbanization
    we have taken the fifty to seventy million acres we used for feed for
    horses and mules from that use to meet the loss of land for food and
    feed-grains. Today, acreage expansion will have to come out of high
    quality pasture and then from land of declining quality after that.
    What we see today is the agricultural land base that we have. From this
    point on, only increased yields (possibly pushing the land harder) will
    be our primary expansion route. More corn for biofuels involves
    conservation concerns and a very real food versus fuel concern. In
    addition, high feed-grain prices decimate the livestock and dairy
    industries.
        Cellulosic ethanol production does not remove the land base
    concern. To approach economic viability, cellulosic materials will have
    to be grown within close transportation radius of conversion plants.
    High quality land will likely have to be used as well as land that
    would be less suitable for food and feed-grains if this activity is to
    be spread across the country at large scale. These crops do require
    fertilizer and do present management challenges, such as their invasive
    characteristics, that are no less daunting than those we face for other
    crops. There is also only so much biomass material that should be
    removed from the land if we are to maintain soil health. Cellulosic
    biofuels are not a silver bullet for our liquid fuel problems.
    Increased energy efficiency is in many cases still a more cost
    effective option.
        In closing, I would like to note that some years ago my colleague
    Lyle Schertz made the comment that we have a tendency in the U.S. to
    socialize losses and privatize gains.* This has been the case across
    many of our activities associated with government. Today, we can no
    longer afford to do this--in agriculture or in other sectors we no
    longer command the national wealth nor are we willing to tax ourselves
    to cover the cost to allow us to do this. The other side of the coin is
    that if we actually believe in markets, more of the private gains will
    have to cover losses.
    ---------------------------------------------------------------------------
        *Lyle Schertz and Otto Doering, The Making of the 1996 Farm Bill,
    Iowa State University Press, Ames, 1999.
    ---------------------------------------------------------------------------
        While my remarks here have been general, I will try to respond now
    or in writing later to the more detailed concerns you might have with
    the help of my colleagues at Purdue.

        The Chairman. Thank you very much, Dr. Doering, for that
    testimony.
        Dr. Ellinger, welcome to the Committee.

             STATEMENT OF PAUL N. ELLINGER, Ph.D., HEAD AND
               PROFESSOR, DEPARTMENT OF AGRICULTURAL AND
              CONSUMER ECONOMICS, UNIVERSITY OF ILLINOIS,
                      URBANA-CHAMPAIGN, URBANA, IL

        Dr. Ellinger. Good morning, Chairman, Committee and
    observers. I am pleased the Committee is doing these hearings
    and at this time they are setting the stage for the farm bill.
    My role, as I understand it, is to discuss the area of credit,
    and I also will spend a little bit of time talking about the
    funding issues related to land-grant infrastructure.
        First, credit, I did provide some data regarding the market
    shares, loss rates and individual lender data in written
    testimony, but let me summarize. In general, ag lenders have
    performed well through the crisis. They continued to offer
    credit during the crisis and they continue to do so.
    Agriculture as an industry uses a lower amount of debt relative
    to other sectors. If you compare the total amount of debt in
    the sector of $250 billion, it is dwarfed by what is spent in
    Wall Street at the larger institutions in the recent past.
        We have a very diverse set of lenders in ag and we have two
    GSEs that continue to perform and have good capital positions.
    We have large banks lending to a relatively large sector, and
    thousands of community banks that continue to be successful in
    providing credit in agriculture. Loss rates, although they have
    been increasing during the credit crisis, they are not near the
    level of the other sectors in our economy.
        The key stress sectors and the portfolios of ag lenders are
    dairy, pork, poultry, ethanol and timber. The increase in
    unemployment in rural areas has certainly impacted debt
    repayment capacity of many farm rural borrowers. Historic
    repayment capacity has relied very heavily on non-farm income,
    and this is being jeopardized with the amount of unemployment
    in this area.
        Now, related to the policy issues related to credit, if we
    are looking at continued access to credit and credit
    availability, I think that one of the most important pieces is
    what Professor Babcock talked about this morning. Having
    adequate risk controls in place will allow credit to continue.
    I think this is a very critical piece as we continue to look at
    making tweaks to the system and changes in risk management. I
    think the risk management aspects will be very important to
    lenders in the future. My concern is the risk sector is being
    pushed back to the producer. Mr. Lucas talked about increasing
    interest rate risk. We have increasing volatility in commodity
    markets. We have increasing risk related to contractual and
    counterparty risk. A lot of this risk now is going back to
    producers, and we need mechanisms for risk management and risk
    education as the result of that.
        Continuing expanded funding of direct and guaranty programs
    administered by the Farm Service Agency are also very important
    for the development of beginning farmers and ranchers, socially
    disadvantaged farmers and ranchers and selected family-size
    operations. These credit programs have been successful and are
    well-understood by the agricultural lending community.
    Consideration should be given to increasing the borrower
    limits. We have had increases in farm real estate prices,
    equipment is more expensive and fuel, fertilizer, seed and
    rent, and costs are much higher. Credit limits of $300,000 may
    be insufficient to meet the needs of moderate-size family
    operations.
        There are many intersecting issues surrounding the current
    financial regulatory forum. Restructuring or consolidation of
    financial institution regulators are being considered by
    another committee, but the Farm Credit Administration has been
    a strong, independent regulator for Farm Credit System and
    Farmer Mac. This is especially evident during the financial
    crisis, and it is in my opinion it is the best interest of the
    two successful agricultural GSEs perhaps to remain as the
    primary and independent regulator.
        In summary, most agricultural lending institutions have
    navigated the turmoil through prudent lending, effective
    underwriting, strong capital management and successful risk
    management. New and increasing risk in agriculture will result
    in more winners and likely more losers. Risk management by
    lenders and borrowers should be a high priority.
        The next segment I would like to talk briefly about are the
    issues facing our land-grant infrastructure. As the farm bill
    discussion evolves establishing the next Federal framework for
    food, agricultural, natural resource and rural development
    policy. I would be remiss in not calling attention to another
    change taking place right now with respect to research,
    education and extension infrastructure that has served us so
    well for many decades. Today, many of the most urgent issues
    facing policymakers falls squarely within the purview of the
    land-grant system such as food, as well as security, climate
    change, use and protection of land, water and other resources,
    health and nutrition, energy independence. However, for the
    last 2 decades, Federal investment in this has stagnated and is
    nominal, and we have had declining real investments in
    appropriations.
        To summarize as we are close to running out of time, we are
    looking at disinvesting in our structure and our ability to do
    things like full range, like extension, like our
    experimentation research. We are at a time where we need to be
    thinking about what we need to do to invest in our next century
    of land-grant institutions. Thank you.
        [The prepared statement of Dr. Ellinger follows:]

       Prepared Statement of Paul N. Ellinger, Ph.D., Head and Professor,
        Department of Agricultural and Consumer Economics, University of
                     Illinois, Urbana-Champaign, Urbana, IL
        Good morning, Chairman, Committee Members, and observers. My name
    is Paul Ellinger and I am a professor and head of the Department of
    Agricultural and Consumer Economics at the University of Illinois at
    Urbana Champaign.
        I am pleased the Committee is conducting these hearings to help set
    the stage for next farm bill. My understanding is that my primary role
    today is to provide background and expertise regarding the finance and
    credit issues facing agriculture and rural America. I would also like
    to discuss briefly the changing landscape for research, education and
    extension. The current budget crisis has significantly challenged our
    academic institutions. We are at a critical crossroad as land-grant
    institutions incur significant declines in funding and investments
    needed to lead discovery and innovation for a competitive and efficient
    food and agricultural system.
    Current Credit Landscape in Agriculture
        Financial markets and institutions are coming through unprecedented
    and well-documented disruption. Production agriculture has not been
    immune to the crisis. The direct impact of the credit crisis impacted
    global economic growth that subsequently contracted aggregate demand
    for agricultural commodities.
        In comparison with other sectors of the economy, agriculture is
    generally characterized as using a low amount of debt relative to
    assets. The U.S. Department of Agriculture estimates total farm debt of
    approximately $233 billion at the end of 2010. Total assets in the farm
    sector are forecast at $1.876 trillion resulting in a farm aggregate
    debt-to-asset ratio of only 12.4%. The aggregate debt numbers often
    mask the wide disparity of debt usage among farms. Larger farms with
    higher revenues tend to rely more heavily on debt than smaller farms.

