[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

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    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 

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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

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