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    Approximately, 18% of the banks lending money to agriculture are
    publicly traded or owned by a publicly traded bank holding company.
    Impacts of Financial Crisis on Lending Institutions to Agriculture
        Relative to other financial intermediaries, agricultural lenders
    generally remain healthy. Many of the agricultural-related institutions
    did not participate in higher-risk housing lending procedures nor were
    they significantly invested in the structured securities that lost
    substantial market value. The initial impact of the crisis did impact
    larger agribusinesses through lack of working capital financing or
    trade credit and the large increase in the cost of debt capital. The
    initial phase of the

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    The key stress sectors in the portfolios of agricultural lenders are
    dairy, pork, poultry, ethanol, and timber. Increased unemployment in
    rural areas has impacted debt repayment capacity of many rural farm
    borrowers.

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        Widespread banks failures in 2009 resulted in the FDIC imposing an
    additional assessment to banks for prepayment of 3 years of premiums.
    Of the 205 commercial bank failures in the U.S. from January 1, 2009
    through May 7, 2010, only 134 failed banks held agricultural loans and
    represented only 1.41% of the volume of agricultural loans held by
    commercial banks. The more than 700 banks estimated to be on the FDIC
    watch list hold only 4.5% of commercial bank agricultural loans.
    Challenges facing rural community banks include continued stress in the
    commercial and residential real estate loans sectors, prolonged
    unemployment in rural areas, increased vulnerability to interest rate
    risk, and reduced profit margins resulting from the substantial
    increase in the FDIC assessment in 2009.
        The Farm Credit System has also experienced stress in their
    portfolio, but remains healthy as a result of a strong capital
    position. Non-performing loans were 2.14% of total loans at year-end
    2009. Farmer Mac, the GSE which serves as the secondary market for
    agricultural loans, suffered substantial capital losses due to
    investments in Fannie Mae, Freddie Mac, Lehman Brothers, and similar
    securities. As a result of their exposure to these positions, they
    issued preferred stock to increase their capital ratio. In early 2010,
    the capital was paid back in full and now Farmer Mac has the largest
    capital surplus in its history. Authority to allow rural-utility loans
    to be considered as Farmer Mac ``qualified loans'' in the 2008 Farm
    Bill has provided needed funding for rural-infrastructure as well as a
    strong portfolio segment for Farmer Mac.
        The asset-backed-security market was also crippled by the initial
    crisis. Asset backed securities are used by some farm machinery
    companies such as John Deere and Case New Holland as a cost-effective
    method to fund loans to borrowers. Since this alternative was not
    available, some companies had to use higher cost methods to finance
    these loans. The Term Asset-Backed Securities Loan Facility (TALF)
    helped revive the ABS market and provide additional funding
    opportunities for farm machinery companies to extend credit to farmers.
        In summary, despite a very turbulent economy, agricultural lenders
    continue to lend to agriculture. Moreover, even as credit standards
    tighten, many institutions have taken on new agricultural loans.
    Credit Related Agriculture Policy Issues
        Continued credit availability in agriculture will hinge on
    collateral values and borrower profitability in an era of heightened
    risk. Producers tend to be bearing a higher share of the risk in the
    sector. These risks include increased financial, commodity and input
    cost volatility in conjunction with amplified contractual and
    counterparty risks. Effective risk management tools are essential to
    continued credit availability in agriculture. I urge the Committee to
    look at refining and expanding the risk management options available to
    producers. Moreover, increased emphasis on financial and risk
    management education is essential. Risk management tools are often
    complex and difficult to understand. Education will be a necessary
    complement to enhanced risk management tools. Successful producers will
    likely have to prepare more detailed financial statements and develop
    their risk mitigation strategies.
        Continued and expanded funding of the successful direct and
    guarantee loan programs administered by the Farm Service Agency are
    very important to the development of beginning farmers/ranchers,
    socially disadvantaged farmers/ranchers, and selected family-sized
    operations. The credit programs have been an efficient method to
    leverage funding into credit for production agriculture. Agricultural
    lenders have learned to use these programs to manage their risks and
    expand credit availability.
        Consideration should be given to increasing borrowing limits on
    direct operating and ownership loans. Farm real estate prices have
    increased, equipment is more expensive, and fuel, fertilizer, seed rent
    and other input costs are higher. For example, nonland cash costs
    exceed $400 per acre in Illinois; cash rents on good to excellent
    farmland exceed $200 per acre; and Illinois farmland prices on good to
    excellent farmland range from $6,000 to 7,000 per acre. Credit limits
    of $300,000 may be insufficient to meet the needs of moderate-sized
    family operations.
        There are many intersecting issues surrounding the current
    financial regulatory reform. Restructuring or consolidating of
    financial institution regulators are being considered. The Farm Credit
    Administration (FCA) has been a firm, independent regulator for the
    Farm Credit System and Farmer Mac. This was especially evident during
    the recent financial crisis. The Farm Credit Administration, formed in
    the early 1900s, has an understanding of the risks inherent in
    agriculture and the food system. It is in the best interest of the two
    successful agricultural GSEs for FCA to remain as their primary and
    independent regulator.
        In summary, most agricultural lending institutions have navigated
    the economic turmoil through prudent lending/investing, effective loan
    underwriting, strong capital management, and successful risk
    management. New and increasing risks in agriculture will likely result
    in more winners and more losers. Risk management by lenders and
    borrowers should be a high priority. Policy makers can assist through
    developing and enhancing existing tools and investing in producer
    education.
        This first segment on agricultural credit relates to my research
    and education responsibilities. Next, I would like to discuss the
    administrative component of my academic responsibilities. Richard
    Vogen, Director of Planning, College of Agricultural, Consumer and
    Environmental Sciences assisted in developing and organizing this
    portion of the testimony.
    Changing Landscape for Research, Education, and Extension
        As the farm bill discussion evolves, establishing the next Federal
    framework for food, agricultural, natural resource, and rural
    development policy, I would be remiss in not calling attention to
    another watershed of change taking place right now--with respect to the
    research, education, and extension infrastructure that has served us so
    well for many decades. For over a century, this nation prudently
    invested, by partnership with the individual states, in an integrated
    approach to discovery, learning, and application of knowledge. By
    establishing successful land-grant colleges and universities,
    agricultural experiment stations, and extension services, the public
    across America contributed to a powerful engine of growth and learning;
    resulting in the most successful food and agricultural system the world
    has ever seen, reduced rural poverty, and improved understanding of our
    resources and environment.
        Today, many of the most urgent issues facing policy makers fall
    squarely within the purview of this land-grant system, such as global
    food security, climate change, use and protection of land, water, and
    other resources, health and nutrition, and energy independence. Some of
    the most exciting developments in science and technology are at the
    nexus of life sciences and other disciplines, played out in the domains
    of food, agriculture, and natural resources. Even in this most recent
    period of economic turbulence, these sectors of our economy proved to
    be resilient, a bellwether of opportunity in the future.
        However for at least 2 decades, the Federal investment in the land-
    grant infrastructure stagnated, in evidence by the flat nominal and
    declining real investments in Hatch and Smith-Lever appropriations. The
    recent increase in competitive research funding through the Agriculture
    and Food Research Initiative (AFRI) is one hopeful sign that the needs
    are being recognized. Ironically though, the states, especially those
    with large populations and entitlement obligations, are divesting in
    their higher education, research, and extension infrastructure related
    to agriculture. The longstanding land-grant services that rely on
    Federal-state partnerships are in an accelerated period of
    disinvestment.
        Let me illustrate with the situation I know the best. In the case
    of the University of Illinois, the state is seriously in arrears for
    its currently obligated funding to higher education, and the state's
    budget deficit has widened dramatically. At stake are the central
    principles of the land-grant university and whether this mission is
    consistent with both the escalating share of costs borne by
    undergraduate students and the direction of a research intensive
    university. In the case of the University of Illinois, as in many of
    our sister institutions, the contribution of state resources (GRF) to
    the University has been outstripped by contributions of student tuition
    (Income Fund). A fair question is whether students should be asked to
    pay for public services in the research and extension missions. To an
    increasing degree, the answer is no. The consequence of that trend is
    that fewer resources are available to

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The emphasis on competitive funding at the national level
    exacerbates these trends. Locally relevant problems are neglected in
    pursuit of science in the context of larger, complex issues; or by
    seeking support from granting agencies with higher potential returns,
    but less relevance to food, agriculture, and natural resource issues.
    The inevitable result will be a narrowing of the field to fewer
    successful

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Federal-state partnerships that serve the food, agricultural, and
    natural resource sectors of our nation are in peril. The irony of this
    circumstance is that there is a resurgence of interest in the
    principles of the land-grant philosophy, which for us means actively
    discovering, advancing, and integrating new knowledge to ensure
    nutritious and safe food, sustainable and innovative agriculture,
    renewable sources of energy, strong families and communities, and
    environmentally sound natural resource management to benefit the people
    of Illinois and the world.
        I urge the Committee to carefully consider this issue, as
    deliberations proceed for a new food, agricultural, and natural
    resource policy framework in the United States. Thank you for your time
    this morning.
    Sources:
        farmdoc, Farm Decision Outreach Central, www.farmdoc.illinois.edu/
    management/.
        Federal Deposit Insurance Corporation. Call and Income Reports for
    Commercial Banks, December 2008. Washington D.C.
        Illinois Society of Farm Managers and Rural Appraisers (ISFMRA),
    http://www.ispfmra.org/land-values.html.
        Paul N. Ellinger and Bruce. J. Sherrick. Financial Markets in
    Agriculture. Agricultural and Consumer Economics, University of
    Illinois, Urbana,-Champaign, IL, staff paper, November 2008.
        Paul N. Ellinger, ``Financial Markets and Agricultural Credit at a
    Time of Uncertainty,'' Choices, Volume 24, Number 1, First Quarter
    2009.
        Paul N. Ellinger and Vishwanath Tirupattur, ``An Overview of the
    Linkages of the Global Financial Crisis to Production Agriculture,''
    American Journal of Agricultural Economics. Volume 91 Issue 5, December
    2009.
        U.S. Department of Agriculture. Farm Income and Costs: Assets,
    Debt, and Wealth. Economic Research Service. February 2009. Washington
    D.C.
        U.S. Department of Agriculture (2007). Farm Balance Sheet. Economic
    Research Service. September 2008. Washington D.C.

        The Chairman. Thank you very much, Dr. Ellinger.
        Dr. Ray, welcome back to the Committee, glad to have you.

    STATEMENT OF DARYLL E. RAY, Ph.D., PROFESSOR, BLASINGAME CHAIR
                      OF EXCELLENCE AND DIRECTOR,
     AGRICULTURAL POLICY ANALYSIS CENTER, UNIVERSITY OF TENNESSEE,
                             KNOXVILLE, TN

        Dr. Ray. Thank you very much for the opportunity to talk
    with you and to interact with you.
        I think that there is a possibility that we might get
    lulled into thinking that the $3 to $4 prices of corn and
    prices that correspond to that for other crops are going to be
    the future, and I am not convinced. What we need to do when we
    look at policy, or one of the things we need to do is to look
    at how it reacts and how it protects farmers, and maybe
    consumers and others that are involved, all the stakeholders at
    the extremes. When we have extremely low prices and extremely
    high prices because if history has taught us anything, we will
    have both and we have had that in the last decade actually. In
    1998 to 2001, we had extremely low prices and of course prices
    exploded about 10 years later.
        I want to talk about some of the specific types of programs
    and how they might react to those kinds of extremes. There is a
    lot that can be said positively about the ACRE Program, but I
    do think that as Dr. Babcock mentioned, when prices are very
    high that is when the ACRE Program does the best job of
    providing benefits to farmers, and, therefore, would cost
    taxpayers potentially a considerable amount of money. But on
    the bottom side, we don't have that kind of protection with the
    ACRE Program, I would argue. If you let the prices, if the
    prices fall for one reason or another, the protection level,
    the safety net is going to be dropping with prices, and at some
    point there would actually be very little or no protection at
    all.
        In some ways, ACRE is a revenue smoother over time, and it
    is not a consistent provider of countercyclical protection. We
    need to take that into account. And a number of the analyses
    that I have seen, some of which look at the current price
    picture, others look at the averages over say 1980 on, those
    numbers tend to indicate that ACRE would be beneficial to
    farmers. But, the ones that I would want to look at are how it
    performed or would have performed in 1998 to 2001 when we had
    low prices. I think that we need to have that information as
    policymakers, and as also as farmers, if we are going to use
    those kind of program. So that is one thing that I wanted to
    focus on and to lift up.
        I want to talk a little bit about exports, too. I think
    that one of the reasons that we have gone to the payment kind
    of programs that we have for agriculture now is because of the
    export centric narrative, that is we believe that if the supply
    management and price support programs that we once had were
    preventing us from keeping our customers, and if we lowered the
    price why they would come back, running right back. And then
    the other aspect is that we have had a lot of folks that have
    said that population growth, income growth around the world is
    going to make agriculture prosperous and that it is going to
    happen any time now. But, over the last 20 years it really
    hasn't happened. In fact, if you take the total tonnage of the
    three major crops, wheat, corn, and soybeans, we are actually
    exporting the same amount today as we did in 1980, and of
    course that is a percentage of production that has been going
    down. I think it is important to not think that exports are
    necessarily going to save us.
        In the time I have left I just want to throw out some
    fairly disjointed things. I think that excess capacity is
    likely to return and we can talk about that in more detail
    later. I think that it is possible to have lower prices if you
    have $2 corn. There is nothing to stop it, and we don't have
    the kinds of protections in place that we have had in the past.
    So, if conditions are right, it indeed could happen.
        I think that it is unreasonable to think that if we had
    complete trade access, complete freedom of trade that we could
    do away with our farm programs. I don't think that that kind of
    activity would change the nature and structure of agriculture,
    and it would be difficult to see that.
        So with that, I will quit. Thank you.
        [The prepared statement of Dr. Ray follows:]

     Prepared Statement of Daryll E. Ray, Ph.D.,\1\ Professor, Blasingame
     Chair of Excellence and Director, Agricultural Policy Analysis Center,
                     University of Tennessee, Knoxville, TN
    ---------------------------------------------------------------------------
        \1\ Harwood D. Schaffer, Agricultural Policy Analysis Center, made
    contributions to this statement, but any errors of fact or logic remain
    the responsibility of the author.
    ---------------------------------------------------------------------------
        Thank you Mr. Chairman and the Members of the Agriculture Committee
    of the U.S. House of Representative for your invitation to participate
    in this hearing to review U.S. agricultural policy in advance of the
    2012 Farm Bill. It is indeed an honor to appear and to interact with
    the Committee.
        My testimony steps back from the nuts-and-bolts of the commodity
    program trees and focuses on the broader farm policy forest.
    Specifically, I want to suggest that it is important to consider how
    public policy for commercial agriculture performs during the times of
    economic extremes. Any farm policy or no farm policy at all works just
    fine in times economic stability with little stress. But how does it
    perform when prices plummet and remain ``low'' due to successive years
    of production outrunning demand? Or when prices sky rocket due a sudden
    and persistent demand surge or multiple years of crop failure?
        We lived through both extremes within the period of a decade: low
    prices for several years beginning in 1998 and a price explosion a
    decade later. It is, of course, during these extremes that economies of
    agricultural sectors are the most disrupted and long-term price
    incentives are the most distorted.
        During the low-price period at the end of last decade, many
    program-crop farmers became ``wards of the state'' as they received
    more than all of their crop net income from government payments. These
    low prices caused immediate harm to farmers living in developing
    countries where backfilling gaps in market receipts with public
    payments was not remotely possible. Livestock producers and grain
    ingredient buyers gladly accepted the subsidy and based production
    decisions on unrealistically low grain prices.
        The price surge a decade later wreaked havoc on the livestock
    industry, the ethanol industry, and the nutritionally vulnerable
    worldwide, as well many other sectors and groups.
        These extremes would not have occurred or would have been moderated
    if food and production agriculture could have quickly adjusted to price
    swings. But as has been known for decades if not centuries, neither
    can. Consumers don't quit eating when prices explode (and thereby
    relieve the pressure on prices, which consumers would do for most other
    goods) nor do individual producers, who are price-takers for
    undifferentiated crops, shut down production on their land when prices
    are low (in contrast to producers in other sectors who take production
    orders or affect their price by gauging production to demand).
        Although we sometimes forget it, commodity programs exist because
    of this inability of aggregate agriculture to quickly self-correct.
    Logically it makes sense then to evaluate recent farm policy approaches
    examining how each functions during the times when this lack of quick
    market self-correction causes the most economic and social disruptions.
        Let's consider the two basic alternatives offered in the 2008 FB,
    ACRE and DCP.
        In the case of revenue insurance programs such as ACRE, the bottom
    line for me is that they tend to generously insure farmers during good
    times and provide virtually no help during extended bad times.\2\
    ---------------------------------------------------------------------------
        \2\ In general selling revenue insurance is akin to selling
    residential fire insurance when it is known that all the insured houses
    have the potential to burn down simultaneously. Prices do not affect
    farmers randomly. When prices fall, they fall for all. Traditional
    insurance, on the other hand, is a numbers game based on the knowledge
    that a relatively small but predictable percentage will ``collect''
    during a finite period of time. So if the good times are really good
    and then prices fall very hard, the cost of insuring revenue could be
    extremely large.
    ---------------------------------------------------------------------------
        Following a series of ``good'' market revenue years, revenue
    insurance provides farmers with a proportion of the relatively ``high''
    revenue level if prices (or yields) tumble. Depending on how high
    prices were during the good revenue years, farmers' revenue may be
    protected at or even above the full cost of crop production.
        On the other hand, if prices fall and remain relatively low for
    several years, revenue insurance provides farmers with very little
    protection--actually no protection if prices are relatively unchanged
    but ``remain very low compared to production costs'' and little
    protection if prices or yields drop hard and stay there. With declining
    prices, protection ratchets down with the prices.
        The reason many stochastic studies have shown that ACRE would
    typically pay farmers more than DCP is because of recent advantageous
    market conditions. Since revenue insurance is calibrated to recent
    market revenue (constrained by the ten percent rule in ACRE), the
    safety net does not stay put. There is no long-term floor for the price
    portion of revenue as there is with DCP. That is why I say revenue
    insurance programs tend to generously insure crop farmers during good
    times and provide virtually no help during extended bad times. During
    times when prices hit bottom and remain there and the ``need'' in crop
    agriculture is the most acute, revenue insurance protection marches to
    zero.
        So how well do revenue insurance programs overcome the extreme
    economic conditions created by lack of quick price responsiveness by
    food consumers and aggregate crop agriculture? Since revenue insurance
    programs do not dependably protect even crop farmers when production
    outruns demand for extended periods of time, revenue insurance fails on
    all counts. There is little or no help for domestic or worldwide crop
    farmers when prices are pushed well below the cost of production. And
    there is no help for livestock producers, other grain users including
    ethanol producers, and the nutritionally vulnerable when prices
    explode.
        During the two identified sets of extreme (also polar extreme)
    economic conditions, the DCP program was the basic farm program in
    effect, albeit with some variation in details. DCP and the emergency
    payments during 1998 to 2001 protected crop farmers from total economic
    ruin by replacing market receipts with government payments.\3\ But
    aside from that, the DCP program fares no better at ameliorating the
    extremes than a revenue insurance program.
    ---------------------------------------------------------------------------
        \3\ Of course, had revenue insurance been in effect during the low
    price years, emergency payments likely would have been paid as well.
    But then what would the 2002 FB have looked like? If revenue insurance
    were the principle program instrument, would the countercyclical
    payment program have been put into the 2002 FB? Would ad hoc emergency
    payments been continued instead?
    ---------------------------------------------------------------------------
        U.S. farm policy has evolved over time to its present configuration
    partly, if not mostly, because it was thought that earlier programs
    were hindering trade. It was widely thought that supply management and
    price support programs were allowing U.S. export competitors to
    undercut the U.S. and to snatch away export markets. It was thought
    that by allowing prices to fall to free market levels, crop exports
    would increase ferociously, compared the degree of decline in prices,
    allowing the U.S. to reclaim its former stratospheric share of total
    world grain exports. And since export volumes were expected to increase
    proportionally more than the fall in prices (implying a price elastic
    export demand), export values were expected to soar when prices were
    lowered from price support levels.
        There was a second component to the export-centric narrative
    driving U.S. farm policy for the last quarter century. Administration
    officials, farm organizations, academics, and commodity organizations
    have continually fed the belief that growth in world population and
    incomes are ``about to'' propel U.S. agriculture to the promised land
    of accelerating export growth and financial prosperity.
        While this export-centric narrative was successful in moving farm
    policies to the check-writing-payment programs of today, the grain-
    export promises failed to occur. Over the last 3 decades, U.S. corn
    export demand has been variable but with a flat trend while wheat
    export demand has trended downward. Soybean complex exports (soybeans,
    soybean meal and soybean oil) have trended upward during part of the
    period, but the U.S. share of world soybean complex exports has
    plummeted, declining from 56 percent in 1980 to 33 percent in 2009.
        Even with the increase in soybean exports, the combined exports for
    the three major export crops remained below their 1980 level during
    most of the last thirty years. Amazingly and contrary to general
    belief, the U.S. is now exporting a smaller proportion of its combined
    production of corn, wheat and soybeans than in 1980--45 percent in 1980
    and 25 percent in 2009. That is to say that the increase in domestic
    demand has been far more important to U.S. farmers than the vacillation
    of grain exports.
        The price elastic export demand argument didn't pan out either.
    Contrary to expectations, USDA historical data on crop prices show
    fluctuations of greater amplitude typically than the corresponding
    amplitude of changes in the volume of crop exports. Even more telling--
    again contrary to expectations--USDA data on the value of crop exports
    typically moves in the same direction as change in the crops' prices.
    These market observations are not consistent with a demand that is
    price elastic, rather one that is price inelastic.
        Crop exports have not performed as promised. It is not uncommon for
    conventional wisdom to lag behind reality, sometimes because of
    inertia, sometimes because we don't bother to look up the data, and
    sometimes because we ``know how something should be'' and that's good
    enough. Crop exports are indeed a case in which conventional wisdom
    lags reality.
        Since the premises of the export-centric narrative turned out to be
    false, that export narrative is not a valid reason to confine commodity
    program discussions to government payment programs of one kind or
    another.
        Nor, in my opinion, is it valid to not consider non-government-
    payment approaches to farm policy because such market interventions
    cause market distortions. I submit to you that severity of economic
    dislocations flowing from the current produce-all-you-can-and-backfill-
    market-receipts-catastrophes-with-payments-with-no-reserve type of
    program takes the market distortion argument off table.
        Nor would previous complaints about the cumulative cost of previous
    non-government-payment commodity programs standup well against the
    cumulative cost of payment-based programs. Aside from being less
    expensive than current programs, there could be billions of dollars of
    potential savings by avoiding the reactions to and effects of the
    exaggerated price signals experienced with current programs.
        So to those who claim that inventory management programs including
    grains reserves are too expensive to consider, my question is: compared
    to what?

      D Compared to the billions of dollars of economic losses of the
            livestock, dairy and ethanol industries because there were no
            grain reserves to help affect the market?

      D Compared to additional millions of people worldwide who were forced
            into poverty because of the price of staples? Compared to the
            future ``low'' U.S. crop prices that almost inevitably follows
            major crop price run-ups?

      D Compared to the losses to farmers worldwide who have experienced
            (and most likely will experience future) low prices but who
            receive no payments?

      D Compared to the other impacts of dumping commodities on the world
            market at below the cost of production including the Brazilian
            cotton case?

        I recognize that today's farm policy is what it is and even
    noncontroversial changes can come grudgingly or not at all. But one
    place to begin would be to reinstitute a grain reserve program. With
    its authorization when, not if, grain prices drop into government
    payment territory, grain could be isolated from the market in a
    reserve. The benefits would be reduced government expenditures for farm
    payments since isolating and storing a relatively small percent of
    production which would raise prices, is much different than doling out
    annual payments for most or all of production. In addition, a reserve
    would be available to moderate prices that otherwise would go skyward
    during TRUE demand or supply shocks. Other criticisms have been lodged
    against grains reserves besides cost and price distortion concerns, but
    most of those criticisms deal with implementation and thus it is
    important to codify purposeful operational rules and to make the rules
    transparent to all.
        As we have seen in the financial markets, the efficient markets
    hypothesis on which so many economic recommendations, including
    agricultural policy, rest is not without its problems. This is
    especially true for crop markets where the low elasticities of supply
    and demand create further challenges. In recent years we have dealt
    with both of these challenges by searching for mechanisms by which we
    can stabilize farm income. The result has been either the backfilling
    of farm income through huge emergency and marketing loan payments or
    offering outsized subsidies to insurance companies to induce them to
    offer actuarially unsound policies designed to protect farmers against
    widespread systemic risks like yield, production, and/or income loss.
    In addition, these programs have been unable to reduce the huge
    economic distortions that occur on both the high and low ends of the
    price spectrum.
        The direct and indirect costs of these various approaches have been
    far in excess of what they would have been with the traditional reserve
    and supply management programs which, when well managed, provided a
    price band within which the forces of supply and demand efficiently
    allocated agricultural resources, protecting farm income while guarding
    against the distortions that result from price extremes.
    Other Thoughts and Perceptions
       Excess capacity can and likely will return with a vengeance.
            Yes, this time it could be different. But as any
            agriculturalist who lived the through the 1970s and those
            familiar with agriculture's long-term history (not to mention
            Malthus) can tell you, the odds of ``this time being
            different'' are extremely small. In the past, supply has always
            caught up with demand growth and then surpassed it. And
            typically it does not take long for that to happen.

       Once again we could see $2 per bushel corn and comparable
            prices for other major crops in the future. There is nothing to
            stop it. Yes, there was a higher price plateau after the price
            run up in the seventies but then there were two factors that do
            not exist today: one was extreme high general price inflation
            by U.S. standards and the other was increased support prices.

       Given agriculture's propensity to overproduce, drafting FB
            legislation based on projections of ``high'' prices that happen
            to exist during FB debates usually results in unexpected and
            disappointing outcomes. One example being the 1996 FB when
            prices dropped by nearly \1/2\ less than a year after the
            legislation was signed into law.

       There is little reason to believe that U.S. farmers could
            prosper by trading the farm program safety net for complete
            access to international markets. Such a fantasy fails to take
            into account how most, if not all, countries view food and the
            other unique characteristics of the food and agriculture
            sectors.

       The export-centric narrative, which has been recited as fact
            to sell the current direction of farm programs, has turned out
            to be fiction. It is time to acknowledge that, while exports
            are important and always will be, they are not going to make
            agriculture ever more prosperous. This won't happen because
            importing countries want to produce as much of their own food
            as possible (even if it is cheaper to import it) and, just as
            importantly, because our export competitors really are export
            competitors, many of whom have profitable growth opportunities
            in terms of acreage expansion and the closing of yield gaps.

       Grain reserves also perform an important international trade
            function. Production disruptions can be so severe even in the
            U.S. that domestic demanders of grains could have difficulty
            securing physical quantities of grain at any price. It is in
            those situations that we also are most likely to become
            unreliable suppliers in the export market. Legislation
            preventing embargoes can and likely would be rescinded.
            Previous grain and soybean export embargoes occurred during
            times, like now, when the U.S. had no reserves on hand.

       The trade disruptions in 2008 could have been avoided had
            reserves been available. Without the security of knowing that
            reserves exist, it is perfectly understandable why countries
            felt compelled, when availability became uncertain, to restrict
            exports of the very staples that their populace depend upon. It
            is also important to understand that, without reserves, it is
            unlikely that the existence of totally free trade, in its most
            complete sense, would have changed the motivations or actions
            of those exporters.

       We should do our part to combat world hunger. We should
            remember however that even when crop supplies were plentiful
            and cheap (1998-2001), there were in excess of 800 million
            people in the world who were hungry. Producing 300 bushel per
            acre corn and 90 bushel soybeans in the years ahead does not
            magically translate into feeding the hungry of the world.
            Neither do we do developing countries any favors by supporting
            policies or agribusiness aspirations to move poor small-holder
            farmers from their land into urban slums.

        The Chairman. Well, thank you very much. I thank all the
    panelists for your excellent testimony.
        We have votes. I don't know what your schedules are but
    would it be possible for you all to return say around 1
    o'clock? You could have lunch and then we will come back and we
    will have the questions at that time. These votes may last
    until about 1 o'clock, so does that cause a problem for
    anybody? No? All right, then we will just, why don't we just
    set a 1 o'clock time and we will be back here. There will be
    some other Members that will come back at that point and we
    will have some questions. Thank you all very much.
        The Committee will be in recess until 1:00.
        [Recess.]
        The Chairman. The Committee will come back to order and it
    is typical when we have votes where it is the end of the day, I
    don't know if we may have some more people join us. We may not.
    We appreciate the witnesses' patience in sticking with us.
        I guess Dr. Ray brought up an issue that I have been
    concerned about and that is what happens if we get into another
    downturn in prices with the current system. Well, obviously in
    dairy they have figured out what happens and they are working
    hard to try to change it, but I would like the thoughts of the
    other panelists about that issue.
        Dr. Doering. I agree with Daryll. I think it is possible. I
    am not sure it is probable. I guess I will go back to my
    original sort of structural argument and that is: our programs
    developed from the 1930s as safety nets, complete with the loan
    rates, and with the set asides, and with the storage programs.
    We moved to target prices and then had the political ability to
    send the farmer a check. I guess I believe that some of these
    old vehicles are still equally viable in terms of dealing with
    some of these eventualities.
        The Chairman. Old vehicles, you mean, what do you mean by
    old vehicles?
        Dr. Doering. The target price, the loan rate, that these
    things can be operative when prices collapse. They can give
    support to farmers. I am not sure I am willing to go back to
    storage programs, but we did structure these to perform that
    function before. We can do so again. It depends upon where your
    triggers are. It depends upon what your target price is. It
    depends upon what you do in terms of how you figure if we are
    dealing with a yield problem in a bad weather year where you
    put those targets, but these devices are capable of doing these
    things.
        The Chairman. I guess I agree with that, but I am not sure
    we have the money to get these loan rates and target prices
    high enough, given the new cost structure that we are involved
    in. That is the thing that I have been struggling with.
        Dr. Doering. I would argue with you if you give up the
    direct payments, it will give you a little money to work on the
    target prices and loan rates.
        The Chairman. I have heard that.
        Dr. Ellinger.
        Dr. Ellinger. I don't have a real lot more to add. Again, I
    would also agree with Otto on the probability of that as well,
    given the floor that ethanol is now provided to perform. I
    don't know the likelihood of going down to that, but I could at
    least respond to the fact that if it did and regardless of how
    we got there, being that it is so far below the cost of
    production and what we have with ethanol producers and the
    amount of loss that would occur, the data would support that.
    We could go back and look at those income levels in Illinois
    and the net losses that would occur if we are at debt levels
    would be substantial, but, again, the probability of that
    happening may be relatively low given what we have. And then
    with the opportunity to have again the crop insurance
    underneath what we have in Illinois does support some of this
    as well.
        The Chairman. It looked like you were going to say
    something, Dr. Brown.
        Dr. Brown. Well, I would certainly like to add that it
    seems like one of the questions we have to face is whether the
    supply sides of these industries have changed substantially
    over the past several years. I think the dairy industry found
    itself in a situation where potentially supplies got much more
    less responsive, especially, in a low price situation. I think
    many of us thought going into late 2008 or late 2009, we
    couldn't see all milk prices below $12 again given what work
    cost production had risen to. But, that is certainly not the
    case, and if you believe we have become less responsive in this
    down price situation, it certainly just exacerbates the chance
    that when we do have demand shifting to the left for, let us
    say, corn that prices can move a lot lower than we would have
    ever once imagined. And then we are seeing signs now of
    adjustments in the livestock industry that they are adjusting
    to those higher feed costs. I think that is going to play into
    the demand for corn as we look ahead as well.
        The Chairman. I am going to violate my rule here if that is
    all right, Mr. Ranking Member.
        You know, in the past we have always had the same program
    in Title I across all the commodities, but now it seems to me
    that you have a much different situation between these crops in
    terms of where they are at in the marketplace and what other
    kind of support they have and so forth. Does it make sense for
    us to look at having different types of programs for different
    crops? For example, cotton's situation, maybe I could say rice
    too, peanuts, are very different than corn and soybeans, and
    wheat is a little bit different than those crops. So, does it
    make sense for us to have the same type of system for every
    crop, or should we look at having different types of support
    for different crops depending on their situation, Daryll?
        Dr. Ray. The situation that you describe with regard to the
    cotton and rice and peanuts, would suggest that that may be the
    case in my view. I think that from what we are hearing from the
    farmers that produce those crops, the direct payments are an
    important part of what they depend on and what their creditors
    depend on. So, that direct payment part, although I have
    trouble in general figuring out what the purpose of direct
    payments are, especially when we have the prices that we have
    seen the last 2 years. But for some crops it seems to be
    important, so I think that would make some sense.
        The Chairman. Does anybody else want to take a shot?
        Dr. Doering. But in a sense we already have. If you look at
    the cotton program or the peanut program, particularly, we
    already have modified those crop programs so that they are
    somewhat different. I guess I understand what Daryll is saying
    in terms of the importance of the direct payments, particularly
    for the bankers for those other crops. I guess one of my
    concerns with the direct payments is that is the first and
    foremost government subsidy that gets directly put into land
    prices. It gets capitalized almost immediately into land
    prices. Now, one of the problems is that when you withdraw
    that, if you try to withdraw that direct payment, you are going
    to put a little bit of softness in the land market. I think we
    are doing some of this differentiation already. I think it
    makes sense, but I still feel there are real problems with the
    direct payment.
        The Chairman. Anybody else? Well, thank you.
        The gentleman from Oklahoma.
        Mr. Lucas. Thank you, Mr. Chairman.
        But, gentlemen, don't all government subsidies or payments
    or investments, however you want to describe it in agriculture,
    don't they all manifest themselves ultimately in land prices?
        Dr. Doering. Yes, absolutely.
        Mr. Lucas. The best agricultural economist out there and no
    offense, Dr. Ray, I sat through your class 30 years ago. The
    best agricultural economist is still those guys and ladies out
    there with the pencil or that pocket calculator or some
    spreadsheet they have cobbled together themselves. They
    calculate within a day everything we do and they incorporate
    that into the decisions.
        If we could for a moment, let us step back and discuss just
    how we got to this point. Whether you talk about direct
    payments since the 1996 Farm Bill, or the old target loan rate
    systems before that, or whatever into the past, haven't we
    almost continuously since the 1940s gone through a cycle when
    we invest too much, or when we turn up the target rates, or the
    loan prices, we send the wrong signals. And we saw production
    go up, and our predecessors then went through the painful
    process of turning target prices down and loan rates down to
    clear those surpluses off the market, and we have gone through
    this wave process. I set in Dr. Ray's class in the early 1980s
    we were suffering intensely through that process of trying to
    rebalance supply and demand out there. Where we are now, the
    direct payment program since 1996 that is still a government
    investment that makes a tremendous effect on what producers
    decide and how they decide to do it, and even though since 1985
    we have had CRP, a dramatic reduction in supply. Even though
    for the last couple years when we have driven so many dollars
    towards ethanol and biodiesel which has soaked up a lot of
    demand, aren't we still basically talking about how to account
    for the government's distorting effect when we help out there?
        Dr. Ray. I would argue that if you look at the times in
    which we have had the most distortions, Mr. Lucas, they have
    been generated not by government programs but other events,
    some of them political. For example, in 1970s we had a
    tremendous run-up in prices and that wasn't because of policy
    early on. Now, we may have validated it with loan rates later
    on, but it was due to decisions that were made in Russia and
    circumstances that were outside of the U.S. borders. Now, and
    similarly this last run-up although it was accelerated by the
    increase in the demand for ethanol and increase prices
    tremendously.
        Mr. Lucas. And the reduction and supply effected by
    material from the CRP decisions of 1985.
        Dr. Ray. But then what about the low prices that we saw in
    1999 and 2000 and 2001. Apparently, CRP didn't keep prices high
    enough at those times and we ended up with $18 billion in
    payments, and in some states we had more payments then we had
    net farm income. So, my view is is that actually what we have
    experienced in the last few years with payment types of
    programs is we have seen more distortions occurring in
    agriculture, sometimes on the livestock side and sometimes on
    the crop side then we get if we change the loan rate by
    25 cents or 10 cents. We had prices that were too low early on.
    I say too low in the sense that they were providing incentives
    for the livestock industry that didn't make sense in the long
    run, and then we didn't have a reserve of any kind that we
    could bring on when we had the ethanol spurt and demand. There
    will always be those kinds of random events and keeping us kind
    of in a fairly decent band rather than outside that I think
    makes good sense in terms of providing planning and for
    efficient allocation of resources in the long run.
        Mr. Lucas. Do the rest of you gentlemen agree with that?
    Does Uncle Sam have to stay engaged to that level?
        Dr. Doering. If your critical comment is to that level, I
    see it.
        Mr. Lucas. It is just that it seems like when we set a
    bottom, we automatically wind up setting a top intentionally,
    or unintentionally, when we have grain in reserve for a tough
    day that becomes something overhanging the market.
        Dr. Doering. Correct, with equal complaints from farmers at
    both ends of that spectrum. But, in terms of involvement in
    agriculture, I guess my value judgment is that one of the key
    reasons for government to be involved is variability today, not
    necessarily the income level and a lot of that relates to
    weather. A lot of it relates to the concerns that have been
    voiced by Dr. Babcock about crop insurance. I think we cannot
    talk about loan rates, target prices, direct payments without
    putting them within the same discussion you have with crop
    insurance and disaster programs. They are all going to work,
    and what you don't want is for them to either accelerate the
    bad ends of each other or work against each other. I think crop
    insurance questions are probably some of the most important
    ones in front of you today.
        Mr. Lucas. Clearly, the Chairman and I, while we are both
    great fiscal conservatives and very close allies in an effort
    to pass a farm bill, don't necessarily agree in every detail
    about how to deliver those resources and to accomplish that. I
    just worry in my observations that there is a tendency when the
    government takes a particular action, whether it is creating
    and directing and deciding a target price or a loan rate, that
    there is a tendency for those good country economists out there
    to pursue those decisions in a way to try and maximize the
    return under the particular program. I have been a connoisseur
    of the direct loan program because I felt like it put the most
    onus on the individual producers' decision making process. Now,
    I know you can't grow every crop everywhere in America, but
    giving the most possible flexibility to the producers to make
    their decisions to determine where they should go seems
    important to me. I would also say that in the environment that
    the Chairman and I work in when we craft this next farm bill,
    not only will we have less money and it doesn't matter who the
    next Speaker is, we will have less money to work with. Trying
    to convince our colleagues in Congress in the United States
    House that there is this great benefit that their constituents
    receive from having a Federal farm bill is going to be even
    tougher than it has been in the past. I appreciate the economic
    points all of you make, but we have to convince the people we
    serve with that there is merit in having a farm bill and
    whatever mechanism we use to deliver those commitments. I just
    know it is going to be a tough grind the next time and there
    are some different points of view, and by the way, I did enjoy
    Dr. Ray's class and I did learn a lot. He might not believe
    that to this day but I did learn a lot.
        With that, Mr. Chairman, I yield back my time.
        The Chairman. I thank the gentleman and we may be in more
    agreement than you realize, but we will see what happens.
        The gentlelady from South Dakota.
        Ms. Herseth Sandlin. Thank you, Mr. Chairman, and I in many
    respects agree, Dr. Doering, with the idea that crop insurance
    questions are among the most important. Chairman Peterson, in
    some of the field hearings that we have already had and some of
    the conversations that he has had with Members of the
    Committee, with other groups out there interested in the next
    farm bill, we recognize that crop insurance issues are of the
    utmost importance. Where I am from in South Dakota, it is the
    most important part of the safety net for a lot of producers
    right now, and there are some creative ideas that are being put
    on the table to look at what reforms may be necessary, how to
    make it work most effectively for most producers, and to give
    the taxpayers the best return on the investment of those
    dollars in that program.
        Dr. Brown, I would just like to spend a little bit of time
    on the dairy industry. There is a lot of dairy in eastern South
    Dakota, it is a very challenging time for them. Where does the
    2009 dairy margin rank compared to past historic bad years? Do
    you have that information?
        Dr. Brown. I think it is safe to say that the margin itself
    is probably the worst we have ever seen. You potentially can go
    back to the early 1990s, 1990-1991, when we had a pretty tough
    time, but the combination of not record low milk prices but
    very low milk prices coupled with record high feed prices
    probably puts this one pretty much at the top of the list.
        Ms. Herseth Sandlin. Okay and so you think it was sort of
    the perfect storm of some variables that made it such a
    difficult year.
        Dr. Brown. Absolutely, we were in a situation where 2007-
    2008 demand, domestically and internationally, couldn't have
    been better. We were giving producers the signal to respond
    with more milk production at the same time feed costs were
    rising. That was kind of masked with the fact the revenue side
    was even increasing at a faster rate, and I would just remind
    us that 2009 was kind of the worst economic situation we have
    seen in decades in this country and around the world. So we
    ramped them up with additional production that said the world
    could be ours in the coming years, and all of a sudden that
    moved away and just created the situation of very low milk
    prices, by the way, feed prices and other production costs not
    just feed, continued to be at historically high levels.
        Ms. Herseth Sandlin. Well, in Des Moines in a field hearing
    we had there recently, we sort of explored some ideas that had
    been put on the table. Some that have started getting some
    evaluation during the last farm bill, and, in your opinion, how
    does the producer protect against some of those risks or all of
    the variables? From our existing programs or aspects of them,
    what do you think we should retain based on some of what we
    have seen over the last year and a half?
        Dr. Brown. Well, we can take some of the programs and look
    at them. The Dairy Product Price Support Program, although it
    was very effective in reducing volatility in the 1980s, has
    really gotten low enough that it isn't providing really
    producers much protection. That safety net is pretty much on
    the concrete floor as many producers will attest to in 2009. I
    know it is likely not possible to talk about increases in that
    support level, but it is certainly a program that in its
    current features and levels, it isn't providing much of a
    safety net. The MILC Program, there you have the issue of the
    production cap, 2.985 million pounds. A lot of folks, larger
    producers don't feel like that offers much protection when they
    produce well above that level.
        But if I set that aside for a minute, the fact that we are
    paying 45 percent of the difference between the Boston Class I
    and trigger price, I guess I kind of come back to the fact that
    you have a couple of options here, and one is when you think
    about providing support to producers. Do you want some type of
    hard floor at some point so instead of this 45 percent where
    roughly every dollar declined, producers only get back 45 cents
    on the dollar? I mean, no one producer would really want MILC
    payments. They would rather market prices above that level, so
    are you willing to reduce the target to give them a harder
    floor at some point in time as a way to protect against the
    really tough economic times like 2009. You can look at some of
    the insurance proposals that are out there that tend to be
    looking at operating in that way that would be different from
    current MILC operation. In terms of what can dairy producers
    do, there certainly are a number of producers that are trying
    to use futures markets to lay off risk. Some of them have done
    it very successfully, some of them have not. I think we have
    all begun to realize that it is going to require you to lock in
    both feed cost and milk prices if you are going to try to lay
    that risk off in these other markets.
        Ms. Herseth Sandlin. Thank you.
        Thank you, Mr. Chairman.
        The Chairman. I thank the gentlelady.
        The gentleman from Idaho, Mr. Minnick.
        Mr. Minnick. If we take as a given that in this era of $1.6
    trillion budget deficits that even at full employment may still
    be in the order of if I said billion, I meant trillion dollars
    a year. If a consequence of that is that we must reduce by some
    significant magnitude the cost to farm programs in the next
    farm bill. I want to explore with the panel the concept that
    has come out of the distress that my colleague from South
    Dakota just talked about in the dairy industry, of essentially
    income insurance that presumably would come with a government
    participation in the cost of a subsistence level of income, the
    producer at perhaps 100 percent, perhaps with some declining
    participation participating in the premium cost of income above
    subsistence. If one were to adopt that not just in theory, but
    adopt it for farm production generally as the conceptual
    framework around which we would try to protect income without
    inducing excess production for farm programs generally. The
    question I would like to ask is purely theoretical and
    hypothetical at this point, but if we were to go that route,
    are there any crops that this approach would be ill-suited to,
    conceptually? Are there any particular crops that we should
    exclude from this kind of income program and if so, why?
        Dr. Ray. Can I comment in general?
        Mr. Minnick. Certainly.
        Dr. Ray. I think that maybe what we are assuming with that
    kind of a program is that there is kind of a bell-shape curve
    around an acceptable price, and that over time the prices
    themselves are okay. So, we are just going to insure against
    the low prices and we will have those farmers participate in
    that, and it is easy for us to think about farm policy in
    general like that. The hard problem is that if instead of, and
    we talk about developing policies that don't interfere with the
    supply, in other words don't increase supply and so on.
    Actually, most of the supply increase is coming from yields and
    productivity increases, some of which we support as government
    did to increase. Most of the increase that we see in supply
    comes from developmental policies, I would say and that
    oftentimes is what causes prices to go down. Costs can go down
    too on a per unit basis, but there is a lot of intervention
    that comes in from that direction. So suppose that we do have
    excess capacity because our yields do go to 300 bushels per
    acre for corn and corresponding yields for the others, why then
    I think that we would see prices with unit demand being pushed
    down sufficiently that that kind of a program wouldn't protect
    farmers as much as it might seem.
        Mr. Minnick. Well, why wouldn't it if they were
    guaranteeing a level of income that based on assumptions, with
    respect to production costs and prices, but you are
    guaranteeing the income, you are not guaranteeing either the
    subsidies based either on the price of your final output, nor
    on actual production costs?
        Dr. Ray. If you develop that guarantee of income when
    prices on the yields were in good shape and you kept it that
    way, and didn't allow it to be adjusted because prices went
    down, that would work, or even if you just kept the price fixed
    then you would continue to have that standard. But if you allow
    the standard to be a function of prices, as prices go down so
    does the standard, and, therefore, the standard could actually
    not even cover variable costs after awhile.
        Mr. Minnick. But you could adjust those. You could adjust
    your assumptions every year in order to have a reasonable start
    point.
        Dr. Ray. If I use a running average of prices but you kept
    them at the price level that you started with and just froze
    them there, that would work.
        Mr. Minnick. Do any of the other three of you have an
    observation with respect to this in conceptual form, and an
    opinion as to whether it would be superior or inferior to
    existing crop support loan payment kinds of incentives?
        Dr. Doering. Superior or inferior partially depends upon
    your value judgments as to what is good and what isn't. The
    last work I did on this was some years ago, and what we
    basically decided at that time was that this was certainly
    something that you could extend easily to all the then-program
    crops. We also did some work in terms of expanding a guaranteed
    income program to some major vegetable and fruit crops, and
    there it seemed to work as well. I certainly will not say that
    there aren't some crops out there for which it is not suitable.
        Mr. Minnick. How about sugar?
        Dr. Doering. We didn't consider sugar on this one, all
    right, and there the question is at what relative income do you
    want to maintain sugar producers, just plan and simple. How
    much do you want to keep them above the world sugar price in
    terms of the income they get from the beet crop. So, sugar
    might very well be one if you want to maintain domestic beet
    production at current levels that that would be one that this
    would be a difficult one to deal with.
        Mr. Minnick. My time has expired, but thank you very much
    for your thoughts.
        The Chairman. Thank you very much, Mr. Minnick, and I want
    to thank the panel.
        I would just like to recognize Mr. Lucas for any closing
    comment. He might have one more question, but before I do, I
    want to mention that on the revenue program one of the things
    that I heard in my area is that the bankers wouldn't let them
    sign up because there was not a guaranteed kind of a thing, so
    they wanted to hang onto the loan because they knew what it
    was. It seems to me we could craft a revenue thing so that it
    had some kind of a guarantee with it. I would ask you to help
    us try to figure out how to do that. I think we need to go to
    county average, but if you could help us work with this revenue
    and give us some ideas about how to make this program more
    workable, and maybe have some kind of transition with this, we
    would appreciate it.
        Mr. Lucas.
        Mr. Lucas. Thank you, Mr. Chairman, for holding this
    hearing. It was a fascinating two panels and no doubt we will
    be drawing on this kind of wisdom on many, many more occasions
    before we actually put that bill together.
        Thank you, Mr. Chairman.
        The Chairman. I thank the gentleman, and I thank the panel
    of witnesses. We appreciate your patience in hanging with us,
    and we look forward to working with you as we look at ideas and
    try to figure out how to harmonize these programs and make sure
    they work the best for the taxpayers and for farmers as we go
    forward, so thank you very much. The panel is excused and with
    that, under the rules of the Committee, the record of today's
    hearing will remain open for 10 days to receive additional
    material, supplementary written responses from witnesses to any
    question posed by a Member. This hearing of the Committee on
    Agriculture is adjourned.
        [Whereupon, at 1:45 p.m., the Committee was adjourned.]
        [Material submitted for inclusion in the record follows:]

    Submitted Report by D. Scott Brown, Ph.D., Research Assistant Professor
      and Program Director for Livestock and Dairy, Food and Agricultural
               Policy Research Institute, University of Missouri

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]